DEPUTY COMMISSIONER OF INCOME TAX CIRLCE-2(32), HYDERABAD
Vs
M/s EXCEL MEDIA (P) LTD HYDERABAD
Income tax – Sections 194C, 194J – Whether the sum paid for availing the standard service of bandwidth network is liable to TDS u/s 194J.
Assessee Company entered into agreement with VSNL and Airtel and connected its equipments/network with that of VSNL/Airtel to enable their customers to have the access to the data or information over the internet. AO considered that the payment for the same falls under the provisions of section 194J and disallowed the expenditure for the same. Alternatively, if these are not considered as covered u/s 194J, the same are covered u/s 194C. CIT (A) allowed the appeal of the assessee and deleted the disallowance.
In appeal, the ITAT held that,
++ following the decision of the Tribunal dated 7.8.2009 in ITA No.440/Hyd/2009 in the case of M/s Beam Cable Systems (P) Ltd. in which decision of the Mumbai Bench in the case of Pacific Internet (India) Pvt. Ltd. was followed and observed that “for providing the sales service, the assessee needs bandwidth network operating infrastructure. As per provisions of S.194J of the Act (ii) there should be payment in the nature of fees and (ii) said should be for availing the technical services. Again expression ‘technical service’ has not been defined in S.194J but meaning given to the said expression has been adopted from Expln. 2 to cl. (vii) of S.9(1). The assessee has availed the bandwidth services and other infrastructure for providing the internet access to its customers. These are standard facilities availed by the assessee. The payment made by the assessee company to VSNL, MTNL and other concerns for availing the services of the bandwidth network infrastructure cannot be said to be technical services within the meaning of S.194J r/w Expln. 2 to cl (vii) of S.9(1).” Therefore, the payments for bandwith services do not fall u/s 194J;
++ further, the tax is required to be deducted u/s 194C where a contract was entered into for carrying out any work in pursuance of the contract. It was held by the Karnataka High Court in the case of V.M. Salgaocar & Bros. that The word ‘work’ refers and comprehends the activities of the workmen and not the operation in the factory or on machines. It is the physical force which has been comprehend in the word ‘work’. In the present case, there was no contract between the assessee and VSNL/Airtel to carry our any work as envisaged in section 194C. There was only a commercial/technical arrangement under which the assessee connected its equipments/network with that of VSNL/Airtel to enable their customers to have the access to the data or information over the internet. Hence section 194C is also not applicable.
Revenue’s appeal dismissed
ORDER
2. The Revenue raised the following grounds in its appeal:
1. The CIT(A) ought to have noticed that the amount paid to Bandwidth services falls under the provisions of section 194J, consequently hit by provision of section 40(ai) of the Act.
2. Alternatively even if it was held that the provisions of section 194J are not applicable, the CIT(A) ought to have held that the provisions of section 194C are attracted to this case.
3. After hearing both the parties, we are of the opinion that the first above ground is squarely covered in favour of the assessee by the order of this Tribunal dated 7.8.2009 in ITA No.440/Hyd/2009 in the case of M/s Beam Cable Systems (P) Ltd., Hyderabad for the assessment year 2006-07 wherein the Tribunal held as follows:
“7. We have heard both the parties and perused the material on record. In our opinion, the issue in dispute is squarely covered by the order of the Mumbai ‘D’ Bench in the case of Pacific Internet (India) Pvt. Ltd. Vs. = ITO 27 SOT 523(Mumbai) wherein it is held as follows :
“There is no dispute that the assessee company is engaged in the business of providing internet excess services to its corporate clients and consumers. For providing the sales service, the assessee needs bandwidth network operating infrastructure. The controversy is whether the services are facilities availed by the assessee from VSNL/MTNL and other concerns towards bandwidth and network operating infrastructure can be said to be ‘technical services’ within the meaning of S.194J r/w Expln. 2 cl.(vii) of S.9(1). As per provisions of S.194J of the Act (ii) there should be payment in the nature of fees and (ii) said should be for availing the technical services. Again expression ‘technical service’ has not been defined in S.194J but meaning given to the said expression has been adopted from Expln. 2 to cl. (vii) of S.9(1). The assessee has availed the bandwidth services and other infrastructure for providing the internet access to its customers. These are standard facilities availed by the assessee. The payment made by the assessee company to VSNL, MTNL and other concerns for availing the services of the bandwidth net work infrastructure cannot be said to be technical services within the meaning of S.194J r/w Expln. 2 to cl (vii) of S.9(1). The order passed by the assessing officer under S.201(1).and 201(1A) is cancelled – CIT Vs. Estel Communications (P) Ltd.) = (2008) 217 CTR (Del) 102 relied on”.
