M/s. Primenet Global Ltd., New Delhi V. ITO, New Delhi

CO 331/DEL/2012

• Counselvise Citation: [2016] 119 COUNSELVISE.COM (IT) 3211 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 7 month(s) 17 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 05-05-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Next Hearing Date: 08-02-2016
• Assessment Year: misc
• Appeal Filed On: 18-09-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: N J SINGH
• Section: 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F NEW DELHI BEFORE SHRI N.K. SAINI, ACCOUNTANT MEMBER AND SHRI SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER ITA NO. 4061/DEL/2011 AY: 20 09-10 INCOME TAX OFFICER, VS M/S PRIMENET GLOBAL LT D., WARD 51(1), 25/2, BUSINESS PARK, ROOM NO. 509, SHIVAJI MARG, 5 TH FLOOR, AAYAKAR BHAWAN, NEW DELHI. LAXMI NAGAR, DELHI-110092 C.O. NO. 331/DEL/2012 ( IN ITA NO. 4061/DEL/2011) AY: 20 09-10 M/S PRIMENET GLOBAL LTD., VS INCOME TA X OFFICER, NEW DELHI. DELHI. (APPELLANT) (RES PONDENT) APPELLANT BY : SHRI N.J. SINGH, SR. DR RESPONDENT BY : SHRI AJAY WADHWA, ADV. MS ARUNA MITTAL CA DATE OF HEARING: 09.02.2016 DATE OF PRONOUNCEMENT: 05.05.2016 ORDER PER SUDHANSHU SRIVASTAVA, JUDICIAL MEMBER I.T.A. NO. 4061/DEL/2011 HAS BEEN PREFERRED BY THE DEPARTMENT AGAINST THE ORDER DATED 22.06.2011 PASSE D BY THE LD. CIT(A)-XXX, NEW DELHI WHEREIN THROUGH THE IMPUG NED ORDER FOR ASSESSMENT YEAR 2009-10 (FINANCIAL YEAR 2008-09 ) THE LD. CIT (A) HAS HELD THAT ALTHOUGH THE ASSESSEE WAS LIA BLE TO DEDUCT I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 2 TAX AT SOURCE U/S 194J OF THE INCOME TAX ACT, 1961 WHILE MAKING PAYMENT TOWARDS RECURRING AND NETWORKING CHARGES, I T CANNOT BE TREATED TO BE AN ASSESSEE IN DEFAULT FOR NOT DEDUCT ING TAX U/S 194J OF THE ACT WHERE THE PARTIES TO WHOM RECURRING AND NETWORKING CHARGES WERE PAID HAD INCLUDED SUCH CHAR GES IN COMPUTING THEIR INCOME. C.O. NO. 331/DEL/2012 HAS BEEN PREFERRED BY THE ASSESSEE AND CHALLENGES THE FINDIN G OF THE LD. CIT (A) THAT THE PAYMENT MADE TOWARDS NETWORKING CH ARGES FOR PROVISION OF BANDWIDTH/ INTERCONNECT FACILITY WAS F EE FOR TECHNICAL SERVICE AND THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX U/S 194J OF THE ACT. 2. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS EN GAGED IN THE BUSINESS OF PROVIDING INTEGRATED NETWORK SOLUTIONS, WHICH INCLUDE INTERNET SERVICE. THE CASE OF THE ASSESSEE IS THAT IT HOLDS INTERNET SERVICE PROVIDER CATEGORY A LICENCE FR OM THE DEPARTMENT OF TELECOM (DOT). SINCE THE ASSESSEE DI D NOT POSSESS INTERNATIONAL GATEWAY (REQUISITE LICENSE) F OR PROVIDING NETWORK CONNECTIVITY TO ITS CUSTOMERS, IT MADE ARRA NGEMENTS WITH AUTHORISED INTERNATIONAL GATEWAY PROVIDERS (AIGP) S UCH AS MTNL, BSNL AND TATA COMMUNICATION LTD. AND HAVING A CQUIRED THE REQUISITE BANDWIDTH FROM THE AIGPS, THE ASSESSE E UTILISED THE I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 3 SAME TO PROVIDE CONNECTIVITY SERVICES TO ITS CLIENT S. DURING THE YEAR UNDER CONSIDERATION, AN AGGREGATE PAYMENT OF RS.2,04,59,892/- WAS MADE BY THE ASSESSEE WHICH COM PRISED