TATA TELESERVICES(MAHARASHTRA) LTD,NAVI MUMBAI vs. ASST CIT (TDS) 3(1), MUMBAI

PER BENCH

These four appeal by the assessee are directed against a common order dated 30th January 2014, passed by the learned Commissioner (Appeals)–13, Mumbai, pertaining to assessment year 2009–2010, 2010–11, 2011–12 and 2012–13.

3 M/s. Tata Teleservices (Maharashtra) Limited kits and recharge vouchers and further demand raised under section 201(1) and 201(1A), on alleged failure of the assessee to deduct tax at source under section 194J of the Act, in respect of payments made towards roaming service provided by other telecom service providers. Facts being common in all the assessment years, therefore, as a matter of convenience, we refer to the facts as involved in assessment year 2009–10.

4 M/s. Tata Teleservices (Maharashtra) Limited various telecom circles in the country. Under such license, the assessee has offered two types of service to the public. The first kind of service provided is post–paid mobile service wherein the customers open account with the assessee and make the payment on monthly basis against bills raised. In that case, the assessee provides services to its customer at the first instance and, thereafter, issues bills and realises the proceeds. The Assessing Officer noticed, the assessee company has appointed a number of distributor to manage the distribution business of post–paid mobile services where the distributors are supposed to identify the customer, ensure proper documentation of the connection on behalf of the assessee, attend to the complaints of the customers, account for the air time consumed by the customers and carry out the work of raising bills and collection of the proceeds. The Assessing Officer found that in this segment the assessee is paying commission to the distributors for the service rendered by them and is deducting tax at source in terms of section 194H depending upon the payment made. In the second segment, the assessee renders pre–paid mobile service. In this segment, the assessee delivers start–up kit and recharge coupon vouchers of fixed denomination coupled with specific air time duration to the customers. The customers pay in advance and use start–up kits and re–charge coupon vouchers by activating their mobile connection provided by the

5 M/s. Tata Teleservices (Maharashtra) Limited assessee. The Assessing Officer found that similar to post paid services, in this segment also, assessee appoints State–wise Distributors for identifying the customers and distributing the pre–paid products to the customers. Only difference between the two segments is, in pre–paid the customers are paying in advance to the distributors as well as the distributors are paying in advance to the assessee. On the basis of material on record, Assessing Officer found, in case of pre–paid cellular service, the assessee appoints a number of distributors on the basis of agreements. While taking delivery of the starter kits and recharge vouchers, the distributors make payment to the assessee towards the cost of such product. He noticed that the maximum retail price (MRP) is mentioned on every product. As per the agreement, distributors / retailers are not permitted to sell the product to the ultimate consumers beyond the MRP. The assessee is delivering these products to the distributors for a specified margin. For e.g., if MRP of the product is ` 100, the assessee delivers the same to its distributor at ` 80, which is the invoice price of the company and the assessee collects this invoice price in advance from the distributors. However, the distributors are permitted to deliver the products to the ultimate consumers at a price of their choice not exceeding the MRP of ` 100 per unit. Thus, the margin of the distributors is the difference between the sale price and invoice price. The Assessing Officer found

6 M/s. Tata Teleservices (Maharashtra) Limited that the difference in invoice price and sale price is treated as a discount in assessee’s books of account, however, no TDS was made by the assessee on such amount. From the aforesaid facts, the Assessing Officer was of the view that the distributors were performing the same service with regard to pre–paid as it is performing in case of post–paid. Therefore, there is no basis for differentiating between post–paid and pre–paid sim cards as far as applicability of TDS provision is concerned. The Assessing Officer was of the view, regardless of the treatment of the margin kept by the distributor in case of pre–paid sim as discount, it is nothing but commission liable for TDS under section 194H. On the basis of the aforesaid inference drawn, the Assessing Officer issued a notice to the assessee to show cause as to why it should not be treated as assessee in default under section 201(1), for non–deduction of tax at source on payments made to the distributors. In response to show cause notice issued by the Assessing Officer, assessee furnishing the agreement with the distributors as well as other documentary evidences, submitted, the distributors place orders on the company on regular basis as and when there stocks get depleted for further purchase of products as far as pre–paid start–up kits are concerned. It was submitted, distributors after placing the orders make payment of amount which is net of discount allowed by the company and the company also records the

