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2023 (8) TMI 1377 - AT - Income TaxIncome taxable in India - taxability of sum received by the assessee from Vodafone for interconnect services - royalty receipts or not? - consideration was paid by Vodafone without deduction of tax at source in India on the ground that the said sum is not chargeable to tax in India - India-Belgium DTAA - HELD THAT - As decided in Vodafone India Ltd. 2023 (7) TMI 1164 - KARNATAKA HIGH COURT had decided all the questions of law in favour of the assessee and held that payments to non-resident telecommunication operators for providing interconnectivity services and transfer of capacity in foreign countries is not chargeable to tax as royalty and also that the income does not accrue or arise in India in the hands of the non-resident telecommunication operators such as the assessee in the instant case. Thus sum received by the assessee from Vodafone as interconnectivity services are not chargeable to tax in India as Royalty .
Issues involved:
The judgment involves the taxability of the sum received by the assessee from Vodafone for interconnect services provided outside India, considering whether it constitutes royalty and if the income arises in India. Taxability of sum received from Vodafone: The assessee, a telecommunication operator, entered into a Carrier Service Agreement with Vodafone to provide interconnect services. The Assessing Officer (AO) issued notice under section 148 of the Income Tax Act, claiming the sum received by the assessee from Vodafone was taxable in India. The Draft Assessment Order proposed to tax the sum as royalty under section 9(1)(vi) of the Act and the Double Taxation Avoidance Agreement (DTAA). The Dispute Resolution Panel (DRP) also held the sum as taxable in India. However, the Tribunal referred to a judgment by the jurisdictional High Court in a similar case involving Vodafone India Ltd., which held that such payments are not chargeable to tax as royalty in India. The High Court decision was based on the fact that the income did not accrue or arise in India for the non-resident telecommunication operator. Consideration of DTAA in tax proceedings: The Tribunal considered the applicability of the DTAA between India and Belgium in determining the taxability of the sum received by the assessee. It was argued that the DTAA cannot be considered under Section 201 of the Act, but the Tribunal held that the assessee is entitled to benefit from the DTAA. The Tribunal also discussed the impact of amendments to Section 9(1)(vi) on the DTAA provisions, concluding that the amendments do not alter the DTAA. Additionally, the Tribunal addressed the issue of whether payments made for interconnect services to non-resident operators constitute royalty, ultimately ruling against the Revenue's position. Jurisdiction to tax income from extra-territorial sources: The Tribunal examined whether the Indian Tax Authorities have jurisdiction to tax income arising from extra-territorial sources in the case of the assessee. It was established that the non-resident telecommunication operators involved did not have a presence in India, and the agreements were with entities outside India. Therefore, the Tribunal concluded that the Tax authorities in India do not have jurisdiction to tax income from such extra-territorial sources. Conclusion: Based on the judgment of the jurisdictional High Court and the analysis of the relevant legal provisions and DTAA, the Tribunal ruled that the sum received by the assessee from Vodafone for interconnect services is not chargeable to tax in India as royalty. The appeals filed by the assessee were partly allowed, and the other grounds were left open for further consideration.
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