IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.6691 OF 2010 (Arising out of S.L.P. (C) No.16452 of 2009)

C.I.T., Delhi                     ...Appellant(s)

Versus

M/s. Bharti Cellular Ltd.                   ...Respondent(s)

With Civil Appeal No.6692 of 2010 @ S.L.P. (C) No.16453/2009, Civil Appeal No.6693 of 2010 @ S.L.P. (C) No.22156/2009, Civil Appeal No.6694 of 2010 @ S.L.P. (C) No.26622/2009, Civil Appeal No.6695 of 2010 @ S.L.P. (C) No.26623/2009, Civil Appeal No.6696 of 2010 @ S.L.P. (C) No.13027/2009, Civil Appeal No.6697 of 2010 @ S.L.P. (C) No.13029/2009, Civil Appeal No.6698 of 2010 @ S.L.P. (C) No.13030/2009 and Civil Appeal No.6699 of 2010 @ S.L.P. (C) No.20909/2009

O  R  D  E  R

Civil Appeal Nos.6696/2010, 6697/2010, 6698/2010 and  

6699/2010  arising  out  of  S.L.P.  (C)  Nos.13027/2009,  

13029/2009,  13030/2009  and  20909/2009  are  taken  on  Board  

along with these cases.

Delay condoned.

Leave granted.

In this batch of cases, the key issue which arises  

for determination is, whether manual intervention is involved  

in  the  technical  operations  by  which  a  cellular  service  

provider, like M/s. Bharti Cellular Limited, is given the  

facility by BSNL/MTNL for interconnection?   

Facts in the lead case of Bharti Cellular Limited

Respondent No.1 is a cellular service provider.  It  

has  Interconnect  Agreement  with  BSNL/MTNL.   Under  such  

agreement,  Respondent  No.1   pays  interconnect/access/port

....2/-

- 2 -

charges to BSNL/MTNL.  Bharti Cellular, BSNL, MTNL, Hutchison  

are all service providers.  All are governed by National  

Standards of CCS No.7 issued by Telecom Engineering Centre.  

Under the National Standards  M/s. Bharti Cellular Limited is  

required to connect its network with the network of BSNL (the  

service  provider)  and  similar  concomitant  agreement  is  

provided for under which BSNL is required to interconnect its  

network with M/s. Bharti Cellular Limited.   

The question basically involved in the lead case is:  

whether TDS was deductible by M/s. Bharti Cellular Limited  

when  it  paid  interconnect  charges/access/port  charges  to  

BSNL?   For  that  purpose,  we  are  required  to  examine  the  

meaning  of  the  words  “fees  for  technical  services”  under  

Section 194J read with clause (b) of the Explanation  to  

Section 194J of the Income Tax Act, 1961, [`Act', for short]  

which, inter alia, states that “fees for technical services”  

shall have the same meaning as contained in Explanation 2 to  

clause (vii) of Section 9(1) of the Act.  Right from 1979  

various judgments of the High Courts and Tribunals have taken  

the view that the words “technical services” have got to be  

read in the narrower sense by applying the rule of Noscitur a  

sociis, particularly, because the words “technical services”  

in Section 9(1)(vii) read with Explanation 2 comes in between  

the words “managerial and consultancy services”.   

The problem which arises in these cases is that there  

is no expert evidence from the side of the 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.  If, let us say, BSNL has no network  

in  Nainital  whereas  it  has  a  network  in  Delhi,  the  

Interconnect Agreement enables M/s. Bharti Cellular Limited  

to  access  the  network  of  BSNL  in  Nainital and the same

....3/-

- 3 -

situation can arise vice versa in a given case.  During the  

traffic  of  such  calls  whether  there  is  any  manual  

intervention,  is  one  of  the  points  which  requires  expert  

evidence.  Similarly, on what basis is the “capacity” of each  

service  provider  fixed  when  Interconnect  Agreements  are  

arrived at?  For example, we are informed that each service  

provider is allotted a certain “capacity”.  On what basis  

such “capacity” is allotted and what happens if a situation  

arises where a service provider's “allotted capacity” gets  

exhausted  and  it  wants,  on  an  urgent  basis,  “additional  

capacity”?  Whether at that stage, any human intervention is  

involved is required to be examined, which again needs a  

technical data.  We are only highlighting these facts to  

emphasise  that  these  types  of  matters  cannot  be  decided  

without any technical assistance  available on record.   

