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2015 (2) TMI 454 - AT - Income TaxIncome from capacity sales earned under the Capacity Sales Agreement - ‘royalties’ under section 9(1)(vi) - assessee and VSNL entered agreement - joint ownership of the capacity in the cable system - taxability in India as ‘business income’ or income under the head “Royalties “ or “Free for Technical Services” (FTS) - Held that:- From the clauses of the agreement it is absolutely clear that the benefit and the burdens of the ownership has shifted from seller to the buyer. Here the buyer, VSNL has all the risks and rewards of ownership which is unfettered by the Flag, inasmuch as the VSNL has not only the exclusive domain on the rights to use but also right to resale or transfer its interest in the capacity in the cable system to the exclusion of the Flag. The assessee has no right on the capacity once sold. It does not retain any ownership, control and possession of the capacity sold to the VSNL. Under the terms of the C&MA, the VSNL also has right to vote on important matters relating to the management of cable system. The VSNL in all terms becomes absolute owner after the purchase of the capacity to the exclusion of the Flag and others. Thus, under the C&MA the VSNL satisfies the characteristic of a “owner” and “ownership” in respect of the capacity in the cable system. All the facts and circumstances and the intent of the parties as evidenced from the agreements, clearly goes to show that assessee has sold the capacity with benefit and burden of ownership of the capacity to the VSNL. Thus, it can very well be inferred, that the payment received from the VSNL is from sale of capacity in the cable system. Had there been intention of giving only ‘right to use’ of capacity, the Flag would have retained the ownership, control and possession of the capacity and VSNL would have allowed to use its network. Once a right to use is given to a party, then there is no requirement of passing the ownership with all the risks, rights and obligations. Thus the payment of US $ 28.94 million received by the assessee from VSNL is on account of sales and hence constitutes business income of the assessee. The finding and the conclusion of the Ld.CIT(A) based on the terms of the agreement and facts of the case on this score, that the receipts in question is “business income” of the assessee and not “royalty” is upheld. Accordingly, the said payment cannot be taxed as “royalty” under section 9(1)(vi). Unless the deeming income falls within the parameters of section 9(1)(i), no attribution can be made. Thus, so far as payment of US $ 28.94 million received by the assessee from sales of capacity made to VSNL is not taxable either as ‘royalty’ u/s 9(1)(vi) or ‘business income’ accruing or arising in India within the deeming provision of section 9(1)(i). Accordingly, assessee’s ground no.1 on this score is allowed. It cannot be held that payment in question falls within the realm of FTS - Decided in favour of assessee Taxability of ‘standby maintenance charges’ as fees for technical services u/s 9(1)(vii) - Held that:- On the facts and circumstances of the case as well as looking to the nature of standby maintenance cost, we hold that the receipts from standby maintenance charges from VSNL cannot be taxed as FTS, within the definition and meaning of section 9(1)(vii) as there is no rendering of services. However, whenever payment is received on account of actual repair or maintenance carried out, then same would definitely fall within the ambit of FTS chargeable to tax u/s 9(1)(vii). Accordingly the order of the CIT(A) is set aside - Decided in favour of assessee Interest u/s 234B - Held that:- As assessee has not committed any default in payment of advance tax and hence there is no liability to pay interest u/s 234B. - Decided in favour of assessee
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