We pay interconnect and port charges to another telecom operator — is that fees for technical services on which we must deduct tax under section 194J?
Unresolved, and the Supreme Court sent it back for evidence. On 12 August 2010 it held that the question turns on whether human intervention is involved in the technical operations by which one operator gives another interconnection, and that this cannot be decided without technical assistance on the record. Since 1979 the courts have read technical services narrowly, applying noscitur a sociis, because the words sit between managerial and consultancy services in Explanation 2 to section 9(1)(vii). The department had led no expert evidence. The matters were remitted to the Assessing Officer (TDS) to examine an expert, and no interest or penalty was to be levied for the past.
Decided by the Supreme Court (Supreme Court of India; S.H. Kapadia CJI and K.S. Radhakrishnan J) on 2010-08-12, reported as (2011) 330 ITR 239; 2014 (6) SCC 401; (2010) 8 SCALE 347; AIRONLINE 2010 SC 28. It bears on section 194J, section 9(1)(vii), section 201(1A) of the Income Tax Act 1961, in TDS Defaults and Evidence & Burden of Proof matters.
This order is cited for two things and neither is the answer to the interconnect question. The first is the human intervention test: the Court accepted that technical services under section 194J read with Explanation 2 to section 9(1)(vii) carries a human element, and that whether a particular automated process involves it is a question of fact needing expert evidence. That framing now governs disputes over automated services generally. The second is procedural and unusually blunt: the Court directed the CBDT to instruct its officers not to proceed only on the contracts placed before them, and to examine technical experts where crores of revenue turn on how a process actually works. It also declined to visit interest or penalty on the assessee where the department itself had never raised the point below and the tax had been paid by the recipient.
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The first respondent is a cellular service provider with an interconnect agreement with BSNL and MTNL, under which it pays interconnect, access and port charges. All the operators are governed by the National Standards of CCS No. 7 issued by the Telecom Engineering Centre, under which each must connect its network with the other's, with reciprocal obligations. The question was whether tax was deductible under section 194J when Bharti paid interconnect, access and port charges to BSNL, which required the Court to construe fees for technical services in clause (b) of the Explanation to section 194J, a phrase carrying the meaning given in Explanation 2 to section 9(1)(vii). The department had led no expert evidence on how human intervention takes place during the routing of a call, or on how each operator's capacity is fixed under an interconnect agreement and what happens when the allotted capacity is exhausted and more is needed urgently. The assessee also contended that the arrangement was a revenue sharing contract outside section 194J, a submission the Tribunal had not examined.
The appeals were disposed of by remitting the matters to the Assessing Officer (TDS) with no order as to costs. He was directed to examine a technical expert from the department's side, that expert to be examined and cross-examined within four weeks, and to decide within four months; the assessee had liberty to examine its own expert and adduce other evidence. The Court recorded that the assessee was not at fault, the question of human intervention never having been raised before the Commissioner, the Tribunal or in the appeals themselves, and remitted only because the issue was live and likely to recur, particularly in contracts between Indian companies and multinational corporations. On interest under section 201(1A) and penalty, it held a levy unjustified — there was no loss of revenue since the recipient had paid the tax, and the question of law remained undecided — and directed that no penal interest be levied for the period before the fresh adjudication order. The CBDT was directed to instruct its officers not to proceed only on the contracts placed before them.
The Court did not decide the characterisation question; it identified what has to be found before it can be decided. It accepted the settled construction that technical services in section 9(1)(vii) must be read in the narrower sense by applying noscitur a sociis, the words sitting between managerial and consultancy services, and that judgments of the High Courts and Tribunals had taken that view since 1979. That construction makes the presence of a human element decisive, and whether human intervention occurs in the routing of calls across two networks, or in the allotment of capacity under an interconnect agreement, is a matter of technical fact. No such evidence was on the record from the department's side, and the Court held that matters of this kind cannot be decided without technical assistance. It therefore remitted rather than dismissed, notwithstanding that the appeals concerned only interest, because the issue was live and needed settling. The revenue sharing contention was left open expressly because the Tribunal had not examined it. On interest and penalty the reasoning is short: there was no loss to revenue, the recipient having paid the tax, and the question was a moot one of law, so a levy for the past was not justified — though once the issue is settled the department will be entitled to both.
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.
