9911796707
TMI Blog2015 (1) TMI 1018X X X X Extracts X X X X X X X X Extracts X X X X ..... ecoming redundant. 2. The grounds of appeal taken by the assessee are running into four pages which contain arguments also. Therefore, they are not in consonance with Rule 8 of the ITAT Rules. The issue involved in all these ten appeals is common and the issue is, whether the assessee has to be treated in default for non deduction of tax at source on IUC payments made to non resident telecom operators and capacity transfer payments made to Belgacom. All other issues pleaded in the grounds of appeals are the arguments in respect of this main issue. Therefore, we will take each proposition raised by the learned representative on the strength of their grounds of appeal in seriatim. 3. The brief facts of the case are that the assessee company was incorporated in India on 7.12.1995 under the Companies Act, 1956. It is engaged inter alia in providing international long distance (hereinafter referred to ILD) services to its subscribers, as well as subscribers of its customers, pursuant to the ILD license granted by the Department of Telecommunication (hereinafter referred to DoT) by the Govt. of India. As part of its ILD services business, the assessee is responsible for providing conne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also noticed that NTOs had also not filed any application before the Department for lower or nil rate of deduction of tax at source. According to the Assessing Officer, as per section 195 of the Income Tax Act, 1961, any person responsible for paying to a non resident, not being a company, or to a foreign company, any interests or any other sum chargeable under the provisions of the Act (not being the income chargeable under the head salary) shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash, or by the issue of a cheque or draft or by any other mode, whichever is earlier deduct income tax thereon at the rate in force. In this way the Assessing Officer had issued a show cause notice to the assessee on 6th June, 2011 u/s 201, seeking its explanation for not making tax deduction at source u/s 195 on the capacity transfer payment made to Belgacom. On 15th May, 2012, Assessing Officer had issued another notice seeking details of all payments made by the assessee to NTOs and Belgacom during the financial years 2007-08 to 2010-11. The details have been furnished which are noticed by the Assessing Officer in Paragraph No. 2.6 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Officer, the assessee carried the matter in appeal before the learned first appellate authority. The CIT (A) made a lucid analysis of the law and facts. Assessing Officer in order to determine that element of income is involved in the payments made to NTOs for inter connectivity as well as payments to Belgacom for capacity transfer payments examined the issue with 5 different angles as extracted (Supra). The learned first appellate authority has upheld the taxability of payments u/s 5(2) and also upheld that processes royalty was involved. The CIT (A) did not adjudicate the issue, whether in the payments, "fee for technical services" is involved or not? The CIT (A) further held that income under the head "other income" is not involved in these payments. When we take each proposition, we will make the discussion about the findings of the learned CIT (A). 9. The first fold of the grievance of the assessee is that order passed by the learned Assessing Officer is bad in law and void ab initio. According to the assessee the order is barred by limitation, because the proceedings u/s 201 of the Act for assessment year 2007-08 were initiated and completed beyond a reasonable period of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssment u/s 147; time limit has been provided from 4 to 6 years from the end of the relevant assessment year as provided u/s 149. Thus the action of the Assessing Officer is within a reasonable time. Therefore, we do not see any reason to interfere in the findings of the CIT (A) on this issue. This ground of appeal is rejected. 11. In the second fold of grievance, the assessee has pleaded that the learned CIT (A) has erred in not holding the order of the Assessing Officer to be bad in law and void ab initio. In the absence of any conclusive findings of the Assessing Officer with respect to the nature and characterization of the impugned payments, which have been held to be in the nature of royalty, fee for technical services and other income by the Assessing Officer, which position is untenable in law, because a particular payment cannot be taxed under three different provisons. 12. With the assistance of the learned representatives, we have gone through the record carefully. As observed earlier, the Assessing Officer has examined the issue under four different heads. In his opinion, the payments made (IUC and CTA) by the assessee to NTOs and Belgacom falls within the ambit of sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of Adani Exports has explained the position of section 5(2)(b) of the Income Tax Act, vis-à-vis section 9(1) of the Income Tax Act, 1961. 14. We have duly considered the rival contentions and gone through the record carefully. Section 5(2) has a direct bearing on the controversy. Therefore, it is pertinent to take note of this section, which read as under: "Section 5(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person ; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1.-Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2.-For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ved or accruing or arising in India was, by virtue of the words "subject to the provisions of this Act", in any way modified by section 42(3). The relief afforded by section 42(3) applied only to a case in which the profits and gains were deemed u/s 42 to accrue or arise in India and not to a case in which they actually so accrued or arose or were received in India. 84. The analogy between sections 4(1) and 42(1) of the 1922 Act and sections 5(2) and 9(1)(iii) cannot be lost sight of. The observations in the Hira Mills decision (supra) therefore, fully support the Revenue's stand that if an income primarily falls u/s 5(2), resort to section 9 is not necessary. The non-obstante clause embodies in the expression "subject to the provisions of this Act" occurring in section 5(2) does not lead one to the conclusion that the charging provision in section 5(2) is controlled by another charging provision in section 9(1). All that the expression conveys is that the total income of a non resident from whatever source derived on account of (a) actual receipt of deemed receipt in India (b) accrual or deemed accrual in India shall be computed and worked out in accordance with other provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India. As discussed earlier section 5(2) of the Act provides that the total income of a non resident would include income accrues or arise, received. In order to fulfill the requirements contemplated under this provision, that same income to be taxed in the hands of a non resident under the aforesaid provisions, then such income should accrue or arose to such non resident in India. Both the learned Revenue authorities have construed that since the payments have been made from India, therefore, income has arisen or accrued in the hands of non resident. They lost sight to the fact that non resident has no business connection in India. The connectivity services are provided by the payee outside India and also utilized by the assessee outside India. Therefore, to our mind, the learned Revenue authorities have erred in construing that the income has accrued or arisen in India. Similarly capacity transfer payments are for transfer of capacity by Belgacom outside India. The payees have not performed any part of its