Hfcl Infotel Limited Vs. Income Tax Officer - Court Judgment

Excerpt:
1. these appeals filed by the assessee are against the order of cit(a), dt: 5th april, 2004, for the asst. yrs. 2001-02 and 2002-03. the proceedings are initiated by the order of ao passed under section 201(1) of the it act, 1961.2. the assessee has raised various grounds in both the appeals but the only issue involved is regarding the deduction of tds under section 194j on payment of port charges, access charges and interconnect charges to bsnl.3. the assessee-company is engaged in the business of providing infrastructure facilities as telecommunication service provider in the punjab circle including chandigarh. the assessee-company had set up. an independent network parallel to the network of dot (now bsnl) for providing basic telephone service in the state of punjab. whenever a subscriber of the assessee-company calls a subscriber of bsnl and likewise whenever a subscriber of bsnl network calls a subscriber of the assessee-network, then the calls are routed through each others' network. the assessee-company had entered an interconnect agreement with bsnl which lays down various parameters of such interconnectivity.whenever the subscriber of the assessee-company dials a number of subscriber of bsnl network, then the assessee-company uses the bsnl network and vice versa. further, all the traffic which is meant for delivery outside the state, the assessee has to pass the national/international long distance operator and the amount of share of calls made outside the state is given to the national/international service provider. the assessee has paid charges to the bsnl network for using the services of its network.4. the ao held that the payment made by the assessee to bsnl is fee for technical services and as such assessee was required to deduct tds under section 194j. it is seen that the bsnl provides a host of technical and managerial services for a fee or a charge which may either be fixed or linked to the usage of its network in terms of time and pulse rate. as has been observed by the ao, it is immaterial for the purpose of section 194j as to what nomenclature is used by the assessee-company or the exact legal and the technical terminology used in the legal documents as long as the assessee avails of these technical and managerial services. after thorough analysis of the facts, one cannot escape the fact that the amounts have been paid to bsnl against technical services rendered by them and so the appellant was duty-bound to deduct tax at source. in my view, the tax is to be deducted at source from the gross amount paid to the bsnl because the amount was paid for availing of the technical services. it is, therefore, held that the ao has rightly treated the appellant to be in default as per the provisions of the act and accordingly, the action of the ao in this regard is confirmed.aggrieved by the said order of cit(a), the assessee is in appeal before the tribunal.6. the learned counsel for the assessee, shri ajay vohra, stated that the assessee has paid interconnect charges to bsnl which are charges paid for using the network of bsnl. according to him, no technical services are provided or no knowledge is imparted by bsnl and the charges paid are only to use the network of bsnl. he referred interconnect detailed bill, which is placed at pp. 65 to 69 of the paper book, to explain that the call charges received from the subscriber are shared with bsnl wherever the call is routed through its network. he further stated that the assessee-company and the bsnl have joined to provide the service to the subscriber and no technical service is provided by bsnl to the assessee. he relied on the decision of madras high court in the case of skycell communications ltd. & anr.v. dy. cit & ors. .7. learned counsel, in the alternate stated that the primary liability of paying the tax on the said income is of the recipient of the income and since the said recipient has already paid taxes on this income, no tax can be recovered from the payer and the assessee-company cannot be held as assessee-in-default with regard to the tax on same income on which the tax has already been paid by the recipient. for this proposition, he relied on the decision of gujarat high court in the case of cit v. rishikesh apartments co-operative housing society ltd. and the decision of tribunal, mumbai bench, in the case of associated cement companies ltd. v. ito (2000) 68 ttj (mumbai) 220 : (2000) 74 itd 369 (mumbai).8. the learned departmental representative, shri r.k. goyal, on the other hand, stated that it is clear from the agreement between the assessee and the bsnl that various highly technical and sophisticated equipments are being used by bsnl which have also been used by the assessee and the obligation is on the part of the bsnl to keep its infrastructure in operating condition. as such, the payment made by the assessee is for the technical services being provided by bsnl. he also stated that the case of skycell communications (supra) is distinguishable as in the said case the dispute was with regard to payment received by the cellular mobile telephone operator from its subscriber, whereas in the instant case, the assessee-company as well as bsnl are providing service to their subscribers.9. we have heard both the parties and have gone through the orders of lower authorities and the decisions referred by the parties. we are of the opinion that the interconnect charges paid by the assessee to bsnl cannot be treated as technical services as provided under section 194j.the assessee-company is paying interconnect charges for using the network of bsnl. no doubt that the highly technical and sophisticated equipments and infrastructure is used by the telephone operators but that itself does not mean that the charges paid for routing the telephone calls through the said network means that the technical service is being provided. the hon'ble madras high court in the case of skycell communications (supra) has held as under : in the modern day world, almost every facet of one's life is linked to science and technology inasmuch as numerous things used or relied upon in everyday life is the result of scientific and technological development. every instrument or gadget that is used to make life easier is the result of scientific invention or development and involves the use of technology. on that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service.in our considered view, the situation in the case of the assessee is not different from the situation before the hon'ble madras high court in the case of skycell communications (supra). in the case before hon'ble madras high court, the question was whether firms and companies subscribing to the cellular network are required to make tds under section 194j or not and whether the service provided by the cellular mobile telephone companies to its subscriber was technical services or not, and the hon'ble madras. high court held that it cannot be treated as fee for technical services. in the case before us, the assessee is providing service to its subscribers and certain calls are routed by making use of the network of bsnl and for that purpose, the call charges received by the assessee from its subscribers are shared with bsnl. in our view, the said service cannot be treated as technical service and the provisions of section 194j are not applicable. the orders of the lower authorities are vacated. since, we have held that the provisions of section 194j are not applicable, we do not see any reason to deal with the alternative plea of the assessee. in the result, both the appeals of the assessee are allowed.

