* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 26.03.2014
Pronounced on: 31.03.2014
+ W.P.(C) 6085/2013, C.M. NO.13383/2013, 13384/2013 &
13385/2013
INDUS TOWERS LTD. .....Petitioner
Through: Sh. N. Venkatraman, Sr. Advocate with
Sh. Gajendra Maheshwari, Sh. Puneet Siddhartha
and Sh. Sumeet Batra, Advocates.
Versus
CIT & ORS. .....Respondents
Through: Sh. Kamal Sawhney, Sr. Standing
Counsel with Sh. Raghvendra Singh, Advocates.
CORAM:
HON'BLE MR. JUSTICE S. RAVINDRA BHAT
HON'BLE MR. JUSTICE R.V. EASWAR
MR. JUSTICE S. RAVINDRA BHAT
%
1. The Petitioner in these proceedings under Article 226 of the
Constitution of India (hereafter "Indus") is aggrieved by an order
("impugned order") of the Commissioner of Income Tax ("CIT")
under Section 197 of the Income Tax Act, ("the Act") declining its
request for determination of lower rate of tax deduction at source
("TDS"). The order was made after a hearing given to Indus, in terms
of this Court's previous order in WP(C) No. 4518/2013 dated
19.07.2013.
2. Indus owns a countrywide network of telecom towers and
network infrastructure services to major telecom operators in the
W.P.(C) 6085/2013 Page 1
country. Till 2012, it sought for issue of a lower tax deduction
certificate, under Section 194-I of the Act, on its projected receipts
and such lower deduction certificates were issued treating those
receipts as rent. In F.Y. 2012-13, lower TDS certificate @ 3% in
respect of the receivables under Section 194I was issued. Indus
applied for issue of a lower deduction certificate @ 0.5% on
01.04.2013 for F.Y. 2013-14 on the projected receipts of ` 16,334.16
crores under Section 194C of the Act. Opportunity of hearing was
granted to Indus by the Assessing Officer ("AO"). The Assessing
Officer issued a deduction certificate under Section 197 on 22.05.2013
@ 2.5% for projected receipts covered under Section 194-I for F.Y.
2013-14 based on the average rates of tax to turnover for the last three
years shown at 1.44%, pendency of assessment proceedings for A.Y.
2011-12 and penalty proceedings under Section 271(1)(C) for A.Y.
2010-11. Aggrieved by that certificate, Indus filed a writ petition
(W.P.(C) No. 4518/2013) before this Court, which by its order dated
19.07.2013 directed the petitioner to prefer a Revision Petition before
the CIT who was to dispose it of expeditiously. It was in these
circumstances that the petitioner approached the CIT who made the
impugned order.
3. Indus submitted that it merely provided passive infrastructure
services to its customers, i.e. telecom service providers and that there
was no intent to rent the premises. To say this, it relied extensively on
the Master Service Agreement, saying that it contained stringent
conditions as to the kind of services it had to provide, the controlled
and sustained temperatures it had to maintain etc. The intention of the
W.P.(C) 6085/2013 Page 2
parties to the agreement, i.e. the passive infrastructure service provider
and the telecom service provider, was not to let out or rent the tower
and the facilities, but to extend and receive highly specialized
technical services.
4. The CIT rejected the contentions of Indus, in the impugned
order, which inter alia, stated that:
"5.3.3 It is not in dispute that the right, title and
control in the passive infrastructure located at the
telecom site including and not limited to the tower,
shelter, diesel generator sets, batteries, air conditioners
and electrical and civil works including any enhancement
carried out by the assessee vests solely with the assessee.
It is also not in dispute that the mobile operator has the
right to install equipment such as BTS equipment,
associated antennae and active infra network equipment
and other requisite equipment required to provide
telecom services by them to their customers. The right,
title and interest in all such equipment installed on the
site by the mobile operators would remain with such
operators only."
5. After stating that regardless of what term is used, the mobile
operators are actually given access to the premises and property,
which is what the essence of a renting transaction is, the CIT held that:
"5.3.5. The meaning of `rent' in section 1941 is wide in
its ambit and scope. The assessee has a legal obligation
to provide its site/towers to the mobile operators during
the currency of the said arrangement. The arrangement
entered into by the assessee with its mobile operators is
to allow use of "any land or building together with ...
machinery, plant, equipment and land appurtenant
thereto" for the purpose of providing telecom services to
the customers. Since the definition of `rent' is placed
W.P.(C) 6085/2013 Page 3
under section 1941 itself, the intent of the legislature to
include such an arrangement (MSA) is beyond any doubt.
Hence, such payments made to the assessee would be
construed as `rent' for the purposes of section 194-I."
6. The CIT rejected the submission based on the judgements of the
Karnataka High Court and of this Court, reasoning as follows:
"5.4.1 The assessee has placed reliance on the
Hon'ble Karnataka High Court Judgment cited above.
The issue agitated by the assessee before the Hon'ble
Court was that their activity did not involve any sale or
any transfer of right to use and, therefore, the same could
not be subjected to VAT under KVAT Act, 2003. The
assessee has also placed reliance on the Hon'ble Delhi
High Court Judgment cited above. A careful reading of
the decision of the Hon'ble Delhi High Court shows that
the question of law for examination was whether the
receipts were subject to levy of service tax by Union of
India or levy of Value Added Tax by the Delhi
Government. The decisions of the Hon'ble Karnataka
High Court and the Hon'ble Delhi High Court cannot be
applied in the facts and circumstances of this case and
are clearly distinguishable. The observations of both the
Courts as mentioned above have to be read in the context
in which the reference was made before them by the
assessee and cannot be ipso facto applied to ascertain the
nature of receivables u/s 194C or 1941 within the
meanings prescribed to such receipts in the respective
provisions of the I.T. Act. The nature of receivables,
whether covered u/s 194C or 194-1,was not examined by
the Courts.