7 M/s. Tata Teleservices (Maharashtra) Limited revenue in its books of account at the net of the discount. It was submitted, company after receiving the payments delivers the products to the distributor under a valid tax invoice and deliver challan and not under any stock transfer note. The assessee discharges its liability to pay sales tax collected from the distributor as per the tax invoice generated during the month. To substantiate this fact, assessee referred to its books of account where the sim cards are shown as stock–in–trade. It was submitted by the assessee, it files regular sales tax / VAT returns accounting such sales to the distributors. It was submitted, in respect of recharge vouchers also, assessee follows the same method of accounting. Thus, on the basis of the documentary evidence, it was claimed by the assessee that the relationship between the assessee and the distributor is not that of an agency but on principal–to–principal basis and similar to any purchase and sale of goods. It was submitted, once the assessee sells its products it has no control over the sale price of such products which happens between the distributors and their retailers. It was submitted, once the assessee sells the products, it is the responsibility of the distributor to effect further sale of such products to the retailers through proper invoice. The assessee submitted, as per the Package Commodities Rules, any product which is in packed form requires to carry the MRP price over the product. Therefore, the assessee sells its

8 M/s. Tata Teleservices (Maharashtra) Limited product allowing trade margin on the transaction at the point of sale of such product to the distributor and has no control over the price at which the distributor further sells the product subject to condition such price does not exceed the MRP. The assessee also made further submissions supported by documentary evidence to demonstrate that transaction between the assessee and the distributor as far as pre– paid sim cards and recharge vouchers are concerned is a purchase and sale transaction simplicitor. On the basis of submissions made, it was stated by the assessee that provisions of section 194H are not applicable in respect of transaction between the assessee and the distributor relating to pre–paid sim cards and re–charge vouchers. The assessee submitted, it neither pays any income nor is responsible for paying to the distributor any amount either in the form of commission or otherwise for sale of the products. It was submitted, assessee is even not aware of the price at which the sim cards and recharge vouchers were sold by the distributors to retailers and the retailers to ultimate consumers. Referring to the provisions of section 194H, it was submitted by the assessee, there has to be a payment direct or indirect to attract the provisions. In the instant case, as there was no payment at all either in monetary terms or in terms of goods or services, provisions of section 194H are not attracted. Unless it is established on record that there is payment of commission on account

9 M/s. Tata Teleservices (Maharashtra) Limited of service rendered by an agent on behalf of the principal, provisions of section 194H is not applicable. Thus, it was submitted by the assessee that there being no relationship of principal–to–agent between the assessee and the distributors as far as pre–paid transactions are concerned, there is no liability the assessee to deduct tax under section 194H. In support of such contention, assessee relied upon a number of judicial pronouncements. The Assessing Officer, however, did not find merit in any of the submissions made by the assessee. Ultimately, he concluded that the discount on MRP allowed by the assessee to the distributor is nothing but commission, hence, provisions of section 194H are attracted. He observed, as the assessee has failed to deduct tax in terms of section 194H, assessee should be treated as assessee in default. Accordingly, he proceeded to pass an order under sections 201(1) and 201(1A), raising demand of tax and interest against the assessee. Being aggrieved of the order passed under sections 201(1) and 201(1A) as aforesaid, the assessee preferred appeal before the learned Commissioner (Appeals).

10 M/s. Tata Teleservices (Maharashtra) Limited and 201(1A), upheld the impugned order of the Assessing Officer observing as under:–

3.4 As there is no change on facts in these assessment years involved and issue thus remain identical on facts, is squarely covered against appellant. Hence, respectfully following the same, I am in agreement with the action of A.O. and accordingly the action of A.O. to hold the appellant an assessee in default for not deducting tax and consequently levying of interest for the default on the part of appellant for not deducting tax on said discount and thus attracting interest on the same which is included in total interest levied under section 201(1)/201(1A) of ` 9,50,36,449 for A.Y. 2009–10, ` 5,95,44,354 for A.Y. 10–11, ` 9,43,72,450 for A.Y. 11–12 and ` 2,83,31,306 for A.Y. 12–13 are confirmed. The ground no.1 to 8 in A.Y. 2009–10 and ground no.1 to 9 in A.Y. 2010–11, 11–12 and 12–13 are dismissed.”

11 M/s. Tata Teleservices (Maharashtra) Limited relationship between the assessee and the distributors to treat the discount as commission. He submitted, in fact, the assessee has not paid any amount to the distributors. He submitted, the amount charged by the assessee in the invoice was also reflected in the books of account, as the sale price of the pre–paid sim card / starter kit. He, therefore, submitted that the issue being squarely covered by the decision of the Hon'ble Karnataka High Court, the orders passed by the Departmental Authorities should be set aside.

