TMI Blog2019 (3) TMI 1893X X X X Extracts X X X X X X X X Extracts X X X X ..... dered with respect to the restoration activity, so however, the methodology which has been found to be reasonable by the Tribunal is based on the fraction of length of entire cable system connected to India in its territorial waters. Drawing an analogy from the same, in the instant case too, 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) 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 - 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. 9(1)(i) of the Act. Therefore, on this aspect, we uphold the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax (Appeals)-58, Mumbai [hereinafter referred to as the ld CITA], dated 19/06/2017 for A.Y.2013- 14 in the matter of order passed u/s.143(3) r.w.s. 144C(13) of the Income Tax Act. These cross appeals are taken up together and disposed off by this common order for the sake of convenience. 2. Revenue has raised the following grounds before us:- 1.The Ld. CIT(A) has erred in concluding that the amount of ₹ 10,48,73,710/- paid to the assessee by an Indian resident as 'standby maintenance charges' was not in nature of 'Fee for technical services' under section 9(1)(vii) of the Income tax Act, 1961 without appreciating that maintenance of infrastructure by way of deploying cable ships, submersible equipment, keeping trained staff on standby, and maintenance and operation of Network Operation Centre as per the Construction and Maintenance Agreement dated 14.12.1995, constituted rendering of services for the purpose of constantly monitoring the undersea cable systems and hence the said payment is for managerial and technical services rendered by the assessee which is covered under section 9(1)(vii) of the Act. 2. The Ld. CIT(A) has erred in concludin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Charges levied by assessee from TCL. 6. The appellant prays that the order of the CIT(A) may be set aside on the above ground and that of the assessing officer restored. 7. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 2. The assessee has raised the following grounds:- A. TAXABILITY OF RECEIPTS OF STANDBY MAINTENANCE CHARGES IN INDIA: 1. On the facts and circumstances of the case and in law, the learned Commissioner of Income tax (Appeals) - 58, Mumbai ( the CIT(A) ) erred in holding the action of Deputy Commissioner of Income-tax (International Taxation) - 4(1 )(1), Mumbai ( the Assessing Officer ) that the receipt of Standby Maintenance Charges from Tata Communications Limited ( TCL ) (formerly known as Videsh Sanchar Nigam Limited) is taxable in India. The Appellant submits that the receipt of Standby Maintenance Charges from TCL is not taxable in India as the whole activity have been carried out outside India during the year under consideration. 2. On the facts and circumstances of the case and in law, the learned CIT(A) erred in holding the action of the Assessing Officer that the receipt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds of appeal. 3. Before we proceed to address the respective grounds of appeal raised, the brief background of the dispute can be summarized as follows. At the outset, it was a common ground between the parties that some of the similar dispute came up before the Tribunal in various assessment years starting from the year 1998-1999. These disputes were disposed off by this Tribunal in ITA No.6254/Mum/2003 dated 06/02/2015. Similarly, this Tribunal vide its order in ITA No.2255/Mum/2006 dated 15/06/2015 reiterated its earlier decision for the A.Y.2001 02 to 2008-09. The present disputes raised for the A.Y.2011-12 are to be looked into in this background. 3.1. 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, whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as sought to be determined as the profit or loss deemed to accrue or arise in India in terms of Sec. 9(1)(i) of the Act. 3.2. The assessee had returned a loss of ₹ 2,09,758/- in its return of income filed on 29/09/2013 as the loss attributable to India of standby maintenance activity. However, the learned 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 learned 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 learned Assessing Officer brought to tax the standby maintenance c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee‟s own case in ITA No.2084 2085/Mum/2016 for A.Y. 2010-11 2011-12 dated 04/05/2018 wherein it was held as under:- 8. In this manner, the rival counsels have made their submissions. We find that the issue regarding the nature of services came-up before the Tribunal for the first time in Assessment Years 1998-99 to 2000-01, and vide order dated 06.02.2015 it was held that the same are not in the nature of fee for technical services‟. Subsequently, for Assessment Years 2001-02 to 2008-09, the matter again came-up before the Tribunal, and vide order dated 15.06.2015, the amount has been held not to be in the nature of fee for technical services‟ u/s 9(1)(vii) of the Act. The relevant discussion in 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gs to both, assessee and the landing parties. The maintenance activities under taken by the assessee for the purpose of standby maintenance which is the impugned issue, was for the arrangement for standby cover and maintenance and operation of FNOC. So far as standby maintenance charges is concerned, it is not in respect of any actual rendering of services but to maintain infrastructures for coordination and setting up conditions for efficient rendering of services in relation to maintenance and repairs of cable system. There is a separate charge for repair and maintenance under the C MA whereby, the assessee is actually required to undertake repair and maintenance and for which the assessee separately charges. Such a repair and maintenance 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cover the cost of standby facility, agreed by all the members of the consortium on proportionate cost basis, then it cannot be held that it is providing any kind of technical services. Here the most crucial point which has to be seen is firstly, whether there is any actual rendering of services; secondly, is there any mark up or element of profit in the charge received for standby maintenance; and lastly whether it is in the nature of fixed annual charge which is to be recovered as proportionate cost of maintain the standby facility ready for carrying out any maintenance or repair services. This charge is different from an annual maintenance contract, whereby repairs and maintenance is covered for a certain period or services. In the present case as evident 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 provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TCL) that is attributable to the operations carried out in India has to be calculated on the basis of apportionment of cable length in India vis-a-vis the worldwide cable length. On the contrary, the stand of the Revenue is that the turnover of the assessee derived from standby maintenance charges has no connection with the length of the cable laid in India. As per the Revenue, the standby maintenance charges relate to expenditure incurred by the assessee in maintaining the standby facility and Network Operating Centre (NOC) for a quick response to repair the interruptions and coordination of maintenance. The said facility is maintained and can be mobilised at short notice for rendering any repair work whatever and wherever needed. Therefore, as per the Revenue, the standby 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 attrib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) 58, Mumbai ( the CIT(A) ) erred in holding that the entire turnover (receipts from the Indian Parties) is liable to be treated as turnover for the purpose of taxation in India. The Appellant submits that the said receipt of Standby Maintenance Charges from TCL cannot be treated as turnover for taxation purpose in India. 3. On the facts and circumstances of the case and in law, the Learned CIT(A) erred in holding that the entire turnover (receipts from the Indian parties) of Standby Maintenance Charges from TCL is turnover for the purpose of taxation in India without giving notice for enhancement or opportunity to the Appellant. The Appellant submits that the CIT(A) ought not 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 the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by maintenance activity attributable to India in terms of Sec. 9(1)(i) of the Act. Therefore, on this aspect, we uphold the plea of the assessee and direct the Assessing Officer to verify the calculation made by the assessee in this regard in its computation of income and recompute the income accordingly. Thus, on this aspect, assessee succeeds as above. 5.1. The grounds raised by the revenue and ground Nos. 1 to 5 raised by the assessee are disposed off in line with the aforesaid findings of this Tribunal in assessee‟s own case. 5.2. The ground No.6 raised by the assessee is with regard to chargeability of interest u/s.234B of the Act. We find that this issue was the subject matter of adjudication by this Tribunal in assessee‟s own case for the A.Yrs 2010-11 and 2011-12 referred to supra vide order dated 04/05/2018 wherein it was held as under:- 19. The other only issue is with regard to the charging of interest u/s 234B of the Act. On this aspect, the learned representative pointed out that it is a settled proposition in terms of the judgment of Hon'ble Bombay High Court in the case of NGC Network Asia LLC, 313 ITR 187 (Bom.) that there would be no cha ..... X X X X Extracts X X X X X X X X Extracts X X X X
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