SC directs tax dept to relook TDS deduction between telcos

The Supreme Court has directed the Income Tax department to freshly decide the issue on whether telecom operators Bharti Airtel and Vodafone would have to deduct TDS while paying BSNL for sharing network of the state-owned firm.

A bench comprising Chief Justice S H Kapadia and Justice K S Radhakrishnan directed the IT department to adjudicate freshly over the issue with the help of technical experts within four months.

The apex court also said that IT department would not levy penalty and interest on the telcos till it decides the cases afresh.

The dispute is whether TDS was deductible on the revenue shared between the telcos and BSNL over the calls that originated from their networks but were completed on the PSU's network.
    
IT department had directed Bharti and Vodafone to deduct TDS when it paid interconnect charges/access/port charges to BSNL, under the interconnection agreement among them.
    
It contended that interconnection was not a technical service but falls under "managerial and consultancy services", as human intervention is required in the process.
    
"The problem which arises in these cases is that there is no expert evidence from the side of IT Department to show how human intervention takes place, particularly during the process when calls take place, let us say, from Delhi to Nainital and vice versa," the bench said.
    
The apex Court also held that telcos were not at fault in this case as the question of human intervention was never raised by the IT department at earlier stage.
    
On the issue of penalty imposed by the government on the telcos it said, "We are of the view, that in the facts and circumstances of the case, it would not be justified... The question involved in the present cases is the moot question of law, which is yet to be decided".
    
It said that IT department will be entitled to levy both penalty and interest once the issue gets settled.
    
"We are of the view that the interest is not justified at this stage. Consequently, there will be no levy of penal interest prior to the date of fresh adjudication order," the court said.