2018 (7) TMI 2259 - AT - Income Tax

Income accrued in India - FTS receipt - AO treating the standby maintenance charges received by the assessee to be in the nature of fee for technical services as per Sec. 9(1)(vii) of the Act as against assessee s stand of it being liable to be taxed as business income - HELD THAT - The issue has been consistently adjudicated by the Tribunal since Assessment Years 1998-99 onwards upholding the stand of the assessee that the receipts from standby maintenance charges cannot be taxed as fee for technical services . Therefore, following the aforesaid precedents which have been rendered in identical circumstances, and since they continue to hold the field as they have not been altered by any higher authority, we affirm the decision of CIT(A) qua the grounds raised by the Revenue and accordingly, Revenue fails in its appeal.

Summary

Issues Involved:
1. Classification of standby maintenance charges as 'Fee for Technical Services' (FTS) under section 9(1)(vii) of the Income Tax Act, 1961.
2. Determination of business income attributable to India from standby maintenance charges.
3. Methodology for apportioning revenue from standby maintenance charges to Indian operations.
4. Procedural fairness in the CIT(A)’s decision regarding the treatment of entire turnover for taxation in India.

Detailed Analysis:

1. Classification of Standby Maintenance Charges as 'Fee for Technical Services' (FTS):

The primary issue in the Revenue's appeals was whether the standby maintenance charges received by the assessee should be classified as 'Fee for Technical Services' (FTS) under section 9(1)(vii) of the Income Tax Act, 1961. The Assessing Officer treated these charges as FTS, while the assessee contended that they should be taxed as 'business income'. The CIT(A) upheld the assessee's stand, leading to the Revenue's appeal.

The Tribunal noted that this issue had been consistently adjudicated in the assessee's favor since Assessment Year 1998-99. The Tribunal's previous orders concluded that standby maintenance charges were not in the nature of FTS because they did not involve actual rendering of technical services but were rather reimbursements for maintaining infrastructure for potential future services. The Tribunal reiterated that the charges were for maintaining a standby facility and not for actual technical services rendered, thus affirming the CIT(A)'s decision.

2. Determination of Business Income Attributable to India:

The assessee raised cross objections regarding the determination of business income attributable to India from the standby maintenance charges received from the Indian landing party, Tata Communication Ltd. (formerly Videsh Sanchar Nigam Limited). The CIT(A) had held that the entire turnover from Indian parties should be treated as turnover for taxation purposes in India, which the assessee contested.

The Tribunal referred to its earlier decisions, particularly for Assessment Years 2010-11 and 2011-12, where it was held that only the revenue attributable to the length of cable in Indian territorial waters should be considered for computing the income taxable in India. The Tribunal directed the Assessing Officer to verify and recompute the income based on this proportionate method.

3. Methodology for Apportioning Revenue:

The Tribunal emphasized the need to apportion the revenue from standby maintenance charges based on the length of the cable in Indian territorial waters relative to the total cable length worldwide. This methodology was previously established in the Tribunal's orders for earlier assessment years and was deemed reasonable for determining the income attributable to Indian operations.

4. Procedural Fairness in CIT(A)’s Decision:

The assessee also raised procedural objections, arguing that the CIT(A) had erred in holding that the entire turnover from Indian parties should be treated as turnover for taxation purposes in India without giving notice for enhancement or opportunity to the assessee. The Tribunal did not find merit in these procedural objections, focusing instead on the substantive issue of how to apportion the revenue.

Conclusion:

The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's cross objections. It reaffirmed the CIT(A)'s decision that standby maintenance charges were not FTS and should be taxed as business income. The Tribunal also upheld the methodology of apportioning revenue based on the length of cable in Indian territorial waters for determining the income attributable to India. The procedural objections raised by the assessee were not upheld, but the substantive relief regarding the apportionment of revenue was granted. The decision for Assessment Year 2009-10 was applied mutatis mutandis to Assessment Year 2012-13.