Madras High Court
Commissioner Of Income Tax vs M/S.Dishnet Wireless Limited on 17 May, 2024
Author: R. Mahadevan
Bench: R. Mahadevan, Mohammed Shaffiq
Tax Case Appeal Nos.831, 832, 833, 836 and 838 of 2016
IN THE HIGH COURT OF JUDICATURE AT MADRAS
DATED : 17.05.2024
CORAM
THE HON'BLE Mr. JUSTICE R. MAHADEVAN
AND
THE HON'BLE Mr. JUSTICE MOHAMMED SHAFFIQ
Tax Case Appeal Nos.831, 832, 833, 836 and 838 of 2016
Commissioner of Income Tax,
Chennai. .. Appellant in all T.C.As
Vs.
M/s.Dishnet Wireless Limited,
Spencer Plaza, 5th Floor,
769, Anna Salai,
Chennai - 600 002.
(PAN:AAACD5767E) .. Respondent in all T.C.As
Tax Case Appeals filed under Section 260-A of the Income Tax Act, 1961
against the common order dated 20.07.2015 passed by the Income Tax Appellate
Tribunal, Madras 'D' Bench, Chennai, in I.T.A.No.322/Mds/2014,
I.T.A.No.323/Mds/2014, I.T.A.No.324/Mds/2014 and I.T.A.No.327/Mds/2014,
I.T.A.No.329/Mds/2014 respectively.
For Appellant in
all TCAs : Mr.B.Ramaswamy
Senior Standing Counsel for Income Tax
For Respondent in
all TCAs : Mr.Vishnu Mohan
Page 1/44
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COMMON JUDGMENT
R. MAHADEVAN, J.
These tax case appeals are preferred by the appellant/Revenue, calling in
question the correctness of the common order dated 20.07.2015 passed by the
Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai, in the respective
I.T.A.No.322/Mds/2014, I.T.A.No.323/Mds/2014, I.T.A.No.324/Mds/2014,
I.T.A.No.327/Mds/2014 and I.T.A.No.329/Mds/2014, by raising the following
substantial questions of law:
(i) Whether on the facts and in the circumstances of the case
the Tribunal was right in holding that the proceedings under
Sections 201(1) and 201(1A) cannot be sustained on the ground
that the tax need not be deducted at source under Section 194J by
the assessee while paying roaming charges to the telecom operators
since roaming charges paid by the assessee is not a fee for
technical services as no human intervention is required for providing
the connection while roaming.
(ii) Alternatively, whether the Tribunal having held that the
human intervention is necessary for maintenance of the telecom
system that provides roaming facility, is the Tribunal right in
concluding that such human intervention is not sufficient to treat
the payment as fee for technical services mandating deduction of
tax at source under Section 194J.
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2. The succintly stated facts are as under:
2.1. The respondent/assessee is engaged in the business of providing pre-
paid telecommunication services, including cellular service, data services, and
mobile services, through various telecom networks across the country. As part of
its business operations, the respondent enters into roaming agreements with
other telecom service providers to facilitate its subscribers in availing roaming
facilities when they travel outside the home network area. During the course of its
business transactions, the respondent has made payments to other telecom
operators in the form of roaming charges without deducting Tax at Source (TDS)
under Section 194J of the Income Tax Act, 1961 (in short, “the Act”). The
roaming charges represent the consideration paid by the respondent to the host
operators for providing telecommunication services to its subscribers, while they
are outside the home network coverage area. According to the respondent, the
roaming services offered by the host operators are standard automated services
and they do not classify the roaming charges paid to the host operators as fees
for technical services and hence, there is no obligation to deduct tax at source
under Section 194J of the Act.
2.2. While so, based on the inspection report and upon perusal of the
books of accounts, the assessing officer passed separate orders under section
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201(1) / 201(1A) of the Act, for the assessment years from 2007-08 to 2011-12,
after having found that the respondent had failed to deduct TDS on the roaming
charges paid to other telecom operators. According to the assessing officer, the
roaming charges paid by the respondent constituted fees for technical services
rendered by the payee telecom operators, thereby attracting the provisions of
Section 194J of the Act, which mandates deduction of tax at source.
2.3. Aggrieved by the assessment orders, the respondent filed appeals
before the Commissioner of Income Tax (Appeals) (in short, “CIT(A)”). By a
common order dated 30.12.2013, the CIT(A) confirmed the orders of the
Assessing Officer, on the premise that human intervention is necessary and
unavoidable in the process of providing roaming services by the other telecom
operators to whom the respondent had paid the roaming charges. The relevant
portion of the order is extracted below for ready reference:
“ 8.3. Roaming charges:-
8.3.1 During the assessment year under reference, the appellant has
booked Rs.49,26,563/- under the head 'Roaming charges', which was not
considered for deducting tax. Similarly for other assessment years in appeal, the
appellant booked amounts under "roaming charges". The amount booked under
'Roaming charges' has been paid by the appellant to sundry Telecom service
operators for understanding what roaming charges mean, the appellant itself has
defined 'Roaming' as follows viz., 'Roaming means an arrangement whereby a
subscriber of a cellular phone uses cellular services outside the home network".
The subscriber of a service provider who is not 'roaming' gets services from his
home operator, while a subscriber who is roaming will get services from both, the
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host operator and the home operator. The host operator charges the home
operator for providing telecom services to the subscriber of the later. Roaming
services are made available to a subscriber by the host operator by virtue of the
roaming arrangement entered into by and between the home operator and the
host operator for an agreed charges to be paid by the home operator to the host
operator. Thus, in essence, roaming charges are payments being made by the
appellant to the other sundry telecom operators as consideration for telecom
services provided by the said other telecom operators to the subscribers of the
appellant. The appellant calls roaming services offered by the host operators as
"STANDARD AUTOMATED SERVICES". The appellant refuses to recognize the
roaming charges paid to the host operators as "fees for technical services" and
hence not considered same for deduction of tax as required by Section 194J.
Whereas the assessing officer has treated the roaming charges as fees for
technical services hereinafter called 'FTS' for the sake of brevity, and held that the
appellant is liable to deduct tax on FTS. As the appellant failed to deduct tax on
the FTS, the AO has declared the appellant as assessee in default and passed the
impugned orders for the concerned assessment years. The appellant has argued
that the roaming charges do not qualify for TDS as human intervention is not
involved for rendering the roaming service. According to the appellant, roaming
services are provided without the aid of human skills. Therefore, roaming services
in the case are not technical services by human skills. In short, the appellant says
that the charges paid for the technical services rendered by human beings alone
would qualify as FTS and became eligible for deduction of tax.
8.3.2. Now in the context when the appellant refuses to recognize the
roaming charges as FTS, it is to be analyzed to find out whether the roaming
charges in question are subject to be taxed or not. The common sense will,
without much difficulty and complexity, make it obviously clear that the roaming
charges from subscribers will be liable to be taxed in the hands of the home
operators as they constitute taxable income in their hands. As far as the host
operator is concerned, it is an income received from the appellant and the same is
taxable. The intention of TDS provisions is to expedite the collection of tax at the
earliest point of time. When the amount viz., roaming charges becomes liable to
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be taxed when it reaches the hands of the payee, naturally the same amount will
be liable for tax deduction (TDS) in the hands of the payer as well. It is to be
noted that the payer deducts and pays the tax from the amount on behalf of the
payee only before parting with the amount. Thus it is very much clear beyond
doubt that the roaming charges are taxable and therefore tax is to be deducted
by the giver as the same shall constitute taxable income in the hands of the
payee, the moment it reaches him.
8.3.3. Without prejudicing what is stated in the above paragraph, the
issue may be examined in the light of the definition for FTS as provided in the
explanation to Section 9(1)(vii) of the I.T.Act, 1961 which reads as under:-
'For the purposes of this clause, fees for technical services
means any consideration (including any lumpsum 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 life project undertaken by the
recipient or consideration which would be income of the recipient
chargeable under the head "salaries".'
8.3.4. It may be noted that there is no mention about human
intervention as a pre-condition in the above explanation. Whether there is
involvement of human being or not, if the service is of technical steering then the
consideration paid for such service shall qualify to be FTS. Even otherwise also
the roaming service provided by the host operators to the appellant is effectively
possible only when there is constant, 24 hrs, perennial and exclusive standby
arrangement with the backing support of technically qualified persons is
maintained in live and serviceable condition by the host operator. So the presence
of human intervention in some form or other cannot be altogether eliminated. In
the roaming service in question, there is always present "in-absentia human
intervention", atleast in trouble free times. But when the trouble comes human
intervention will come to play a major role along with technology. Therefore, in
the case of roaming service, technology and technically qualified persons cannot
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be isolated.
8.3.5. Human intervention is bound to be there in the form of passive or
dormant supervision even in trouble free times. A close scrutiny would be able to
segregate two elements from the explanation 2 to Section 9(i)(vii) of the IT Act
viz., (1) purely technical service without the association of personnel and (2)
service of technical person (service with the association of technical person)
either of which if rendered for a consideration, such consideration shall have all
the characters of FTS. Therefore, the presence of human intervention is not a
pre-condition for the consideration to qualify as FTS. In the light of the above
discussions, I am of the considered view that the roaming charges paid by the
appellant in this case shall by all means qualify to be characterised as FTS which
is subject to tax deduction by the appellant, such FTS has been paid to the host
operators in pursuance of a contract for service since the appellant failed to
deduct tax from the roaming charges of Rs.49,26,563/- paid to sundry host
operators, the AO has righlty held the appellant as assessee in default and passed
the impugned order dated 27.03.2023. The above proposition is applicable to all
the assessment years in question. Hence, I am not inclined to interfere with the
orders of the AO in respect of all assessment years in appeal.
8.3.6. The ARs contended that the issue with regard to tax withholding
obligation under Section 194J of the Act on telecom services has already been
settled by the Jurisdictional High Court in the case of M/s.Skycell Communications
and Another Vs. DCIT 251 ITR 53. It was also argued that it is a well settled legal
position that the characterization of a payment must be done having regard to the
dominant purpose/intention of the payment. Reliance was placed on the decision
in the case of CIT(TDS) Vs. Glenmark Pharmaceuticals Limited 324 ITR 199
(Bom.). The ARs also relied on the following case laws:-
1. CIT Vs. Eskel Communications Pvt. Ltd., 217 CTR 102 (Delhi).
2. Bharti Cellular Limited (2008) - TIOL - 557 (Delhi)
3. Siemens Limited Vs. CIT (TS-51-ITAT-2013) (Mumbai
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Tribunal).
The appellant tried to argue that for classifying the services as FTS, human
intervention is a must. All the contentions raised by the appellant and the case
laws relied on are all taken care of in the discussion made above and are
rejected."
2.4. Aggrieved by the aforesaid order passed by the CIT(A), the
respondent filed appeals before the Income Tax Appellate Tribunal (in short, “the
Tribunal").
2.5. The Tribunal, after considering the arguments advanced on both sides
and the materials available on record, held that even though human intervention
is necessary for routine maintenance of the system and machineries, it is not
required for connecting roaming calls. Relying on the expert opinion obtained
from the Sub-Divisional Engineer of BSNL, which clarified that human intervention
is required for establishing the initial physical connectivity and configuration; and
once the necessary configurations are completed, no human intervention is
required for connecting roaming calls, the Tribunal further observed that when a
subscriber travels outside the home network area, the call gets connected
automatically without any human intervention due to the configuration of the
software systems in the respective service providers' networks. Ultimately, the
Tribunal concluded that since the roaming services are provided without direct
human involvement, the roaming charges paid by the respondent cannot be
considered as fees for technical services under Section 194J of the Act.
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Consequently, the Tribunal held that the levy under Section 201(1) and interest
under Section 201(1A) cannot be sustained. For better appreciation, the relevant
portion of the order passed by the Tribunal is extracted below:
"25. Now coming to roaming charges, the contention of the assessee is
that human intervention is not required for providing roaming facility, therefore, it
cannot be considered to be a technical service. We have gone through the
judgment of Apex Court in Bharti Cellular Limited (supra), The Apex Court after
examining the provisions of Section 9(1)(vii) of the Act, found that whenever
there was a human intervention, it has to be considered as technical service. In
the light of the above judgment of the Apex Court, the Department obtained an
expert opinion from the Sub-Divisional S.P. Nos.324 to 333/Mds/15 Engineer of
BSNL. The Sub-Divisional Engineer clarified that human intervention is required
for establishing the physical connectivity between two operators for doing
necessary system configurations. After necessary configuration for providing
roaming services, human intervention is not required. Once human intervention is
not required, as found by the Apex Court, the service provided by the other
service provider cannot be considered to be a technical service. It is common
knowledge that when one of the subscribers in the assessee's circle travels to the
jurisdiction of another circle, the call gets connected automatically without any
human intervention. It is due to configuration of software system in the
respective service provider's place. In fact, the Sub-Divisional Engineer of BSNL
has explained as follows in response to Question No.23:-
"Regarding roaming services as explained to question
no.21. Regarding interconnectivity, initially human intervention is
required for establishing the physical connectivity and also for
doing the required configuration. Once it is working fine, no
intervention is required. In case of any faults human intervention
is required for taking necessary corrective actions."
In view of the above, once configuration was made, no human intervention is
required for connecting the roaming calls. The subscriber can make and receive
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calls, access and receive data S.P. Nos.324 to 333/Mds/15 and other service
without any human intervention. Like any other machinery, whenever the system
breakdown, to set right the same, human intervention is required. However, for
connecting roaming call, no human intervention is required except initial
configuration in system. This Tribunal is of the considered opinion that human
intervention is necessary for routine maintenance of the system and machinery.
However, no human intervention is required for connecting the roaming calls.
Therefore, as held by the Apex Court in Bharti Cellular Limited (supra), the
roaming connections are provided without any human intervention and therefore,
no technical service is availed by the assessee. Therefore, TDS is not required to
be made in respect of roaming charges paid to the other service providers.
Accordingly, the orders of the lower authorities are set aside in respect of
provision for site restoration expenditure and roaming charges. However, in
respect of year-end provision, the issue is remitted back to the file of the
Assessing Officer. The issue of limitation raised by the assessee for passing order
under Sections 201(1) and 201(1A) is also remitted back to the file of the
Assessing Officer.
26. In the result, appeals of the assessee are allowed for statistical
purposes. Since the appeals are allowed, the stay petitions of the assessee
become infructuous and dismissed."
2.6. Aggrieved by the order so passed by the Tribunal, the
appellant/Revenue has filed the present tax case appeals.
3. The learned senior standing counsel for the appellant/Revenue would
contend that the carriage of calls from one network to another network requires
constant monitoring and human intervention by technical experts to ensure
seamless roaming services without faults or consumer complaints. Taking note of
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the same, the Assessing Officer concluded that human intervention is necessary
to execute the process of providing roaming services by other telecom operators
to whom the assessee paid roaming charges, which was affirmed by the CIT(A).
However, the Tribunal erred in holding that the roaming charges paid by the
respondent / assessee to other telecom operators did not attract TDS under
Section 194J of the Income Tax Act, on the ground that no human intervention is
required for providing roaming connectivity.
