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2015 (6) TMI 806 - AT - Income TaxStandby maintenance revenues earned under the Construction and Maintenance Agreement (C&MA) from VSNL - whether taxable in India as Fees for Technical Services ( FTS ) under section 9(1)(vii) - Held that - It is not in dispute that the standby charges is a fixed annual charge, which is payable not for providing or rendering services albeit for arranging standby maintenance arrangement, which is required for a situation whenever some repair work in under-sea cable or terrestrial cable is actually required to be performed or rendered. It is a facility or infrastructure maintained for ready to use for rendering the technical services or for repairing services, if required. There is no actual rendering of the services qua the standby maintenance charges.Here, it is not the case of AO or CIT(A) that standby maintenance charges is on account of actual repair or maintenance carried out by the assessee. Hence, following the earlier years precedence, we hold that the receipt on account of standby maintenance charges is not chargeable as fees for technical services within the scope of section 9(1)(vii). - Decided in favour of assessee. Income earned from Restoration activity - liable for tax in India either as Fees for Technical Services ( FTS ) under section 9(1)(vii) or as business income under section 9(1)(i) - Held that - From the perusal of the restoration agreement and various clauses, it cannot be inferred that there is any actual rendering of technical services by the assessee. Nothing is suggestive of the fact that under the restoration agreement some kind of technical skill, technical services are being provided, except for the kinds of restorations which can be undertaken and terms thereof for the connectivity and payment. Thus on these facts, we hold that revenue received from restoration activities is not taxable as FTS u/s 9(1)(vii). The assessee has provided the chart of the segments on which the restoration activities have been undertaken by way connection to the cable landing station in the territorial waters in India, which was from Fujirah to Mumbai, Miura to Mumbai and Mumbai to Singapore. The assessee has also filed a statement showing the details of restoration charges over the years giving the details of segments on which the restoration has been provided; length of the segment, length of the cable in territorial waters of India and apportionment of revenue to India. In principle, we uphold the method of attribution of revenue as given in the said statement, however the AO is directed to determine the income of the assessee which is to be taxed in India after apportioning the revenue on the basis of length of the cable in the territorial waters in India on the segments on which restoration have been provided. The working given in chart submitted by the assessee shall be verified by the AO, so as to determine the correct business income which is to be taxed in India.- Decided partly in favour of assessee. Liability to pay interest under section 234B - Held that - As admitted by both the parties, this issue is similar to the issue involved in the appeal for assessment year 1998-99, 1999- 2000 & 2000-01, wherein, the Tribunal after following the decision of DIT vs NGC Network Asia LLc reported in 2009 (1) TMI 174 - BOMBAY HIGH COURT held that there was no liability to pay interest u/s 234B. - Decided in favour of assessee. Liability to pay interest under section 234D - Held that - coming to the issue of interest under section 234D, it has been admitted by the ld. Counsel that the levy of interest u/s 234D would be applicable in these years also in view of the decision of Hon ble Bombay High Court in CIT vs. Indian Oil Corporation Ltd.(2012 (9) TMI 517 - BOMBAY HIGH COURT). - Decided against the assessee.
Issues Involved:
1. Taxability of income from standby maintenance revenues as 'Fees for Technical Services' (FTS) under section 9(1)(vii) of the Income Tax Act, 1961. 2. Taxability of income from restoration activity as FTS or business income under section 9(1)(i) of the Act. 3. Liability to pay interest under section 234B of the Act. 4. Liability to pay interest under section 234D of the Act. Detailed Analysis: 1. Taxability of Income from Standby Maintenance Revenues as FTS The primary issue was whether the standby maintenance revenues earned by the assessee are taxable in India as 'Fees for Technical Services' under section 9(1)(vii) of the Income Tax Act, 1961. The assessee argued that these revenues should not be classified as FTS since they do not involve the actual rendering of technical services but are merely for maintaining infrastructure for potential future use. The Tribunal agreed with the assessee, referencing its decision from earlier years (1998-99 to 2000-01), which held that standby maintenance charges do not constitute technical services as defined under section 9(1)(vii). The Tribunal emphasized that there was no actual rendering of services, no mark-up, and the charges were in the nature of reimbursement of fixed costs. 2. Taxability of Income from Restoration Activity The second issue was whether the income from restoration activities should be taxed as FTS or business income. The Tribunal held that the restoration activities did not constitute technical services since they did not involve any managerial, technical, or consultancy services as defined in Explanation 2 to section 9(1)(vii). Instead, the Tribunal classified these revenues as business income under section 9(1)(i) because the assessee was merely providing a standard facility for carrying telecommunication traffic. However, the Tribunal also noted that only a portion of the cable system falls within Indian territorial waters, and therefore, only a fraction of the income should be attributed to operations in India. The Tribunal directed the Assessing Officer (AO) to apportion the income based on the length of the cable in Indian territorial waters. 3. Liability to Pay Interest under Section 234B The Tribunal followed its earlier decision and the jurisdictional High Court's ruling in DIT vs NGC Network Asia LLC (313 ITR 187), concluding that the assessee was not liable to pay interest under section 234B. 4. Liability to Pay Interest under Section 234D The Tribunal accepted that the levy of interest under section 234D was applicable, as confirmed by the Hon'ble Bombay High Court in CIT vs. Indian Oil Corporation Ltd. (2012) 25 Taxmann.com 284. Consolidated Judgment: The Tribunal's consolidated order for the assessment years 2001-02 to 2008-09 held that: - Standby maintenance revenues are not taxable as FTS but as business income. - Restoration activity revenues are business income, with only a portion attributable to India. - The assessee is not liable for interest under section 234B. - The assessee is liable for interest under section 234D. The Tribunal directed the AO to verify and apportion the income from restoration activities based on the length of the cable in Indian territorial waters. The findings for the assessment year 2001-02 were applied mutatis mutandis to the subsequent years.
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