ITAT Chandigarh: Connectivity payments to telecom operators fall under Section 194C, not Section 194J

Background and procedural history

The Income Tax Appellate Tribunal, Chandigarh Bench, in the case of H.P. State Co-operating Bank Ltd. Vs DCIT (ITA No.27/CHANDI/2023), delivered its order on 15/09/2026 for Assessment Year 2017-18. The controversy centred on whether tax was required to be deducted at source on “connectivity charges” under Section 194C (payments to contractors) or under Section 194J (fees for technical services).

The assessee had been held to be an assessee-in-default under Section 201(1) and Section 201(1A) by the Assessing Officer (AO), and this view was upheld by the Commissioner of Income Tax (Appeals), NFAC [CIT(A)] by order dated 14.11.2022. The assessee carried the matter to the Tribunal.

The appeal involved a minor procedural delay of 7 days in filing, which the Tribunal condoned. Thereafter, it proceeded to examine the substantive issue relating to the applicable TDS provision for connectivity payments made to telecom service providers.

Facts of the case

Nature of payments and TDS deduction

As recorded in the order of the AO dated 30.10.2018, the key factual aspects were:

  • The assessee had paid connectivity charges aggregating to Rs.230.55 Lacs to various service providers such as Airtel, Reliance Communication & ors.
  • On these payments, the assessee deducted tax at source at the rate of 2% under Section 194C.
  • The AO took the stand that the payments represented fees for technical services, and therefore, TDS should have been deducted at 10% under Section 194J.

On this basis, the AO treated the assessee as an assessee-in-default and raised a demand of Rs.21.15 Lacs under Section 201(1) and Section 201(1A). The CIT(A) upheld this demand, leading to the present appeal before the ITAT Chandigarh.

Core issue before the Tribunal

The central question for determination was:

Whether connectivity charges paid by the assessee to telecom and related service providers for services such as network connectivity are liable for TDS under Section 194C or under Section 194J of the Income Tax Act 1961?

More specifically, the Tribunal had to decide whether such services could be categorised as “fees for technical services” within the meaning of Section 194J, having regard to the judicial test that such services generally require a human element in their rendition, or whether these are more appropriately treated as contractual services covered by Section 194C.

Reference to earlier year’s decision in assessee’s own case

Treatment of AY 2018-19

A critical turning point in the Tribunal’s reasoning was the existence of a prior order in the assessee’s own case for AY 2018-19. The Tribunal noted:

  • For AY 2018-19, a similar TDS demand had been raised on the assessee on essentially the same category of payments.
  • This earlier dispute had been decided by the CIT(A) in favour of the assessee by order dated 17.03.2023.
  • The assessee placed a copy of that CIT(A) order for AY 2018-19 in the paper book before the Tribunal.

On examining that order, the Tribunal recorded that:

  • The CIT(A) for AY 2018-19 had relied on the decisions of:
    • Skycell Communications Ltd. (252 ITR 53) (Madras High Court), and
    • Bharti Cellular Ltd. (175 Taxman 573) (Delhi High Court).