activities for provision of connectivity charges as well as capacity transfer, within India. The situs of the source of income in respect of payment received by a non resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice business, the assessee is responsible for and provides connectivity services to its subscribers in respect of the calls originating/terminating outside India. Thus for the provisions of ILD services the assessee is required to obtain services of NTOs for provision of carriage/connectivity services over the last leg of the communication channel i.e. the leg of communication channel where the assessee does not have a license/capacity to provide connectivity services. The learned CIT (A) has taken note of these activities in a flow chart reproduced in Paragraph 91 of the impugned order. In order to understand the very nature of the activity more scientifically, it is pertinent to take note of the details noticed by the CIT (A) in paragraph 91, it read as under: "91. The sequence of carriage of an international call originating from India and terminating at a location outside India was as follows: * When a mobile subscriber in Delhi made a call to a person in the US, the call would originate on the network of the local telecom service provider in Delhi. The local telecom service provider would carry the call up to the limits of the Delhi telecom service area and at that point, ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that provision of inter connect services by the NTOs to the assessee results in "use of or transfer of right to use of ", the process running on the network of the NTOs to the assessee and hence IUC payment qualify as a royalty under clause a(i) and (iii) of explanation to section 9(1)(vi) r.w. newly inserted explanation with retrospective effect i.e. Explanation 5 & 6 of section 9(1)(vi) of the Act and also under the applicable DTAA. He further observed that provision of inter connect services by the NTOs involves grant of assets to and use of network of the NTOs and equipment forming part thereof by the assessee, hence IUC payment qualify as a royalty under clause (iv-a) of Explanation 2 of section 9(1)(vi) of the Act and also under the DTAA. The Assessing Officer was of the opinion that in the provision of carriage and connectivity services, exchange of information is involved between the assessee and the NTOs, therefore, the IUC payment is to be considered as royalty u/s 9(1)(vi) also. The Assessing Officer further observed that in this provision of inter connect services by the NTOs, encompass a bundle of services which include basic inter connect services, use of network ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ligation to deduct tax at source thereon u/s 185. While the Assessing Officer has argued that provision of interconnect services by the NTOs to the appellant involved 'use of' or 'transfer of right to use' of the process belonging to them and hence the IUC payments qualified as royalty as defined under clauses (i), (iii), (iva) and (vi) of Explanation 2 to section 9(1)(vi) under the amended provisions of section 9(1)(vi), the appellants contention is that the amendments, brought in by insertion of Explanation 5 and 6 to section 9(1)(vi) with retrospective effect, were unconstitutional and hence cannot be applied to characterize the impugned payments, which were made prior to the amendment. 175. Section 9(1)(vi) provides that income by way of royalty payable by a resident shall be deemed to accrue or arise in India. The term royalty has been defined under explanation 2 to mean consideration (including lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head capital gains) for (i) the transfer of all or any rights (including the granting of a license) in respect of a patent, invention, model, design, secret formula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) and had not inserted any provisions which were contrary to the definitions of the term royalty as per the DTAA and that Article 3 containing the definition of terms in the DTAAs itself makes a reference to the domestic law for the meaning of terms not defined in the DTAA. 179. I find that the Assessing Officer is justified in arriving at a finding that provision of interconnect services by the NTOs to the appellant resulted in 'use of' or 'transfer of 'right to use of' the process running on the networks of the NTOs to the appellant and hence IUC payments qualified as royalty under clause (i) and (iii) of Explanation (2) to section 9(1)(vi) read with Explanations 5 and 6 to section 9(1)(vi) and also under the applicable DTAAS. The finding is based on the fact that as interconnection requires not only technical harmonization, but also bilateral or multilateral contractual arrangements among network operators, it is usual for contract operators to define the conditions of access to their networks and their corresponding usage rights. A perusal of the agreements governing the contractual arrangements between the appellant and the NTOs shows that each telecom operator gets a usage r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g use of equipment and resources such as connection, maintenance etc; * Variable charges for ancillary and supplementary services, e.g. access to directory services, operator assistance, data collection, charging, billing, switchbased and advances services etc; * Traffic related charges for conveyance of traffic to and from the interconnected network e.g. costs of switching and transmission, which may be on a per minute basis and/or on the basis of additional network capacity required. 183. Tariff elements refer to individual prices set for each network component or facility provided to the interconnected party. Tariffs and charges for interconnection must follow the principles of cost orientation and transparency, in accordance with Article 7(2) and may include a fair share, according to the principle of proportionality, of joint and common costs and the costs incurred in providing equal access and number portability and the costs of ensuring essential requirements such as maintenance of the network integrity, network security in cases of emergency, interoperability of services and protection of data. 184. It is on the basis of these facts that the A.O has come to the conclusi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd supply of services and facilities by means of telecommunications facilities. 188. The appellant has made specific references to the appellant's agreement with M/s Telenor Global Services AS, where Article 3 refers to provision of interconnection link, equipment, technical standards and operating methods. Further, the appellant's agreement with M/s Belgacom International Carrier Services SA, which provides for sharing of switches and products and mapping between circuits (CICs) and Circuit Sub Groups (CSG). The agreement with M/s KPN Global Carrier Services B.V. states that the parties acknowledge that it is in their mutual interest to adequately plan the necessary capacity needed at their respective facilities, in order to allow for efficient provisioning of services. These agreements belie the appellant's claim that access to the NTOs' networks and equipment was either absent or was indirect. 189. I am unable to accept the appellant's contention that the arrangements it had with the NTOs did not result in provision of access to or usage of their networks or of any process used by the NTOs for transmission of telecommunication traffic. While it is true that no part of the tele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well. I am in agreement with him that the word 'secret' does not qualify the word 'process' in the applicable DTAAs and hence the process does not need to be a secret process to qualify as royalty under the applicable DTAAs. In the present case, the NTOs have transferred some rights in the process to the appellant for the purpose of transmission of telecommunication traffic, which allow it to access and use the process running over the NTOs' telecom networks". 