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Handle my notice → Ask a CA on WhatsAppUnresolved, and the Supreme Court sent it back for evidence. On 12 August 2010 it held that the question turns on whether human intervention is involved in the technical operations by which one operator gives another interconnection, and that this cannot be decided without technical assistance on the record. Since 1979 the courts have read technical services narrowly, applying noscitur a sociis, because the words sit between managerial and consultancy services in Explanation 2 to section 9(1)(vii). The department had led no expert evidence. The matters were remitted to the Assessing Officer (TDS) to examine an expert, and no interest or penalty was to be levied for the past. This was decided by the Supreme Court (Supreme Court of India; S.H. Kapadia CJI and K.S. Radhakrishnan J) and bears on section 194J, section 9(1)(vii), section 201(1A) of the Income Tax Act 1961. It is reported as (2011) 330 ITR 239; 2014 (6) SCC 401; (2010) 8 SCALE 347; AIRONLINE 2010 SC 28. This order is cited for two things and neither is the answer to the interconnect question. The first is the human intervention test: the Court accepted that technical services under section 194J read with Explanation 2 to section 9(1)(vii) carries a human element, and that whether a particular automated process involves it is a question of fact needing expert evidence. That framing now governs disputes over automated services generally. The second is procedural and unusually blunt: the Court directed the CBDT to instruct its officers not to proceed only on the contracts placed before them, and to examine technical experts where crores of revenue turn on how a process actually works. It also declined to visit interest or penalty on the assessee where the department itself had never raised the point below and the tax had been paid by the recipient. If it applies to you, the first step is this: Build the technical record early — get an engineer's affidavit describing exactly what happens when the service is provided and where, if anywhere, a person intervenes; the case will be decided on that, not on the contract.
The first respondent is a cellular service provider with an interconnect agreement with BSNL and MTNL, under which it pays interconnect, access and port charges. All the operators are governed by the National Standards of CCS No. 7 issued by the Telecom Engineering Centre, under which each must connect its network with the other's, with reciprocal obligations. The question was whether tax was deductible under section 194J when Bharti paid interconnect, access and port charges to BSNL, which required the Court to construe fees for technical services in clause (b) of the Explanation to section 194J, a phrase carrying the meaning given in Explanation 2 to section 9(1)(vii). The department had led no expert evidence on how human intervention takes place during the routing of a call, or on how each operator's capacity is fixed under an interconnect agreement and what happens when the allotted capacity is exhausted and more is needed urgently. The assessee also contended that the arrangement was a revenue sharing contract outside section 194J, a submission the Tribunal had not examined. The matter was decided on 2010-08-12 by the Supreme Court (Supreme Court of India; S.H. Kapadia CJI and K.S. Radhakrishnan J). On those facts the Supreme Court held as follows. The appeals were disposed of by remitting the matters to the Assessing Officer (TDS) with no order as to costs. He was directed to examine a technical expert from the department's side, that expert to be examined and cross-examined within four weeks, and to decide within four months; the assessee had liberty to examine its own expert and adduce other evidence. The Court recorded that the assessee was not at fault, the question of human intervention never having been raised before the Commissioner, the Tribunal or in the appeals themselves, and remitted only because the issue was live and likely to recur, particularly in contracts between Indian companies and multinational corporations. On interest under section 201(1A) and penalty, it held a levy unjustified — there was no loss of revenue since the recipient had paid the tax, and the question of law remained undecided — and directed that no penal interest be levied for the period before the fresh adjudication order. The CBDT was directed to instruct its officers not to proceed only on the contracts placed before them.
The Court did not decide the characterisation question; it identified what has to be found before it can be decided. It accepted the settled construction that technical services in section 9(1)(vii) must be read in the narrower sense by applying noscitur a sociis, the words sitting between managerial and consultancy services, and that judgments of the High Courts and Tribunals had taken that view since 1979. That construction makes the presence of a human element decisive, and whether human intervention occurs in the routing of calls across two networks, or in the allotment of capacity under an interconnect agreement, is a matter of technical fact. No such evidence was on the record from the department's side, and the Court held that matters of this kind cannot be decided without technical assistance. It therefore remitted rather than dismissed, notwithstanding that the appeals concerned only interest, because the issue was live and needed settling. The revenue sharing contention was left open expressly because the Tribunal had not examined it. On interest and penalty the reasoning is short: there was no loss to revenue, the recipient having paid the tax, and the question was a moot one of law, so a levy for the past was not justified — though once the issue is settled the department will be entitled to both. In the words reproduced by the source cited on this page: "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."
