PR. COMMISSIONER OF INCOME TAX vs. M/S KDDI CORPORATION

PR. COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION), KORMANGALA, BANGALORE.

THE DEPUTY COMMISSIONER OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE 2(1), KORMANGALA, BANGALORE. …APPELLANTS (BY SRI E.I. SANMATHI, SENIOR STANDING COUNSEL) AND:

M/S KDDI CORPORATION, JAPAN, 2-3-2, NISHI SHINJUKU-KU, TOKYO, JAPAN-1638003, PAN: AAICK596ID, REP. BY ITS DIRECTOR. …RESPONDENT (BY SMT. TANMAYEE RAJKUMAR, ADVOCATE)

This appeal is preferred by the Revenue, assailing the order dated 15.04.2024 passed by the Income Tax Appellate Tribunal, 'C' Bench, Bengaluru (hereinafter referred to as 'the Tribunal'), in IT(IT)A No.101/Bang/2024, relating to the assessment year 2014-15.

The facts, in brief, are that the respondent- assessee, a company incorporated in Japan, is engaged in the business of providing telecommunication services across the globe. The respondent rendered telecommunication services to Indian companies and received consideration therefore. The transaction in question pertains to Vodafone South Limited. Proceedings under Section 201 of the Income Tax Act, 1961 (for short, ‘the Act’) were initiated against Vodafone South Limited for non-deduction of tax at source on the payments made towards interconnect service charges. Consequentially, assessment proceedings were initiated against the assessee.

The Assessing Officer, by draft assessment order held that the consideration received by the assessee is taxable as ‘royalty’ under Section 9(1)(vi) of the Act as well as under the provisions of the Double Taxation Avoidance Agreement between India and Japan.

The Assessing Officer passed a draft assessment order, which was subjected to objections before the Dispute Resolution Panel (DRP). The DRP, having regard to the pendency of the issue before the Hon’ble Supreme Court, approved the draft assessment order. Pursuant thereto, the Assessing Officer, by final assessment order dated 05.12.2023, gave effect to the directions of the DRP and imposed tax on the consideration received towards interconnect service charges, treating the same as ‘royalty’. Aggrieved thereby, the assessee preferred an appeal before the Tribunal. The Tribunal, by the impugned order, following the judgment of this Court in M/s. Vodafone Idea Limited v. Deputy Director of Income Tax and another in ITA No.160/2015 and connected matters, decided on 14.07.2023, held that the interconnect service charges are not taxable in the hands of the assessee as ‘royalty’ in India.

Sri E.I. Sanmathi, learned Senior Standing Counsel appearing for the Revenue, submits that the decision of this Court in M/s. Vodafone Idea Limited is not wholly applicable to the facts of the present case.

On the other hand, Smt. Tanmayee Rajkumar, learned counsel appearing for the respondent–assessee, submits that the assessee has received service charges from Vodafone. It is further submitted that in the case of M/s. Vodafone Idea Limited (payer), it has been held that the amount paid is not taxable as ‘royalty’ in India, either under the provisions of the Income Tax Act or the Double Taxation Avoidance Agreement. Hence, it is contended that once it has been held that M/s. Vodafone Idea Limited, being the payer, had engaged in a similar transaction, this Court has categorically held that the consideration is not taxable as ‘royalty’.

We have considered the submissions of learned counsels for both the parties and perused the appeal papers.

The question that arises for consideration before this Court is with regard to the taxability of the consideration paid towards telecommunication services provided by the respondent-foreign company to Indian companies. This Court, in the case of M/s. Vodafone Idea Limited, has held that interconnect service charges are not taxable in India as ‘royalty’ either under the provisions of the Act or under the applicable Double Taxation Avoidance Agreement. The Tribunal, following the said judgment, has held that the amount in question is not taxable as ‘royalty’.

The Revenue preferred an appeal against the judgment of this Court before the Hon’ble Supreme Court. The Hon’ble Supreme Court by order dated 14.07.2025, dismissed the said appeal, in the case of Deputy Commissioner of Income Tax, International Taxation vs. Vodafone Idea Ltd., ([2025] 176 taxmann.com 626 [SC]).

In view of the foregoing, the substantial questions of law raised in the appeal memorandum stand covered by the judgment of this Court in M/s. Vodafone Idea Limited as well as by the judgment of the Hon’ble Supreme Court.

We find no merit in the appeal. Accordingly, the same stands dismissed.