4. The learned senior standing counsel would further contend that the
assessee has violated the provision of Chapter XVII-B of the Act, filing of TDS
statement in respect of deduction made out of the payments other than roaming
charges, provisions etc., which fall under other sections of chapter XVII-B inviting
the consequence of Section 201 of the Act. Roaming charges from one mobile
operator to the other for providing local service whenever a customer goes into
the alien network on the basis of pre-existing agreement. The object of the
agreement was to obtain the benefit of the technical assistance for running the
business. The fees are paid to the payee for rendering technical services with men
and materials. This postulates that the contract for the supply of technical
services for predetermined fees depending on the use of alien network on a time-
sharing basis.
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5. The learned senior standing counsel would further point out that the
roaming charges paid qualify as "fees for technical services" under Section 194J,
necessitating TDS deduction by the assessee. Alternatively, it is submitted that
even if human intervention is considered necessary only for maintenance of the
telecom system providing roaming facility, such human involvement is sufficient to
treat the roaming charges as fees for technical services attracting TDS under
Section 194J. Adding further, the learned senior standing counsel relies upon the
National GSM Roaming Agreement provided by the respondent itself, which
acknowledges the need for human intervention in various aspects of roaming
services, such as discussing impacts and taking necessary actions like testing or
administrative activities upon any change, providing English-speaking customer
care operators to assist roaming subscribers, exchanging roaming information and
informing respective subscribers, addressing network faults through coordination
between customer care services and technical experts, handling issues related to
lost/stolen SIM cards or mobile equipment, and resolving billing inquiries through
customer care services. It is submitted that whenever human intervention is
involved, as established by the abovementioned clauses of the Roaming
Agreement, it has to be considered a technical service under Section 9(1)(vii) of
the Income Tax Act. Furthermore, the learned senior standing counsel highlights
that the intention behind TDS provisions is to expedite tax collection at the
earliest opportunity. Thus, when the amount of roaming charges becomes subject
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to taxation upon reaching the hands of the payee, it naturally follows that the
same amount will be liable for TDS in the hands of the payer as well. Additionally,
the learned senior standing counsel asserts that within roaming services, there is
a continuous provision of technical expertise and human intervention, spanning
24 hours. Human skill and support are exclusively provided through standby
agreements, backed by technically qualified personnel, maintained in operational
condition by the host operator.
6. Finally, the learned senior standing counsel highlights that the legal
position has been well-settled through various judicial precedents that the term
"technical services" has a broad connotation, includes human intervention and
professional services, and must be interpreted accordingly. The deduction of tax
should occur at the time of crediting the sum to the payee's account or at the
time of payment, whichever is earlier. The term 'professional services' includes
services provided in various professions, such as the medical profession, and
applies even when these services are rendered within a hospital setting. The
learned senior standing counsel, reiterating Section 9(1)(vii) of the Income Tax
Act, submits that whenever there is human intervention, it should be considered
as both technical and human services. It is not limited to payments to individuals
who are professionals themselves; it can also apply to corporate entities, like
hospitals, offering services connected to the specified professions.
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7. In support of his contentions, the Learned Standing Council further
relied upon the following decisions:
7.1 The learned senior standing counsel also referred to the decisions
(a)Prabhudas Damodar Kotecha Vs. Manhabala Jeram Damodar (AIR
2013 SC 2959); State of Bombay Vs. Hospital Mazdoor Sabha (AIR 1960 SC
610); and Rohit Pulp & Paper Mills Ltd. Vs. Collector of Central Excise,
Baroda (AIR 1991 SC 754) to drive home the principle that the principle of
Noscitur a Sociis is not to be applied when the meaning of the words are clear
and can be attributed wide meaning.
7.2. Interpretation of 'Technical Service':
7.2. (a) M/s. Continental Construction Ltd Vs. Commissioner of
Income Tax, Central (AIR 1992 SC 803) : The word 'technical service' has a
very broad connotation and it has been elsewhere in the statute also so widely as
to comprehend professional service vide Section 9(1)(vii).
"27. But, even assuming that there could be some difference of opinion on
the above issue, there can be no doubt at all that, under the contract, technical
services were rendered by the assessee to the foreign Government. In our
opinion, the attempt of Sri Ahuja to differentiate technical services rendered to
the assessee by its employees and technicians from technical services rendered
by the assessee to a foreign constituent and urge that the latter alone can qualify
for relief under Section 80-O on the ground that the project in question was a
turnkey project which has succeeded before the High Court, proceeds on an
unduly narrow interpretation of the section. In our view, the assessee was
undoubtedly rendering services to the foreign Government by executing the water
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supply project. These services were no doubt technical services, as they required
specialised knowledge experience and skill for their proper execution. The
argument seems to be that the services in the present case will not be covered by
the section because there was no privity of contract between the employees of
the assessee who contributed their technical skill and the foreign Government. We
think this argument cannot be accepted. The assessee is a company and any
technical services rendered by it can only be through the medium of its
employees, skilled and unskilled, and, even if the contract had not related to a
turnkey project, the assessee's employees would have been answerable only to
the assessee and none else though, perhaps, in such an event, the other party to
the contract may have retained a larger degree of control and supervision in the
execution of the contract Even where the contractor is an individual or firm and
not a company, a contract of this magnitude can be executed only through the
medium of employees or other personnel engaged by the assessee. The facts
that, physically speaking, it is only such employees that render services and that,
so far as they are concerned, they render services only to their employer and not
to the other contracting party are in no way inconsistent with, or repugnant to,
the notion that, so far as the foreign Government is concerned, it looks only to
the assessee for the rendering of the technical services under the contract. The
High Court has pointed out that a person who manufactures a television set
ordered by another cannot be said to render technical services to the latter. In
our view, that analogy is not apposite in the context of a contract of the nature,
magnitude and specialisation with which we are concerned. Where a person
employs an architect or an engineer to construct a house or some other
complicated type of structure such as a theatre, scientific laboratory or the like for
him, it will not be incorrect to say that the engineer is, in putting up the structure,
rendering him technical services even though the actual construction and even
the design thereof may be done by staff and labour employed by the engineer or
architect. Where a person consults a lawyer and seeks an opinion from him on
some issue, the advice provided by the lawyer will be a piece of technical service
provided by him even though he may have got the opinion drafted by a junior of
his or procured from another expert in the particular branch of the law. Sri Ahuja
tried to negative this line of thinking by urging that "professional services" have
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been brought within the scope of Section 80-O only by an amendment by the
Finance (No. 2) Act, 1991 and that, too, w.e.f. 14-1992 which is proposing to
substitute the word "technical or professional services" in place of the word
"technical services" now used in the section. It seems to us that this amendment
may be only of a clarificatory nature. The expression "technical services" has a
very broad connotation and it has been elsewhere in the statute also so widely as
to comprehend professional services : vide Section 9(1)(vii), referred to earlier.
But we need not digress on this aspect for two reasons. Firstly, whatever may be
the position regarding other "professional services", there can hardly be any
doubt that services involving specialised knowledge experience and skill in the
field of constructional operations are "technical services". The Board's guidelines,
to which reference is made later, specifically say so. Secondly, the question
whether "professional services" would be "technical services" or not has no
impact on the point we are trying to make viz. that in order to say that a person
is rendering such services to another, it is not necessary that the services should
be rendered by the former personally and not through the medium of others. For
the reasons discussed above, we have come to the conclusion that, under the
contracts in question, the assessee had made available technical information to
the foreign Government for use outside India and had also rendered technical
services to the foreign Government outside India."
7.2. (b) Central Board of Direct Taxes Vs. Oberoi Hotels (India)
(P)Ltd. [(1998) 97 Taxman 453 (SC)]: 'Technical services' include professional
services.