OF RECURRING CHARGES OF RS.1,82,85,051/- AND NETWORKIN G CHARGES OF RS.21,74,841/-. NETWORKING CHARGES INCLUDED NETWOR K EXPENSES OF RS. 11,40,863/-. OUT OF TOTAL PAYMENT OF RS. 2, 04,59,892/-, THE ASSESSEE HAD DEDUCTED TAX AT SOURCE U/S 194C OF THE ACT IN RESPECT OF PAYMENTS TO THE EXTENT OF RS.1,68,90,867 /-. HOWEVER, IN RESPECT OF PAYMENT OF RS.27,02,5463/- WHICH WER E PAID TO MTNL, BSNL, NO TAX U/S 194C WAS DEDUCTED FOR THE RE ASON THAT PAYMENTS TO THESE PARTIES WERE EXEMPT FROM DEDUCTIO N OF TAX AT SOURCE. THE ASSESSING OFFICER WAS OF THE VIEW THAT RECURRING CHARGES AND NETWORKING CHARGES WERE LIABLE TO DEDUC TION OF TAX U/S 194J OF THE ACT AND, ACCORDINGLY, THE ASSESSEE WAS TREATED IN DEFAULT. THE ASSESSING OFFICER HAD BASED THIS VIEW ON THE GROUND THAT EVERY ASPECT OF TELECOMMUNICATION IS A TECHNIC AL ASPECT REQUIRING HIGHLY PROFESSIONAL PERSONS WHO WERE TECH NICALLY COMPETENT. THE ASSESSING OFFICER REFERRED TO THE D EFINITION OF FEE FOR TECHNICAL SERVICES AS PROVIDED IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT AND OPINED THAT THE TERM TECH NICAL SERVICE INCLUDED MANAGERIAL AND CONSULTANCY SERVICES WH ICH ORDINARILY I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 4 WERE NOT TECHNICAL SERVICES AND THEIR INCLUSION ONL Y ENLARGED THE MEANING OF THE TERM BUT DID NOT DIVEST THE NORMAL M EANING OF THE EXPRESSION TECHNICAL SERVICE . THE ASSESSING OFFICER WAS OF THE OPINION THAT SINCE INTERCONNECT/ACCESS/PORT SERVICE WAS A SERVICE OF TECHNICAL NATURE, NORMAL MEANING OF TECHNICAL S ERVICES WAS APPLICABLE ON THE FACTS AND THE ASSESSEE WAS LIABLE TO DEDUCT TAX U/S 194J OF THE ACT. 3. BEFORE THE LD. FIRST APPELLATE AUTHORITY, IT WAS THE ASSESSEES CONTENTION THAT BANDWIDTH WAS PROVIDED W ITH THE STATE-OF-ART MECHANISM WITHOUT HUMAN INTERVENTION I NASMUCH AS A STATIC OPTICAL FIBRE WAS USED TO PROVIDE BANDWIDT H THROUGH A PAIR OF TWO WIRES AND THE BANDWIDTH FOLLOWED THE PA TH JUST AS AN ELECTRIC CIRCUIT. HOWEVER, THE LD. CIT(A) WAS OF T HE OPINION THAT IN VIEW OF THE PRESENT DAY TECHNOLOGICAL WORLD, THE ROLE OF HUMAN INTERVENTION IN THE PROCESS OF PROVISION OF BANDWID TH COULD NOT BE NEGATED AND WHEREVER SOPHISTICATED TECHNOLOGY WAS B EING USED, HUMAN INTERVENTION BECAME IMPERATIVE. THE GROUND O F APPEAL OF THE ASSESSEE WAS ACCORDINGLY DISMISSED ON THIS ISSU E AND IT WAS HELD THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE U/S 194J OF THE ACT. I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 5 4. THE ASSESSEE HAS NOW CHALLENGED THIS FINDING OF THE LD. CIT (A) IN THE CO. THE GROUND OF CO READS AS UNDER:- 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CA SE AND IN LAW, COMMISSIONER OF INCOME TAX (APPEALS)-XXX, N EW DELHI [BRIEFLY THE CIT(A)] HAS ERRED IN HOLDING T HAT THE PAYMENT MADE TOWARDS NETWORKING CHARGES FOR PROVISION OF BANDWIDTH OR INTERCONNECT FACILITY WAS FEE FOR TECHNICAL SERVICE AND THAT THE ASSESSEE WAS LIA BLE TO DEDUCT TAX UNDER SECTION 194J. 4.1 AS THE FATE OF THIS CO BEFORE US WILL BE CRUCIA L IN DECIDING THE FATE OF THE DEPARTMENTS APPEAL, WE ARE PROCEED ING TO ADJUDICATE ON THE CO FIRST. 