TMI Blog2017 (10) TMI 1093X X X X Extracts X X X X X X X X Extracts X X X X ..... owance u/s 40(a)(ia) - relationship between appellant and its distributors - Held that:- Section 194J was inserted with effect from July 1, 1995, till the assessment year in question that is the assessment year 2005-06 both the Revenue and the assessee proceeded on the footing that section 194J was not applicable to the payment of transaction charges and accordingly, during the period from 1995 to 2005 neither the assessee has deducted tax at source while crediting the transaction charges to the account of the stock exchange nor the Revenue has raised any objection or initiated any proceedings for not deducting the tax at source. In these circumstances, if both the parties for nearly a decade proceeded on the footing that section 194J is not attracted, then in the assessment year in question, no fault can be found with the assessee in not deducting the tax at source under section 194J of the Act and consequently, no action could be taken under section 40(a)(ia) . Appellant had a reasonable / bonafide cause for not deducting TDS on payment of discounts to the distributors / franchises of its repaid products. This is accordingly not a fit case for making disallowance of an expense by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... material facts leading to escapement of income chargeable to tax. Addition on account of discount extended to prepaid distributors 4. That on the facts and circumstances of the case and in law, the learned CIT(A) has erred in confirming the disallowance of ₹ 631,71,72,727/- made by the learned AO under the provisions of Section 40(a)(ia) of the Act by alleging that the relationship between the Appellant and its distributors / franchises is that of principal agent and accordingly, the discounts extended by the Appellant to its distributors / franchises are in the nature of commission , liable for deduction of taxes under Section 194H of the Act. 5. Without prejudice to the Ground 4 above, on the facts and circumstances of the case and in law, the learned CIT(A) has erred in not appreciating the fact that certain portion of the prepaid sales of the Appellant are effected through its own Customer Service Centres and therefore, the discount offered on the portion of such sales cannot be treated as commission liable for deduction of tax at source under the provisions of Section 194H of the Act. 6. Without prejudice to the Grounds 4 to 5 above, the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Validity of assumption of jurisdiction to reassess u/s 147 of the Act (ii) Disallowance u/s 40(a)(ia) of ₹ 631,71,72,727/- for non deduction of tax on discounts given by the appellant to its distributors / franchisees for distribution of prepaid SIM Cards / Talktime. (iii) Disallowance u/s 40(a)(i) of ₹ 57,78,92,080/- on payment of IUC Charges to International Telecom Operators. 3. We would first take up for consideration the issue pertaining to validity of assumption of jurisdiction to reassess u/s 147 of the Act. Brief facts of the case are that appellant is a Government of India Undertaking engaged in the business of providing telecommunication services. For the year under consideration the return of income was filed by the appellant on 29th September, 2009 declaring total income of ₹ 4448,71,00,000/-. Assessment u/s 143(3) of the Act was completed on 2nd November, 2011 assessing total income of the appellant at ₹ 5948,96,78,618/- under normal provisions of the Act and book profit of ₹ 4959,37,00,000/- u/s 115JB of the Act. Thereafter, during course of assessment proceedings for AY 2011-12 the AO observed that appellant has offered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was asked to provide the details of discount given to distributors / franchisee but the same was not provided. Further, it was assumed that the assessee company M/s BSNL is providing discount @ 5%. According the discount amount was calculated @ 5% which was found to be in the nature of commission expenses on which TDS was liable to be made u/s 194H of the Act. However, on verification, it was observed that no TDS deduction has been made by the assessee and the assessee company was an assessee in default as per the provisions of chapter XVII of the Act. Taking note of the same, the assessee was asked to show cause as to why this amount should not be disallowed u/s 40(a)(ia) of the Act. The assessee was further asked to explain as under :- Kindly confirm that the revenues on account of sale of prepaid products such as SIMS, Recharge Coupons etc. 9see para 2(e) schedule T of accounting policies) is being recognized in the accounts at the customer sale price or on distributor sale price such that the distributor margin is earned by the distributor on transfer of such recharge product to the subscriber. In such a scenario in terms of the case of Hon ble Delhi High Court in the m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the assessee company is an assessee in default as per the provisions of chapter XVII of the Act and the same deserves to be disallowed u/s 40(a)(ia) of the Act. Reference is also invited to the judgement of Hon ble Delhi high Court in the case of Idea Cellullar Limited (2010) 325 ITR 148 wherein the issue is settled in favor of the Revenue. The Hon ble Delhi High Court held that the relationship between the case, and the distributors was held to be one