No addition on account of Royalty Income received by UK Telecom Company from Indian Telecom Company for rendering roaming services to customers abroad

Telefonica UK Limited Vs DCIT (ITAT Mumbai)

Conclusion: Income received by assessee-UK telecom company from an Indian telecom company for rendering roaming services to customers abroad was not ‘royalty’ as assessee-UK had not provided any right, as mentioned in Explanation 2 to Section 9(1)(vi), or any kind of use of any process or equipment to VIL

Held: Assessee-UK was a non-resident telecommunication service provider, primarily engaged in the business of providing mobile and broadband services along with various other ancillary services in the United Kingdom. The arrangement of VIL with assessee-UK was that assessee would provide telecommunication services to the customers of VIL, and for rendering the services to the customers of VIL, assessee would receive consideration from VIL. Therefore, the agreement entered into by assessee with VIL was a service agreement under which the telecommunication services were provided by assessee to the customers of VIL. The network of assessee and related processes or equipment were used by assessee for providing telecommunication services. VIL had no access to the network of the assessee or related processes or equipment that were used by assessee to provide the services. Assessee received Rs. 7,45,72,448 for providing roaming services and a discount settlement in connection therewith from VIL and the amount was not offered to tax since the roaming services were rendered outside India, i.e., in the UK. Therefore, according to assessee, the income did not accrue or arise in India. Department initiated reassessment proceedings, noting that the amount received by assessee in lieu of roaming service was covered within the meaning of ‘process’ stipulated in Explanation to Section 9(1)(vi) to constitute royalty. It was held that  no right, as mentioned in Explanation 2 to Section 9(1)(vi), or any kind of use of any process or equipment had been provided to VIL. There was nothing on record to suggest that VIL had the right to use or had used the process or equipment owned by  assessee, and it was abundantly clear that assessee was using its own process, equipment, and network to render roaming services to customers of VIL in the UK. Therefore, income received by a UK telecom company from an Indian telecom company for rendering roaming services to customers abroad was not ‘royalty’.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

In so far as appeals for ITA No.771/Mum/2023 & ITA No.772/Mum/2023 for A.Y.2014-15 have been passed by the assessee against final assessment order dated 25/01/2023 & 30/01/2023 respectively passed u/s.144 r.w.s. 144C(13) & 147 r.w.s. 144C(13) in pursuance of directions given by the DRP dated 28/12/2022.

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