THE DEPUTY COMMISSIONER OF INCOME TAX vs. M/S DEUTSCHE TELEKOM A G

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WA/1598/2023HC KarnatakaKAHC01068135202318 March 2024Bench: S.G.PANDIT,C.M. POONACHA3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that interconnect service charges paid by the assessee to non-resident telecom operators do not constitute royalty. This decision was based on a co-ordinate bench's judgment in ITA No. 160/2015 and connected appeals, dated July 14, 2023. The co-ordinate bench had considered the question of whether payments made to non-resident telecom operators (NTOS) for providing interconnect services and transfer of capacity in foreign countries are chargeable to tax as royalty. The co-ordinate bench noted that for subsequent assessment years, the ITAT had held that tax is not deductible when payments are made to non-resident telecom operators, and this factual aspect was not refuted by the revenue. The revenue had also reviewed its earlier stand for subsequent assessment years, relying on decisions like Viacom. Therefore, the High Court found no infirmity in the order under challenge and dismissed the appeal.

What were the facts?

The appellant, the Deputy Commissioner of Income Tax, International Taxation, Circle-2(1), Bengaluru, filed a writ appeal challenging an order passed by a learned Single Judge in WP No. 17338/2022 dated September 7, 2023. The respondent is M/s Deutsche Telekom AG, a German company. The core of the dispute revolves around whether interconnect service charges paid by the respondent would be considered royalty under the Income Tax Act. The learned Single Judge had relied on a previous decision of a co-ordinate bench of the High Court in ITA No. 160/2015 and connected appeals, which had addressed a similar issue.

What were the issues?

1. Whether interconnect service charges paid by the assessee to non-resident telecom operators constitute royalty chargeable to tax in India, as per Section 9(1)(vi) of the Income Tax Act, 1961, read with Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and Germany. Assessee's Contention (Implicitly supported by the High Court's reliance on prior decisions): The interconnect service charges paid are not royalty. The assessee relied on a co-ordinate bench decision in ITA No. 160/2015 and connected appeals, which held that such payments do not constitute royalty. The revenue had also reviewed its earlier stand for subsequent assessment years, placing reliance on decisions like Viacom. Revenue's Contention (Implicitly rejected by the High Court): The interconnect service charges paid to non-resident telecom operators are royalty and thus chargeable to tax in India.

Which sections of the Income-tax Act were involved?

Section 9(1)(vi)

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:10968-DB WA No. 1598 of 2023

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 18TH DAY OF MARCH, 2024 PRESENT THE HON'BLE MR JUSTICE S.G.PANDIT AND THE HON'BLE MR JUSTICE C.M. POONACHA WRIT APPEAL NO. 1598 OF 2023 (T-IT) BETWEEN:

THE DEPUTY COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION, CIRCLE-2(1), BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU - 560 095 …APPELLANT (BY SRI. Y.V.RAVIRAJ ADVOCATE FOR SRI.M.DILIP, ADVOCATE)

AND:

M/S DEUTSCHE TELEKOM A G FRIEDRICH-EBERT-ALLE 140, 53113 BONN, GERMANY, (REP BY ITS HEAD OF TRANSACTION TAX SRI ULRICH HARTMANN S/O SRI WERNER HARTMANN AGED ABOUT 62 YEARS …RESPONDENT (BY SRI.K.K.CHYTHANYA SR. COUNSEL FOR SRI.S.SHARATH., ADVOCATE)

THIS WRIT APPEAL IS FILED U/S 4 OF THE KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE ORDER PASSED BY THE LEARNED SINGLE JUDGE IN WP NO.17338/2022 DATED 07/09/2023 & ETC.

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

Digitally signed by A K CHANDRIKA Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:10968-DB WA No. 1598 of 2023

JUDGMENT

Heard Sri. Y.V.Raviraj along with Sri. Dilip.M., learned counsel for the appellant and Sri. Chythanya.K.K., learned Senior Counsel for Sri. S.Sharath, learned counsel for the respondent.

2.

Perused the appeal papers.

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

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NC: 2024:KHC:10968-DB WA No. 1598 of 2023

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 orders under challenge.

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/- JUDGE

Sd/- JUDGE

SMJ CT:JR LIST NO.: 1 SL NO.: 39.5

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