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2023 (11) TMI 281 - ITAT BANGALOREIncome taxable in India - TDS u/s 195 - non-deduction of tax at source on payments made to its Non-Resident Telecom Operators (“NTOs”) for provision of bandwidth capacity and for provision of interconnect services - default u/s. 201 - AR submitted that DTAA will prevail over the Income- Tax Act and also submitted that there is No "use of process" or any "use of equipment". Hence, the entire assumption of "process royalty" / "equipment royalty" does not arise in the case of the assessee - HELD THAT:- Characterization of payments received by assessee towards interconnectivity utility charges - By insertion of Explanation 5 & 6, meaning of word 'Process' has been widened. As per these explanations, the word 'Process' need not be ‘secret’, and situs of control & possession of right, property or information has been rendered to be irrelevant. However, in our opinion, all these changes in the Act, do not affect the definition of ‘Royalty’ as per DTAA. The word employed in DTAA is 'use or right to use', in contradistinction to, “transfer of all or any rights” or 'use of', in the domestic law. As per Explanation 5 & 6, the word 'process' includes and shall be deemed to included, transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret. Payments made by the assessee in lieu of services provides by the assessee cannot fall within the ambit of ‘Royalty’ u/s 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 Netherlands 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 placed at pages 228 – 238 of paper book, 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 4 of Article 12 of India- Netherlands DTAA. Also 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 4 of Article 12 of India-Netherlands DTAA. Therefore Receipt of IUC charges cannot be taxed as Royalty under Article 12(4) in India of India- Netherlands DTAA. Thus as per 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 12(4) 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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