4.2 THE LD. AR SUBMITTED THAT THE ASSESSEE IS ENGAG ED IN THE BUSINESS OF PROVIDING INTEGRATED NETWORK SOLUTIONS. THE BUSINESS OF THE ASSESSEE INTER ALIA INCLUDE FOLLOWING ACTIVI TIES: . DESIGN INTERNET/ENTERPRISE NETWORK PLAN IT INFRASTRUCTURE, HARDWARE SOFTWARE AND NETWO RKING EQUIPMENT, MESSAGING SOLUTIONS, FIREWALL AND NETWOR KING EQUIPMENTS. SUPPLY, IMPLEMENT AND MAINTAIN EQUIPMENT AND CONNECTIVITY. LIAISON WITH GOVERNMENT AGENCIES AND SERVICE PROVID ERS FOR WPC, SAFCA AND ANY OTHER TYPE OF CLEARANCES TO PROV IDE INTEGRATED AND FAULT FREE SERVICES. I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 6 INTERNET SERVICE PROVIDER. 4.3 THE LD. AR SUBMITTED THAT BANDWIDTH IS A TERM USED IN THE FIELD OF ELECTRONIC COMMUNICATION. IT IS THE WIDTH OF THE RANGE (OR BAND) OF FREQUENCIES THAT AN ELECTRONIC SIGNAL USES ON A TRANSMISSION MEDIUM. BANDWIDTH IS THE AMOUNT OF DAT A THAT CAN BE CARRIED FROM ONE POINT FROM ANOTHER POINT IN GIV EN TIME USUALLY A SECOND AND IS MEASURED IN BITS (OF DATA) PER SECOND (BPS). A COMMUNICATION PATH USUALLY CONSISTS OF A S UCCESSION OF LINKS, EACH WITH ITS OWN BANDWIDTH. IF ONE OF THESE IS SLOWER THAN THE REST, IT MAY HAMPER THE TRANSMISSION OF DATA. S IMPLY PUT, BANDWIDTH IS DATA CARRYING CAPACITY. THE LD. AR ELA BORATED THAT INTERNET IMPLIES NUMEROUS COMPUTERS INTER-CONNECTED BY NETWORKS. THESE CONNECTIONS CAN BE LARGE OR SMALL D EPENDING UPON THE CABLING AND EQUIPMENT THAT IS USED AT A PA RTICULAR INTERNET LOCATION. IT IS THE SIZE OF EACH NETWORK C ONNECTION THAT DETERMINES HOW MUCH BANDWIDTH IS AVAILABLE. THE LD . AR SUBMITTED THAT IT IS IN THIS BACKGROUND, THE ROLE O F AUTHORISED INTERNATIONAL GATEWAY PROVIDERS (AIGP) NEEDS TO BE NOTED. AIGPS LAY DOWN OPTICAL FIBRE / COPPER WIRES TO PROVIDE TH E BANDWIDTH TO THE CUSTOMERS. A CUSTOMER RECEIVES BANDWIDTH THROUG H THESE I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 7 LINES OPTICAL FIBRE / COPPER WIRES. MODEM OR CONVER TERS PAIRS / OPTIMUX ARE INSTALLED TO CONVERT THE TRANSMISSION S IGNALS INTO DATA / VOICE. THERE ARE TWO CONNECTIONS TO A MODEM, ONE FROM COMPUTER TO ITS MODEM, AND ONE FROM THE COMPUTERS M ODEM TO THE ISPS MODEM. THE LD. AR FURTHER SUBMITTED THAT AN AUTHORISED SERVICE PROVIDER (AIGP) AS A PART AND PA RCEL OF ITS BUSINESS PROVIDES BANDWIDTH TO ITS CUSTOMERS. BANDW IDTH PROVIDED BY AIGPS CONFORMS TO THE REQUIREMENT AND SPECIFICATIONS OF THE PERSON TAKING THE BANDWIDTH. THE LD. AR FURTHER SUBMITTED THAT INTERNET LEASED LINE SERVICE IS STATUTORILY REGULATED AND CAN BE USED ONLY FOR PERMISSIBLE PURP OSES. IT IS THIS SERVICE I.E. PROVISION OF BANDWIDTH THAT THE A SSESSEE HAS AVAILED FROM AIGP TO PROVIDE CONNECTIVITY TO ITS CU STOMERS AND THE ASSESSEE IS NOT PERMITTED TO RESELL THE SERVICE . 