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Income Tax Appellate Tribunal, PUNE BENCH “C”, PUNE
Before: SHRI INTURI RAMA RAO & SHRI VINAY BHAMORE
PER INTURI RAMA RAO, AM:
These are two appeals filed by the assessee directed against the separate orders of National Faceless Appeal Centre (NFAC), Delhi dated 03.11.2023 for the assessment years 2015-16 & 2017-18.
Since the identical facts and common issues are involved in the above captioned appeals of the assessee, we proceed to dispose of the same by this common order. For the sake of convenience and clarity, the facts relevant to the appeal of the assessee in ITA No.1455/PUN/2023 for the assessment year 2015-16 are stated herein.
ITA Nos.1455 & 1456/PUN/2023
ITA No.1455/PUN/2023 - A.Y. 2015-16 :
Briefly, the facts of the case are that the appellant is a domestic company inter alia engaged in the business of shipping agents. The Return of Income for the A.Y. 2015-16 was filed on 28.11.2015 declaring total income of Rs.13,32,30,200/-. Subsequently, the same was revised on 16.02.2016 declaring total income of Rs.13,46,03,250/-. Thereafter, the case was selected for scrutiny. The Assessing Officer during the course of assessment proceedings found that the assessee company incurred expenditure of Rs.50,73,949/- towards leased line/data link charges on which no TDS was made. In the circumstances, the AO vide order dated 22.12.2017 passed u/s.143(3) r.w.s.92CA(4) of the Act made addition of Rs.50,73,949/- invoking the provisions of section 40(a)(ia) of the Act. It was held by the AO that the services availed by the assessee company are Technical services and therefore TDS had to be deducted u/s.194J of the Act.
Being aggrieved, an appeal was filed before the CIT(A)/NFAC who vide impugned order confirmed the action of the Assessing Officer.
Assailing the order of CIT(A)/NFAC, the assessee is in appeal before the Tribunal in the present appeal.
We heard the rival submissions and perused the relevant material on record. The issue that arises for our consideration, in the facts of the present case, is whether or not the lower authorities were justified in disallowing the payment of leased line /data link charges paid by the assessee for non deduction of tax at source by invoking the provisions of section 40(a)(ia) of the Act. This issue is no more res integra as the same is settled in favour of the assessee by the Hon’ble Supreme Court in the case of CIT Vs. Kotak Securities Ltd. 383 ITR 1 (SC) wherein it
ITA Nos.1455 & 1456/PUN/2023
was held that the charges paid towards leased line are not in the nature of Technical services within the meaning of section 9(1)(vii) of the Act. The relevant paragraphs of the judgment of Hon’ble Apex court read as under :
“5. The relevant provisions of the Act which have a material bearing to the issues arising for determination in the present appeals may now be noticed. Section 194J; Section 40(a)(ia) of the Act introduced by Finance (No.2) Act, 2004 with effect from 1st April, 2005; and Explanation 2 of Section 9(1)(vii) which are relevant for the purpose of the present case reads as under: “194J. Fees for professional or technical services. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any sum by way of— (a) fees for professional services, or (b) fees for technical services or (c) royalty, or (d) any sum referred to in clause (va) of section 28 shall at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as income-tax on income comprised therein: ….............................. ….............................. Explanation.—For the purposes of this section,— (a)............................ (b) "fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; ….............................. 40. Amounts not deductible. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head “Profits and gains of business or profession” (a) in the case of any assessee- (i) …...... ….. …... (ia) any interest, commission or brokerage, rent, royalty, fees for professional services or fees for technical services payable to a resident, or amounts payable to a contractor or sub-contractor, being resident, for carrying out any work (including supply of labour for carrying out any work), on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time prescribed under sub-section (1) of section 200: Provided that where in respect of any such sum, tax has been deducted in any subsequent year, or has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub- section (1)
ITA Nos.1455 & 1456/PUN/2023
of section 200 such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. Explanation.-......... 9. Income deemed to accrue or arise in India (1) The following incomes shall be deemed to accrue or arise in India:- (i)..................... …...................... …......................
(vii) income by way of fees for technical services payable by—
(a) ............... (b) ............... (c) ............... ….......................
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".
What meaning should be ascribed to the word “technical services” appearing in Explanation 2 to clause (vii) to Section 9(1) of the Act is the moot question. In Commisioner of Income-Tax Vs. Bharti Cellular Ltd.[1] this Court has observed as follows:
“Right from 1979, various judgments of the High Courts and Tribunals 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) read with Explanation 2 comes in between the words “managerial and consultancy services”.
“Managerial and consultancy services” and, therefore, necessarily “technical services”, would obviously involve services rendered by human efforts. This has been the consistent view taken by the courts including this Court in Bharti Cellular Ltd. (supra). However, it cannot be lost sight of that modern day scientific and technological developments may tend to blur the specific human element in an otherwise fully automated process by which such services may be provided. The search for a more effective basis, therefore, must be made.
A reading of the very elaborate order of the Assessing Officer containing a lengthy discourse on the services made available by the Stock Exchange would go to show that apart from facilities of a faceless screen based transaction, a constant upgradation of the services made available and surveillance of the essential parameters connected with the trade including those of a particular/ single transaction that would lead credence to its authenticity is provided for by the Stock Exchange. All such services, fully automated, are available to all members of the stock exchange in respect of every transaction that is entered into. There is nothing special, exclusive or customised service that is rendered by the Stock Exchange. “Technical services” like “Managerial and Consultancy service” would denote seeking of services to cater to the special needs of the consumer/user as may be felt necessary and the making of the same available by the service provider. It is the
ITA Nos.1455 & 1456/PUN/2023
above feature that would distinguish/identify a service provided from a facility offered. While the former is special and exclusive to the seeker of the service, the latter, even if termed as a service, is available to all and would therefore stand out in distinction to the former. The service provided by the Stock Exchange for which transaction charges are paid fails to satisfy the aforesaid test of specialized, exclusive and individual requirement of the user or consumer who may approach the service provider for such assistance/service. It is only service of the above kind that, according to us, should come within the ambit of the expression “technical services” appearing in Explanation 2 of Section 9(1)(vii) of the Act. In the absence of the above distinguishing feature, service, though rendered, would be mere in the nature of a facility offered or available which would not be covered by the aforesaid provision of the Act.”
Following the above binding precedent, we hold that no TDS is required to be made on the payment towards leased line/data link charges. Therefore, the order of NFAC is hereby reversed. The grounds of appeal raised by the assessee stands allowed.
In the result, the appeal filed by the assessee is allowed.
ITA No.1456/PUN/2023 –A.Y. 2017-18 : 9. The facts stated in ITA No.1455/PUN/2023 are identical even in appeal bearing ITA No.1456/PUN/2023. The finding given in ITA No. No.1455/PUN/2023 equally holds good for the appeal ITA No. 1456/PUN/2023.
In the result, the appeal filed by the assessee is allowed.
To sum up, both the appeals filed by the assessee are allowed. Order pronounced on this 01st day of July, 2024.
Sd/- Sd/- (VINAY BHAMORE) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT MEMBER पुणे / Pune; �दनांक / Dated : 01st July, 2024 Satish
ITA Nos.1455 & 1456/PUN/2023
आदेश क� �ितिलिप अ�ेिषत / Copy of the Order forwarded to : अपीलाथ� / The Appellant. 1. ��यथ� / The Respondent. 2. 3. The Pr.CIT concerned 4. िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “C” ब�च, पुणे / DR, ITAT, “C” Bench, Pune. गाड� फ़ाइल / Guard File. 5. आदेशानुसार / BY ORDER,
// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण, पुणे / ITAT, Pune