5.4.2. It may also be relevant to discuss here the
provisions of the Service Tax Act in the context of the
reliance placed by the assessee on the decision of
Hon'ble Karnataka High Court that standard services
have been rendered by the assessee to the mobile
W.P.(C) 6085/2013 Page 4
operators and are hence in the nature of services
provided by the assessee. I find that service tax is leviable
under Section 66B of the Chapter V of the Finance Act,
1994, as amended w.ef. 01/07/2012 @12% on the value
of all services, other than those services specified in the
negative list (as specified under section 66D of the said
Act). Section 65B(44) of the said Act defines `service' as
any activity carried out by a person for another for
consideration and includes a declared service but does
not include certain activities specified in the said sub-
section. `Renting of immoveable property' has been
constituted as a declared service under section 66E of the
said Act. Service tax is chargeable on the gross amount of
rent received or receivable on account of rendering of
taxable service of `renting of immovable property' in
India,' These provisions indicate that Service Tax is also
leviable on renting of immovable property. Merely
because the nature of certain receipts of the assessee has
been treated as `service' by the Hon'ble Karnataka High
Court, it does not preclude the payments received from
the said activity as `rent' for the purposes of 1941 of the
I.T, Act. These two Statutes are different from each other
and are not mutually exclusive. Certain receipts from an
activity can have a `rent' component within the meaning
of Section 1941 and `a service fee' component if it is a
declared service under section 65B(44) of the Finance
Act, 1994.
5.4.3. Similarly, the reliance placed by the assessee
on Circular no. 1/2008 relating to cold storage units is
misplaced. The said Circular clarified that "the main
function of the Cold Storage is to preserve the perishable
goods by means of a mechanical process, and storage of
such goods is only incidental in nature. The customer is
also not given any right to use any demarcated
space/place or the machinery of the cold storage
(emphasis supplied) and thus does not become tenant.
Therefore, the provision of 194/ is not applicable to the
W.P.(C) 6085/2013 Page 5
cooling charges paid by the customers of the cold
storage". In the present case the right has been conferred
on the mobile operator to install equipment required to
provide telecom services by them to their customers. In
other words, specified and fixed space, unlike cold
storage units have been provided to the mobile operators
for their equipment.
5.4.4. These units merely provide service for
preserving the essential food items including perishable
goods at various temperature suitable for specific food
items for required periods. The customer brings its
packages for preservation for a required period and takes
away its packages after paying cooling charges. The
customers do not use the building, plant/machinery in any
manner and does not become a tenant of any kind,
Therefore, in the said Circular, the provision of 1941 was
said to be not applicable to the cooling charges paid by
the customers of the cold storage.
5.4.5. The plea of the assessee that the mobile
operators do not have access or control over the
site/towers/designated area of the site except for the
purposes of maintenance/rectification of any defects in
the equipment installed by such customers is not borne
out from MSA as it is evident that the mobile operator has
the right to install equipment such as BTS equipment,
associated antennae and active infra network equipment
on the tower/ site/designated site of the assessee. Further,
the mobile operators are not merely enjoying the benefit
of appropriate temperature and humidity levels at all
times and continuous power supply at the prescribed
voltage so as to operate the equipment. These equipment
remain installed on the site/tower of the assessee during
the currency of the agreement. Hence, the said circular
ofthe CSOT is not applicable in this case.
W.P.(C) 6085/2013 Page 6
5.5.1. In the case of United Airlines Vs. CIT, 287
ITR 281 2006(Oelhi) it was held that landing and parking
charges paid by the Airlines are rent and liable to TDS
on rent. It was held that under Explanation (i) of section
194-I, even the landing of aircrafts or parking of aircrafts
amounts to use of the land of the airport. Hence, it was
held that the landing fee and parking fee will amount to
`rent' within the meaning of the aforesaid provision, even
if it cannot have such a meaning in common parlance. In
the assessee's case, it is reiterated that the mobile
operators have the right to install equipments on the
tower owned by the assessee and hence, as in the case of
United Airlines, amounts to use of the land/telecom site
and the tower owned by the assessee.
5.5.2. Similarly, it has been clarified by the CSOT
from file No. 275/27/2001-ITO that payments made to
hotels for hotel accommodation would be construed to be
rent whether they are covered in the nature of lease or
license agreements so long as such accommodation has
been taken on regular basis and the rooms are let out for
a specified rate and specified period. As long as the hotel
has a legal obligation to provide such types of rooms
during the currency of the agreement, the same will be
considered within the meaning of `rent' for the purposes
of section 194-I. In the present case also, the towers/site
of the assessee are used by the mobile operators during
the currency of the agreement for providing telecom
services. Therefore, the payment received by the assessee
from the mobile operators constitutes `rent' within the
meaning of section 194-I.
5.6. In view of the above discussions, I hold that
the receivables of the assessee are clearly liable for
withholding tax under the provisions of section 1941 of
the LT. Act.
The rate of tax to be applied for issue of certificate:
W.P.(C) 6085/2013 Page 7
6.1. The lower deduction certificate for F.Y. 2013-14
~:
was issued @ 2.5% on receivables covered u/s 194-I.
The assessee has brought to notice that TDS of Rs. 256.7
crore has already been deducted from it up to
31.07.2013. Therefore, it has requested to issue revised
certificate u/s 197(1) at Nil rate. It is seen from the
records that the assessee has been able to furnish
evidence only to the extent of Rs. 164.01 crore of tax
deducted up to 30.06.2013 in Form No. 26AS. However,
it also includes receivables covered under other sections
of the Act (like 194, 194A, 194C, 194J etc.)..."
