YOU BROADBAND & CABLE INDIA LTD ( FORMERLY KNWON AS YOU TELECOM INDIA P. LTD),MUMBAI vs. DCIT 9(3), MUMBAI

The assessee is engaged in the business of providing internet connection to its subscribers. The first common issue urged in the appeals filed for AY 2006-07 & 2007-08 by the assessee and the appeal filed by the revenue for AY 2008-09 relates to the disallowance of bandwidth charges u/s 40(a)(ia) of the Act for non-deduction of tax at source. The assessee procured bandwidth facilities from telecommunication companies and provided Internet facility to its customers. For availing bandwidth facilities, the assessee has paid bandwidth charges. The assessee did not deduct tax at source from such payments. The AO took the view that the payment of bandwidth charges is in the nature of payment towards technical services and accordingly took the view that the assessee should have deducted tax at source u/s 194J of the Act. Since the assessee did not deduct tax at source, the AO disallowed the bandwidth charges u/s 40(a)(ia) of the Act in all the three years cited above.

The Ld A.R submitted that the assessee has only availed a standard facility provided by the telecommunication companies and the same will not fall in the category of “technical services” defined in sec. 194J of the Act. In this regard, the Ld A.R took support from the decision rendered by Hon’ble Madras High Court in the case of Skycell Communications Ltd and another Vs. DCIT (251 ITR 53). He further submitted that the Hon’ble Delhi Court has held in the case of CIT Vs. Estel Communications P Ltd (2009)(318 ITR 185) that the payment to non-resident for provision of bandwidth is not fee for technical services and hence the assessee is not liable to deduct tax at source.

On the contrary, the Ld D.R submitted that the assessee is providing internet access to its customers by procuring bandwidth from telecommunication

We have heard rival contentions and perused the record. Even though the Ld D.R placed reliance on the decision rendered AAR, we are unable to follow the same in view of the availability of the decision rendered by Hon’ble Delhi High Court in the case of Estel Communications P Ltd (supra), wherein the High Court has held that the provision of internet bandwidth does not involve

Now, we shall take up the appeal filed by the assessee for A.Y. 2007-08. First issue relates to disallowance made u/s. 40(a)(ia) of the Act, which has been disposed of in the earlier paragraphs.

Next issue relates to depreciation claimed by the assessee on Good will amount, which has been disallowed by the AO and learned CIT(A). This issue has since been settled by Hon'ble Supreme Court in the case of Smifs Securities Ltd 348 ITR 302, wherein Hon'ble Supreme Court has held that depreciation is allowable on goodwill. Accordingly, we reverse the order passed by the learned CIT(A) on this issue and direct the AO to allow depreciation on goodwill amount.

Now we shall take up the appeal filed by the revenue for A.Y. 2008-09. In this year, the Ld CIT(A) has deleted the addition made u/s 40(a)(ia) of the Act

Next issue urged by the revenue relates to “lease rental expenditure” claimed by the assessee. The assessee had taken certain assets on lease. Originally, it capitalised the value of assets by treating lease as finance lease and claimed depreciation thereon. However the assessee filed revised computation of income and claimed entire lease installment as lease rental expenditure. In the revised computation depreciation was also withdrawn. The Assessing Officer did not accept the revised computation and accordingly disallowed lease rentals. The learned CIT(A), however, allowed the claim of the assessee

Learned AR submitted that the lessor has been allowed depreciation as owner of the assets and hence lease rental paid by the assessee is allowable as deduction. Learned AR placed reliance on the decision rendered by Hon'ble Supreme Court in the case of ICDS Ltd. ( 350 ITR 527).

We have heard learned Departmental Representative and perused the record. We noticed that the tax authorities have not examined the lease agreement. The assessee submits that the lessor, viz., M/s Cisco Systems Capital (India) Pvt. Ltd. has been allowed depreciation as owner of the asset and hence lease rental paid by the assessee should be allowed as deduction. Since this factual aspects have not been examined by the tax authorities, we are of the view that this issue requires fresh examination at the end of the Assessing Officer. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and restore the same to the file of the Assessing Officer with the direction to examine the same afresh by duly considering the lease agreement and also the facts available in the case of lessor.

We shall now take up the appeals filed by the Revenue for A.Y. 2009-10 & 2010-11. In both the years the issue relates to lease rental claimed by the assessee as deduction. Identical issue was considered by us in A.Y. 2008-09 in the preceding paragraph, wherein we have restored this matter to the file of the Assessing Officer. Consistent with the view taken, we set aside the order passed by the learned CIT(A) on this issue in both years and restore the same to the file of the Assessing Officer for examining them afresh.

In the result, appeals filed by the assessee in A.Y. 2006-07 & 2007-08 are allowed; appeal filed by the Revenue in A.Y. 2008-09 is treated as partly allowed and appeals filed by the Revenue for A.Y. 2009-10 & 2010-11 are treated as allowed. Order has been pronounced in the Court on 17.5.2017.