Telcom firms not to deduct TDS on fee to MTNL, BSNL

In a relief to private telecom players, the Delhi High Court has ruled that no tax will be deducted at source on payments to MTNL and BSNL for interconnection.

Telecom companies are required to set up own equipment and infrastructure for operating and maintaining their networks. Interconnection helps complete calls between two networks. Any operator who seeks interconnection from MTNL or BSNL needs to pay a fee fixed by the telecom regulator and the same (payment by private operators to PSUs) is reflected in their receipts for taxation purposes.

The court, in its order, pointed out, “Interconnect charges/port access charges cannot be regarded as fees for technical services”.

Clarifying that the companies were not liable to deduct tax at source, the order dismissed the appeal of the tax department and said, “The parties (telecom companies and MTNL/BSNL) are left to bear their own costs”.

The tax department held that the companies were liable to deduct TDS when they made payments for interconnect or port access charges as it was a technical service. However, Bharti, Hutchison and Escotel said that collection of fee for use of a standard facility provided to all those willing to pay for it did not amount to fee received for technical services.

The court also sided with the submissions of the private telecom companies that “unless and until there is an element of human interface, the facility of interconnection/port access cannot be regarded as a technical service”.

The interconnection service between the two networks is provided by MTNL or BSNL at interconnection points known as ports and interconnection charges are paid by the interconnection seeker (private companies) to them.