TMI Blog2023 (12) TMI 206X X X X Extracts X X X X X X X X Extracts X X X X ..... ent i.e. NTOs would be the place where the non resident carries on its business and perform the business activities pursuant to which it received income. Once the situs is outside India, then in order to determine whether the payments made by a resident of India to a non resident involves element of income is to be examined u/s 9 and in the present case, the Assessing Officer has examined the applicability of section 9(1) (vi) 9(1)(vii) i.e. the payments involve royalty as well as fee for technical services. - Decided in favour of assessee. - SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER For the Appellant : Shri. T. Suryanarayana, Smt. Tanmayee Rajkumar, Advocates For the Respondent : Shri. Aseem Sharma, CIT(DR) ORDER Per Bench : These appeals at the instance of the assessee are directed against seven Final Assessment Orders passed under section 143(3) r.w.s. 147 r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter called the Act ). The relevant Assessment Years are 2009-10 to 2015-16. 2. Common issues are raised in these appeals; hence, they were heard together and are being disposed off by this consoli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal. The assessee has filed Paper Book enclosing therein the case laws relied on. The assessee, by placing reliance on the latest order of the Tribunal submitted that the entire issues decided in the Final Assessment Orders for Assessment Years 2009- 10 to 2015-16 has been decided against the Revenue in the case of Telefonica De Espana S. A, Vs. DCIT (IT(IT)A No.215 and 216/Bang/2023, order dated 17.08.2023). The learned AR stated that the Tribunal in the case of Telefonica De Espana S. A, (supra) had followed the earlier orders of the Tribunal as well as the judgment of the Hon ble jurisdictional High Court in the case of Vodafone South Ltd., (2016) 72 taxmann.com 347 (which was the entity which had made payments to the assessee and proceedings under sections 201 and 201(1A) of the Act were completed). The assessee has also filed a written submission. The content of the same reads as follows: Submissions Re. Taxability of the receipts as Royalty : It is submitted that provision of IC services and IPLC services involves provision of standard telecom services outside of India and does not involve transfer of any rights in any equipment or process, nor actua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsideration paid by the telecom operators is for grant for access and use of process, network and transmission facilities. On this basis, the AO and the DRP held that the receipts are chargeable to tax under Section 9(1)(vi) of the Act, read with clauses (i), (iii) and (iva) to Explanation 2 and Explanations 5 and 6 thereto, and Article 13 of the DTAA. Taxability under the Act: It is submitted that explanation 2 to Section 9(1)(vi) defines royalty to inter alia mean any consideration received 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 (clause (i)); (ii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property (clause (iii)); (iii) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB (clause (iva)). As stated above, the Assessee merely rendered telecom services, without transfer of any rights in the process. Therefore, in the present case, clause (i) to explanation 2 is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted v. UOI (reported in [2006] 282 ITR 273 (SC)); and - Cable Wireless Networks India Private Limited (reported in [2009] 315 ITR 72 (Del. AAR)) It is submitted that Explanations 5 and 6 to Section 9(1)(vi) of the Act does not in any manner alter the taxability of the receipts in the Assessee s hands. It is submitted that once the conditions of use of or right to use are not satisfied, Explanations 5 and 6 cannot be pressed into service. In any event, Explanation 5 has no application in the present case. It is submitted that Explanation 5 applies to consideration in respect of any right, property or information . Whereas in the present case, the consideration received by the Assessee is in respect of provision of telecom services, without transfer of any right in the process, or granting any right to use the equipment. Similarly, Explanation 6, which expands the scope of the term process is relevant only in a case where there is a transfer of any right in the process/ use of the process by the payer. However, as mentioned above, telecom services do not involve transfer of any right in relation to or imparting of any information concerning the wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he process with the Assessee is available in the public domain. Reliance in this regard is placed on the decision of the Hon ble Delhi High Court in the case of Pan AmSat International Systems Inc (reported in [2006] 9 SOT 100). Therefore, it is submitted that since the definition of royalty is narrower in the DTAA, the same being more beneficial to the Assessee, ought to be applied over the provisions of the Act. Reliance in this regard