The Chennai ITAT has ruled in the case of Dishnet Wireless that inter-connect charges incurred for providing roaming services to subscribers do not attract Tax Deduction obligation.

Inter-connect charges do no constitute “technical services”

Under the Indian Tax laws, a payment made towards “technical services” is liable to  Tax deduction at the time of payment or credit. The issue that has been plaguing the Telecommunication industry is that the Revenue authorities view payments towards telecom services as a payment for “technical service” and expect the same to be subjected to Tax deduction. The Taxpayers have been contending that only personalized services fall within the ambit of ‘technical services’ definition, and not standardized services like telecommunication.

In the aforesaid ruling, the Tribunal accepted the argument raised on behalf of the Tax payer that there was no human intervention involved in provision of roaming services / configuration of inter-connect arrangements, and the payments therefore did not constitute ‘Fees for Technical services’. The Tribunal also relied on an expert’s opinion in support of its conclusion.

Provision for Site Restoration not liable to Tax Deduction

Provision made for restoration of telecom tower sites to its original condition were also held not liable to Tax deduction obligation. The Tribunal accepted the argument that since the expenditure had to be incurred at the end of long-gestation lease periods, the contractors / payees who would be engaged to carry out restoration work were not known, and even the mode of restoration (own account or sub-contracted) was not determinable at the provision stage.

Year-end provision – Tax deduction obligation hinges on whether payees’ identifiable

As regards the issue of year end provisions for various services like content development, verification charges, etc. the issue was remanded back to the lower authorities to ascertain if the payees’ were identifiable as of the year end, and decide on the Tax deduction obligation accordingly.

Our comment

The ruling on the aspect of inter-connect charges is a positive for the Telecom industry.  The stand of the Department on the issue relating to alleged TDS default on provision for site restoration was regrettable and an apt example of how even non-issues at times become contentious Tax issues.