Telefonica Depreciation Espana SA Vs ACIT(IT) (ITAT Bangalore)
ITAT Bangalore held that payments received by assessee towards interconnectivity utility charges from Indian customers / end users cannot be considered as Royalty / FTS to be brought to tax in India under section 9(1)(vi)/(vii) of the Act and also as per DTAA.
Facts- The assessee is engaged in the business of providing telecommunications services, interconnection services, internet services, etc. The assessee entered into interconnect services agreements that enables subscribers of one telecom operator to call a subscriber of another operator in any part of the world and vice-versa for receiving the calls from subscribers of other operators. The interconnection agreements are entered into between two telecom operators to provide seamless service of carrying/delivering outbound and inbound calls.
The assessee has received the amounts towards interconnect charges (hereinafter referred to as IUC) from Indian telecom operators, namely Bharti Infotel Limited (‘BIL’), Tata Communications Limited (“TCL”) and Vodafone Essar South Limited (‘VESL), to provide seamless services of carrying/delivering outbound and inbound calls for the years under consideration.
The assessee was of the opinion that, the receipts towards IUC charges are not taxable in India since these do not amount to Royalty / FTS, but would constitute assessee’s business income. And, as the assessee do not have a permanent establishment in India, the same need not be attributed towards any income earned in India.
AO issued a notice u/s. 147 of the act based on the proceedings u/s. 201 of the Act initiated on M/s. Vodafone South Ltd. (who was one of the service recipient). AO was of the view that the payments received by assessee would qualify to be Royalty / FTS, and therefore was taxable in India.
Conclusion- Held that payments received by assessee towards interconnectivity utility charges from Indian customers / end users cannot be considered as Royalty / FTS to be brought to tax in India under section 9(1)(vi)/(vii) of the Act and also as per DTAA.
The payment received by the non-resident assessee amounts to be the business profits of the assessee which is taxable in the resident country and is not taxable in India under Article 5 of the DTAA as there is no case of permanent establishment of the assessee that has been made out by the revenue in India.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
Present appeals arises out of the final assessment orders passed by the Ld.CIT(International Taxation), Circle – 2 (2) dated, 17.10.2019 for A.Y. 2010-11, 25.02.2021 for A.Y. 2011-12 and 15.07.2022 for A.Y. 2012-13.
The Ld.AR submitted that the issues that has been raised by the assessee in the above appeals can be summarised as under:
