Income Tax Appellate Tribunal - Kolkata
Hutchison Telecom East Ltd. vs Asstt. Cit on 25 May, 2007
ORDER
1. The above two appeals preferred by the assessee and the above two appeals preferred by the revenue and the two cross objections filed by the assessee are directed against the order passed by the learned CIT-XL, Kolkata dated 23-3-2005 for the assessment years 2002-03 and 2003-04 respectively on the following grounds:
Ground 1: Adjudication of issues not raised by the Asstt. CIT of Income-tax, Circle 57 (The AO).
1. On the facts and in the circumstances of the case and in law, the Commissioner (Appeals) erred in suo motu adjudicating that the Roaming Charges, pass through charges, Inter operator charges and Port charges ("Interconnect charges") are liable for- TDS under Section 194C even though the assessing officer has not held so in the order passed under Section 201(1)/201 (1A) read with Section 194.1 of the Act and the applicability of Section 194C was not the subject-matter of appeal before the Commissioner (Appeals).
2. The appellant prays that the order holding applicability of Section 194C be held as invalid.
Ground II: Applicability of Section 194Con the Interconnect charges.
1. Without prejudice to Ground I above and On the facts and in the circumstances of the case and in law, the Commissioner (Appeals) erred in holding that Section 194C would be applicable to the interconnect charges.
2. The appellant prays that it be held that the payments of the interconnect charges to the other telecom operators do not come within the purview of contract for "work" and therefore does not attract tax deduction at source under Section 194C of the Act.
3. The appellant therefore prays that the order treating the appellant as an assessee in default be struck down.
Ground III: Taxes already paid by Telecom Operators.
1. Without prejudice to Grounds I and II above, the appellant submits that the Commissioner (Appeals) erred in not considering the fact that the other Atelecom operators would have already disclosed their income in respect of the Interconnect charges paid by the appellant and already paid taxes due thereon and hence deduction of tax at source under Section 194C of the Act by the appellant once again would amount to taxing the same amount of income twice, i.e., once by way of regular taxes (advance tax, self-assessment tax, etc.) from the said other telecom operators and once again by way of TDS demanded from the appellant.
2. The appellant therefore submits that such double taxation cannot be demanded and that it is a settled law that if the payee of income has paid the taxes due on the said income, the payer cannot be called upon to pay the TDS amount once again on the same income.
3. The appellant therefore prays that the order treating the appellant as an assessee in default ought to be struck down even on this ground.
Ground III: Levy of interest under Section 201(1 A).
1. On the facts and in the circumstances of the case and in law, the Commissioner (Appeals) erred in upholding the levy of interest under Section 201(1 A) of the Act on alleged non-deduction of tax under Section 201(1) of the Act. The appellant denies its liability to be charged to interest under Section 201(1 A) of the Act.
Ground IV The appellant craves leave to add, alter, modify or amend the above grounds of appeal.
2. The revenue has raised the following grounds:
Learned Commissioner (Appeals) erred in considering the payment made by the deductor as payment to contractor under Section 194C, whereas, payment of inter connect charges (including port charges, access charges, roaming charges), pass through charges are against technical services rendered by the service provider.
The issue was brought to the notice of CBDT by BSNL. CBDT vide letter No. 1001/14-2-2002/2002 in reply made to the query made by BSNL opined that such payment being against technical services should undergo TDS under Section 194J of the Income Tax Act.
The services for which Hutchison Telecom East Ltd. made the payment to other service provider is not of a service contract but against technical services as defined under Section 9(l)(vii) Explanation 2 of the Income- tax Act.
CO. Nos. 142 & 143/K/2005 (by the assessee):
Ground No. I: Taxes already paid by Telecom Operators.
1. On the facts and in the circumstances of the case and in law, if the department's appeal is held allowable, then in view of the fact that the telecom operators would have already disclosed their income in respect of the Roaming charges, pass through charges, inter operator charges and port charges ('Interconnect charges') paid by A the Cross Objector and already paid taxes due thereon and hence deduction of tax at source under Section 194J of the Act (if applicable) by the Cross objector once again would amount to taxing the same amount of income twice, i.e., once by way of regular taxes (advance tax, self-assessment tax etc.) and again by way of TDS demanded from the Cross Objector.
2. The Cross Objector therefore submits that such double taxation cannot be demanded and that it is a settled law that if the payee or income has paid the taxes due on the said income, the payer cannot be called upon to pay the TDS amount once again on the same income.
3. The Cross Objector prays that if it is held that tax was deductibleunder Section 194J, yet the Cross objector ought not to be calledupon to pay the tax and ought not to be treated as an assessees indefault.
Ground II: Levy of Interest under Section 201(1 A).