20. The learned Counsel for the assessee while impugning the orders of the Revenue authorities below has made multi fold submission. In his first fold of submission, he submitted that in order to treat the assessee in default, it is to be determined that the payments made by an assessee to a non resident involves element of income. Taking us through section 195 of the Income Tax Act, he submitted that this section impose statutory obligations on any person responsible for paying to a non resident any interest (not being interest on securities) or any other sum (not being the dividend) chargeable u/s 5 of the Act to withhold the taxes therein at the applicable rates. As far as other sections in chapter XVII are concerned, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o use or impartment or transfer of right in property or information. In other words, payer should receive some valuable right of use or actual user or transfer f right property or information. He pointed out that the Assessing Officer has invoked the process royalty vide sub clause (i) and (iii) of Explanation 2 appended with section 9(1)(vi) and equipment royalty provided in Explanation (iva) of the Act. All these clauses contain the same conditions. On the strength of OECD commentary and the opinion of learned Author Klaus Wogel and decision of the Hon'ble High Court as well as ITAT, he submitted that expression "use" or "right to use" had fallen for consideration on a number of occasions before the Hon'ble Courts in India. The uniform opinion expressed in the OECD commentary, other learned author as well as in the decisions of the Indian Courts, contains two conditions before invoking the Explanation 2 to section 9(1)(vi) of the Income Tax Act. These conditions are that whenever grant of a use or right to use infused in an assessee in that case, the payee should be denuded it from such a right of property and this right should be vested in the hands of the payer. In that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssession and control. It has not diluted the first condition which is principle condition namely use or right to use contemplates a transfer of a right to use in the process or equipment by the payee to the payer, meaning thereby the expression "use or right to use" could be given full effect when the process or the equipments are being transferred by the payee to the payer. Only, then, income for payment of such transfer of these assets would be termed as an income by way of royalty. According to the learned Counsel for the assessee before introduction of Explanation 5 to section 9(1)(vi), the twin conditions need to be satisfied namely transfer of use or right to use followed by delivery or control or possession. After this Explanation, the 2nd condition namely delivery of control or possession has been eliminated. The Assessing Officer has failed to establish that the rights in the shape of use or right to use have been transferred to the assessee by NTOs. In simple term, his contention is that the process or the condition which complete the communication channel up to the last leg containing the assets of NTOs beyond the geographical boundary of India, could only be considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision to be applied on it, the retrospective amendment by introduction of Explanation 5 to 6 to section 9(1)(vi) of the Act cannot override the DTAA. For buttressing his contentions that the assessee should be governed by the provisions of treaty or Income Tax Act, which is more beneficial to the assessee relied upon the following decisions: i) Azadi Bachao Andolan (2003) 132 Taxman 373 (S.C) ii) Visakhapatnam Port Trust (1983), 144 ITR 146 A.P. H.C iii) Circular No.333 dated 2nd April issued by CBDT iv) P.V.A.L. Kulandagan Chettiar (2004) 137 Taxman 460 (S.C) He submitted that the definition of royalty expanded by virtue of Explanations 5 and 6 is not available in the definition of royalty provided in the DTAA (Article 12(3). Under Article 12(3), the requirement of possession or control to be delivered as a part of the principle condition for grant of use or right to use process or equipment has not been dispensed with. Therefore, the decision rendered prior to introduction of Explanations 5 and 6 to section 9(1)(vi) of the Act would be applicable on the dispute in the present appeal. He further submitted that process as deemed in Explanation 6 to section 9(1)(vi) has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the time of payment. How the assessee can say that the payments made by it do not include the "sum chargeable to tax". The learned Counsel for the assessee had raised multi-fold submission pointing out that no human intervention is there, therefore, the payment cannot be termed as fee for technical services. The material to indicate that no human intervention was there, was not possessed by the assessee when it made the payments. The scope of inquiry u/s 195 is limited, it cannot be equated with a regular assessment proceedings. The opinion cannot be formed simply on the assertion of the payer that payments do not include the sum chargeable to tax, because payer might have not complete knowledge of the business of the payee. The payee may not be charged to tax for many reasons, but is that relevant factor for not deducting the TDS by the payer. He drew our attention towards page No.20 of the paper book-I, where copy of one of the agreement entered by the assessee with NTOs is available. In the agreement, provision of withholding the tax has been made. The payee had nowhere made a claim that its income is not chargeable to tax. There is no correspondence between the payer and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation of taxes, they do not provide any other mode, how the taxes are to be collected whether by advance deduction etc. This is the area of the domestic law, the sum chargeable to tax is to be considered within an angle of domestic law, unless the payee is there to demonstrate that he is not chargeable to tax under the DTAA either by himself or through the payer. Payee never comes forward u/s 195(3) of the Act. 27. In the next fold of his submissions, the learned Counsel for the Revenue contended that on perusal of section 9(1)(vi) would indicate that consideration paid by the assessee would constitute royalty within the meaning of this section. The assessee has been harping upon the provisions contained in the DTAAs with different countries to urge that the processes to be regarded as a royalty, if it is a secret. It was further amendment made in the domestic law could not override the DTAA. Contended by the assessee that with regard to this contention, he submitted that provisions of domestic law, then domestic law will give way to create the charge of tax and it is only in a situation where the domestic provision come in conflict with the treaty provisions, then domestic law w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue further contended that the assessee had made a fatuous attempt to say that expression "process" used in the DTAA gives a restrictive meaning than that of the said term appearing in the domestic law. According to the assessee, the expression "secret" ought to be read with process. In other words it should be a secret process. According to the learned Counsel for the Revenue, this was not the situation when DTAAS were entered by India. The expression "secret" has been associated with the process by the Indian Courts, while interpreting the DTAA. The Indian Parliament has appended an explanation and pointed out its intention of using expression "process" in the DTAA. It was