COMMISSIONER OF INCOME TAX vs. BHARTI CELLULAR LTD

THE HIGH COURT OF DELHI AT NEW DELHI

Judgment delivered on: 31.10.2008

I.T.A. 1120/2007

COMMISSIONER OF INCOME TAX

….Petitioner

- Versus –

BHARTI CELLULAR LTD

...Respondent

WITH

I.T.A. 697/2008

COMMISSIONER OF INCOME TAX (TDS)

…Petitioner Versus

ESCOTEL MOBILE COMMUNICATIONS LIMITED

…Respondent

WITH

I.T.A. 1177/2007

COMMISSIONER OF INCOME TAX XVII …Petitioner

Versus

HUTCHISON ESSAR TELECOM LTD …Respondent

WITH

I.T.A.1020/2008

COMMISSIONER OF INCOME TAX

…Petitioner

Versus

ESCOTEL MOBILE COMMUNICATIONS …. Respondent

WITH

I.T.A. 698/2008 2008:DHC:2949-DB

Versus

ESCOTEL MOBILE COMMUNICATIONS LIMITED

…Respondent.

WITH

ITA 1154/2007

COMMISSIONER OF INCOME TAX ... Petitioner

- Versus –

BHARTI CELLULAR LTD

...Respondent

WITH

I.T.A. 1155/2007

COMMISSIONER OF INCOME TAX ... Petitioner

- Versus –

BHARTI CELLULAR LTD

...Respondent

WITH

I.T.A. 1129/2007

COMMISSIONER OF INCOME TAX

... Petitioner

- Versus –

BHARTI CELLULAR LTD

...Respondent

WITH

I.T.A1159/2007

COMMISSIONER OF INCOME TAX

... Petitioner

- Versus –

BHARTI CELLULAR LTD

...Respondent

WITH 2008:DHC:2949-DB

I.T.A. 1135/2007

COMMISSIONER OF INCOME TAX

... Petitioner

- Versus –

BHARTI CELLULAR LTD

...Respondent

WITH

I.T.A. 1171/2007

COMMISSIONER OF INCOME TAX

... Petitioner

- Versus –

BHARTI CELLULAR LTD

...Respondent

WITH

I.T.A. 1121/2007

COMMISSIONER OF INCOME TAX

….Petitioner

- Versus –

BHARTI CELLULAR LTD

...Respondent

Advocates who appeared in this case: For the Appellant Mrs Premlata Bansal in ITA 1120/07, 1020/08, 697/08 and 698/2008, 1121/07, 1171/07, 1135/07, 1159/07, 1129/07, 1155/07, 1154/07

Ms Rashmi Chopra in ITA 1177/2007

For the Respondent Mr Tarun Sharma in ITA 1177/2007, 1145/07.

Mr Kanan Kapur in ITA 1120/2007, 1121/07. 1171/07, 1159/07, 1129/07, 1155/07, 1154/07

None for respondents in ITA 1020/08, 697/08, 698/08.

CORAM:- HON'BLE MR JUSTICE BADAR DURREZ AHMED HON’BLE MR JUSTICE RAJIV SHAKHDHER.

YES

BADAR DURREZ AHMED, J 1. In all these appeals under Section 260A of the Income Tax Act, 1961 (hereinafter referred to as ‗the said Act‘), the following substantial questions of law have been framed:- (a) Whether the payments made by the assessee to the MTNL/other companies for the services provided through interconnect/port/access/toll were liable for tax deduction at source in view of the provisions of section 194J of the Act?

(b) Whether the Ld. ITAT erred in holding that the payment for use of services for MTNL/other companies via the interconnect/port/access/toll by the assessee would not fall within the purview of payments as provided for under section 194J of the Act, so as to be eligible for tax deduction at source?

through the assessees‘ own networks. However, where calls were to be made by subscribers of one network to another network, such calls are necessarily to be routed through MTNL/BSNL. The inter connection between the two networks is provided by MTNL/BSNL at interconnection points known as Ports. For the purposes of providing this interconnection, the assessees have entered into agreements with MTNL/BSNL etc. The agreements are regulated by the Telecom Regulatory Authority of India (TRAI). Under these agreements, the assessees/respondents are required to pay interconnection, access charges and port charges. As per the policy document of TRAI, interconnection has been understood to mean the commercial and technical arrangements under which service providers connect their equipments, networks and services to enable their customers to have access to the customers, services and networks of other service providers. Interconnection charges are paid by the interconnection seeker to the interconnection provider.