is placed on the following decisions: - Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT (supra); - J P Coats Ltd v. CIT (Order dated 29.11.2021 passed by this Hon ble Tribunal in IT(IT)A No.11/Bang/2014); - Bharat Sanchar Nigam Limited v. UOI (reported in [2006] 282 ITR 273 (SC)); - Bharti Airtel Ltd. v. ITO (TDS) (reported in [2016] 67 taxmann.com 223 (Delhi Trib.)); - DDIT (IT) v. Savvis Communication Corporation (reported in [2016] 69 taxmann.com 106 (Mumbai - Trib.)); and - DIT v. New Skies Satellite B.V (supra). Legal position as regards taxability of similar receipts / payments: It is submitted that the order passed by this Hon ble Tribunal in the case o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mers in India (including VSL) in any way. Accordingly, the Assessee submits that telecom services do not qualify as managerial services. Technical services involve use of specialized skills or services driven by technology. Mere rendering of services using technology is not sufficient for a service to qualify as technical service. Moreover, technical services involve active human interaction in their rendition. In the present case, IC and IPLC services do not involve any active human intervention in rendition of services. The Assessee has provided connectivity services to customers in India (including VSL) in order to carry telecommunication traffic during the relevant year. The fact that technical expertise may be required to ensure quality connectivity would not make it a provision of technical service. These are standardized services without any customer specific customization. Thus, the Assessee s receipts from customers in India (including VSL) for provision of standard telecom services do not qualify as FTS under section 9(1)(vii) of the Act. Reliance in this regard is placed on the decision of the Hon ble Madras High Court in the case of Skycell Communicati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. v. ACIT (reported in [2017] 87 taxmann.com 152 (Delhi - Trib.)); and - Bharti Airtel Ltd. v. ITO (TDS) (supra). Therefore, it is submitted that the consideration received cannot be termed as FTS. SUBMISSIONS RE. TAXABILITY OF THE RECEIPTS UNDER SECTION 5(2) OF THE ACT: Taxability under the Act As stated above, all services are rendered by the Assessee outside India. Accordingly, the income does not accrue or arise in India. Reliance is placed on the decisions of the Hon ble Supreme Court in the cases of CIT v. Toshoku Limited (reported in [1980] 125 ITR 525 (SC)) and the Hon ble Madras High court in the case of CIT v. Anamallais Timber Trust Ltd. (reported in [1950] 18 ITR 333 (Mad. HC)), wherein it has been conclusively held that if services are provided outside India, no part of the income can be said to accrue or arises in India. Taxability under the DTAA Without prejudice, the provisions of the DTAA, being more beneficial to the Assessee, ought to be applied over the provisions of the Act. Under Article 7 of the DTAA, profits of an enterprise (tax resident) of UK cannot be taxed in India unless such ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. Page 10 Para 5.2.7 All these changes in Act (insertion of Explanation 5 6) do not affect the definition of Royalty as per DTAA Page 10 Para 5.2.9 On perusal of agreement, it is noted that installation and operation of sophisticated equipment are with the view to earn income by allowing the users to avail the benefits of such equipment or facility and does not tantamount to granting the use or right to use the equipment or process so as to be considered as royalty Page 21 Para 5.2.16 At no point of time, any possession or physical custody, control or management over any equipment is received by the end users/customers. Page 21 Para 5.2.17 Process involved in providing the services to the end users/customers is not secret but a standard commercial process followed by the industry players. Hence, same cannot be classified as secret process as per clause 3 o Article 13 of India-Spain DTAA Page 21 Para 5.2.17 We hold that payments received by assessee towards interconne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r arising of the income in the hands of non resident in India. It is pertinent to mention that section 9 of the Act is a deeming section and it provides for taxation of specified income, received by foreign tax resident in India. It has different sub sections. Section 9(1)(i) of the Act provides for taxation of business income of non resident, whereas section 9(1)(vi) and 9(1)(vii) of the Act provides for taxation of income in the nature of royalty and FTS respectively. In order to assume accrual or arousal of business income in India, then section 9(1)(vi) along with its explanation would be relevant and it would come from the circumstances that non resident constitute a business connection in India. In that situation only so much income shall be taxable in India as is relatable to operations carried on in 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X
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