Reliance Globalcom Limited Vs DCIT (ITAT Mumbai)
Conclusion: Standby Maintenance Charges received by assessee from TCL could not be assessed as FTS and was its “business income‟ that was taxable only to the extent of its reference to the “business connection” in India. Turnover (receipts) of Standby Maintenance Charges from TCL i.e attributable to the operations carried out had to be calculated on the basis of apportionment of cable length in India vis-a-vis the worldwide cable length.
Held: Revenue claimed that CIT(A) had erred in concluding that the amount received by assessee from TCL as Standby Maintenance Charges was not in the nature of “fees for technical services” (FTS) u/s 9(1)(vii). Assessee was aggrieved with the rejection by CIT(A) of its claim that the Standby Maintenance Charges received from TCL only qua the portion thereof which was relatable to the length of cable in Indian territorial waters vis-a-vis the length of cable worldwide was to be taken as the total revenue deemed to accrue or arise in India from which relatable expenses were to be reduced for computing its income accruing or arising in India u/s 9(1)(i). It was held that both the issues were squarely covered by orders passed by the Tribunal in the case of assessee for the preceding years wherein Tribunal had concluded that the Standby Maintenance Charges received by assessee from TCL could not be assessed as FTS and was its “business income‟ that was taxable only to the extent of its reference to the “business connection” in India. Also, Tribunal observed that turnover (receipts) of Standby Maintenance Charges from TCL i.e attributable to the operations carried out had to be calculated on the basis of apportionment of cable length in India vis-a-vis the worldwide cable length.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The captioned cross-appeals/appeal are directed against the respective orders passed by the CIT(A)-58, Mumbai, dated 25.01.2019 and 28.01.2019 for A.Y 2014-15 and A.Y 2015-16, which in turn arises from the respective orders passed by the A.O u/s 143(3) r.w.s 144C(3) of the Income Tax Act, 1961 (for short „Act‟). As common issues are involved in the captioned appeals, therefore, the same are being taken up and disposed off by way of a consolidated order. We shall first take up the cross-appeals for A.Y. 2014-15. The assessee has assailed the impugned order on the following grounds before us:
“A. TAXABILITY OF RECEIPTS OF STANDBY MAINTENANCE CHARGES IN INDIA:
1. On the facts and circumstances of the case and in law, the learned Commissioner of Income tax (Appeals) – 58, Mumbai (“the CIT(A)”) erred in holding that the entire turnover (receipts) from the Indian Parties) is liable to be treated as turnover for the purpose of taxation in India.
The Appellant submits that the said receipt of Standby Maintenance Charges from TCL cannot be treated as turnover for taxation purpose in India.
2. On the fact and circumstances of the case, the learned CIT(A) erred in holding that the entire turnover (receipts from the Indian parties) is to be treated as turnover for the purpose of taxation in India without giving any notice for enhancement or opportunity to the Appellant.
The Appellant submits that the CIT(A) ought not to have held that the entire turnover (receipt from the Indian parties) is liable to be treated as turnover for the purpose of taxation in India.
3. On the fact and circumstances of the case and in law, the learned CIT(A) erred in holding that the entire turnover (receipts from Indian Parties) of Standby Maintenance Charges from TCL is liable to be treated as turnover for the purpose of taxation in India.
The Appellant submits that the turnover (receipts) of Standby Maintenance Charges from TCL that is attributable to India has to be calculated on the basis of proportion of the cable length in India vis-a-vis worldwide cable length.
B. GENERAL:
4. The Appellant craves leave, to add, amend or alter the above grounds of appeal.”
On the other hand the revenue has challenged the impugned order by raising the following grounds of appeal before us:
“1. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in concluding that the amount received by the assessee from Tata Communications Ltd. (erstwhile VSNL) as ‘standby maintenance charges’ was not in the nature of Tees for technical services’ under section 9(1)(vii) of the Income tax Act, 1961 without appreciating the fundamental fact that the act of maintenance of infrastructure by the assessee by way of deploying cable ships, submersible equipment, keeping trained staff on standby and maintenance and operation of Network Operation Centre under the Construction and Maintenance Agreement dated 14.12.1995, is itself in the nature of rendering managerial and technical services under section 9(1)(vii) of the Act as the assessee is rendering services by way of constantly monitoring the under-sea cable systems?
2. Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in concluding that the amount received by assessee from Tata Communications Ltd (erstwhile VSNL) as standby maintenance charges was not in nature of Tee for technical services’ under section 9(1)(vii) of the Income tax Act, 1961 without appreciating that as per the provisions of said section, any payment made or payable by entities identified in section 9(1)(vii)(a), (b) and (c) for the purpose of rendering managerial, consultancy and technical services is taxable in India?
3. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in concluding that the amount received by assessee as standby maintenance charges was not in nature of Tee for technical services’ under section 9(1)(vii) of the Income tax Act, 1961 without appreciating the fact that the assessee rendered managerial and technical service by ensuring that the cable system was in a seamless operational condition at all times and in case of actual need for the repairs and maintenance, the same could be carried out within least time?
4. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in concluding that the amount received by assessee as standby Maintenance charges was not in the nature of „fee for technical services’ under section 9(1)(vii) of the Act on the ground that it was a mere collection of annual charge without appreciating that it cast a responsibility on the assessee to actually deploy personnel and maintain equipment to keep the submarine system in working condition?
5. Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) erred in concluding that the amount received by assessee as standby maintenance charges was not in the nature of ‘Fee for technical services’ under section 9(1)(vii) of the Act on the ground that it was in the nature of reimbursement without any profit element or mark up without appreciating that existence of a profit element or mark-up is not a criterion for determination of income by way of fees from technical services under section 9(1)(vii) of the Act?
6. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in ignoring that the Flag Network Operating Centre’s activities as per the Construction & Maintenance Agreement, such as developing the routing plan, implementing, administering and maintaining the routing plan, liaisoning during restoration activity, monitoring and reviewing capacity utilization assignments for optimum bandwidth utilization, identifying capacity requirement for restoration of facilities, coordinating arrangements for unassigned capacity and providing periodic reports for Assignment, Routing etc. are highly specialized activities which come under the purview of “management”, “technical” as well as “consultancy” services for the purposes of section 9(1)(vii) of the IT Act?
7. The appellant prays that the order of the CIT(A) may be set aside on the above ground and that of the assessing officer restored.
8. The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”
2. As per the records, it is the claim of the revenue that the CIT(A) had erred in concluding that the amount received by the assessee from Tata Communications Ltd. (for short “TCL”) as Standby Maintenance Charges was not in the nature of „fees for technical services‟ (FTS) u/s 9(1)(vii) of the Income Tax Act, 1961. On the other hand, the assessee is aggrieved with the rejection by the CIT(A) of its claim that the Standby Maintenance Charges received from TCL only qua the portion thereof which was relatable to the length of cable in Indian territorial waters vis-a-vis the length of cable worldwide was to be taken as the total revenue deemed to accrue or arise in India from which relatable expenses were to be reduced for computing its income accruing or arising in India u/s 9(1)(i) of the Act.
3. Before us, the ld. Authorized Representative (for short „A.R‟) for the assessee at the threshold submitted that the issues involved in the present appeal were squarely covered by the orders passed by the Tribunal in the assessee‟s own case for the preceding years. In order to drive home his aforesaid claim the ld. A.R took us through a „Chart‟ (accompanied with the orders of the Tribunal), which read as under:
