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Income Tax Appellate Tribunal, “A” BENCH: KOLKATA
Before: Shri M. Balaganesh, AM & Shri S. S. Viswanethra Ravi, JM]
ITA Nos.1101,1102,1291&1292/Kol/20015 CO Nos. 142 & 143/Kol/2005 Vodafone East Limited AYs. 2002-03 & 2003-04 IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH: KOLKATA [Before Shri M. Balaganesh, AM & Shri S. S. Viswanethra Ravi, JM]
I.T.A No. 1101/Kol/2005 Assessment Year: 2002-03 Vodafone East Limited Vs. Assistant Commissioner of Income Tax, (PAN: Circle-57, Kolkata-71 (Appellant) (Respondent) & I.T.A No. 1291/Kol/2005 Assessment Year: 2002-03
Assistant Commissioner of Income Tax, Vs. Vodafone East Limited Circle-57, Kolkata. (Appellant) (Respondent) & C.O. No. 142/Kol/2005 In I.T.A No. 1291/Kol/2005 Assessment Year: 2002-03 Vodafone East Limited Vs. Assistant Commissioner of Income Tax, (PAN: Circle-57, Kolkata-71 (Cross Objector) (Respondent) & I.T.A No. 1102/Kol/2005 Assessment Year: 2003-04 Vodafone East Limited Vs. Assistant Commissioner of Income Tax, (PAN: Circle-57, Kolkata-71 (Appellant) (Respondent) & I.T.A No. 1292/Kol/2005 Assessment Year: 2003-04 Assistant Commissioner of Income Tax, Vs. Vodafone East Limited Circle-57, Kolkata. (Appellant) (Respondent) & C.O. No. 143/Kol/2005 In I.T.A No. 1292/Kol/2005 Assessment Year: 2003-04 Vodafone East Limited Vs. Assistant Commissioner of Income Tax, (PAN: Circle-57, Kolkata-71 (Cross Objector) (Respondent) 1
ITA Nos.1101,1102,1291&1292/Kol/20015 CO Nos. 142 & 143/Kol/2005 Vodafone East Limited AYs. 2002-03 & 2003-04
Date of hearing: 20.10.2016 Date of pronouncement: 16.11.2016
For the Assessee : Shri Deepak Chopra, Advocate For the Revenue : Shri Niraj Kumar, CIT
ORDER Per Shri M. Balaganesh, AM:
All these appeals by assessee and revenue and Cross Objections by assessee are arising out of common order of Ld. CIT(A)-XL, Kolkata vide appeal nos. 0195/04-05 and 0196/04-05 dated 23.03.2005. Assessments were framed by ACIT, Circle-57, Kolkata u/s. 201(1)/201(1A) r.w.s. 194J of the Income-tax Act, 1961 (hereinafter referred to as the “Act”) vide his order dated 06.12.2004.
The only issue involved in all these appeals of the revenue and appeals of the assessee including its cross objections is, as to whether the assessee could be treated as ‘assessee in default’ in terms of section 201 of the Act and consequential interest u/s 201(1A) of the Act in respect of non-deduction of tax at source for payments made towards interconnect charges (including port charges, access charges, roaming charges and pass through charges) in the facts and circumstances of the case.
The brief facts of this issue are that the assessee is engaged in providing Cellular Mobile Telephony Services (CMTS) in Kolkata Telecom Circle after receipt of approval from the Department of Telecommunications (DOT). The ld AO while analyzing the profit and loss account of the assessee for the financial year 2001-02 relevant to Asst Year 2002-03, observed that the deductor has made payment to different telecom companies in the form of Roaming Charges, Pass Through Charges, PSTN Interconnect Fees and Inter Operator Charges. All these charges, in telecom parlance, are known as Access Charges. The assessee has entered into roaming arrangements with other telecom operators which have been given licence to operate as telecom service providers in other territories. The ld AO found that the assessee was making payment to various telecom operators such as BSNL, Sterling Cellular Ltd, Hutchison Max Telecom Pvt Ltd, Fecal
ITA Nos.1101,1102,1291&1292/Kol/20015 CO Nos. 142 & 143/Kol/2005 Vodafone East Limited AYs. 2002-03 & 2003-04 Ltd and such payments were in relation to roaming charges, PSTN Interconnect Fees, Pass Through Charges and Inter Operator Charges. According to ld AO, the said payments fall under the ambit of ‘fee for technical services’ and accordingly liable for deduction of tax at source in terms of section 194J of the Act. The assessee explained by way of an example as below :-
A call generated from a Hutch subscriber is first encountered in the assessee’s Base Transreceiver station and Base station controller. From these stations the call travels to Mobile switching Centre and upto this centre, such call signal had travelled on a wireless system. From the Mobile Switch Centre, it travels through electrical medium to the TX system of Hutch. From this stage, it travels through Optical Fibre Cables to TX system of BSNL from where it is routed to the appropriate BSNL exchange. From the BSNL exchange the voice signals is passed on to the receiver. For the use of leased line between TX system of Hutch to the TX system of BSNL and also between TX system of BSNL and BSNL exchange, the charges are termed as ‘Annual Rent and Guarantee, Rental and / or Leased Line Charges’ and the same is shown under PSTN Interconnect Fees in the books of the assessee. Depending upon the estimated number / traffic of calls, Hutch blocks the ports at the relevant BSNL exchange. For this purpose, BSNL charges ‘port charges’ which is also shown under the PSTN Interconnect Fees.
3.1. The assessee submitted that the services provided by these telecom companies were not technical services within the meaning of section 194J of the Act, that payments made to BSNL cannot suffer TDS as it is Central Government Company, that the other service operators had all paid their due taxes on these receipts and hence there was no further requirement to deduct tax at source. In support of these propositions, it placed reliance on the decision of the Hon’ble Madras High Court in the case of Skycell Communication Ltd vs DCIT reported in 251 ITR 53 (Mad) ; decision of Bangalore Tribunal in the case of Wipro Ltd vs ITO reported in 85 ITD 407 (Bang-Trib) and the decision of ld CITA XXX, New Delhi vide his appeal no. 138/04-05 dated 24.12.2004 in the case of M/s Hutchison Telecom Essar Ltd which in short held that use of standard facilities was not technical services within the meaning of section 194J of the Act. These arguments did not find favour with the ld AO and accordingly he charged tax u/s 3
ITA Nos.1101,1102,1291&1292/Kol/20015 CO Nos. 142 & 143/Kol/2005 Vodafone East Limited AYs. 2002-03 & 2003-04 201(1) of the Act amounting to Rs. 1,57,07,700/- and interest u/s 201(1A) of the Act amounting to Rs. 57,33,311/- in relation to FY 2001-02. Similarly he charged tax u/s 201(1) of the Act amounting to Rs. 2,71,45,200/- and interest u/s 201(1A) of the Act amounting to Rs. 58,36,218/- in relation to FY 2002-03.
Before the ld CITA, the assessee apart from reiterating the aforesaid submissions made specific submissions as to how the subject mentioned payments would not fall under the ambit of section 194I and section 194C of the Act based on specific query raised by the ld CITA in that regard. It was submitted that the provisions of section 194I of the Act cannot be made applicable to the assessee’s case as there was no use of any land or building of the telecom operators by the assessee. It was also submitted that section 194C of the Act applied to work in relation to labour work and as the assessee’s case has nothing to do with advertising, broadcasting and telecasting, carriage of goods and passengers and catering and hence section 194C of the Act cannot be made applicable to the assessee. It was submitted that when the assessee’s subscribers were allowed access to the infrastructure facilities of BSNL, no special application of efforts were required and hence there was no involvement of any work by BSNL or the other telecom operators.
4.1. With regard to application of section 194J of the Act, it was submitted that use of sophisticated technology such as a mobile phone or flying in an aircraft cannot be termed to be use or providing technical services within the meaning of section 194J of the Act. It was also submitted that use of standard facility cannot be equated with technical services being provided within the meaning of section 194J of the Act. The assessee also placed reliance on the decision of the Hon’ble Madras High Court supra wherein it was held that the fact that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber does not on that score make it provision of technical services to the subscriber within the meaning of section 194J of the Act. The Bangalore Tribunal supra also had held that technical services referred to section 9(1) of the Act contemplated rendering of service to the payer for a fee. Mere collection of a fee for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received for technical 4
ITA Nos.1101,1102,1291&1292/Kol/20015 CO Nos. 142 & 143/Kol/2005 Vodafone East Limited AYs. 2002-03 & 2003-04 services. The ld CITA duly appreciated the contentions of the aforesaid two rulings and concluded that the provisions of section 194J of the Act would not apply to the assessee’s case.