never intended that secret should be associated with the process. Therefore, a clarification has been incorporated by way of explanation-5 which clarifies that secret ought not to be associated with the process. It gives the plain meaning of the process. How a provision of the treaty can be read or interpreted, the learned Counsel submitted that these cannot be interpreted as a statute. These are administrative agreements made by the executive and hence to be read in their normal plain meaning. He made reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... further contended that one of the decisions relied upon by the assessee is in the case of Siemens Aktiongesellschaft reported in 177 taxman.com 81. In this case the dispute pertains with regard to the treaty entered by India with Germany on 13.09.1960. The income from royalty was not taxable in India at the relevant time and it being taxable after the amendment to the Income Tax Act, 1961 by the taxation law amendment act, 1967. There was no royalty clause in the DTAA with Germany. Only Royalty in respect of cinematographic film was included in the definition of industrial and commercial profits. Therefore, this decision is not applicable on the facts of the present case. In that case the DTAA provide that such industrial and commercial profits can be taxed only, if there was a PE in other State. With regard to the decision of the Nokia Networks OY rendered in ITA No.512/07 (Delhi High Court), the learned Counsel for the revenue contended that this decision was, rendered on the ground that the assessee has opted for governing it under the treaty, but in the present case, the payee has not exercised such option. He further contended that the assessee has put reliance upon the decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such deduction and c) the relevant clause of the DTAA under which taxes have been withheld, in case taxes were withheld under the provisions of the DTAA. Form 15CA has to be filed with the banker before making the remittance. In addition, Rule 37BB further requires that the payer to obtain form 15CB (i.e. a certificate from an accountant) containing details such as details of the payee, country of residence of the payee, beneficial owner of the remittance, basis for deduction of tax at source etc. These forms were duly maintained and furnished by the assessee in relation to IUC payment made to the NTOs. The Assessing Officer was able to initiate withholding tax proceedings u/s 201 of the Act after collecting information from these forms. Thus, the assessee had necessary details which were duly examined by it. These details were never disputed by the Assessing Officer. These are the disputes raised for the first time before the Tribunal by the learned Counsel for the Revenue. He further contended that as far as other evidence is concerned, Assessing Officer has collected inter connect agreement entered into by the assessee with the telecom operators. He had obtained informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Section 195 reads as under: "195. (1) Any person responsible for paying to a nonresident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC)] [or section 194LD] or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries" shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : [Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode :] [Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O.] [Explanation 1].-For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.] (6) The person referred to in sub-section (1) shall furnish the information relating to payment of any sum in such form and manner as may be prescribed by the Board.] [(7) Notwithstanding anything contained in sub-section (1) and sub-section (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the person responsible for paying to a nonresident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub-section (1) on that proportion of the sum which is so chargeable.] 35. A bare perusal of this section would suggest that any person responsible for making payments of interest (other than interest on securities) or any other sum (not being salaries, dividend) chargeable to tax, to non resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the "sum chargeable to tax" in the payments. In other words, whether the assessee payer can claim all the defense as available to the payee in its assessment proceedings. No doubt the Hon'ble Supreme Court in the case of G.E. India (327 ITR 456) has explained its earlier judgment in the case of Transmission Corporation of A.P Ltd vs. CIT (239 ITR 587) and emphasized that an inquiry for determining the "sum chargeable to tax" has been embedded in the section. It is also observed by the Hon'ble Supreme Court that this section has to be read in conformity with the charging provision i.e. 4, 5 and 9. Thus the inquiry for determining the element of income chargeable to tax has to be conducted. We will take the issue regarding scope of inquiry at the relevant juncture which would be linked with the facts on record. 36. The next peripheral issue is, can the payer claim full protection of DTAA as is available to the payee in respect to the payments payee had received. The DTAAs are not more than the allocation of the taxes, they do not provide any other mode, how the taxes are to be collected whether by advance deduction etc. This is an area of the domestic law, the sum charge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or where there is a written constitution provisions of that charter. Double taxation treaty rules do not "authorize" or "allocate" jurisdiction to tax to the contracting State nor attribute the "right to tax". As is recognized by public international law and constitutional law, States have the original jurisdiction to tax, as an attribute of sovereignty. What double taxation treaties do is to establish an independent mechanism to avoid double taxation through restriction of tax claims in areas where overlapping tax claims are expected, or at least theoretically possible. Essentially therefore, through the mechanism of a treaty the contracting states mutually bind themselves not to levy taxes, or to tax only to a limited extent, in cases where the treaty reserves taxation for the other contracting states, either wholly or in part. Contracting states thus and qua treaty provisions, waive tax claims or divide tax sources and/or the taxable object. Unlike rules of private international law tax treaty norms assume that both contracting states tax according to their own law. Treaty rules do not lead to the application of foreign law. What treaty rules do is to limit the content of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer while conducting the inquiry u/s 201 would be to demolish the formation of this opinion at the end of the assessee. The Assessing Officer has to indicate that the payments made by the assessee are the sums chargeable to tax and belief harboured by the assessee that it is not chargeable to tax and therefore it did not deduct the tax was an erroneous belief. We will consider the evidence available on record in support of the assessee's conclusions in the later part of this order, but analysis of the scheme of income tax act, namely recovery of taxes in advance by withholding under Chapter XVII, procedure u/s 195(2) and 195(3) and procedure for assessment persuade us to say that certainly the rights as available to the payee to defend itself in an income tax assessment proceedings are not available to the assessee as payer in equal force. The learned Counsel for the Revenue has rightly pointed that provisions of DTAA would not automatically attract in the defense of the payer. There may be number of reasons for not assessing the income in the hands of the payee. The payee may be entitled for some deductions, some exemption