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INDUS TOWERS LTD. Vs. CIT & ORS.
April, 04th 2014
* 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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