7. Indus argues that it is registered with Department of
Telecommunications for providing passive telecom infrastructure
services to telecom service providers. For the purpose of providing
telecom network infrastructure services, it enters into standard service
agreements titled Master Services Agreement ("MSA") with its
customers for provision of services such as continuous power supply
at the desired voltage and air conditioning required for optimal
functioning of the customers' equipment and security service for
securing the equipment installed on the towers/sites. It argues that the
customers do not have access, control or possession over the towers,
sites or designated areas (of the site) which are limited to rectification
or maintenance of any defects in the equipment installed by such
customers. It argues that it does not transfer any right to use any
specific goods or any part of the property. Its responsibility is to
provide the entire passive infrastructure service with the aid of
equipment belonging to it which is fully operated, controlled and
managed by it. It was consequently contended that the intention of the
parties was not to receive any goods for use and that quite to the
W.P.(C) 6085/2013 Page 8
contrary the dominant intention was to receive standard services. It
is argued that Indus is registered with the Service Tax Department and
pays service tax on the entire service revenue.
8. Indus relies on the judgment of the Karnataka High Court dated
25.05.2012 (in W.C. No. 3403-3439/2011), where the Court ruled that
in terms of the contract there is no transfer of the right to use the
passive infrastructure conferred on the sharing/mobile operator, and
what is allowed is a license to have access to the passive infrastructure
and permission to keep the equipment of the mobile operator in the
prefabricated shelter, and to have ingress and egress only to the
authorized representative of the mobile operator. The right so given to
the mobile operator is permission to keep Indus' active infrastructure
in the site, permission to mount the antenna on the tower erected by it
and to have the benefit of a particular temperature so as to operate the
equipment belonging to the mobile operator. The infrastructure
continues according to the High Court to be in possession of the
transferor and what is used by the transferee is the service which is
provided by the transferor. The assessee submitted, therefore, that its
customers do not pay for any leasing rights, but only for the services.
Therefore, provisions of Section of 194-I of the Act relating to rent
would not be applicable in the assessee's case. Indus states that the
judgment of the Karnataka High Court has been followed by this
Court in W.P. No. 4976/2011.
9. Reliance is placed on Circular No. 1/2008 dated 10.01.2008
issued by Central Board of Direct Taxes in case of cold storage units.
That circular clarified that payment for cold storage services are liable
W.P.(C) 6085/2013 Page 9
to withholding tax @ 2% under Section 194C of the Act. It was
argued that the rationale applicable for cold storage services and
telecom network infrastructure support services is identical since in
both cases, customers are only interested in an appropriate temperature
arid humidity levels.
10. Arguing that the activity and the transaction between Indus and
its customers is not renting or dealing in property, learned senior
counsel stated that the essence of the activity was the provision of
highly skilled and technical services. These included the provision of
creation and maintenance of highly controlled artificial temperatures,
conducive to the functioning of the mobile service providers' signal
transmission. The agreements, it was submitted, insisted upon this
even as a prerequisite for the payment of monthly consideration or fee.
In this respect, reliance was placed on the express terms of such
agreements, which provided that if Indus failed to ensure that the
temperature specified was not maintained and there was failure more
than five times a month, no payment towards consideration would be
made. Further, counsel submitted that the express provisions in the
agreement stipulated that the arrangement was neither a lease, nor
created any rights in the property; access provided was merely
incidental to the main purpose of providing service.
11. Learned counsel relied on the observations of this Court in its
case, rejecting the contention that VAT was applicable and holding
that the activity in question was a service provided by the petitioner.
Particular reliance was placed on the following observations and
findings in W.P. No. 4976/2011:
W.P.(C) 6085/2013 Page 10
"19...........................The right to use the goods - in this
case, the right to use the passive infrastructure - can be
said to have been transferred by Indus to the sharing
telecom operators only if the possession of the said
infrastructure had been transferred to them. They would
have the right to use the passive infrastructure if they
were in lawful possession of it. There has to be, in that
case, an act demonstrating the intention to part with the
possession of the passive infrastructure. There is none in
the present case. The passive infrastructure is an
indispensible requirement for the proper functioning of
the active infrastructure which is owned and operated by
the sharing telecom operators. The passive infrastructure
is shared by several telecom operators and that is why
they are referred to as sharing telecom operators in the
MSA. The MSA merely permits access to the sharing
telecom operators to the passive infrastructure to the
extent it is necessary for the proper functioning of the
active infrastructure. The MSA also defines "site access
availability" as meaning the availability of access to the
sharing operator to the passive infrastructure at the site.
Clause 2 of the MSA which has been quoted above
provides for "site access" and Clause 1.7 limits the site
access availability to the sharing operator on use - only
basis so far as it is necessary for installation, operation
and maintenance etc. of the active infrastructure; the
clause further states that the sharing operator does not
have, nor shall it ever have, any right, title or interest
over the site or the passive infrastructure. The Clause
also takes care to declare that the sharing operator shall
not be deemed to be the tenant of Indus and no tenancy
rights shall be deemed to exist over the site/passive
infrastructure. Clause 2.1.8, presumably by way of
abundant caution, states that it is expressly agreed by the
sharing operator that nothing contained in the MSA or
otherwise shall create any title, right, tenancy, or any
similar right in favour of the sharing operator.
