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Issues Involved:
1. Whether provision of customer-based circuits by foreign companies amounts to provision of technical services within the scope of s. 9(1)(vii) of the Act. 2. Whether DTAA between India and USA, particularly art. 12(4), would render such services taxable in India. 3. Whether the payment for the above service could be regarded as royalties within the scope of s. 9(1)(vi) of the Act. 4. Whether the services were utilized by the appellant-company in a business carried on outside India to qualify for the exception provided under cl. (b) of s. 9(1)(vii) of the Act. 5. Whether any liability for tax arises in India u/s 195 of the IT Act. Summary: 1. Provision of Customer-Based Circuits as Technical Services (s. 9(1)(vii)): The appellant argued that the telecom services utilized were standard services offered to anyone willing to pay and did not involve the transfer of technology or technical services. The Department contended that the services involved sophisticated technology and technical processes. The Tribunal, referencing the Madras High Court decision in Skycell Communications Ltd. vs. Dy. CIT, concluded that the services provided were standard telecom services and did not constitute technical services u/s 9(1)(vii). Therefore, the payments made could not be considered as fees for technical services. 2. DTAA Between India and USA (Art. 12(4)): The appellant argued that the DTAA could not impose a liability not present in domestic law and that the services were neither rendered nor utilized in India. The Tribunal agreed, stating that since no technical services were made available to the appellant, Art. 12(4) of the DTAA did not apply. The Tribunal also noted that the DTAA between India and the USA could not cover services rendered in other countries. 3. Payment as Royalties (s. 9(1)(vi)): The Department raised this issue during the proceedings, arguing that the payments could be considered royalties for making available a process. The Tribunal found no evidence that any process was made available to the appellant and held that the payments could not be considered royalties u/s 9(1)(vi). 4. Utilization of Services Outside India (s. 9(1)(vii) Exception): The Tribunal did not address this issue in detail, as it had already granted relief on the main section, making further discussion academic. 5. Liability for Tax Deduction u/s 195: The Tribunal concluded that since the payments were not income accruing in India under s. 9(1)(vii), 9(1)(vi), or the DTAA, no liability for TDS u/s 195 arose for the appellant. Conclusion: The Tribunal canceled the orders passed by the AO u/s 201(1) and held that there was no liability for TDS against the appellant. Consequently, the interest levied u/s 201(1A) was also canceled, and the appeals were allowed.
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