Example 1: Assume that subscriber ―A‖ of Airtel intends to call subscriber ―X‖ of MTNL within New Delhi. Subscriber ―A‘s call which originates within the circle of Airtel would have to be handed (th h i t ti ) t MTNL‘ t k t h 2008:DHC:2949-DB

normal call charges from its subscriber ―A‖, it would have to pay a part of it to MTNL for its inter-connect usage charges. Example 2: Assume that subscriber ―A‖ of IDEA in Maharashtra wants to make a call to subscriber ―B‖ of Airtel at New Delhi. The call would originate within the IDEA network in Maharashtra and would have to be inter-connected with BSNL (being the national long distance service provider) which would carry the call to the Airtel Delhi network and after interconnection would be transferred to the subscriber ―B‖ of Airtel, Delhi. In such a case, following the principle of the inter-connect seeker paying the charges to the inter- connect provider, Airtel - Delhi would raise an invoice for inter- connect charges on BSNL which, in turn, would raise an invoice on IDEA (Maharashtra) for the national long distance inter-connect charges. IDEA (Maharashtra) would recover the normal call charges from its subscriber ―A‖ and make the payment to BSNL as per the invoice for the national long distance inter-connect charges. BSNL, in turn, would make the payment to Airtel (Delhi) for the local inter- connect charges.

interconnect/port access charges are liable for tax deduction at source in view of the provisions of Section 194J of the said Act and that these interconnect/port access charges are in the nature of fees for technical services.

with the use of machinery involving expertise, skill and technical knowledge, the charges paid by the respondents/assessees were nothing but fees for technical services.

(1979) 118 ITR 312 2008:DHC:2949-DB

context of Section 80-O. It was contended that in the said decision, it was pointed out that ―technical service‖ has two components. The first is the use of tools and the second being the application of human reason to the properties of matter and energy. It was, therefore, contended that unless and until the element of human interface was present, the facility provided by the MTNL/other companies could not be regarded as a ―technical service‖.

access facility cannot be regarded as a technical service. Consequently, the payments made for such interconnect/port access charges could not fall within the meaning of ―fees for technical service‖ as used in Section 194J of the said Act.

“194J. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of— (a) fees for professional services, or (b) fees for technical services,

xxxx xxxx xxxx xxxx

shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as income-tax on income comprised therein :

xxxx xxxx xxxx xxxx

Explanation.—For the purposes of this section,—

(a) ―professional services‖ means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section;

(b) ―fees for technical services‖ shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9;

xxx xxx xxx xxx”

rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head ―Salaries‖.

The aforesaid explanation makes it clear that ―fees for technical services‖ means any consideration (including any lump sum consideration) for the rendering of any ―managerial, technical or consultancy services‖ but does not include consideration for any construction, assembly, mining or like products in the country by the recipients or consideration which would be income of the recipients chargeable under the head ―salaries‖. The said definition is in two parts. The first part is ―means and includes‖ type of definition and the second part is ―does not include‖ definition. In the present appeals we are not concerned with the second part. The entire focus is on attracted to the first part and that, too, to the expression “consideration …. for the rendering of any managerial, technical for consultancy services.” It is only if the payments made by the respondents/assessees to MTNL/other companies in respect of interconnect/port access charges fall within the ambit of this expression that the said payments could be regarded as fees for technical services as contemplated under Section 194J of the said Act.

12 I Sk ll ( ) l d i l j d f th M d 2008:DHC:2949-DB

equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in the provision of technical service to the customer for a fee. It was also held that technical service referred to in Explanation 2 to Section 9 (1) (vii) contemplated the rendering of a ―service‖ to the payer of the fee and that mere collection of a ―fee‖ for use of a standard facility provided to all those willing to pay for it did not amount to the fee having been received for technical services. We find ourselves to be in agreement with the views expressed by the learned single Judge of the Madras High Court in Skycell (supra). However, we still have to deal with the submissions made by the learned counsel for the Appellants/Revenue that the payments that were considered in the case of Skycell (supra) were those made by a subscriber to the cellular mobile telephone facility provider and not by one cellular network provider to another. For this purpose, we must examine the appeals at hand de hors the decision of the Madras High Court in Skycell (supra).

succeeded by the word ―consultancy‖. Since the expression ―technical services‖ is in doubt and is unclear, the rule of noscitur a sociis is clearly applicable. The said rule is explained in Maxwell on The Interpretation of Statutes (Twelfth Edition) in the following words:- ―Where two or more words which are susceptible of analogous meaning are coupled together, noscitur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general.‖

This would mean that the word ―technical‖ would take colour from the words ―managerial‖ and ―consultancy‖, between which it is sandwiched. The word ―managerial‖ has been defined in the Shorter Oxford English Dictionary, Fifth Edition as:- ―of pertaining to, or characteristic of a manager, esp. a professional manager of or within an organization, business, establishment, etc.‖

