S. 194J — Payments for network services cannot be Technical services’ liable to TDS

31 Pacific Internet (India) Pvt. Ltd. v.

ITAT ‘D’ Bench, Mumbai

A.Y. : 2003-04 to 2005-06

Counsel for assessee/revenue : Anil Sathe/

Sanjay Agrawal

The assessee was engaged in the business of providing
internet services to its clients. For the same it acquired bandwidth and network
operating infrastructure services from MTNL/VSNL. According to the AO, such
services availed were in the nature of technical services covered u/s.194J and
treated the assessee in default u/s.201(1). The CIT(A) on appeal, confirmed the
AO’s order. Before the Tribunal the Revenue submitted that the decision of the
Madras High Court in the case of Skycell Communications Ltd. was not applicable
to the facts of the assessee’s case, as bandwidth and network operating
infrastructure services were nothing but technical services and accordingly,
relied on the orders of the lower authorities.

The Tribunal did not agree with the contention of the Revenue
and held that since the services availed were standard facility, the case of the
assessee was not only covered by the decision in the case of Skycell
Communications Ltd., but also by the Delhi High Court decision in the case of
Estel Communication Pvt. Ltd. Accordingly, it was held that the payments made to
MTNL/VSNL for availing the services of bandwidth and network operating
infrastructure cannot be said to be technical services within the meaning of S.
195J read with Explanation 2 to S. 9(1)(vii) of the Act.