Income Tax Appellate Tribunal, Pune Bench ‘A’
Sushma Chowla, Judicial Member
1. All these appeals filed by the assessee are against the separate orders of CIT(A)-V, Pune dated 16.04.2013 and 29.07.2013 respectively relating to assessment years 2007-08, 2008-09, 2009-10 and 2010-11 passed under section 201(1)/201(1A) of the Income Tax Act.
2. Similar grounds of appeal were raised in all the years, which read as under:-
In the fact and the circumstances of case, and in law, the learned Commissioner of Income-tax (Appeals) -V, Pune, erred:
1. In respect of datalink charges paid by the appellant:
(a) In confirming that datalink charges of Rs.8,32,46,468 are liable to TDS u/s 194J
(b) In concluding that human intervention is required for providing the datalink services and hence the datalink charges are subject to TDS u/s 194J
(c) Without prejudice to above, in not appreciating that the recipients of the datalink charges are companies who would have filed their tax returns and included the amounts in their taxable income and hence at the most the appellant can be liable to pay interest u/s 201(1A)
2. The appellant craves leave to add, modify or withdraw any of the grounds of appeal at the time of hearing
3. The issue raised in all the appeals is against demand raised under section 201(1) and interest charged under section 201(1A) of the Act.
4. All the appeals relating to same assessee on similar issue were heard together and are being disposed of by this consolidated order for the sake of convenience. The facts in all the years under appeal are identical. However, we make a reference to the facts in ITA No.1301/PN/2013 to adjudicate the issue.
5. The brief facts of the case are that, the TDS Survey under section 133A of the Act was carried out on 13.01.2009 at the premises of assessee. Subsequently, ACIT-TDS had verified the records of the assessee company. The assessee was a software company engaged in software development, software export and allied activities. During verification, the ACIT noticed that the assessee had not deducted tax at source from the DATA link charges paid to various telecom service providers. As per the ACIT, the assessee should have deducted tax at source from the said DATA link charges under section 194J of the Act. Besides this, the ACIT also was of the view that on AMC charges, the assessee should have deducted tax at source under section 194J of the Act, instead of section 194C of the Act. In view thereof, show cause notice was issued to the assessee under section 201(1) of the Act and 201(1A) of the Act. The plea of the assessee before the ACIT-TDS was that the DATA link charges were not in the nature of fee for technical services but for allowing the satellite link line from one service provider to be carried over to the other service provider. As such, the existing service provider had to provide inter connection of their net works from equipment of net works to equipment of other service providers to provide subscribers efficient and flawless services. The DATA link usage was only for transmission of data from the server of assessee to the designated client server. The assessee further explained that it was obvious that through the process of interconnection, one service provider establishes a link between it's own network, services and equipment with the network, services and equipment of other service provider. For facilitating these arrangements, service provider only uses the network element (for carrying the lines to their destination) of other service provider. By providing the interconnection, the interconnection provider does not render any technical services either to the Interconnection Seeker or to the Subscriber of the services. The plea of the assessee was that just because technical equipment/gadgets were used in the transmission process does not make the contract/connect towards rendering/availing technical services. Reliance was placed on the ratio laid down in Skycell Communications Ltd. v. Dy. CIT  119 Taxman 496 (Mad.) and it was proposed that interconnected facilities could be considered as technical equipment provided by the interconnection providers to interconnection seekers. However, the same would not result into provision of services by the receiver of the fees. The ACIT-TDS after considering the decision in Skycell Communications Ltd. (supra) in turn, relied on ratio laid down by Kolkata Bench of the Tribunal in Hutchison Telecom East Ltd. v. Asstt. CIT  16 SOT 404 wherein it was held that interconnectivity charges paid to BSNL were in the nature of payment for technical services and was subject to the provisions of section 194J of the Act. The Assessing Officer observed that the decision in Skycell Communications Ltd. (supra) was of 2001 and the Kolkata Bench of the Tribunal in its order dated 25.05.2007 had even considered the said decision of the Hon'ble Madras High Court. In view thereof, it was held that the DATA link charges was the fee paid for technical services rendered by the service provider and the assessee should have deducted tax at source under the provisions of section 194J of the Act. Further, in respect of levy of interest under section 201(1A) of the Act, it was observed by the ACIT-TDS that where the deductee had paid the taxes on the income received from the deductor then, the same was to be considered while computing interest under section 201(1A) of the Act. The ACIT observed that all the service providers were companies of repute and there was no doubt they had paid taxes on the payment made by the assessee. However, interest under section 201(1A) of the Act was chargeable for the delay of even a day as correct computation of interest was not possible and hence, there was no other option but to levy the token interest which takes care of the decision of the Tribunal and the default. In view thereof, interest under section 201(1A) of the Act for financial years 2006-07 to 2008-09 put together was levied at Rs.10 lakhs subject to rectification/directions of the appellate authorities.