4.2. The ld CITA observed that in a lay man’s language, the telecom operators are providing use / lease of the Optical Fibre Cables connecting the assessee’s TX system to the TX system and exchange of BSNL(if paid to BSNL) , access to the TX system and the Exchange of the telecom operators (if paid to other operators), providing space or blocking space for the call traffic of the assessee in the telecom operator’s exchange and transmitting the call / voice signals to the receiver / destination for which charges / fees are levied from the assessee. Accordingly, he concluded that the telecom operators had performed certain works such as allowing call access, providing space for the call traffic and transmitting the said call / voice signals to the recipient. He stated that it can therefore be said without any controversy that the telecom operators had worked for the assessee’s business providing accessibility to its system, had worked to provide space in its system and had transmitted its goods / calls / voice signals to its destination and this work is substantially achieved through automation and technology. He further observed that it is common knowledge that work or any work is accomplished through the application of manual, mental and mechanical / technological power. In the modern age, computer technology has performed work that could not be performed or achieved through manual or mechanical applications. The term ‘any work’ in section 194C of the Act is not limited to the end result arising out of manual work above, but is an all inclusive definition covering all sorts of energy relatable to any work. The TX system and the Exchange System of the telecom operators are all performing work and the telecom operator’s action of receiving, sorting and releasing the call / voice signals are performance of work for the assessee through the application of sophisticated technology as a tool. Accordingly, when the telecom operators allow access, regulate space for the traffic and transmits the call / voice signals to their destination, it certainly had worked to get the results which it was contracted to discharge. Accordingly, he concluded that provisions of section 194C of the Act would be applicable to roaming charges, pass through charges and inter operator charges. He further concluded that PSTN
ITA Nos.1101,1102,1291&1292/Kol/20015 CO Nos. 142 & 143/Kol/2005 Vodafone East Limited AYs. 2002-03 & 2003-04 Interconnect fees consist of two charges i.e ‘Annual Rent and Guarantee Rental and / or leased line charges’ and ‘Port charges’ i.e regulating booking / blocking space for call traffic. Regulating space for call traffic has been already held to be performance of work. Accordingly he held that the component of port charges thereon would fall under section 194C of the Act. He held that annual rent and guarantee rent for the leased line i.e for Optic Fibre Cable linking TX System of the assessee to the TX and Exchange system of BSNL appears to be rental agreement for the use of the same and since the cable is neither land or building or fittings of the building, he held that the provisions of section 194C as well as section 194J of the Act would not apply.
Aggrieved, both the revenue as well as the assessee are in appeal before us. The revenue has preferred appeal before us on the ground that the provisions of section 194J of the Act alone could be made applicable in the instant case as against section 194C of the Act held by the ld CITA. The assessee has preferred appeal before us on the ground that the provisions of section 194C of the Act cannot be made applicable to the assessee in the instant case as held by the ld CITA. The assessee has also preferred cross objections before us that since the taxes have already been paid by the recipient telecom operators on the subject mentioned receipts, hence the assessee payer should not be treated as assessee in default u/s 201 of the Act and consequentially interest u/s 201(1A) of the Act could not be charged on the assessee.
The ld AR argued that the co-ordinate bench of this tribunal in assessee’s own case for the Asst Year 2009-10 and 2010-11 in ITA No. 1864/Kol/2012 ; ITA No. 243/Kol/2014 & ITA No. 343/Kol/2014 dated 15.9.2015 had elaborately discussed the aspect of applicability of TDS provisions u/s 194C, 194I and 194J of the Act in respect of the subject mentioned charges and ultimately held that the said TDS provisions are not applicable to the subject mentioned payments. He stated that the Hon’ble Supreme Court in the case of CIT vs Bharti Cellular Ltd reported in 330 TIR 239 (SC) had held that whether human intervention is required or not for rendering the services for which subject mentioned payments were made is to be examined from technical expert. Accordingly the statements were recorded by ACIT, Circle 51(1), New Delhi from Shri Tanay Krishna, technical expert , Group Leader (Project Planning) at C-DOT, Delhi in 6
ITA Nos.1101,1102,1291&1292/Kol/20015 CO Nos. 142 & 143/Kol/2005 Vodafone East Limited AYs. 2002-03 & 2003-04 connection with the assessment proceedings of M/s Vodafone Essar Mobile Services ltd (formerly known as Hutchison Essar Telecom Ltd) for the Asst Year 2003-04 on 29.9.2010. He also argued that Shri Tanay Krishna was also cross examined by the assessee’s representative in the presence of the ld AO on the same day i.e 29.9.2010. The relevant extracts of the examination and cross examination of Shri Tanay Krishna have been duly considered by this tribunal while rendering the decision in assessee’s own case for the Asst Years 2009-10 and 2010-11 supra vide order dated 15.9.2015 and held that the assessee payer is not obligated to deduct tax at source either in terms of section 194C, 194I and 194J of the Act and held that no human intervention is involved for these rendering of services.