Judgment:
1. These appeals filed by the assessee are against the order of CIT(A), dt: 5th April, 2004, for the asst. yrs. 2001-02 and 2002-03. The proceedings are initiated by the order of AO passed under Section 201(1) of the IT Act, 1961.

2. The assessee has raised various grounds in both the appeals but the only issue involved is regarding the deduction of TDS under Section 194J on payment of port charges, access charges and interconnect charges to BSNL.

3. The assessee-company is engaged in the business of providing infrastructure facilities as telecommunication service provider in the Punjab Circle including Chandigarh. The assessee-company had set up. an independent network parallel to the network of DOT (now BSNL) for providing basic telephone service in the State of Punjab. Whenever a subscriber of the assessee-company calls a subscriber of BSNL and likewise whenever a subscriber of BSNL network calls a subscriber of the assessee-network, then the calls are routed through each others' network. The assessee-company had entered an interconnect agreement with BSNL which lays down various parameters of such interconnectivity.

Whenever the subscriber of the assessee-company dials a number of subscriber of BSNL network, then the assessee-company uses the BSNL network and vice versa. Further, all the traffic which is meant for delivery outside the State, the assessee has to pass the national/international long distance operator and the amount of share of calls made outside the State is given to the national/international service provider. The assessee has paid charges to the BSNL network for using the services of its network.

4. The AO held that the payment made by the assessee to BSNL is fee for technical services and as such assessee was required to deduct TDS under Section 194J. It is seen that the BSNL provides a host of technical and managerial services for a fee or a charge which may either be fixed or linked to the usage of its network in terms of time and pulse rate. As has been observed by the AO, it is immaterial for the purpose of Section 194J as to what nomenclature is used by the assessee-company or the exact legal and the technical terminology used in the legal documents as long as the assessee avails of these technical and managerial services. After thorough analysis of the facts, one cannot escape the fact that the amounts have been paid to BSNL against technical services rendered by them and so the appellant was duty-bound to deduct tax at source. In my view, the tax is to be deducted at source from the gross amount paid to the BSNL because the amount was paid for availing of the technical services. It is, therefore, held that the AO has rightly treated the appellant to be in default as per the provisions of the Act and accordingly, the action of the AO in this regard is confirmed.