6. The CIT(A) after considering the submissions of the assessee called for the Remand Report and observed that the reply of the ACIT(TDS) was cryptic and even the assessee had not been able to procure necessary certificates from the service providers regarding the nature of human element involved in entire exercise of DATA link services.
7. The CIT(A) vide para 17 observed as under:-
"17. From the copy of bills submitted during the course of appellate proceedings, it is seen that service tax has been levied by the service providers. It is claimed by the appellant that data link facility is provided by service providers with the use of technical gadgets without any human intervention. This submission may be true as long as the leased lines are functioning properly, as due to increased automation human intervention has been greatly reduced. However, whenever network is jammed or data link is slow or bad, human intervention is required as machines cannot be expected to correct itself automatically. To take care of such exigencies, service providers have to maintain 24/7 customer support with toll free numbers. For example, in bill issued by STPI dated 11.07.2006 there is clear mention of customer support. In the footnote of the bill mention is made as under:
For technical problems, please contact 24/7, customer support."
8. From the above, the CIT(A) was of the view that customer support was required for the smooth functioning of gadgets involved in the data link services.
9. The CIT(A) vide para 18 further observed as under:-
"18. This clearly shows that customer support is required for the smooth functioning of the gadgets involved in the data link services. This provider has to ensure that sufficient bandwidth is available on ongoing basis for transfer of data for which it has to monitor the signal strength to ensure that quality of data is upto the mark and whenever network is jammed, it has to take corrective measures. Unlike normal internet facility available to customers the lines made available to the appellant are dedicated and uninterrupted which cannot be cone unless it is monitored with human intervention. Therefore, the action of the Assessing Officer in treating the data link charges as fee for technical services warranting deduction of tax at source u/s.194J of Income Tax Act, 1961 is upheld."
10. The CIT(A) vide para 20 accepted the alternate submissions of the assessee that no demand under section 201(1) of the Act could be raised in cases where the recipient had paid taxes on the amount in question by including the same in their respective returns of income. In view of the decision of the Hon'ble Supreme Court in Hindustan Coca Cola Beverages (P.) Ltd.  293 ITR 226/163 Taxman 355 (SC), the DCIT was directed to modify the demand under section 201(1) of the Act in respect of proof/certificate submitted by the assessee from the respective service providers in relation to the data link charges. However, the CIT(A) directed the Assessing Officer to calculate the interest under section 201(1A) of the Act on actual basis and not on estimate basis.
11. The assessee is in appeal against the order of CIT(A) in holding that the data link charges paid by the assessee were not liable to tax deduction at source under section 194J of the Act.
12. The alternate plea raised by the assessee was that where the data link charges have been included by the recipient companies in their returns of income, the assessee at most would be liable to pay interest under section 201(1A) of the Act. The learned Authorized Representative for the assessee pointed out that in the said data link charges paid by the assessee, the human involvement was only for limited purpose of maintenance of equipment. The learned Authorized Representative for the assessee placed reliance on the ratios laid down in the following decisions:-
1. Infosys Technologies Ltd. v. Dy. CIT  45 SOT 157/10 taxmann.com 1 (Bang.)
2. Wipro Ltd. v. ITO  1 SOT 758 (Bang.)
3. Global One India (P.) Ltd. v. Asstt. CIT  150 ITD 203/63 SOT 143/44 taxmann.com 100 (Delhi - Trib.)
4. CIT v. Estel Communications (P.) Ltd.  318 ITR 185 (Delhi)
13. It was further pointed out by the learned Authorized Representative for the assessee that the decision of Kolkata Bench of the Tribunal in Hutchison Telecom East Ltd. (supra) was later on over ruled by the Hon'ble Delhi High Court in CIT v. Bharti Cellular Ltd.  319 ITR 139/ 175 Taxman 573 (Delhi) and the Hon'ble Apex Court has set aside the issue in CIT v. Bharti Cellular Ltd.  330 ITR 239/ 193 Taxman 97 (SC).
14. The learned Departmental Representative for the Revenue has placed reliance on the ratio laid down in Bharati Cellular Ltd. (supra) and it was pointed out by the learned Departmental Representative for the Revenue that though the assessee was asked to provide the necessary certificates from the recipient, but in the absence of the same, the orders of the authorities below are to be upheld.