The Learned DR vehemently argued that no technology in world could survive without human intervention. Moreover, we are concerned with the year 2002 for the impugned issues at which point of time, technology could not have been that much sophisticated as is presently available. Hence it would not be correct to say that no human intervention was required for rendering the subject mentioned services at that point of time. He argued that though nothing could be seen and everything is automated, but without the intervention of the human beings the technology would not function without any defects. The assessee pays roaming charges for services provided by the other operator (Visiting Operator) for connectivity of two mobile handsets while roaming. This is not wireless connectivity. Wireless connection is between handset and connecting tower. Thereafter it is only transmission lines through which the electrical signals travel. It has to be seen that how the voice travels to the other mobile network. It is pertinent to note that the sound does not travel. It gets converted into electrical signals and only those signals travel to the other network. He vehemently argued that the subject mentioned charges namely Roaming charges (Rs. 2,95,28,000/-) ; PSTN Interconnect fees (Rs. 1,23,85,000/-) and Pass Through Charges (Rs. 27,22,41,000/-) would fall under the ambit of TDS provisions u/s 194J of the Act as it involves human intervention. He further argued that the statements of Shri Tanay Krishna were recorded in the assessment proceedings of Vodafone Essar Mobile Services ltd (formerly known as Hutchison Essar Telecom Ltd) for the Asst Year 2003-04 on 29.9.2010. We are not aware as to what
ITA Nos.1101,1102,1291&1292/Kol/20015 CO Nos. 142 & 143/Kol/2005 Vodafone East Limited AYs. 2002-03 & 2003-04 happened ultimately in that assessment. Accordingly, he placed reliance on the recent decision of co-ordinate bench of Mumbai Tribunal in the case of Reliance Communications Ltd vs ACIT reported in (2016) 69 taxmann.com 307 (Mumbai-Trib.) dated 11.4.2016 wherein the head notes read as under:-
“Section 194J, read with section 201, of the Income-tax Act, 1961 - Deduction of tax at source - Fees for technical services - Assessment years 2010-11 and 2011-12 - Assessee telecom operator submitted that since payment of roaming charges to other telecom operator did not require any human intervention, it could not be regarded as fees for technical services requiring TDS under section 194J - It was noted that issue as to whether roaming charges paid by assessee to other telecom operator was in nature of 'fees for technical services' did not reach final conclusion, in view of fact that case of Vodafone Essar Mobile Services Ltd., dated 31-12-2010 had not been concluded by any appellate authority or any court - Whether, therefore, Tribunal should be refrained from deciding issue whether roaming charges paid were in nature of ‘fees for technical services’ and assessee was liable for deduction of tax at source under section 194J - Held, yes - Whether, however, since assessee had furnished declaration from various payees and had also furnished PAN details and jurisdiction in which payees were assessed for tax, assessee could not be treated as 'assessee-in-default' - Held, yes - Whether since deductees had themselves incurred huge losses and thus, no income-tax was payable, assessee could not be held to be assessee-in-default nor non-deduction of tax would entail levy of interest under section 201(1A) - Held, yes [Paras 13, 14 and 15] [Partly in favour of assessee/Matter remanded]” 7.1. The Learned DR further argued the provisions of Explanation 2 to section 9(1)(vii) of the Act. For the sake of convenience, it is reproduced hereunder:—
'(vii) income by way of fees for technical services payable by - Explanation 2 - For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the 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".' He argued that the term 'managerial' or 'consultancy' services definitely require human intervention. Hence the term 'technical' which is sandwiched between the term 'managerial' and 'consultancy' should be given the same meaning as having human intervention. He also argued that these three words are not inter-connected. Rather they are independent. He argued that this aspect was not considered by the Delhi High Court in CIT v. Bharti Cellular Ltd. [2009] 319 ITR 139/[2008] 175 Taxman 573 which travelled later to Supreme Court while rendering the judgement in Bharti Cellular Ltd. case (supra).
