Tds on leased line for internet expenses to reliance comm.

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Querist : Anonymous

Querist : Anonymous (Querist)

02 June 2013 Dear Experts,
Please suggest about TDS rate for a monthly payment of Rs. 7500/- to Rel Communication for usage of Internet Charges.

Wheter this should cover U/s 194J or 194C ??

Thanks,

Ganeshbabu K

Ganeshbabu K (Expert)
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02 June 2013 TDS is not deductible on services using technology -- telephone charges, Internet charges, cable TV, leased lines. Payments for use of standard facilities by the public at large in which some form of technical service is inherent are not covered under section 194J. It has also been held in the case of Skycell Communications Ltd. v. Deputy CIT[2001] 251 ITR 53 (Mad.)

Thanks & regards

Ganeshbabu K

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Querist : Anonymous

Querist : Anonymous (Querist)

02 June 2013 I thought It would cover u/s 194J under the ambit of Royality Services...

and we have in the agreement with Reliance communications for renderung Internet Services by the.m which can be cover u/s 194C.

Please advice and it will be good if you can share the supporting wrt non appilcablity of TDS...

Thanks

Ganeshbabu K

Ganeshbabu K (Expert)
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02 June 2013 Please refer analysis of above said case law

http://indiankanoon.org/doc/1140671/

can summarize,

Section 194J, as also Explanation 2 in Section 9(1)(vii) of the Act were not intended to cover the charges paid by the average house-holder or consumer for utilising the products of modern technology, such as, use of the telephone fixed or mobile, the cable T. V., the internet, the automobile, the railway, the aeroplane, consumption of electrical energy, etc. Such facilities which when used by individuals are not capable of being regarded as technical service cannot become so when used by firms and companies. The facility remains the same whoever the subscriber may be-individual, firm or company.,

As you said that you have entered into a contract so deduct TDS u/s 194C and issue FORM 16A ,if you want to be in safer side or cannot deduct basing above case law.

You can also refer that the same was held in angel broking ltd case.
refer analysis below

http://alturl.com/5v4sd

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Ganeshbabu K

Ganeshbabu K (Expert)
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07 June 2013
In Skycell Communications Ltd vs DCIT (2001 119 Taxman 496), the Madras High Court ruled that use of equipment and machinery does not tantamount to receipt of technical services. This then rules out deduction of tax under Section 194J.

ON A SAFER SIDE
one cannot ignore the mandate of Section 194-I, which calls upon a user to deduct tax at source on payment of rent for use of equipments and machinery.

Querist : Anonymous

Querist : Anonymous (Querist)

09 June 2013 How would this cover u/s 194I ???

Ganeshbabu K

Ganeshbabu K (Expert)
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10 June 2013 As per section 194I explanation (1)
For the purposes of this section,—
92[(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;]

As (f) equipment is there in the definition'

So it will come under providing right to use (leased) equipments and 194I will be attracted

as you seen above skycell case it is held it is not covered under 194I,,more over here there is no technical/prefessional service because there is no human efforts involved in leased line charges.

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CA.Sangam Aggarwal

CA.Sangam Aggarwal (Expert)
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09 October 2014 In this regard, at the outset, I wish to mention that Section 194-J of the Income Tax Act, 1961 ['Act'] provides that any person (other than specified individual & HUF) responsible for paying any sum to a resident payee, being in the nature of 'royalty' is liable to deduct TDS at the rate of 10% of such sum.

'Royalty' for this purpose is defined under Explanation 2 to section 9(1)(vi) of the Act, to mean “the consideration….for

(i) the transfer of all or any rights (including the granting of a license) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property;

(ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property;

(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property;

(iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill;

(iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;

(v) the transfer of all or any rights (including the granting of a license) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or

(vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and] (v).”

The Finance Act 2012 has amend the definition of ‘Royalties’ under Section 9 of the Act with retrospective effect from 1 June 1976. The following Explanations inter-alia are proposed to be inserted in this regard:

“Explanation 5 – For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not-

(a) the possession or control of such right, property or information is with the payer;
(b) such right, property or information is used directly by the payer;
(c) the location of such right, property or information is in India.

Explanation 6 – For the removal of doubts, it is hereby clarified that the expression “process” includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret.”

On a cogent reading of definition of 'royalty' with the recently introduced amendments, it appears that the payment made to the telecom company for data transmission by leased line would fall within the definition of 'royalty' under section 9(1)(vi) of the Act and thus liable for TDS under section 194-J of the Act (subject to exemption threshold limit of Rs. 30,000 per annum as provided under the section).

Thus, deductor may deduct TDS at the rate of 10% on such payment being made to Internet Provider.

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