Monday, 27 July 2015

Chennai Tribunal rules on tax withholding obligation on provision for site restoration, year-end expense provisions and roaming charges

This Tax Alert summarizes a recent ruling of the Chennai Tribunal (Tribunal) in the case of Dishnet Wireless Ltd. (Taxpayer), a telecom service provider, on taxpayer’s obligation to withhold taxes on (a) roaming charges paid by telecom service provider to other telecom service providers for roaming facility provided to its subscribers, (b) provision for site restoration expense and (c) year-end expense provisions.
As regards roaming charges, the Tribunal took note of expert opinion from Sub-Divisional Engineer of Bharat Sanchar Nigam Ltd. (expert opinion) supporting the fact that no human intervention is required for providing roaming services to telecom subscribers. Applying the ratio laid down by the Supreme Court (SC) in the case of Bharti Cellular Ltd. , the Tribunal held that since no human intervention is involved, the services cannot be regarded as “technical services” and hence do not trigger withholding obligation.
As regards provision for site restoration expenses, the Tribunal held that provision made in books on best estimate basis, in compliance with Accounting Standard – 29, for future dismantling and site restoration work on premises acquired on long term lease to install telecommunication equipment did not attract withholding since the identity of payees and exact amount payable was not known.
As regards year-end expense provision towards services availed from various vendors for new subscriber verification and value added services like daily horoscopes, astrology, songs, wall paper downloads, cricket scores, etc. the Tribunal held that withholding will be triggered if the payees are identifiable and amount payable is quantifiable. The Tribunal set aside the issue to the Tax Authority to examine the facts and determine withholding obligation.

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