4.4 THE LD. AR ALSO SUBMITTED THAT FOR THE PURPOSES OF SECTIONS 194J, MEANING OF THE TERM 'FEE FOR TECHNICAL SERVICES' NEEDS TO BE SEEN. CLAUSE (B) OF THE EXPLANATION TO SECTION 194J OF THE ACT INTER-ALIA, STATES THAT 'FEES FOR TECHNICAL SERVICE S' SHALL HAVE THE SAME MEANING AS CONTAINED IN EXPLANATION 2 TO CLAUS E (VII) OF SECTION 9(1) OF THE ACT, WHICH READS AS UNDER: I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 8 EXPLANATION 2.FOR THE PURPOSES OF THIS CLAUSE, FE ES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTAN CY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERAT ION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJ ECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER T HE HEAD SALARIES'. 4.5 THE LD. AR FURTHER SUBMITTED THAT IN THE DEFINI TION, THE WORD 'TECHNICAL' COMES IN BETWEEN THE WORDS 'MANAGE RIAL AND CONSULTANCY SERVICES'. THEREFORE, THE MEANING OF TH E TERM FEE FOR TECHNICAL SERVICES IS REQUIRED TO BE UNDERSTOOD BY APPLYING THE RULE OF NOSCITUR A SOCIIS. IT WAS SUBMITTED THAT TECHNICAL SERVICE CONTEMPLATES RENDERING OF A 'SERVICE TO THE PAYER OF THE FEE. MERE COLLECTION OF A FEE FOR USE OF A STANDARD FACILITY PROVIDED TO ALL THOSE WILLING TO PAY FOR IT DOES NOT AMOUNT TO THE FEE HAVING BEEN PAID FOR TECHNICAL SERVICES. THE MECHANISM OF PROVI DING BANDWIDTH IS NOTHING BUT GIVING CONNECTION THROUGH OPTICAL FIBRE/COPPER WIRES TO INTERNET USERS. MTNL, BSNL AN D TATA COMMUNICATION LTD DO NOT RENDER ANY SERVICE OF MANA GERIAL, TECHNICAL OR CONSULTANCY NATURE. MERELY USE OF INTE RNET ACCESS I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 9 FACILITY OF A BANDWIDTH CANNOT ATTRACT THE APPLICAB ILITY OF SECTION 9(1)(VII) OF THE ACT. 4.6 THE LD. AR SUBMITTED THAT HONBLE DELHI HIGH CO URT HAS CONSIDERED THE SIMILAR ISSUE IN CIT V. ESTEL COMMUN ICATIONS P. LTD (2009) 318 ITR 185. THE QUESTION WAS WHETHER PA YMENT MADE FOR TAKING INTERNET BANDWIDTH WAS IN THE NATUR E OF FEE FOR TECHNICAL SERVICES AND HENCE TAX WAS LIABLE TO BE D EDUCTED AT SOURCE. THE HON'BLE COURT CONSIDERED THE PROVISIONS OF SECTION 9(1)(VII) OF THE ACT. THE LD. AR ALSO DEMONSTRATED THAT THE HON'BLE MADRAS HIGH COURT IN SKYCELL COMMUNICATIONS LTD. AND ANOTHER VS DCIT AND OTHERS (2011) 251 ITR HAS CONSI DERED THE PROVISIONS OF SECTION 9(1)(VII). SIMILARLY, ITAT CH ANDIGARH BENCH IN THE CASE OF HFCL INFOTEL LIMITED V. ITO (2006) 9 9 TTJ 440, REFERRED TO THE DECISION OF MADRAS HIGH COURT IN TH E CASE OF SKYCELL COMMUNICATIONS LTD . FURTHER, INCOME TAX AP PELLATE TRIBUNAL, MUMBAI IN PACIFIC INTERNET (INDIA) P. LTD . VS. ITO (2009) 318 ITR 179 (AT) HAS RELIED UPON THE OBSERVATIONS R ENDERED IN ESTEL COMMUNICATIONS P. LTD (SUPRA), SKYCELL COMMUN ICATIONS LTD. I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 10 4.7 IT WAS SUBMITTED BY THE LD. AR THAT THERE HAS T O BE A SERVICE THROUGH HUMAN INTERVENTION. IN THE ABSENCE OF SUCH SERVICE, MERE USE OF STANDARD FACILITY CANNOT BE SAID TO HAV E RESULTED IN RENDERING OF TECHNICAL SERVICES. THIS PROPOSITION O F LAW THAT THERE SHOULD BE SERVICE EITHER THAT OF MANAGERIAL, TECHNICAL OR CONSULTANCY THROUGH THE MEDIUM OF HUMAN INTERVENTIO N HAS NOT BEEN DOUBTED BY ANY COURT OF LAW. EVEN THE HONBLE SUPREME COURT IN CIT V. BHARTI CELLULAR LTD 193 TAXMAN 97, HAS NOT HELD SO. ALL THAT WAS OBSERVED WAS THAT THERE WAS NO EXP ERT EVIDENCE SHOW THAT HUMAN INTERVENTION WAS THERE OR NOT. THER EFORE, ALL THAT IS REQUIRED