" 24. There is no gainsaying that running a well equipped modern hotel is
no ordinary affair. One needs a great deal of expertise skill and technical
knowledge for the purpose. If we examine the agreement, it provides for
rendering of technical services and also professional services for obtaining of
Hotel Soaltee, a foreign enterprise. CBDT fell into an error in considering
particularly the clause in the agreement which provided for operation of the Hotel
Soaltee by the respondent. The agreement has to be seen as a whole and so
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examined it is quite apparent that it provided for rendering of not only technical
services for operating the hotel of the foreign enterprise but also providing for
professional and other services in connection with operating of the hotel. Section
80O was enacted with the twin objects of encouraging the export of Indian
technical know-how and augmentation of foreign exchange resources of the
country. We have seen above that after the amendment of Section 80O by
Finance (No. 2 Act of 1991) the words "technical or professional services" have
been inserted in place of the words "technical services". But this Court in
Continental Construction Ltd. case took the view that the amendment was only of
clarificatory nature and the term "technical services" always included within it
professional services as well. This Court has gone even to the extent that when a
person consults the lawyer and seeks his opinion on certain issue the advice
rendered by the lawyer would be a piece of technical service. Considering the
scope of the agreement and the width of Section 80O we are of the opinion that
the agreement provides for "information concerning industrial, commercial or
scientific knowledge, experience or skill made available" by the respondent to the
foreign enterprise for running of the Hotel Soaltee. Mr. Dave is right when he
submits that in view of the judgment of this Court in Continental Construction Ltd.
case Circular No. 187 dated December 23, 1975 of the CBDT may perhaps require
certain changes so as it is in conformity with Section 80O of the Act. In J.K.
(Bombay) Ltd. case Delhi High Court was of the view that remuneration obtained
by running or managing a foreign company would be in the nature of profits while
Section 80O deliberately restricted itself to income by way of royalty, commission
or fees and included other types of remunerations. We do not think that this is a
correct statement as the royalty, commission or fees can be in terms of
percentage of profits earned by the foreign enterprise on account of services
rendered by the Indian Company. It is substance of the case which matters and
not the name. The view taken by the Bombay High Court in Godrej and Boyce
Mfg. Co. Ltd. case MANU/MH/0271/1992: [1993] 203 ITR 947(Bom) commends to
us. As it is more in consonance with the provision of Section 80O and the object
which it seeks to achieve. Karnataka High Court in the case of HMT Ltd.
MANU/KA/0141/1990 : [1991] 188 ITR 457(KAR) has rather taken a narrow view
of the provision of Section 80O. Applying the principles of law as laid down by
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Court in Continental Construction Ltd. case and the term "technical services"
which included "professional services" and the nature of services agreed to be
rendered by the respondent to the foreign enterprise we are of the view that
CBDT was not right in not granting approval of the agreement to the respondent
under Sections 80O of the Act. We have also seen the scope of circulars issued by
the CBDT and had these are to be acted upon in various decisions of this Court.
In the matter of the nature as in the present case and the legislative intention to
give relief we have to draw interpretation to the term "technical services" which
includes "professional services" as well. Basic purpose of Section 80O is the
spread by an Indian assessee of any patent, invention, model, design, secret
formula or process, or similar property right, or information concerning industrial,
commercial or scientific knowledge, experience or skill of the assessee for use
outside India and it that process to receive income to augment the foreign
exchange resources of the country. The assessee can also make available to
foreign enterprise technical and professional services expertise of which it
possesses for earning foreign exchange for the country."
7.2. (c) Goa Carbon Ltd. Vs. V.M.Muthuramalinga [(2003) 126
Taxmann 313 (Bom)] : Interpretation of the term 'technical service'.
7. As we discussed earlier, the entire amount of 183,000 Canadian
dollars will fall under the definition of "royalty" as meant under Explanation 2 to
Section 9 of the Income Tax Act. Learned counsel for the Department, however,
has strongly contended that the 20 per cent, rate is only applicable to technical
engineering consultancy charges amounting to 12,000 Canadian dollars because,
according to him, royalty for transfer of drawings and designs alone attracts tax
at the rate of 20 per cent. All other two heads, namely, for transfer of technology
and technical engineering consulting charges will come under technical services.
As indicated above, the Explanation to Clause (vii) of Explanation 2 to Section 9 of
the Income Tax Act has clearly defined what is ''technical services". "Technical
services" have been defined as managerial, technical or consultancy services
including the provision of services of technical or other personnel. But the
agreement in question does not provide initial services in India by the foreign
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company. Therefore, it is very difficult to accept the argument of learned counsel
for the Department. Barring the royalty for transfer of drawings and designs, what
has been provided in the contract is technical services. As we indicated earlier,
what are the services to be rendered by the company in India is only sending two
persons for 15 days just to start the machinery and go. In the light of the express
provisions made in the agreement, it is difficult to accept the contention of
counsel for the Department that royalty for technical engineering consulting
charges is for technical services. As we read the agreement in toto, we cannot
ascribe to such an interpretation as was attempted to be made out by counsel for
the Department. In the light of the aforesaid discussion, we have no hesitation to
hold that what is covered by the agreement is only royalty for technology or
transfer of technology by the foreign company to the petitioner and what is
stipulated to be paid is the consideration for the transfer done and not as fee for
technical services. As a consequence of that, that payment attracts Income Tax
only at the rate of 20 per cent. Since no issue has been raised before us for the
refund, we are not passing any order on that prayer clause."
7.3. Requirement of Human Element in Technical Services:
7.3 (a) Commissioner of Income Tax Vs. Bharti Cellular Ltd. [(2008)
175 Taxmann 573 (Delhi)] : Human intervention is necessary to categorize
technical services as FTS.
7.3. (b) Commissioner of Income Tax Vs. Bharti Cellular Ltd.
[(2010) 193 Taxmann 997 (SC)] : The extent of human intervention must be
determined before applying the 'human intervention' test postulated by the Delhi
High Court.
7.3. (c) Commissioner of Income Tax, TDS, Bangalore Vs.
Vodafone South Ltd. [(2016) 72 Taxmann.com 347 (Karnataka)] : Human
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intervention is essential to tax payment as fees for technical service.
8. Per contra, the learned counsel appearing for the respondent submits
that during the pendency of the appeals, certain developments have taken place
regarding the status of the respondent-Company. He states that the respondent
was undergoing Corporate Insolvency Resolution Process (CIRP) under the
provisions of the Insolvency and Bankruptcy Code, 2016. Mr.Vijaykumar V.Iyer
had been appointed as the Resolution Professional of the Company. Furthermore,
he submits that pursuant to the common order passed by the National Company
Law Tribunal, Mumbai Bench on 09.06.2020, the resolution plan submitted by
M/s.UV Asset Reconstruction Company has been approved. This plan has been
published and uploaded on the website of NCLT on 18.06.2020, and the CIRP
stands concluded. He further submits that the implementation of the resolution
plan, as sanctioned by the NCLT, Mumbai, is subject to certain conditions
precedent. He points out that the present proceedings arose from the demand
raised by the Commissioner of Income Tax, Chennai, pertaining to the period
before the insolvency commencement date (i.e., 19.03.2018) of the Company.
Additionally, he states that purported dues towards the appellant would have
been in the nature of operational debt under the provisions of the code, being
dues arising under income tax laws and payable to a Government authority. As
per the provisions of the Code, all creditors of the Company are required to
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Tax Case Appeal Nos.831, 832, 833, 836 and 838 of 2016
submit claims regarding dues against the company for the period before the
insolvency commencement date. The learned counsel further states that
paragraph No.6.7.1 of the Approval Order deals with the reliefs and confessions,
and the following relief has been granted by the NCLT under the resolution plan
"subject to the condition that these shall pertain to any inquiries, investigations,
proceedings, suits, claims, disputes, etc., only in relation to the period prior to the
approval date and not thereafter." Upon approval of the resolution plan, all the
proceedings and claims that pertain to the period before the NCLT approval date
shall stand withdrawn and dismissed, and liabilities thereunder extinguished.
