Vodafone South Limited (VSL) has got a temporary relief with the Karnataka High Court, on Thursday, staying the demand of the Income-tax Department to pay around Rs. 257 crore as tax deducted at source (TDS) on payments made to non-resident telecom operators situated outside India for providing inter-connect international roaming service and acquisition of bandwidth capacity.

An I-T assessing officer, in his January 28 order, had treated the company as “defaulter” of TDS under Section 201 of the I-T Act.

The officer had asked Videocon South to pay the TDS amount by March 7 for the financial years 2008-09 and 2012-13 after preliminary assessment of the payments made by the company from its Karnataka operations to the non-resident telecom operators situated outside India. The assessing officer had demanded around Rs.198 crore as TDS and around Rs.60 crore as interest on the TDS amount.

However, VSL had approached the Commissioner (Income Tax Appeals) challenging the demand for payment of the said amount. But the appellate authority had refused to stay the demand notice following which the company moved the High Court seeking stay of the order demanding payment.

Not the income

Appearing for the company, senior counsel Abhishek Manu Singhvi contended that the payments made to foreign companies did not attract deduction of tax at source as the payments could not be termed as the income of the telecom operators situated outside India and hence VSL was not required to deduct tax at source on such payments.

Contractual agreement

Meanwhile, arguing on behalf of the Department, senior counsel E. R. Indrakumar pointed out that VSL had contractual agreement with non-resident telecom operators and payments made to them would have to be treated as income under Sections 5(2) and 9 (i)(vi) and (vii) of the I-T Act.

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