TO BE EXAMINED IS WHETHER IN PROVI DING ACCESS TO BANDWIDTH ANY SERVICE' THROUGH HUMAN INTERVENTION WAS PROVIDED. IT IS SUBMITTED THAT NO SUCH SERVICE WA S PROVIDED AND HENCE PAYMENTS MADE TO BSNL, MTNL & TATA COMMUNICAT ION LTD WERE FOR THE RECEIPT OF BANDWIDTH AND IN PROVID ING THE BANDWIDTH NO SERVICES WERE RENDERED, THEREFORE, SEC TION 194J WAS NOT ATTRACTED. THE QUESTION OF APPLYING SECTION 194 J ON THE PREMISE OF RENDERING PROFESSIONAL SERVICES ALSO DOE S NOT ARISE AS THE PROFESSIONAL SERVICES HAVE BEEN DEFINED TO MEAN SERVICES RENDERED BY A PERSON IN THE COURSE OF CARRYING ON L EGAL, MEDICAL, ENGINEERING ARCHITECTURAL PROFESSION OR THE PROFESS ION OF I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 11 ACCOUNTANCY OR TECHNICAL CONSULTANCY OR INTERIOR DE CORATION OR ADVERTISING OR SUCH OTHER PROFESSIONAL AS NOTIFIED BY THE BOARD. IN PROVIDING ACCESS TO BANDWIDTH BSNL, MTNL & TATA COMMUNICATION LTD ARE NOT CARRYING ANY PROFESSION. THE LD. AR ALSO SUBMITTED THAT IN SUBSEQUENT YEARS, THE DEPART MENT HAS ALREADY ACCEPTED THAT THE LIABILITY TO DEDUCT TAX A T SOURCE WAS U/S 194C OF THE ACT. HE SUBMITTED THAT THE ASSESSEES C O DESERVES TO BE ALLOWED. 5. THE LD. DR RELIED ON THE ORDERS OF THE AUTHORITI ES BELOW AND SUBMITTED THAT SINCE SOME KIND OF HUMAN INTERVENTIO N COULD NOT BE RULED OUT COMPLETELY, THE PAYMENT ATTRACTED PROV ISIONS OF SECTION 194J. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE PER USED THE RECORDS. IT IS SEEN THAT UNDER THE PROVISIONS OF S ECTION 194J OF THE ACT, WHERE THE ASSESSEE MAKES ANY PAYMENT AGAIN ST FEES FOR TECHNICAL SERVICES, THE ASSESSEE IS LIABLE TO DEDUC T TAX AT SOURCE AT THE SPECIFIED RATES AT THE TIME OF CREDIT OF THE PAYMENT OR AT THE TIME OF ACTUAL PAYMENT, WHICHEVER IS EARLIER. F EE FOR TECHNICAL SERVICES IS DEFINED UNDER THE ACT AS CONSIDERATION PAID FOR I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 12 RENDERING ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES BUT DOES NOT INCLUDE CONSIDERATION PAID FOR ANY CONSTRU CTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT. FURTHER, THE CONSIDERATION WHICH IN TURN, WOULD BEC OME THE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD ' SALARIES', IS ALSO NOT TO BE INCLUDED AS FEES FOR TECHNICAL SERVI CES. IN OTHER WORDS, THE TECHNICAL SERVICES INVOLVE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. IN ORDER TO PROV IDE MANAGERIAL, TECHNICAL AND CONSULTANCY SERVICES, THE ELEMENT OF HUMAN INVOLVEMENT IS NECESSARY. IN THE FACTS OF PRESENT C ASE BEFORE US THE ASSESSEE/USER UTILIZES THE TECHNICAL EQUIPMENT FOR BANDWIDTH PURPOSES ONLY THROUGH TECHNICAL EQUIPMENT OR GADGET S USED IN THE TRANSMISSION PROCESS, BUT THE SAME DOES NOT PAR T-TAKE THE NATURE OF SERVICES OF MANAGERIAL, TECHNICAL OR CONS ULTANCY NATURE. MERELY BECAUSE, CERTAIN TECHNICAL EQUIPMENT OR GADG ETS ARE MADE AVAILABLE FOR BANDWIDTH DOES NOT ESTABLISH THE CASE OF THE REVENUE THAT SUCH SERVICES ARE TECHNICAL SERVICES P ROVIDED BY THE SERVICE PROVIDER TO THE ASSESSEE SO AS TO BE COVERE D UNDER THE PROVISIONS OF SECTION 194J OF THE ACT. MOREOVER, WH