TMI Blog2018 (5) TMI 2070X X X X Extracts X X X X X X X X Extracts X X X X ..... the Grounds raised by the Revenue are concerned, we find no reasons to interfere with the decision of the CIT(A), which is in line with the precedents in assessee s own case by way of orders of the Tribunal (supra). Computation of the income from standby maintenance activities attributable in India - HELD THAT:- We find that the standby maintenance charges recovered by the assessee from TCL only qua the length of cable in the territorial waters of India needs to be considered for computing the profits or income accruing to the assessee u/s 9(1)(i) of the Act. The reasoning advanced by the Revenue to the effect that the standby maintenance charges are linked to the cable capacity is of no consequence for the present inasmuch as what is required to be decided is the income attributable to the business connection in India, which possibly is the length of the cable in the territorial waters of India. Therefore, in our view, it is only the revenue from TCL which is on account of standby maintenance charges proportionate to the cable length in India that deserves to be considered for computing the profit or loss from standby maintenance activity attributable to India in terms of Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on 9(1)(vii) of the Income tax Act, 1961 on the ground that no services were rendered during the year, ignoring the invoice available on record indicating charges paid towards such services and without appreciating that by incurring cost on maintaining infrastructures for co-ordination and setting up conditions for efficient rendering of services in relation to maintenance and repairs of cable system the assessee rendered managerial and technical service in the form of commercial advantage to assignees by ensuring that the cable system was in seamless operational condition at all times and in case of actual need for the repairs and maintenance, the same could be carried within least time. 2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in concluding that the amount received by assessee as standby maintenance charges were not of the nature of 'Fee for technical services' under section 9(1)(vii) of the Act on the ground that service was not rendered while holding at the same time that whenever payment is received on account of actual repair or maintenance carried out, then same would definitely fall within the ambit of FTS c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1998-99 to 2000-01 has decided somewhat similar issues. Similarly, the Tribunal vide its order in ITA Nos. 2255/Mum/2006 and others dated 15.06.2015 reiterated the earlier decision for Assessment Years 2001- 02 to 2008-09. In this background, we may now cull out the issues in the present appeal. 5. The assessee before us is a company incorporated in Bermuda and owns high capacity fibre optic telecommunication cable used for providing data and voice services. The assessee-company is a tax resident of Bermuda and its fibre optic telecommunication cable, which is laid under sea, provides a telecommunication link between U.K and Japan. At the time of hearing, it was explained that a major part of the cable system is installed outside the territorial waters of the respective countries and the cable has to come ashore, which is called as landing points , in certain countries in order to provide connection with the domestic telecommunication systems. To achieve this, assessee-company has contracted with the domestic telecommunications companies of the respective countries in which the cable lands, and such concerns are termed as landing parties . So far as the dispute before us is c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... terest on income tax refund of ₹ 9,83,489/-. However, the Assessing Officer was not satisfied with the stand of the assessee in the course of the assessment proceedings as, according to him, the amounts received by the assessee from TCL were in the nature of fee for technical services as defined in Explanation-2 to Section 9(1)(i) of the Act and, therefore, he brought to tax the same @ 20% in terms of Sec. 115A of the Act. Moreover, the Assessing Officer brought to tax the entire standby maintenance service revenue received on gross basis from TCL, which was contrary to assessee s assertion of attributing such revenue on the basis of the length of the cable in Indian territorial waters. The assessee had sought determination of revenue by applying proportion of cable length in India vis-a-vis total cable length worldwide. In this manner, the Assessing Officer brought to tax the standby maintenance charges as fees for technical services at ₹ 6,24,92,883/- which was taxed @ 20% u/s 115A of the Act. 6. The assessee carried the matter in appeal before the CIT(A) who disagreed with the stand of the Assessing Officer that the impugned amount was fee for technical servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the order of the Tribunal dated 06.02.2015 (supra) is as under :- 68. The second issue relates to taxability of standby maintenance charges as fees for technical services u/s 9(1)(vii), as raised by the assessee in ground no. 4. As stated earlier, the assessee along with consortium of other parties has built