etc. The cumulative setting of all these peripheral fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for- (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property ; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property ; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property ; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ; [(iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB;] (v) the transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or process or for information concerning industrial, commercial or scientific experience; and (b) ......... The issue is, that consideration paid by the assessee for inter connection charges is a consideration for the use of or right to use of a process which would fall within the ambit of royalty as provided in section 9(1)(vi). Therefore, first it is to be construed what is inter connect charges, whether it is a process and if it is a process then we will consider its meaning as per the definition of royalty given in the Income Tax Act vis-à-vis DTAA. Assessing Officer in order to explain the meaning of expression "inter connect" has made reference various literatures including the term defined by International Telecommunication Union, World Bank, WTO, the Institute of Chartered Accountants of India and Telecom Regulatory Authority of India. The Assessing Officer thereafter made reference to the dictionary meaning of "process" according to the Black Law Dictionary. The lucid discussions made by the Assessing Officer on page Nos. 14 to 29 in this regard is worth to note, which is as under: "II Taxation of Payments to NTOS for Interconnect services as Royalty under the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... network the call originates pays terminating charge to the terminating network. 1.1 Two adjacent, non-competing telephone networks interconnect so that subscribers on one network can call those on the other (see Figure below). 1.2 Traditional wireline telephone and new wireless mobile carriers interconnect so that subscribers of the traditional phone service can call wireless subscribers, and vice versa (see figure below) 1.3 Interconnection is needed because: * No single telecom operator can own or lease all the telecom network required to switch calls to and from all possible locations * No telecom operator has ever owned or leased all the network components for international calls * The requirement for a telecom operator to connect calls to any part of the world is paramount in the market 1.4.1 Telecom Regulatory Authority of India ("TRAI") regularly comes out with consultation paper on various issues connected with Telecommunications. The Consultation Paper No. 4/2011 (dated 27th April 2011) which deals with Interconnection services is reproduced below: B- What is interconnection and why is it necessary? 1.3 Interconnection allows subscribers, services and networks of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oth A and B should be connected to NLD for this call to mature. If a service provider is offering innovative service like Intelligent Network (IN) based Services, content and application services then subscribers of another service provider can make use of these if this service provider allows interconnection to the service provider who not have these services. This is beneficial to both the service providers and usually would happen through mutual negotiations. In certain situations, it may not happen and it is here that regulations can play an enabling role. With technological developments, the range of services that depend on interconnection has increased. Efficient interconnection has become an essential input to all types of voice calls, data services, Internet, messaging, broadband and a wide range of applications, content services, e-commerce and m-commerce. Inadequate interconnection arrangements not only impose unnecessary costs and technical problems on operators - they also result in delays, inconvenience and additional costs for businesses, consumers and, ultimately, for national economies. C- What are interconnection usage charges? 1.5 IUC are wholesale charges payab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of billing disputes and bad debts. On the other hand, interconnection usage charges imply setting charges to compensate explicitly one operator for the costs imposed on him by the other operator's use of his network to originate or terminate a call. The operator paying the interconnection usage charge "owns" the call and takes the risk of disputed and unpaid charges. 1.5 TRAI had issued the Telecommunications Interconnection Charges and Revenue Sharing Regulation'99 (Annexure C) specifying Interconnection Charge i.e. for 'Port' & 'Leased Lines' required to terminate Interconnection links between the Network of the Interconnection seekers and that of the Interconnection givers. The relevant parts of THE TELECOMMUNICATION INTERCONNECTION (CHARGES AND REVENUE SHARING) REGULATION 1999 (1 of 1999) is reproduced below: Section II Definitions viii. "Interconnection" means the commercial and technical arrangements under which service providers connect their equipment, networks and services to enable their customers to have access to the customers, services and networks of other services providers. xi. "Interconnection Charge" means the charge for interconnection by an interconnection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision of international carriage and connectivity services to facilitate seamless connectivity and carriage of telecommunication traffic of VSL's subscribers and the subscribers of VSL's customers at locations outside India. In consideration of the services so rendered by NTOs, VSL pays the aforesaid interconnect charges to such NTOs. 1.1 As part of its ILD telecommunication services business, VSL is responsible for and provides connectivity services to its subscribers in respect of the calls originating/ terminating outside India. For provision of the ILD services, VSL is required to obtain services of NTOs for provision of carriage/ connectivity services over the last leg of the communication channel i.e. the leg of the communication channel where VSL does not have a license/ capacity to provide connectivity services. VSL also provides carriage and connectivity services to the foreign telecom operators and recovers appropriate service charges from such foreign telecom operators. 1.2 Section 5(2) of the Act inter-alia provides that any income accruing or arising to a non-resident in India shall be taxed in its hands in India. In this context, section 9(1)(vi) of the Act provides ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A charge levied by network operators on other service providers to recover the costs of the interconnection facilities (including the hardware and software for routing, signalling, and other basic service functions) provided by the network operators.