30 August 2010
I've seen that one of our client had deducted TDS for the internet charges provided by BSNL(Amount Rs.41000/-). As it is a 100% Govt undertaking concern will TDS applicable for this case? Can any one clear my doubt?
30 August 2010
TDS can be deducted to such payments made. However the same is not liable for TDS on internet payments.
IN THE HIGH COURT OF DELHI IT Appeal No. 527 of 2007 COMMISSIONER OF INCOME TAX Vs ESTEL COMMUNICATIONS (P) LTD Shri Madan B Lokur & V B Gupta, JJ Dated : March 7, 2008 Appellant Rep. by : Shri Ms P L Bansal Respondent Rep. by : Shri R M Mehta Income Tax - Assessee buys internet bandwidth from an American company and sells the same to its customers in India - AO treats it as taxable u/s 9(1)(vii) and insists on TDS - Tribunal disagrees - Held, since the payment was made for a simple purchase of internet bandwidth, no technical services were provided - Revenue's appeal dismissed JUDGEMENT The Revenue is aggrieved by the order dt. 8th Sept., 2007, passed by the Tribunal, Delhi Bench 'G', in ITA No. 4560/Del/2003 relevant for the asst. yr. 2001-02. 2. According to the assessee, it is providing internet access of a certain bandwidth to its subscribers. The main server, on the basis of which the internet services are provided is located in USA. For the services rendered by the assessee to the subscribers in India, it levies a charge and out of this, some amount is paid to the US party, that is, M/s Teleglobe International Corporation (for short Teleglobe'). 3. According to the AO. the assessee was liable to deduct tax at source from the payments made to the US party. For arriving at this conclusion, the AO invoked the provisions of s. 9(1)(i) and s. 9(1)(vii) of the IT Act, 1961. 4. Feeling aggrieved by the order passed by the AO, the assessee preferred an appeal which was allowed by the CIT(A). It was held that the assessee was merely providing internet services to its subscribers and, therefore, there was no question of deduction of tax at source in respect of payments made by the assessee to Teleglobe. 5. Against the order passed by the CIT(A), the Revenue preferred an appeal before the Tribunal and we find from a perusal of paragraph 10 thereof that the application of s. 9(1)(i) of the Act was not pressed by the Departmental Representative. The only question that arises, therefore, is about the applicability of the s. 9(1) (vii) of the Act. 6. Insofar as this is concerned, the Tribunal considered the agreement that had been entered into by the assessee with Teleglobe and came to the conclusion that there was no privity of contract between the customers of the assessee and Teleglobe. In fact, the assessee was merely paying for an internet bandwidth to Teleglobe and then selling it to its customers. The use of internet facility may require sophisticated equipment but that does not mean that technical services were rendered by Teleglobe to the assessee. It was a simple case of purchase of internet bandwidth by the assessee from Teleglobe. 7. Under the circumstances, the Tribunal came to the conclusion that there were no technical services provided by Teleglobe to the assessee and, therefore, the provisions of s, 9(1)(vii) of the Act did not apply. 8. We find that the Tribunal has rightly dismissed the appeal after taking into consideration the agreement between the assessee and Teleglobe and the nature of services provided by Teleglobe to the assessee. It was a simple case of payment for the provision of a bandwidth. No technical services were rendered by Teleglobe to the assessee. 9. On a consideration of the material on record, we find that no substantial question arises in the matter. The appeal is, accordingly dismissed.
Conclusion: THE Delhi High Court has held that where the assessee used internet bandwidth of a US company for providing internet access to its Indian subscribers, such transaction cannot be termed as technical services rendered by the US Company, liable to tax in India. The assessee was engaged in the business of providing internet access to its subscribers. The main server, on the basis of which internet services were provided, was in the US. Out of the service charges collected by the assessee from the subscriber, it paid an amount to the US Company. The assessing officer held that the services rendered by the US company were in the nature of technical services as per provisions of section 9(1)(vii) of the Act and therefore, the assessee was liable to deduct TDS on such payment. The High Court observed that there was no privity of contract between the customers and the US company. The assessee was merely paying for an internet bandwidth to the US firm and then selling it to its customers. Hence, the assessee had only purchased internet bandwidth. The use of internet facility may require sophisticated equipment but that does not mean that technical services were rendered by the US firm to the assessee. Therefore, it held that the payment was not subject to TDS
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