VODAFONE ESSAR MOBILE SERVICES LTD.,NEW DELHI vs. ACIT, NEW DELHI

Reading of the above order clearly show that fact situation was essentially similar to the one here in the case of the assessee. Assessee was also treated as one in default for failure to deduct tax at source on roaming charges paid to other distributors. Therefore the coordinate bench of the Tribunal in the case of Bharti Hexacom Ltd (supra) would squarely apply. We also find that the said decision has been followed by Ahmedabad bench in the case of Vodafone Essar Gujarat Lid. v. ACIT (TDS) (ITA NO.386/Add/2011. dt.07.07.2015). Following these, we are of the opinion that assessee could not have been Page | 4 to 5146/D/2011 Vodafone Mobile Services Limited deemed as one in default for non-deduction of tax at source on roaming charges paid by it to other service provide is allowed.

In its ground no.4, assessee is aggrieved on the levy of interest u/s 201 (1A) of the Act. This is a consequential ground. We have already held that assessee is not at default for deduction of tax on roaming charges and interest levied on the assessee on such amount u/s.201(1A) of the Act, stands deleted. However, in so far as Interest w/s 201 (1A) of the Act in relation to discounts/commission on prepaid sim cards and talk time is concerned, we have remitted the issue back to the file of the AO for consideration afresh in accordance with the judgment of Hon'ble jurisdictional High Court in the case of Bharti Airtel Ltd. (suрга). AO is directed to revise the levy of interest accordingly. Ground 4 of the assess is partly allowed for statistical purposes."

The aforesaid shows that the Tribunal by relying upon the decision of the Delhi High Court found that the fact situation are also the same and the payment made for roaming connectivity cannot be termed as "technical services" and, ultimately, it was found that the assessee could not be said as in default for non deduction of TDS at source on the roaming charges paid by it to the other service provider and the appeals are allowed to that extent. Under the circumstances, the present appeals before this Court.

We have heard Mr. K.V. Aravind, learned counsel appearing for the appellants Revenue in all the appeals. The learned Counsel relied upon two decisions of the Apex Court for canvassing the contention that the roaming charges paid by the assessee to the other service provider can be said as 'technical services; one was the decision. of the Apex Court in the case of CIT v. Bharti Cellular Ltd. [2010] 193 Taxman 97/120111 330 ITR 239 (SC); and the another was the decision of the Apex Court in the case of CIT v. Kotak Securities Ltd. [2016] 67 taxmann.com 356/239 Taxman 139/383 ITR (SC) and it was submitted that if the observations made by the Apex Court in the above referred decisions are considered, the decision of the Tribunal would be unsustainable and consequently, the questions may arise for consideration before this Court in the present appeals.

In the another decision of the Apex Court, in the case of Kotak Securities Ltd. the matter was pertaining to the charges of the Stock Exchange and the Apex Court, ultimately, found that no TDS on such payment was deductible under Section 1941 of the Act. But the learned Counsel for the appellants Revenue attempted to contend that in paragraphs 7 and 8 of the above referred decision of the Apex Court, it has been observed that if a distinguishable and identifiable service is provided, then it can be said as a "technical services". Therefore, he submitted that in the present case, roaming services to be provided to a particular mobile subscriber by a mobile Company is a customize based service and therefore, distinguishable and separately identifiable and hence, it can be termed as "technical services".

In our view, the contention is not only misconceived, but is on non existent premise., because the subject matter of the present appeals is not roaming services provided by mobile service provider to its subscriber or customer, but the subject matter is utilization of the roaming facility by payment of roaming charges by one mobile service provider Company to another mobile service provider Company. Hence, we do not find that the observations made are of any help to the Revenue.

As such, even if we consider the observations made by the Apex Court in the case of Bharti Cellular Lid supra, whether use of roaming service by one mobile service provider Company from another mobile service provider Company, can be termed as "technical services" or not, is essentially a question of fact. The Page | 6 ITA No.5142 to 5146/D/2011 Vodafone Mobile Services Limited Tribunal, after considering all the material produced before it, has found that roaming process between participating entities is fully automatic and does not require any human intervention. Couples with the aspect that the Tribunal relied upon the decision of the Delhi High Court for taking support of its view.

In our view, the Tribunal is ultimately fact finding authority and has held that the roaming process between participating company cannot be termed as technical services and, therefore, no TDS was deductible. We do not find that any error has been committed by the Tribunal in reaching to the aforesaid conclusion. Apart from the above, the questions are already-covered by the above referred decision of the Delhi High Court, which has been considered by the Tribunal in the impugned decision.”

