Case Law Details
DCIT (International Taxation) Vs Belgacom International Carrier Services Sa Belgium (Supreme Court of India)
The matter before the Supreme Court arose from a Special Leave Petition filed by the Revenue challenging a Karnataka High Court decision concerning the taxability of interconnect service charges paid to foreign telecom operators. The Supreme Court, after hearing the learned Additional Solicitor General, noted that there was a substantial delay of 390 days in filing the petition. The Court found that this delay had not been satisfactorily explained. On this ground alone, the petition was liable to be dismissed.
Read HC Judgment in this case: Interconnect Charges Not Royalty: HC Dismisses Revenue Appeal
Apart from the delay, the Supreme Court also examined whether there was any justification to interfere with the impugned order of the High Court. It concluded that no valid ground existed to warrant such interference. Accordingly, the Special Leave Petition was dismissed both on account of delay and on merits. All pending applications were disposed of.
The underlying dispute before the High Court concerned whether interconnect service charges paid would qualify as “royalty” for tax purposes. The High Court considered this issue in light of an earlier decision rendered by a Co-ordinate Bench in ITA No.160/2015 and connected appeals, decided on 14.07.2023. In that judgment, the Co-ordinate Bench had specifically addressed whether payments made to non-resident telecom operators for providing interconnect services and transfer of capacity in foreign countries could be treated as royalty.
The Co-ordinate Bench had held that such payments do not constitute royalty. It took note of the fact that, in subsequent assessment years in the assessee’s own case, the Income Tax Appellate Tribunal had already held that tax was not deductible on payments made to non-resident telecom operators. This factual position was not disputed by the Revenue. It was also noted that the Revenue had revisited and altered its earlier stance in subsequent years, relying on tribunal decisions. In view of these considerations, the Co-ordinate Bench answered the issue against the Revenue.
When the matter came before the High Court in the present case, the Learned Single Judge relied on the aforementioned Co-ordinate Bench judgment. Upon examining the appeal, the Division Bench observed that the issue was squarely covered by the earlier binding precedent. It found no infirmity in the order passed by the Learned Single Judge. Consequently, following the decision dated 14.07.2023, the High Court dismissed the Revenue’s appeal, reaffirming that interconnect service charges paid to foreign telecom operators do not amount to royalty.
The Supreme Court, while considering the Special Leave Petition against this decision, did not find any reason to disturb the conclusions reached by the High Court. The Court emphasized both procedural and substantive aspects: first, the unexplained delay of 390 days in approaching the Court, and second, the absence of any merit in the challenge. The dismissal on merits indicates that the Court found no error or legal infirmity in the High Court’s reliance on binding precedent and its conclusion regarding the nature of interconnect service charges.
Thus, the combined effect of the High Court and Supreme Court orders is that the view taken by the High Court—based on the earlier Co-ordinate Bench judgment—remains undisturbed. The legal position, as reflected in these orders, is that payments made for interconnect services and transfer of telecom capacity in foreign jurisdictions do not constitute royalty, and therefore are not subject to taxation as such. The Supreme Court’s dismissal of the Special Leave Petition on both delay and merits effectively affirms the High Court’s ruling without further elaboration on the substantive issue.
FULL TEXT OF THE SUPREME COURT JUDGMENT/ORDER
1. Heard Mr. Mr. S Dwarakanath, the learned ASG appearing for the revenue.
2. There is a gross delay of 390 days in filing the Special Leave Petition which has not been satisfactorily explained by the petitioner.
3. Even otherwise, we find no good ground to interfere with the impugned order passed by the High Court.
4. The Special Leave Petition is, therefore, dismissed on the ground of delay as well as merits.
5. Pending application(s), if any, stand disposed of.
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