In DCIT vs. Vodafone West Ltd, Ahmedabad Bench of Income Tax Appellate Tribunal (ITAT) held that ‘ roaming charges ’ and ‘ discounts offered on pre-paid vouchers to distributors ’ are not liable for TDS deduction.
As per the survey carried out the under Section 133A of the Income Tax Act, 1961 it was found that the assessee, Vodafone West Ltd., had not deducted TDS on commission paid to pre distributers and roaming charges as fees for technical service. On an expert opinion sought regarding the treatment of roaming charges as fees for technical service liable for TDS under Section 194J of the Income Tax Act, the opinion confirmed that roaming charges can be treated fees for technical service.
The assessee had also sold prepaid vouchers of various face values to its distributors at the lower rate than its face value. The value of the commission paid by the assessee to the distributor by subtracting the price/value at which the vouchers were sold to its distributors from the M.R.P. value of such coupons has been furnished by the assessee. The A.O considered that the commission paid to the distributors for their service is inclusive of the discount given. The Assessing Officer issued an order treating the assessee as “assessee in default” for making default in deducting TDS and made additions to the tune of 20 Crores.
Aggrieved, the assessee filed an appeal before the CIT (A) who partly allowed the appeal. Thereafter an appeal was made by the Revenue before the ITAT.
After considering various documents submitted before it, the Bench came to the opinion that Roaming services provided by the telecom operators were in the nature of use of standard facilities, which did not require any human interface and as such charges are not paid for rendering managerial, technical or consultancy services it could not be construed as fees for technical service under Section 194J of the Act.
Regarding the applicability of Section 194H of the Act on the discount given to its distributors, the bench found that the nature of relationship between the assessee and its distributors were that of a principal-principal and as the assessee did not make any payment to the distributors but instead sold pre-paid talk time to them at a discount to their market price, the bench comprising of Judicial Member Mahavir Prasad & Accountant Member Manish Borad held that TDS would not be applicable.
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