W.P.(C) 6085/2013 Page 11
20. There are other provisions in the MSA which control
the right of the sharing operator to gain access to the site
and the passive infrastructure. For instance, Clause 3.1.2
states that the access shall be limited to the purpose of
carrying out operation and maintenance activities and
that too only to the authorised representatives or properly
authorise sub-contractors of the sharing operator. Clause
1.8 of the Schedule 2 of the MSA has to be read along
with the above clause. The tables set out in this schedule
providing for payment of service credits by Indus to the
sharing operators for failure to achieve the uptime
service levels and those prescribing payment of service
credits by Indus to the sharing operators for non-
submission of the reports and providing for stiff penalties
for any failure on the part of Indus show that it is the
responsibility of Indus to ensure that the passive
infrastructure functions to its full efficiency and potential,
which in turn means that it has to be in possession of the
passive infrastructure and cannot part with the same in
favour of the sharing telecom operators. With several
such restrictions and curtailment of the access made
available to the sharing telecom operators to the passive
infrastructure and with severe penalties prescribed for
failure on the part of the Indus to ensure uninterrupted
and high quality service provided by the passive
infrastructure, it is difficult to imagine how Indus could
have intended to part with the possession of part of the
infrastructure. That would have been a major impediment
in the discharge of its responsibilities assumed under the
MSA. The limited access made available to the sharing
telecom operators is inconsistent with the notion of a
"right to use" the passive infrastructure in the fullest
sense of the expression. At best it can only be termed as a
permissive use of the passive infrastructure for very
limited purposes with very limited and strictly regulated
access. It is therefore difficult to see how the arrangement
could be understood as a transfer of the right to use the
passive infrastructure.
W.P.(C) 6085/2013 Page 12
21. When Indus has not transferred the possession of the
passive infrastructure to the sharing telecom operators in
the manner understood in law, the limited access
provided to them can only be regarded as a permissive
use or a limited licence to use the same. The possession of
the passive infrastructure always remained with Indus.
The sharing telecom operators did not therefore, have
any right to use the passive infrastructure..."
12. It was argued that Section 194-I could not be invoked in the
circumstances of the case at all, because that provision is premised on
the leasing, renting out, or giving property (including machinery or
equipment) on exclusive and control of the lessee. It was submitted
that the predominant intention of the agreement in the present case
was to ensure the availability of service to the clients and customers of
Indus, i.e. the mobile operators whose activities depended on highly
skilled technical services. The onward delivery of their service, in
other words, depended on the expertise and efficient service provided
by Indus' equipment which they were allowed to use. Stressing that at
no point of time do such mobile operators get any kind of uninhibited
access or use, learned senior counsel relied on the several conditions
in the MSA to say that it underlined at every stage and clarified
beyond any doubt that neither the property nor the equipment was
given on lease or a lease like agreement. Learned counsel also argued
that reliance on Circular no. 1/2008 relating to cold storage units is
misplaced. The said Circular clarified that "the main function of the
Cold Storage is to preserve the perishable goods by means of a
mechanical process, and storage of such goods is only incidental in
nature. The customer is also not given any right to use any
W.P.(C) 6085/2013 Page 13
demarcated space/place or the machinery of the cold storage
(emphasis supplied) and thus does not become tenant. Therefore, the
provision of 194-I is not applicable to the cooling charges paid by the
customers of the cold storage".
13. Learned counsel for the respondent, Mr. Kamal Sawhney, relied
and emphasized on the expressions "any kind of"/"agreement...or
arrangement" to say that the nature of the transaction need not fall
within the traditionally acknowledged or understood concept of
leasing or hiring of property. It was submitted that the MSA
repeatedly stated that the mobile service operators were given site
access. Counsel also stated that the agreement or arrangement between
Indus and its clients envisioned permitting the latter to use of such
portion of the premises as was contemplated by the parties. The
portion allowed to be used, i.e. the passive infrastructure, to that extent
was exclusively that of the mobile operators, for the duration of the
agreement. It was emphasized that though the aggregation of all
passive infrastructure was achieved through Indus, an entity into
which the passive infrastructure entities of each mobile operator
merged, that was with the object of improving efficiency and
optimising the use of scare resources, such as land and building, which
is extremely hard to come by and expensive, in terms of lease rentals,
in urban, especially metropolitan areas. It was submitted that the
mobile operator has the right to maintain its equipment on site, and
deploy personnel; clause 3 further provides for operation and
maintenance of the equipment of the sharing operator. He also
W.P.(C) 6085/2013 Page 14
emphasized on the expression "use" in Explanation to Section 194-I
and submitted that regardless of the findings of this Court in respect of
VAT applicability, tax deduction was obligatory since the letting
purpose was to allow access to the mobile operators, of the facilities,
housed in the property admittedly owned or leased by Indus.
14. Counsel for the revenue also relied on the decision of this Court
in United Airlines v. Commissioner of Income Tax & Ors, 2006 (287)
ITR 281 (Del) and of the Andhra Pradesh High Court in Krishna
Oberoi v. Union of India, 2002 (257) ITR 105 (AP) to say that renting
has to be seen in the context of the extended definition given to the
expression in Section 194-I and not in terms of common
understanding, or those situations where the background of its
application differs from this case.
Provisions of the Income tax Act
15. The relevant provisions of the Income Tax Act are as follows:
"Payments to contractors.
194C. (1) Any person responsible for paying any sum to any
resident (hereafter in this section referred to as the
contractor) for carrying out any work (including supply of
labour for carrying out any work) in pursuance of a
contract between the contractor and a specified person
shall, at the time of credit of such sum to the account of the
contractor or at the time of payment thereof in cash or by
issue of a cheque or draft or by any other mode, whichever
is earlier, deduct an amount equal to--
W.P.(C) 6085/2013 Page 15
(i) one per cent where the payment is being made
or credit is being given to an individual or a Hindu
undivided family;
(ii) two per cent where the payment is being made
or credit is being given to a person other than an
individual or a Hindu undivided family,
of such sum as income-tax on income comprised therein.