Accordingly, the current proceedings and the underlying demand/claim of the
appellant have become infructuous and should stand dismissed in terms of the
approval order. In support of his contentions, the learned counsel cites the
following judgments:
(i) In the case of Committee of Creditors of Essar Steel India
Limited v. Satish Kumar Gupta & Ors. [Civil Appeal No.8766-67 of 2019], the
Apex Court held that in terms of Section 31 of the Code, once a resolution plan is
approved, it is binding on all stakeholders to allow the resolution applicant to run
the company with a fresh slate. The Apex Court recognized that a resolution
applicant cannot be saddled with new claims after the resolution plan has been
approved, as the resolution applicant cannot begin the operations of the
corporate debtor with a fresh slate. Therefore, the demand/claim subject matter
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of the present appeals cannot survive in the light of the aforementioned
developments.
(ii) In the light of Section 238 of the Code, which stipulates that the
provisions of the Code shall have an overriding effect notwithstanding anything
inconsistent contained in any other law for the time being in force. In this regard,
the learned counsel referred to the judgment of the Apex Court in the case of
P.R. Commissioner of Income Tax Vs. Monnet Ispat and Energy Ltd.,
(SLP No.6483 of 2018, dated 10.08.2018). The Apex Court held that having
regard to Section 238 of the Code, the Code will override anything inconsistent
contained in any other enactment, including the Income Tax Act, 1961.
9. The learned counsel appearing for the respondent, on facts, reiterating
the submissions made before the Tribunal, would state that roaming is a service
provided by cellular providers that allows customers to automatically connect and
receive voice calls without human intervention when travelling to different
telecom circles or outside the country. The roaming service enables subscribers to
make and receive voice calls, access data, and other services seamlessly in
different geographical areas without manual intervention. The roaming
agreements between telecom operators facilitate automatic connectivity for
subscribers when they travel outside their home network area. He would further
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submit that the Expert opinion from a Sub-Divisional Engineer of BSNL clarifies
that roaming services do not require continuous human intervention once the
necessary configurations are set up. Human intervention is primarily needed for
system configurations and maintenance, not for connecting calls during roaming,
as the system automatically handles the connections. The learned counsel would
highlight that roaming charges are payments made by the assessee to other
telecom service providers for technical services, which are then utilized by
subscribers during roaming. The argument is made that the roaming charges
should not be categorized as fees for technical services, as the service is provided
without continuous human intervention once the initial configurations are in
place. He would further argue that the roaming charges should not be considered
technical services, as the automatic connectivity provided during roaming does
not require ongoing human intervention for call connections. In support of his
contentions, the learned counsel has relied upon the following judgments:
(i) Godfrey Phillips India Ltd., Vs. State of U.P. [(2005) 2 SCC 515]
(ii) Commissioner of Income Tax Mumbai Vs. Kotak Securities
Ltd., [(2016) 11 SCC 424]
(iii) Director of Income Tax Vs. A.P.Moller Maersk SA [(2017) 5 SCC
651]
(iv) Commissioner of Income Tax Vs. Dakshin Hryana Bijli Vitran
Nigam [(2015) SCC Online P&H 18645)]
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(v) Commissioner of Income Tax, Kolkata Vs. Media World Wide
Pvt. Ltd., [I.T.A.No.23 of 2015, dated 08.01.2020 (Calcutta High Court)]
(vi) Skycell Communication Ltd. Vs. DCIT [(2001) 251 ITR 53 (Mad)]
(vii) GVK Industries Ltd., V. Income Tax Officer [2015) 11 SCC
734]
(viii) DCIT Vs. Vodafone India Ltd., [(I.T.A.No.6158/Mum/2018)
Judgment dated 27.05.2020 (ITAT, Mumbai)
(ix) iGATE Computer Systems Ltd., Vs. DCIT [(2015) 67 SOT 296
(Pune), ITAT, Pune]
(x) Asst. Commissioner of Income Tax v. Torry Harris Business
Solutions Pvt. Ltd., [(2015 SCC Online ITAT 2986) - ITAT, Bangalore]
(xi) CIT, Delhi V. Bharti cellular [(2008) 175 Taxman 573 (Delhi)]
(xii) CIT, Delhi V. Bharti Cellular [(2010) 193 Taxman 97(SC)]
(xiii) Commissioner of Income Tax (TDS) Vs. Vodafone South Ltd.,
[(2016) 241 Taxman 497 (Kar)]
10. Heard the learned counsel on either side and perused the materials
available on record.
11. On 07.08.2020, when the tax case appeals were taken up for hearing,
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the following order came to be passed:
"The Court was held by Video Conference, as per the Resolution of the
Full Court dated 3 July 2020, by Judges at their respective residences and the
counsel, staff of the Court appearing from their respective residences.
2. The questions involved in the present set of Appeals are as to whether
the Roaming Charges paid by the Respondent/Assessee company to other
Companies whose server was used to provide Roaming Mobile facility to the
customers amounts to payment under the Head 'Fees for Managerial, Technical,
Consultancy Services (MTCS) or not and if so, whether on such payments made
by the Respondent/Assessee Company, the Tax Deducted at Source (TDS) was
required under Section 194J of the Act or not and in the absence of such TDS
made by the Respondent Company, whether the same would be taxable in the
hands of the Assessee Company by virtue of Section 201 of the Act or not.
3. As a fact, it was brought to our notice by Mr.Vishnu Mohan, learned
counsel for the Respondent/Assessee that the company is subject matter of
Insolvency Proceedings under the provisions of IBC Code 2016 and NCLT has
recently approved the Resolution of the Committee of Creditors in which the
drastic cut for payments to be made to various Creditors, including the Tax
Department, has been approved by the NCLT. A copy of that order may be placed
on the record of this court.
4. However, we are, prima facie of the opinion that pendency of the
proceedings before the NCLT or approval of any such Scheme of Resolution of
Insolvency may not affect the answering of the substantial questions of law
arising in the present Appeals under Section 260A of the Act, as such Insolvency
Resolution may only affect the final recovery part of taxes depending upon the
answers to the questions raised in the present Appeals, by the High Court under
Section 260A of the Act.
5. According to the learned counsels, after the decision of the Delhi High
Court in the year 2008 on the said question, the Hon'ble Supreme Court, in the
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case of CIT v. Bharti Cellular Ltd. [(2010) 193 Taxman 97 (SC)], has made some
observations on the decision of the Delhi High Court. According to the information
available with the learned counsels, as of now, no other High Court has decided
the said questions though such questions might have arisen in the case of various
Companies which provide these Mobile Services of connectivity to the Customers.
6. Therefore, prima facie, we are of the opinion that the questions of law
involved in the present case are open to debate and answered by the High Court
under Section 260A of the Act in the present set of Appeals, irrespective of the
approval of Resolution of Insolvency Proceedings by the NCLT.
7. Therefore, both the learned counsels are requested to prepare their
case for arguments before this court on merits and they may file a brief synopsis,
list of dates and events, etc. and compilation of case laws in both soft and hard
copy within 3 weeks from today and on the next date of hearing, the learned
counsels may address their arguments on the merits of the case. The Appeals
may be disposed of even at the admission stage itself by this court.
