Roaming charges paid by one service provider to another are not liable for deduction of tax at source, according to a recent ruling by Income-tax Appellate Tribunal (ITAT), Mumbai.

National roaming charge is a specific charge paid by a subscriber of a cellular network to gain access to services of any other network operator in their licensed area of operation.

The Income-tax Appellate Tribunal (ITAT), Mumbai, in an order on December 22 on an appeal filed by Vodafone Essar, held that the service provider's role is limited to collecting the roaming charges from its subscriber and pass it on to the other service provider whose facility is used by the subscriber. Therefore, the service provider is not required to deduct tax.

The ITAT also dismissed the alternate view offered by the assessing officer that national roaming charges are in fact rent for use of telecom equipment and liable for deduction of tax at source (TDS). According to ITAT, a payment could be construed as rent, only if a space is earmarked exclusively for the use of the taxpayer . However, no such earmarking of space is involved in this case, ITAT pointed out.

KPMG, in a note on this issue said " This decision will provide relief to telecom companies since most of them ave entered into a roaming agreement and since roamign charges are not to be considered as rent, they are not requird to deduct tax at source on such payments"

In this case, the tax payer company Vodafone Essar Ltd had signed agreements with other cellular service providers including Idea cellular Ltd for roaming facilities. The assessing officer was of the view that national roaming charges is in fact a payment made for technical services within the meaning section 194 J of the Income-tax Act and therefore the taxpayer company should have deducted tax before making payment for such services. The assessing officer also held that the payments for roaming facility should be treated as a rent for hiring plant and machinery.

The Tribunal held that tax payer company is only a facilitator between the subscriber and the other service providers, enabling the subscriber to make a roaming call. Taxpayer's job is confined to collecting the roaming charges from the subscriber and transfer it to the other service provider. In such a case the tax payer does not use the equipment involved in providing the roaming facility. Telecom Regulatory Authority of India refer to the roaming facility as "service" and not as "provision of equipment for use", ITAT pointed out. ITAT also relied on Supreme Court order in BSNL case, holding the view that mobile telephony is a "service".