It was decided by the Supreme Court on 2010-08-12 and is reported as (2011) 330 ITR 239; 2014 (6) SCC 401; (2010) 8 SCALE 347; AIRONLINE 2010 SC 28. Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 194J, section 9(1)(vii), section 201(1A), the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It cuts both ways and is cited by both sides. The appeals were disposed of by remitting the matters to the Assessing Officer (TDS) with no order as to costs. He was directed to examine a technical expert from the department's side, that expert to be examined and cross-examined within four weeks, and to decide within four months; the assessee had liberty to examine its own expert and adduce other evidence. The Court recorded that the assessee was not at fault, the question of human intervention never having been raised before the Commissioner, the Tribunal or in the appeals themselves, and remitted only because the issue was live and likely to recur, particularly in contracts between Indian companies and multinational corporations. On interest under section 201(1A) and penalty, it held a levy unjustified — there was no loss of revenue since the recipient had paid the tax, and the question of law remained undecided — and directed that no penal interest be levied for the period before the fresh adjudication order. The CBDT was directed to instruct its officers not to proceed only on the contracts placed before them. It arises in TDS Defaults and Evidence & Burden of Proof matters, on section 194J, section 9(1)(vii), section 201(1A) of the Income Tax Act 1961, and was decided by Supreme Court of India; S.H. Kapadia CJI and K.S. Radhakrishnan J. Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Read the words technical services in company with managerial and consultancy services, and press the noscitur a sociis line the Court accepted as the settled approach since 1979. Where the department has raised a new ground for the first time on appeal, say so; the Court held the assessee not at fault because human intervention had never been raised before the Commissioner or the Tribunal. If the payee has paid the tax, take that point against interest and penalty under section 201(1A) — no loss of revenue, on an unsettled question of law, was what persuaded the Court here.
Still good law. A citator search on the order returns 306 later decisions citing it. The human-intervention test it laid down is applied by the Delhi High Court in SFDC Ireland Limited v Commissioner of Income Tax (11 March 2024), which develops it with the observation that modern scientific and technological developments may tend to blur the specific human element in an otherwise fully automated process, and by the Indore Bench across the Idea Cellular Limited orders of 23 April 2024 and 1 August 2024. Nothing overruling or doubting it was found. What later decisions do repeatedly is confine it to what it is: the Hyderabad Bench in Deputy Commissioner of Income Tax (TDS) v Head Digital Works Private Limited (19 June 2026) records that on this question 'the Supreme Court has not decided the issue, however, made a passing remarks on the issue of definition of FTS'. It remains a remand for evidence, not a decision that interconnect charges are or are not fees for technical services, and the substantive question must be taken from the later litigation. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The full text was harvested and read, but it is an order remitting the matters, not a decision on the merits. It settles nothing about whether interconnect, access or port charges are fees for technical services; it holds that the answer depends on human intervention and that the department must prove the facts. The revenue sharing contention was expressly left open because the Tribunal had not examined it. The order gives no assessment years, no amounts, and no account of what the Commissioner or the Tribunal had held. It also does not say what is to happen to interest for periods after the fresh adjudication order beyond recording that the department will then be entitled to levy penalty and interest. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeals were disposed of by remitting the matters to the Assessing Officer (TDS) with no order as to costs. He was directed to examine a technical expert from the department's side, that expert to be examined and cross-examined within four weeks, and to decide within four months; the assessee had liberty to examine its own expert and adduce other evidence. The Court recorded that the assessee was not at fault, the question of human intervention never having been raised before the Commissioner, the Tribunal or in the appeals themselves, and remitted only because the issue was live and likely to recur, particularly in contracts between Indian companies and multinational corporations. On interest under section 201(1A) and penalty, it held a levy unjustified — there was no loss of revenue since the recipient had paid the tax, and the question of law remained undecided — and directed that no penal interest be levied for the period before the fresh adjudication order. The CBDT was directed to instruct its officers not to proceed only on the contracts placed before them.
TaxSphere, “CIT v Bharti Cellular Ltd”, https://taxnotice.vittsphere.com/caselaw/case/cit-v-bharti-cellular-ltd/ (validity last checked 2026-08-29)
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