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Facts
The appellant deducted TDS at 2% under Section 194C of the Income Tax Act for bulk SMS services, considering it a contractual payment. The revenue authorities, however, treated it as payment for technical services and demanded TDS at 10% under Section 194J, holding the appellant as an assessee in default.
Held
The Tribunal held that the core activity of sending bulk SMS services, even with some human involvement in order processing, does not qualify as 'technical services' under Section 194J. The services availed were primarily contractual, for which TDS was correctly deducted under Section 194C.
Key Issues
Whether the payment for bulk SMS services constitutes a contractual payment under Section 194C or a payment for technical services under Section 194J, requiring different TDS rates.
Sections Cited
194C, 194J, 201(1), 201(1A), 133B
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Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: Justice (Retd.) C V Bhadang, Hon’ble & Shri B R Baskaran, Hon’ble
Per Justice (Retd.) C V Bhadang, President: Both these appeals (Assessment Year 2017-18 and 2020-21) involve a common question as to whether the appellant-assessee is liable to deduct tax at source (TDS) under Section 194C or Section 194J of the Income Tax Act, 1961 (‘Act’ for short). The appellant has deducted TDS @ 2% u/s. 194C of the Act claiming to be a contractual payment. The Revenue maintains that it was a payment for ‘technical services’ requiring tax to be deducted @ 10% under Section 194J of the Act. 2. Brief facts are that the appellant is a company and avails technical contractual services. For the concerned Assessment Years, the appellant had filed its Return of Income (RoI). It appears that a spot verification by the TDS unit was conducted on 26.11.2019 under Section 133B of the said & 5384/Mum/2024 Route Mobile Limited Act. During the course of the said verification, it was found that the appellant has deducted TDS @ 2% on the amount paid for purchase of bulk SMS services from the telecom operators, claiming it to be a contractual payment. The authorities have found that the appellant had availed technical services and TDS was liable to be deducted @ 10% under Section 194J of the said Act. Consequently, the appellant has been held to be an ‘assessee in default’ under Section 201(1) of the said Act and the Assessing Officer vide separate orders, both dated 29.11.2022 for Assessment Years 2021-22 and 2017-18, has raised demand for the balance amount alongwith interest under Section 201(1A) of the said Act.
Feeling aggrieved, appellant challenged the same before the CIT(A). The learned Addl. JCIT(A)-2, Jaipur (the Appellate Authority) has by the impugned orders, both dated 05.09.2022, dismissed the appeals which brings the assessee before this Tribunal.
We have heard the learned AR for the appellant and the learned DR for the respondent. With their assistance we have gone through the record.
It is submitted by the learned AR that the appellant is engaged in providing bulk SMS services to its clients. For the said purpose, the appellant is required to avail of services from the telecom operators/other parties. It is submitted that while making payments to these parties the appellant has deducted TDS @ 2% under Section 194C of the said Act inasmuch as it was essentially a contractual payment in the context of the agreements entered into between the parties. He submitted that once the services are availed and the necessary software is in place there is no human element involved when the bulk SMSs are sent by the client. It is submitted that the authorities below were thus in error in treating the payment to the service providers as payment for ‘technical services’. The & 5384/Mum/2024 Route Mobile Limited learned counsel has strenuously urged that in the absence of any human element during sending of bulk SMSs, which is the core activity, the payment cannot be regarded as payment for technical services availed. On behalf of the appellant reliance is placed on the decision of this Tribunal in i) DCIT Vs. Velti India Pvt. Ltd. in & CO No.146/Mds/2013 decided on 27.02.2014 (Chennai Benches); ii) DCIT Vs. SMC Country Networks Pvt. Ltd. in ITA Nos. 1196 & 1197/Hyd/2015 decided on 21.03.2018 (Hyderabad Benches) and iii) Gupshup Technology India (P.) Ltd., 78 taxmann.com 11 decided on 07.11.2016 (Mumbai Benches). It is pointed out that the test is about requirement of human intervention while transmitting the bulk SMS, which is the main activity.
The learned DR has referred to the recitals in the agreements as well as para 5.6 of the impugned order. It is submitted that the First Appellate Authority after examination of the agreements and the terms agreed has rightly come to the conclusion that certain aspects of the service availed indeed involve human involvement. It is submitted that the question whether there is any human involvement is dependent upon facts and circumstances of each case and the terms agreed between the parties. It is submitted that there cannot be any straight jacket formula that in all such cases, there is no requirement of human involvement.
We have carefully considered the rival circumstances and the submissions made and we have gone through the impugned orders. It is clearly discernible from the record that the assessee is engaged in the business of providing of bulk SMS services to its clients for the purposes of which the appellant is required to purchase bulk SMS from the telecom & 5384/Mum/2024 Route Mobile Limited operators and other parties. It is now well settled that the question whether payment made to these parties would be a contractual payment or a payment for availing of technical services would depend on whether there was any human element involved while using the core services for sending of bulk SMS.
In the case of SMS Country Networks Pvt. Ltd., Hyderabad, the Hyderabad Bench of this Tribunal after taking note of the decision of the Delhi Tribunal in CIT vs Bharati Cellular Ltd (2008) 319 ITR 139 has found that the transmission through systems are outside the purview of “technical services” where there is no human intervention involved. A co-ordinate Bench of this Tribunal in similar circumstances has held that what is relevant is whether any human intervention is required, which is the main/core activity between the parties. In fact, a perusal of the impugned order passed by the First Appellate Authority would also indicate that the First Appellate Authority has examined the matter in the context of requirement of human involvement.
The learned CIT(A) in para 5.6 of the impugned order has noted the following circumstances in order to hold that there is human intervention involved:- “1. The appellant has availed services of various vendors for delivery of messages (including customised messages) through their networks.[ Services] 2. The vendors have established the networks through STPP or HTPPs.[ Technical] 3. The services were provided through interconnectors. [Technical] 4. The orders were put through mails and thereafter with the human interference, the mails were used for further processing to be used as services (SMS Transmission through vendors). [Human Involvement] & 5384/Mum/2024 Route Mobile Limited 5. The parties will have 24 x 7 assistance for each other regarding the rendering of these services. [Human Involvement] 6. SMSs will be sent according to the technical specifications described in the agreement. [Technical] 7. Both the parties shall work together for establishing connectivity link.[ Technical as well as Managerial] 8. Each party shall co-operate with the other party and render assistance to it for connecting the respective systems of either party. [Human Involvement] 9. The prices are subject to interconnect Chagres as applicable from time to time.[Interconnect charges can be of purely technical nature being provided by machines which appears to be other than the charges being charged for SMS services].
We are of the view that none of the circumstances, as noticed above, can lead to the conclusion about a human intervention or involvement while the core activity of sending of bulk SMSs is undertaken. The fact that the orders were initially put through mails for the 24x7 assistance provided and the agreement as to cooperation with other party for rendering assistance to it for connecting the respective systems (item 8 as noticed above) cannot lead to the conclusion that the core activity involved any human intervention.
We are unable to agree to the reasoning as articulated by the learned CIT(A). We find that the appeals deserve to succeed.