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Facts
The Department appealed an order holding that payments made to non-residents for interconnect and capacity transfer services were not taxable as royalty. The assessee's cross-objection challenged the reassessment proceedings.
Held
The Tribunal held that the issue was squarely covered by previous judgments of the Tribunal and the High Court, which had ruled that such payments were not royalty and therefore not taxable. The Department's appeal was dismissed.
Key Issues
Whether payments for interconnect services and capacity transfer are taxable as royalty in India, and the validity of reassessment proceedings.
Sections Cited
9, 147, 144C(1), 144, 148A, 151, 9(1)(vi), 115A(1)(b), 234A, 234B, 234F, 270A, 201
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Income Tax Appellate Tribunal, “C” BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. KESHAV DUBEY
ORDER Per Bench : This appeal at the instance of the Department and CO filed by the assessee are directed against the Order of CIT(A) dated 10.12.2024.
IT(IT)A No.39/Bang/2025 CO No.8/Bang/2025
Page 2 of 7 2. Grounds raised by Revenue in IT(IT)A No.39/Bang/2025 are as follows:
1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A)-12 was right in ignoring the fact that the assessee had in accordance with the agreement entered into by it provided carriage and connectivity services to M/s. Vodafone Idea Ltd. and the payments made therein were taxable as per section 9 of the Income Tax Act?
2. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in relying upon the judgement of Hon'ble High Court of Karnataka of holding that the payments to NTOS for interconnect services and capacity transfer are not taxable as Royalty without considering that the processes were triggered from India, thereby making the source of such income accrue/arise out of India, for the NTOS to earn the income and the payments were made by the deductor by collecting it from the ultimate payer i.e., the end consumer in India for services rendered.?
3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) was right in holding that the process royalty is not applicable without as much as considering the agreements between the assessee and payees, opinion of experts in the field of telecommunication and provisions governing royalty in the act and DTAA?
Grounds raised
by the assessee in CO No.8/Bang/2025 are as follows:
1. Ground 1: General 1.1 On the facts and circumstances of the case and in law, the learned Deputy Commissioner of Income Tax (International Taxation), Circle 2(2) ("hereinafter referred to as the learned DCIT/learned AO") erred in determining the total Income of the Appellant at Rs. 9,10,03,563/-.
Ground 2: Validity of the re-assessment proceedings. 2.1 The Appellant submits that the re-assessment proceedings and the Order passed in pursuance thereof is not in accordance with law and consequently ought to be struck down. 2.2 On the facts and in circumstances of the case and in law, the Ld. DCIT(IT) has erred in passing the impugned order under section 147 r.w.s. 144C(1) r.w.s. 144 of the Act without providing the copy of appropriate approvals obtained as per section 148A r.w.s 151 of the Act.
IT(IT)A No.39/Bang/2025 CO No.8/Bang/2025
Page 3 of 7 3. Ground 3 : Treating the payments received towards interconnect charges as "Royalty" under the Income-tax Act, 1961 as well as under the DTAA 3.1 On the facts and in circumstances of the case and in law, the Id. DCIT(IT) has erred in considering the payments made by Vodafone South Limited (VSL) to the Appellant as royalty under section 9(1)(vi) of the Act and the tax treaty between India and UK and passing assessment order under section 147 r.w.s. 144C(1) r.w.s. 144 of the Act after making an addition of Rs. 9,10,03,563/- to the total income of the Appellant. 3.2 On the facts and circumstances of the case and in law, no income tax was payable on payments received by the Appellant from VSL during AY 2018-19, as per the provisions of Act as well as India-UK tax treaty and the stand taken by the Id. DCIT(IT) in this connection is misconceived, incorrect, erroneous and illegal. 3.3 On the facts and circumstances of the case and in law, the Ld. DCIT(IT) has erred in not considering the judgment passed by the jurisdictional ITAT in the Appellant's own case for AY 200940 and AY 2010-11 and jurisdictional High Court in the case of VSL which dealt with similar issue as in the present case. 3.4 Without prejudice to the above, on the facts and circumstances of the case and in law, the Ld. DCIT(IT) has erred in calculating the tax on the royalty income at the rate of 15 % instead of 10% as per the provisions of section 115A(1)(b) of the Act.
4. Ground 4: Interest under section 234A. 4.1 On the facts and circumstances of the case and in law, the Ld. DCIT(IT) has erred in levying interest u/s. 234A of the Income-tax Act, 1961 on the Appellant. 4.2 The interest levied under section 234A is consequential in nature and ought to be deleted once the above ground no. 3 raised by the Appellant is deleted.
5. Ground 5: Interest under section 234B 5.1 On the facts and circumstances of the case and in law, the Ld. DCIT(IT) has erred in levying interest u/s. 234B of the Income Tax Act, 1961 on the Appellant. 5.2 The interest levied under section 234B is consequential in nature and ought to be deleted once the above ground no. 3 raised by the Appellant is deleted.
IT(IT)A No.39/Bang/2025 CO No.8/Bang/2025
Page 4 of 7 6. Ground 6: Levy of Penalty/Late Fees under section 234F of the Act 6.1 On the facts and circumstances of the case and in law, the Ld. DCIT(IT) has erred in levying penalty/late fees under section 234F of the Income Tax Act, 1961 on the Appellant on account of non- filing of the return of income. 6.2 The penalty levied under section 234F is consequential in nature and ought to be deleted once the above ground no. 3 raised by the Appellant is deleted.