ERE SUCH TECHNICAL EQUIPMENTS/GADGETS REQUIRE MAINTENANCE, T HEN TECHNICAL SUPPORT STAFF IS USED FOR MAINTAINING THE SYSTEM BUT I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 13 THAT ITSELF DOES NOT ESTABLISH THAT THE SERVICES PR OVIDED BY THE MAINTENANCE CREW ARE IN THE NATURE OF TECHNICAL SER VICES. THE HON'BLE MADRAS HIGH COURT IN SKYCELL COMMUNICATIONS LTD. (SUPRA) HAD HELD THAT FOR THE PURPOSE OF SECTION 19 4J TO BECOME APPLICABLE, IT IS NECESSARY THAT THE PAYEE RECEIVES 'SERVICES'. IF THE PAYEE USES ONLY TECHNICAL GADGETS, WHICH ARE MADE A VAILABLE TO OTHERS ALSO FOR FEES, THE SAME DOES NOT MAKE THE PA YMENT SUBJECT TO TAX DEDUCTION AT SOURCE UNDER SECTION 194J OF TH E ACT. THE BANGALORE BENCH OF THE TRIBUNAL IN INFOSYS TECHNOLO GIES LTD. {SUPRA) ON CONSIDERATION OF THE PAYMENT MADE TOWARDS BANDWIDTH CHARGES TO THE SERVICE PROVIDERS HAD HELD THAT SUCH PAYMENTS WERE NOT IN THE NATURE OF MANAGERIAL, CONS ULTANCY OR TECHNICAL SERVICES NOR WAS IT FOR THE USE OF OR RIG HT TO USE INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENTS. IT WAS FURTHER HELD BY THE BENCH THAT THE SERVICE PROVIDERS WERE O NLY TO ENSURE THAT SUFFICIENT BANDWIDTH WAS AVAILABLE ON AN ONGOI NG BASIS TO THE ULTIMATE USERS TO UPLINK AND DOWNLINK THE SIGNA LS. THE RELEVANT FINDINGS OF THE TRIBUNAL WERE AS UNDER: THE CIT(A)'S REASONING THAT THE ONLY WAY OUT IS TO GET A NO- DEDUCTION CERTIFICATE FROM THE AO (TDS), IS LACKING MERIT IN SUBSTANCE AND THIS REASONING OF THE CIT(A) IS TO BE OUT RIGHTLY REJECTED. SOFTWARE DEVELOPED BY COMPANIES IN INDIA IS EXPORTED I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 14 EITHER IN PHYSICAL MODE (I.E. THROUGH FLOPPY DISKS) OR THROUGH WIRELESS COMMUNICATION USING SATELLITE LINKS. WHEN AN INDIAN COMPANY EXPORTS SOFTWARE TO COMPANIES OUTSIDE INDIA USING SATELLITE COMMUNICATION FACILITIES, THE DIGITAL SIG NALS ARE CONVERTED INTO ANALOG SIGNALS THROUGH EARTH STATION S AND ARE TRANSMITTED TO ONE OF THE GEO-STATIONERY SATELLITES USING THE REQUIRED BANDWIDTH PROVIDED BY VIDESH SANCHAR NIGAM LTD. OR SOFTWARE TECHNOLOGY PARKS OF INDIA. THE SIGNALS THA T HAVE BEEN BEAMED TO THE SATELLITE WILL BE DOWNLINKED TO THE EARTH STATION IN THE US AND SENT TO THE CLIENT LOCATIONS USING THE BANDWIDTH AND DOWN LINKING FACILITY PROVIDED BY INT ERNATIONAL SERVICE PROVIDERS SUCH AS AT & T, MCI TELECOMMUNICA TIONS ETC. THE ASSESSEE SHARES THE BANDWIDTH PROVIDED BY THE INTERNATIONAL SERVICE PROVIDERS. BANDWIDTH IN NORMA L PARLANCE REFERS TO THE AMOUNT OF TRAFFIC THAT COULD BE CARRI ED ON THE INTERNET. GREATER THE BANDWIDTH GREATER WOULD BE TH E ABILITY TO TRANSMIT DATA AND OTHER COMMUNICATION. T HE PAYMENTS MADE TO SERVICE PROVIDERS SUCH AS AT & T O R MCI TELECOMMUNICATIONS ARE FOR THE USE OF BANDWIDTH PRO VIDED FOR DOWN LINKING SIGNALS IN THE US. THE PAYMENTS MADE A RE NOT IN THE NATURE OF MANAGERIAL, CONSULTANCY OR TECHNICAL SERVICES NOR IS IT FOR THE USE OF OR RIGHT TO USE INDUSTRIAL, CO MMERCIAL OR SCIENTIFIC EQUIPMENT. THE SERVICE PROVIDERS SUCH AS MCI TELECOMMUNICATIONS OR AT & T, ONLY ENSURE THAT THE SUFFICIENT BANDWIDTH