2021 (7) TMI 46 - AT - Income Tax

Income accruing or arising in India u/s 9(1)(i) - amount received by the assessee from Tata Communications Ltd. ( TCL ) as Standby Maintenance Charges - CIT(A) concluded that the entire amount of turnover (receipts) of Standby Maintenance Charges received by the assessee from TCL was to be treated as its turnover for the purpose of taxation in India - whether the CIT(A) had rightly observed that the Standby Maintenance Charges received by the assessee from TCL was not liable to be taxed as FTS and was to be brought to tax as its business income ? - HELD THAT - As decided in own case 2019 (3) TMI 1893 - ITAT MUMBAI we find that after exhaustive deliberations the Tribunal had concluded that the Standby Maintenance Charges received by the assessee from TCL could not be assessed as FTS and was its business income that was taxable only to the extent of its reference to the business connection in India Amounts received by the assessee towards Standby Maintenance Charges from TCL were not in the nature of FTS u/s 9(1)(vii) of the Act, and was to be assessed as its business income, and that too only to the extent of its reference to the business connection in India. At the same time, not finding favour with the view taken by the CIT(A) that the entire turnover (receipts from the Indian parties) of Standby Maintenance Charges was liable to be treated as turnover for the purpose of taxation in India, we vacate the same. - Decided in favour of assessee.

Summary

Issues Involved:
1. Taxability of receipts of Standby Maintenance Charges in India.
2. Nature of Standby Maintenance Charges as 'Fees for Technical Services' under section 9(1)(vii) of the Income Tax Act, 1961.
3. Calculation of turnover attributable to India based on cable length.

Detailed Analysis:

1. Taxability of Receipts of Standby Maintenance Charges in India:
The assessee contended that the Standby Maintenance Charges from Tata Communications Ltd. (TCL) should not be treated as turnover for taxation in India. The CIT(A) held that the entire turnover from Indian parties is liable to be treated as turnover for taxation in India, without giving notice for enhancement or opportunity to the assessee. The Tribunal found that the CIT(A) had rightly concluded that the Standby Maintenance Charges could not be assessed as 'Fees for Technical Services' (FTS) but had wrongly observed that the entire turnover from Indian parties was liable to be treated as turnover for taxation in India. It was held that the turnover attributable to India should be calculated based on the proportion of the cable length in India vis-a-vis worldwide cable length.

2. Nature of Standby Maintenance Charges as 'Fees for Technical Services' under section 9(1)(vii) of the Income Tax Act, 1961:
The revenue argued that the Standby Maintenance Charges received by the assessee from TCL were in the nature of 'fees for technical services' (FTS) under section 9(1)(vii) of the Act. The Tribunal, however, upheld the CIT(A)'s view that the Standby Maintenance Charges were not FTS but business income. The Tribunal referred to its previous orders in the assessee's own case, where it had consistently held that the Standby Maintenance Charges could not be brought to tax as FTS. The Tribunal noted that the charges were for maintaining infrastructure and not for actual rendering of technical services, and thus could not be classified as FTS.

3. Calculation of Turnover Attributable to India Based on Cable Length:
The assessee argued that the turnover attributable to India should be calculated based on the proportion of the cable length in Indian territorial waters vis-a-vis the worldwide cable length. The Tribunal agreed with this approach, stating that the revenue from TCL attributable to the operations carried out in India should be calculated on this basis. The Tribunal directed the Assessing Officer to verify the calculation made by the assessee in its computation of income and recompute the income accordingly.

Conclusion:
The Tribunal upheld the CIT(A)'s decision that the Standby Maintenance Charges were not FTS but business income. However, it vacated the CIT(A)'s view that the entire turnover from Indian parties was liable to be treated as turnover for taxation in India. The Tribunal directed that the turnover attributable to India should be calculated based on the proportion of the cable length in Indian territorial waters vis-a-vis the worldwide cable length. The appeals filed by the assessee were allowed, and the appeal filed by the revenue was dismissed.