of principal to agent. It was further held that the discounts offered to distributors were in the nature of commission and thereby liable to TDS u/s 194H of the act. In view of above, I have reason to believes that ₹ 559,17,75,000/- representing the dealers/distributors and franchisee margin in the form of free airtime on which no TDS deduction was made by the assessee and the assessee company is an assessee in default as per the provisions of chapter XVII of the Act, so allowed, resulted into income escaping assessment within the meaning of section 147 of the I.T. Act and it is a fit case for initiating proceedings u/s 147 of the I.T. Act and for issue of notice u/s 148 of the I.T. Act. 3.1 Vide written o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the AO to specifically examine this issue during the course of original assessment proceedings. The assessment order nowhere speaks that the AO had taken a conscious decision or formed any opinion on this issue nor was there any application of mind by the AO thereupon. In presence of these facts borne out on record, we do not find any justification to discard the decision reached by the ld. CIT(A) for sustaining the initiation of proceedings u/s 147 in the instant case. For this view, we stand fortified by the decision of Hon ble Jurisdictional High Court in the case of Consolidated Photo and Finvest Ltd. vs. ACIT 281 ITR 394 (Del) and of Hon ble Gujrat High Court in the case of Praful Chunilal Patel vs. ACIT 236 ITR 832 (Guj). The decisions relied on by the appellant are not found applicable, being based on different footing and distinguishable on the facts of the present case. Hon ble jurisdictional High Court in the case of Consolidated Photo (supra) has observed as under : The principal that a mere change of opinion cannot be a basis for reopening completed assessments would be applicable only to situation where the Assessing Officer has applied his mind and taken a consci ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he year under consideration in the profits and loss account appellant has shown income from prepaid services at a net figure after reducing a discount given by it to the distributors / franchisees of its prepaid Sim Card and Recharge Vouchers. During course of reassessment Ld. AO directed the appellant to submit as to why said discount should not be treated as a commission paid to distributors / franchisees on which tax was deductible as per provisions of section 194H of the Act. In reply it was submitted by the appellant that the distributor margin is in nature of discount and not commission which would triger applicability of section 194H. It was further submitted that the relationship between BSNL and Distributors / Franchisees was on principal to principal basis and hence TDS was not deductible. In support of its claim the appellant relied upon the decision of Karnataka High Court in the case of Bharti Airtel Ltd. reported in 372 ITR 33 (Kar). The Ld. AO, however, was not convinced by the submissions made by the appellant and in his order of assessment he rejected the claim of the assessee by observing as under :- The submissions of the assessee have been considered an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax authorities to ascertain whether or not taxes have been paid by the persons in receipt of the amounts from which taxes have not been withheld. The provisions regarding interest in delay in depositing the taxes are set out in Section 201(1). These provisions provide that for any delay in recovery of such taxes is to be compensated by the levy of interest. As far as recovery provisions are concerned, these provisions are set out in Section 201(1) which seeks to make good any loss to revenue on account of lapse by the assessee tax deductor. However, the question of making the loss of revenue arise only when there is indeed a loss of revenue can be there only when recipient of income has not paid tax. The ITAT observed that there is no finding by the AO to the effect that the recipient of the money i.e., franchisees have not paid the taxes on income embedded in the amounts in question. It held that for raising demand u/s 201/201(1A) r.w.s. 194H, the AO had to prove that the principal liability (of payment of tax by the distributor / franchisees) remained undischarged and therefore sent the matter back to the file to the AO for reconsideration. Perusal of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... agent. I have also considered the judgment of Delhi, Kolkata Kerala High Court in the case of Idea Cellular Ltd. 325 ITR 148 (Del), Bharti Cellular Ltd. vs. ACIT 244 CTR 185 (Cal) and Vodafone Esaar Cellular Ltd. vs. ACIT (2009) 317 ITR (AT) 234 (Cochin), I hold that the discounts allowed and incentives given by the appellant to its Franchisees on sale of its products is in nature of commission and the same attracts the provision of section 194H of the Act. During appellate proceedings the ld. AR has quoted the judgment of Karnataka High Court which is in favour of appellant. It would be pertinent to state that the said judgment has not been accepted by Revenue and the judicial pronouncement has been contended before the Supreme Court. The SLP proposed by Revenue has been admitted by the Apex Court which proves that the issue is alive and debatable. Considering all these facts, Ground No.3 is dismissed. 