Case Law Details
Globe Teleservices Ltd. Vs DCIT (ITAT Bangalore)
In the realm of international taxation, the case of Globe Teleservices Ltd. vs. DCIT holds significant importance, particularly in clarifying the taxability of payments received by non-resident entities from Indian companies. The crux of the dispute revolved around whether Interconnect Usage Charges (IUC) received by Globe Teleservices Ltd., a Hong Kong-based company, from Vodafone South Ltd., an Indian entity, could be deemed as royalty under section 9(1)(vi) of the Income Tax Act.
The intricate legal battle commenced when the Assessing Officer (AO) asserted that the income of Globe Teleservices Ltd. was subject to taxation in India as royalty. This assertion was based on the failure of the deductor to withhold Tax Deducted at Source (TDS) under section 191 of the Income Tax Act. Additionally, section 201 was invoked due to cumulative defaults by the deductor. Consequently, the AO initiated reassessment proceedings by issuing a notice under section 148 of the Act.
The crux of the matter lay in the characterization of the payments received by Globe Teleservices Ltd. as royalty under section 9(1)(vi) of the Act. The Dispute Resolution Panel (DRP) upheld the AO’s view, citing a decision of the Madras High Court in the case of M/s. Verizon Communications. As a result, additions were made to the assessee’s income for the relevant assessment years.
However, Globe Teleservices Ltd. contended that the payments received from Indian customers could not be taxed in India under section 9(1)(vi) or Explanation 5 and 6 of the Act. Despite the absence of a Double Taxation Avoidance Agreement (DTAA) between India and Hong Kong during the relevant assessment years, the company argued that the payments were not taxable in India.
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