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2018 (5) TMI 2070 - AT - Income TaxFee for technical services u/s 9(1)(vii) - amount received by assessee as standby maintenance charges was not in nature of 'Fee for technical services' under section 9(1)(vii) - After treating the amounts to be in the nature of business income , the CIT(A) held that the same are liable to be taxed in India vis-a-vis the turnover arising to the assessee with reference to the Indian business connection - HELD THAT - We find that the issue regarding the nature of services came-up before the Tribunal for the first time in Assessment Years 1998-99 to 2000-01, and vide order dated 06.02.2015 2015 (2) TMI 454 - ITAT MUMBAI it was held that the same are not in the nature of fee for technical services . Subsequently, for Assessment Years 2001-02 to 2008-09, the matter again came-up before the Tribunal, and vide order dated 15.06.2015, the amount has been held not to be in the nature of fee for technical services u/s 9(1)(vii) Therefore, following the decision of the Tribunal in assessee s own case for the earlier years, so far as the Grounds raised by the Revenue are concerned, we find no reasons to interfere with the decision of the CIT(A), which is in line with the precedents in assessee s own case by way of orders of the Tribunal (supra). Computation of the income from standby maintenance activities attributable in India - HELD THAT - We find that the standby maintenance charges recovered by the assessee from TCL only qua the length of cable in the territorial waters of India needs to be considered for computing the profits or income accruing to the assessee u/s 9(1)(i) of the Act. The reasoning advanced by the Revenue to the effect that the standby maintenance charges are linked to the cable capacity is of no consequence for the present inasmuch as what is required to be decided is the income attributable to the business connection in India, which possibly is the length of the cable in the territorial waters of India. Therefore, in our view, it is only the revenue from TCL which is on account of standby maintenance charges proportionate to the cable length in India that deserves to be considered for computing the profit or loss from standby maintenance activity attributable to India in terms of Sec. 9(1)(i) of the Act. Therefore, on this aspect, we uphold the plea of the assessee and direct the Assessing Officer to verify the calculation made by the assessee in this regard in its computation of income and recompute the income accordingly. Thus, on this aspect, assessee succeeds as above. Charging of interest u/s 234B - HELD THAT - As a settled proposition in terms of the judgment of Hon'ble Bombay High Court in the case of NGC Network Asia LLC, 2009 (1) TMI 174 - BOMBAY HIGH COURT that there would be no chargeability of interest u/s 234B of the Act as the receipts on account of standby maintenance charges from TCL are subjected to withholding tax u/s 195 of the Act. On this aspect, it was also a common point between the parties that the said proposition has also been affirmed by the Tribunal in assessee s own case in the orders dated 06.02.2015 2015 (2) TMI 454 - ITAT MUMBAI and also 15.06.2015 (supra). Thus, on this aspect, assessee succeeds.
Issues Involved:
1. Taxability of standby maintenance charges as 'Fee for Technical Services' under section 9(1)(vii) of the Income Tax Act, 1961. 2. Attribution of business income to India based on the proportion of cable length in India vis-a-vis worldwide cable length. 3. Charging of interest under section 234B of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Taxability of Standby Maintenance Charges as 'Fee for Technical Services': The primary issue was whether the amount of ?6,24,92,883/- received by the assessee as standby maintenance charges should be classified as 'Fee for Technical Services' (FTS) under section 9(1)(vii) of the Income Tax Act, 1961. The Assessing Officer (AO) contended that these charges were for technical and managerial services rendered by ensuring the cable system's seamless operation, thus qualifying as FTS. However, the CIT(A) concluded that these charges were not for actual services rendered but for maintaining infrastructure for potential service needs, and thus, did not qualify as FTS. The Tribunal upheld CIT(A)'s decision, stating that standby maintenance charges were in the nature of reimbursement without any profit element or markup and did not involve actual rendering of services. Therefore, these charges could not be taxed as FTS under section 9(1)(vii). 2. Attribution of Business Income to India: The second issue revolved around the method of attributing the business income from standby maintenance charges to India. The assessee argued that the income attributable to India should be based on the proportion of the cable length in Indian territorial waters relative to the total cable length worldwide. In contrast, the Revenue contended that the entire revenue from the Indian landing party, Tata Communications Ltd. (TCL), should be considered without apportionment. The Tribunal referred to its earlier decisions and held that the income from standby maintenance charges should be apportioned based on the length of the cable in Indian territorial waters. This method was deemed reasonable for determining the income attributable to the business connection in India. The Tribunal directed the AO to verify the calculation made by the assessee and recompute the income accordingly. 3. Charging of Interest under Section 234B: The final issue was the charging of interest under section 234B of the Income Tax Act, 1961. The assessee contended that interest under section 234B should not be charged as the receipts from TCL were subjected to withholding tax under section 195, and thus, the assessee had no liability to pay advance tax. The Tribunal agreed with the assessee, citing the judgment of the Hon'ble Bombay High Court in the case of NGC Network Asia LLC, which held that no interest under section 234B is chargeable when the receipts are subjected to withholding tax. This proposition had also been affirmed in the assessee's own case in previous orders. Therefore, the Tribunal ruled in favor of the assessee on this issue. Conclusion: The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal. The Tribunal upheld the CIT(A)'s decision that the standby maintenance charges were not taxable as FTS and should be treated as business income. The Tribunal also agreed with the assessee's method of attributing income to India based on the proportion of cable length in Indian territorial waters. Lastly, the Tribunal ruled that interest under section 234B should not be charged as the receipts were subjected to withholding tax. The decision for Assessment Year 2010-11 was applied mutatis mutandis to the cross-appeals for Assessment Year 2011-12.
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