8. Further order of the Tribunal in the case of Pacific Internet (India) (Pvt.) Ltd Vs. ITO 27SOT 523 which support the case of assessee where they considered the judgement of the Delhi High Court in the case of M/s. Estel Communications (P) Ltd. cited supra wherein their Lordship has held as follows :
“The term ‘technical service’ has come for the consideration before the Hon’ble Delhi High Court in the case of Estel Communications (P) Ltd. (supra). In the said case, the assessee was providing internet bandwidth for providing access to its subscribers. The main server, based on which the internet services were provided were located in USA. In that case, the assessing officer was of the opinion that the assessee should have deducted the tax at source as the payment was made for availing the technical services. Negativing the contention of the Department , the Hon’ble High Court has held as under:
“In so far as this is concerned, the Tribunal considered the agreement that had been entered into the assessee with Teleglobe and came to the conclusion that there was no privity of contract between the customers of the assessee and Teleglobe. In fact, the assessee was merely paying for an internet bandwidth to Teleglobe and then selling it to its customers. The use of internet facility may require sophisticated equipment but but that does not mean that technical services were rendered by Teleglobe to the assessee. It was a simple case of purchase of internet bandwidth by the assessee from Teleglobe.”
9. In view of the above decision, in our opinion, the service availed by the assessee from M/s. Bharati Info Airtel Ltd. And M/s Hathway Cable and Datacom Pvt. Ltd are not to be considered as technical services within the meaning of Section 9(i)(vii) read with explanation 2 and S.194J of the IT Act. The Tribunal while adjudicating the issue before them, they have carefully gone through similar issues which came for consideration in the following cases and came to the conclusion that the impugned services do not fall under the purview of the S.194J of the IT Act
(a) HFCL Infotel Ltd. Vs. ITO - = (2006) 99 TTJ(Chd) 440
(b) Skycell Communications Ltd. Vs. Dy.CIT - = (2001) 170 CTR (Mad) 238: 2001 251 ITR 53(Mad.)
(c) Wipro Ltd. Vs. ITO (2004) 84 TTJ (Bang.) 685: (2003 86 ITD 407 (Bang)
Hence, the distinction made by the departmental representative regarding the nature of services got rendered by the assessee is devoid of merit, since the services availed by the assessee is a standard services, and as per above judgements this services does not fall under purview of S.194J of the IT Act as it is not a technical services as enumerated in S.9(1) (vii) of the IT Act.
10. The above view also supported by order of the Chandigarh Bench of the Tribunal wherein held HFCL Infotel Ltd. Vs. Income Tax Officer = (99 TTJ (Chandigarh), 440) wherein held that interconnect charges paid by assessee, a telecommunication service provider, to BSNL in respect of calls which are routed through the latter’s network cannot be treated as payment for technical services and, therefore, provisions of S.194J are not applicable.
11. Further in the case of Commissioner of Income Tax Vs. Bharati Cellular = 220 CTR 258:
"The issue before the Tribunal was whether the payment made to foreign companies are covered with the scope of S.9(1) of cl.(vii) of the Act. It was held that the amount paid by the assessee in the said case cannot be considered as fee for technical services within the meaning of cl.(vii) if S.9(1) of the Act.”
Further the same view was expressed by Hyderabad Bench in the case of M/s. Bharati Cellular Ltd. by order dated 23.3.07 ITA.1233 to 1235/Hyd./04
12. In view of the above discussion, we are of the opinion that the payment made by the assessee for getting the services of internet access is not technical services, within the meaning of Expln.2 S. (9(1) (vii) of the IT Act read with read with 194J of the IT Act. Accordingly the grounds raised by the Revenue are dismissed.”
4. Respectfully following the same ratio laid down in the above order of this Tribunal, we dismiss Ground No.1 taken by the Revenue.
5. Regarding ground No.2, that the assessing officer to invoke the provisions of Sec.194C when provisions of section 194J are not applicable, in our opinion, the tax is required to be deducted where a contract was entered into for carrying out any work in pursuance of the contract. The expression ‘any work’ in section 194C has been subject to lot of litigations. It was held by the Delhi High Court in the case of SRF Finance Ltd. (211 ITR 861) that the term ‘any work’ in section 194C is aimed at the type of work resulting in tangible material and by virtue of the special inclusion, supply of labour to carry out any work is also brought into the net of tax deduction at source. It was further held by the Hon’ble Karnataka High Court in the case of V.M. Salgaocar & Bros. (237 ITR 630) that the work ‘work’ refers and comprehends the activities of the workmen and not the operation in the factory or on machines. It is the physical force which has been comprehend in the word ‘work’. Similar views were also held in the case of Moradabad Chartered Accountants Association Vs. CBDT (264 ITR 374) (all), Madras Bar Associations Vs. CBDT (216 ITR 240) (Mds.)
5. In the present case of the assessee also, there was no contract between the assessee and VSNL/Airtel to carry our any work as envisaged in section 194C. There was only a commercial/technical arrangement under which the assessee connected its equipments/network with that of VSNL/Airtel to enable their customers to have the access to the data or information over the internet. Hence, the case of the assessee is also not covered by the provisions of section 194C of the Act.
6. Accordingly, we dismiss the ground No.2 taken by the Revenue.
7. In the result, the Revenue appeal stands dismissed.
(Order pronounced in the Court 3.12.2010)
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