(2) Where any sum referred to in sub-section (1)
is credited to any account, whether called
"Suspense account" or by any other name, in the
books of account of the person liable to pay such
income, such crediting shall be deemed to be credit
of such income to the account of the payee and the
provisions of this section shall apply accordingly.
(3) Where any sum is paid or credited for
carrying out any work mentioned in sub-clause (e)
of clause (iv) of the Explanation, tax shall be
deducted at source--
(i) on the invoice value excluding the value of
material, if such value is mentioned separately in
the invoice; or
(ii) on the whole of the invoice value, if the value
of material is not mentioned separately in the
invoice.
(4) No individual or Hindu undivided family shall be
liable to deduct income-tax on the sum credited or
paid to the account of the contractor where such
sum is credited or paid exclusively for personal
purposes of such individual or any member of Hindu
undivided family.
(5) No deduction shall be made from the amount of
any sum credited or paid or likely to be credited or
W.P.(C) 6085/2013 Page 16
paid to the account of, or to, the contractor, if such
sum does not exceed [thirty] thousand rupees :
Provided that where the aggregate of the amounts of such
sums credited or paid or likely to be credited or paid
during the financial year exceeds 18[seventy-five] thousand
rupees, the person responsible for paying such sums
referred to in sub-section (1) shall be liable to deduct
income-tax under this section.
(6) No deduction shall be made from any sum credited or
paid or likely to be credited or paid during the previous
year to the account of a contractor during the course of
business of plying, hiring or leasing goods carriages, on
furnishing of his Permanent Account Number, to the
person paying or crediting such sum.
(7) The person responsible for paying or crediting any sum
to the person referred to in sub-section (6) shall furnish, to
the prescribed income-tax authority or the person
authorised by it, such particulars, in such form and within
such time as may be prescribed.
Explanation.--For the purposes of this section,--
(i) "specified person" shall mean,--
(a) the Central Government or any State
Government; or
(b) any local authority; or
(c) any corporation established by or under a
Central, State or Provincial Act; or
(d) any company; or
(e) any co-operative society; or
(f) any authority, constituted in India by or
under any law, engaged either for the purpose
of dealing with and satisfying the need for
housing accommodation or for the purpose of
planning, development or improvement of
cities, towns and villages, or for both; or
W.P.(C) 6085/2013 Page 17
(g) any society registered under the Societies
Registration Act, 1860 (21 of 1860) or under
any law corresponding to that Act in force in
any part of India; or
(h) any trust; or
(i) any university established or incorporated
by or under a Central, State or Provincial Act
and an institution declared to be a university
under section 3 of the University Grants
Commission Act, 1956 (3 of 1956); or
(j) any Government of a foreign State or a
foreign enterprise or any association or body
established outside India; or
(k) any firm; or
(l) any person, being an individual or a Hindu
undivided family or an association of persons
or a body of individuals, if such person,--
(A) does not fall under any of the preceding
sub-clauses; and
(B) is liable to audit of accounts under
clause (a) or clause (b) of Section
44AB during the financial year immediately
preceding the financial year in which such
sum is credited or paid to the account of the
contractor;
(ii) "goods carriage" shall have the meaning
assigned to it in the Explanation to sub-section (7)
of Section 44AE;
(iii) "contract" shall include sub-contract;
(iv) "work" shall include--
(a) advertising;
(b) broadcasting and telecasting including
production of programmes for such
broadcasting or telecasting;
(c) carriage of goods or passengers by any
mode of transport other than by railways;
(d) catering;
W.P.(C) 6085/2013 Page 18
(e) manufacturing or supplying a product
according to the requirement or specification
of a customer by using material purchased
from such customer,
but does not include manufacturing or
supplying a product according to the requirement
or specification of a customer by using material
purchased from a person, other than such
customer.]
xxxx xxxxxxxxxx xxxxxxxx
Rent 194-I. Any person, not being an individual or a
Hindu undivided family, who is responsible for paying
to [a resident] any income by way of rent shall, at the time
of credit of such income to the account of the payee or at
the time of payment thereof in cash or by the issue of a
cheque or draft or by any other mode, whichever is earlier,
[deduct income-tax thereon at the rate of--
[(a) two per cent for the use of any machinery or
plant or equipment; and
(b) ten per cent for the use of any land or
building (including factory building) or land
appurtenant to a building (including factory
building) or furniture or fittings:]]
Provided that no deduction shall be made under this
section where the amount of such income or, as the case
may be, the aggregate of the amounts of such income
credited or paid or likely to be credited or paid during the
financial year by the aforesaid person to the account of, or
to, the payee, does not exceed [one hundred and eighty
thousand rupees]:
[Provided further that an individual or a Hindu undivided
family, whose total sales, gross receipts or turnover from
the business or profession carried on by him exceed the
W.P.(C) 6085/2013 Page 19
monetary limits specified under clause (a) or clause (b)
of Section 44AB during the financial year immediately
preceding the financial year in which such income by way
of rent is credited or paid, shall be liable to deduct
income-tax under this section.]
Explanation.--For the purposes of this section,--
(i) "rent" means any payment, by whatever name
called, under any lease, sub-lease, tenancy or any
other agreement or arrangement for the use of
(either separately or together) any,--
(a) land; or
(b) building (including factory building); or
(c) land appurtenant to a building (including
factory building); or
(d) machinery; or
(e) plant; or
(f) equipment; or
(g) furniture; or
(h) fittings,
whether or not any or all of the above are
owned by the payee;]
(ii) where any income is credited to any account,
whether called "Suspense account" or by any
other name, in the books of account of the person
liable to pay such income, such crediting shall be
deemed to be credit of such income to the account
of the payee and the provisions of this section
shall apply accordingly."
