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

WA/693/2024HC KarnatakaKAHC01024982202402 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 do not constitute royalty. This decision is based on a co-ordinate bench's judgment in ITA.No.160/2015 and connected appeals, dated 14.07.2023. The reasoning cited from that judgment indicates that for subsequent assessment years, the ITAT had held that tax is not deductible when payments are made to a non-resident telecom operator for interconnect services. The revenue had not refuted this factual aspect and had apparently reviewed its earlier stand. The learned Single Judge had also relied on this co-ordinate bench decision. Therefore, the High Court found no infirmity in the orders under challenge and dismissed the appeal.

What were the facts?

This is 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 Writ Petition No. 250 of 2022. The respondent is M/s. Maxis International Sdn Bhd, a company incorporated under the laws of Malaysia. The core issue revolves around whether interconnect service charges paid by the assessee would constitute royalty. The appeal is being decided based 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 under the Income Tax Act. Assessee's Contention: The assessee relies on a co-ordinate bench decision of the High Court in ITA.No.160/2015 and connected appeals, which held that interconnect service charges do not constitute royalty. The assessee also points to the Income Tax Appellate Tribunal's (ITAT) decision for subsequent assessment years in its own case, where it was held that tax is not deductible on payments made to non-resident telecom operators for interconnect services. The revenue had reportedly reviewed its earlier stand for these subsequent years, relying on decisions like Viacom. Revenue's Contention: The judgment does not explicitly record the revenue's contentions. However, the appeal itself suggests the revenue disputes the finding that interconnect service charges are not royalty.

AI-generated summary — verify with the full judgment below

- 1 -

NC: 2024:KHC:35633-DB WA No. 693 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.693 OF 2024 (T-IT) BETWEEN:

THE DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) CIRCLE-2(2) ROOM NO.430, 4TH FLOOR, BMTC BUILDING, KORAMANGALA, BENALURU-560095. …APPELLANT

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

AND:

M/S. MAXIS INTERNATIONAL SDN BHD A COMAPNY INCORPORATED UNDER THE LAWS OF MALAYSIA HAVING ITS OFFICE AT MENARA MAXIS KUALA LUMPUR CITY CENTRE 50088, KUALA LUMPUR PO BOX1344750810 KUALA LUMPUR-MALAYSIA, REP. BY ITS AUTHORIZED REPRESENTATIVE MR. NORMAN RONALS TREEBY AGED ABOUT 69 YEARS, HAVING HIS OFFICE AT MENARA MAX DULA LUMPURA CITY CENTRE-5088N KULA LUMPUR CITY CENTRE-50088 KUALA LUMPUR P0O BOX 13447 50810 KUALA LUMPUR …RESPONDENT

Digitally signed by MARIGANGAIAH PREMAKUMARI Location: HIGH COURT OF KARNATAKA

- 2 -

NC: 2024:KHC:35633-DB WA No. 693 of 2024

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. 250 OF 2022 (T-IT) PASSED BY THE HONBLE LEARNED SINGLE JUDGE AND GRANT SUCH OTHER ORDER AS THIS HONBLE COURT DEEMS 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.

Perused the appeal papers.

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

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

- 3 -

NC: 2024:KHC:35633-DB WA No. 693 of 2024

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.”

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.

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.: 23

Recent GST High Court judgments

Search GST case law →