THE DCIT., CIRCLE-3(1)(TDS)., VIJAYAWADA.., Vijayawada V. M/s Muguru Online Limited, Vijayawada

ITA 5/VIZ/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 1163 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 3 year(s) 4 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-05-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 27-11-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 02-01-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: P HARI PRASADA RAO
• Assessee Lawyers: A V RAGHURAM
• Section: 201(1); 263

Judgement Text

ITA NO.5&6/VIZAG/2013 MYGURU ONLINE LIMITED, VIJAYAWADA 1 , , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM . , . , $ BEFORE SHRI V. DURGA RAO, JUDICIAL MEMBER & SHRI G. MANJUNATHA, ACCOUNTANT MEMBER ./I.T.A.NOS.5&6/VIZAG/2013 ( / ASSESSMENT YEAR: 2007-08&2008-09) DCIT, CIRCLE - 3(1)(TDS), VIJAYAWADA VS. MYGURU ONLINE LIMITED VIJAYAWADA [ T AN: HYDM04837A ] ( % / APPELLANT) ( &'% / RESPONDENT) / APPELLANT BY : SHRI P. HARI PRASADA RAO, DR / RESPONDENT BY : SHRI A.V. RAGHU RAM, AR / DATE OF HEARING : 28.04.2016 / DATE OF PRONOUNCEMENT : 20.05.2016 / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER: THESE APPEALS ARE FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A), VIJAYAWADA DATED 31.10.2012 FOR THE ASSESSM ENT YEARS 2007-08 & 2008-09. THE ISSUE IS COMMON IS BOTH THE ASSESSM ENT YEARS. ITA NO.5&6/VIZAG/2013 MYGURU ONLINE LIMITED, VIJAYAWADA 2 2. FACTS ARE IN BRIEF THAT THE ASSESSEE HAS PAID BA NDWIDTH CHARGES TO M/S. BHARTHI AIRTEL, M/S. RELIANCE, M/S. BEAM CABLE AND M/S. RAILTEL. HOWEVER, NO TDS WAS DEDUCTED ON THE ABOVE PAYMENTS. IN THE ASSESSMENT ORDER, THE A.O. HAS NOTED THAT THE PAYME NT OF BANDWIDTH CHARGES BY THE ASSESSEE FALLS WITHIN THE PURVIEW OF ROYALTY AS DEFINED U/S 194J OF THE INCOME TAX ACT, 1961 (HEREINAFTER C ALLED AS 'THE ACT') FOR THE REASON THAT THE ASSESSEE MADE PAYMENTS FOR USIN G THE PROCESS AND EQUIPMENT THROUGH WHICH BANDWIDTH IS PRODUCED AND MADE AVAILABLE TO THE ASSESSEE APART FROM ENJOYING THE CONNECTED TECH NICAL SERVICES RENDERED BY THE SERVICE PROVIDER. THE ASSESSEE IN A WAY, WAS USING THE SOPHISTICATED MACHINERY OF SERVICE PROVIDER FOR ACC EPTING THE BANDWIDTH. THEREFORE, CONCLUDED THAT THE CHARGES PAID FOR THE SAME FALL WITHIN THE DEFINITION OF ROYALTY. ACCORDINGLY, THE ASSESSIN G OFFICER HAS RAISED A DEMAND OF ` 11,65,769/- FOR ASSESSMENT YEAR 2007-08 AND ` 39,04,430/- FOR THE ASSESSMENT YEAR 2008-09 U/S 201 (1) OF THE ACT FOR THE FAILURE ON THE PART OF THE ASSESSEE TO DEDUCT T AX U/S 194J OF THE ACT. 3. THE ASSESSEE CARRIED MATTER IN APPEAL BEFORE THE CIT(A). THE LD. CIT(A) HAS HELD THAT THE ASSESSEE HAS MADE USE OF T HE SIGNALS IN A TRADING ACTIVITY, BUT NOT THAT THE SIGNALS WERE APP LIED BY THE ASSESSEE IN ITA NO.5&6/VIZAG/2013 MYGURU ONLINE LIMITED, VIJAYAWADA 3 ITS ACTIVITIES AND HELD THAT SECTION 194J OF THE AC T HAS NO APPLICATION. ON BEING AGGRIEVED, REVENUE IS IN APPEAL BEFORE THE TR IBUNAL. 3. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSE SSEE HAS SUBMITTED THAT THE ISSUE IN THIS APPEAL IS SQUARELY COVERED B Y THE COORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER YEARS AND THE TRIBUNAL HAS HELD THAT THE PAYMENT MADE TO INTERNET SERVICE PROVIDER TOWARDS BANDWIDTH CHARGES IS NOT IN THE NATURE OF ROYALTY, HENCE, TDS PROVISIONS ARE NOT APPLICABLE AND SUBMITTED THAT AP PEAL FILED BY THE REVENUE MAY BE DISMISSED. 4. ON THE OTHER HAND, THE LD. D.R. HAS STRONGLY SUP PORTED THE ORDER PASSED BY THE CIT(A). 5. WE HAVE HEARD BOTH THE PARTIES, PERUSED THE MATER IALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHOR ITIES BELOW. THE ONLY ISSUE INVOLVED IN THIS APPEAL IS WHETHER THE P AYMENT MADE BY THE ASSESSEE TO THE INTERNET SERVICE PROVIDER TOWARDS B ANDWIDTH CHARGES IS IN THE NATURE OF THE ROYALTY OR NOT? THE ISSUE H AS BEEN CONSIDERED BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE ASSESSE ES OWN CASE UNDER ASSESSMENT YEAR 2008-09 BY ORDER DATED 15.4.2015 AN D HELD THAT THE PAYMENTS MADE TOWARDS THE BANDWIDTH CHARGES NOT BEI NG IN THE NATURE ITA NO.5&6/VIZAG/2013 MYGURU ONLINE LIMITED, VIJAYAWADA 4 OF ROYALTY AND PROVISIONS OF SECTION 194J OF THE ACT WOULD NOT BE APPLICABLE. THE RELEVANT PORTION OF THE ORDER IS E XTRACTED AS UNDER: 7. WE HAVE CONSIDERED THE SUBMISSIONS OF THE PA RTIES AND PERUSED THE ORDERS OF REVENUE AUTHORITIES AS WELL AS OTHER MATERIALS ON RECORD. WE HAVE ALSO CAREFULLY APPLIED OUR MIND TO THE DECISIONS RELIED UPON BEFORE US BY BOTH THE PARTIES. AS CAN B E SEEN, THE ISSUE IN DISPUTE IS LIMITED TO THE FACT, WHETHER PA YMENT OF BANDWIDTH CHARGES ARE IN THE NATURE OF ROYALTY SO A S TO ATTRACT THE PROVISIONS OF SECTION 194J OF THE ACT. THERE IS NO DISPUTE TO THE FACT THAT ASSESSEE HAS PAID AN AMOUNT OF RS. 3, 39,54,927 TOWARDS BANDWIDTH CHARGES AND AS. 5,06,075 TOWARDS LEASELINE CHARGES WITHOUT DEDUCTING TAX AT SOURCE. IT IS THE CLAIM OF ASSESSEE THAT FOR PROVIDING INTERNET SERVICES TO IT S CUSTOMERS, ASSESSEE IS NOT UTILIZING ANY SERVICES PROVIDED_BAHSARV1AEPROVIDER, HENCE, THE PAYMENT MAD E WOULD NOT BE IN THE NATURE OF ROYALTY TO ATTRACT THE PROVISIONS OF SECTION 194J. LD. CIT HAS HELD THAT SUCH PAYMENTS ARE IN THE NATURE OF ROYALTY. ON A PERUSAL OF THE DECISION IN CASE OF CIT VS. ESTEL COMMUNICATIONS P. LTD. (SUPRA) OF THE HON'BLE DELHI HIGH COURT, IT IS SEEN THAT HON'BLE DELHI HIGH COURT HEL D THAT PAYMENT MADE TO INTERNET SERVICE PROVIDER TOWARDS BANDWIDTH CHARGES IS NOT IN THE NATURE OF ROYALTY, HENCE, TDS PROVISIONS ARE NOT APPLICABLE. ITAT, BANGALORE BENCH IN CASE OF INFOSY S TECHNOLOGIES LTD. VS. DCLT (SUPRA) WHILE DEALING WI TH SIMILAR ISSUE HELD AS UNDER: 4.8 SOFTWARE DEVELOPED BY COMPANIES IN INDIA IS EXPO RTED EITHER IN PHYSICAL MODE (I.E. THROUGH FLOPPY DISKS) OR THROUG H WIRELESS COMMUNICATION USING SATELLITE LINKS. WHEN AN INDIAN COMPANY EXPORTS SOFTWARE TO COMPANIES OUTSIDE INDIA USING SA TELLITE COMMUNICATION