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2023 (9) TMI 318 - ITAT BANGALOREIncome deemed to accrue or arise in India - Royalty receipt - Taxability of Voice Interconnect Services - transaction between assessee and the Indian customers - payments received by the Appellant for provision of Voice Interconnect Services - scope of India-Austria Tax Treaty - 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” - HELD THAT:- Similar issue came up in case of Bharti Airtel vs.ITO (TDS) [2016 (3) TMI 680 - ITAT DELHI] The issue considered therein was in respect of payment towards call interconnectivity charged for call transmission on foreign network. The Tribunal therein, on applying ratios pronounced in the above referred decisions, held it not as ‘Royalty’. Therefore in our opinion, the 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. We also note that the Explanations 5 and 6 to section 9(1)(vi) are not found in the definition of “Royalty” under India- Austria 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. On perusal of the agreement between the assessee and the end users it is noted that the installation and operation of sophisticated equipments are with the view to earn income by allowing the users to avail the benefits of such equipments or facility and does not tantamount to granting the use or the right to use the equipment or process so as to be considered as royalty within the definition of “royalty” as contained in clause 3 of Article 13 of India-Austria DTAA. We also note that 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 13 of India-Austria DTAA. We are therefore of the opinion that the receipt of IUC charges cannot be taxed as Royalty under Article 13 in India of India- Austria DTAA. As relying in case of Vodafone Idea Ltd. [2023 (7) TMI 1164 - KARNATAKA HIGH COURT] and the discussions hereinabove, we 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 under section 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 held that the non-resident service providers do not have any presence in India. Decided in favour of assessee.
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