IT dept moves SC against pvt telecoms on TDS issue

A bench headed by Justice SH Kapadia has sought reply from Bharti Cellular Ltd on the department's plea.

The income tax department has moved the Supreme Court stating that private telecom service providers are liable to deduct tax at source for the payments made to state-owned BSNL and MTNL for inter-connectivity.

A bench headed by Justice SH Kapadia has sought reply from Bharti Cellular Ltd on the department’s plea.

Challenging a Delhi High Court judgement that had dismissed its plea,the I-T department said the private Telecom companies were liable to deduct TDS on payments made by them to the PSU telecom companies for inter-connect or port access charges.

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“The payments made by the assessee (Bharti Cellular) to MTNL or other companies for the services provided through interconnect,port access or toll are liable for TDS under Section 194-J of the Income Tax Act,1961,” it said.

According to Revenue,such payments were in the nature of fees for the ‘technical services’ provided by MTNL and BSNL and come under the ambit of ‘technical services’ provided for under the Act and thus the private telecos were liable to deduct TDS on such charges.

The provision of the interconnect/port access facility is itself a service,it said,adding that since the services were technical in nature (as it is connected with the use of machinery involving expertise,skill and technical knowledge),the inter-connectivity charges paid by the private operators are nothing but the fees for “technical services”.

Even the assessing officer had held that Bharti was liable to deduct TDS on charges which was in the nature of technical and managerial fee payable for the comprehensive techno-managerial support services rendered by MTNL to it. The Commissioner of Income Tax while cancelling the interest levied on the assessee had held that the payment made by the latter to MTNL and vice-versa was in the nature of a ‘revenue share’ between the assessee and MTNL for the use of each other’s network and this mutual arrangement cannot be regarded as rendering of a ‘technical service.’

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It further alleged that Bharati Cellular,which provides telecom services under the brand Airtel,had failed to deduct TDS on payments made to MTNL.

Both the Income Tax Appellate Tribunal and the High Court had held in favour of the assessee saying that the services rendered qua interconnection or port access did not involve any human interface and thus could not be regarded as ‘technical services’ as contemplated under Section 194J.