9. Aggrieved, the appellant is now in appeal before us. At the outset, it was submitted by the Ld. AR that the decision of Hon ble Delhi High Court in Idea Cellular (supra) is distinguishable both on facts and in law. In this regard, it was submitted by Ld. AR that a true a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th this Agreement and that no BSNL personnel have a business relationship of any kind with the Franchisee or its officers. Pg 173 cl 25 The Franchisee, its agents and employees will not be the legal representatives, employees or agents of the BSNL for any purpose and have no right or authority to incur any expenses on behalf of the BSNL or to create, in writing or otherwise, obligations of any kind, express or implied, in the name of or on behalf of BSNL excluding the rights and duties under this Agreement. The Franchisee shall make no representations inconsistent with the foregoing, but so long as this Agreement remains in force, the Franchisee shall be entitled to describe itself as the Authorised Franchisee of BSNL for the services in the territory. Pg 175 cl 27.2 As long as this agreement remains in force but not thereafter, subject to clause 15.2 above, the Franchisee may identify itself as an Authorized Franchisee of the BSNL, but shall not use the brand names, logos or trademarks of the BSNL as part of its corporate or partnership name or otherwise indicate to the public that it is an affiliate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sponsibility of the Franchisee to effect the sales through proper invoices detailing the material particulars of the BSNL phones Pg 168 Cl 9.7 including the IMEI number. The Franchisee shall keep the BSNL indemnified against claims regarding unauthorized handsets sold or alleged to have been sold from the Franchisee / Franchisee s outlet (s), being raised against the BSNL by any third party. The Franchisee and any person(s) assigned by the Franchisee to provide services as hereunder shall in consultations with local authorities may get any state and local taxes including sales tax, etc. from the customer. The BSNL shall have no liability or obligation for any state or local income tax liability of the Franchisee or any person assigned by the Franchisee. However, nothing contained herein shall prevent the BSNL from deducting tax at source as required by law and regulation from payment to the Franchisee. Pg 170 cl 14.1 The liability to insure the stocks in the outlet(s) and in the possession of the Franchisee will be of the Franchis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he products and services shall remain with BSNL it is submitted that clause 15.1 does not state this. Clause 15.1 merely clarifies that for all purposes Brand Name, logo and Trademark shall remain exclusive property of BSNL. (ii) At page 12, para 4.4.11(v) CIT(A) has erred in concluding that as per clauses 18, 19 20 BSNL reserves exclusive right to bring changes in terms and condition of the agreement with franchisee . It is submitted that clause 18 deals with Software and recognizes BSNL s IPR rights therein. Clause 19 deals with Termination and clause 20 deals with consequences of Termination. (iii) At page 13, para 4.4.11(x) CIT(A) has concluded that BSNL shall have the exclusive right to terminate the business arrangement by written notices to Franchisees and then the Franchisees shall return to BSNL all information of customers/subscribers and other material pertaining to products and services It is submitted that as per clause 19.3 either party has a right to terminate the arrangement. As per the agreement upon termination there is no obligation upon BSNL to receive back the unsold goods lying with the Franchisee. Obligations of franchisee are clearly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partner makes BSNL liable to a legal action by cell phone users i.e third party . - As submitted above franchisee in the instant case acquires and then resells or distributes a right to demand service. While doing so the terms of the agreement clearly prescribe in clause 9.7 that BSNL shall not be liable for the quality and genuineness of the gods sold by the franchisee 9.1 Ld. AR further submitted that the decision of Hon ble Delhi High Court in the case of Idea Cellular is also distinguishable in law in as much as Hon ble Delhi High Court has proceeded on the basis that services cannot be sold. It has to be rendered. It was submitted that Hon ble Delhi High Court did not examine the question whether right to services can be sold. It was submitted by Ld. AR that this legal aspect has specifically been considered by Hon ble Karnataka High Court in the case of Bharti Airtel (supra) and inviting our attention to para 56 to 58 of the decision Ld. AR submitted that on this legal aspect Hon ble Karnataka High court has differed with the view expressed by the Hon ble Delhi High Court. Relying upon extracts from Salmond on jurisprudence Twelfth Edition (pg.153-154) it was submitt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was submitted that the findings recorded by Delhi ITAT in this judgment supports the case of the appellant. Without prejudice, to the above contentions Ld. AR also submitted that since as per decision of Hyderabad ITAT there is no default u/s 201 hence disallowance u/s 40(a)(i) for the year under consideration cannot be made in support of this claim our attention was invited to the decision of Bharti Hexacom Ltd. reported in 179 TTJ 25 (Del). Ld. AR clarified that subsequent deduction of tax by BSNL in ensuing year was due to a change in business model. Lastly it was submitted by the Ld. AR that since provision of section 40(a)(ia) lead to penal consequences benefit of bona fide belief be granted to the appellant specially when the issue is highly debatable. It was submitted that as claimed by tax department decision of Hon ble Delhi High Court in case of Idea Cellular (supra) is against the appellant and as accepted by tax department the decision of Hon ble Karnataka High Court in case of Bharti Airtel (supra) is in favour of the appellant. In support Ld. AR relied upon the decision of JDS Apparels Pvt. Ltd. reported in 370 ITR 454 (Del). Before concluding, Ld. AR also invited our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see to the subscriber. Further, dealings between the subscribers and the assessee in relation to the said SIM card including any complaint, etc. for improper service/defect in service. (c) Entering into the ultimate agreement between the subscriber and the assessee (Clause 15 of the Agreement). It is to be borne in mind that the nature of service provided by the assessee to the ultimate consumers/subscribers, whether it is pre-paid or post-paid SIM card - remains the same. In the instant case, the SIM cards are prepaid, which are sold by the assessee to the consumers through the medium of PMAs. In the case of post-paid SIM card transaction is entered into directly between the assessee and the subscriber and the subscriber is sent bill periodically depending upon the user of the SIM card for the period in question. In both the cases, legal relationship is created between the subscriber and the assessee that too by entering into specific agreement between these two parties. 24. In contrast, the legal position when the goods are sold by principal to its distributors creating 'principal and principal' relationship would be entirely different. On the sale of go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lular Ltd.'s case (Supra), where it was held that, the distributor is only rendering services to the assessee and the distributor commits the assessee to the subscribers to whom assessee is accountable under the service contract which is the subscriber connection arranged by the distributor for the assessee. In that context it was held that, discount is nothing but a margin given by the assessee to the distributor at the time of delivery of SIM Cards or Recharge Coupons against advance payment made by the distributor. 58. In both the aforesaid cases, the Court proceeded on the basis that service cannot be sold. It has to be rendered. But, they did not go into the question whether right to service can be sold. 59. The telephone service is nothing but service. SIM cards, have no intrinsic sale value. It is supplied to the customers for providing mobile services to them. The SIM card is in the nature of a key to the consumer to have access to the telephone network established and operated by the assessee-company on its own behalf. Since the SIM Card is only a device to have access to the mobile phone network, there is no question of passing of any ownership or title of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow and establish principal and agent relationship. Apparently, therefore, legalistically both the Hon ble High Courts have expressed a divergent opinion in the matter. Since the appellant before us is from Delhi, we are obligated to follow the decision of Hon ble Jurisdictional High Court. Parties before us have also elaborated upon the fact that there is a distinction in terms and conditions of distribution agreement in the instant case and the facts as existing before both the Hon ble High Courts above, however we find no reason to deliberate upon this aspect since on the legal aspect itself the decision of Hon ble Delhi High Court which is the jurisdictional High Court is against the appellant. We are therefore compelled to hold that the discount on prepaid products offered by the appellant is in nature of commission which does attract rigors of section 194H. 12. The above finding given by us would however not automatically act as an accomplished fact vis a vis the issue of disallowance u/s 40(a)(ia). There is however another aspect of the matter before us. Ld AR argued that benefit of bonafide cause be granted to the appellant since provisions of section 40(a)(ia) ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urts, deserves to be followed. 10. In fact, the first appellate authority has taken into consideration the circular issued by the corporate office of the BSNL dated 13.12.2007 and another circular dated 15.4.2008 while coming to the conclusion that the nature of the payment made by the assessee to its franchisee is trade discount only. Since the view taken by the learned CIT(A) is mainly based on the factual matrix of the case, I am of the firm view that the order passed by the learned CIT(A) does not call for any interference. (iii) Appellant also merits benefit of bonafide belief considering third proviso to section 194H which states as under: Commission or brokerage 194H. Any person, not being an individual or a Hindu undivided family, who is responsible for paying, on or after the 1st day of June, 2001, to a resident, any income by way of commission (not being insurance commission referred to in section 194D) or brokerage, shall, at