the submarine fibre optic cable providing telecommunication link between UK and Japan. Under the terms of C MA the FLAG cable system is to be jointly operated and maintained in efficient working condition or along with the founding signatory i.e. Flag and the landing party signatories. The operation and maintenance duties and rights has been elaborated in para 10 along with various sub clauses. The entire cable system is to be operated and maintained by founding signatory in co-ordination with relevant landing party signatory. Flag Network Operation Centre (FNOC) has to provide overall network service surveillance and over all co-ordination of maintenance and repair operations of Flag cable system. The Flag has to co-ordinate the deployment of the vessels for repairs and maintenance operation in accordance with the procedure defined. Para 11 along with various sub clauses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntenance is separate from standby maintenance cost, which is in the nature of reimbursement of fixed cost. The standby maintenance is a fixed annual charge which is payable not for providing or rendering services but for arranging standby maintenance arrangement which is required for a situation whenever some repair work in the undersea cable or terrestrial cable is actually to be performed or rendered. It is a facility or infrastructure maintained for ready to use or render the technical services or repair services, if required. On these facts we have to examine whether assessee is providing any service to VSNL in respect of standby maintenance. 70. Explanation 2 to section 9(1)(vii) defines fees for technical services in the following manner:- Explanation (2)- For the purpose of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of service of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt from the clause 11.1, that so far as standby maintenance charges is concerned, it is in the form of fixed annual charge which is in the nature of reimbursement. It has been also brought on record that only actual cost incurred has been recovered from VSNL in providing the standby maintenance services. There is no profit element or mark up involved. The assessee has also provided the details of receipt and cost involved in providing standby maintenance services to VSNL for A.Ys. 1998- 99, 1999-2000 and 2000-01 which are as under:- Particulars Amount in US$ A.Y. 1998-99 A.Y. 1999-00 A.Y. 2000-01 Revenues from standby maintenance charges 512,955 1,226,860 2,072,453 Total costs incurred (as per auditor‟s certificate) (857,093) (2,0,77,219) (2,800,495) Profit/(Loss) from standby maintenance activities (344,138) (850,359) (850,359 It has been contended that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y maintenance charges are relatable to the cable capacity assigned to various landing parties and not the length of the cable. In other words, as per the Revenue, once such expenses on standby maintenance charges is allocated to TCL, i.e. the Indian landing party, with reference to the capacity used, it cannot be further apportioned based on the length of the cable so as to determine profit of the assessee attributable to the business connection in India. 12. The learned representative, however, pointed out that the income of the assessee, which is to be taxed in India, can be appropriately calculated only after apportioning the revenue on the basis of length of cable in the territorial waters of India for which the standby facility is being maintained by the assessee. Therefore, according to him, it is only such part of the total revenue received from TCL which is proportionate to the length of cable in the territorial waters of India which can be considered to compute assessee s income taxable in India and the same has been correctly done by the assessee in its return of income. 13. At this stage, we may also refer to the Additional Ground of appeal no. 2 which has been rai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to have held that the entire turnover (receipt from the Indian parties) is liable to be treated as turnover for the purpose of taxation in India. 17. On this aspect, the short dispute relates to the manner in which the income from standby maintenance charges taxable in India u/s 9(1)(i) of the Act is to be computed. Said charges have been received by the assessee from TCL and, as per the assessee, portion thereof which is relatable to the length of cable in Indian territorial waters vis-a-vis the length of cable worldwide be taken as the total revenue deemed to accrue or arise in India from which relatable expenses are to be reduced so as to compute the income accruing or arising in India u/s 9(1)(i) of the Act. On the contrary, the stand of the CIT(A) is that the entire amount of revenue received on this score from TCL should be considered. 18. As the aforesaid discussion shows, the dispute revolves around computation of the income from standby maintenance activities attributable in India. On this aspect, before proceeding further, we notice that in Assessment Years 2001-02 to 2008-09, the Tribunal vide order dated 15.06.2015 (supra) has dealt with similar issue, of course ..... X X X X Extracts X X X X X X X X Extracts X X X X
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