IS AVAILABLE ON AN ONGOING BASIS TO THE U LTIMATE USERS TO UPLINK AND DOWNLINK THE SIGNALS. NO DISALL OWANCE UNDER S. 40(A)(I) WAS CALLED FOR.' I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 15 6.1 FURTHER, THE DELHI BENCH OF THE TRIBUNAL IN GLOBAL ONE INDIA P. LTD. (SUPRA) WHILE DECIDING THE ISSUE OF PAYMENTS MADE TOWARDS FACILITIES PROVIDED BY THE SERVICE PROVIDER FOR TRANSMISSION OF DATA AND WHETHER TAX WAS TO BE DEDU CTED AT SOURCE UNDER SECTION 194I OF THE ACT HELD AS UNDER: 'WE FIRST TAKE UP CORPORATE TAX ISSUES WHICH IS GRO UND NO. 5 FOR THE ASSESSMENT YEAR 2007-08. THE ASSESSEE IS A LICE NSED INTERNET PROVIDER. DURING THE YEAR IT PROCURED, DOM ESTIC HALF CIRCUIT FACILITY TO ITS CUSTOMERS FROM TELECOM SERV ICE PROVIDERS LIKE BSNL, MTNL, AND INTERNATIONAL HALF CIRCUIT FAC ILITY FROM RAG, ATLANTIC AT FRANCE. THESE ARE STANDARD FACILIT IES PROVIDED FOR TRANSMISSION OF DATA BY THOSE ORGANIZATIONS. TH E ISSUE IS WHETHER TAX SHOULD BE DEDUCTED AT SOURCE UNDER SECT ION 194-I FROM PAYMENTS MADE FOR USE OF SUCH STANDARD FACILIT IES. THE HON'BLE DELHI HIGH COURT IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. V. DIT P20111 332 ITR 340 (DELHI) AND THE HON'BLE MADRAS HIGH COURT IN THE CA SE OF SKY CELL COMMUNICATIONS LTD. V. DEPUTY CIT [2001] 251 ITR 53 (MAD.) HAVE ADJUDICATED THE ISSUE IN FAVOUR OF THE ASSESSEE. RESPECTFULLY FOLLOWING THE SAME, WE HOLD THAT PAYME NTS MADE TOWARDS USE OF STANDARD FACILITY, WHEN THE LESSEE I S NOT HAVING ANY DOMAIN OR CONTROL OR POSSESSORY RIGHTS OVER SUC H FACILITY, CANNOT BE CATEGORISED AS USE OF ASSETS FOR THE PURP OSE OF THE ACT.' I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 16 6.2 THE HON'BLE SUPREME COURT IN BHARTI CELLULAR LTD. (SUPRA) OBSERVED THAT QUESTION OF HUMAN INTERVENTION WAS NE VER RAISED BY THE DEPARTMENT EITHER BEFORE THE CIT (A) OR BEFO RE THE TRIBUNAL AND WAS NOT RAISED EVEN IN THE PRESENT APPEALS. 6.3 THE HON'BLE DELHI HIGH COURT ALSO HAD AN OCCA SION TO EXAMINE A SIMILAR ISSUE IN THE CASE OF CIT VS ESTEL COMMUNICATIONS (P) LTD. 217 CTR 102 (DELHI) WHEREIN THE HON'BLE DELHI HIGH COURT HELD THAT MERE PAYMENT BY ASSESSEE FOR AN INTERNET BANDWIDTH TO A US COMPANY DID NOT MEAN THAT TECHNICAL SERVICES WERE RENDERED BY THE US COMPANY TO THE ASSESSEE AND, THEREFORE, PROVISIONS OF SECTION 9(1) (VII) DID NOT APPLY SO AS TO WARRANT ANY DEDUCTION OF TAX FROM PA YMENT MADE BY THE ASSESSEE TO THE US COMPANY. IN THIS CASE, T HE ASSESSEE WAS PROVIDING INTERNET ACCESS OF A CERTAIN BANDWIDT H TO ITS SUBSCRIBERS. THE MAIN SERVER ON THE BASIS OF WHICH THE INTERNET SERVICES WERE PROVIDED WAS LOCATED IN THE USA. FOR THE SERVICES RENDERED BY THE ASSESSEE TO THE SUBSCRIBERS IN INDI A, IT LEVIED A CHARGE AND OUT OF THIS, SOME AMOUNT WAS PAID TO THE US PARTY I.E. TELEGLOBE. AS PER THE ASSESSING OFFICER, THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE FROM PAYMENTS MADE T O TELEGLOBE. I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 17 THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SEC TION 9(1)(I) AND 9(1)(VII). THE ITAT CONSIDERED THE AGREEMENT THAT HAD