2023 (8) TMI 1375 - AT - Income Tax

Income taxable in India - taxability of IUC Interconnect Usage Charge u/s 9(1)(vi) and 9(1)(vii) and under the article 13 of DTAA - addition as royalty receipts/ FTS - Assessee is a telecom company incorporated and a tax resident of Spain as engaged in the business of providing telecommunications services, interconnection services, internet services, etc - HELD THAT - Tribunal in Year 2010-11 2023 (9) TMI 280 - ITAT BANGALORE has passed a detailed order after considering several judicial precedents including the case of Vodafone 2023 (7) TMI 1164 - KARNATAKA HIGH COURT and Vodafone South Ltd. 2015 (1) TMI 1018 - ITAT BANGALORE which have held that interconnectivity charges are not taxable as royalty and FTS respectively. As the contention of learned DR placing reliance on the section 5 of the Act is rejected. Thus we hold that the IUC charges do not qualify as royalty or FTS and hence is not taxable in India. Decided in favour of assessee.

Summary

Issues:
The judgment involves the taxability of Interconnect Usage Charges (IUC) received by a telecom company from Indian operators for providing telecommunications services.

Details:
1. The assessee, a telecom company based in Spain, received interconnect charges from Indian telecom operators for carrying inbound and outbound calls.
2. The company argued that IUC receipts are not taxable in India as they constitute business income and do not amount to royalty/FTS without a Permanent Establishment in India.
3. The Assessing Officer held the payments as royalty/fees for technical services, leading to re-assessment under section 147 of the Income Tax Act.
4. The Dispute Resolution Panel upheld the AO's decision based on a previous ITAT ruling involving Vodafone South Ltd.
5. The assessee appealed before the ITAT, arguing the taxability of IUC under relevant sections of the Act and the Double Taxation Avoidance Agreement.
6. The Tribunal considered previous rulings, including the Karnataka High Court judgments, and concluded that IUC charges do not qualify as royalty or FTS, hence not taxable in India.
7. The Tribunal rejected the Revenue's argument that the income accrues in India, citing the rendition of services outside India and relevant legal precedents.
8. The Tribunal's decision was based on the absence of a Permanent Establishment in India and the nature of the services provided by the assessee.
9. The Department did not appeal against the Tribunal's findings, leading to the partial allowance of the assessee's appeals for the relevant Assessment Years.

Judges:
- Shri George George K, Vice President
- Shri Laxmi Prasad Sahu, Accountant Member