2024 (3) TMI 1196 - AT - Income Tax

TDS u/s 195 - proceedings u/s 201 - non-deduction of tax at source on payments made to its Non-Resident Telecom Operators (NTOs) for provision of bandwidth capacity and provision of interconnect services - HELD THAT - Tribunal in the case of M/s. VSL (the payer) 2019 (12) TMI 206 - ITAT BANGALORE in the proceedings under section 201 of the Act, had held that the said charges paid to the non-resident is Royalty/FTS and the income is deemed to accrue or arise under section 9 - However, the order of the Tribunal in the case of VSL was reversed by the Hon ble jurisdictional High Court in the case relied on by the CIT(A) Since the Hon ble jurisdictional High Court has categorically held that the payment made by the VSL is not Royalty/FTS, the same cannot be brought to tax in the hands of the assessee under section 9 of the Act and the relevant DTAA. The relevant finding of the Hon ble jurisdictional High Court has been elaborately extracted in the impugned order of the CIT(A), therefore the same is not reiterated here. In view of the aforesaid judgment of the Hon ble High Court in the case of VSL 2023 (7) TMI 1164 - KARNATAKA HIGH COURT , we hold that CIT(A) is justified in deciding the issue on merits in favour of assessee and deleting the additions made by the AO for Assessment Years 2009-10 and 2010-11 - Decided in favour of assessee.

Summary

Issues involved:
The appeal involves issues related to reassessment under section 147, nature of payments received by the assessee from Vodafone South Ltd. (VSL), whether the said payments constitute Royalty / Fees for Technical Services (FTS) under the Income Tax Act and the Double Taxation Avoidance Agreement (DTAA), and the validity of reopening of assessment.

Nature of Payments Received:
The assessee, a foreign company providing telecommunication services, received payments from VSL towards interconnect usage charges. The Assessing Officer (AO) treated these payments as Royalty / FTS, adding them to the total income for the relevant assessment years. The assessee contended that these amounts were not taxable in India under section 9(1)(vi) of the Act or the relevant DTAA.

Reassessment and Legal Grounds:
The AO issued notices under section 148 for the assessment years in question, as the income was deemed to have accrued to the assessee but not offered for tax. The CIT(A) upheld the validity of the reassessment, while on merits, allowed the appeal based on a judgment of the jurisdictional High Court in the case of VSL (now Vodafone Idea Ltd.).

Judgment and Conclusion:
The Tribunal noted that the High Court had held that the payments made by VSL were not Royalty / FTS, thereby not taxable in the hands of the assessee under section 9 of the Act and the relevant DTAA. As a result, the CIT(A) was justified in favoring the assessee and deleting the additions made by the AO. Consequently, the Department's appeals were dismissed, rendering the Cross-objections filed by the assessee infructuous.

Separate Judgment:
No separate judgment was delivered by the judges in this case.