Analysis and Reasoning
16. Some of the relevant conditions in the MSA dated 07.03.2008
are discussed below. Clause 2 provides for "site access". Clause 2.1
W.P.(C) 6085/2013 Page 20
provides for "provision of passive infrastructure" by Indus. This
clause reads as under: -
"2.1 Provision of Passive Infrastructure
2.1.1 Indus shall provide Site Access Availability to the
Sharing Operator in accordance with the terms and
conditions of this Agreement.
2.1.2 Throughout the Term of this Agreement, the
Sharing Operator shall be entitled to provide notice to
Indus of those Sites in relation to which it wishes to be
granted Site Access Availability (a "Service Order"). The
process for issuing a Service Order shall be as specified in
Schedule 1 (Site Access Availability).
XXXXXX XXXXXX XXXXX
2.1.4 In the event that the Service Orders received by
Indus in respect of any Site(s) mean that the available
Passive Infrastructure at such Site(s) are over-subscribed,
an applicant whose Service Order was received by Indus
prior to another Service Order shall be given priority by
Indus while allocating such Passive Infrastructure to the
relevant applicants.
2.1.5 With respect to each Site in relation to which Indus
is able to grant Site Access Availability, the Parties shall
execute a Service Contract in accordance with the
procedure set out in Schedule 1 (Site Access Availability),
and the provisions of each Service Contract shall include
the standard terms set out in Schedule 5 (Standard Site
Access Terms). Each Service Contract shall be duly
stamped and the applicable stamp duty shall be at the
Sharing Operator's expense.
2.1.6 Upon the execution of a Service Contract in respect
of a Site, the Sharing Operator shall have the right to
W.P.(C) 6085/2013 Page 21
install the Sharing Operator Equipment or any portion
thereof at such Site at the mutually agreed place. The
Sharing Operator shall have access to each such Site for
all installation activities and Indus shall provide to the
Sharing Operator the necessary means of access for the
purpose of ingress and egress from each such Site in
accordance with the terms of the Service Contract.
Provided, however, that only the representatives of the
Sharing Operator with proper identification or its properly
authorised sub-contractors shall be allowed such access to
the Sites.
2.1.7 The right, title and interest in and to the Site and
Passive Infrastructure, including any enhancements
carried out by Indus, shall vest with Indus and all such
enhancements thereto shall be at the sole cost and expense
of Indus. Enhancements in this context means the
augmentation in capacity carried out by Indus to achieve
increased sharing."
17. In terms of Clause 2.5, site access availability right is non-
exclusive and Indus retains the right to provide site access availability
to other telecom operators and the sharing operator would retain the
right to seek passive infrastructure services from other passive
infrastructure providers. Clause 3 provides for operation and
maintenance of the equipment of the sharing operator. Under clause
3.1.2, the equipment installed by the sharing operator shall be operated
and maintained by the sharing operator and in order to conduct the
operation and maintenance activities, it shall have the right to replace,
repair, add or otherwise modify the sharing operator equipment and
the frequencies over which the equipment operates. In order to do so,
the sharing operator shall be provided access to the sites by providing
ingress and aggress from such site by only the authorized
W.P.(C) 6085/2013 Page 22
representatives of the sharing operator or its properly authorized sub-
contractors. Clause 3.2 requires Indus to ensure that the operation and
maintenance services which are provided by it to the sharing telecom
operators are in accordance with "good industry practice" by suitably
qualified, skilled and experienced personnel. Information about
processes and proceedings to monitor the performance is to be shared
with the sharing operators on a monthly basis. Consequences follow if
operation and maintenance service levels fall short of the required
standards.
18. Clause 4 outlines Indus' rights; clause 4.1 provides Indus the
right to require that whenever any access to the site is needed by the
sharing operator or its approved contractor, such access is supervised
by it (Indus) or its nominees. Indus is also enabled with the right to
use and grant access to any site including the infrastructure provided
by it (including passive infrastructure) for provision of such services
to any party or for such other purposes as Indus may in its discretion
decided to support from time to time. Clause 4.2 enables Indus to ask
for relocation of the equipment of the sharing telecom operator; which
may be for the acquisition of a site or action by a Government
authority or any order of Court etc. Clause 5.2 obliges Indus to ensure
that any other operators on the side do not cause any damage or install
any equipment which would harmfully interfere or physically obstruct
the equipment of any sharing operator existing at the site. The
agreement further stipulates that the infrastructure of Indus (the
passive infrastructure) shall be maintained by it in proper state of
W.P.(C) 6085/2013 Page 23
repair and condition. Clause 5.3 provides for the warranties and
covenants of the sharing operator such as generally to ensure that its
employees and agents and sub-contractors comply with the terms and
conditions of the contract, to comply with all applicable laws and
desist from doing anything which might cause or otherwise result in a
breach by Indus, maintain its equipment in a good and safe state of
repair and condition, to desist from installing equipment or machinery
of a type or frequency which would cause harmful interference or
physical obstruction to any equipment belonging to Indus or of any
other sharing operator of the site, and to generally share information
with Indus and cooperate with and assist Indus in connection with the
purpose of the obligations under the contract etc. Clause 6 speaks of
"charges". Clause 6.1 provides that Indus shall charge the sharing
telecom operator the charges in accordance with Schedule 3. The
charges can be revised or reviewed on an annual basis. Clause 6.2
provides that all invoices submitted by Indus shall be paid within 15
days of the receipt thereof. Clause 6.3 provides for consequences of
late payment which are not relevant for our purpose. Clause 10 confers
upon Indus the right to advertise on the passive infrastructure. It says
that Indus shall have the exclusive right to lease, license or grant space
on each site or passive infrastructure on the site to any their party for
the purposes of placing hoardings, banners and other advertisements
and the sharing telecom operator shall not have any right of objection.