12 M/s. Tata Teleservices (Maharashtra) Limited only for the purpose of allowing margin to the distributors. The assessee does not sell the starter kit pre–paid sim card to the distributor at the MRP but at a lesser price. The distributor is permitted to sell the starter kit / pre–paid sim card to the retailer / consumers after retaining his margin but under no circumstances, the distributor can charge over and above the MRP. For example, if the MRP of the starter kit is ` 100, the assessee sells it to the distributor at ` 80 and the distributor can sell it to the retailer or customer for a price ranging from ` 80 to ` 100. However, as far as the assessee is concerned, it raises the invoice for ` 80 only to the distributer and also the same amount is reflected in the books of account towards the sale price. The assessee never credits the amount of ` 100 towards the sale price and allows discount of ` 20 in its books of account. Thus, as far as the assessee is concerned, sale price of the starter kit / sim card is ` 80. Furthermore, as per the terms and conditions, once the sim card / starter kits are sold to the distributor, the sale is complete and under no circumstances, they can be returned back to the assessee. From the aforesaid facts, it is clearly evident that as far as sale of starter kit / sim card is concerned, it is purely a purchase / sale transaction on principal–to–principal basis and there is no relationship of agency. That being the case, the provisions of section 194H are not applicable. The Hon'ble Karnataka High Court after examining in detail the

13 M/s. Tata Teleservices (Maharashtra) Limited aforesaid factors have decided the issue in favour of the assessee by reversing the order of the Tribunal. In view of the changed scenario, after the order of the Hon'ble Karnataka High Court as referred to above, the decision of the learned Commissioner (Appeals) cannot be sustained. In fact, ITAT, Jaipur Bench, in case of M/s. Tata Teleservices Ltd. v/s ITO, ITA no.309/Jp./2012 and others, dated 13th March 2015, following the decision of Hon’ble Karnataka High Court (supra), held that provisions of section 194H is not attracted on the discount given on sale of pre–paid starter kit and accordingly, following the decisions referred to above, we set aside the impugned order of the learned Commissioner (Appeals) and quash the demand raised by the Assessing Officer under sections 201(1) and 201(1A).

14 M/s. Tata Teleservices (Maharashtra) Limited and no TDS has been deducted on such roaming charges. He, further noticed that the term “roaming” as actually means an arrangement whereby a subscriber of a cellular phone uses cellular service outside the home network. He noticed that the subscriber who is not roaming gets service from his home operator while a subscriber who is roaming will get service from both the host operator and home operator and the host operator charges the home operator for providing telecom services to the subscriber of the later. Based on the usage, the host operator raises invoice on the home operator and the home operator in turn recovers from its own subscribers. The Assessing Officer noted, when a customer of a telecom operator like the assessee makes a STD / ISD call to the subscriber of same network or another network but operating in another telecom circle, it has to pay inter–connectivity charges to the carrier company which carries the call from the assessee’s network in Mumbai to the other network at a particular place. The Assessing Officer observed, the services provided by the carrier company is in the nature of technical services and, hence, payment made towards roaming / inter–connectivity charges are fees for technical service and attracts the provisions of section 194J. The Assessing Officer observed, though, as per the industry practice, TDS is being deducted on the inter–connectivity charges in terms of section 194J but the assessee has not deducted any TDS on roaming / inter–

15 M/s. Tata Teleservices (Maharashtra) Limited connectivity charges paid to other telecom network. The Assessing Officer, therefore, called upon the assessee to justify its action in not deducting the tax at source. In response to the query raised by the Assessing Officer, the assessee in its letter dated 8th November 2011 submitted, the provisions to section 194J are not applicable on the payment made to other operators for the inter–connection usage charges as it is in the nature of standard service provided through technology without any human involvement or intervention. It was submitted, transferring the calls generated from one network to the subscriber of another network does not involve any manual labour. Rather, it is a highly technical activity done through machines. It was submitted, the Hon'ble Supreme Court in Bharti Cellular Ltd., has dismissed the department’s appeal with a direction to the Departmental Authorities to seek expert technical opinion in the matter and allow further cross–examination of the expert. Thus, it was submitted by the assessee that without obtaining report from the technical expert and cross–verification by the assessee, it cannot be held that the services rendered are technical service with human intervention. The Assessing Officer after considering the submissions of the assessee observed, after the Hon'ble Supreme Court in Bharti Airtel Ltd. (supra) directed the Departmental Authorities to obtain a technical report, the department obtained such report and on the basis

16 M/s. Tata Teleservices (Maharashtra) Limited of such report, it was held that there was human intervention / involvement, hence, provisions of section 194J is attracted. Accordingly, alleging that assessee failed to deduct tax in terms of section 194J on the payment made towards inter–connectivity charges treated the assessee as assessee in default raised demand under sections 201(1) and 201(1A). Being aggrieved of such decision of the Assessing Officer, assessee preferred appeal before the learned Commissioner (Appeals).

“4.2 In the instant cases under appeal it is seen that the A.O. has already obtained technical opinion following decision given by Honourable Apex court in Bharti Cellular 2010–TIOL–65–SC–IT as in coming out form order itself. In the case when there is no different opinion that it is a service provided by one operator to the other, I am of the view that same needs to upheld. Accordingly, action on of A.O. is upheld. Ground no.10 to 15 are dismissed.”