the time of credit of such income to the account of the payee or at the time of payment of such income in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lanation, therefore, requires a strict construction and the principle against doubtful penalization would come into play. The detriment in the present case, as is noticeable, would include initiation of proceedings for imposition of penalty for concealment, as was directed by the Assessing Officer in the present case. The aforesaid principle requires that a person should not be subjected to any sort of detriment unless the obligation is clearly imposed. When the words are equally capable of more than one construction, the one not inflicting the penalty or deterrent may be preferred. In Maxwell's The Interpretation of Statutes, 12th edition (1969) it has been observed:- The strict construction of penal statutes seems to manifest itself in four ways: in the requirement of express language for the creation of an offence; in interpreting strictly words setting out the elements of an offence; in requiring the fulfilment to the letter of statutory conditions precedent to the infliction of punishment; and in insisting on the strict observance of technical provisions concerning criminal procedure and jurisdiction. To the similar effect is the decision of Hon ble Bombay Hig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ises of its repaid products. This is accordingly not a fit case for making disallowance of an expense by invoking penal provisions of section 40(a)(ia). 12.2 The issue can also be considered from different prospective. As stated by us above, Hyderabad Bench of ITAT in case of appellant for the year under consideration has already held that there is no default on part of the appellant for not having deducted tax on discounts given for its prepaid products. This in our considered opinion operates res judicata for examining whether there is any default committed u/s 40(a)(ia). We find that co-ordinate bench of Delhi ITAT in case of Bharti Hexacom (supra) has held that in such a scenario disallowance cannot be sustained by invoking provisions of section 40(a)(ia), observing as under: 35. We have considered the rival submissions and have perused the record of the case. Admittedly, as regards discount allowed to distributors in respect of prepaid cards, the Gauhati Bench of the ITAT as well as Jaipur Bench of ITAT in assessee's own case for AY 2008-09 have clearly held that the said provisions of section 194H are not applicable. However, on this issue, admittedly Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source under Chapter XVIIB before 40(a)(ia) could come into play. Admittedly in the case of assessee, it has been held that the provisions of section 194H as well as provisions of section 194J are not attracted and therefore, there was no amount on which tax was deductible. Therefore, section 40(a)(ia) cannot come into play. The machinery provisions cannot operate independently and before the computation provisions contained in section 40(a)(ia) can come into the play, the effect of applicability of machinery provision has to be considered. 44. Now, if we accept the submissions advanced by ld. CIT(DR) that the provisions of section 40(a)(ia) and provisions of section 201 operate in two independent fields then it would lead to contradictory findings by Tribunal for the same assessment year in respect of the same subject matter and issue. Had there been no decision of Tribunal in assessee's own case for the same assessment year, then in view of the decision of Hon'ble Jurisdictional High Court in the case of Idea Cellular Ltd. (supra) deduction could not be allowed to assessee. However, in view of the decision of Hon'ble Supreme Court, keeping in view the integrate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of BSNL outside India and termination of the same at the destination location outside India (last leg of the communication channel). In many cases, local services provider and NLD provider could be BSNL only. 13.1 In the order of assessment, Ld. AO holds that payment of IUC charges to non-resident telecom service provider was liable to tax deduction u/s 195 of the Act. In support of his conclusions Ld. AO after making reference to material available as per Wikipedia on roaming technology has held that payment of IUC charges is Fee for Technical Services both under the provisions of Act u/s 9(1)(vii) and as per provisions of Article 12 of the DTAA. Without prejudice in his order of assessment the AO has further held that payment for IUC charges also constitutes income in nature of Royalty as defined u/s 9(1)(vi) of the Act and Article 12 of the DTAA. In view of discussions made and findings recorded by the Ld. AO he concluded that the amount of ₹ 57,78,92,080/- paid by Appellant to foreign telecom service providers was income chargeable to tax in India in hands of foreign service providers and since no application u/s 195(2) of the Act was filed by the appellant rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iber located in a foreign land. These services terminate out of India but the origin of providing these services is in India. These calls are carried over the International Network which means that the consideration paid by BSNL is in respect of the right to use a property and a process belonging to the Non-Resident. In order that a subscriber is able to register on to a visited network, a roaming agreement needs to be in place between the visited network and the home network. This agreement is established after a series of testing processes. These payments would thus fall under the scope of Section-9 and will be deemed to have accrued or arisen in India and therefore, are taxable under the Act. In view of the above, IUC charges paid to International Operators be classified as a royalty since the same involves use or right to use of equipment and / or process, belonging to the non-resident. 