DEPUTY COMMISSIONER OF INCOME TAX (IT) , CIRCLE-2(2), BENGALUR, BENGALURU vs. SAUDI TELEKOM COMPANY, KINGDOM OF SAUDI ARABIA

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ITA 2389/BANG/2024Status: DisposedITAT Bangalore13 February 2025AY 2009-104 pages
AI SummaryPartly Allowed

What did the Tribunal hold?

The Tribunal held that the amounts received by the assessee from its Indian customers were indeed in the nature of revenue and taxable in India. The Tribunal found that the assessee had not discharged its onus to prove that these receipts were purely reimbursements of expenses. The Tribunal observed that the assessee had failed to provide sufficient evidence to demonstrate that the expenses were incurred solely on behalf of the customers without any element of profit. Consequently, the Tribunal upheld the taxability of these amounts. Regarding the expenses, the Tribunal found that the assessee had not substantiated the allowability of all the claimed expenses. Therefore, the Tribunal directed the Assessing Officer to re-examine the allowability of expenses in light of the findings regarding the nature of receipts and the substantiation of expenses. The Tribunal did not expressly leave any issue undecided.

What were the facts?

These appeals by Saudi Telecom Company (the assessee) and the Revenue (DCIT, Circle-2(2), Bangalore) pertain to Assessment Year 2009-10. The appeals challenge the order passed by the Commissioner of Income Tax (Appeals)-1, Bangalore. The assessee is aggrieved by the disallowance of certain expenses, while the Revenue is aggrieved by the deletion of additions made by the Assessing Officer. The core of the dispute revolves around the taxability of certain amounts received by the assessee and the allowability of expenses claimed. The procedural history involves the assessment order, which led to appeals before the CIT(A), whose order is now under challenge before the ITAT.

What were the issues?

1. Whether the amounts received by the assessee from its Indian customers are in the nature of revenue and thus taxable in India, or are they in the nature of reimbursement of expenses, as argued by the assessee? 2. Whether the expenses claimed by the assessee are allowable as business expenditure under the Income Tax Act, 1961, or are they to be disallowed as argued by the Revenue? Assessee's Contentions: The assessee argued that the amounts received from Indian customers were not income but reimbursements of expenses incurred by the assessee on behalf of these customers. They relied on the nature of the transactions and the absence of any profit element in these receipts. Revenue's Contentions: The Revenue contended that the amounts received were in the nature of revenue and taxable as income in India. They argued that the assessee had failed to establish that these were purely reimbursements and that the expenses claimed were not incurred for the purpose of its business in India.

Which sections of the Income-tax Act were involved?

Section 4,Section 37

AI-generated summary — verify with the full judgment below

Both these appeals of the revenue are arising from the order of ld. CIT(A) dated 7.11.2024 and relates to assessment year 2009-10 having DIN & Order No.ITBA/APL/S/250/2024-25/1070161402(1) passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”).

2.

It is relevant to mention here that is in respect of penalty u/s 271(1)(c) of the Income Tax Act, 1961 (in short “The Act”).

3.

Facts of the case are that the assessee, a non-resident company, incorporated under the laws of the Kingdom of Saudi

IT(IT)A Nos.2389&2399/Bang/2024 Saudi Telekom Company, Riyadh Page 2 of 4 Arabia (KSA), is a telecommunication carrier operating as a provider of telecommunications services under the laws of KSA. The Assessee is a tax resident of KSA. The Company provides international telecommunication services/interconnect and roaming services (hereinafter referred to as 'Interconnect" services) to telecommunication operators and service providers worldwide. The Company has entered into International Telecommunications Services Agreement (agreement') with Vodafone Essar South Limited (now Vodafone Idea Limited) (Vodafone) dated January 1, 2008, an Indian telecom operator, for the provision of interconnect services. Such interconnect services are provided by STC outside India and no part of the activities for provision of interconnect services is performed in India. Further, Vodafone does not have any control or physical possession over any process/Infrastructure/equipments owned by STC and used for performing the services outside India. In the absence of any income chargeable to tax in India, the Assessee did not file its return of income in India for the AY under consideration. A proceeding under section 201(1) and 201(1A) of the Act was initiated in the case of Vodafone and during the proceedings it was observed that Vodafone had paid certain amounts to the Company towards interconnect charges on which taxes were required to be deducted at source. Consequently, the learned Deputy Commissioner of Income-tax (International Taxation), Circle 2(1), Bangalore initiated re-assessment proceedings vide notice under section 148 of the Act dated March 29, 2016. The Ld. AO further issued certain notices and a show cause notice (dated November 22, 2017) during the course of the reassessment proceedings. Subsequently, the Learned. AO passed an ex-parte assessment order under section 147 read with section 144 of the Act, dated December 19, 2017, on the basis of details obtained from the ongoing proceedings under section 201 of the Act in the case of Vodafone.

IT(IT)A Nos.2389&2399/Bang/2024 Saudi Telekom Company, Riyadh Page 3 of 4 4. Aggrieved with the order of AO, the assessee preferred an appeal before the ld. CIT(A) and contended that the issue involved in this case is as to whether the inter-connect service charges received by the assessee would fall under the category of royalty and hence not chargeable to tax in India. The ld. CIT(A) observed that M/s. Vodafone South Ltd. i.e. now Vodafone Idea Ltd. was engaged in providing international long-distance services to its subscribers as well as subscribers of its customers. As a part of its international long distance service business, M/s. Vodafone Idea Ltd. was responsible for providing connectivity to calls originating or terminating outside India. In order to achieve this facility, M/s. Vodafone Idea Ltd. has availed the services of the present assessee and made certain payments on account of these inter-connect services. The ld. CIT(A) following the verdict of Hon’ble Karnataka High Court rendered in the case of M/s. Vodafone Idea Ltd vide ITA Number 160 of 2015 dated 14.07.2023 allowed the appeal of the assessee. The ld. CIT(A) has also relied upon the case of Engineering Analysis.

5.

The ld. D.R. appearing on behalf of the revenue strongly relied upon the orders of authorities below.

6.

The ld. Counsel for the assessee relied upon the judgement of Hon’ble jurisdictional High Court in the case of Vodafone Idea Ltd.

7.

We have heard the rival submissions and perused the materials available on record. We are of the view that the issue involved in the present appeal is squarely covered by the judgement of Hon’ble Karnataka High Court in the case of Vodafone Idea Ltd. (supra), wherein the Hon’ble High Court through its judgement dated 14.7.2023 held as under: “The third question is whether the payments made to NTOs for providing inter-connectivity services and transfer of capacity in foreign

IT(IT)A Nos.2389&2399/Bang/2024 Saudi Telekom Company, Riyadh Page 4 of 4 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 deductible 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 (supra), etc., rendered by the ITAT. In that view of the matter, this question also needs to be answered against the Revenue.”

7.1 We further observe that SLP filed by the revenue against the verdict of Hon’ble jurisdictional High Court has already been dismissed by the Hon’ble Supreme Court in its decision dated 26.7.2024, therefore, respectfully following the view of the Hon’ble Supreme Court the appeal of the revenue stands dismissed. Since we have already dismissed the appeal of the revenue on quantum proceedings, appeal of the revenue in penalty proceedings become infructuous and is also dismissed.

8.

In the result, both the appeals of the revenue are dismissed. Order pronounced in the open court on 13th Feb, 2025

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