15. We have heard the rival contentions and perused the record. The assessee was engaged in software development, software export and allied activities. TDS Survey under section 133A of the Act was conducted on the premises of the assessee on 13.01.2009. The assessee was found to have made payments against DATA link charges to various telecom service providers. The ACIT-TDS was of the view that the assessee was liable to deduct tax at source out of such DATA link charges paid to various telecom service providers being professional services provided by the said service providers, in view of section 194J of the Act. The explanation of the assessee in this regard was that the said payments for DATA link charges were paid for using standard facilities provided by the service providers by using technical gadgets, which were made available universally to the others by way of the DATA link satellite line, which was established from one service provider to be carried over to the other service provider. In order to provide efficient and flawless services to the subscribers, the existing service providers provide inter-connection of their networks through equipment of their networks to the equipments of other service providers. The connection is used for the transmission of DATA from one service provider to the designated client server and there was no human intervention for the transmission of the DATA.
16. On the perusal of the record, it transpires that facilities were provided by two entities i.e. the assessee and the service providers, who were linked to each other through the DATA link and for facilitating the arrangement, one service provider used the network element of other service provider to provide services to the ultimate customers. The issue which arises in the present appeal is whether such providing of services is covered under section 194J of the Act being technical or professional services provided by the service provider.
17. Fees for technical services has been defined in Explanation (b) to section 194J of the Act to have same meaning as in Explanation to section 9(1)(vii) of the Act, which reads as under:-
'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'.
18. Under the provisions of section 194J of the Act, where the assessee makes any payment against fees for technical services, then, is liable to deduct 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. Fee for technical services is defined under the Act as consideration paid for rendering any managerial, technical or consultancy services but does not include consideration paid for any construction, assembly, mining or like project undertaken by the recipient. Further, the consideration which in turn, would become the income of the recipient chargeable under the head 'Salaries', is also not to be included as fees for technical services. In other words, the technical services involve rendering of any managerial, technical or consultancy services. In order to provide managerial, technical and consultancy services, the element of human involvement is necessary. In the facts of present case before us where, there is provision for DATA link and inter-connection facilities, the user utilizes the technical equipments for inter-connection purposes only through technical equipment or gadgets used in the transmission process, but the same does not part take the nature of services of managerial, technical or consultancy nature. Merely because, certain technical equipments or gadgets are made available for transmission of DATA link does not establish the case of the Revenue that such services are technical services provided by the service provider to the assessee, which are covered under the provisions of section 194J of the Act.
19. Another aspect to be noted in the case is that where such technical equipments/gadgets require maintenance, then technical support staff is used for correcting the system but that itself does not establish that the services provided by the maintenance crew are in the nature of technical services which are not in the nature of managerial, technical or consultancy services nor is it for the use of or right to use in industrial, commercial or scientific equipments.
20. The Hon'ble Madras High Court in Skycell Communications Ltd. (supra) had held that for the purpose of section 194J to become applicable, it is necessary that the payee receives 'services'. If the payee uses only technical gadgets, which are made available to others also for fees, the same does not make the payment subject to tax deduction at source under section 194J of the Act.
21. The Bangalore Bench of the Tribunal in Infosys Technologies 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, consultancy or technical services nor was it for the use of or right to use industrial, commercial or scientific equipments. It was further held by the Bench that the service providers were only to ensure that sufficient bandwidth was available on an ongoing basis to the ultimate users to uplink and downlink the signals. 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 lacked merit in substance and this reasoning of the CIT(A) is to be out rightly rejected. Software developed by companies in India is exported 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 signals are converted into analog signals through earth stations 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 that 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 downlinking facility provided by international service providers such as AT & T, MCI Telecommunications etc. The assessee shares the bandwidth provided by the international service providers. Bandwidth in normal parlance refers to the amount of traffic that could be carried on the internet. Greater the bandwidth greater would be the ability to transmit data and other communication. 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 US. The payments made are not in the nature of managerial, consultancy or technical services nor is it for the use of or right to use industrial, commercial 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 ultimate users to uplink and downlink the signals. No disallowance under s. 40(a)(i) was called for."