4.5.7 On perusal of the appellant s submission and further elaborations as discussed above, it can easily be inferred that while availing roaming connectivity, the service providers and users have to undergo a complex process of roaming technology. Therefore, using roaming services is in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he discussion above, the payments made by the appellant squarely fall within the definition of Royalty as defined in Explanation 2 to section 9(1)(vi) of the Act as well as the respective DTAA s of countries with which BSNL has entered into such transactions. 4.5.10 Section 195 read with Section 40(a)(i) of the Act stipulates that if there is any amount paid to a non-resident on which tax is required to be deducted and if such tax has not been deducted then the same will not allowed as expenditure for the relevant assessment year. Thus, the amount paid to the non-residents on Interconnection charges are income chargeable under the Act and therefore, will be subject to deduction of tax at source u/s 195. The appellant had cited M/s Asia Satellite Telecommunications Co. ltd. vs. Director of Income Tax [2011] 197 Taxman 263 Delhi (at pages 597-626), wherein the Hon ble Delhi High Court has accepted the submissions that the process involved in transmission of data by way of satellites is used by the satellite operator for provision of transponder capacity to its customers cannot be construed as royalty for use of process. 4.5.11 In this case, the tele companies / customers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provisions of services of technical or other personnel) if such services: (a) Are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) Make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design. 4.5.14 Perusal of the above shows that the payments would not only be covered as fees for technical services as per IT Act, 1961 but also as fees for included services under various treaties of countries with which BSNL has entered into such transactions. It may be noted that the expression make available would mean that the person providing the services merely enables the acquirer to use the knowledge and the provider may not participate in the act of doing the job himself, which is certainly the case here. The fact that the services were rendered outside India is immaterial. As per section 9(1)(vii), income by way of fees for tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. In view of my above observations, ground Nos.4, 5 6 of the appeal is dismissed and action of the AO is therefore, confirmed. 15. During course of hearing before us, it was submitted by the ld. AR that payment of IUC charges do not constitute income either in nature of Fee for Technical Services or Royalty as defined under the Act or under the relevant provisions of DTAA. Ld. AR referred to a sample agreement for payment of IUC charges between BSNL and Cable Wireless UK copy of which is placed in the paper book before us. It was further submitted by the ld. AR that the issue in dispute now stands decided in favor of the appellant by following decisions :- (i). Bharti Airtel Ltd. reported in 47 ITR (trib) 418 (Del) (ii). Vodafone South Ltd. reported in 241 Taxman 497 (Kar) (iii). Bharti Hexacom Ltd. reported in 42 ITR (Trib.) 686 (Jaipur) (iv). Bharti Hexacom Ltd. reported in 179 TTJ 25 (Del) 16. Ld. CIT(DR) on the other hand supported the orders of lower authorities. It was submitted by her that the Ld AO has correctly concluded that the payment of IUC charges constituted income chargeable to tax in India in the hands of non resident telecom service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... legislation does not affect royalty definition under DTAA, hence retrospective insertion of Explanations 5 6 to section 9(1)(vi) also could not have altered this position - Held, yes [Paras 33, 44, 55, 56 72][In favour of assessee] Section 9 of the Income-tax Act, 1961, read with section 5 and article 7 of Model OECD Convention - Income - Deemed to accrue or arise in India (Business Profits) - Assessment years 2008-09 to 2011- 2012 -Assessee made payment of Inter-connected Usage Charges(IUC) to Foreign Telecom Operators (FTOs) in connection with its ILD telecom service business - Payment in question did not accrue or arise to 'FTOs' in India - Entire business operations were carried out outside India by FTOs - FTOs also did not have any Permanent Establishment in India - Whether thus no income could be deemed to accrue or arise to FTO's in India and hence under article 7 also income could not be brought to tax in India - Held, yes - Whether further in absence of permanent establishment of FTOs in India, payment of 'IUC' to FTOs could not be deemed to accrue or arise in India under any of clause of section 9(1) read with section 5(2) - Held, yes [Paras 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