The word ―manager‖ has been defined, inter alia, as:- ―a person whose office it is to manage an organization, business establishment, or public institution, or part of one; a person with the primarily executive or supervisory function within an organization etc; a person controlling the activities of a person or team in sports, entertainment, etc.‖

It is, therefore, clear that a managerial service would be one which pertains to or has the characteristic of a manager. It is obvious that the expression ―manager‖ and consequently ―managerial service‖ has 2008:DHC:2949-DB

a definite human element attached to it. To put it bluntly, a machine cannot be a manager.

interconnection/port access is one which is provided automatically by machines. It is independently provided by the use of technology and that too, sophisticated technology, but that does not mean that MTNL/other companies which provide such facilities are rendering any technical services as contemplated in Explanation 2 to Section 9 (1) (vii) of the said Act. This is so because the expression ―technical services‖ takes colour from the expressions ―managerial services‖ and ―consultancy services‖ which necessarily involve a human element or, what is now days fashionably called, human interface. In the facts of the present appeals, the services rendered qua interconnection/Port access do not involve any human interface and, therefore, the same cannot be regarded as ―technical services‖ as contemplated under Section 194J of the said Act.

Supreme Court was of the view that the general meaning of ―luxury‖ had been explained or clarified and must be understood in a sense analogous to that of the less general words such as ―entertainment‖, ―amusements‖, ―gambling‖ and ―betting‖, which were clubbed with it. The Supreme Court, employing the said principle of noscitur a sociis, noted that this principle of interpretation had received the approval of the Supreme Court in an earlier decision in Rainbow Steels Ltd. v. CST: (1981) 2 SCC 141. The Supreme Court also noted that earlier, indiscriminate application of this rule was doubted in the case of The State of Bombay v. The Hospital Mazdoor Sabha: AIR 1960 SC 610. However, after referring to the said decision (Hospital Mazdoor Sabha), the Supreme Court in Godfrey Phillips India Ltd (supra) observed that they did not read the said decision as excluding the application of the principle of noscitur a sociis to the case before them inasmuch as it had been amply demonstrated that the word ―luxury‖ in Entry 62 was doubtful and had been defined and construed in different senses. The Supreme Court further observed as under:- ―81. We are aware that the maxim of noscitur a sociis may be a treacherous one unless the “societas” to which the “socii” belong, are known. The risk may be present when there is no other factor except contiguity to suggest the “societas”. But where there is, as here, a term of wide denotation which is not free from ambiguity, the addition of the words such as ―including‖ is sufficiently indicative of the societas. As we have said, the word ―includes‖ in the present context indicates a commonality or shared features or attributes f h i l di d i h h i l d d ‖ 2008:DHC:2949-DB

(i) mineral oil; and

(ii) minerals and ores. The question that arose before the Supreme Court was whether granite fell within the meaning of the word ―minerals‖. The contention of the assessee before the Supreme Court was that while Granite was a mineral in the general sense, it was not a mineral for th f S ti 80 HHC d th f th d d ti 2008:DHC:2949-DB

business of exporting granite. The Supreme Court noted the arguments of the learned counsel for the assessee based upon the doctrine of noscitur a sociis that the word ―minerals‖ in Section 80- HHC should be read in the context of the words ―ores‖ which it was associated with and must draw colour therefrom. It was submitted that the word ―minerals‖ must be read as referring only to such minerals as are extracted from ores and not others. While the Supreme Court agreed that the doctrine of noscitur a sociis was applicable, it held that the word ―minerals‖, in sub-section (2) (b) of Section 80-HHC must be read in the context of both ―mineral oil‖ and ―ores‖ and not just ―ores‖. The Supreme Court held that these three words taken together are intended to encompass all that may be extracted from the earth. Consequently, the Supreme Court held that all minerals extracted from the earth, granite included, must, therefore, be held to be covered by the provisions of sub-section (2) (b) of Section 80-HHC, and the exporter thereof was, therefore, disentitled to the benefit of that section.

from the word ―managerial‖ and ―consultancy‖ and the three words taken together are intended to apply to those services which involve a human element. This concludes our discussion on the applicability of the principle of noscitur a sociis.

(vii) of the said Act. Considered in this light, the expression `t h i l i ‘ ld h f t l t h i l i 2008:DHC:2949-DB

rendered by a human. It would not include any service provided by machines or robots.

The appeals are dismissed. The parties are left to bear their own costs.

BADAR DURREZ AHMED

(JUDGE)

RAJIV SHAKHDHER

(JUDGE)

October 31, 2008 J 2008:DHC:2949-DB