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2023 (9) TMI 257 - AT - Income TaxIncome deemed to accrue or arise in India - Foreign income taxable in India - taxability of payments received by assessee for provision of bandwidth capacity and for provision for interconnect services as royalty u/s. 9(1)(vi) - network / international long distance gateway - payments received by assessee from the Indian telecom operators - Assessee is a non-resident company having headquarters at Singapore providing services in the field of telecommunication outside India and provides ci2ci, sea-bone and wholesale voice interconnect for voice carriers to various companies - HELD THAT:- We note that the revenue characterised the payments received by assessee towards interconnectivity utility charges as Royalty since the payment is made to “use the process” or “an equipment”. It is an admitted fact that various service providers in India entered into agreement with assessee for international carriage and connectivity services against which an interconnectivity charges are received by the assessee. The term "process" used under Explanation 2 to section 9(1)(vi) in the definition of 'royalty' does not imply any 'process' which is publicly available. The term "process" occurring under clauses (i), (ii) and (iii) of Explanation 2 to section 9(1)(vi) means a "process" which is an item of intellectual property. The word "process" thus must also refer to specie of intellectual property, applying the rule of, ejusdem generis or noscitur a sociis, as held by Hon’ble Supreme Court in case of CIT vs. Bharti Cellular [2010 (8) TMI 332 - SUPREME COURT] It is an admitted fact that there is no transfer of any intellectual property rights or any exclusive rights that has been granted by the assessee to the service recipients for using such intellectual property. Therefore Explanation 2 to section 9(1)(vi) cannot be invoked. Payments made by the assessee in lieu of services provides by the assessee cannot fall within the ambit of ‘Royalty’ under section 9(1)(vi) Explanation 5 &6. 9.2.15 We also note that the Explanations 5 and 6 to section 9(1)(vi) are not found in the definition of “Royalty” under India Singapore DTAA. The definition of “Royalty” under the DTAA is much more narrower in its scope and coverage, than the definition of “Royalty” contained in section 9(1)(vi) r.w. Explanations 2,5 and 6 of the act. As in the present facts of the case, at no point of time, any possession or physical custody, control or management over any equipment is received by the end users / customers. It is also noted that the process involved in providing the services to the end users / customers is not “secret” but a standard commercial process followed by the industry players. Therefore the said process also cannot be classified as a “secret process”, as is required by the definition of “royalty” mentioned in clause 3 of Article 12 of India-Singapore DTAA. We are therefore of the opinion that the receipt of IUC charges cannot be taxed as Royalty under Article 12 in India of India- Singapore DTAA. The above observations are supported by the view expressed by Hon’ble Karnataka High Court in case of Vodafone Idea Ltd. [2023 (7) TMI 1164 - KARNATAKA HIGH COURT] observed that the equipments and submarine cables are situated overseas and that Vodafone Idea Ltd. had availed certain services from the non-resident telecom operators and that such agreements would not create a permanent establishment of such non-resident telecom operators in India. Thus hold that payments received by assessee towards interconnectivity utility charges from Indian customers / end users cannot be considered as Royalty to be brought to tax in India u/s 9(1)(vi) of the Act and also as per DTAA. The payment received by the non-resident assessee amounts to be the business profits of the assessee which is taxable in the resident country and is not taxable in India under Article 5 of the DTAA as there is no case of permanent establishment of the assessee that has been made out by the revenue in India. Even Hon’ble High Court has in para 25, held that the non-resident service providers do not have any presence in India. Decided in favour of assessee.
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