No TDS u/s 194J to be deducted on roaming charges paid – ITAT

TDS or Tax Deducted at Source is income tax reduced from the money paid at the time of making specified payments such as rent, commission, professional fees, salary, interest etc. by the persons making such payments. Any person making specified payments mentioned under the Income Tax Act are required to deduct TDS at the time of making such specified payments. The deduction of tax at source or TDS has been very helpful in the collection of taxes in the country by targeting the source of income itself.

Section 194J of the Income Tax Act, 1961 relates to the TDS deduction on fees for professional or technical services. Every person making payment of the following notified services is required to deduct TDS under section 194J of the Income Tax Act, 1961:

Fees for professional services
Fees for technical services
Royalty
Remuneration / fees / commission paid to director of the company (excluding salary)
Fees paid for not carrying out any activity in relation to any business or profession
Fees paid for not sharing any technical know-how, copyright, trade mark, patent or any other business or commercial rights of the same nature.

TDS rate under section 194J for FY 2020-21

Nature of Payment	Rate Applicable from 01/04/2020 to 13/05/2020	Rate Applicable from 14/05/2020 to 31/03/2021
Professional Fees	10%	7.5%
Technical Fees (w.e.f. 01.04.2020)	2%	1.5%
Royalty towards the sale or distribution or exhibition of cinematographic films	2%	1.5%
Director’s fees	10%	7.5%
Fees paid for not carrying out any activity in relation to any business or profession	10%	7.5%
Fees paid for not sharing any technical know-how, copyright, trade mark, patent or any other business or commercial rights of the same nature	10%	7.5%

Consequences of Failure to Deduct or Pay TDS is covered under Section 201 of the Income Tax Act. Section 201(1) of Income Tax Act expressly states that any person liable to deduct TDS on the income distributed, makes default in the deduction and/or payment of TDS, shall be treated “assessee in default” and penalty u/s 221 of Income Tax Act shall be payable by such assessee. Further according to section 201(1A), if any such person, principal officer or company does not deduct the whole or any part of the tax or after deducting fails to pay the tax as required by or under this Act, he or it shall be liable to pay simple interest:

at 1% for every month or part of a month on the amount of such tax from the date on which such tax was deductible to the date on which such tax is deducted; and
at 1.5% for every month or part of a month on the amount of such tax from the date on which such tax was deducted to the date on which such tax is actually paid,

Let us refer to the case of DCIT – TDS Vs Reliance Communications Ltd. (ITAT Mumbai), where the primary issue in the appeal was whether the roaming charges paid by the assessee to the other telecom service provider (Reliance Telecom Ltd.) were in the nature of ‘Fee for technical Services’ and hence, liable for deduction of tax at source under section 194J of the Act.

Facts of the Case:

The assessee/respondent is engaged in providing telecommunication services to its subscribers across the country.
For providing uninterrupted services to its subscribers, the assessee pays roaming charges/interconnect usage charges to other telecom operators.
In the present case the Assistant Commissioner of Income Tax (TDS) (ACIT-TDS) held that roaming/interconnect usage charges paid by the assessee to Reliance Telecom Ltd were in the nature of ‘fee for technical services’, therefore, the assessee was required to deduct tax at source under section 194J, on such payments.
Since, the assessee did not deduct tax at source on the said payments the assessee was held as ‘assessee in default’.
Consequently, the ACIT-TDS invoked the provisions of section 201(1) r.w.s. 201(1A).
The ACIT-TDS imposed tax liability of Rs.4,24,07,479 on account of withholding tax under section 194J and interest of Rs.57,05,216 under section 201(1A).
Aggrieved against the aforesaid order the assessee filed appeal before CIT(A).

Appeal before Commissioner of Income Tax (Appeals) [CIT(A)]

The CIT(A) concluded that the payment made by the assessee/respondent to other telecom company for utilization of network cannot be termed as ‘Technical Services’ as access to the network during the calls is fully automatic and does not require any human intervention.
Hence, such payments cannot be termed as ‘fee for technical services’.
Since, no Technical Services are involved the payments for such services cannot be termed as ‘Fee for Technical Services’.
Consequently, no TDS was deductible on such payments.
Against the findings of CIT(A), the Revenue appealed before the Income Tax Appellate Tribunal (ITAT).

Reference by ITAT on older cases

The primary issue in the appeal was whether the roaming charges paid by the assessee to the other telecom service provider (Reliance Telecom Ltd.) were in the nature of ‘Fee for technical Services’ and hence, liable for TDS under section 194J.
The issue was considered by the Supreme Court of India in the case of CIT vs. Bharti Cellular Ltd. (supra).
The Apex Court restored the issue to the AO for reconsideration after seeking the support of technical expert to ascertain if any human intervention is required in providing interconnect/roaming services.
Karnataka High Court in the case of CIT vs. Vodafone South Ltd held that payment made by a mobile service provider to another mobile service provider for utilization of roaming mobile date and connectivity cannot be termed as technical service and therefore, no TDS was deductible u/s194J of the Act.
The High Court upholding the order of ITAT observed that the ITAT had examined the facts and came to the conclusion that payment made for roaming connectivity cannot be termed as “technical services”.

Conclusion by ITAT in present case

Thus, in the light of the decisions discussed above, ITAT held that the roaming charges paid by the assessee were not in the nature of ‘fee for technical services’.
Since ITAT held that the roaming charges paid by the assessee to the other telecom service provider were not in the nature of ‘fee for technical services’ no TDS under section 194J was liable to be deducted.
Once there was no liability for deducting tax at source, question of charging interest under section 201(1A) did not arise.

Therefore, in conclusion, roaming charges paid are not in the nature of ‘fee for technical services’ on which TDS is liable to be deducted under Section 194J and if no TDS is liable to be deducted then tax liability and interest under section 201 and 201(1A) does not arise.

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