Brief Facts of The Case
In the present case the Hon’ble High Court have dealt with two vital issues and held that standby maintenance charges are not technical services within the meaning of section 9(1)(vii). On the issue of “Restoration Activities” the Hon’ble High court held that amount received from restoration activities cannot be termed as business income as the large portion of the cable Network was outside the Jurisdiction of Territorial waters of India. Only the portion upto 12 nautical miles which is attributing income could only be taken into consideration.
Facts of the case
In the present case, assessee is a company located out of India, who have built high capacity submarine Fiber Optic Telecommunication Link Cable System. They developed build under-sea cable for providing telecommunication link. VSNL was one of the original landing party in the FLAG cable system and Capacity Sales Agreement (CSA) was entered between them on 31.03.1995, which was further amended on 29th April, 1998, by which, VSNL has bought the capacity in the said cable system. Construction and Maintenance Agreement (C&MA) was separately entered between the parties. The CSA & C&MA was for the period of 25 years, which coincides with the life of the cable. In the year under consideration, the assessee has received money from VSNL on account of provision of standby maintenance activities, as in the earlier years. The assessee had mentioned about maintenance service in its return. The AO, held that held that receipts from standby maintenance services were in the nature of ‘fees for technical services’ within the meaning of section 9(1)(vii) and hence it is to be taxed accordingly in India. The assessee also entered into an agreement to provide restoration of traffic to their customers in the event of disruption in the traffic on their cable system. This was the alternative telecommunication link route through its own capacity in the cable. For this purpose, the assessee, had entered into a “Restoration Agreement” with SMW3 Cable Network through which VSNL had an arrangement vide agreement dated 23rd March, 2000. During the year, the assessee has received a sum from the provision of Restoration Services to VSNL under the said Agreement.
The AO decided to tax under FTS as such a rendering of service is basically rendering of technical service by allowing the utilization of spare capacity of its submarine cable Optic fiber system by the assessee.
Contentions of the Assessee
