THE DEPUTY COMMISSIONER OF INCOME TAX vs. ORANGE

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WA/1099/2024HC KarnatakaKAHC01042700202402 September 2024Bench: S.G.PANDIT,C.M. POONACHA4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal filed by the Revenue. The Court held that interconnect service charges paid would not amount to royalty. This decision was based on a coordinate bench's judgment in ITA No. 160/2015 and connected appeals, dated 14.07.2023. The Court specifically referred to paragraph 21 of that judgment, which stated that payments made to NTOS (Non-resident Telecommunication Operators) for providing interconnect services and transfer of capacity in foreign countries are not chargeable to tax as royalty. The judgment noted that the Revenue had not refuted the factual aspect in the earlier case and had reviewed its earlier stand, relying on decisions like Viacom. The High Court found no infirmity in the order under challenge, which had placed reliance on the coordinate bench's decision. Therefore, following the precedent, the appeal was dismissed.

What were the facts?

This case involves a Writ Appeal filed by the Deputy Commissioner of Income Tax and others (the Revenue) against an order dated 02.11.2023 passed by a learned Single Judge in WP No. 6653/2023. The respondents are Orange, a French entity, and Vodafone Idea Limited. The core of the dispute concerns whether interconnect service charges paid by Vodafone Idea Limited to Orange constitute royalty under the Income Tax Act. The Revenue is challenging the Single Judge's decision, which presumably ruled in favor of the assessee on this issue. The appeal is filed under Section 4 of the Karnataka High Court Act.

What were the issues?

1. Whether interconnect service charges paid by the assessee to a non-resident telecom operator constitute royalty under the Income Tax Act, 1961. The Revenue's contention is not explicitly recorded in the provided text. However, by filing the appeal, it is implied that the Revenue disputes the finding that interconnect service charges are not royalty. The Revenue likely argues that such payments fall within the definition of royalty as per the relevant provisions of the Income Tax Act and the Double Taxation Avoidance Agreement (DTAA) between India and France. The Assessee's contention, as inferred from the judgment, is that interconnect service charges do not amount to royalty. The Assessee relies on a coordinate bench decision of the High Court in ITA No. 160/2015 and connected appeals, which held that payments made to non-resident telecom operators for interconnect services and transfer of capacity in foreign countries do not constitute royalty. The judgment notes that the Revenue had not refuted the factual aspect presented by the assessee in that prior case and had reviewed its earlier stand.

Which sections of the Income-tax Act were involved?

Section 4

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:35639-DB WA No. 1099 of 2024

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 2ND DAY OF SEPTEMBER, 2024 PRESENT THE HON'BLE MR JUSTICE S.G.PANDIT AND THE HON'BLE MR JUSTICE C.M. POONACHA WRIT APPEAL NO. 1099 OF 2024 (T-IT) BETWEEN:

1.

THE DEPUTY COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION WARD 2(2) ROOM NO.430, 4TH FLOOR, BMTC BUILDING, 80 FT ROAD, 6TH BLOCK, KORAMANGALA, BENGALURU-560095.

2.

THE COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION ROOM NO.741, 7TH FLOOR, BMTC BUILDING, 80 FT ROAD, 6TH BLOCK, KORAMANGALA, BENGALURU-560095.

3.

THE CENTRAL BOARD OF DIRECT TAXES DEPARTMENT OF REVENUE NORTH BLOCK, CENTRAL SECRETARIAT NEW DELHI-110001 REP. BY ITS CHAIRMAN. …APPELLANTS (BY SRI. SANMATHI E. I., ADV.)

AND:

1.

ORANGE 78 RUE OLIVAIER DE SERRES PARIS (FRANCE) REP. BY ITS AUTHORISED SIGNATOR, VODAFONE IDEA LIMITED

Digitally signed by MARIGANGAIAH PREMAKUMARI Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:35639-DB WA No. 1099 of 2024

10TH FLOOR, BIRLA CENTURION, CENTURION MILLS COMPOUND, PANDURANG BUDKKAR MARG WORLI, MUMBAI-400030 REP. BY ITS DIRECTORS MR. BENOIT DELAPLACE.

2.

VODAFONE IDEA LIMITED 10TH FLOOR, BIRLA CENTURION, CENTURION MILLS COMPOUND PANDURANG BUDKKAR, MARG WORLI, MUMBAI-400030 REP. BY ITS DIRECTORS. …RESPONDENTS (BY SRI.HARPRITH SINGH AJMANI, ADV.)

THIS APPEAL IS FILED UNDER SECTION 4 OF THE KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE ORDER DATED 02.11.2023 IN WP NO.6653/2023 (T-IT) PASSED BY THE LEARNED SINGLE JUDGE.

THIS APPEAL, COMING ON FOR ORDERS, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:

CORAM: HON'BLE MR JUSTICE S.G.PANDIT AND HON'BLE MR JUSTICE C.M. POONACHA

ORAL JUDGMENT

(PER: HON'BLE MR JUSTICE S.G.PANDIT)

Heard Sri. E.I.Sanmathi, learned counsel for the appellants and learned counsel Sri.Harprith Singh Ajmani for respondents.

2.

Perused the appeal papers.

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NC: 2024:KHC:35639-DB WA No. 1099 of 2024

3.

The question involved in the appeal is as to whether interconnect service charges paid would amount to royalty.

4.

The above issue was considered by a Co-ordinate Bench of this court in ITA.No.160/2015 and connected appeals. By judgment dated 14.07.2023 it is held that interconnect service charges would not constitute royalty. Paragraph No.21 of the judgment reads as follows: “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.”

5.

Learned Single Judge has also placed reliance on the above decision of the Co-ordinate Bench. Therefore, we do not find any infirmity in the order under challenge.

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NC: 2024:KHC:35639-DB WA No. 1099 of 2024

6.

Following the decision of Co-ordinate Bench dated 14.07.2023 in ITA No.160/2015 and connected appeals, the above appeal stands dismissed.

SD/- (S.G.PANDIT) JUDGE

SD/- (C.M. POONACHA) JUDGE

MPK CT:bms List No.: 1 Sl No.: 29

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