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Pvt telecos not liable to pay I-T on transit charges, rules HC
November, 03rd 2008

Private cellular operators would not be liable to pay income tax on the fees paid by them to state-owned telecom companies for routing thecalls of their subscribers, as was the practice before the direct connectivity regime, the Delhi High Court has ruled.

Telecom companies used to pay transit charge to MTNL and BSNL for providing interconnection access for carrying their customers' calls to users of other networks, which was prevalent till mid-2007.

The Court over-ruled the contention of the Income Tax Department that the facilities provided to cellular companies comes within the ambit of technical services, which is taxable under Income Tax Act.

A bench comprising Justice B D Ahmed and Rajiv Shakdher held that the service does not come within the ambit of technical service, as there is no human element involved in the whole process and it is done by the machines.

"The facilities provided by MTNL/other companies for interconnection/port access is one which is provided automatically by machines. It is independently provided by the use of technology and that too sophisticated technology, but that does not mean that MTNL/other companies, which provide such facilities are rendering any technical service under the Income Tax Act," the bench said.

"The expression 'technical service' would have reference to only technical service rendered by a human. It would not include any service provided by machines or robots," it said.

The government had contended that private telecom service providers were liable to tax deduction at source when they made payment in respect of the interconnect access charges, as the charges paid by them are fees for technical services.

The telecom companies, on the other hand, had contended that fee paid for such facilities did not come within the ambit of technical services and until and unless there was an element of human interface, the facility of interconnection access could not be regarded as a technical service.

"The entire process of making a call and switching the call from one network to the other is done automatically by machines without the provision of any service by human being. Therefore, the facility cannot be regarded as a technical services," the companies had said.

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