ITA Nos.1101,1102,1291&1292/Kol/20015 CO Nos. 142 & 143/Kol/2005 Vodafone East Limited AYs. 2002-03 & 2003-04 8. In defence, the ld AR argued that the following decisions were not brought to the notice of Mumbai Tribunal while rendering the judgement relied upon by the ld DR :-
Vodafone East Ltd reported in 156 ITD 337 (Kolkata Trib) ; Dishnet Wireless Ltd vs DCIT in ITA Nos. 320 to 329/Mad/2014 dated 20.7.2015 (Chennai Trib) Bharti Hexacom Ltd vs ITO TDS in ITA No. 656/JP/2010 dated 12.6.2015 (Jaipur Trib)
He also placed reliance on the decision of the Hon’ble Karnataka High Court in the case of CIT TDS Bangalore vs Vodafone South ltd reported in (2016) 72 taxmann.com 347 (Karnataka) vide order dated 28.7.2016 wherein the Hon’ble Karnataka High Court after considering the decisions of the Hon’ble Apex Court in the case of CIT vs Bharti Cellular Ltd [330 ITR 239 (SC) ] and CIT vs Kotak Securities Ltd [(2016) 383 ITR 1 (SC) ] had held on the impugned issue as under:-
“11. 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. 12. As such, even if we consider the observations made by the Apex Court in the case of Bharti Cellular Ltd., 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 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. Coupled with the aspect that the Tribunal has relied upon the decision of the Delhi High Court for taking support of its view. 13. 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.”
We have heard the rival submissions and perused the materials available on record. The facts with respect to various payments made by the assessee to other telecom operators remain undisputed and hence the same are not reiterated for the sake of brevity. The short point that arises for our consideration is as to whether the subject mentioned payments made by the assessee would fall within the ambit of tax deduction
ITA Nos.1101,1102,1291&1292/Kol/20015 CO Nos. 142 & 143/Kol/2005 Vodafone East Limited AYs. 2002-03 & 2003-04 provisions either u/s 194C or u/s 194J of the Act. We find that this issue has been examined in detail by this tribunal in ITA No. 1864/Kol/2012 ; ITA No. 243/Kol/2014 and ITA No. 343/Kol/2014 for the Asst Years 2009-10 and 2010-11 vide order dated 15.9.2015 in assessee’s own case , wherein it was held that :- 4.10 We have heard the rival submissions and perused the materials available on record. It would be pertinent to note here that roaming services are provided by other telecom operators by using their existing telecom network/infrastructure and no incremental investment is required to put up any additional network/infrastructure for provision of such roaming services. The aforesaid fact lends further support to the contention that roaming services are standard automated services, which are provided by other telecom operators to subscribers of VEL using the same network/infrastructure as is used by such operators for provision of telecommunication services to its own subscribers. Therefore, in essence, roaming services are similar in nature to the telecom services provided by a telecom operator to its own subscribers and hence roaming charges would partake the same character as the normal telecommunication charges paid by a subscriber to its service provider. 4.11 We are not in agreement with the arguments of the Learned DR that the word 'technical' used in Explanation 2 to Section 9(1)(vii) of the Act should take the same character of 'managerial' or 'consultancy' provided in the said section wherein human intervention is required and accordingly even for technical services, human intervention is definitely required. In this regard, the Hon'ble Delhi High Court in the case of Bharti Cellular Ltd (supra) had held that since the entire process of making a call and switching the call from one network to the other is done automatically on the basis of machines and does not involve any human interface, the interconnect charges cannot be regarded as Fee for Technical Services (FTS) and hence would not fall in the ambit of section 194J of the Act. We find that on further appeal by the revenue to the Honble Supreme Court in Bharti Cellular Ltd (supra), the Honble Apex Court had stated that "right from 1979 various judgements of the High Courts and Tribunal have taken the view that the words "technical services" have got to be read in the narrower sense by applying the rule of noscitur a sociis, particularly, because the words "technical services" in section 9(1)(vii) r.w. Explanation 2 comes in between the words "managerial and consultancy services". We find that the principles laid down by the Delhi High Court have been accepted by the Apex Court as such and the Apex Court has merely directed the TDS officer to carry out factual verification to determine the extent of human involvement. Based on this direction, the CBDT had also issued Instruction No. 5 of 2011 dated 30.3.2011 instructing the revenue authorities to seek opinion of technical experts in case of complex technical matters. 4.12 As per the directions of the Supreme Court in the case of Bharti Cellular Ltd. (supra), the TDS officer has been directed to obtain technical evidence from the experts in the telecom field with regard to the fact of existence of human intervention for the roaming services and accordingly the ACIT, Circle 51(1), New Delhi had recorded statement from Shri Tanay Krishna on 29.9.2010. The Learned AR has also filed prayer for receipt of additional evidence in terms of Rule 29 of ITAT Rules on 20.7.2015 containing the statements recorded from Shri Tanay Krishna on 29.9.2010 10