BEEN ENTERED INTO BY THE ASSESSEE WITH TELEGLOBE AND CON CLUDED THAT THERE WAS NO PRIVITY OF CONTRACT BETWEEN THE CUSTOM ERS OF THE ASSESSEE AND TELEGLOBE AND THAT THE ASSESSEE WAS ME RELY PAYING FOR AN INTERNET BANDWIDTH TO A US COMPANY AND THEN SELLING IT TO ITS CUSTOMERS. THE ITAT CONCLUDED THAT THE USE OF INTERNET FACILITY MAY REQUIRE SOPHISTICATED EQUIPMENT BUT TH AT DID NOT MEAN THAT TECHNICAL SERVICES WERE RENDERED BY TELEG LOBE TO THE ASSESSEE AND THAT THE PAYMENT WAS A SIMPLE CASE OF PURCHASE OF INTERNET BANDWIDTH BY THE ASSESSEE FROM THE TELEGLO BE. THE TRIBUNAL CONCLUDED THAT UNDER THE CIRCUMSTANCES, TH ERE WERE NO TECHNICAL SERVICES PROVIDED BY TELEGLOBE TO THE ASS ESSEE AND, THEREFORE, THE PROVISIONS OF SECTION 9(1)(VI) OF TH E ACT DID NOT APPLY. ON APPEAL TO THE HON'BLE DELHI HIGH COURT, THE HON'BLE HIGH COURT HELD THAT THE TRIBUNAL HAD RIGHTLY DISMI SSED THE APPEAL AS IT WAS A SIMPLE CASE OF PAYMENT FOR PROVI SION OF A BANDWIDTH AND NO TECHNICAL SERVICES WERE RENDERED B Y THE TELEGLOBE TO THE ASSESSEE. I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 18 7. ON THE FACTS OF THE PRESENT CASE, IT IS OUR CONS IDERED OPINION THAT MERE PROVISION OF BANDWIDTH DOES NOT REQUIRE H UMAN INTERVENTION. THE PAYMENTS MADE TO SERVICE PROVIDE RS WERE FOR THE USE OF BANDWIDTH AND THE PAYMENTS CANNOT BE CON SIDERED TO BE IN THE NATURE OF MANAGERIAL, CONSULTANCY OR TECH NICAL SERVICES SO AS TO ATTRACT THE PROVISIONS OF SECTION 194J OF THE ACT. IN VIEW THEREOF, IN THE ABSENCE OF ANY HUMAN INTERVENTION B ETWEEN THE ASSESSEE AND THE SERVICES PROVIDED BY THE AIGP, IT CANNOT BE SAID THAT THE PAYMENT MADE BY THE ASSESSEE WAS FOR TECHN ICAL SERVICES. MERELY BECAUSE FOR MAINTENANCE PURPOSE CE RTAIN HUMAN INTERVENTION MIGHT BE REQUIRED, IT CANNOT LEAD TO T HE SURMISE THAT THE BANDWIDTH CHARGES PAID TO VARIOUS AIGP WERE IN THE NATURE OF TECHNICAL SERVICES GOVERNED BY THE PROVISIONS OF SE CTION 194J OF THE ACT. THE BANDWIDTH CHARGES WERE PAID FOR UTILIZ ING THE STANDARD FACILITIES WHICH WERE PROVIDED BY WAY OF U SE OF TECHNICAL GADGETS AND THE SAME DOES NOT INVOLVE TECHNICAL SER VICES AS THERE WAS ONLY INTERCONNECTION OF THE NETWORKS TO THE EQU IPMENTS OF OTHER SERVICE PROVIDERS. HENCE IN THE ABSENCE OF AN Y HUMAN INTERVENTION FOR PROVIDING BANDWIDTH, THE PAYMENTS MADE FOR UTILIZING SUCH SERVICES WAS NOT IN THE NATURE OF TE CHNICAL SERVICES GOVERNED BY SECTION 194J OF THE ACT. ACCORDINGLY, W E REVERSE THE I.T.A. NO.4061/D/2011 7 CO 331/D/12 ASSESSMENT YEAR 2009-10 19 FINDING OF CIT (A) IN THIS REGARD AND HOLD THAT BAN DWIDTH CHARGES WERE NOT LIABLE FOR TAX DEDUCTION AT SOURCE UNDER T HE PROVISIONS OF SECTION 194J OF THE ACT. 8. IN THE RESULT, THE CO OF THE ASSESSEE IS ALLOWED . 9. IN VIEW OF OUR FINDINGS IN THE CO, ITA NO. 4061/ DEL/2011 BECOMES INFRUCTUOUS AND THE SAME IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 5TH MAY, 20 16. SD/- SD/- (N.K. SAINI) (SUDHANSHU SRIVASTAVA) ACCOUNTANT MEMBER JUDICI AL MEMBER DATED: THE 5 TH MAY, 2016 GS COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 4. DR, ITAT BY ORDER ASSTT. REGISTRAR