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Income Tax Appellate Tribunal, “L” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI SANDEEP GOSAIN, JM
These are appeals by the Revenue for the assessment years 2005-06, 2006-07 and 2007-08 and cross objection by the assessee for the assessment year 2005-06 and appeal by the assessee for the assessment year 2008-09, against the respective orders of Commissioner of Income Tax (Appeals). Since the issues are common and connected, all the appeals were heard together. These have been consolidated and disposed of together by this common order.
The issues in the appeals relate to taxability of payments received for leasing out a dedicated international bandwidth of the cable by the assessee to its customers in India for facilitating transfer of data. The assessee’s plea is that this does not amount the royalty under the Income Tax Act, 1961 and as per the Indo-USA DTAA. Another issue raised is the interest chargeable u/s. 234B.
At the outset, in this case, the ld. Counsel of the assessee has submitted a petition as under:
Petition/letter dated 24 October, 2017 Assessment year 2005-06-ITA 5156/Mum/2009 (Department’s appeal) (‘AY'): and CO 74/Mum/2010 (Assessee’s CO) 2006-07-ITA 569/Mum/2010 (Department’s Appeal) 2007-08-ITA 3808/Mum/2010 (Department’s Appeal) 2008-09-ITA 2744/Mum/2012 (Assessee’s appeal) We refer to the captioned appeals scheduled for hearing on 30 October 2017 before ‘L’ Bench of the Hon’ble Income Tax Appellate Tribunal, Mumbai.
3 569 & 3808/M/10, CO No.74/M/10 and 2744/M/12 M/s. Sprint Communications Company LP In all the captioned matters, the principal issue for adjudication before Your Honours is whether the income earned by non-resident assessee from provision of telecommunication services is taxable as ‘Royalty’ in inida. This issue has been a subject matter of significant litigation in India with contrary decisions of various courts. The Hon’ble Delhi High Court in case of Asia Satellite Telecommunications Co. Ltd. vs. DIT [2011] 332 ITR 340 (Del) and DIT v. New Skies Satellite BV [2016] 382 ITR 114 (Delhi) have ruled in favor of the assessee, whereas the Hon’ble Madras High Court in case of Verizon Communications Singapore Pte. Ltd. v.s ITO [2014] 361 ITR 575 (madras) has ruled against and held that the same would be taxable in India as ‘Royalty’. We understand that the matter is currently pending before the Hon’ble Supreme Court for adjudication and we believe that the issue is not likely to attain finality in near future. Given the above and considering that cost of litigation (including consumption of management’s time devoted to the matters) significantly outweighs the tax demand under litigation, SCC LP wishes not to further litigate the learned Assessing Officer’s contention that the payment received by the assessee from India for provision of telecommunication services would be taxable as ‘Royalty’. Without prejudice to the above, the assessee also wishes to humbly submit that not pursuing the litigation any further should not be treated as the acceptance of the department’s contentions. The sole reason why the Assessee has chosen not to press the ground is because it is not economically beneficial for it to pursue the matter any further. The assessee reserves its right to litigate any similar issue which may arise in any earlier or subsequent years.
Referring to the above, the ld. Counsel of the assessee submitted that in three of the years, i.e., assessment years 2005-06, 2006-07 and 2007-08, the ld. CIT(A) has decided the issue of taxability of income earned from the provision of telecom service as royalty in favour of the assessee. However, for assessment year 2008-09, the said issue has been decided against the assessee. The ld. Counsel submitted that now the assessee seeks to withdraw its appeal and does not want to contest the department’s appeal. In the case of department’s appeal, the ld. Counsel of the assessee submitted that he agree with the assessment order passed by the Assessing Officer, for the telecommunication services would be taxable as royalty.
Per contra, the ld. Departmental Representative did not have any objection to the concession being made by the ld. Counsel of the assessee.
Upon careful consideration, we find that since the assessee is not contesting the taxability of the income received by it from the provisions of telecommunication services taxable as royalty, the ground raised by the assessee on this issue is dismissed and the grounds raised by the Revenue on this issue are allowed
One more issue which arises in these appeals is the chargeability of interest u/s. 234B. We find that this issue is covered in favour of the assessee by the decision of Hon'ble jurisdictional High Court decision in the case of DIT (IT) vs. Ngc Network Asia LLC [2009] 222 CTR 85 (Bom). In the said case, it was expounded that when the duty is cast on the payer to pay the tax at source, on failure, no more interest can be imposed on the payee assessee u/s. 234B. Respectfully following the precedent, we hold that interest u/s. 234B in this case is not chargeable.
In Cross Objection No.74/Mum/2010, the assessee has raised the following ground:
1. On the facts and circumstances of the case, the learned Assessing Officer has erred in holding that the Commissioner of Income-tax (Appeals) [‘CIT(Á)’] admitted submissions in contravention of Rule 46A of the Income-tax Rules, 1962 in relation to the Respondent having a permanent establishment in India.
5 569 & 3808/M/10, CO No.74/M/10 and 2744/M/12 M/s. Sprint Communications Company LP 9. The ld. Counsel of the assessee submitted that he shall not be pressing the cross objection. Accordingly, the cross objection is dismissed as not pressed.
In the result, the above appeals are decided as under: (i) 569 & 3808/Mum/2010 (Revenue’s appeal) The Revenue’s appeals on the ground relating to taxability as royalty are decided in favour of the Revenue. The ground relating to the deletion of interest u/s. 234B is in favour of the assessee. Hence, this appeal by the Revenue is partly allowed.
(ii) (Assessee’s appeal) Ground relating to taxability of royalty is decided against the assessee. The issue relating to chargeability of interest u/s. 234B is decided in favour of the assessee. Hence, this appeal is partly allowed.
(iii) CO No. 74/Mum/2010 is hereby dismissed as not pressed.
Order pronounced in the open court on 07.11.2017