Income Tax

NO TDS ON PROVISION IS REQUIRED TO BE DEDUCTED IF PAYEE IS NOT IDENTIFIED

Citation of Case Law:

M/s Dishnet Wireless Limited vs. DCIT (ITAT Chennai) I.T.A. Nos.320 to 329/Mds/2014, pronounced on 20.07.2015.

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Brief of Case:

Assessee is Telecom operator have recorded expenses on provision basis as required by AS 29, The Assessing Officer disallowed expenses on non deduction of Tax (TDS). But the fact is that Actual Payee is not known till the end of year because lease period is 20 years or more, so it is not possible to deduct TDS.

 

FACTS OF THE CASE :

  • assessee-company is engaged itself in the business of providing telecommunication services, namely, cellular services, data access services, etc. in various telecom circles in the country.
  • the Assessing Officer passed an order under Section 201(1) and 201(1A) of the Act for the assessment years 2007-08 to 2011-12, holding that the assessee defaulted in deduction of tax in the following account:-

(1) Provision for site restoration expenses

(2) Year-end provisions

(3) Roaming charges

  • The assessee challenged the correctness of the orders passed by the Assessing Officer treating the assessee as assessee in default for non-deduction of tax.

 

ISSUE BEFORE ITAT CHEENAI:

Non deduction of tax on provisions which are made as per AS 29 on estimate basis should be disallowed or not?

 

CONTENTION OF ASSESSEE:

  • Provision for site restoration expenses:  the payment was not made to anyone and it is not credited to the account of any party or individual.

The account does not disclose the person to whom the amount is to be paid. The contractor who is supposed to be engaged for dismantling the tower and restore the site in its original position is not identified.

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As contended by the assessee, the assessee by itself engaging its own labourers may dismantle the towers and restore the site to its original position.

In such a case, the question of deducting tax at source does not arise.

  • Year-end provisions: the assessee engages various service providers for rendering services like address verification, credit certification, content development, etc.

At the year end, to close the books of account, the assessee estimates the amount of expenditure incurred in the month of March with respect to various services rendered by the service providers for which invoices are yet to be received by the assessee.

the assessee would not know as to how many customer verifications have been done with each service provider engaged by the assessee.

The assessee by an overall basis, estimates the customer verifications expenditure in relation to expenditure incurred in the past and make necessary provision in the account. when the service providers raise an invoice, the assessee duly deducts the TDS at source and discharges the obligation cast upon it.

  • Roaming charges: The Sub-Divisional Engineer clarified that human intervention is required for establishing the physical connectivity between two operators for doing necessary system configurations.

After necessary configuration for providing roaming services, human intervention is not required.

the Supreme Court held in CIT v. Bharti Cellular Limited (330 ITR 239) that whenever there was a human intervention, it has to be considered as technical service as held by the Apex Court in CIT v. Bharti Cellular Limited (330 ITR 239), the roaming connections are provided without any human intervention and therefore, no technical service is availed by the assessee. Therefore, TDS is not required to be made in respect of roaming charges paid to the other service providers.

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CONCLUSION OF CASE:

Appeals of the assessee are allowed for statistical purposes. Since the appeals are allowed, the stay petitions of the assessee become infructuous and dismissed.

NAVIN AGICHA

(agicha.navin@gmail.com)

Thanks and Regards

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