2024 (3) TMI 1061 - AT - Income Tax

TDS u/s 195 - payment received for interconnect usage charges - transaction with non-treaty country - whether it is liable to be taxed as royalty u/s 9(1)(vi) of the Act? - AO/DRP had brought the amount to tax in the hands of the assessee company solely relying on the orders passed u/s 201 and 201A - HELD THAT - The order of the co-ordinate Bench of the Tribunal in the case of PCCW Global Ltd 2023 (11) TMI 1239 - ITAT BANGALORE is directly applicable to the facts of the assessee since the said case also relates to Hong Kong non-treaty country. In light of the aforesaid judicial pronouncements we hold that the amount received by assessee company from the Indian telecom operator for interconnect usage is not chargeable to tax as royalty . Assessee ground of appeal allowed.

Summary

Issues Involved:
- Taxability of payment received by the assessee company on account of provision for interconnect services as "royalty" under section 9(1)(vi) of the Income Tax Act, 1961.

Summary:
The judgment by the Appellate Tribunal ITAT Bangalore pertained to an appeal by an assessee against the Final Assessment Order dated 24.11.2020, passed u/s 147 r.w.s. 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 for the Assessment Year 2011-12. The case involved a foreign company providing telecommunication services and receiving charges for interconnect facilities. The Assessing Officer (AO) considered the amounts received as "royalty" based on proceedings under section 201 of the Act in the case of the payer. The Dispute Resolution Panel (DRP) upheld the addition, relying on previous Tribunal orders. The main issue raised in the appeal related to the taxability of interconnect usage charges as "royalty" under section 9(1)(vi) of the Act. The Tribunal referred to a High Court judgment and other Tribunal orders, concluding that the amount received was not chargeable to tax as "royalty" based on legal principles and precedents. The appeal was partly allowed, ruling in favor of the assessee.

The judgment highlighted the importance of Double Taxation Avoidance Agreements (DTAA) and legal interpretations regarding the taxability of certain payments. It emphasized the need to consider DTAA provisions in tax proceedings and clarified the impact of legislative amendments on DTAA agreements. The Tribunal's decision was influenced by previous rulings and legal principles, ultimately determining that the income from interconnect services was not taxable as "royalty." The judgment also addressed jurisdictional issues concerning income from extraterritorial sources, asserting that tax authorities in India lacked jurisdiction in such cases. The decision was based on a thorough analysis of legal arguments and relevant case law, providing clarity on the tax treatment of the disputed payments.