The Coordinate Bench in A.Y.2009-10 in & 3674/M/2014 had the occasion to consider the identical issue and following the earlier orders of the coordinate bench held as under:- “Ground no. 3 pertains to disallowance of Rs. 54,47,48,738/- on account of domestic roaming charges paid to other telecom operators u/s. 40(a)(ia) of the Act. This issue is identical to what discussed and decided in AY 2009-10 also by the Coordinate Bench vide ITA No. 3425/Mum/2014. Relevant findings of Coordinate Bench are as under:- 4.1. We have heard rival submissions and perused the materials available on record. During the year, the assessee has debited Rs.15,39,23,749/ on account of roaming charges in its profit and loss account which was claimed as deduction. The Id. AO observed that this expenditure was incurred without deduction of tax at source. The Id. AO show- caused the assessee as to why the same should not be disallowed u/s. 40(a)(ia) of the Act as the said payment would tantamount to rendering fee for technical services" in terms of Section 194) of the Act. The assessee gave a detailed written submissions explaining the entire modus operandi as under:- 1. Roaming facility is a standard facility provided by the OTOs to the assessee and vice versa. When a subscriber is roaming in circles (states) where the assessee's network is Page | 7 to 5146/D/2011 Vodafone Mobile Services Limited not available, he is all able to make and receive calls by using network of OTOS. In such a scenario, since the subscriber is using the network of OTO, ideally such service provider should directly recover charges from that subscriber. But since it is impossible practically to do so, there is a mutual agreement entered between the network operators to allow use of each other's network by each other subscriber and then recover roaming charges from each other, which ultimately would be recovered from the end user subscriber. Thus, in substance, it is in nature of revenue sharing.

To illustrate, suppose Home Operator CHO") is licensed to provide telecom services only in the Telecom Circle of Karnataka and Visiting Operator (VO) is licensed to provide services only in the Telecom Circle of Mumbai. Further, HO and VO have entered into a roaming arrangement whereby a subscriber of HO, travelling to Mumbai would be able to use the network of VO to avail telecom services and vice versa.

Given the above roaming arrangements, when a subscriber of HO travels to Mumbai, he will be able to seamlessly latch on to the network of VO and continue to use telecom services in Mumbai. Depending upon the usage of the subscriber and the arrangement between HO and VO, VO shall raise an invoice on HO for such usage by the subscriber, and HO shall subsequently recover such charges from the subscriber 4. Thus, each telecom operator would enter into a national roaming agreement with OTO (Refer a specimen national roaming agreement entered with BPL Cellular Limited on page no. 79 to 111 of the FPB-II).

Roaming Agreement Process: In order that a subscriber is able to "latch" on to a visited network, a roaming agreement needs to be in place between the visited network and the home network. Agreement is established after completing of following processes. Business Agreement Network and Billing configuration IREG & TADIG Testing Launch of commercial service. Aforesaid process is enumerated in be as under: Page | 8 to 5146/D/2011 Vodafone Mobile Services Limited  Business Agreement - A business agreement is signed between two networks as per GSMA guidelines to setup roaming service.  Network & Billing configuration - Post business agreement, necessary configures required to be done in visited and home network and billing system.  IREG & TADIG Testing - Once configuration is done, series of testing is done as per GSMA specified guidelines defined in IREG & TADIO testing document.  (i) IREG (International Roaming Expert Group)-IREG testing is to test the proper functioning of the established communication links.  (1) TADIG (Transferred Account Data Interchange Group) - The TADIG testing is to check the billability of the calls  Commercial Service Launch - After success testing of all scenarios defined in IREG document and TADIG verification, visited network is opened for commercial subscriber to roam in visited network. After commercial launch subscriber will automatically latch in visited network and will be able to use the services when they are in visited network coverage area.

Effort required for providing roaming service - GSM Service provider has to deploy and maintain a GSM network infrastructure to provide service to its own subscriber. Same infrastructure is used to provide service to roaming subscriber as well, hence service provider does not make any extra effort to provide service to roaming subscribers.

On commercial launch of any network, the entire telecommunication services (locally or roaming) is done automatically with negligible human intervention. Factually, it is impossible for the employee of a telecom company to connect lakhs of subscriber to the desired networks.