22. 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 deducted at source under section 194I of the Act held as under:-
"We first take up corporate tax issues which is ground No. 5 for the assessment year 2007-08. The assessee is a licensed internet provider. During the year it procured, domestic half circuit facility to its customers from telecom service providers like BSNL, MTNL, and international half circuit facility from Rag, Atlantic at France. These are standard facilities provided for transmission of data by those organisations. The issue is whether tax should be deducted at source under section 194-I from payments made for use of such standard facilities. The Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd. v. DIT  332 ITR 340 (Delhi) and the Hon'ble Madras High Court in the case of Sky cell Communications Ltd. v. Deputy CIT  251 ITR 53 (Mad.) have adjudicated the issue in favour of the assessee. Respectfully following the same, we hold that payments made towards use of standard facility, when the lessee is not having any domain or control or possessory rights over such facility, cannot be categorised as use of assets for the purpose of the Act."
23. The Assessing Officer had placed reliance on the ratio laid down by the Calcutta Bench of the Tribunal in Hutchison Telecom East Ltd. (supra) wherein, it was held that interconnectivity charges paid to BSNL were in the nature of payment for technical services and not payment made against work and same were subject to provisions of section 194J of the Act. However, the Hon'ble Delhi High Court in Bharti Cellular Ltd. (supra) has overruled the ratio laid down by the Calcutta Bench of the Tribunal in Hutchison Telecom East Ltd. (supra) by holding that the word technical had to take colour from the words managerial and consultancy. It was further held by the Hon'ble High Court that managerial services had definite human element attached to and similar services of consultancy also necessary entailed human intervention and consequently, the word technical as appearing in Explanation (2) under section 9(1)(vii) of the Act has to be construed involving human element. The facilities which were provided by MTNL and other companies for inter-connection/port access which was provided automatically by the machines and hence the MTNL and other companies which provides said facilities were not rendering any technical services and the payments made to such service providers were not liable for tax deduction at source under section 194J of the Act.
24. The Hon'ble Supreme Court in Bharti Cellular Ltd. (supra) observed that question of human intervention was never raised by the Department either before the CIT(A) or before the Tribunal and was not raised even in the present appeals. However, keeping in mind the higher interest and ramifications of the issue, the matter was remitted back to the Assessing Officer to examine technical expert and decide the same afresh. Further, it was held by the Hon'ble Supreme Court that the Department was not entitled to levy interest under section 201(1A) of the Act or impose penalty for non-deduction of TDS on the facts and circumstances of the case for the reasons that there was no loss of revenue as taxes had been paid by the recipient and also because the moot question involved in the case was yet to be decided.
25. Now coming to the facts and circumstances of the present case, the assessee had furnished the explanation before the Assessing Officer and also filed written submissions before the CIT(A) vide letter dated 01.04.2013 along with Flow chart/Diagram of how the DATA links works which is placed at pages 24 to 26 of
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the Paper Book. The assessee also placed on record the sample copies of purchase orders at pages 27 onwards under which, it was explained that the perusal of the bills would reflect the basis of charges, rates, etc. which were fixed/agreed upon and finally billed by the DATA link providers and it was vehemently stated that the same does in no way indicate involvement or otherwise of human intervention in the DATA link process. In view thereof, in the absence of any human intervention between the assessee and the services provided by the DATA link provider, it cannot be said that the payment made by the assessee was for technical services. Merely because for maintenance purpose certain human intervention was provided, cannot lead to the surmise that the DATA link charges paid to various telecom service providers, were in the nature of technical services governed by the provisions of section 194J of the Act. The DATA link charges were paid for utilizing the standard facilities which were provided by the individual service providers by way of use of technical gadgets which were made available vide DATA link satellite link line established from one service provider to be carried over to the other service provider, does not involve technical services as there was only interconnection of the networks to the equipments of other service providers. In the absence of any human intervention for transmitting the DATA through such DATA link satellite link line, the payments made for utilizing such services was not in the nature of technical services governed by section 194J of the Act. Accordingly, we reverse the finding of CIT(A) in this regard and hold that DATA link charges of Rs.8,32,46,468/- were not liable for tax deduction at source under the provisions of section 194J of the Act. In view thereof, the grounds of appeal No.1 (a) and (b) are allowed. Since there was no requirement to deduct tax at source under section 194J of the Act, there was no liability upon the assessee and there was no failure on part of assessee for non-deduction of tax at source and consequently, the assessee was not liable to pay interest under section 201(1A) of the Act. The ground of appeal No.1(c) raised by the assessee is allowed. 26. The facts and issue in ITA Nos.1302, 1303 and 1616/PN/2013 are identical to the facts and issue in ITA No.1301/PN/2013 and our decision in ITA No.1301/PN/2013 shall apply mutatis mutandis to ITA Nos.1302, 1303 and 1616/PN/2013. 27. In the result, all the appeals of the assessee are allowed.