Aggrieved by the said order of CIT(A), the assessee is in appeal before the Tribunal.

6. The learned counsel for the assessee, Shri Ajay Vohra, stated that the assessee has paid interconnect charges to BSNL which are charges paid for using the network of BSNL. According to him, no technical services are provided or no knowledge is imparted by BSNL and the charges paid are only to use the network of BSNL. He referred interconnect detailed bill, which is placed at pp. 65 to 69 of the paper book, to explain that the call charges received from the subscriber are shared with BSNL wherever the call is routed through its network. He further stated that the assessee-company and the BSNL have joined to provide the service to the subscriber and no technical service is provided by BSNL to the assessee. He relied on the decision of Madras High Court in the case of Skycell Communications Ltd. & Anr.

v. Dy. CIT & Ors. .

7. Learned counsel, in the alternate stated that the primary liability of paying the tax on the said income is of the recipient of the income and since the said recipient has already paid taxes on this income, no tax can be recovered from the payer and the assessee-company cannot be held as assessee-in-default with regard to the tax on same income on which the tax has already been paid by the recipient. For this proposition, he relied on the decision of Gujarat High Court in the case of CIT v. Rishikesh Apartments Co-operative Housing Society Ltd. and the decision of Tribunal, Mumbai Bench, in the case of Associated Cement Companies Ltd. v. ITO (2000) 68 TTJ (Mumbai) 220 : (2000) 74 ITD 369 (Mumbai).

8. The learned Departmental Representative, Shri R.K. Goyal, on the other hand, stated that it is clear from the agreement between the assessee and the BSNL that various highly technical and sophisticated equipments are being used by BSNL which have also been used by the assessee and the obligation is on the part of the BSNL to keep its infrastructure in operating condition. As such, the payment made by the assessee is for the technical services being provided by BSNL. He also stated that the case of Skycell Communications (supra) is distinguishable as in the said case the dispute was with regard to payment received by the cellular mobile telephone operator from its subscriber, whereas in the instant case, the assessee-company as well as BSNL are providing service to their subscribers.

9. We have heard both the parties and have gone through the orders of lower authorities and the decisions referred by the parties. We are of the opinion that the interconnect charges paid by the assessee to BSNL cannot be treated as technical services as provided under Section 194J.The assessee-company is paying interconnect charges for using the network of BSNL. No doubt that the highly technical and sophisticated equipments and infrastructure is used by the telephone operators but that itself does not mean that the charges paid for routing the telephone calls through the said network means that the technical service is being provided. The Hon'ble Madras High Court in the case of Skycell Communications (supra) has held as under : In the modern day world, almost every facet of one's life is linked to science and technology inasmuch as numerous things used or relied upon in everyday life is the result of scientific and technological development. Every instrument or gadget that is used to make life easier is the result of scientific invention or development and involves the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service.

In our considered view, the situation in the case of the assessee is not different from the situation before the Hon'ble Madras High Court in the case of Skycell Communications (supra). In the case before Hon'ble Madras High Court, the question was whether firms and companies subscribing to the cellular network are required to make TDS under Section 194J or not and whether the service provided by the cellular mobile telephone companies to its subscriber was technical services or not, and the Hon'ble Madras. High Court held that it cannot be treated as fee for technical services. In the case before us, the assessee is providing service to its subscribers and certain calls are routed by making use of the network of BSNL and for that purpose, the call charges received by the assessee from its subscribers are shared with BSNL. In our view, the said service cannot be treated as technical service and the provisions of Section 194J are not applicable. The orders of the lower authorities are vacated. Since, we have held that the provisions of Section 194J are not applicable, we do not see any reason to deal with the alternative plea of the assessee. In the result, both the appeals of the assessee are allowed.