Thus, at the cost of repetition, may the assessee submit that even under the rooming, the entire set up/network infrastructure is the same as would be for the subscriber when using telecom services in his home Page | 9 to 5146/D/2011 Vodafone Mobile Services Limited circle. Only, difference being, due to the roaming agreement, the Home Operator would allow the subscriber of the visited Operator to use his network and make and receive call. The actual process of roaming is completely automated.

The assessee's contention that no tax is deductible under section 1943 of the Act on roaming charges paid to the OTOS is based on two separate and distinct propositions: I. Any payment for the use of standard facility does not amount to FTS; and II. Without prejudice, in absence of any human intervention during the actual roaming process, payment would not be FTS. 4.8. As in the present appeal before us, the Id. CIT(A) had relied on the decision of the Id. CIT(A) Chandigarh in the case of Idea Cellular Ltd by stating that the facts and circumstances are identical in both the cases when the said order of Id. CIT(A) Chandigarh had been reversed by the decision of the Chandigarh Tribunal referred to supra vide order dated 28/06/2018, we do not find any case in the argument advanced by the Id. DR before us in support of the orders of the lower authorities. Hence, respectfully following the aforesaid decision of the Chandigarh Tribunal which has dealt the decision on the impugned issue, the ground No.III raised by the assessee is hereby allowed.

As we seen with reference to relevant extract of the order of Coordinate Bench on identical issue for AY 2009-10 has been discussed and deliberated with all relevant facts, agreements and findings of various Hon'ble High Courts and Apex Court and revenue in their arguments in not in a position to differentiate neither in terms of facts nor law, without any hesitation, we accept the preposition laid down by the Coordinate Bench. In view of above, ground no. 3 raised by the assessee is allowed.”

Respectfully following the prcedents (supra), we direct by Ld.AO to delete the impugned disallowance. In the result, the appeal is allowed.

The Appellant-Revenue challenges the order dated 4 January 2017 passed by the Income Page | 12 to 5146/D/2011 Vodafone Mobile Services Limited Tax Appellate Tribunal in Income Tax Appeal No.1041, 1042 and 1953 to 1955/PUN/2013.

This Appeal pertains to the Assessment Year is 2010-11.

The Appellant-Revenue has raised the following questions as a substantial questions of law :- "(a) Whether on the facts and circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal erred in holding the discount given by the assessee to its distributors on prepaid SIM Cards does not require deduction of tax under Section 194H of the Income Tax Act? (b)Whether on the facts and in the circumstances of the case and in law, the Hon'ble Income Tax Appellate Tribunal erred in setting aside the case to the Assessing Officer?"

The Tribunal noted the observations of the Assessing Officer that the discount allowed to the distributors by the Respondent assessee company is on account of principal to principal relationship and not that of principal to agent. The Tribunal followed the decision of the Karnataka High Court in the 20 M/s. Vodafone India Ltd. case of Bharati Airtel Ltd. vs. DCIT [372 ITR 33] and held that the sale of SIM cards/recharge coupons at discounted rate to the distributors was not commission and therefore not liable to deduct the TDS under Section 194H. The Tribunal noted that there was no decision of this Court on this issue on that date.

Learned counsel for the parties have tendered the copy of the order passed in Income Tax Appeal No. 702 of 2017 subsequently in the case of Pr. Commissioner of Income Tax-8 vs. M/s. Reliance Communications Infrastructure Ltd., where same issue arose for the consideration of this Court. The Division Bench of this Court while holding against the Appellant Revenue observed thus:- "3. Having heard the learned Counsel for the parties and having perused the documents on record, we do not find any error in the view of the Tribunal. The Tribunal, as noted, besides holding that the Commissioner's order setting aside the order passed Page | 13 to 5146/D/2011 Vodafone Mobile Services Limited under Section 201 was not carried in appeal, had also independently examined the nature of the transaction and come to the conclusion that when the transaction was between two persons on principal to principal basis, deduction of tax at source as per section 194H of the Act, would not be made since the payment was not for commission or brokerage."