ITA Nos.1101,1102,1291&1292/Kol/20015 CO Nos. 142 & 143/Kol/2005 Vodafone East Limited AYs. 2002-03 & 2003-04 in the case of Vodafone Essar Mobile Services Ltd & cross examination by Vodafone Essar Mobile Services Ltd on 29.9.2010. This application under Rule 29 contains a prayer with reasons that these documents could not be filed before the lower authorities and that these documents are very crucial for the disposal of the case under appeal as the examination of the technical experts had taken place post the proceedings before the Assessing Officer and as per the directions of the Hon'ble Supreme Court, these statements were recorded in the case of the group company of the assessee. However, it is seen that the statement of Shri Tanay Krishna on 29.9.2010 have been relied upon by the Learned CIT(Appeals) vide page 29 of his order but the cross examination of Shri Tanay Krishna is not in records of the lower authorities. We find that the statement is very much relevant for the disposal of these appeals and are hereby admitted as additional evidence (in respect of cross examination statement of Shri Tanay Krishna on 29.9.2010) in terms of Rule 29 of ITAT Rules as they go into the root of the issue. 4.13 We find that this issue need not be set aside to the file of the Learned Assessing Officer for seeking fresh technical evidences from experts as the same had already been obtained in the case of the group company of the assessee and CBDT had also issued Instructions in this regard to seek evidences. Any technical evidence obtained in a case can be used in the case of another assessee as long as the facts and circumstances involved are identical. In the instant case, the facts in the case of Vodafone Essar Mobile Services Ltd are identical with the facts of the assessee herein and also it happens to be the group company of the assessee. 4.14 Shri Tanay Krishna's statement—questions and answers - 4, 5, 6 & 16 are reproduced below :— Question 4: Can you enlighten us about the functioning of the network system of the cellular operators at the time of receiving or providing inter-connect services to each other including installation, interconnectivity etc from the very beginning? Ans. 4: As regards to interconnect to Gateway switches/MSC of two different operators are interconnected using any transport technology which involves wires as well as human interface for setting up. It involves different phases — (i) Planning phase— where how much capacity required and how much traffic handling capacity is required on these basis hardware and software is determined. (ii) Selection of vendor - is done to determine who will provide these services along with his consultancy. (iii) Hardware and software is supplied by the vendor and it is customized to the need of the network as per the TEC specifications. (iv) Installation as per vendor guidelines - it involves installation of both hardware and software. (v) Call configuration/provisioning of system - in this the operator has to configure and make provision in data base as to how the calls will flow. This has to be done by a technically competent person. (vi) Testing - it is exhaustive testing. The calls are tested on various modes (terminating, loading etc) on network portion. 11
ITA Nos.1101,1102,1291&1292/Kol/20015 CO Nos. 142 & 143/Kol/2005 Vodafone East Limited AYs. 2002-03 & 2003-04 (a) Software by hardware testing - Stand alone testing (b) Interconnect testing - it is done to test if it is compatible with other hardware/software. This testing employs technically qualified professionals and tested as per the agreed plan between services provider and vendor. Question 5: In your expert opinion, does the system work automatically when network system of one cellular operator gets connected with the network system of other cellular operator? Ans. 5: When a calls get connected by one operator to other, per se it is an automatic connection, but there can be instances when there is a problem in the call connect which may require resolution through human intervention. Question 6: Hence there is no 100% automatic operation of this network. Can you explain what kind of human intervention is required? Ans. 6: Yes as I said earlier it can't be 100% fully automated. There are several circumstances under which human intervention would be required. I would briefly tell you about each of such circumstances — (a) There could be a case where there is failure in physical hardware. (b) There could be a problem due to software bug. (c) There could be snapping of fibre optic cables. In (a), (b), (c) above you are required intervention of teams of technical experts to remedy the situation. Question 16: Please tell us the places or points or areas where human intervention with each other? Ans. 16: As has been detailed in several answers that I have given earlier, one can broadly say that when there is an interconnection between two service providers, human intervention is constantly required for management of network/System, capacity enhancement and monitoring of system/network. 4.15 Cross examination proceedings of Shri Tanay Krishna - questions and answers - 3, 4, 5, 7, 11 & 12 are reproduced below:— Q.3. What is the process of carriage of calls originating on network of one operator and terminating on the network of the other operator? The call from one network to the other network flows automatically, i.e. without any human intervention. Once a call originates, the call travels automatically. In establishment of a call, therein no human intervention i.e., once a subscriber dials and the call gets connected without any fault, then there is no human intervention. Intervention is required only when the call is not successful, i.e., the call fails due to any reason. Q. 4. Is any human intervention involved in the entire process of carriage of call from one operator to another? No, as stated above, no human intervention is required in the process of carriage of calls. However, human intervention is required at the inter-connect set-up stage (including configuration, installation, testing, etc.) and capacity enhancement,
