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Income Tax Appellate Tribunal, KOLKATA BENCH “D”, KOLKATA
Before: SH. S.S.GODARA & DR.A.L.SAINI
ORDER
PER S.S.GODARA, JUDICIAL MEMBER This Revenue’s appeal for AY 2013-14 arises against the order dated 31.05.2017 passed by Learned CIT(A)-24, Kolkata reversing the Assessing Officer’s action treating the assessee to be in default relating to the tune of Rs.27,85,720/- representing TDS and interest components of Rs.20,02,365/- and Rs.7,83,355/- regarding payments made for Last Mile Charges made in the relevant previous year, involving proceedings u/s 201(1) & 201(1A) of the Income tax Act, 1961 (in short “Act”) Heard both the sides. Case file perused.
The Revenue’s sole substantive grievance is that assessee’s payments in Last Mile Charges are in the nature of rent requiring TDS deduction u/s 194(I) of the Act. We find the Revenue’s instant grievance to be no more res integra as this tribunal’s decision in very assessee’s case for AY 2010-11 & 2011-12 in & 701/Kol/2016 decided on 17.05.2018 has upheld the CIT(A)’s identical findings as follows:-
Year: 2013-14] 4. “Both learned representatives take to CIT(A) detailed discussion qua the three issues of last mile charges, bandwidth for protection payment and interconnectivity usage charges paid; respectively, reading as under:- “4. Last Mile Charges - Bandwidth-End connectivity through optical fibre from Railtel's POP to Customers Premises: In the submission dated 05.011.2016 there is not much details about what exactly is the service or use for which last mile charges have been paid. Even the AO's order is not very clear on the exact nature of the facility for which the said last mile charge was paid. From the details appearing in the AO's order and the submission it appears that it is for use or hire of one or more optical fibres installed between the customers' premises and the Railtel's POP. The said connection is used to carry Railtel Data Traffic to and from the customers' premises. This is a kind of standard facility which may be expected to have been repeated with various other customers and owners of optical fibre cable. As this is standard facility or service this cannot be termed as technical service in the meaning of section 9(1)(vii) explanation-2 as held in the case of Siemens Ltd. v. CIT(A), (in 10 dated 12.2.2013). The appellant has also relied on the cases of Vodafone East Limited vs. ACIT (in ITA No.1864/Ko1/2012 dated 15.9.2016) and Asia Satellite Telecommunications Co. Ltd. v. DIT [(2011) 323 ITR 340 (Delhi HC)]. In the former case of the Kolkata Tribunal uses of transmission lines for the purpose of roaming was not held hit by section 194C or Section 1941 or Sec.194J of the Act. In the latter case lease of transponder capacity of satellites for the transport of data through satellite was not held as the services taxable as royalty. Later in the course of drafting of order a letter dated 22.1.2016 was received from the appellant on Last Mile Charge, Bandwidth for Page | 2 Year: 2013-14] protection and interconnectivity charges. Its content on Last Mile Charge is produced as under: Last Mile charge: "The assessee had explained the nature of this payment vide its letter dated s" January,2016 as under: It is basically hiring of one pair of Optical Dark Fiber to provide last mile end connectivity at customer's premises from Railtel's POP to customers POP through which RaiItel carries its own Bandwidth/Internet bandwidth. It is hired as and when required basis and once the services is discontinued, the hired fibre is also surrendered. We have now discussed this issue with our technical department and their further explanation is as under: i) Last Mile Charges refer for hiring the dark fiber within optic fiber cable. ii) The possession of the dark fiber within optic fiber cable in such cases is with Railtel. iii) The ownership of the dark fiber within optic fiber cable continues with the third party, i.e. the vendor from whom Railtel has hired the cable. iv) The dark fiber within optic fiber cable so hired is exclusively used by Railtel. v) The purpose of hiring the dark fiber(within optic fiber) cable is to end use carrying traffic from point(A) to point(b). Point A - Railtel POP Point B - Customer POP vi) The reason for hiring of the dark fiber (within optic fiber cable) is that the customers POP are very scattered, the quantum is variable Year: 2013-14] and laying exclusive OFC is