8. Put up on 15.9.2020."
12. The prime contention of the learned counsel for the respondent is that
during the pendency of these appeals, the respondent underwent Corporate
Insolvency Resolution Process (CIRP) under the Insolvency and Bankruptcy Code,
2016, and a resolution plan submitted by M/s.UV Asset Reconstruction Company
(UVARC) has been approved by the National Company Law Tribunal, Mumbai
Bench. It is argued that upon approval of the resolution plan, all proceedings and
claims pertaining to the period before the NCLT approval date stand withdrawn,
dismissed, and the liabilities extinguished, rendering the present Tax Case
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Tax Case Appeal Nos.831, 832, 833, 836 and 838 of 2016
Appeals infructuous.
13. However, this Court is not persuaded by the respondent's contention
regarding the resolution plan and the consequent claim of the Tax Case Appeals
being infructuous. The present proceedings relate to the respondent's statutory
tax liability and the obligation to deduct tax at source under the Income Tax Act,
1961. There is no quarrel with the judgments cited by the respondent, such as
Committee of Creditors of Essar Steel India Limited v. Satish Kumar Gupta
& Ors. and P.R. Commissioner of Income Tax Vs. Monnet Ispat and
Energy Ltd., deal with the overriding effect of the Insolvency and Bankruptcy
Code and other laws in specific contexts. However, in the recent judgement, the
Hon’ble Apex Court in the case of State Tax Officer V Rainbow Papers
Limited (2022 Livelaw (SC) 743:2023 (9) SCC 545), affirmed again by dismissal
of the review petition in Sanjay Agarwal V.State Tax Officer (2023 Livelaw
(SC) 939: 2024 (2) SCC 362), has clearly laid down that the state by operation of
law is also a secured creditor when statutory taxes remain unpaid, the claims
cannot be ignored while following the Waterfall Mechanism under Section 53 of
the IBC in the Resolution Plan and should rank equally with other specified debts.
Though lengthy, we feel it necessary to extract relevant portion of the order in
Rainbow Papers Limited Case (Supra), which is as under:
“22. Prior to amendment by Notification No. IBBI/2018-2019/GN/REG013
dated 3-7-2018, with effect from 4-7-2018, sub-regulation (1) of Regulation 12
read with sub-regulation (2) provided that a creditor shall submit proof of claim
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on or before the last date mentioned in the public announcement. Sub-regulation
(2) was amended with effect from 4-7-2018 and now reads “a creditor shall
submit claim with proof on or before the last date mentioned in the public
announcement”.
23. The Regulations have to be read as a whole and not in a truncated
manner and interpreted in the light of the statutory provisions of IBC, as
interpreted by this Court. This Court has time and again held that the timelines
stipulated in IBC even for completion of proceedings are directory and not
mandatory.
24. In this case, claims were invited well before 5-10-2017 which was the
last date for submission of claims. Under the unamended provisions of Regulation
12(1), the appellant was not required to file any claim. Read with Regulation 10,
the appellant would only be required to substantiate the claim by production of
such materials as might be called for. The time stipulations are not mandatory as
is obvious from sub-regulation (2) of Regulation 14 which enables the interim
resolution professional or the resolution professional, as the case may be, to
revise the amounts of claims admitted, including the estimates of claims made
under sub-regulation (1) of the said Regulation as soon as might be practicable,
when he came across additional information warranting such revision.
25. In this case, at the cost of repetition, it may be noted that there was
no obligation on the part of the State to lodge a claim in respect of dues which
are statutory dues for which recovery proceedings have also been initiated. The
appellants were never called upon to produce materials in connection with the
claim raised by the appellants towards statutory dues. The adjudicating authority
as well as the appellate authority/Nclat misconstrued the Regulations.
………
28. The learned Solicitor General of India submitted that a reading of
Sections 3(30) and 3(31) IBC makes it clear that the finding of Nclat that the
State is not a secured creditor is erroneous and contrary to the clear definition of
“secured creditor” under IBC.
29. As argued by the learned Solicitor General, the term “secured
creditor” as defined under IBC is comprehensive and wide enough to cover all
types of security interests, namely, the right, title, interest or a claim to property,
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created in favour of, or provided for a secured creditor by a transaction, which
secures payment or performance of an obligation and includes mortgage, charge,
hypothecation, assignment and encumbrance or any other agreement or
arrangement securing payment or performance of any obligation of any person.
30. The learned Solicitor General rightly argued that in view of the
statutory charge in terms of Section 48 of the GVAT Act, the claim of the Tax
Department of the State, squarely falls within the definition of “security interest”
under Section 3(31) IBC and the State becomes a secured creditor under Section
3(30) of the Code.
31. Mr Nataraj, Additional Solicitor General submitted that the appellate
authority, Nclat has held that the Tax Department of the State does not fall within
the meaning of “secured creditor”. Nclat has, according to Mr Nataraj, come to
such a conclusion on the erroneous premise that Section 48 of the GVAT Act,
2003, cannot prevail over Section 53 IBC.
32. The learned ASG argued that, it was not the case of the appellant
that Section 48 of the GVAT Act prevails over Section 53 IBC. It was the case of
the appellant that the State falls within the purview of “secured creditor”.
………
48. A resolution plan which does not meet the requirements of sub-
section (2) of Section 30 IBC, would be invalid and not binding on the Central
Government, any State Government, any statutory or other authority, any
financial creditor, or other creditor to whom a debt in respect of dues arising
under any law for the time being in force is owed. Such a resolution plan would
not bind the State when there are outstanding statutory dues of a corporate
debtor.
51. If the established facts and circumstances require discretion to be
exercised in a particular way, discretion has to be exercised in that way. If a
resolution plan is ex facie not in conformity with law and/or the provisions of IBC
and/or the Rules and Regulations framed thereunder, the Resolution would have
to be rejected. It is also a well-settled principle of interpretation that the
expression “may”, if circumstances so demand can be construed as “shall”.
52. If the resolution plan ignores the statutory demands payable to any
State Government or a legal authority, altogether, the adjudicating authority is
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bound to reject the resolution plan.
53. In other words, if a company is unable to pay its debts, which should
include its statutory dues to the Government and/or other authorities and there is
no plan which contemplates dissipation of those debts in a phased manner,
uniform proportional reduction, the company would necessarily have to be
liquidated and its assets sold and distributed in the manner stipulated in Section
53 IBC.
54. In our considered view, the Committee of Creditors, which might
include financial institutions and other financial creditors, cannot secure their own
dues at the cost of statutory dues owed to any Government or Governmental
Authority or for that matter, any other dues.
55. In our considered view, Nclat clearly erred in its observation that
Section 53 IBC overrides Section 48 of the GVAT Act. Section 53 IBC begins with
a non obstante clause which reads:
“53. Distribution of assets.—(1) Notwithstanding
anything to the contrary contained in any law enacted by the
Parliament or any State Legislature for the time being in force,
the proceeds from the sale of the liquidation assets shall be
distributed in the following order of priority….”
56. Section 48 of the GVAT Act is not contrary to or inconsistent with
Section 53 or any other provisions of IBC. Under Section 53(1)(b)(ii), the debts
owed to a secured creditor, which would include the State under the GVAT Act,
are to rank equally with other specified debts including debts on account of
workman's dues for a period of 24 months preceding the liquidation
commencement date.
57. As observed above, the State is a secured creditor under the GVAT
Act. Section 3(30) IBC defines “secured creditor” to mean a creditor in favour of
whom security interest is credited. Such security interest could be created by
operation of law. The definition of “secured creditor” in IBC does not exclude any
Government or Governmental Authority.
58. We are constrained to hold that the appellate authority (Nclat) and
the adjudicating authority erred in law in rejecting the application/appeal of the
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appellant. As observed above, delay in filing a claim cannot be the sole ground for
rejecting the claim.
