2022 (9) TMI 1585 - AT - Income Tax

Equipment/process royalty receipts - consideration received by the assessee for providing bandwidth services to Indian Telecom Operators outside India - assessee is a company incorporated in Singapore engaged in the business of providing digital transmission of data through International Private Line ( IPL ) or Multi-Protocol Label Switching ( MPLS ) etc. to facilitate high-speed data connectivity bandwidth services outside India to its customers - whether the bandwidth services are covered as Equipment Royalty or Process Royalty under Article 12 of the India Singapore Tax Treaty? - HELD THAT - We find that the issue in appeal has been decided in favour of the assessee by the Tribunal in 2020 (10) TMI 604 - ITAT DELHI holding that the consideration received by the assessee company for the bandwidth services to various Indian Telecom Operators like Bharti Airtel India the services provided outside India is not taxable as Royalty in view of the beneficial provisions of DTAA between India Singapore. We allow the grounds of appeal raised by the assessee and direct the AO to delete the additions made on account of Royalty . Appeal of the assessee is allowed.

Summary

Issues Involved:
The appeal concerns the classification of bandwidth services as "Equipment Royalty" or "Process Royalty" under Article 12 of the India-Singapore Tax Treaty for the Assessment Year 2017-18.

Details of the Judgment:

Issue 1: Classification of Bandwidth Services
The assessee, a Singapore-based company, provides digital data transmission services outside India. The contention is whether these services constitute royalty under the Tax Treaty. The assessee argued that the consideration received for bandwidth services does not fall under the definition of royalty as per the Tax Treaty, citing specific provisions and definitions. The Counsel relied on previous decisions and agreements to support their case.

Issue 2: Application of Tax Treaty Provisions
The Counsel emphasized that since the assessee is a tax resident of Singapore, it should be governed by the provisions of Article 12 of the Tax Treaty, which defines royalty. They presented arguments based on the definition of royalty as per the Tax Treaty and highlighted that the services provided by the assessee do not involve the use or right to use any equipment or process by the customer.

Issue 3: Judicial Precedents and Decisions
The Counsel referenced various judicial decisions, including those by the Delhi ITAT and Delhi High Court, to support their argument that the bandwidth services provided by the assessee should not be classified as royalty under the Tax Treaty. They highlighted specific cases and orders that favored the assessee's position.

Decision:
After considering the submissions and reviewing previous decisions, the Tribunal ruled in favor of the assessee. The Tribunal held that the consideration received by the assessee for providing bandwidth services to Indian Telecom Operators outside India does not constitute taxable royalty under the India-Singapore Tax Treaty. The Tribunal relied on previous decisions and directed the Assessing Officer to delete the additions made on account of royalty. The appeal of the assessee was allowed, and the order was pronounced in open court on 27/09/2022.