ITA Nos.1101,1102,1291&1292/Kol/20015 CO Nos. 142 & 143/Kol/2005 Vodafone East Limited AYs. 2002-03 & 2003-04 monitoring (including network monitoring), maintenance, fault identification, repair and ensuring quality of service as per interconnect. Q.5. From the perusal of your answer to Question 4 of your Statement, it appears that the phases described thereon are restricted to merely setting-up of the inter- connect between the networks of the two operators and not during actual carriage of the call by one operator for the other. Please confirm. Yes. Q.7. From perusal of your answers to various questions posed to you by the Tax Department, you have mentioned that services of a technical expert are required for inter-connect arrangements. Please confirm whether such services are required for provision of inter-connect services, i.e., carriage of calls from one network to another, or are primarily for fault detection and removal. Please refer to answer to Question 4 of this cross examination. Q.11. What is the extent of human involvement in provision of interconnect services. i.e., carriage of calls originating on network of one operator and termination the network of the other operator? We have answered in question no 5. Q.12. In answer to Question 21 of your Statement, you have stated that in cellular networks the level of human intervention is much higher and of sophisticated technical level. In this regard, do you agree that cellular networks are based on sophisticated technology and work on an automated mode? The human intervention as referred by you for network operations is limited to network monitoring and maintenance and fault repair, rectification, enhancement, configuration, and set- up? We agree that the telecom networks are automated networks and do not require human intervention for carriage of calls. However, as stated in Question 4 of this cross examination, human intervention is required at the inter-connect set-up stage (including configuration, instalation, testing, etc) and capacity enhancement, monitoring (including network monitoring), maintenance, fault identification, repair and ensuring quality of service as per interconnect. 4.16 The next argument of Learned DR that roaming charges are paid for both interconnectivity and also for usage of transmission lines and human intervention is very much involved with regard to usage of transmission lines. We find that the human involvement is involved only when something goes wrong in the maintenance of transmission lines and for connectivity per se, human intervention is not involved. This issue could also be looked into from the angle of applicability of TDS provisions on Transmission Charges/wheeling charges paid by power generating companies. This issue had reached the corridors of various judicial forums and now has been put to rest by the following decisions:— CIT (TDS) v. Maharashtra State Electricity Distribution Co. Ltd [2015] 375 ITR 23/232 Taxman 373/58 taxmann.com 339 (Bom) Auro Mira Biopower India (P.) Ltd. v. ITO TDS [2015] 55 taxmann.com 452/68 SOT 188 (Chennai-Tribunal)
ITA Nos.1101,1102,1291&1292/Kol/20015 CO Nos. 142 & 143/Kol/2005 Vodafone East Limited AYs. 2002-03 & 2003-04 Dy. CIT v. Delhi Transco Ltd. [2014] 52 taxmann.com 261 (Delhi - Trib.) The various decisions cited supra have held that there will be no TDS on transmission charges and the same analogy would apply with equal force in the case of transmission charges in telecom industry. 4.17 From the aforesaid statement recorded from technical experts pursuant to the directions of the Supreme Court in Bharti Cellular Ltd . case (supra) which has been heavily relied upon by the Learned CITA, we find that human intervention is required only for installation/setting up/repairing/servicing/maintenance/capacity augmentation of the network. But after completing this process, mere interconnection between the operators while roaming, is done automatically and does not require any human intervention and accordingly cannot be construed as technical services. It is common knowledge that when one of the subscribers in the assessee's circle travels to the jurisdiction of another circle, the call gets connected automatically without any human intervention and it is for this, the roaming charges is paid by the assessee to the Visiting Operator for providing this service. Hence we have no hesitation to hold that the provision of roaming services do not require any human intervention and accordingly we hold that the payment of roaming charges does not fall under the ambit of TDS provisions u/s 194J of the Act. 4.18 As far as the applicability of provisions of section 194C are concerned, we hold that the provisions of section 194C of the Act would become applicable only where some work (works contract) is being carried out and there is some human intervention involved in the carriage of such work. The term 'work' is defined in section 194C as follows:— "Work shall include: (a) Advertising; (b) broadcasting and telecasting including production of programmes for such broadcasting or telecasting; (c) carriage of goods or passengers by any mode of transport other than by railways; (d) Catering; (e) manufacturing or supplying a product according to the requirement or specification of the customer by using material purchased from such customer, but does not include manufacturing or supplying a product according to the requirement or specification of a customer by using material purchased from a person, other than such customer."