1. In view of the Ground No. 1 above, the levy of interest under Section 201(1A) of the Income Tax Act, 1961 (hereinafter referred to as 'the Act') on the alleged non-deduction of tax under Section 194J of the Act ought to be also disapproved.
2. Without prejudice to the above, even if interest is to be charged, it should be charged only up to the date at which the telecom operators paid their taxes.
3. The brief facts involved in this case are that the assessing officer found that the assessee is making payment to various telecom operators such as BSNL, Sterling Cellur Ltd., Hutchison Max Telecom Pvt. Ltd., Fecal Ltd. etc. Such payments are in relation to Roaming charges. PSTN Interconnect fees, Pass Through charges and Inter operator charges. The assessing officer formed an opinion that the payments made to these various telecom companies were subject to TDS under Section 194J as technical services were provided by them to the appellant. The assessee's submission that the services provided by these telecom companies were not technical services within the meaning of Section 194 J, that payments made to BSNL cannot surfer tax as it is Central Government company, that the other service operators had all paid their due taxes and hence there was no further requirement to deduct TDS and the citation of the rulings of the Hon'ble Madras High Court in the case of Sky cell Communications Ltd. v. Dy. CAT , the case of Wipro Ltd. v. ITO (2003) 86 ITD 407 (Bang. - Trib.) and the decision of the Ld. Commissioner (Appeals)-XXX. New Delhi vide in the case of Hutchison Telecom Essar Ltd. (Appeal No. 0138/04-05 dated 24-12-2004) which in short held that use of standard facilities was not technical services within the meaning of Section 194J, did not find favour with the assessing officer. The assessing officer accordingly charged tax under Section 201(1) amounting to Rs. 1,57,07,700 and interest under Section 201 (1A) amounting to Rs. 57,33,311 in relation to the financial year 2001-02 and tax under Section 201(1) amounting to Rs. 2,71,45,200 and interest under Section 201(1 A) amounting to Rs. 58,36,218 in relation to the financial year 2002-03.
3.1 In appeal before the Id. Commissioner (Appeals) the assessee has submitted that mere use of facilities of other telecom companies is not a case of receiving technical services from the said companies. It has been submitted before him that the presence of technology, no matter how complicated these technology are and since the recipients had paid all their required taxes there was no further requirement for the assessee to deduct any more TDS in favour of this telecom companies. It has been further submitted by the Id. Commissioner (Appeals) that BSNL was a Government company and hence the provision of Section 194J is not applicable. The assessee has further narrated the services taken by it from other telecom companies and has contended that the services received by it did not come under the purview of Section 194 J and therefore the action of the assessing officer for levying tax and interest under Section 201(1) and 201(1A) is incorrect and is liable to be deleted.
3.2 The Id. Commissioner (Appeals) after considering the submissions of the assessee has observed that the payments made by the assessee-company were not in the nature of the technical services and has modified the order of the assessing officer to this extent. However, at the same time the Id. Commissioner (Appeals) has held that payments insofar as they relate to the port charges paid to M/s. BSNL are in the nature of payments of carrying out work as understood within the meaning of Section 194C of the Act and he has accordingly partly confirmed the demand raised by the assessing officer to this extent.
3.3 Both the assessee as well as the department are aggrieved with the order of the Id. Commissioner (Appeals) in the case of both the years. The assessee is aggrieved by the order of the Id. Commissioner (Appeals) in holding that payments are in the nature of payments for port charges as carrying out work and the department is aggrieved by the order of the Id. Commissioner (Appeals) holding that the payments are not in the nature of fee for technical services and against the order that other charge do not attract TDS provisions. The assessee has also contended that even if the issue is decided against on merit, since the payment has already been paid by the recipient while filing the return of income, the TDS payment cannot be once again collected from the assessee. The assessee has also taken such plea in its cross objection against the department as mentioned hereinabove in the grounds of appeal referred to both the department and the assessee and the cross objection.
4. We first take up the assessee's appeal which is against the order of the Id. Commissioner (Appeals).
4.1. At the outset, the Id. Counsel for the assessee has submitted that he has not pressed Ground No. 1. Therefore, ground No. 1 is dismissed as not pressed.
4.2 In ground No. 2 the assessee has disputed the order of the Id. Commissioner (Appeals) in holding that transmitting call amounts to performing work and has to be understood within the meaning of Section 194C. The revenue has also disputed such order of the Id. Commissioner (Appeals) in holding that the payments of port charges are to be considered as payment to contract under Section 194C and other charges are not subject to TDS and is in appeal while grounds in both the years as mentioned in grounds of appeal.
