TDS : Fees for technical services : Ss. 9(1)(vii) Expl. 2 and 194J of Income-tax Act, 1961 : Assessee cellular network provider : Fee for interconnection between networks not involving human interface : Services not technical services : Not liable for TDS

Reported :

38. TDS : Fees for technical services : Ss. 9(1)(vii) Expl. 2
and 194J of Income-tax Act, 1961 : Assessee cellular network provider : Fee for
interconnection between networks not involving human interface : Services not
technical services : Not liable for TDS.

[CIT v. Bharati Cellular Ltd., 319 ITR 139 (Del.)]

The assessee, company engaged in providing cellular
telephone facilities to their subscribers, had been granted licences by the
Department of Telecommunication for operating in specific circles. For
providing interconnection, the assessee entered into agreements with MTNL/BSNL,
which were regulated by the TRAI and under the agreement the assessee had to
pay interconnection, access charges and port charges to the interconnection
providers. The Department was of the view that interconnection/port access
charges were liable for tax deduction at source in view of the provisions of
S. 194J of the Income-tax Act, 1961 and that these charges were in the nature
of fees for technical services. The Tribunal held that there was no liability
for TDS.

On appeal filed by the Revenue, the Delhi High Court upheld
the decision of the Tribunal and held as under :

“(i) The services rendered qua interconnection/port
access did not involve any human interface and, therefore, the services
could not be regarded as ‘technical services’ as contemplated u/s.194J of
the Act. The interconnect/port access facility was only a facility to use
the gateway and the network of MTNL/other companies. MTNL or other companies
did not provide any assistance or aid or help to the assessee in managing,
operating, setting up their infrastructure and network.

(ii) No doubt, the facility of interconnection and port
access provided by MTNL/other companies was ‘technical’ in the sense that it
involved sophisticated technology. The expression ‘technical service’ was
not to be construed in the abstract and general sense but in the narrower
sense as circumscribed by the expressions ‘managing service’ and
‘consultancy service’ as appearing in Explanation 2 to S. 9(1)(vii) of the
Act. The expression ‘technical service’ would have reference to only
technical service rendered by a human. It would not include any service
provided by machines or robots.

(iii) The interconnect charges/port access charges could not be regarded
as fees for technical services.”