7. Ground 7: Initiation of Penalty Proceedings under section 270A of the Act 7.1 On the facts and circumstances of the case and in law, the Ld. DCIT(IT) has erred in initiating penalty proceedings under section 270A of the Income-tax Act, 1961.
It was submitted by the learned AR that the issue is squarely covered in assessee's own case for Assessment Years 2009-10 and 2010-11 in IT(IT)A Nos.864, 865/Bang/2023 (Order dated 01.02.2024)on similar set of facts and submitted that the Order of the Co-ordinate Bench of the Tribunal noted above has been confirmed by the Hon'ble High Court of Karnataka in (Order dated 16.01.2025) and the Hon'ble High Court has decided the issue in favour of the assessee and it has been held that payment made to NTOs are not taxable in India as royalty and he further submitted that the AO has wrongly treated it as 'royalty'. Since the facts are similar in and 865/Bang/2023, therefore it is not required to reproduce the same for the sake of convenience.
However, the learned CIT(A) has rightly decided the issue in favour of the assessee by relying on the judgment of jurisdictional High Court of Karnataka in the case of Vodafone Idea Ltd., Vs. DCIT (International Taxation) reported in (2023) 152 taxmann.com 575 (Karnataka) and he submitted that the Hon'ble High Court while deciding the assessee's case noted supra in which judgment of Vodafone Idea Ltd., has been relied on and submitted that the issue has attained
IT(IT)A No.39/Bang/2025 CO No.8/Bang/2025
Page 5 of 7 finality and the learned Counsel further submitted that the judgment of DCIT Vs. Vodafone Idea Ltd., has been decided in favour of the assessee by the Hon'ble Apex Court reported in (2024) 165 taxmann.com 394 (SC).
On the other hand, the learned DR relied on the Order of the AO.
Considering the rival submissions and on perusal of the material available on record and the Order of the authorities below, we noted that the issue is squarely covered in assessee's own case in 865/Bang/2024 on similar set of facts for the Assessment Years 2009-10 and 2010-11 (Order dated 01.02.2024) in which it has been held as under:
"8. We have heard the rival submissions and perused the material on record. In the instant case, the assessments were reopened for Assessment Years 2009-10 and 2010-11 on the basis of the orders passed under section 201 of the Act in the case of the payer viz., VSL. The Tribunal in the case of M/s. VSL (the payer) in the proceedings under section 201 of the Act, had held that the said charges paid to the non-resident is Royalty/FTS and the income is deemed to accrue or arise under section 9 of the Act. Therefore, it was concluded by the Tribunal that the assessee in that case viz., VSL ought to have deducted tax at source and having failed to do so, the proceedings under section 201 of the Act, is valid. However, the order of the Tribunal in the case of VSL was reversed by the Hon’ble jurisdictional High Court in the case relied on by the CIT(A). Since the Hon’ble jurisdictional High Court has categorically held that the payment made by the VSL is not Royalty/FTS, the same cannot be brought to tax in the hands of the assessee under section 9 of the Act and the relevant DTAA. The relevant finding of the Hon’ble jurisdictional High Court has been elaborately extracted in the impugned order of the CIT(A), therefore the same is not reiterated here. In view of the aforesaid judgment of the Hon’ble High Court in the case of VSL (supra), we hold that CIT(A) is justified in deciding the issue on merits in favour of assessee and deleting the additions made by the AO for Assessment Years 2009-10 and 2010-11. It is ordered accordingly."
IT(IT)A No.39/Bang/2025 CO No.8/Bang/2025
Page 6 of 7 8. The above judgment of the Co-ordinate Bench of the Tribunal has been confirmed by the jurisdictional Hon'ble High Court in (Order dated 16.01.2025) in which it has been held as under:
"ORAL ORDER (PER: HON'BLE MR JUSTICE KRISHNA S DIXIT) Learned counsel appearing for both the sides in all fairness submit that the subject matter of this case is substantially similar to the one in VODAFONE IDEA LTD., vs. DEPUTY DIRECTOR OF INCOME-TAX, (INTERNATIONAL TAXATION), [2023] 152 taxmann.com 575 (Karnataka) disposed off by a Coordinate Bench of this Court vide order dated 14.07.2023 and therefore, the relief granted to the Appellants-Assessee therein needs, to be extended to the similarly circumstanced Respondent-Assessee in this Appeal too.
Ordered accordingly and the Appeal is disposed off, costs having been made easy."
Since this issue has attained finality, no further discussion is required. Respectfully following the above judgment, we dismiss the appeal of the Revenue in the the above terms. Assessee has also filed CO challenging the reopening of the case. Since we have decided the issue on merits and dismissed the Department's appeal, the CO filed by the assessee is rendered infructuous and the same is dismissed.
IT(IT)A No.39/Bang/2025 CO No.8/Bang/2025
Page 7 of 7 10. In the result, appeal filed by the Revenue and the CO of the assesseeare dismissed.
Pronounced in the court on the date mentioned on the caption page.