4.3 In appeal before us, the Id. Counsel for the assessee has first placed his arguments and has contended that though the Id. Commissioner (Appeals) has accepted the contention of the assessee regarding pass through charges at the same time he has considered the port charges payment as payment to contractor under Section 194C of the Act which is not at all justified. It has been contended by the Id. Counsel that various Benches of the Tribunal and High court has already interpreted the connotation of the word 'work' for the purpose of Section 194C as in the case of S.R.F. Finance Ltd. v. CBDT . The Hon'ble court has held that there are qualitative differences between the word 'work' and the word 'services' and the two words convey different ideas whereas the word 'work' is predominantly physical, it is tangible whereas the word 'services' is referred as intellectual or at least mental. It has been submitted by the Id. Counsel that even otherwise the word 'work' in the context of Section 194Cconveys the activity that is predominantly physical and since though no physical activity at all involved in the services taken by the assessee from these telecom companies as somebody may be just plugging in one net work with the other to provide inter connectivity and the transmission of voice and signals is automatic.
5. It has been contended by the Id. Counsel that the Hon'ble CTT(A) considered all transmission of voice and signals as carrying on of 'work' but the definition as laid down in Explanation III to Section 194C does not include within its scope the carriage of voice or signals through an automatic medium. In support of his above contention, he has relied on the decision of the Hon'ble Supreme Court in the case of Birla Cement Works 5.1 It has further been submitted that transmission of voice and other signals cannot be shown in this regard in absence of specific inclusion in the definition of 'work' in the section itself. It has been said by the Id. Counsel that never in the past the tax department has taken a view that the users of MTNL lines should deduct TDS under Section 194C and therefore the rule of consistency requires that such a view cannot be taken after having accepted for decades that transmission of voice is not 'work'. The Id. Counsel for the assessee in support of his contention also relied on the decision of the Hon'ble Madras High Court in the case of Sky cell Communications Ltd. (supra).
6. In his rival submissions the Id. DR for the revenue has relied heavily on the order of the assessing officer and has submitted that observing the nature of services availed by the assessee from different mobile companies, it was evident that such payments against such services were nothing but payments against technical services on which TDS was to be deducted under Section 194J and the action of the Id. Commissioner (Appeals) in considering the payments against the port charges as payment against 'work' is not at all correct. He further disputed the order of the Id. Commissioner (Appeals) in holding that rent charges and other charges paid by the assessee did not attract any TDS liability.
6.1 The Id. DR that the revenue has thereafter drawn the attention of this Bench on instruction- cum-advice of the CBDT issued to DG, BSNL, Delhi wherein CBDT in response to the letter of the BSNL has clarified that tax is required to be deducted on port charges. Inter connectivity charges etc. as these services are payments in the nature of fees for technical services within the meaning of Section 194J of the Act. He also placed on record the copy of payments made by Other Cellular Co. i.e., M/s. Bharat Airtel wherein payments has been made to M/s. BSNL only after deducting TDS amount as per provisions contained in Section 194J of the Act. It has further been submitted that from the above letter of CBDT (which is available in paper book) it is evident that the assessing officer has rightly held the assessee responsible for not deducting TDS and therefore the order of the assessing officer is liable to be up learned
7. We have given our careful consideration to the rival submissions made before us and have perused the orders of tax authorities. We have also considered the written submissions filed by the Id. Counsel for the assessee and the case laws relied upon. In this case, the revenue has claimed that the payment made by the assessee to M/s. BSNL was payment against technical services run by M/s. BSNL on which TDS was to be deducted. However, the Id. Commissioner (Appeals) has considered such payments in response to port charges as payments against 'work' and has held that such applicability of TDS can only be made as per provision laid down in Section 194C in respect of port charges paid by the assessee to M/s. BSNL and has treated the other charges outside the purview of TDS.
7.1 We after hearing both the parties find that the assessee in this case is basically making three types of payments to M/s. BSNL which are as under:
(i) Lease Line rental charges
(ii) Port charges
(iii) Access charges These nature of services rendered by M/s. BSNL is explained in the following manner which has been placed on record by the assessee and is being reproduced for the facility of reference:
When a call generates from a Hutch subscriber, the signals are first encountered at the Base Transceiver Station ('BTS') and the Base Station Controller ("BSC) (commonly known as cell sites). Both BTS and BSC belong to Hutch. From BSC, the call travels to Mobile Switching Center where the routing and changing of the calls take place. Till this stage the signal travels on a wireless system. From the Mobile Switching Center (MSC), depending upon the route where the call is destined, it is carried through electrical medium to the TX system of Hutch. From this stage onwards the call travels through Optical Fibre Cables ('OFC') to the TX system of BSNL from where it is routed to the relevant BSNL Exchange. The charges for the use of the leased line between the TX system of Hutch and the TX system of BSNL and also between the TX system of BSNL and the Exchange are referred to as 'Annual Rent and Guarantee, Rental and/or leased line charges' (shown under the head 'PSTN Interconnect fees' in our Books of Account) which are variable upon the number of PCMs that are blocked (PCMs means Pulse code modulation). The Port charges and the inter junction charges are variable depending upon the number of PCMs and the junction distance. However, these charges, once determined, are fixed irrespective of the number of calls actually made. Pass through charges, on the other hand, are the charges levied for accessing the system depending upon the number of calls made. In other words, the Pass Through Charges are the charges fixed based on the number of actual calls made. Pass Through Charges for a STD/ISD call are also paid to other telecom operators {viz- VSNL, Data Access etc.).
