THE COMMISSIONER OF INCOME TAX vs. M/S COMMUNICATIONS GLOBAL NETWORK SERVICES LTD

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ITA/1/2024HC KarnatakaKAHC01069611202325 March 2024Bench: S.G.PANDIT,C.M. POONACHA4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court of Karnataka held that the substantial question of law concerning whether payments made for interconnect service charges are chargeable to tax as royalty should be answered against the Revenue. The Court's reasoning was based on its prior judgment in ITA No. 160/2015 and connected appeals, delivered on July 14, 2023. In that judgment, at paragraph 21, the Court had addressed a similar question regarding payments made to non-resident telecom operators for interconnect services and transfer of capacity. The Court noted that for subsequent years in the assessee's own case, the ITAT had held that tax was not deductible on such payments, and the Revenue had not refuted this factual aspect, having reviewed its earlier stand. Therefore, applying the principle established in the earlier judgment, the substantial question of law was answered against the Revenue. The appeal filed by the Revenue was consequently dismissed.

What were the facts?

The Revenue, comprising the Commissioner of Income-Tax (International Taxation) and the Deputy Commissioner of Income-Tax (International Taxation), Circle-2(2), Bengaluru, has filed an appeal under Section 260-A of the Income Tax Act, 1961. The appeal challenges an order dated August 29, 2023, passed by the Income-Tax Appellate Tribunal (ITAT), Bengaluru, in Appeal No. IT(IT)A No. 32/Bang/2021. This ITAT order partly allowed the assessee's appeal for the assessment year 2011-12. The assessee is M/s Communications Global Network Services Ltd., a United Kingdom-based company. The appeal was admitted by the High Court on March 4, 2024. The core dispute revolves around whether payments made by the assessee towards interconnect service charges are taxable as royalty.

What were the issues?

1. Whether payments made towards interconnect service charges can be chargeable to tax as royalty, as per Section 9(1)(vi) of the Income Tax Act, 1961, read with Article 12 of the relevant Double Taxation Avoidance Agreement (DTAA)? Assessee's Contention: The assessee argued that for subsequent assessment years, the ITAT had held that tax is not deductible when payments are made to a non-resident telecom operator. The Revenue, in this context, reviewed its earlier stand for those subsequent years, relying on decisions like Viacom, rendered by the ITAT. Revenue's Contention: The Revenue contended that payments towards interconnect service charges are indeed chargeable to tax as royalty. The judgment does not explicitly record the Revenue's specific arguments in this appeal, but it implies their challenge to the ITAT's decision.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 9(1)(vi)

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:12158-DB ITA No. 1 of 2024

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 25TH DAY OF MARCH, 2024 PRESENT THE HON'BLE MR. JUSTICE S.G.PANDIT AND THE HON'BLE MR. JUSTICE C.M. POONACHA INCOME TAX APPEAL NO.1 OF 2024

BETWEEN:

1.

THE COMMISSIONER OF INCOME-TAX INTERNATIONAL TAXATION 4TH FLOOR, BMTC BUILDING 80 FEET ROAD, KORAMANGALA BENGALURU - 560 095.

2.

THE DEPUTY COMMISSIONER OF INCOME-TAX INTERNATIONAL TAXATION CIRCLE-2(2), 4TH FLOOR BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU - 560 095. …APPELLANTS (BY SRI. Y.V. RAVIRAJ A/W SRI. M. DILIP, ADVOCATES)

AND:

M/S COMMUNICATIONS GLOBAL NETWORK SERVICES LTD, 81, NEWGATE STREET, LONDON, EC1A 7AJ, UNITED KINGDOM, PAN:AAAGCC 9220K. …RESPONDENT (BY SRI. T. SURYANARAYANA, SENIOR COUNSEL FOR Ms. TANMAYEE RAJKUMAR, ADVOCATE)

Digitally signed by SHARMA ANAND CHAYA Location: High Court of Karnataka

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NC: 2024:KHC:12158-DB ITA No. 1 of 2024

THIS APPEAL IS FILED UNDER SECTION 260-A OF THE INCOME TAX ACT, 1961, PRAYING TO ALLOW THE APPEAL AND SET ASIDE THE ORDER PASSED BY THE INCOME-TAX APPELLATE TRIBUNAL, BENGALURU IN IT(IT)A NO. 32/BANG/2021 DATED 29/08/2023 FOR ASSESSMENT YEAR 2011-2012 ANNEXURE-A AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-2(2), BENGALURU.

THIS APPEAL, COMING ON FOR HEARING, THIS DAY, S.G.PANDIT J., DELIVERED THE FOLLOWING: JUDGMENT

1.

This appeal is by the Revenue challenging the order passed by the Income Tax Appellate Tribunal dated 29.08.2023 in Appeal IT(IT)A No.32/Bang/2021 partly allowing the assessee appeal for the assessment year 2011-12 vide Annexure-A.

2.

Heard learned counsel Sri. Y. V. Raviraj along with learned counsel Sri. Dilip M., for the appellants and Sri. T. Suryanarayana, learned Senior Counsel for Ms. Tanmayee Rajkumar, learned counsel for the respondent. 3. Perused the appeal papers.

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NC: 2024:KHC:12158-DB ITA No. 1 of 2024

4.

By order dated 04.03.2024, the present appeal was admitted. In sum and substance the substantial question of law involved in the above appeal is as to payment towards interconnect service charges could be chargeable to tax as royalty. 5. The above question is answered in ITA No.160/2015 and connected appeals. This Court by Judgment dated 14.07.2023, at paragraph 21 has held as follows: "21. The third question is, whether the payments made to NTOS for providing interconnect services and transfer of capacity in foreign countries is chargeable to tax as royalty. It was argued by Shri. Pardiwala, that for subsequent years in assessee's own case, the ITAT has held that tax is not deductable when payment is made to non-resident telecom operator. This factual aspect is not refuted. Thus the Revenue has reviewed its earlier stand for the subsequent assessment years placing reliance on Viacom etc35, rendered by the ITAT. In that view of the matter this question also needs to be answered against the Revenue."

6.

The observation made by this Court in ITA No.160/2015 and connected matters would squarely apply to the question raised in the present appeal also. Therefore, in terms of the

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NC: 2024:KHC:12158-DB ITA No. 1 of 2024

said Judgment dated 14.07.2023 in ITA No.160/2015 and connected matters, the substantial question of law is answered against the Revenue. Hence, the present appeal also stands dismissed.

SD/- JUDGE

SD/- JUDGE

sac List No.: 1 Sl No.: 0

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