59. The appeals are allowed. The impugned orders [Tourism Finance
Corpn. of India Ltd. v. Rainbow Papers Ltd., 2019 SCC OnLine NCLAT
910] , [STO v. Chandra Prakash Jain, 2020 SCC OnLine NCLAT 536] are set aside.
The resolution plan approved by the CoC is also set aside. The resolution
professional may consider a fresh resolution plan in the light of the observations
made above. However, this judgment and order will not prevent the resolution
applicant from submitting a plan in the light of the observations made above,
making provisions for the dues of the statutory creditors like the appellant.”
From the above judgment, it is clear that the statutory dues cannot be ignored
and if ignored, the same would not be binding on the authorities and the
resolution plan cannot survive. It would also be appropriate to point out at this
stage that the respondents had unsuccessfully challenged the proceedings under
the IT Act for the Assessment years 2011-12 and 2012-13 citing the pendency of
the resolution proceedings and the moratorium period in W.P Nos. 34668 of 2023
batch and the Learned Single Judge by his order dated 17.06.2022 rejected their
contention. That apart, in the present case, the order of the Tribunal is dated
20.07.2015 and the resolution plan was admitted only on 19.03.2018. In any
case, as held by the Apex Court in Rainbow Papers Ltd Case (Supra), prima
facie, the pre-amendment provisions would be applicable to the present case and
the period of operation of the order of the Tribunal is to be treated only as a
period of eclipse. That apart, the substantial question of law that has arose
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cannot be left undecided. Therefore, the respondent's contention regarding the
resolution plan and the consequential claim of the Tax Case Appeals being
infructuous is untenable and cannot be accepted. Further, another important
factor that requires to be noticed is that the application for Corporate Insolvency
Resolution Process was a voluntary application by the respondent and since both
the parties have not placed all the materials before this Court, it is not clear as to
whether the respondent had disclosed the pendency of the dispute by way of the
Tax Cases in his application. Therefore, the issue of recovery is left open and both
the parties are at liberty to take all the stands available to them before the
appropriate forum.
14. The core issue or the substantial question of law that is to be decided
in these appeals is whether the roaming charges paid by the respondent-assessee
to other telecom operators for facilitating roaming services to its subscribers
would be classified as "fees for technical services" under Section 194J of the
Income Tax Act, 1961 (the Act), thereby mandating the deduction of tax at
source. For the purpose of deciding the issue, it is necessary to determine
whether the roaming service provided by the respondent in collaboration with the
other service providers would constitute “technical services” for the purpose of
deduction of tax at source.
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15. The respondent-assessee is a major telecom company providing cellular
and data services across India through its vast network. To ensure seamless
connectivity for its subscribers traveling outside the home network area, including
abroad, the respondent enters into roaming agreements with other telecom
service providers.
16. During the relevant assessment years 2007-08 to 2011-12, the
respondent made substantial payments as roaming charges to these other
operators without deducting any tax at source under Section 194J. According to
the respondent, the roaming services are automated processes without human
intervention as the words “managerial and consulting services is used” in the
provision, and hence, the roaming charges do not qualify as fees for technical
services. The further contention on behalf of the respondent is that the
automated services is general and applicable to all and not customer specific and
hence cannot be classified as “technical services”. All the judgments relied upon
by the Learned Counsel for the respondent drive home the above principles. Much
emphasis has been made on the judgment of this Hon’ble Court in Skycell
Communications Ltd case (supra) with regard to the claim of “technical service”.
The judgment according to us may not be of any assistance to the respondent in
view of the Judgment of the Hon’ble Apex Court in Bharati Cellular Ltd Case
(Supra) and that apart, the facts of the case are completely different as it was a
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case of deduction of TDS on payment by the subscriber to the service provider
and not inter se between the host and home service providers.
17. However, the counsel for the Revenue has contested this position, by
citing crucial factors establishing the applicability of Section 194J:-
(i) The roaming charges represent consideration paid for highly technical
telecommunication services provided to the respondent's subscribers outside the
home network area, forming an integral part of the respondent's business
operations.
(ii) Seamless carriage of calls and data during roaming requires constant
monitoring and human intervention by technical experts to ensure uninterrupted
services without faults or disruptions.
(iii) The respondent's own National GSM Roaming Agreement explicitly
acknowledges the need for human intervention in various aspects of roaming
services.
18. While the respondent relied on an expert opinion suggesting that no
human intervention is required for connecting individual roaming calls once
configurations are completed. It is to be noted that the Tribunals and the Hon’ble
Courts have interpreted "technical services" broadly to include professional
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services under Section 9(1)(vii) of the Act as human intervention has been
recognized as an essential element for categorizing payments as fees for technical
services. It would be relevant to consider Section 9 (1) (vii) of the Income Tax
Act, which reads as under:
Section 9(1)(vii) of the Income Tax Act:-
Section 9(1) (vii) income by way of fees technical services payable by-
(a) the Government; or
(b) a person who is a resident, except where the fees are payable in
respect of services utilised in a business or profession carried on by such person
outside India or for the purposes of making or earning any income from any
source outside India; or
(c) a person who is a non-resident, where the fees are payable in respect
of services utilized in a business or profession carried on by such person in India
or for the purposes of making or earning any income from any source in India:
Provided that nothing contained in this clause shall apply in relation to
any income by way of fees for technical services payable in pursuance of an
agreement made before the 1st day of April, 1976, and approved by the Central
Government.
Explanation 1. - For the purposes of the foregoing proviso, an agreement
made on or after the 1st day of April, 1976, shall be deemed to have been made
before that date if the agreement is made in accordance with proposals approved
by the Central Government before that date.
Explanation 2. - For the purposes of this clause, "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
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Tax Case Appeal Nos.831, 832, 833, 836 and 838 of 2016
consideration for any construction, assembly, mining or life project undertaken by
the recipient or consideration which would be income of the recipient chargeable
under the head "salaries".
Before adverting further into the scope of “Technical Service”, it would be
necessary to point out that the CIT (A) has held that human intervention is not
necessary to fall within the definition of “technical service” or in other words,
automation is irrelevant. Both sides have relied upon the judgment of the Hon’ble
Apex Court in Bharati Cellular Ltd Case accepting the presence of human
intervention, the operative portion of the Apex Court judgment is extracted as
under:
"7. The problem which arises in these cases is that there is no expert
evidence from the side of the Department to show how human intervention takes
place, particularly, during the process when calls take place, let us say, from Delhi
to Nainital and vice versa. If, let us say, BSNL has no network in Nainital whereas
it has a network in Delhi, the Interconnect Agreement enables M/s. Bharti Cellular
Limited to access the network of BSNL in Nainital and the same situation can arise
vice versa in a given case. During the traffic of such calls whether there is any
manual intervention, is one of the points which requires expert evidence.
Similarly, on what basis is the "capacity" of each service provider fixed when
Interconnect Agreements are arrived at? For example, we are informed that each
service provider is allotted a certain "capacity". On what basis such "capacity" is
allotted and what happens if a situation arises where a service provider's "allotted
capacity" gets exhausted and it wants, on an urgent basis, "additional capacity"
Whether at that stage, any human intervention is involved is required to be
examined, which again needs a technical data. We are only highlighting these
facts to emphasise that these types of matters cannot be decided without any
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Tax Case Appeal Nos.831, 832, 833, 836 and 838 of 2016
technical assistance available on record.
8. There is one more aspect that requires to be gone into. It is the
contention of Respondent No. 1 herein that Interconnect Agreement between, let
us say, M/s. Bharti Cellular Limited and BSNL in these cases is based on
obligations and counter obligations, which is called a "revenue sharing contract".