In view of the finding of fact rendered by the Tribunal which we have noted above, the same principle would apply in the present case. Therefore, the questions of law as proposed do not give any rise to substantial question of law. The Appeal is disposed of. (emphasis supplied by us) 2.8.2.1. It is also pertinent to note that the Distribution Agreement of Maharashtra Circle was subject matter of examination and adjudication by the Pune Tribunal wherein the Pune Tribunal had recorded a finding of fact that the relationship between assessee and distributor is that of Principal to Principal. This Order has been approved by the Hon'ble Jurisdictional High Court. We find that the Hon'ble Jurisdictional High Court held that once Principal to Principal relationship is established, there could be no commission or discount and consequently no deduction of tax at source in terms of section 194 H of the Act is warranted. 2.8.3. With regard to reliance placed by the Id. DR vehemently on the decision of Hon'ble Delhi High Court in assessee's own case reported in 325 ITR 148 (Del) is concerned, we find that the Hon'ble Karnataka High Court in the case of Bharti Airtel Ltd (372 ITR 33) referred supra had after considering the decision of Hon'ble Delhi High Court referred supra and decided the issue in favour of the assessee. We find that the Hon'ble Karnataka High Court had also followed the decision of Hon'ble Jurisdictional High Court in the case of Qatar Airways reported in 332 ITR 21 M/s. Vodafone India Ltd. 253 (Bom). Hence the reliance placed on the decision of Hon'ble Delhi High Court by the Id. DR does not advance the case of the revenue. In any case, the decisions of Hon'ble Delhi High Court, Hon'ble Kerala High Court and Hon'ble Calcutta High Court referred supra to 5146/D/2011 Vodafone Mobile Services Limited had been considered and distinguished by the Hon'ble Karnataka High Court referred supra. 2.8.4. We further find that the Hon'ble Rajasthan High Court in the case of Hindustan Coca Cola Beverages (P) Ltd vs CIT III Jaipur reported in 402 ITR 539 (Raj) which had rendered a comprehensive judgement on the impugned issue together with various other assesses including Idea Cellular Ltd (assessee herein). The relevant Income Tax Appeal Nos. 168/2015, 169/2015, 170/2015 and 171/2015 which were admitted by the Hon'ble Rajasthan High Court on 18/10/2016 relates to assessee herein for Rajasthan Circle in respect of the identical issue. The question no.1 raised before the Hon'ble Rajasthan High Court is as under:-

Whether in the facts and circumstances of the case, the Tribunal was justified in holding that whether the assessee is liable to deduct TDS u/s. 194-H of IT Act, as the relation between assessee and distributor is that of Principal to Agent? 2.8.4.1. We find that the Hon'ble Rajasthan High Court after considering the plethora of judgements on the impugned issue of various High Courts (which includes the three High Court decisions of Kerala, Delhi and Calcutta relied upon by the Id. DR before us herein) had rendered its decision as under:- Idea Cellular 58. As the agreement is produced, issues are answered in favour of assessee in the departmental appeals.

Respectfully following the decision of the coordinate bench, this ground is allowed. The next grievance relates to the liability to deduct tax at source u/s. 194J of the Act on the roaming charges. An identical issue has been considered and decided by us in (supra) for our detailed discussion therein, this ground is allowed. The other grounds become academic in nature and hence need no separate adjudication. In the result, the appeal is partly allowed. ITA No.5144/D/2011(A.Y.2009-10) 12. Ground No.1 is not pressed. Ground No. 2 relates to the liability to deduct tax at source on discount extended to its prepaid distributors on transfer of prepaid simcards/talktime. An identical issue has been considered and decided by us in ITA Page | 18 ITA No.5142 to 5146/D/2011 Vodafone Mobile Services Limited No.5143/D/2011 (supra) for our detailed discussion therein. This ground is allowed. 13. The next ground relates to the liability to deduct tax at source u/s. 194J of the Act on roaming charges. This issue has been elaborately discussed by us in (supra) for our detailed discussion therein. This ground is allowed. Other grounds have become academic in nature. Hench need no separate adjudication.

In the result, the appeal is partly allowed. ITA No.5145/D/2011(A.Y.2010-11) 15. The solitary grievance of the assessee relates to the liability to deduct tax at source u/s. 194H of the Act on discount extended to its prepaid distributors on transfer of simcards/talktime. This issue has been elaborately discussed by us in ITA No.5143/D/2011 (supra) for which detailed discussion therein. This ground is allowed. The other grounds have become academic in nature, hence need no separate adjudication.

The next grievance relates to the liability to deduct tax at source u/s. 194J of the Act on roaming charges. This issue has been elaborately discussed and decided by us in ITA No. 5142/D/2011 (supra) for our detailed discussion therein. This ground is also allowed. The other ground has become academic in nature. Hence, need no separate adjudication. In the result, the appeal is partly allowed. Order pronounced in the open court on 26-11-2024.