(OECD) d) agreements that allow operators to transit the traffic on another operator's network. (ICAI) 1.5 The key points to be noted from the definitions of Interconnect agreements are: a) It is a reciprocal agreement between telecom network operators b) incorporating a set of technical and operational arrangements c) for the physical and logical linking of the telecom networks d) to enable one telecom operator to access the network of the other telecom operator e) for telecommunication activities f) and for which a charge is levied to recover the costs of interconnection facilities 1.6 The aspect of interconnection is very lucidly explained in the opinion of the technical expert Mr. Prakash R from C-DOT recorded on Nov 30th 2012 and the relevant extracts are reproduced below: Question 3: Provide an overview of the technology behind International Voice Services? Answer : The telecom operators of various countries have agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... two networks which are independent have to be interlinked. Question 5: Explain the interconnection services with reference to a call originating in Country A and terminating in Country B? Answer: The mobile subscriber MSA1 in country A will be using the services of a local telecom service provider designated as A1. When this subscriber calls another subscriber MSB1 in Country B using telecom service provider B1, the hand set of MSA1 will interact with the service provider A1 and inform about the details of the call request. The network equipment of A1 will process the call and identify the destination country/network/subscriber. The call will then progress through a sequence of network elements in network A1 and travel through the under-sea cable (or satellite network) to country B into the network B1. The network B1 then locates the subscriber MSB1 and connects the call. Question 6: You are being shown the a) Agreement for International Telecommunication Traffic Arrangement between Vodafone Essar South Limited and TELKOM South Africa Limited. b) International Carrier Services Agreement between Vodafone Essar South Limited and KPN Global Carrier Services B.V. c) Agreement fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and clarify whether the process of carriage of calls is the end result of several inter related activities/steps or is it just one of the steps of the whole process undertaken by the foreign telecom operator. Ans. The carriage of calls is definitely the end result of the several interrelated activities/steps carried out by the foreign telecom operators. The purpose of all the activities is to create and maintain the infrastructure and logistics to enable the calls. Viewing them as independent steps from the carrying of calls is not logical. Q 4. Refer to a few interconnect agreements and explain whether the service rendered involves a series of interconnected steps or whether it involves a series of independent unrelated steps/activities. Ans. The services rendered by the foreign telecom operators involve a series of interconnected steps. The summary of the key interrelated activities required for rendering of the interconnect services are given in response to Q8 of the statement provided on 30.Nov.2012. Most of the steps mentioned there are also required to be carried out both for a fresh network establishment and for enhancing the capacity of an existing network and provisio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the NTOs sharing information with the VSL concerning the working of, or the use of the process employed the telecom network of NTO to allow the transit of telecom traffic generated by VSL. All the agreements of VSL with the NTOs has a confidentiality clause wherein the receiving party has to use confidential Information (includes information, know-how, ideas, concepts, technology, discussions, documents, papers, drawings etc) of the Disclosing Party only for the purpose of Interconnection Agreement. There are other specific clauses in the Interconnect agreements entered into by VSL with NTOs transfer of technical details related so that the 'process' running on telecom network of VSL can connect and interact with 'process' running on the network of the NTO. Hence the Interconnection service essentially involves allowing the process running on VSL network to access the process running on the network of the NTO so as to carry the telecom traffic from VSL over the network of the NTO". 39. The first fold of submissions of the learned Counsel for the assessee was that there should be a transfer of any right in process by the NTOs in favour of the assessee, only then it would be const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the transport operator, under which the transport operator has to provide a lorry to the customer, between the hours 8.00 a.m to 8.00 p.m at the customer's factory for its use, at a fixed hire per day or hire per km. subject to an assured minimum, for a period of one month or one week or even one day ; and under the contract, the transport operator is responsible for making repairs apart from providing a driver to drive the lorry and filling the vehicle with diesel for running the lorry. The transaction involves an identified vehicle belonging to the transport operator being delivered to the customer and the customer is given the exclusive and effective control of the vehicle to be used in any manner as it deems fit; and during the period when the lorry is with the customer, the transport operator has no control over it. The transport operator renders no other service to the customer. Therefore, the transaction involves transfer of right to use the lorry and thus be a deemed sale." The Hon'ble High Court in para no.55 of the order explained the expression "rights in respect of property and "right in the property". According to the Hon'ble Court, the two expression ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , discussions, papers etc. According to the Assessing Officer there are specific clauses in the intercom agreement entered into by the assessee with the NTOs for transfer of technical details related so that the "process" running on telecom network, and the assessee can connect and interact with the processes running on network of the NTOs. Thus one aspect is not in doubt that this interconnect is an activity which can be termed as a "process", because the Black's Law Dictionary explain the processes;- a source of communications, motion, occurrence, progressive act or transactions; continuous operation, method, mode or operations whereby the result or effect is produced; We have gone through the clause of agreements showing scope of service or "operation of service" in appendix attached with agreement. We have also gone through the opinion of expert collected by the learned Assessing Officer and used in orders. At the cost of repetition, we would like to take note of the diagram drawn by the expert in order to explain the process. It read as under : Figure 2: Telecom Interconnection Network overview The countries A, B and C have telecom operators A1, B1 and C1 respectively. Telec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... noring the intention of the legislation incorporated by way of Explanation 5. The transfer inherently would also embarrass the possession or control, otherwise it will be half way transfer. No such concept is being suggested either in the definition of royalty under the DTAA or under Explanation 2 to section 9(1)(vi) of the Act. It would indicate that in the era of technological advancement, how activity could happen in such a manner where even without having physical possession or control by an assessee directly, he can complete its business activity and process its mechanism merely by getting the access to that process. In that background, conditions for use or right to use would be satisfied even without having a direct control or a physical possession on the activity. Thus after explanation 5 to section 9(1)(vi) it is not necessary that payer should have direct control or physical possession over the right, property or information. 