According to Respondent No. 1, Section 194J of the Act is not attracted in the
case of "revenue sharing contract". According to Respondent No. 1, in such
contracts there is only sharing of revenue and, therefore, payments by revenue
sharing cannot constitute "fees" under Section 194J of the Act. This submission is
not accepted by the Department. We leave it there because this submission has
not been examined by the Tribunal.
9. In short, the above aspects need reconsideration by the assessing
officer. We make it clear that the assessee(s) is not at fault in these cases for the
simple reason that the question of human intervention was never raised by the
Department before CIT. It was not raised even before the Tribunal; it is not
raised even in these civil appeals. However, keeping in mind the larger interest
and the ramification of the issues, which is likely to recur, particularly, in matters
of contracts between Indian companies and multinational corporations, we are of
the view that the cases herein are required to be remitted to the assessing officer
(TDS).
10. Accordingly, we are directing the assessing officer (TDS) in each of
these cases to examine a technical expert from the side of the Department and to
decide the matter within a period of four months. Such expert(s) will be examined
(including cross-examined) within a period of four weeks from the date of receipt
of the order of this Court. Liberty is also given to Respondent 1 to examine its
expert and to adduce any other evidence.
11. Before concluding, we are directing CBDT to issue directions to all its
officers, that in such cases, the Department need not proceed only by the
contracts placed before the officers. With the emergence of our country as one of
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Tax Case Appeal Nos.831, 832, 833, 836 and 838 of 2016
the BRIC countries and with the technological advancement, matters such as the
present one will keep on recurring and hence time has come when the
Department should examine technical experts so that the matters could be
disposed of expeditiously and further it would enable the appellate forums,
including this Court, to decide legal issues based on the factual foundation. We do
not know the constraints of the Department but time has come when the
Department should understand that when the case involves revenue running into
crores, technical evidence would help the tribunals and courts to decide matters
expeditiously based on factual foundation. The learned Attorney General, who is
present in Court, has assured us that our directions to CBDT would be carried out
at the earliest.
The above case arose from the Judgment of the Delhi High Court, wherein it was
held that to constitute “technical Service” human intervention is necessary by
placing reliance upon the principle of “noscitur a sociius”. The Hon’ble Apex Court,
after factually finding that the aspect of human intervention was not the subject
matter before the authorities, remanded back the matter by leaving it open to the
assessing authority to seek expert opinion, collect technical evidence provide
opportunity for cross examination, consider the terms and condition between the
parties and the extent of human intervention at every stage. It is to be noted that
though the Hon’ble Apex Court recognized the necessity of human intervention,
did not hold that without human intervention, the service cannot be classified as
“technical service”. A perusal of the provision discloses that consideration must be
paid for “managerial, technical or consultancy services”. In our opinion, the
provision contemplates three different services which are mutually inclusive. The
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Tax Case Appeal Nos.831, 832, 833, 836 and 838 of 2016
use of the punctuation mark “comma” in the provision after the first category of
“managerial” is to separate it from the second category of “technical” and the use
of “or” after the second category of “technical” is to classify a separate category
of “consultancy”. It is to be noted that the technical service can be automated
and also with human intervention at various stages which can be either
managerial or consultancy or both.
19. In the present case, the undisputed facts and the respondent's own
National GSM Roaming Agreement clearly establish that human intervention and
technical expertise are integral and indispensable components for the smooth,
efficient, and uninterrupted operation of roaming services as a whole. The
Roaming Agreement explicitly acknowledges the need for human intervention in
various critical aspects of roaming services, such as discussing impacts and taking
necessary actions upon any change in the system or network, providing customer
care support, addressing network faults through coordination between customer
care and technical teams, handling issues related to lost/stolen SIM cards or
mobile equipment, and resolving billing inquiries or disputes. The Tribunal also
accepted the presence of human intervention, however holding that for
connecting a roaming call, human intervention is not required. We wish to point
out few situations, which in our opinion the Tribunal has not considered. Two
such situations, as it existed then and also now, is the option to manually select a
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Tax Case Appeal Nos.831, 832, 833, 836 and 838 of 2016
network when one goes out of the home network at the subscribers’ end or to
activate international roaming. When the subscriber selects another network
when the service is either down or when the service provider does not provide
any service in any particular area or country and when there are glitches or
connectivity issues, it is only through human intervention, it can be resolved.
Similarly, the activation of international roaming is also another situation which
requires human intervention.
20. It is evident from the above that human intervention by skilled
technical personnel is an integral and unavoidable part of the roaming services
provided by the host telecom operators to the respondent-assessee. In our
opinion, the “roaming service” to be provided is not mere connection but a
seamless service throughout the period, when the subscriber is outside the home
geographical area. These services cannot be rendered effectively or efficiently
without continuous human monitoring, coordination, troubleshooting, and
expertise. Therefore, this Court is of the firm view that the roaming services
provided by the respondent-assessee to other telecom operators undoubtedly
involve human intervention and technical expertise at various levels, thereby the
charges paid would constitute "fees for technical services" under Section 194J of
the Income Tax Act, 1961 as the provision lucidly spells out that the consideration
can also be in one lump sum.
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Tax Case Appeal Nos.831, 832, 833, 836 and 838 of 2016
21. The Apex Court in Bharati Cellular Ltd case, which in our opinion is
the only case directly on the point, issued certain directions. Nothing has been
placed on record to show that at what stage the expert opinion was obtained,
whether the expert was subjected to cross-examination by the parties, whether
the technical evidence was collected, consideration of the agreements between
the parties, the extent of human intervention in the contingencies like travelling
out of home network including the period when one is travelling abroad and basis
of fixation of “capacity” and even if it is accepted that human intervention is
necessary, would it not suffice if such intervention is at some stage are all the
factors that ought to have been considered by the Tribunal, which in our opinion
failed and misconstrued the judgment of the Hon’ble Apex Court in Bharati
Cellular Case. The Tribunal unfortunately restricted itself to the question of
connection at the initial stage when the subscriber leaves the home territory or in
other words when he is in “roaming’ and has not postulated a situation and
rendered findings on the entirety of the period of roaming.
22. In view of the above findings, the substantial questions of law raised in
these appeals are answered in favour of the appellant-Revenue and against the
respondent-assessee. The impugned common order dated 20.07.2015 passed by
the Income Tax Appellate Tribunal, which erroneously held that the respondent-
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Tax Case Appeal Nos.831, 832, 833, 836 and 838 of 2016
assessee was not liable to deduct tax at source on the roaming charges paid, is
set aside and the matter is remanded back to the Tribunal for fresh
consideration.
23. In the result, the tax case appeals preferred by the Revenue are
allowed and the matter is remanded back to the Tribunal for fresh consideration.
There is no order as to costs.
[R.M.D, J.] [M.S.Q, J.]
17.05.2024
Index: Yes / No.
Speaking order/ Non-speaking order
Neutral Citation: Yes / No.
To
1.The Deputy Commissioner of Income Tax,
TDS Circle I,
R.No.711, 7th Floor,
Wanaparthy Block, Aayakar Bhavan,
121, Mahatma Gandhi Road,
Nungambakkam, Chennai - 34.
2. The Commissioner of Income Tax,
Chennai.
3. The Income Tax Appellate Tribunal,
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Tax Case Appeal Nos.831, 832, 833, 836 and 838 of 2016
Madras 'D' Bench, Chennai.
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Tax Case Appeal Nos.831, 832, 833, 836 and 838 of 2016
R. MAHADEVAN, J.
AND
MOHAMMED SHAFFIQ, J.
rns
Tax Case Appeal Nos.831, 832, 833,
836 and 838 of 2016
17.05.2024
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