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Delhi High Court
Commissioner Of Income Tax vs Estel Communications (P) Ltd. on 7 March, 2008
Equivalent citations: (2008) 217 CTR Del 102
Bench: M B Lokur, V Gupta

JUDGMENT

1. The Revenue is aggrieved by the order dt. 8th Sept., 2007, passed by the Tribunal, Delhi Bench 'G' in ITA No. 4560/Del/2003 relevant for the asst. yr. 2001-02.

2. According to the assessee, it is providing internet access of a certain bandwidth to its subscribers. The main server, on the basis of which the internet services are provided is located in USA. For the services rendered by the assessee to the subscribers in India, it levies a charge and out of this, some amount is paid to the US party, that is, M/s Teleglobe International Corporation (for short 'Teleglobe').

3. According to the AO, the assessee was liable to deduct tax at source from the payments made to the US party. For arriving at this conclusion, the AO invoked the provisions of Section 9(1)(i) and Section 9(1)(vii) of the IT Act, 1961.

4. Feeling aggrieved by the order passed by the AO, the assessee preferred an appeal which was allowed by the CIT(A). It was held that the assessee was merely providing internet services to its subscribers and, therefore, there was no question of deduction of tax at source in respect of payments made by the assessee to Teleglobe.

5. Against the order passed by the CIT(A), the Revenue preferred an appeal before the Tribunal and we find from a perusal of paragraph 10 thereof that the application of Section 9(1)(i) of the Act was not pressed by the Departmental Representative. The only question that arises, therefore, is about the applicability of the Section 9(1)(vii) of the Act.

6. Insofar as this is concerned, the Tribunal considered the agreement that had been entered into by the assessee with Teleglobe and came to the conclusion that there was no privity of contract between the customers of the assessee and Teleglobe.

7. In fact, the assessee was merely paying for an internet bandwidth to Teleglobe and then selling it to its customers. The use of internet facility may require sophisticated equipment but that does not mean that technical services were rendered by Teleglobe to the assessee. It was a simple case of purchase of internet bandwidth by the assessee from Teleglobe.

8. Under the circumstances, the Tribunal came to the conclusion that there were no technical services provided by Teleglobe to the assessee and, therefore, the provisions of Section 9(1)(vii) of the Act did not apply.

9. We find that the Tribunal has rightly dismissed the appeal after taking into consideration the agreement between the assessee and Teleglobe and the nature of services provided by Teleglobe to the assessee. It was a simple case of payment for the provision of a bandwidth. No technical services were rendered by Teleglobe to the assessee.

10. On a consideration of the material on record, we find that no substantial question arises in the matter. The appeal is, accordingly dismissed.