40. The next defense put forth by the assessee is that the use or right to use of the process so acquired by the assessee should be a secret process and if it is not secret process, then consideration paid by the assessee would not fall within the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that its intention was always not to construe the "process" as secret "process", Explanation 6 has appended with retrospective effect. This explanation only clarifies the position. After incorporation of Explanation 5 and 6, there are series of decisions which have distinguished the position of law prior to incorporation of these explanations. In order to buttress our conclusion, we would like to refer the order of the ITAT in the case of Viacom 18 Media vs. ADIT Mumbai. It is placed on page No.472 of the paper book. The Hon'ble Madras High Court has also considered this issue in detail in its decision rendered in the case of Verizone Communication Singapore (P) Ltd. The ITAT Mumbai while considering the similar issue in the case of Viacom 18 Media has taken note of the relevant paragraphs of the Hon'ble Madras High Court decision in the case of Verizone. The findings of the ITAT in this regard is worth to note it read as under: "10. So far as the term "Royalty" defined in the Explanation 2 of section 9(1)(vi), there is no change or amendment in the term royalty as such. Therefore, the definition of term royalty remained unchanged despite insertion of Explanation 6 by Fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat any payment for use or right to use of process is in the nature of royalty as per the provisions of Article 12(3) of DTAA as well as the Explanation 2 of section 9(1)(vi) of the Act. Since the term process is not defined under the DTAA, therefore, by virtue of Article 3(2) of the Indo-US DTAA, the meaning of term process as defined in the Act would apply for this purpose. We say so as a word 'process' is a term of wide import and, accordingly, has to be construed in a generic sense. The same has in fact been the subject matter of elucidation by the Hon'ble apex court in a number of cases, viz. Chillies Exports Ltd. v. CIT [1997] 225 ITR 814 (SC); Ujagar Prints v. Union of India [1989] 179 ITR 317 (SC); Dy. CST, Board of Revenue (Taxes) v. Pio Food Packers [1980] 46 STC 63 (SC), explaining the same in the context of processing of goods, which though would apply and hold. There is nothing in the language of the relevant provision/s of either the Act or of the DTAA constricting or restricting the scope of the term, which has thus to be examined and considered contextually. As such, even de hors Explanation 6 to section 9(1)(vi), which only abundantly clarifies matters, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has held as under:- "42. The decision relied on by the assessee, particularly with reference to the Delhi High Court reported in 332 ITR 340 (Asia Satellite v. DIT) is also distinguishable. This relates to a case of an assessee/lessee of a satellite called AsiaSat 1 which was launched in April 1990 and was the owner of a satellite called AsiaSat 2 which was launched in November 1995. These satellites were launched by the appellant and were placed in a geostationary orbit in orbital slots, which initially were allotted by the International Telecommunication Union to UK, and subsequently handed over to China. These satellites neither use Indian orbital slots nor are they positioned over Indian airspace. The footprints of Asia Sat 1 and Asia Sat 2 extend over four continents, viz., Asia, Australia, Eastern Europe and Northern Africa. It enters into an agreement with TV channels, communication companies or other companies who desire to utilize the transponder capacity available on the appellant's satellite to relay their signals. The customers have their own relaying facilities, which are not situated in India. From these facilities, the signals are beamed in space where they are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wholly or at least partly, is sine qua non for the application of Clause (i) of sub-section (1) of Section 9 of the Act. Merely because the footprint area included India and ultimate consumers/viewers are watching the programmes in India, even when they are uplinked and relayed outside India, would not mean that the appellant is carrying out its business operations in India. No machinery or computer, etc. is installed by the appellant in India through which the programmes are reaching India. The process of amplifying and relaying the programmes is performed in the satellite which is not situated in the Indian airspace. The transponder functioned on its own. The High Court held that the terms 'lease of transponder capacity', 'lessor', 'lessee' and 'rental' used in the agreement would not be the determinative factors. It is the substance of the agreement which is to be seen. The High Court went through the various clauses of the said agreement and held that the control always remained with the appellant and the appellant had merely given access to a broadband available with the transponder, to particular customers. Merely because the transponder has it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyalty' and would constitute so for the purposes of DTAA. " One of the contention of the learned Counsel for the assessee was that retrospective amendment in the Income Tax Act cannot override the provisions of the DTAA and if an assessee is being governed under the DTAA, then such retrospective amendment cannot affect the rights of the assessee. According to him insertion of Explanations 5 & 6 to section 9(1)(vi) of the Income Tax Act enhance the scope of expression royalty vis-à-vis one provided under the DTAA. Thus the restricted meaning given to the royalty in the DTAA ought to be applied on the payments made by the assessee in the present case. On due consideration of this submission, we are of the view that the learned DR nowhere disputed the proposition that wherever there is a conflict between the scope in he provision of the DTAA vis-à-vis provisions of the Income Tax Act and if the provisions of DTAA are more beneficial to an assessee, then those provisions would be applied. The question is whether by insertion of Explanation 5 and 6, scope of the expression royalty under the I.T. Act has been enhanced or not. In the foregoing paragraphs we have observe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing either upon the ITAT or upon the Hon'ble Madras High Court. The ITAT being a subordinate authority is not supposed to comment on any decision of any High Court, rather bound to follow the decision which is direct on the point. The Hon'ble Delhi High Court has considered the decision in the case of Asia Satellite Telecommunication on 31.01.2011 and Explanation 6 to section 9(1)(vi) was not on the statute at that point of time. 42. In view of the above discussion and respectfully following the decision of the Hon'ble Madras High Court in the case of Verizon which is directly on the point, we hold that consideration paid by the assessee as IUC charges for alleged inter connect service falls within the ambit of process royalty and element of income was involved. Therefore, the assessee was bound to deduct the TDS on such payment. 43. The next issue is whether consideration paid for capacity transfer can be termed as a 'Royalty' within the meaning of Sec.9(1)(vi) r.w.Explanation (2), (5) and (6) of the IT Act. The facts regarding nature of payments, we have noticed in para 4 of the order. The learned Assessing Officer has made analysis of the term "Submarine Ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmunication signals. They offer highly secure, greatly reliable and very high capacity telecommunication links between countries across the world. The transmission quality of a sub-marine cable is significantly better than a typical satellite media. Submarine cables are only a few inches thick and they carry only a few optical fibers. Yet they have transmission capacities of the order of terra bits per second (Tbps). However, a typical multi-terabit, trans-oceanic submarine cable system costs several hundred million dollars to construct. 