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2019 (6) TMI 532 - AT - Income TaxCharacterization of income - TDS u/s 195 - amount received by RJIPL from the assessee for providing standard bandwith services - royalty or business income - India-Singapore DTAA - PE in India - HELD THAT -There is substantial force in the contention advanced by the ld. A.R that though the term royalty as used in Article 12 of India-Hungary DTAA takes within its sweep transmission by satellite, cable, optic fibre or similar technology , however, the definition of royalty in the India-Singapore tax treaty with which we are concerned has a narrow meaning. Despite the fact that the India-Singapore tax treaty was amended by Notification No. SO 935(E), dated 23.03.2017, however, the definition of royalty therein envisaged had not been tinkered with and remains as such. The amount received by RJIPL from the assessee for providing standard bandwith services could not be characterised as royalty as per the India- Singapore DTAA, and as rightly observed by the CIT(A), was in fact the business profits of RJIPL. Insofar the taxability of the aforesaid business profits is concerned, we find that as RJIPL did not have any business connection or a PE in India, therefore, the same as per Article 7 of the India-Singapore DTAA could not have been brought to tax in India. The order of the CIT(A) that amount received by RJIPL from the assessee for providing standard bandwith services was its business profits , which in the absence of its business connection or PE in India could not be brought to tax in India is upheld in terms of our aforesaid observations and the appeal of the revenue is dismissed.
Issues Involved:
1. Taxability of payment for bandwidth services under the Income Tax Act, 1961 and the India-Singapore Double Taxation Agreement (DTAA). 2. Classification of payment as "Royalty" or "Business Profits" under the Income Tax Act and the India-Singapore DTAA. 3. Determination of Permanent Establishment (PE) and business connection in India. Issue-wise Detailed Analysis: 1. Taxability of Payment for Bandwidth Services: The core issue was whether the payment made by the assessee to Reliance Jio Infocomm Pte Ltd (RJIPL) for bandwidth services was liable to tax in India. The assessee argued that the payment was business income of RJIPL, which did not have a business connection or PE in India. Therefore, under Article 7 of the India-Singapore DTAA, the payment could not be taxed in India. The CIT(A) agreed, noting that RJIPL did not have a PE in India, and thus, the income could not be taxed in India. 2. Classification of Payment as "Royalty" or "Business Profits": The revenue contended that the payment should be classified as "Royalty" under the Income Tax Act and the India-Singapore DTAA. The assessee argued that the payment was for standard bandwidth services, which did not involve any human intervention or transfer of technology, and thus could not be classified as "fees for technical services" (FTS) or "Royalty". The CIT(A) concurred, stating that the services provided were standard and did not require human intervention, thus not qualifying as FTS. Additionally, the payment did not involve the use of any "process" or equipment, nor was it for a "secret process", hence it could not be classified as "Royalty" under both the Income Tax Act and the India-Singapore DTAA. 3. Determination of Permanent Establishment (PE) and Business Connection in India: The CIT(A) observed that RJIPL did not have any business connection or PE in India. The revenue's argument that RJIPL had a fixed place of business in India due to its international connectivity points was dismissed. The CIT(A) noted that all infrastructure and processes required for providing bandwidth services were under RJIPL's control and were not transferred to the assessee or any other person. Thus, RJIPL did not have a PE in India, and its business profits could not be taxed in India. Conclusion: The CIT(A) concluded that the payments made by the assessee to RJIPL for bandwidth services were business profits, not Royalty or FTS, under the Income Tax Act and the India-Singapore DTAA. Since RJIPL did not have a business connection or PE in India, its business profits could not be taxed in India. The appeal of the revenue was dismissed, upholding the CIT(A)'s order that no tax was deductible on the payment made to RJIPL.
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