17 M/s. Tata Teleservices (Maharashtra) Limited Assessing Officer in assessee’s case has decided the issue. He submitted, in assessee’s case, neither the Assessing Officer has obtained a report from technical expert nor the assessee was allowed to cross examine the technical expert. Learned Authorised Representative submitted, in any case of the matter even assuming that the technical report submitted in case of Vodafone Essar Mobile Services Ltd., would be applicable to the assessee’s case also, still the issue has to be decided in favour of the assessee as the Tribunal, Kolkata Bench, after taking into consideration the technical report submitted, in case of Vodafone Essar Mobile Services Ltd.,, has held that inter–connectivity / roaming charges paid to other telecom network for roaming services provided do not require any human intervention and accordingly payment for roaming charges cannot be treated as fees for technical services so as to attract provisions of section 194J of the Act. He, therefore, submitted that the issue having been decided by the Tribunal, in favour of assessee, the orders passed by learned Commissioner (Appeals) and the Assessing Officer cannot be sustained.

18 M/s. Tata Teleservices (Maharashtra) Limited 12. We have considered the submissions of the parties and perused the material available on record. On a perusal of the impugned order passed under section 201(1), it leaves no room for doubt that the Assessing Officer by relying upon the report of the technical expert in case of Vodafone Essar Mobile Services Ltd., has concluded that the roaming services provided by other telecom operators are technical and managerial services, hence, charges paid towards such services is fees for technical services coming within the ambit of section 194J. It is very much evident that though in case of Bharat Airtel Ltd. (supra), the Hon'ble Supreme Court has directed the Departmental Authorities to ascertain from a technical expert the extent of human involvement in providing the services, but the Assessing Officer in case of assessee has not undertaken any such exercise. He has simply referred to the report obtained from technical expert in case of Vodafone Essar Mobile Services Ltd. Further, the Assessing Officer has not given any opportunity to the assessee to cross–examine the technical expert. For these reasons alone, the demand raised cannot be sustained. Even otherwise also, as brought to our notice by the learned Authorised Representative, identical issue relating to applicability of the provisions of section 194J to inter–connectivity / roaming charges was examined by the Tribunal, Kolkata Bench, in case of Vodafone East Ltd., ITA no.1864/Kol./2012 and Ors., dated 15th September 2015. The Bench,

19 M/s. Tata Teleservices (Maharashtra) Limited after examining the technical report obtained in case of another company in the group viz. Vodafone Essar Mobile Services Ltd. observed that if the facts are similar, there is no need to set aside the issue to the Assessing Officer for obtaining a fresh technical report in case of the assessee. After analysing the technical report from the expert, the Bench found that the roaming / inter–connectivity services provided by other telecom operators is through standard automated services with the aid of existing network / infrastructure used by such operator for providing telecommunication services to their own subscribers. Hence, roaming charges would partake the same character as normal telecommunication charges paid by the subscriber to the service provider. The Bench further found that human intervention is required only for installation / repairing / service / maintenance / capacity augmentation of the network, however, after completing this process, inter–connection between the operators while roaming is done automatically and does not require any human intervention, hence, cannot be construed as technical service so as to attract provisions of section 194J. For the sake of completeness, we reproduce the observations from the order of the Tribunal hereunder in entirety:–

“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

20 M/s. Tata Teleservices (Maharashtra) Limited 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 b y a telecom operator to its own subscribers and hence roaming charges would partak e 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 interv ention 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 CIT v/s Bharti Cellular Ltd in 319 ITR 139 (Del) 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 Hon‟ble Supreme Court in CIT vs Bharti Cellular Ltd in 330 ITR 239 (SC) , the Hon‟ble Apex Court had stated that “right from 1979 various judgments 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 nosci tur a sociis, particularly , because the words “technical services” in section 9(1)(v ii) 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 al so 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 CIT vs Bharti Cellular Ltd in 330 ITR 239 (SC), 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

21 M/s. Tata Teleservices (Maharashtra) Limited 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 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 appeal s 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.

22 M/s. Tata Teleservices (Maharashtra) Limited It involves different phases – i) Planning phase- where how much capacity required and how much traffic hand ling capacity is required on these basis hard ware and software is determined. ii) Selection o f 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 vend or guidelines - it involves installation of both hardware and software. v) Call configuration/provisioning o f system - in this the opera tor 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. (a) Software by hardware testing - Stand alone testing (b) Interconnect testing - it is do ne 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 o f o ne cellular opera tor 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

23 M/s. Tata Teleservices (Maharashtra) Limited 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 o f teams o f technical experts to remedy the situation. Question 16: Please tell us the places o r points or areas where human intervention with each other? Ans. 1 6: As ha s 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, monitoring (including network monitoring), maintenance, fault identification, repair and ensuring quality of service as per interconnect.

