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Facts
The assessee, a non-resident company, provided interconnect services to Vodafone Idea Ltd. The AO initiated reassessment proceedings to tax these payments as royalty, which were claimed to be not chargeable in India as they were for services provided outside India. The assessee did not file a return of income.
Held
The Tribunal held that the issue was squarely covered by the judgment of the Karnataka High Court and the dismissal of the SLP by the Supreme Court, which held that payments for interconnectivity services are not royalty. Therefore, the appeals of the revenue were dismissed.
Key Issues
Whether payments made for international interconnectivity services by a non-resident telecom operator to an Indian telecom operator constitute royalty taxable in India.
Sections Cited
271(1)(c), 250, 201, 201(1A), 148, 147, 144
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI WASEEM AHMED & SHRI PRAKASH CHAND YADAV
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”).
It is relevant to mention here that /Bang/2024 is in respect of the quantum proceedings and 271(1)(c) of the Income Tax Act, 1961 (in short “The Act”).
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.
The ld. D.R. appearing on behalf of the revenue strongly relied upon the orders of authorities below.
The ld. Counsel for the assessee relied upon the judgement of Hon’ble jurisdictional High Court in the case of Vodafone Idea Ltd.
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.
In the result, both the appeals of the revenue are dismissed. Order pronounced in the open court on 13th Feb, 2025