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TMI Blog2019 (3) TMI 1893X X X X Extracts X X X X X X X X Extracts X X X X ..... tructure by way of deploying cable ships, submersible equipment, keeping trained staff on standby, and maintenance and operation of Network Operation Centre as per the Construction and Maintenance Agreement dated 14.12.1995, constituted rendering of services for the purpose of constantly monitoring the undersea cable systems and hence the said payment is for managerial and technical services rendered by the assessee which is covered under section 9(1)(vii) of the Act." 2. "The Ld. CIT(A) has erred in concluding that the amount of Rs. 10,48,73,710 received by assessee as standby maintenance charges was not in nature of 'Fee for technical services' under section 9(1)(vii) of the Income tax Act, 1961 on the ground that no services were rendered during the year, ignoring the invoice available on record indicating charges paid towards such services and without appreciating the fact that by way of maintenance and repairs of cable system, the assessee rendered managerial and technical service in the form of commercial advantage to assignees by ensuring that the cable system was in seamless operational condition at all times and in case of actual need for the repairs and mainten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tandby Maintenance Charges from Tata Communications Limited ("TCL") (formerly known as Videsh Sanchar Nigam Limited) is taxable in India. The Appellant submits that the receipt of Standby Maintenance Charges from TCL is not taxable in India as the whole activity have been carried out outside India during the year under consideration. 2. On the facts and circumstances of the case and in law, the learned CIT(A) erred in holding the action of the Assessing Officer that the receipt of Standby Maintenance Charges from TCL is taxable in India without appreciating the facts that no income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India. The Appellant submits that the said receipt of Standby Maintenance Charges from TCL is not taxable in India. WITHOUT PREJUDICE TO THE ABOVE GROUND: 3. On the fact and circumstances of the case, the learned CIT(A) erred in not directing the Assessing Officer to accept the loss as computed in the computation of income by the Appellant. The Appellant submits that the income / (loss) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmuda and owns high capacity fibre optic telecommunication cable used for providing data and voice services. The assessee-company is a tax resident of Bermuda and its fibre optic telecommunication cable, which is laid under sea, provides a telecommunication link between U.K and Japan. At the time of hearing, it was explained that a major part of the cable system is installed outside the territorial waters of the respective countries and the cable has to come ashore, which is called as "landing points‟, in certain countries in order to provide connection with the domestic telecommunication systems. To achieve this, assessee-company has contracted with the domestic telecommunications companies of the respective countries in which the cable lands, and such concerns are termed as "landing parties‟. So far as the dispute before us is concerned, it would be suffice to know that the cable lands in India at Mumbai and the landing party in India is Tata Communications Ltd. (TCL). As per the terms of agreement with the telecommunication companies worldwide or the "landing parties‟, assessee agreed to provide maintenance on behalf of such companies to keep the cable sys ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer brought to tax the entire standby maintenance service revenue received on gross basis from TCL, which was contrary to assessee‟s assertion of attributing such revenue on the basis of the length of the cable in Indian territorial waters. The assessee had sought determination of revenue by applying proportion of cable length in India vis-a-vis total cable length worldwide. In this manner, the learned Assessing Officer brought to tax the standby maintenance charges as "fees for technical services‟ at Rs. 10,48,73,710/- which was taxed @ 20% u/s 115A of the Act. 3.3. The assessee carried the matter in appeal before the learned CIT(A) who disagreed with the stand of the learned Assessing Officer that the impugned amount was "fee for technical services‟. Instead, as per the learned CIT(A), the amounts do not represent "fee for technical services‟ and that the same was liable to be taxed as "business income‟, but only to the extent of its reference to the "business connection" in India. This aspect of the decision of learned CIT(A) is challenged by the Revenue in its appeal before us. 3.4. After treating the amounts to be in the nature of "busin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ussion in the order of the Tribunal dated 06.02.2015 (supra) is as under :- 68. The second issue relates to taxability of "standby maintenance charges‟ as fees for technical services u/s 9(1)(vii), as raised by the assessee in ground no. 4. As stated earlier, the assessee along with consortium of other parties has built the submarine fibre optic cable providing telecommunication link between UK and Japan. Under the terms of C&MA the FLAG cable system is to be jointly operated and maintained in efficient working condition or along with the founding signatory i.e. Flag and the landing party signatories. The operation and maintenance duties and rights has been elaborated in para 10 along with various sub clauses. The entire cable system is to be operated and maintained by founding signatory in co-ordination with relevant landing party signatory. Flag Network Operation Centre (FNOC) has to provide overall network service surveillance and over all co-ordination of maintenance and repair operations of Flag cable system. The Flag has to co-ordinate the deployment of the vessels for repairs and maintenance operation in accordance with the procedure defined. Para 11 along with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h a repair and maintenance is separate from standby maintenance cost, which is in the nature of reimbursement of fixed cost. The standby maintenance is a fixed annual charge which is payable not for providing or rendering services but for arranging standby maintenance arrangement which is required for a situation whenever some repair work in the undersea cable or terrestrial cable is actually to be performed or rendered. It is a facility or infrastructure maintained for ready to use or render the technical services or repair services, if required. On these facts we have to examine whether assessee is providing any service to VSNL in respect of standby maintenance. 