24 M/s. Tata Teleservices (Maharashtra) Limited 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.I2. 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, installation, 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

25 M/s. Tata Teleservices (Maharashtra) Limited 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) vs Maharashtra State Electricity Distribution Co. Ltd reported in 375 ITR 23 (Bom) – “By this appeal, the Revenue has proposed the following questions to be substantial questions of law:- “(a) Whether, on the facts an d in t he circumstances of t he case and i n law, the Income Tax Appellate Tribunal was justified in holding that the payments of the wheeling and transmission charges made by the assessee to the entities like Maharashtra State Electricity Transmission Co. Ltd. (MSETCL) and Power Grid Corporation of India Ltd. (P GCIL) for the use of transmission lines or other infrastructure, i.e., plant, machinery and equipment could not be termed as rent under the provisions of section 194I of the Act and, consequently, the provisions of section 201 and section 201(IA) could not be applied? (b) Without prejudice to the above, whet her, on t he facts and in the circumstances of the case and i n law, payment of wheeling and transmission charges t o the entitles like MSETCL and P G CIL, should have been treated as fees for technical services and tax should have been deducted at source under section 194J of the Act from the payments? ” He submitted that in the case of Chhattisgarh State Electricity Board no appeal h ad bee n filed by the Revenue and the Revenue accepted the decision of the Tribunal which was followed by the Tribunal in the case of the present assessee as well. Merely drawing power and carrying power through transmission lines and transmission system would not amount to renting up equipment or its charge or rent”. The Hon'ble Supreme Court has also shown us some direction in this behalf. While interpreting the expression "rent", the applicability of section 194-1 must be gathered from whether the wheeling and transmission charges draw its colour from the basic meaning of t he expression "rent". It is seen from the decision of the Supreme Court in Singapore Airlines (supra) that the meaning of "rent" must be understood in the cont ext in which they are

26 M/s. Tata Teleservices (Maharashtra) Limited used. In the present set of facts, it is not possible to equate the wheeling and transmission charges payable MSETCL with rent. On facts it is seen that the MERC order dated June 27, 2006, deals with MSEDCL's contentions, apropos the methodology proposed by MERC. The transmission charges contemplated by MERC includes t he cross subsidisation of transmission charges across licensees when found to be uneconomical and uncompetitive. It is further observed that MERC has considered pooling of transmission charges during bulk power transmission from one licensee to anot her licensee. It is after considering all these aspects that a composite charge method for any such transmission was adopted. Thus, it is seen that the methodology for determining of the transmission tariff could not be determined in a mechanical manner as if the charge was only for use of the State transmission utility. The MERC while passing this order on transmission charges had received various objections some, inter alia, supporting the composite tariff, some against. However, we need not divert our attention to the details of pricing formula fin ally adopted. There is nothing on record to support the Revenue's contention that the wheeling and transmission charges assumes the character of rent. We are in agreement with Mr. Mistri that the expression "rent" must be conceptually understood. The concept of rent under the Income-tax Act does not encompass, in our view, the wheeling and transmission charges payable by the assessee especially when the assessee is discharging a public function. The expression of "transmission charges and/or "wheeling charges" entails distribution of electricity in the area of the corporation and they cannot be subjected to provisions of section 194-1 of the Act. We, however, clarify that this is restricted to the case of the assessee in view of the public function to be undertake n by it, as a result of the restructuring of the Maharashtra State Electricity Board. It is pertinent to mention here th at section 62 of the Act provides that t he Commission may, in the case of supply of electricity fix a maximum ceiling of the tariff, in an attempt to promote competition amongst the distribution licensees. Thus, the very concept of the charge for transmission electricity and wheeling of electricity, as the case may be, is subject to the tariff that will be determined by the MERC in public interest. Hence, it is incomprehensible that the tariff passes the test as fees for technical services. Once again applying the principles of conceptual interpretation to t he tariff to be fixed for the wheeling and transmission charges of electricity, it cannot be interpreted to mean fees for the providing technical services. Under the open access system, it is the M SEDCL which will be availing of the said transmission facility. No "service" is being provided by the MSETCL or the State transmission utility. No doubt, MSEDCL, as