commercially NOT Viable. Timeline and delivery is also a constraint. In my view the optical fibre, if in the possession of the appellant during hire, can be said to be hit only by section 194I, which prescribes rate of 2% in cases of plant and machineries. The appellant is noted to have applied 2% though u/s.194C. Thus the tax amount seems to have been collected in correct amount though the correct section may be section 1941. No loss to revenue seems to have been caused. As the facility or the service involved in last mile connectivity is of standard nature section 194J cannot be said to be applicable as per law prevailing prior to Finance Act, 2012. As to the question whether the Finance Act 2012 changes the definition of the 'process' for the purpose of section 9(1)(vi) explanation-2 the appellant has relied on the following decisions wherein it has been held that the retrospective amendment cannot bring into existence TDS liability as on the time of payment or credit the deductor was not required to deduct TDS. In other words tax withholding liability is held as unchangeable with retrospective effect because a tax deductor cannot be expected to have clairvoyance knowing that the law will change in future. In other words tax that is deductible is dependent on the law as it existed at the point of time when payments or credits were made. The cases relied upon by the appellant are as under: i) Bombay High Court in the case of Western Coal Fields dated 01.10.2010 ii) DCIT v. Virola International (ITAT, Agra) 42 Taxmann.com 286. iii) ITAT Coachin Bench Kerala Vision Limited v ACIT, 46 taxmann.com 50, Page | 4 Year: 2013-14] iv) Rajasree Motors(P) Ltd v. ACIT, 61 Taxmann. Cam 270(ITAT Cochin). This ground, therefore, has to be allowed.
5. Bandwidth for protection: The AO has applied 10% u/s. 194J as against the appellant’s application of deduction’s order is not clear about the nature of services in return for which payment was made and which was termed as Bandwidth for protection. In the appellant’s submission dated 5.1.2016 on page-13 the Bandwidth for protection has been defined as under:- ‘It is hiring of Bandwidth from other telecom operators to protect our customers’ circuits which are on linear route. Basically Telco delivers Bandwidth from their PoP to Railtel’s PoP and from their Railtel makes it’s protection path through it’s own network’ “From the above definition it is not clear what ha been hired by the appellant deductor from other telecom operators. It talks of protection path being provided by Railtel through its own network and some linear routes consisting of the appellant’s customers’ circuits. Further submission dated 22.1.2016 in so far as it applies to Bandwidth for protection is reproduced as under: ‘The assessee had explained the nature of this payment vide its letter dated 5th January, 2016 as under:- It is hiring of Bandwidth from other telecom operator to protect our customers circuits which are on linear route. Basically Telco delivers Bandwidth form their POP to Railtel’s POP and from their Railtel makes its protection path through its own network. Further explanation in this regard is an under: i) Bandwidth for protection refers to hiring of Bandwidth capacity from a third party Page | 5 Year: 2013-14] ii) The reason for hiring bandwidth capacity is because the agreement with the customers stipulates a very high level of SLA requirements. It is near impossible to provide such high level of SLA in case of Linear Traffic. Therefore, railtel has hired bandwidth capacity only in places where Railtel’s network is not protected. Protection means there is no media diversity available between point A to point B. Point A- Railtel POP (Originating) Point B – Railtel POP (Terminating) iii) Protection Bandwidth is on absolute hiring basis. Ownership belongs to the 3rd party. iv) Protection Bandwidth is necessary because creating alternate path is not commercially viable. As the facts are now clear I am able to appreciate the point raised by the ape. Only Bandwidth capacity has been hired. Following the cases of i) Asia Satellite telecommunications Co. Ltd. v. DIT (2011) 323 ITR 340 (Delhi HC) ii) Vodafone Eat Limited vs. ACIT (in dated 15.9.2015) iii) Shin Satellite Public Co. Ltd v DIT, 12 Taxmann.Com 6 (ITAT Delhi) iv) Siemens Ltd v. CIT(A) (in ITA No.4356/Mum/2010 dated 12.02.2013) I cannot uphold the decision of the AO. The ground relating to ‘Bandwidth for protection’ is allowed.
