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TMI Blog2023 (8) TMI 1375X X X X Extracts X X X X X X X X Extracts X X X X ..... lty or FTS and hence is not taxable in India. Decided in favour of assessee. - SHRI GEORGE GEORGE K, VICE PRESIDENT AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER For the Assessee : Shri. Sharath Rao, CA For the Revenue : Dr. Satyasai Rath, CIT(DR), ITAT, Bengaluru. ORDER PER GEORGE GEORGE K, VICE PRESIDENT: These appeals at the instance of the assessee are directed against two Final Assessment Orders (both orders are dated 20.01.2023) passed under section 143(3) r.w.s. 147 r.w.s. 144C(13) of the Income Tax Act, 1961 (hereinafter called the Act ). The relevant Assessment Years are 2013-14 and 2014-15. 2. Common issues are raised in these appeals; hence, they were heard together and are being disposed off by this consolidated order. 3. Brief facts of the case are as follows: Assessee is a telecom company incorporated and a tax resident of Spain. It is engaged in the business of providing telecommunications services, interconnection services, internet services, etc. The assessee has entered into interconnect services agreements that enables subscribers of one telecom operator to call a subscriber of another operator in any part of the world and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m operator. Per the interconnect agreements, invoices are issued on a monthly basis indicating the applicable rate per minute, destination country and traffic volume in minutes. 6. The assessee was of the view that the receipts towards Interconnect Usage Charges ( IUC ) are not taxable in India since these do not amount to royalty/FTS but would constitute business income which is not taxable in the absence of a Permanent Establishment (PE) in India. Hence, assessee had not filed return of income in India. However, re-assessment proceedings were initiated for the impugned years under section 147 of the Act, based on the proceedings under section 201 of the Act initiated on M/s Vodafone South Limited. The Assessing Officer ( AO ) held that such payments would qualify to be royalty / fees for technical services and hence taxable in India. The Dispute Resolution Panel ( DRP ) upheld the order of the AO primarily relying on the ITAT decision in the case of Vodafone South Ltd (2015) 53 taxmann.com 441. Pursuant to the direction of the DRP, the impugned Final Assessment Orders were passed. 7. Aggrieved by the Final Assessment Orders, the assessee has filed these appeals before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... All these changes in Act (insertion of Explanation 5 6) do not affect the definition of Royalty as per DTAA Page 10 Para 5.2.9 On perusal of agreement, it is noted that installation and operation of sophisticated equipment are with the view to earn income by allowing the users to avail the benefits of such equipment or facility and does not tantamount to granting the use or right to use the equipment or process so as to be considered as royalty Page 21 Para 5.2.16 At no point of time, any possession or physical custody, control or management over any equipment is received by the end users/customers. Page 21 Para 5.2.17 Process involved in providing the services to the end users/customers is not secret but a standard commercial process followed by the industry players. Hence, same cannot be classified as secret process as per clause 3 o Article 13 of India-Spain DTAA Page 21 Para 5.2.17 We hold that payments received by assessee towards interconnectivity utility charges from Indian customers / end users cannot be cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat section 9 of the Act is a deeming section and it provides for taxation of specified income, received by foreign tax resident in India. It has different sub sections. Section 9(1)(i) of the Act provides for taxation of business income of non resident, whereas section 9(1)(vi) and 9(1)(vii) of the Act provides for taxation of income in the nature of royalty and FTS respectively. In order to assume accrual or arousal of business income in India, then section 9(1)(vi) along with its explanation would be relevant and it would come from the circumstances that non resident constitute a business connection in India. In that situation only so much income shall be taxable in India as is relatable to operations carried on in India. As discussed earlier section 5(2) of the Act provides that the total income of a non resident would include income accrues or arise, received. In order to fulfill the requirements contemplated under this provision, that same income to be taxed in the hands of a non resident under the aforesaid provisions, then such income should accrue or arose to such non resident in India. Both the learned Revenue authorities have construed that since the payments have been ..... X X X X Extracts X X X X X X X X Extracts X X X X
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