THE COMMISSIONER OF INCOME TAX vs. COMMUNICATIONS GLOBAL

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WA/214/2024HC KarnatakaKAHC01007721202408 July 2024Bench: KRISHNA S DIXIT,RAMACHANDRA D. HUDDAR3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the appeal is liable to be dismissed in view of the co-ordinate bench judgment in ITA No. 160/2015 & connected matters, dated 14.07.2023. This judgment had answered the question of whether payments made to NTOs for interconnect services and transfer of capacity in foreign countries constitute royalty in the negative. The court noted that the Revenue had not refuted the factual aspect that for subsequent years, the ITAT had held tax is not deductible on such payments, indicating a review of the Revenue's earlier stand. The impugned judgment of the learned Single Judge was structured in terms of this co-ordinate bench judgment. The appeal was dismissed, subject to the outcome of the pending SLP before the Apex Court. Costs were made easy.

What were the facts?

This writ appeal was filed by the Commissioner of Income Tax (International Taxation) and the Deputy Commissioner of Income Tax (International Taxation) against an order passed by a learned Single Judge of the Karnataka High Court in WP No. 5738/2017 dated 13/10/2023. The respondent is Communications Global Network Services Limited, Bermuda. The core issue revolves around whether 'interconnect service charges' paid by the assessee constitute royalty under the Income Tax Act. The learned Single Judge's order was structured based on a co-ordinate bench judgment of the same High Court in ITA No. 160/2015 and connected matters, dated 14.07.2023.

What were the issues?

1. 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, under 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 relies on a co-ordinate bench judgment of the Karnataka High Court in ITA No. 160/2015 and connected matters, dated 14.07.2023, which held that such payments are not royalty. The ITAT had previously held for subsequent assessment years that tax is not deductible when payment is made to a non-resident telecom operator, and the Revenue had not refuted this factual aspect, thereby reviewing its earlier stand. Revenue's Contention: The Revenue submits that a Special Leave Petition (SLP) is pending before the Apex Court against the aforementioned co-ordinate bench judgment. However, full particulars of the SLP were not furnished.

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:25831-DB WA No. 214 of 2024

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 8TH DAY OF JULY, 2024 PRESENT THE HON'BLE MR JUSTICE KRISHNA S DIXIT AND THE HON'BLE MR JUSTICE RAMACHANDRA D. HUDDAR WRIT APPEAL NO. 214 OF 2024 (T-IT) BETWEEN:

1.

THE COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), ROOM NO.710, BMTC BUILDING, 80 FEET ROAD, KORAMANGALA, BENGALURU-560 095

2.

THE DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), CIRCLE 1(1), ROOM NO.441, 4TH FLOOR, BMTC BUILDING, KORAMANGALA 6TH BLOCK, BENGALURU-560 095 …APPELLANTS (BY SRI. Y.V. RAVIRAJ, SENIOR STANDING COUNSEL)

AND:

COMMUNICATIONS GLOBAL NETWORK SERVICES LIMITED., CENTURY HOUSE, 16-PAR-LA-VILLE ROAD, HAMILTON HM 08, BERMUDA, REPRESENTED BY ITS ATTORNEY MR. VAIBHAV KULKARNI …RESPONDENT (BY MS.TANMAYEE RAJKUMAR, 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.5738/2017 DATED 13/10/2023.

Digitally signed by SHAKAMBARI Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:25831-DB WA No. 214 of 2024

THIS APPEAL, COMING ON FOR ORDERS, THIS DAY, KRISHNA S DIXIT J., DELIVERED THE FOLLOWING:

JUDGMENT

The question involved in this appeal is as to whether ‘interconnect service charges’ paid would amount to royalty. A Co-ordinate Bench of this Court in ITA No.160/2015 & connected matters vide judgment dated 14.07.2023 has specifically answered the same in the negative with the following observations in para 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 Paridwala 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 etc. rendered by the ITAT. In that view of the matter this question also needs to be answered against the Revenue."

The impugned judgment of the learned Single Judge has been structured in terms of said Co-ordinate Bench judgment.

2.

Shri Raviraj, learned Senior Standing Counsel appearing for the Revenue submits that SLP has been pending before the Apex Court against the said Co-ordinate Bench judgment.

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NC: 2024:KHC:25831-DB WA No. 214 of 2024

However, full particulars of the same are not furnished at the Bar. Be that as it may.

In view of the Co-ordinate Bench judgment, this appeal is liable to be and accordingly dismissed, costs having been made easy. Subject to the outcome of pending SLP before the Apex Court.

Sd/- JUDGE

Sd/- JUDGE

YN List No.: 1 Sl No.: 7

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