However, Indus' right to do so shall not adversely affect the
connectivity network or passive infrastructure of the sharing telecom
W.P.(C) 6085/2013 Page 24
operator in any manner; in case of any such complaint from a telecom
operator the hoardings/advertisement shall be removed.
19. Schedule 1 to the contract provides for "site access
availability" and lists several technical details and requirements
relating to the antenna, ground based tower, roof top tower, time lines
for site deployment, site access service credit for acquisition and
deployment etc. Schedule 2 provides for "operation and maintenance
service". Clause 1.8 obliges Indus to ensure proper access to the sites
for all authorized personnel of sharing telecom operator for the
purposes set out in Clause 3.1.2. Clause 1.9.3 sets out the rates at
which the petitioner has to pay the operation and maintenance service
credits to the sharing operator for its failure to ensure the required
uptime service levels. The Credits payable by Indus to the Sharing
Operator for failure to achieve the above Uptime Service Levels are as
set out below:
Operation and Maintenance % of Total Rate Payable by Indus
Service Level
99.95% or greater 0.0%
99.90% or greater but less than 5.0%
99.95%
99.70% or greater but less than 7.5%
99.90%
99.50% or greater but less than 10.0%
99.70%
99.00% or greater but less than 25.0%
99.50%
Less than 99.00% 30.0%
W.P.(C) 6085/2013 Page 25
The Service Credits payable, by Indus, in the above terms apply to the
sites in the relevant Circle mentioned below the Operation and
Maintained Service Level spelt out in 1.9.2. Clause 1.10 requires
Indus to report the reasons for any unplanned downtime, to the sharing
operator within five business days of the rectification of the downtime.
In case of breach Indus has to pay service credits in accordance with
pre-determined rates indicated below:
Time period of Indus Downtime % of Total Rate payable by Indus
24 consecutive hours or more, but 50%
less than 36 consecutive hours
36 consecutive hours or more, but 75%
less than 48 consecutive hours
48 consecutive hours or more 100%
20. The crucial question which has to be decided is whether the
activity, i.e. provision of passive infrastructure by Indus to the mobile
operator constitutes renting within the extended definition under
Explanation to Section 194-I or whether the activity is service, pure
and simple without any element of hiring or letting out of premises.
The assessee urges that there is no intention to rent or lease the
premises or facilities or equipment and what is contemplated by the
parties is a service; the revenue contends that the use of the premises,
and the right to access it, amounts to renting the premises.
21. This area of law is relatively well settled (see, for example,
Puzhakkal Kuttappu v. C. Bhargavi & Ors, AIR 1977 SC 105 and
W.P.(C) 6085/2013 Page 26
Faqir Chand Gulati, Appellant(s) v. Uppal Agencies Pvt. Ltd., 2008
(10) SCC 345). In the case of property, the age old controversy that
courts have grappled with in diverse and countless situations (and
contexts) is whether the arrangement amounts to a lease or a mere
license. There is no bright line that applies universally. To quote the
Supreme Court in Rajbir Kaur v. S. Chokesiri and Co., AIR 1988 SC
1845, it is the "operative intention of the parties" which has to be
ascertained, rather than viewing the matter from the standpoint of
whether possession is exclusive, because:
"exclusive possession itself is not decisive in favour of a
lease and against a mere licence, for, even the grant of
exclusive possession might turn out to be only a licence and
not a lease where the grantor himself has no power to grant
the lease. In the last analysis the question whether a
transaction is a lease or a licence "turns on the operative
intention of the parties" and that there is no single, simple
litmus-test to distinguish one from the other. The "solution
that would seem to have been found is, as one would expect,
that it must depend on the intention of the parties."
22. In Krishna Oberoi (supra), the facts were that the assessee
owned a hotel which provided to its customers various types of
furnished rooms with certain other facilities for a consideration called
"room charges". Room charges were composite in nature and it
included charges for various services catered by the hotel. It was
argued that consideration received by the hotel management could not
be treated as rent within the meaning of Section 194-I. Indian Airlines
Limited and Asian Paints India Limited were the assessee's regular
customers. Indian Airlines had entered into an agreement with the
W.P.(C) 6085/2013 Page 27
assessee to utilise its hotel services for accommodating their cock-pit
crew and Indian Airlines officials. As against the normal room tariff of
`2,000/- per day, the Indian Airlines crew were provided
accommodation for a sum of `825/-. The court repelled the assessee's
contention that the transaction did not envision payment of rent and
held that Section 194-I applied. Similarly, rejecting the argument that
"rent" did not contemplate a situation where use of airport charges
were collected, it was held in United Airlines (supra) in the context of
applicability of Section 194-I, that:
"...the definition of the word "rent" in Expln. (i) of Section
194-I is very clear and the plain meaning of that provision
shows that even the landing of aircraft or parking aircraft
amounts to user of the land of the airport. Hence, the
landing fee and parking fee will amount to `rent' within the
meaning of aforesaid provision, even if it could not have
such a meaning in common parlance."