27 M/s. Tata Teleservices (Maharashtra) Limited transmission licensee is required to provide superintendence, maintenance and repairs to the system. However, no such service is rendered b y t he MSETCL to M SE DCL. MSETCL is obliged to maintain the system by value of operation of law under t he Electricity Act. The MSEDCL accesses the State transmission utility an d distributes electricity passing through the State transmission utility. Our views stand fortified by the very fact that the Revenue itself is confused and unsure as to the nature of the charge. The focus of the Revenue is only the requirement of deduction of tax whether under section 194- 1 or section 194J. This approach is erroneous. The Revenue contends that the wheeling and transmission charges could be rent or fees for technical services but, in our view it is neither. Wheeling charges represent the charge for permitting use of the State transmission utility by persons other than the distribution licence. The transmission charges simply constitute fees for availing of the said transmission utility to be used by open access concept for distribution of electricity to the licensees and consumers. In view of the above discussion, we are of the view that the wheeling and transmission charges are neither rent nor fees for technical services. Keeping the said interpretation into effect, we find t hat while interpreting the expression "rent" in the p resent scenario, we must bear in mind that taking into account the functioning of MSEDCL which is a public utility, it will not be appropriate to equate t he transmission charges or wheeling charges to rent or fees for technical service. In our view, the transmission charges and/ or wheeling charges are not amounts paid under any arrangement for use of land, building, plant machinery, equipment, furniture, fitting, etc. and, therefore, not re nt. Equally, the amounts are not fees for technical services. In the facts and circumstances of this case, we answer the question in favour of the assessee and against the Revenue. The appeal is disposed of accordingly. There will be no order as to costs. b) Auro Mira Biopower India P Ltd vs ITO TDS reported in (2015) 55 taxmann.com 452 (Chennai-Tribunal) – “Section 194 read with section 9 of t he Income Tax Act, 1961- Deduction of t ax at source- Fees for professional or technical services (Transmission charges)- Assessment Year 2012-1 3- Whether, where assessee paid wheeling, scheduling and transmission charges to State power utility for using its distribution net work to sell energy generated by assessee to end consumers and same did not involve any human element, assessee was not required t o deduct TDS under section 19 4JHeld, yes [Para 6] in favour of assessee”

28 M/s. Tata Teleservices (Maharashtra) Limited c) DCIT vs Delhi Trans co Ltd reported in (2014) 52 taxmann.com 261 (Delhi – “This finding has been followed by the ITAT in ITA No. 3965/ Del/2011 in the case of assessee for Assessment Year 2006-07. Apart from the finding of tribunal recorded in the assessee‟s own cases, we deem it pertinent to take note of the finding recorded by the tribunal in the case of Chhattisgarh State Electricity Board –vs.- ITO (supra) (2012) 50 SOT 33 (Mum.)- No further appeal to High Court by Department. The relevant finding read as under : “11. We find that the Power Purchase Agreement entered into by the assessee with NTPC, (copy placed before us at pages 15-27 of the paper-book), specifically provides that "power shall be made available by the NTPC at the busbars of the Station and it shall be obligation and responsibility of the CSEB to make the required arrangement for evacuation of power from such delivery points of NTPC". It is pursuant to these obligations that the assessee, along with other bulk power beneficiaries - namely M P State Electricity Board, Gujarat Electricity Board, Maharashtra State Electricity Board, Electricity Department - Government of Goa, Administration of Daman & Diu, and Electricity Department - Administration of Dadra and Nagar Haveli, has entered into a 'Bulk Power Transmission Agreement' with PGCIL. The preamble of this agreement, inter alia, notes that the PGCIL "is desirous to transmit energy from the Central Sector Power Station(s) to the Bulk Power Beneficiaries and that the said Bulk Power Beneficiaries are desirous of receiving the same through POWERGRID transmission system on mutually agreed terms and conditions". This agreement provides that "POWERGRID shall operate and maintain the transmission system belonging to it in the Western Region as per agreed guidelines and the directives of the Western Regional Electricity Board and the Regional Load Dispatch Centers, and cooperate with the Bulk Power Beneficiaries of the Region, so as to maintain the system parameters within acceptable/reasonable limits except where it is necessary to take measures to prevent imminent damage to any equipment". In respect of these services, the bulk power beneficiaries are to pay to PGCIL a monthly charges computed in the manner set out in clause 9 of the said agreement. This clause, in turn, refers to formula set out in A.4 of Annexure 1 which refers to the same ratio of agreed annual charges divided by 12 as is between power transmitted to each beneficiary to total sales from that particular point of delivery. In other words, while the annual charges are fixed, these are divided between the beneficiaries in the same ratio as is ratio of power evacuated by a beneficiary to the total sale of power from that delivery point. It is, however, not in dispute that the transmission lines are in the physical control of PGCIL, these are maintained and operated by

29 M/s. Tata Teleservices (Maharashtra) Limited the PGCIL and, so far as the assessee is concerned, its interest in the transmission lines is restricted to the fact that electrical power purchased by the assessee, simultaneously alongwith electrical power purchased by other bulk power beneficiaries, is transmitted through these transmission lines. The way it works is like this. The power available at the delivery points, collectively for all the bulk power beneficiaries, is loaded for transmission on these transmission lines or powergrid and each of the beneficiaries is allowed to utilize the power to the extent allocated to him. It is not the case that purchases by each of the bulk beneficiary can be physically identified and that particular beneficiary is only allowed to use that physically identified portion of power. Strictly speaking, therefore, it is not the transmission of power from one point to another but availability of power on the entire power grid or transmission lines enabling the beneficiary to utilize the power to the extent of his allocation. On these facts, the question that requires our adjudication is whether or not the payment for transmission charges can be termed as 'rent' for the purposes of Section 194-I of the Act. 12. Let us now take a look at the statutory provision with regard to tax withholding from rent payments, which is set out in Section 194-I of the Act, and analyze the same. Section 194-I provides as follows: Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of rent, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of - (a) two per cent. for the use of any machinery or plant or equipment; and (b) ten per cent for the use of any land or building (including factory building) or land appurtenant to a building (including factory building) or furniture or fittings: Provided that no deduction shall be made under this section where the amount of such income or, as the case may be, the aggregate of the amounts of such income credited or paid or likely to be credited or paid during the financial year by the aforesaid person to the account of, or to, the payee, does not exceed [one hundred eighty thousand rupees] : Provided further that an individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause

30 M/s. Tata Teleservices (Maharashtra) Limited (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such income by way of rent is credited or paid, shall be liable to deduct income-tax under this section. Explanation : For the purposes of this section, [(i) "rent" means any payment, by whatever name called, under any lease, sub- lease, tenancy or any other agreement or arrangement for the use of (either separately or together) any, -, (a) land; or (b) building (including factory building); or (c) land appurtenant to a building (including factory building); or (d) machinery; or (e) plant; or (f) equipment; or (g) furniture; or (h) fittings, whether or not any or all of the above are owned by the payee;] (ii) where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. 13. The case of the Assessing Officer, which has been sustained in the first appeal, is that since expression "rent", for the purpose of Section 194 I, includes "any payment, by whatever name called, under any lease, sub-lease, tenancy or any other agreement or arrangement" for the use of machinery, plant or equipment, and since the assessee has made the payments towards transmission charges for use of the machinery, plant and equipment collectively constituting mode of transmission of power, the provisions of Section 194-I come into play on the facts of this case. 14. The core issue that we must deal with is whether the present arrangement under the Bulk Power Transmission Agreement can be termed can be covered by the scope of expression any other agreement or arrangement 'for the use of' appearing in Explanation (i) to Section 194-I. 15. Explanation (i) to Section 194-I, as we have noted above, defines rent as any payment, by whatever name called, under any lease, sublease, or tenancy or any other agreement or arrangement "for the use of" land, building, plant, machinery or equipment etc. As evident from a plain reading of the agreements under which impugned payments have been made, the payments have been made for the services of transmission of electricity and not the use of transmission wires per se. It is a significant fact that

31 M/s. Tata Teleservices (Maharashtra) Limited these transmission lines are not only being used for transmission of electricity to the assessee but also for transmission to electricity to various other entities. The transmission lines continue to be not only under control and possession of the PGCIL in legal terms, but, what is more important, these transmission lines are effectively in the control of PGCIL, without any involvement of the assessee in actual operations of the same. On these facts, in our humble understanding, the assessee has made the payments for transmission of electricity in which transmission lines have been used rather than for the use of transmission lines per se. The payments could be said to have been made for "the use of transmission lines" in a case in which the object of consideration for which payments are made was the use of transmission lines simplictor, and such a use by the assessee does not extend beyond the transmission of electricity through such lines in the sense that the same transmission lines continue to be in the control of PGCIL for transmission of electricity for other entities and for all practical purposes. Even as electricity purchased by the assessee is transmitted to the assessee from the NTPC busbar to its landing points, the same transmission lines continue to be engaged in similar transmission of electricity for other entities and the assessee has no say in the manner in which such transmission lines can be controlled and used by the PGCIL. Undoubtedly, for the purpose of an arrangement being termed as in the nature of rent for the purpose of Section 194-I, the 'control' and 'possession', in legal terms, of an asset may not not needed to be with the person benefiting from the asset in question, it is a condition precedent for invoking Section 194 I that the asset, for the use of which the payment in question is made, should have some element of its control by the assessee. Here is a case in which the assessee has no control over the operations of the transmission lines, and all that he gets from the arrangements is that he can draw the electrical power purchased from PGCIL's transmission lines in an agreed manner. 16. While on the issue of distinction between use of an asset and benefit from an asset, we may usefully refer to the following distinction brought out by the Karnataka High Court between leasing out of equipment and the use of equipment by its customer. This was done in the case of Lakshmi Audio Visual Inc. v. Asstt. Commr. of Commercial Taxes [2001] 124 STC 426 (Kar.), which has been followed by Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd. v. DIT [2011] 332 ITR 340 / 197 Taxman 263/ 9 taxmann.com 168, in the following terms: "9. Thus if the transaction is one of leasing/hiring/letting simpliciter under which the possession of the goods, i.e., effective and general