There is one more aspect that requires to be gone  

into.  It is the contention of Respondent No.1 herein that  

Interconnect  Agreement  between,  let  us  say,  M/s.  Bharti  

Cellular  Limited  and  BSNL  in  these  cases  is  based  on  

obligations  and  counter  obligations,  which  is  called  a  

“revenue sharing contract”.  According to Respondent No.1,  

Section 194J of the Act is not attracted in the case of  

“revenue sharing contract”.  According to Respondent No.1, in  

such  contracts  there  is  only  sharing  of  revenue  and,  

therefore,  payments  by  revenue  sharing  cannot  constitute  

“fees” under Section 194J of the Act.  This submission is not  

accepted by the Department.  We leave it there because this  

submission has not been examined by the Tribunal.   

In short, the above aspects need reconsideration by  

the Assessing Officer.  We make it clear that the assessee(s)  

is not at fault in these cases for the simple reason that the  

question  of  human  intervention  was  never  raised  by  the  

Department before the CIT.  It was not raised even before the

....4/-

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Tribunal;  it  is  not  raised  even  in  these  civil  appeals.  

However,  keeping  in  mind  the  larger  interest  and  the  

ramification  of  the  issues,  which  is  likely  to  recur,  

particularly,  in  matters  of  contracts  between  Indian  

Companies and  Multinational Corporations, we are of the view  

that the cases herein are required to be remitted to the  

Assessing Officer (TDS).  

Accordingly, we are directing the Assessing Officer  

(TDS) in each of these cases to examine a technical expert  

from the side of the Department and to decide the matter  

within  a  period  of  four  months.   Such  expert(s)  will  be  

examined (including cross-examined) within a period of four  

weeks from the date of  receipt of the order of this Court.  

Liberty  is  also  given  to  Respondent  No.1  to  examine  its  

expert and to adduce any other evidence.   

Before  concluding,  we  are  directing  CBDT  to  issue  

directions  to  all  its  officers,  that  in  such  cases,  the  

Department  need  not  proceed  only  by  the  contracts  placed  

before the officers.  With the emergence of our country as  

one  of  the  BRIC  countries  and  with  the  technological  

advancement  matters  such  as  present  one  will  keep  on  

recurring  and  hence  time  has  come  when  Department  should  

examine  technical  experts  so  that  the  matters  could  be  

disposed of expeditiously and further it would enable the  

Appellate  Forums,  including  this  Court,  to  decide  legal  

issues based on the factual foundation.  We do not know the  

constraints of the Department but time has come when the  

Department  should  understand  that  when  the  case  involves  

revenue running into crores, technical evidence would help  

the  Tribunals  and  Courts  to  decide  matters  expeditiously  

based on factual foundation.  The learned Attorney General,  

who is present in Court, has assured us that our directions  

to CBDT would be carried out at the earliest.

....5/-

- 5 -

The next question which arises in this batch of cases  

is whether the Department is entitled to levy interest under  

Section  201(1A)  of  the  Act  or  impose  penalty  for  non-

deduction of TDS.  We are of the view, that in the facts and  

circumstances of the case, it would not be justified for the  

following reasons:  Firstly, there is no loss of revenue.  It  

is no doubt true that TDS has not been deducted by the payee  

but the tax has been paid by the recipient.  Secondly, the  

question involved in the present cases is the moot question  

of law, which is yet to be decided.  Basically, we would have  

closed the file because these cases are only with regard to  

levy of interest but we are remitting these cases, as stated  

above, to the Assessing Officer (TDS) only because we are of  

the view that this issue is a live issue and it needs to be  

settled at the earliest.  Once the issue gets settled, the  

Department  would  be  entitled  to  levy  both  penalty  and  

interest but, as far as the facts and circumstances of the  

present cases are concerned, 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.

Accordingly, the civil appeals are disposed of.

No order as to costs.

....................CJI.               [S.H. KAPADIA]

......................J.               [K.S. RADHAKRISHNAN]

New Delhi, August 12, 2010.