We hold that 194C is applicable only where any sum is paid for carrying out any work including supply of labour for carrying out any work. Thus, 'carrying out any work' is the substance for making the payment relating to such work, liable for deduction of tax at source u/s 194C of the Act. For carrying out any work, manpower is sine qua non and without manpower, it cannot be said that work has been carried out. Under section 194C each and every work/service is not covered, hence the nature of work done or service performed is required to be seen. Moreover, the term 'work' is defined in section 194C of the Act. The word 'work' in section 194C referred to and comprehends only the activities of workman. It is the physical force which has comprehended in the word 'work'. We have already held that the payment of roaming charges does not require any human 14
ITA Nos.1101,1102,1291&1292/Kol/20015 CO Nos. 142 & 143/Kol/2005 Vodafone East Limited AYs. 2002-03 & 2003-04 intervention. Hence in the absence of human intervention, the services rendered in the context of the impugned issue does not fall under the definition of 'work' as defined in section 194C and hence the provisions of section 194C are not applicable to the impugned issue.
9.1. We find that there is no dispute on the non-applicability of provisions of section 194I of the Act in the instant case. We also draw support of our finding from the decision of Delhi Tribunal in the case of Bharti Airtel Limited & Anr vs ITO & Anr in ITA Nos. 3593 to 3596/Del/2012 and ITA Nos. 4076 to 4079/Del/2012 dated 17.3.2016 reported in (2016) 46 CCH 0304 DelTrib , wherein they have held that the subject mentioned payments do not fall under the ambit of ‘fee for technical services’ or under ‘royalty’ u/s 194J of the Act.
9.2. We also draw support from the recent decision of the Hon’ble Karnataka High Court in the case of CIT, TDS Bangalore vs Vodafone South Ltd reported in (2016) 72 taxmann.com 347 (Karnataka) vide order dated 28.7.2016 , wherein the head notes read as under:-
Section 194J , read with section 201 of the Income Tax Act, 1961 – Deduction of tax at source – Fees for professional or technical services (Roaming charges) – Asessment Years 2005-06 to 2012-13 – Assessee was a mobile service provider company – Whether payment made by assessee to another mobile service provider company for utilization of roaming mobile data and connectivity could not be termed as technical service as roaming process between participating entities was fully automatic and did not require any human intervention and, therefore, no TDS was deductible – Held, yes (paras 12 & 13 ) [In favour of assessee].
9.3. Respectfully following the aforesaid decisions, we hold that there is no obligation to deduct tax at source for the assessee payer in terms of section 194C or 194J of the Act and hence the assessee cannot be treated as ‘assessee in default’ u/s 201 of the Act. Hence consequentially the interest u/s 201(1A) of the Act cannot be charged on the assessee in the instant case. Since we have decided the issue at the threshold level itself, the other grounds raised by the assessee in his cross appeal as well as in cross objections that the payee had considered these receipts in its returns and hence the assessee should not be treated as assessee in default, becomes infructuous and we refrain to give our findings thereon. Accordingly, the grounds raised by the assessee in its cross appeal as 15
ITA Nos.1101,1102,1291&1292/Kol/20015 CO Nos. 142 & 143/Kol/2005 Vodafone East Limited AYs. 2002-03 & 2003-04 well as in cross objections for the Asst Years 2002-03 and 2003-04 are allowed and that of the revenue are dismissed.
9.4. The decision rendered for Asst Year 2002-03 would apply with equal force for Asst Year 2003-04 also as identical facts are involved except with variance in figures.
In the result, the appeals and cross objections of the assessee for the Asst Years 2002-03 and 2003-04 are allowed and appeals of the revenue are dismissed.
Order is pronounced in the open court on 16.11.2016. Sd/- Sd/- (S.S. Viswanethra Ravi) (M. Balaganesh) Judicial Member Accountant Member
Dated : 16th November, 2016
Jd.(Sr.P.S.)
Copy of the order forwarded to:
Appellant – Vodafone East Ltd., 11, Dr. U. N. Brahmachari Street, 1. Kolkata-17 Respondent –ACIT, Circle-57, Kolkata 2 The CIT(A), Kolkata 3. 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order,
Asstt. Registrar.