HC quashes two IT show cause notices issued to Bharti Airtel

In a relief to Bharti Airtel Ltd, Delhi High Court has quashed two show cause notices issued to the telecom major by the Income Tax (IT) department regarding interconnection charges payments made by the company to various foreign entities.
A bench of Justices S Ravindra Bhat and Deepa Sharma allowed the petition filed by Bharti Airtel challenging the show cause notices of March 31, 2011 and March 5, 2012 issued to it by the department.
The department, in its notice, had asked the company why should it not be deemed to be an "assessee-in-default" for making payments for interconnection charges to various foreign firms without deduction of tax under section 195 of IT Act.

"Furthermore, the only reason cited by the respondent (IT department), i.E. Administrative convenience, cannot outweigh the harsh nature of the consequence, which would expose resident payers to the onerous responsibility of maintaining books and documents for an uncertain period of time.
"Given these considerations, the impugned notices are quashed. The writ petition is allowed in these terms; no costs," the bench said in its verdict.
The company had approached the high court contending that it is a telecommunications service provider and had engaged services of both domestic and foreign entities for providing interconnections to its users.

It said that in engaging the services of offshore firms for interconnections, it had paid some charges to them.

The company said the March 31, 2011 show cause notice related to financial year period 2001-2002 to 2010-2011, and the department had asked it why it should not be deemed to be an "assessee-in-default" for making payments to offshore firms for interconnection charges without deduction of tax.
The firm contended that an additional show cause notice of November 22, 2011 was issued to it in which it was given an opportunity to explain as to why tax should not be charged under section 201(1A) of the IT Act on account of failure to deduct tax at source on payments of interconnect usage charges to foreign operators.

Thereafter, a notice dated March 5, 2012 was issued on the same ground for financial years 2001-2002 to 2006-2007.
While relying on two previous judgements, the company said that proceedings under section 201 cannot be initiated beyond a period of four years.
The IT department countered this submission saying it was "untenable" as both the judgements relied upon did not make a distinction between payments made to domestic and foreign entities.