FACILITIES, THE DIGITAL SIGNALS ARE C ONVERTED INTO ANALOG SIGNALS THROUGH EARTH STATIONS AND ARE TRANS MITTED TO ONE OF THE GEO-STATIONERY SATELLITES USING THE REQUIRED BA NDWIDTH PROVIDED BY VIDESH SANCHAR N/GAL LTD. (VSNL) OR SOFTWARE TEC HNOLOGY PARKS OF INDIA (STPI). THE SIGNALS THAT HAVE BEEN BEAMED TO THE SATELLITE WILL BE DOWNLINKED TO THE EARTH STATION IN THE UNIT ED STATES AND SENT TO THE CLIENT LOCATIONS USING THE BANDWIDTH AN D DOWN/INKING FACILITY PROVIDED BY INTERNATIONAL SERVICE PROVIDER S SUCH AS AT&T MCI TELECOMMUNICATIONS ETC. THE ASSESSEE SHARES THE BANDWIDTH PROVIDED BY THE INTERNATIONAL SERVICE PROVIDERS. BA NDWIDTH IN 'NORMAL PARLANCE' REFERS TO THE AMOUNT OF TRAFFIC T HAT COULD BE CARRIED ON THE INTERNET. GREATER THE BANDWIDTH, GRE ATER WOULD BE THE ABILITY TO TRANSMIT, DATA AND OTHER COMMUNICATI ON. 4.9 THE PAYMENTS MADE TO SERVICE PROVIDERS SUCH AS AT&T OR MCI TELECOMMUNICATIONS ARE FOR THE USE OF BANDWIDTH PROVIDED FOR DOWNLINKING SIGNALS IN THE UNITED STATES. THE P AYMENTS MADE ARE NOT IN THE NATURE OF MANAGERIAL, CONSULTANCY OR TECHNICAL SERVICES NOR IS IT FOR THE USE OF OR RIGHT TO USE I NDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT. THE SERVICE PRO VIDES SUCH AS ITA NO.5&6/VIZAG/2013 MYGURU ONLINE LIMITED, VIJAYAWADA 5 MCI TELECOMMUNICATIONS OR AT&T ONLY ENSURE THAT THE SUFFICIENT BANDWIDTH IS AVAILABLE ON AN ONGOING BASIS TO THE U LTIMATE USERS TO UP/INK AND DOWNLINK THE SIGNALS.' 4.10 THE MADRAS HIGH COURT IN THE CASE OF SKYCELL COMMUNICATION SERVICES LTD. V DCIT 251 ITR 53 HAS H ELD THAT PAYMENT FOR USE OF MOBILE PHONE SERVICES WOULD NOT CONSTITUTE ROYALTIES OR FEES FOR TECHNICAL SERVICES. PAYMENTS MADE FOR BANDWIDTH ARE AKIN TO THE PAYMENT MADE FOR USE OF M OBILE PHONE SERVICES.' ITAT, HYDERABAD BENCHES ALSO IN THE DECISIONS CITED BY ID. AUTHORISED REPRESENTATIVE HAS EXPRESSED SIMILAR VI EW. HOWEVER, IT NEEDS TO BE OBSERVED THE HON'BLE MADRAS HIGH COU RT IN CASE OF VERIZON COMMUNICATIONS SINGAPORE PTE LTD. (SUPRA) H AS EXPRESSED A CONTRARY VIEW. IN THIS CONTEXT, IT IS TO BE NOTED THAT NO DECISION OF THE JURISDICTIONAL HIGH COURT ON THE ISSUE HAS B EEN BROUGHT TO OUR NOTICE. WHEN THERE ARE CONFLICTING VIEWS EXPRES SED BY NON- JURISDICTIONAL HIGH COURTS AND DECISIONS OF DIFFERE NT BENCHES OF ITAT ARE IN FAVOUR OF ASSESSEE, THE VIEW FAVOURABLE TO ASSESSEE HAS TO BE ADOPTED. THEREFORE, RESPECTFULLY FOLLOWIN G THE DECISION OF THE HON'BLE DELHI HIGH COURT IN CASE OF ESTEL COMMU NICATIONS P. LTD. (SUPRA), AND THE DECISIONS OF COORDINATE BENCH ES (SUPRA), WE HOLD THAT PAYMENT MADE TOWARDS BANDWIDTH/LEASELINE CHARGES NOT BEING IN THE NATURE OF ROYALTY, PROVISIONS OF SECTI ON 194J WOULD NOT BE APPLICABLE. THEREFORE, NO DISALLOWANCE U/S 40(A) (IA) CAN BE MADE. 8. THIS ISSUE CAN ALSO BE LOOKED INTO FROM ANOT HER ANGLE. AS CAN BE SEEN, VIEW EXPRESSED BY DIFFERENT HIGH COURTS AS WE LL AS ITAT ON THE ISSUE ARE DIVERGENT. WHILE, IN MAJORITY OF T HE DECISIONS A