2.3. There are 12 submarine cable systems, which connect India to the world. A submarine cable used for providing international telecommunication links stretches across many countries. In each country, it lands in a land based facility called cable landing station (CLS). Thus, a typical submarine cable system consists of (i) a submarine cable in the sea-bed and (ii) cable landing stations on the land B- Cable Landing Station (CLS) 2.4. The Cable landing stations are the point at which International submarine cables come onshore and terminate. Generally, these are buildings, which contain the onshore end of the submarine fiber optic cable, house ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Indian International Telecommunication Entity (ITE) to the owner of the cable landing station (OCLS) to interconnect or access the capacity acquired on Indefeasible Right of Use basis or on short-term lease basis from an owner of the submarine cable capacity or a member of consortium owning submarine cable capacity. (i) 'Co-location charges' means the charges payable by the eligible Indian International Telecommunication Entity (ITE) based on the type of facilities used, for the purpose of housing the equipment of such eligible Indian International Telecommunication Entity (ITE), at the premises of owner of cable landing station (OCLS) which provides the access to its cable landing station, and such charges include charges for providing space, power supply, accessing physical facilities, operation and maintenance of colocation site for the said purpose. (j) 'Operation and Maintenance Charges' means the annual charges: (i) payable to the owner of cable landing station (OCLS) by the eligible Indian International Telecommunication Entity (ITE) (ii) for operation and maintenance of facilities for accessing the capacity of the cable landing station of such owner. (k) 'Internati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n financing and operating the system. (d) The consortium may offer international capacity on the submarine cable to other willing telecom operators (i) through an Indefeasible Right of Use (IRU), which gives the telecom operator an exclusive right to use a dedicated amount of capacity on the cable but with no rights to control or manage the cable and (ii) by leasing out the capacity to the telecom operator for a certain period. The submarine cable capacity transactions are based on operator agreements that establish relations between different carriers. The submarine cable capacity transaction involves two or more carriers, each prominent in its own national territory, exchanging traffic and making use of International system of accounting rates and settlements. 2 The relevant part of EXPOSURE DRAFT - TECHNICAL GUIDE ON REVENUE RECOGNITION FOR TELECOMMUNICATION OPERATORS brought out by ICAI is reproduced below: Indefeasible Rights of Use (IRU) 56. Telecommunications industry is capital intensive and demands significant investment for setting up of network and other related infrastructure. Setting up a network also leads to unwarranted gestation leading to significant costs and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... change of network infrastructure or lit fibre capacity XXXXXXXX 2.8 The following points emerge from the Belgacom agreement and the submissions made by VSL: a) VESL has acquired bandwidth capacity in the EIG cable system for transmission of telecom signals from one terminal point on the EIG cable system to another. b) This capacity has been acquired by VSL by transfer of rights to use the bandwidth capacity in the EIG cable system from Belgacom for an agreed consideration of USD 5 Million. c) The right to use the bandwidth capacity also includes the right to connect to the terminal points on the EIG cable system. d) Belgacom has assured that at least 72,294 MIU.km shall be made available to VESL between London and Mumbai (Clause 2.2) e) VESL is allowed to re-sell, lease or grant the right to use the bandwidth capacity in the EIG cable system to other parties. (Clause 2.4) f) Belgacom agreement shall continue to be in effect for the duration of the EIG agreement (Clause 10.1) i.e. the capacity has been transferred for the lifetime of the EIG cable system. g) The ownership in the EIG cable system/equipment/machinery vest with EIG parties. h) VSL's Point of Presence (PoP) in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed and exclusive right to use this process for transmission upto certain bandwidth capacity by Omantel. 3.3 Belgacom in turn transferred a certain portion of the EIG capacity acquired from Omantel to VESL, by way of grant of an IRU, under the Belgacom agreement. Belgacom has therefore also transferred to VSL the rights to use the process running on the EIG cable system. VSL can access and use the process for transmission of telecommunication signals over the EIG cable system in respect of the acquired capacity. VSL will access this process by connecting its Point of Presence ("PoP") in Mumbai to the Cable Landing Station operated by Bharti Airtel Ltd in Mumbai. 3.4 Thus VSL does not get the title over the cable system/equipment/machinery but what it gets is a right in the 'process' which is controlled and managed by EIG Network administrator that will allow VSL to transmit signals from Mumbai to London. VSL is transferred the right to use the process by Belgacom for the lifetime of the cable system. It is for this reason that an upfront fee is paid as an investment by VSL and this is followed by payment of annual operation and maintenance charges to Belgacom. The payments made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the controversy and implication of insertion of Explanations (4) and (5) u/s.9(1) of the Act. On the other hand, Hon'ble Madras High Court has dealt with a situation where payments were made towards interconnect charges/dedicated connectivity. The facts before the Hon'ble Madras High Court as well as before us are identical. Both the issues are related to payments as a consideration for use or right to use of a process leading to interconnection of voice data. Thus the facts in the case of Verizone Communication are closer to the facts of the present appeals. There is no decision of the Hon'ble jurisdictional High Court on this issue. Therefore, we prefer to follow the decision of Hon'ble Madras High Court. This decision has been followed by the Tribunal in the cases of Viacom and Cognizant Technology Solutions in ITA No.1535/Mad/2009. Copies of both these Tribunal orders are placed on the record. In view of the above, we do not find merit in the contentions of the learned counsel for the assessee. 44. Now we take the issue which we left with regard to the scope of enquiry u/s.195 r.w.s.201 of the Act. In the agreements, issue regarding taxation has been dealt wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement claim or an invoice to the customer. It has also been provided that in case of Double Tax Treaty which would provide for a reduced tax rate or tax exemption, the supplier will, upon request from the customer provide all documentation provided for application of the treaty. This clause of the agreement suggest, if tax treaty is applicable which exempt the payment from levy of any taxes or applicability of reduced tax rates, then upon the request of assessee, the supplier would provide all necessary documents contemplating for application of the treaty on the date of payment. Whether assessee has collected these documents, what was the basis for the assessee to form a belief that consideration paid by it to the NTOs would be covered by the DTAA, no material has been placed on the record by the assessee. It has been pleaded that it has complied with the details under Rule 37BB, but those are the schedule proforma required by the IT Rules. Along with those proformas, the assessee has not annexed correspondence with the NTOs or any material indicating that payees are opting for applicability of the DTAA and the payments made to them are either exempt under DTAA or a reduced rate o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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