THE DEPUTY COMMISSIONER OF INCOME TAX vs. M/S. MAXIS INTERNATIONAL SDN BHD

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WA/663/2024HC KarnatakaKAHC01024978202402 September 2024Bench: S.G.PANDIT,C.M. POONACHA3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal filed by the Revenue. The Court followed a previous judgment of a Co-ordinate Bench of the same High Court in ITA No. 160/2015 and connected appeals, dated 14.07.2023. In that prior judgment, it was held that interconnect service charges do not constitute royalty. The Court noted that the Revenue had reviewed its earlier stand for subsequent assessment years, relying on ITAT decisions like Viacom. Therefore, the High Court found no infirmity in the Single Judge's order which had also placed reliance on the Co-ordinate Bench's decision. The operative direction was to dismiss the appeal.

What were the facts?

This case involves a Writ Appeal filed by the Deputy Commissioner of Income Tax (International Taxation) against an order dated 02/11/2023 passed by a learned Single Judge in WP No. 287/2022. The respondent is M/s. Maxis International Sdn Bhd, a Malaysian company. The appeal concerns the taxability of interconnect service charges paid by the assessee. The appellant is challenging the Single Judge's decision, which had relied on a previous judgment of a Co-ordinate Bench of the same High Court.

What were the issues?

1. Whether interconnect service charges paid by the assessee constitute royalty, making them chargeable to tax in India? (Question of law, relating to Section 9(1)(vi) of the Income Tax Act, 1961 and Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and Malaysia). Assessee's Contention: The judgment does not record any specific arguments made by the assessee (Respondent in the appeal). However, it notes that in subsequent assessment years, the Income Tax Appellate Tribunal (ITAT) had held that tax is not deductible when payment is made to a non-resident telecom operator, a stand that the Revenue had reviewed. Revenue's Contention: The Revenue (Appellant) is challenging the Single Judge's order, which had held that interconnect service charges do not constitute royalty. The Revenue's argument is implicitly that these charges should be treated as royalty and taxed 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:35628-DB WA No. 663 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. 663 OF 2024 (T-IT) BETWEEN:

THE DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION ) CIRCLE-2 (2), ROOM NO.430 4TH FLOOR, BMTC BUILDING KORAMANGALA BENGALURU -560095. …APPELLANT (BY SRI. SANMATHI E. I., ADV.)

AND:

M/S. MAXIS INTERNATIONAL SDN BHD A COMPANY INCORPORATED UNDER THE LAWS OF MALAYSIA HAVING ITS OFFICE AT MENARA MAXIS KUALA LUMPUR CITY CENTRE 50088, KUALA LUMPUR PO BOX 13447 50810 KUALA LUMPUR, MALAYSIA REP. BY ITS AUTHORIZED REPRESENTATIVE MR. NORMAN RONALD TREEBY AGED ABOUT 69 YEARS HAVING ITS OFFICE AT MENARA MAX KULA LUMPURA CITY CENTRE-5088 KULA LUMPUR CITY CENTRE-50088 KUALA LUMPUR, P O BOX NO.13447 50810 KUALA LUMPUR. …RESPONDENT

Digitally signed by MARIGANGAIAH PREMAKUMARI Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:35628-DB WA No. 663 of 2024

THIS APPEAL IS FILED UNDER SECTION 4 OF THE KARNATAKA HIGH COURT ACT PRAYING TO I) SET ASIDE THE ORDER DATED 02/11/2023 IN WP NO.287/2022 PASSED BY THE LEARNED SINGLE JUDGE AND II) GRANT SUCH OTHER ORDER.

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

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NC: 2024:KHC:35628-DB WA No. 663 of 2024

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.

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.: 18

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