Interconnectivity usage charges (IUC): The definition provided by the appellant in its said submission on Page 13 is as under: ‘These are the charges payable by a service provider, whose subscriber originates the call, to the service provider in whose network the call terminates. In the calling party pays (CPP) regime, only the calling party pays for the call and the calling party’s service provider usually pays termination Page | 6 Year: 2013-14] charge to the called party’s service provider, to cover the interconnection/network usage cost.’ The issue is covered by the case of Vodafone East Limited vs ACIT (in dated 15.9.2015) which has been decided for roaming charge consisting of interconnectivity and use of transmission lines. Interconnection / Network usage charge is standard facility involving no human intervention. As discussed above, amendment by the Finance Act, 22012 will have no effect in the years under consideration, which precede the coming into effect of the Finance Act 2012 and liability to tax (TDS) cannot be made retrospective. As it has been decided, only when the amounts are paid or credited, the decision to deduct has to be taken as per law then being in effect. This ground is required to be allowed.”
We have given our thoughtful consideration to rival submissions. Learned Departmental Representative vehemently contends during the course of hearing that the assesssee’s impugned payments pertaining to the first issue of last mile charges are liable for TDS deduction as fee for professional / technical services rather than rent u/s 194I of the Act. It quotes Section 9(1)(vi) Explanation -2 (iva) of the Act defining royalty to be any consideration for the use or right to use any industrial, commercial or scientific equipment etc. We find no substance in Revenue’s instant argument. There is no denial of the basic fact that the assessee has made the impugned last mile payment in lieu of availing a standard facility of hiring of one pair of optical dark fibre to provide last mile end connectivity. It uses its own internet bandwidth in this entire exercise of involving only hiring of about optical as dark fibre. The Revenue fails to indicate that the said hiring creates any kind of right being vested in assessee’s favour regarding control of the equipment hardware. A coordinate bench in M/s Standard Chartered Bank vs. CIT ITA 3824/Mum/2006 holds in similar circumstances that a payment made for Page | 7 Year: 2013-14] availing equipment facilities of standard nature without any control on the corresponding hardware does not amount to royalty u/s 9(1)(vi) Explanation- 2 clause (iva) of the Act. The CIT(A) has already concluded that the assessee had deducted its TDS at equivalent rate (supra). We further make it clear that the CIT(A)’s above extracted findings also take into consideration various other case law (supra) to conclude that the impugned payments are not in the nature of royalty as insisted by the Assessing Officer. All these findings on facts have gone unrebutted from the Revenue’s side.
6. Similar appears to the outcome of Revenue’s latter two substantive grounds seeking to apply the relevant amended provision in Section 9(1)(vi) of the Act inserted by the Finance Act, 2012 with retrospective effect in impugned assessment year 2010-11. We find this issue to be no more res integra since hon’ble Bombay high court’s judgment in ITA 397 / 2015 dated 29.01.1981 CIT vs. NGC Networks India Pvt. Ltd. has already concluded the above amendment is not applicable with retrospective effect as per “rule of impossible compliance” since the liability to deduct TDS cannot be fastened on a deductor assessee after the end of relevant previous year. Coupled with this, we asked the Revenue to specifically indicate any material suggesting the assessee to have any control over these three equipments of optical dark fibre, bandwidth for production and interconnective uses charges so as to involve royalty component in the impugned payments. There is no such materials. The CIT(A)’s has rightly concluded the assessee’s three payments to be in lieu of standard facilities only not to be taken as royalty. We therefore affirm the CIT(A)’s findings qua all three issues. The Revenue’s corresponding grounds stand rejected accordingly. The lead appeal ITA 700/Kol/2016 fails therefore.”
Year: 2013-14] 3. Learned DR fails to indicate any exception on facts of law in the impugned assessment year on the sole issue of TDS deduction on Last Mile charges payments. We accordingly reject Revenue’s sole substantive ground. 4. This Revenue’s appeal is dismissed. Order pronounced in the open court on 26.10.2018.