PCIT- International Taxation -1 Vs Bharti Airtel Ltd. (Delhi High Court)
New Delhi: In a significant ruling, the Delhi High Court has dismissed an appeal filed by the Principal Commissioner of Income Tax (International Taxation) against Bharti Airtel Ltd., upholding the view that payments made for bandwidth to overseas telecom operators do not constitute ‘royalty’ under Section 9(1)(vi) of the Income Tax Act, 1961. The decision reinforces earlier judgments on the taxability of such payments.
The case originated from the assessment year 2014-15, where the Assessing Officer (AO) initiated proceedings under Section 201(1)/201(1A)/195 of the Income Tax Act. The AO found that Bharti Airtel had failed to deduct withholding tax on certain payments made to overseas entities. These payments included charges for bandwidth services, annual maintenance, and other related services. The AO concluded that these charges were in the nature of fees for technical services (FTS) or royalty, and therefore, taxable in India, obliging Airtel to deduct tax at source (TDS).
Bharti Airtel challenged the AO’s order before the Commissioner of Income Tax (Appeals) [CIT(A)]. The CIT(A) provided partial relief to the company. While agreeing with Airtel on certain payments not being taxable and thus not requiring TDS deduction, the CIT(A) upheld the AO’s decision regarding bandwidth charges, ruling that they were in the nature of royalty.
