THE DEPUTY COMMISSIONER OF INCOME TAX vs. M/S M.I. LIMITED

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WA/625/2024HC KarnatakaKAHC01022344202402 September 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 would not constitute 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 noted that in the assessee's own case for subsequent assessment years, the ITAT had held that tax is not deductible when payment is made to a non-resident telecom operator for interconnect services. The judgment explicitly states that the revenue had reviewed its earlier stand for subsequent assessment years, relying on decisions like Viacom. Therefore, the court found no infirmity in the order under challenge, which had also relied on the coordinate bench's decision. The appeal was dismissed following this precedent. No issue was expressly left undecided.

What were the facts?

The appellant, the Deputy Commissioner of Income Tax (International Taxation), filed a writ appeal challenging an order dated 02.11.2023 passed by a learned Single Judge in Writ Petition No. 5446 of 2022. The writ petition was filed by M/s. M.I. Limited, a Singapore-based company. The core issue revolves around whether interconnect service charges paid by the assessee to a non-resident telecom operator constitute royalty. The appeal is filed under Section 4 of the Karnataka High Court Act. The procedural history indicates that the learned Single Judge relied on a coordinate bench's decision in ITA No. 160/2015 and connected appeals.

What were the issues?

1. Whether interconnect service charges paid by the assessee to a non-resident telecom operator are chargeable to tax as royalty under the Income Tax Act, 1961. This is a mixed question of law and fact, turning on the interpretation of 'royalty' as defined in Section 9(1)(vi) of the Income Tax Act and Article 12 of the relevant Double Taxation Avoidance Agreement (DTAA), if applicable. Assessee's Contention (implied from the judgment's reliance on prior decisions): The interconnect service charges do not constitute royalty. The assessee likely relied on the ITAT's decision for subsequent assessment years and the High Court's decision in ITA No. 160/2015, which held that such payments are not royalty. Revenue's Contention (implied from the judgment's discussion): The revenue likely argued that the payments for interconnect services and transfer of capacity in foreign countries should be treated as royalty. However, the judgment notes that the revenue had reviewed its earlier stand for subsequent assessment years, placing reliance on decisions like Viacom.

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:35626-DB WA No. 625 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. 625 OF 2024 (T-IT) BETWEEN: 1. THE DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) CIRCLE -2(2), ROOM NO.430, 4TH FLOOR, BMTC BUILDING, KORAMANAGALA, BENGALURU - 560095. …APPELLANT

(BY SRI.SANMATHI.E.I., ADVOCATE)

AND: 1. M/S M.I. LIMITED 10, INTERNATIONAL BUSINESS PARK, SINGAPORE - 609928. REPRESENTED BY ITS AUTHORIZED SIGNATORY, LEEK KOK CHEW SON OF LEE CHIN, LAM AGED ABOUT 54 YEARS, 10, INTERNATIONAL BUSINESS PARK, SINGAPORE - 609928. …RESPONDENT

THIS WRIT APPEAL IS FILED UNDER SECTION 4 OF THE KARNATAKA HIGH COURT ACT PRAYING TO SET ASIDE THE ORDER DATED 2.11.2023 IN WRIT PETITION No.5446 OF 2022 (T-IT) PASSED BY THE HONBLE LEARNED SINGLE JUDGE AND GRANT SUCH OTHER ORDER AS THIS HONBLE COURT DEEMS

Digitally signed by MARIGANGAIAH PREMAKUMARI Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:35626-DB WA No. 625 of 2024

FIT UNDER THE FACTS AND CIRCUMSTANCES OF THE CASE, IN THE INTEREST OF EQUITY AND JUSTICE.

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 appellant.

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

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NC: 2024:KHC:35626-DB WA No. 625 of 2024

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 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/- (S.G.PANDIT) JUDGE

SD/- (C.M. POONACHA) JUDGE

MPK CT:bms List No.: 1 Sl No.: 16

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