9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2016 (4) TMI 520 - AT - Income TaxReceipts from Indian entities on account of connectivity charges - Taxation of the receipts as royalty - Held that - No services are made available in the sense that the recipient of service is enabled to apply the technology, and do the same work without recourse to the service provider. There is no transfer of technology here, and in that sense technical services are not made available. Undoubtedly, the services rendered by the assessee requires technical inputs, but that alone, as we have seen above, does not bring it in the ambit of fees for technical services taxable under article 13 of India UK tax treaty. Thus we are of the considered view that the authorities below were in error in holding that the receipts from Indian entities on account of connectivity charges, are taxable in India. We direct the Assessing Officer to delete the same. - Decided in favour of assessee
Issues Involved:
1. Taxability of revenue received from Indian customers as 'royalty' under Section 9 of the Income Tax Act, 1961, and the India-UK Double Taxation Avoidance Agreement (DTAA). 2. Alternative treatment of the revenue as 'fees for technical services' (FTS) under Section 9 of the Income Tax Act, 1961, and the DTAA. Detailed Analysis: Issue 1: Taxability of Revenue as 'Royalty' The primary issue was whether the revenue of ?6,15,32,756 received by the assessee from Indian customers should be treated as 'royalty' under Section 9 of the Income Tax Act, 1961, and the India-UK DTAA. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] held that the revenue was taxable as royalty. They argued that the payments were for the use of the assessee's infrastructure, including proprietary software and hardware, which facilitated seamless interconnectivity for Indian customers. The Tribunal, however, disagreed with this view. It noted that the payments were not for the use of any copyright, patent, trademark, design, secret formula, or process, nor for information concerning industrial, commercial, or scientific experience. The Tribunal highlighted that the service provided by the assessee was essentially a standard facility used by multiple telecom operators and did not involve any transfer of intellectual property or proprietary technology. Therefore, the revenue could not be classified as 'royalty' under Article 13 of the India-UK DTAA. Issue 2: Alternative Treatment as 'Fees for Technical Services' (FTS) The alternative argument presented by the AO and upheld by the CIT(A) was that the revenue should be treated as 'fees for technical services' (FTS) under Section 9 of the Income Tax Act, 1961, and the DTAA. They contended that the services provided by the assessee were highly technical and enabled Indian customers to interconnect with networks in Europe and the USA, thus qualifying as FTS. The Tribunal examined Article 13 of the India-UK DTAA, which defines FTS as payments for services that make available technical knowledge, experience, skill, know-how, or processes. The Tribunal concluded that the services provided by the assessee did not make available any such technical knowledge or skills to the Indian customers. The customers were not enabled to perform the same services independently without the assessee's assistance. Therefore, the revenue could not be classified as FTS under the DTAA. Conclusion: The Tribunal ruled that the revenue received by the assessee from Indian customers could neither be classified as 'royalty' nor as 'fees for technical services' under the India-UK DTAA. Consequently, the revenue was not taxable in India. The Tribunal directed the Assessing Officer to delete the addition of ?6,15,32,756 from the assessee's income. Judgment: The appeal was allowed, and the Tribunal ordered the deletion of the addition made by the AO. The judgment was pronounced in the open court on 31st March 2016.
|
