Payment of Last Mile Charges is in the nature of ‘Rent’, TDS u/s 194I Applicable: ITAT [Read Order]

The Kolkata Bench of the Income Tax Appellate Tribunal (ITAT) in ITO vs. M/s. RCIL, held that payment of last mile charges is in the nature of ‘rent’ and TDS under section 194I of the Income Tax Act would be applicable.

The issue before the ITAT was whether the payment of last mile charges is analogous to payment of rent and therefore applicable TDS is u/s. 194I or not. The last mile or last kilometer is a colloquial phrase widely used in the telecommunications, cable television and internet industries to refer to the final leg of the telecommunications networks that deliver telecommunication services to retail end-users (customers). More specifically, the last mile refers to the portion of the telecommunications network chain that physically reaches the end-user’s premises.

The last mile charges paid in the instant case was for use or hire of one or more optical fibers installed between the customers’ premises and the Railtel’s POP. The said connection is used to carry Railtel Data Traffic to and from the customers’ premises. This is a kind of standard facility which may be expected to have been repeated with various other customers and owners of optical fiber cable.

The Counsel for the Revenue contended that the payment is covered under the definition of royalty as per Explanation 2(iva) below Section 1(vi) and applicable provision of TDS is u/s 194J. However, the CESTAT bench comprising of Judicial Member S.S. Godara and Accountant Member Dr. A.L. Saini, rejected the contentions and observed that the assessee used its own internet bandwidth in this entire exercise of involving only hiring of about optical as dark fibre and that the revenue had failed to indicate that the said hiring created any kind of right being vested in assessee’s favour regarding control of the equipment hardware.

Dismissing the Revenue’s appeals, the bench upheld the decision of the Commissioner of Income Tax (Appeals) and observed “A coordinate bench in M/s Standard Chartered Bank vs. CIT ITA 3824/Mum/2006 holds in similar circumstances that a payment made for availing equipment facilities of standard nature without any control on the corresponding hardware does not amount to royalty u/s 9(1)(vi) Explanation-2 clause (iva) of the Act. The CIT(A) has already concluded that the assessee had deducted its TDS at equivalent rate (supra). We further make it clear that the CIT(A)’s above extracted findings also take into consideration various other case law (supra) to conclude that the impugned payments are not in the nature of royalty as insisted by the Assessing Officer.”