70. Explanation 2 to section 9(1)(vii) defines "fees for technical services" in the following manner:- "Explanation (2)- For the purpose of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of service of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d or services. In the present case as evident from the clause 11.1, that so far as standby maintenance charges is concerned, it is in the form of fixed annual charge which is in the nature of reimbursement. It has been also brought on record that only actual cost incurred has been recovered from VSNL in providing the standby maintenance services. There is no profit element or mark up involved. The assessee has also provided the details of receipt and cost involved in providing standby maintenance services to VSNL for A.Ys. 1998- 99, 1999-2000 and 2000-01 which are as under:- Particulars Amount in US$ A.Y. 1998-99 A.Y. 1999-00 A.Y. 2000-01 Revenues from standby maintenance charges 512,955 1,226,860 2,072,453 Total costs incurred (as per auditor‟s certificate) (857,093) (2,0,77,219) (2,800,495) Profit/(Loss) from standby maintenance activities (344,138) (850,359) (850,359) It has been contended that there is a loss in this account. 71. Thus, on the facts and circumstances of the case as well as looking to the nature of standby maintenance cost, we hold that the receipts from standby maintenance charges from VSNL cannot be taxed as FTS, within the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Indian landing party, with reference to the capacity used, it cannot be further apportioned based on the length of the cable so as to determine profit of the assessee attributable to the business connection in India. 12. The learned representative, however, pointed out that the income of the assessee, which is to be taxed in India, can be appropriately calculated only after apportioning the revenue on the basis of length of cable in the territorial waters of India for which the standby facility is being maintained by the assessee. Therefore, according to him, it is only such part of the total revenue received from TCL which is proportionate to the length of cable in the territorial waters of India which can be considered to compute assessee‟s income taxable in India and the same has been correctly done by the assessee in its return of income. 13. At this stage, we may also refer to the Additional Ground of appeal no. 2 which has been raised before us and which reads as under :- "2. On the facts and circumstances of the case and in law, the Learned CIT(A) erred in holding that the receipts from Indian parties is to be treated s turnover for the purpose of taxation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y maintenance charges taxable in India u/s 9(1)(i) of the Act is to be computed. Said charges have been received by the assessee from TCL and, as per the assessee, portion thereof which is relatable to the length of cable in Indian territorial waters vis-a-vis the length of cable worldwide be taken as the total revenue deemed to accrue or arise in India from which relatable expenses are to be reduced so as to compute the income accruing or arising in India u/s 9(1)(i) of the Act. On the contrary, the stand of the CIT(A) is that the entire amount of revenue received on this score from TCL should be considered. 18. As the aforesaid discussion shows, the dispute revolves around computation of the income from standby maintenance activities attributable in India. On this aspect, before proceeding further, we notice that in Assessment Years 2001-02 to 2008-09, the Tribunal vide order dated 15.06.2015 (supra) has dealt with similar issue, of course qua the revenues earned from "Restoration Services". On this aspect, the Tribunal held such receipts to be in the nature of "business income‟, and after holding so, the Tribunal went on to deduce the method in terms of which the revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that it is a settled proposition in terms of the judgment of Hon'ble Bombay High Court in the case of NGC Network Asia LLC, 313 ITR 187 (Bom.) that there would be no chargeability of interest u/s 234B of the Act as the receipts on account of standby maintenance charges from TCL are subjected to withholding tax u/s 195 of the Act. On this aspect, it was also a common point between the parties that the said proposition has also been affirmed by the Tribunal in assessee‟s own case in the orders dated 06.02.2015 (supra) and also 15.06.2015 (supra). Thus, on this aspect, assessee succeeds."
5.3. It is not in dispute that in the instant case, tax was duly deducted and hence, respectfully following the aforesaid judicial precedents, we hold that no interest u/s.234B of the Act could be charged in the instant case and accordingly, the ground No.6 raised by the assessee is allowed.
6. The ground No. 7 raised by the assessee is general in nature and does not require any specific adjudication.
7. In the result, appeal of the assessee is partly allowed and appeal of the revenue is dismissed.
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