32 M/s. Tata Teleservices (Maharashtra) Limited control of the goods is to be given to the customer and the customer has the freedom and choice of selecting the manner, time and nature of use and enjoyment, though within the framework of the agreement, then it would be a transfer of the right to use the goods and fall under the extended definition of "sale". On the other hand, if the customer entrusts to the assessee the work of achieving a certain desired result and that involves the use of goods belonging to the assessee and rendering of several other services and the goods used by the assessee to achieve the desired result continue to be in the effective and general control of the assessee, then, the transaction will not be a transfer of the right to use goods falling within the extended definition of "sale". Let me now clarify the position further, with an illustration which is a variation of the illustration used by the Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. v. CTO.[1990] 77 STC 182 (AP). Illustration (i) A customer engages a carrier (transport operator) to transport one consignment (a full lorry load) from place A to B, for an agreed consideration which is called freight charges or lorry hire. The carrier sends its lorry to the customer's depot, picks up the consignment and proceeds to the destination for delivery of the consignment. The lorry is used exclusively for the customer's consignment from the time of loading, to the time of unloading at destination. Can it be said that right to use of the lorry has been transferred by the carrier to the customer? The answer is obviously in the negative, as there is no transfer of the "use of the lorry" for the following reasons : (i) The lorry is never in the control, let alone effective control of the customer; (ii) the carrier decides how, when and where the lorry moves to the destination, and continues to be in effective control of the lorry; (iii) the carrier can at any point (of time or place) transfer the consignment in the lorry to another lorry; or the carrier may unload the consignment en route in any of his godowns, to be picked up later by some other lorry assigned by the carrier for further transportation and delivery at destination. (ii) On the other hand, let us consider the case of a customer (say a factory) entering into a contract with the transport operator, under which the transport operator has to provide a lorry to the customer, between the hours 8 a.m. to 8 p.m. at the customer's factory for its use, at a fixed hire per day or hire per km. subject to an assured minimum, for a period of one month or one week or even one day; and under the contract, the transport operator is responsible for making repairs apart from providing a driver to drive the lorry and filling the vehicle with diesel for running the

33 M/s. Tata Teleservices (Maharashtra) Limited lorry. The transaction involves an identified vehicle belonging to the transport operator being delivered to the customer and the customer is given the exclusive and effective control of the vehicle to be used in any manner as it deems fit; and during the period when the lorry is with the customer, the transport operator has no control over it. The transport operator renders no other service to the customer. ……." 17. It is thus clear that in a situation in which the payment in made for the use of an asset simpliciter, whether with control and possession in its legal sense or not, the payment could be said to be for the use of an asset. However, in a situation in which the payment is made only for the purpose a specific act, i.e. power transmission in this case, and even if an asset is used in the said process, the payment cannot be said to be for the use of an asset. When control of the asset (transmission lines in the present case) always remains with the PGCIL, any payment made to the PGCIL for transmission of power on the transmission lines and infrastructure owned controlled and in physical possession of PGCIL can be said to have been made for 'the use of ' these transmission lines or other related infrastructure. Viewed in this perspective, Section 194 I has no application so far as the impugned payments for transmission of electricity is concerned. For this short reason alone the impugned demands must be held to unsustainable in law.” 9. On due consideration the order of the coordinate bench in the assessee‟s own case in assessment year 2005-06, and 2006-07 as well as in the case Chhattisgarh State Electricity Board, we are of the view that Ld. Commissioner of Income Tax (appeals) has appreciated the controversy in right prospective and no interference is called for. Therefore, ITA No. 3526,3528,3629,3530 are dismissed 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 CIT v s Bharti Cellular Ltd ( 330 ITR 239) 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

34 M/s. Tata Teleservices (Maharashtra) Limited 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.”

35 M/s. Tata Teleservices (Maharashtra) Limited inferring that roaming charges ware in the nature of fees for technical services, hence, coming within the purview of section 194J. However, as stated earlier, the very same report from the technical expert in case of Vodafone Essar Mobile Services Ltd., was considered and analysed by the Tribunal, Kolkata Bench (supra) and the Bench held that there is no human intervention in providing the roaming services. That being the case, following the observations of the Tribunal, Kolkata Bench, referred to above, we hold that the roaming / inter– connectivity charges paid by the assessee to other telecom networks not being in the nature of fees for technical services will not attract the provisions of section 194J. That being the case, assessee was not required to deduct tax at source on payment of roaming charges in terms of section 194J. In view of the aforesaid, we quash the demand raised under sections 201(1) and 201(1A).

Sd/- Sd/- SAKTIJIT DEY RAJESH KUMAR ACCOUNTANT MEMBER JUDICIAL MEMBER

MUMBAI, DATED: 27.05.2016

36 M/s. Tata Teleservices (Maharashtra) Limited

Copy of the order forwarded to: (1) The Assessee; (2) The Revenue; (3) The CIT(A); (4) The CIT, Mumbai City concerned; (5) The DR, ITAT, Mumbai; (6) Guard file. True Copy By Order Pradeep J. Chowdhury Sr. Private Secretary

(Dy./Asstt. Registrar) ITAT, Mumbai