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2023 (7) TMI 1164 - HC - Income TaxTDS u/s 195 - Royalty or FTS or business profits - payment made to NTOs is towards interconnectivity charges - Assessee is an ILD license holder and responsible for providing connectivity to calls originating/terminating outside India. Assessee has entered into an agreement with NTOs for international carriage and connectivity services - whether DTAA cannot be considered under Section 201 ? - HELD THAT:- As decided in Engineering Analysis [2021 (3) TMI 138 - SUPREME COURT] while deciding the scope of Section 195(2) it is important to note that the tax which is required to be deducted at source is deductible only out of the chargeable sum. This is the underlying principle of Section 195 - Thus it is clear that an assessee is entitled to take the benefit under a DTAA between two countries. Hence, the ITAT’s view that DTAA cannot be considered in proceedings under Section 201 of the Act is tenable. Whether the ITAT was correct in holding that the amendment to provisions of Section 9(1)(vi) inserting the Explanations will result in amendment of DTAA? - The answer to this question must be in the negative because in Engineering Analysis, the Apex Court has held that Explanation 4 to Section 9(1)(vi) of the Act is not clarificatory of the position as on 01.06.1976 and in fact expands that position to include what is stated therein vide Finance Act, 2012. The Explanation 5 and 6 to Section 9(1)(vi) of the Act has been inserted with effect from 01.06.1976. This aspect has also been considered in Engineering Analysis holding that the question has been answered by two Latin Maxims, lex no cogit ad impossibilia i.e. the law does not demand the impossible, and impotentia excusat legem i.e. when there is disability that makes it impossible to obey the law, the alleged disobedience of law is excused. Whether the payments made to NTOS for providing interconnect services and transfer of capacity in foreign countries is chargeable to tax as royalty? - For subsequent years in assessee’s own case, the ITAT has held that tax is not deductable 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 etc [2023 (2) TMI 1165 - ITAT DELHI] rendered by the ITAT. In that view of the matter this question also needs to be answered against the Revenue. Whether the Income Tax Authorities have jurisdiction to bring to tax income arising from extra-territorial source? - Admittedly, the NTOs have no presence in India. Assessee’s contract is with Belgacom, a Belgium entity which had made certain arrangement with Omantel for utilisation of bandwidth. In substance, Belgacom has permitted utilisation of a portion of the bandwidth which it has acquired from Omantel. It is also not in dispute that the facilities are situated outside India and the agreement is with a Belgium entity which does not have any presence in India. Therefore, the Tax authorities in India shall have no jurisdiction to bring to tax the income arising from extra-territorial source. Whether the Revenue is right in holding that withholding tax liability should be levied at a higher rate? - As contended this issue is covered in assessee’s favour in CIT Vs. M/s. Wipro [2023 (1) TMI 173 - KARNATAKA HIGH COURT] and the same is not disputed. Hence, this question also needs to be answered against the Revenue. Whether assessee can be held liable for non-reduction of tax at source for payments made for the A.Ys. on the basis of amendment to Section 9(1)(vi)? - This aspect has been considered by us while answering question No. 2. It is held in Engineering Analysis that an assessee is not obliged to do the impossible. Admittedly, the A.Y.s under consideration are 2008-09 to 2012-13 and the Explanation has been inserted by Finance Act, 2012. In addition, we have also held that assessee is entitled for the benefits under DTAA.
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