Data Circuit / Broadband / Multi-Protocol Label Switching charges not in the nature of FTS: ITAT [Read Order]

In the case of M/s. HDFC Securities Ltd. vs. DCIT, the Mumbai Bench of Income Tax Appellate Tribunal (ITAT) held that Data Circuit/ Broadband / Multi-Protocol Label Switching charges as not in the nature of Fee for Technical Services (FTS).

The assessee is occupied in the business of Stockbroking and is a member of BSE & NSE. The income of the assessee is in the form of brokerage and commission from Primary & Secondary market operations along with fee income. The issue arose when the Assessing Officer (A.O.) made disallowance of Data Circuit/ Broadband / Multi-Protocol Label Switching charges under section 40(a)(ia) of the Income Tax Act,1961 for the alleged non-deduction of taxes as per section 194J.  Appeal to the CIT(A) was dismissed and the CIT(A) confirmed the disallowance. The assessee preferred an appeal before the ITAT.

The Counsel for the assessee relied on the decision of the Tribunal in assessee’s own case for the AY.2010-11. In that case, the Tribunal had to determine whether Data Circuit/ Broadband can be treated technical services or not. The tribunal relied on the decision in the case of iGate Computer System Ltd. in which the assessee had not deducted tax at source from the DATA link charges paid to various telecom service providers. As per the AO, the assessee should have deducted tax at source from the said DATA link charges under section 194J of the Act. The assessee pleaded that the said payments for DATA link charges were paid for using standard facilities provided by the service providers by using technical gadgets, which were made available universally to the others by way of the DATA link satellite line, which was established from one service provider to be carried over to the other service provider. The assessee further contended that in order to provide efficient and flawless services to the subscribers, the existing service providers provide interconnection of their networks through equipment of their networks to the equipment of other service providers. The connection is used for the transmission of DATA from one service provider to the designated client-server and there was no human intervention for the transmission of the DATA. The Tribunal conceded with the arguments of the assessee and held that in the absence of any human intervention for transmitting the DATA through such DATA link satellite link line, the payments made for utilizing such services was not in the nature of technical services governed by section 194J of the Act.

In this case, the bench comprising of Judicial Member Sandeep Gosain & Accountant Member R.C. Sharma following its own decision, observed “As the facts and circumstances during the year under consideration are parameteria and the disallowance has been made on the same basis as made in the A.Y.2010-11, therefore, respectfully following the order of the Tribunal in assessee’s own case for the A.Y.2010-11, we do not find any merit for the disallowance so made.”