This Court also recollects that in Sultan Brothers (P) Ltd. v
Commissioner of Income Tax, 1964 (51) ITR 353 a Constitution
Bench, dealing with the old Section 12 (4) of the Income Tax Act,
1922, held that a composite letting out or hiring of building,
machinery etc. would be treated as "inseparable" and falling under the
residuary head of income. The court held that whether a particular
letting or permission to use was business is to be decided in the
circumstances of each case, when seen from a businessman's point of
view to find out whether the letting was the doing of a business or the
exploitation of his property by an owner. It was held that in cases
which arose before the Courts involving commercial or residential
W.P.(C) 6085/2013 Page 28
buildings, it was held that the income realised by such owners by way
of rental income from the building, whether a commercial building or
residential house, is assessable under the head "income from house
property". The only exceptions are cases where the letting of the
building is inseparable from the letting of the machinery, plant and
furniture. In such cases it has been held that the rental would not have
been realised but for the letting out of the machinery, plant or furniture
along with such building and, therefore, the rental received for the
building is to be assessed under the head of "income from other
sources". It was held that:
"when a building and plant, machinery or furniture are
inseparably let, the Act contemplates the rent from the
building as a residuary head of income..."
23. It can be, therefore, seen that there cannot be any generic
observation on the question whether a particular transaction amounts
to leasing, or letting out or hiring premises or other properties. Courts'
endeavor should in all cases be to ascertain the parties' "operative
intention" and the mandate of the law, which defines what is rent or
amounts to letting out, etc. Section 194-I through the Explanation does
enlarge the scope of what can be termed as traditional concept of
letting or renting, by using the expression "other arrangement" aimed
at permitting "use" of either immovable property (land and buildings)
or other properties (plant, equipment, machinery, etc). The assessee's
argument that in the previous decision of this Court the finding that
there was no transfer of the right to use the premises concludes the
issue entirely in its favour is not correct. The findings or reasoning of
W.P.(C) 6085/2013 Page 29
a court rendered in the context of one statute or enactment cannot be
dispositive of a like intent in the other. It is well known that words do
not have a fixed, invariable meaning; being "the skin of a living
thought and may vary greatly in color and content according to the
circumstances and time in which it is used." (Oliver Wendell
Holmes).
24. In this case, the terms of the MSA Indus makes available:
(1) Infrastructure and specialized services for use by mobile
operators;
(2) The infrastructure and equipment are always in the
control of Indus;
(3) Though its customers are given access to the
infrastructure and services, the possession and control of the
property is with Indus; in more places than one, it is expressly
agreed that there is no lease arrangement.
(4) The arrangement of allowing access to the infrastructure
and the maintenance of strict standards, for its use are an
inseparable part of the entire transaction.
On the other hand, it is evident that the mobile operators have -
(a) the right to install equipment such as BTS equipment,
associated antennae, active infra network equipment on the
tower or designated site belonging to Indus.
(b) Enjoyment of the benefit of specified temperature and humidity
levels at all times and continuous power supply at the
prescribed voltage so as to operate the equipment; their
W.P.(C) 6085/2013 Page 30
equipment remains installed on the site/tower of Indus for the
duration of the agreement as well.
25. The definition of "renting" has to be viewed in perspective. The
Explanation to Section 194-I, which is determinative, states that
"rent" means "any payment, by whatever name called, under any
lease, sub-lease, tenancy or any other agreement or arrangement for
the use of (either separately or together) any (a) land; or (b) building
(including factory building); or(c) land appurtenant to a building
(including factory building); or (d) machinery; or (e) plant; or
(f) equipment....(h) fittings, whether or not any or all of the above are
owned by the payee..."
26. What strikes instantly is that the definition is clear as to the
nature of transactions it covers ("means"). Secondly, it is expansive in
sweep ("any other...arrangement for the use, (either separately or
together)" any land, building, machinery or plant irrespective of
ownership of the payee is covered. The Parliamentary intent was clear
that transactions the consideration for which otherwise may not be
covered by rent also ought to be within Section 194-I, by use of the
expression "other ... arrangement for the use". Whilst there is no
doubt that the intention of the parties in the present case was to ensure
that the use of technical and specialized equipment maintained by
Indus should be resorted to; at the same time, there is no escape from
the fact that the infrastructure is given access to, and in that sense, it is
given for the "use" of the mobile operators. The towers in a sense are
the neutral platform without which mobile operators cannot operate. If
one goes back in time each mobile operator which is now Indus'
W.P.(C) 6085/2013 Page 31
customer used to carry out this activity, by necessarily renting
premises and installing the same equipment. Of course, the rent paid
then to the owner, whenever such transactions were leases, were
business expenses. Yet leases or such like arrangement had to be
resorted to. That situation has remained unchanged; now instead of the
mobile operator performing the task, it is done exclusively by Indus.
The dominant intention however, in these transactions between
Indus and its customers is the use of the equipment or plant or
machinery. The "operative intention" here, to borrow the phrase from
Rajbir Kaur (supra), was the use of the equipment. The use of the
premises was incidental; in that sense there is an inseparability to the
transaction as spelt out in Sultan Brothers (supra). Therefore the
submission of Indus, that the transaction is not "renting" at all, is
incorrect; equally, the revenue's contention that the transaction is one
where the parties intended the renting of land (because of the right to
access being given to the mobile operators) is also incorrect. The
underlying object of the arrangement or agreement (in the MSA) was
the use of the machinery, plant or equipment, i.e. the passive
infrastructure. That it is necessary to house these equipment in some
premises is entirely incidental.
27. In view of the above conclusions, it is held that the writ petition
is entitled to succeed to the extent that the tax deductions to be made
by Indus are to be at the rate directed in Section 194-I (a) for the use
of any machinery or plant or equipment at the rate indicated for that
provision, i.e. two percent. The revenue's contentions to the contrary
are rejected. A consequential direction to give benefit to the petitioner,
W.P.(C) 6085/2013 Page 32
Indus, in these terms is accordingly given. The writ petition is allowed
in the above terms without any order as to costs.
S. RAVINDRA BHAT
(JUDGE)
R.V. EASWAR
(JUDGE)
MARCH 31, 2014
W.P.(C) 6085/2013 Page 33
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