VIEW FAVOURABLE TO ASSESSEE HAS BEEN TAKEN, IN THE DECISION OF HON'BLE MADRAS HIGH COURT A VIEW AGAINST ASSESSEE H AS BEEN TAKEN. THUS, IT IS APPARENT THAT, MORE THAN ONE VIE W IS POSSIBLE ON THE ISSUE. THAT BEING THE CASE, THE VIEW TAKEN B Y AO WHILE ALLOWING EXPENDITURE CLAIMED BEING ONE OF THE POSSI BLE VIEW SUPPORTED BY JUDICIAL PRONOUNCEMENTS, PROVISIONS OF SECTION 263 CANNOT BE INVOKED ON THE PRETEXT THAT ASSESSMENT OR DER IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVEN UE. IN THIS CONTEXT, IT NEEDS TO BE MENTIONED FOR THE IMPUGNED ASSESSMENT YEAR PROCEEDINGS U/S 201 WERE ALSO INITIATED AGAINS T ASSESSEE FOR NON-DEDUCTION OF TDS U/S 194J ON PAYMENT OF BAN DWIDTH CHARGES AND ULTIMATELY ORDERS WERE PASSED BY RAISIN G DEMAND U/S 201(1) AND 201(1A). WHEN ASSESSEE PREFERRED APP EAL AGAINST THE SAID ORDER, ID. CIT(A) DECIDED THE ISSU E IN FAVOUR OF ASSESSEE BY HOLDING THAT ASSESSEE IS ENGAGED IN TRA DING OF ITA NO.5&6/VIZAG/2013 MYGURU ONLINE LIMITED, VIJAYAWADA 6 BANDWIDTH, HENCE, THE PROVISIONS OF SECTION 194J AR E NOT APPLICABLE. IT WAS BROUGHT TO OUR NOTICE BY ID. AR, THIS ORDER OF ID. CIT(A) HAS BEEN ACCEPTED BY THE DEPARTMENT AS N O FURTHER APPEAL WAS FILED. THIS CONTENTION OF ID. AR REMAINE D UNCONTROVERTED. THUS, AS CAN BE SEEN FROM THE AFORE SAID FACTS, OPINIONOF THE DEPARTMENTAL AUTHORITIES ON APPLICABI LITY OF SECTION 194J TO PAYMENT OF BANDWIDTH CHARGES ARE ALSO DIFFE RENT. THEREFORE, THE ASSESSMENT ORDER CANNOT BE HELD TO B E ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE ON SUCH A DEBATABLE ISSUE. FOR THE REASONS STATED ABOVE, WE HOLD THAT I D. CIT WAS NOT CORRECT IN HOLDING THE ASSESSMENT ORDER IS ERRO NEOUS AND PREJUDICIAL TO THE INTERESTS OF REVENUE FOR NOT APP LYING THE PROVISIONS OF SECTION 40(A)(IA) TO THE PAYMENTS MAD E TOWARDS BANDWIDTH/LEASELINE CHARGES. ACCORDINGLY, GROUND RA ISED ON THIS ISSUE IS ALLOWED. 9. IN VIEW OF OUR FINDING IN PRECEDING PARAGRAPHS; T HE ISSUES RAISED IN THE ADDITIONAL GROUNDS ARE OF MERE ACADEMIC INTE REST, HENCE, WE DO NOT FEEL THE NECESSITY TO ADJUDICATE THEM. 6. BY FOLLOWING THE COORDINATE BENCH OF THE TRIBUNA L IN ASSESSEES OWN CASE, THE APPEALS FILED BY THE REVENUE ARE DISM ISSED IN BOTH THE ASSESSMENT YEARS. 7. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE DISMISSED. THE ABOVE ORDER WAS PRONOUNCED IN THE OPEN COURT ON 20 TH MAY16. SD/- SD/- ( . ) ( . ) (G. MANJUNATHA) (V. DURGA RAO) /ACCOUNTANT MEMBER /JUDICIAL MEMBER ! /VISAKHAPATNAM: % /DATED : 20.05.2016 VG/SPS ITA NO.5&6/VIZAG/2013 MYGURU ONLINE LIMITED, VIJAYAWADA 7 '! (! /COPY OF THE ORDER FORWARDED TO:- 1. / THE APPELLANT THE DCIT, CIRCLE-3(1)(TDS), VIJA YAWADA 2. / THE RESPONDENT MYGURU ONLINE LIMITED, SBH COMP OUND, PATAMATALANKA, BESIDE EENADU OFFICE, VIJAYAWADA. 3. ) / THE CIT(TDS), VIJAYAWADA 4. ) ( ) / THE CIT(A), VIJAYAWADA 5. ! , , , , ! / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // /0 , (SR.PRIVATE SECRETARY) , , ! / ITAT, VISAKHAPATNAM