Renting for mobile tower would attract TDS u/s 194I and not 194C

Receipts from provision of passive infrastructure services to the mobile operators amount to renting and would attract lower TDS deduction under section 194-I and not under section 194C

Facts:
(1) The petitioner, Indus Towers Ltd., provided passive infrastructure services to the mobile operators ('customers'), which, inter-alia, included, tower, shelter, diesel generator sets, batteries, air conditioners, etc.

(2) It applied for issue of a lower deduction certificate at rate of 0.5% on its project receipts under Sec. 194C of the IT Act, but AO issued lower deduction certificate at rate of 2.5% under Sec. 194-I of the IT Act.

(3) Writ was filed to challenge the revisionary order of CIT who affirmed the decision of AO.

Issue
• The issue before the High Court was whether the activity, i.e., provision of passive infrastructure services by petitioner to the mobile operator would constitute renting within the extended definition under Explanation to Section 194-I or whether the activity was service without any element of hiring or letting out of premises?

Held:
(a) It was the 'operative intention of the parties' which had to be ascertained to decide whether the arrangement amounted to a lease or a mere license as decided by the Supreme Court in case of Rajbir Kaur v. S. Chokesiri and Co., AIR 1988 SC 1845.

(b) As per the service agreement between assessee and the customers it was found that, although the access to infrastructure was given to the mobile operators, yet the possession and control of the property were with the petitioner.

(c) The dominant intention in these transactions – between petitioner and its customers – was the use of the equipment or plant or machinery. Therefore, the submission of the petitioner that the transaction was not 'renting'and would be covered under Section 194C, was incorrect.

(d) Equally, the revenue's contention that the transaction was one where the parties intended the renting of land (because of the right to access being given to the customer) was also incorrect. The underlying object of the arrangement or agreement was the use of the machinery, plant or equipment, i.e., the passive infrastructure.

(e) The 'operative intention' here was the use of the equipment. The use of the premises was only incidental.

(f) Therefore, the provision of passive infrastructure services to the mobile operators amounted to 'rent' for use of the machinery, plant or equipment.

(g) So, it was concluded that tax deduction be made at the rate of 2%, as prescribed under section 194-I for the use of any machinery, plant or equipment.
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