7.2 From the above procedure of tranmission and the services rendered by M/s. BSNL to the assessee, it is quite evident that apart from lease line rent charges the other services provided by M/s. BSNL to the assessee are based on technology and the assessee without the technical services by M/s. BSNL in not able to continue its business to transmit call/voice and signals to the recipients. Therefore, in our considered opinion, payment with regard to port charges and Inter connectivity charges to M/s. BSNL are in the nature of technical services and are not payment made against work as observed by the Id. Commissioner (Appeals) and thereby asking the assessing officer to levy TDS under Section 194C. Apart from the above fact the instruction from the CBDT vide letter to M/s. BSNL also makes it clear that the assessee is liable to deduct TDS on such payments. We therefore set aside the order of the Id. Commissioner (Appeals) holding that port charges are not subject to provision under Section 194 J and are rather in the nature of work under Section 194C and therefore restore the order of the assessing officer. Based on the same analogy we hold that Access charges also comes under the purview of Section 194J and therefore restore the order of assessing officer by setting aside the order of the Id. Commissioner (Appeals) in this regard.
7.3 So far as payment on account of lease rental charges, in our considered opinion, such payment is neither in the nature of work nor in the nature of agreement and therefore cannot be considered under Section 194J and therefore we uphold the order of the Id. Commissioner (Appeals) and accordingly dispose of the grounds raised by the revenue in both the appeals by partly allowing the grounds raised by it and dismissing the ground No. 2 of the assessee.
8. Regarding grounds of appeal No. 3, the assessee has submitted that theinter connect charges paid to M/s. BSNL cannot be subject to TDS under Section 194C and TDS had been paid by M/s. BSNL and levy of TDS will mean i.e. taxing the same amount twice in the hands of M/s. BSNL and in the hands of the assessee. It has been submitted by that the various Courts and the Tribunal are consistently holding that once the payee of income has paid his due taxes the department cannot recover the same tax once again from the payer even in cases where the payer has admittedly defaulted in deducting the tax. For this proposition, the Id. AR relied on the C following decisions:
Grindlays Bank Ltd. v. CIT .
CIT v. Divisional Manager, New India Assurance Co. Ltd. .
CIT v. Kannan Devan Hill Produce Co. Ltd. .
CIT v. M.P. Agro Morarji Fertilizers Ltd. (1989) 176 ITR 2822 (M.P.).
It was contended that the principle has been accepted by the CBDT in its circular letter No. 275/201/95/IT(B), dated 29-1-1997.
9. In his rival submissions, the Id. DR relied on the order of the Assessing Officer.
10. We have given our careful consideration to the rival submissions madebefore us and have perused the orders of tax authorities. We have alsoconsidered the written submissions filed by the Id. Counsel for the assessee and the case laws relied upon. The assessee has claimed that the requisite tax has been paid by M/s. BSNL and therefore there is no need of TDS. However, we find that the provision of TDS has been made and to recover the tax in due time and as scheduled occasion and the above contention of the assessee that this amount will to double taxation, cannot be accepted. However it is also a fact that payment has been made by recipient and such TDS will tantamount to tax which has already been paid by BSNL. We therefore are of the view that the matter should be restored back to the file of the assessing officer to decide the issue afresh and compute the TDS and interest thereon after deducting the tax already offered by M/s. BSNL on such receipts. We hold and direct accordingly accept the Ground raised by the assessee for statistical purposes.
11. The last ground in assessee's appeal relate to levy of interest under Section 201(1 A) of the Act. The Id. Counsel for the assessee has submitted that no interest should be levied since the assessee was under a bona fide belief that no tax is deductible at source and therefore the assessee cannot be treated as an assessee in default and no interest can be levied under Section 201(1 A) of the Act. We after hearing both the parties are of the opinion that interest under Section 201(1A) has to be levied in view of the provision contained therein. However, while disposing the ground No. 3 we have directed the assessing officer to deduct the amount of tax paid by the recipient on such income and therefore the same should be considered and thereafter interest under Section 201(1 A) is to be determined, we hold and direct accordingly and accept the ground for statistical purpose.
12. In the result both the appeals filed by the revenue and by the assessee and the cross objection filed by the assessee are partly allowed as indicated above.