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TMI Blog2022 (3) TMI 1561X X X X Extracts X X X X X X X X Extracts X X X X ..... able as royalty in terms of Article 13 of the India UK DTAA. No doubt, that service is being provided with the help of scientific equipment and technology. That by way itself could not qualify the payment as royalty. We accordingly, direct the Assessing Officer to delete the impugned addition. no deduction of TDS required - Assessee appeal allowed. Deduction u/s 80IA @ 30% of eligible profit - determination of initial assessment year - HELD THAT:- In our considered view, unless the operation of the decision of the co-ordinate bench is stayed by the Hon'ble High Court, the same needs to be followed. We find that in [ 2018 (9) TMI 2131 - ITAT MUMBAI ] conclude that as the assessee had opted A.Y 2007-08 as the initial assessment year for claim of deduction under Sec. 80IA(2), therefore, it would be entitled for 100% deduction from A.Y 2007-08 to A.Y 2011-12 and thereafter 30% from A.Y 2012-13 to A.Y 2016-17, subject to satisfaction of all other conditions. Disallowance of license fee paid - HELD THAT:- The addition has been made only in the year under consideration for the reason that Department has filed SLP in the case of Bharti Hexacom Ltd. [ 2023 (10) TMI 786 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etwork connectivity charges under section 40(a)(i) of the Act, in the hands of the Appellant. 3. That on the facts and circumstances of the case and in law, the Hon ble CIT(A) has erred in disregarding the Appellant s submission that the subject payments by the Appellant to BT Pic are in the nature of business income of BT Pic and therefore not taxable in India in absence of Permanent Establishment of BT Pic in India in accordance with Article 5 read with Article 7 of the India-UK DTAA. That the above grounds of appeal are without prejudice to each other. That the Appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal. 3. The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules. 4. Briefly stated, the facts of the case are that the assessee is a wholly owned subsidiary of BT Telecom India Private Limited and is engaged in providing network connectivity services. The assessee has obtai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of the India UK DTAA, the Assessing Officer was of the opinion that the payment for network connectivity services given to BT PLC is royalty. 12. Placing strong reliance on the judgment of the Hon'ble Madras High Court in the case of Verizon Communications, Singapore Pte Ltd 361 ITR 575, the Assessing Officer came to the conclusion that the payment given/credited by the assessee to BT Pic for network connectivity services is to be treated as payment of royalty within the meaning of clause (iii) of Explanation 2 to section 9(1)(vi) of the Act and, therefore, the assessee was liable for withholding of tax u/s 195 of the Act and since the assessee has failed to do so, disallowance of payment u/s 40(a)(ia) of the Act was made to the tune of Rs. 3,83,8794,524/-, which was upheld by the ld. CIT(A). 13. A perusal of the TSA Agreement shows that the assessee had installed its own equipment in India for providing necessary bandwidth services to its Indian customers. We find that it is only to achieve the foreign leg of the connectivity that the telecom services of the non- resident service provider were procured. We do not find any merit in this contention of the ld. DR that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retrospectively. The definition of the term Royalty under the DTAA which has now been affirmed by the Hon'ble Supreme Court in the case of Engineering Analysis Center of Excellence Pvt Ltd. [2021] 432 ITR 471 wherein it has been held by the Hon'ble Supreme Court that the amendments in the domestic law cannot be read into treaties, unless DTAAs are amended by way of bilateral negotiations. 19. Next proposition made by the ld. DR is that the case in hand is a case of equipment royalty. 20. For this, we would like to refer to the terms of Article 13 of the India UK DTAA wherein royalty has been defined as under: 13(3) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by BT. Thus, for provision of network connectivity services of the assessee in relation to its subscribers and no access/control whatsoever in relation to such network, any equipment is provided to the assessee. 26. If we consider the business module in a practical aspect, then we would know that there may be multiple routes by way of any given transmission of telecom traffic can reach the desired destination and the assessee has no knowledge of the equipment being used for provision of the service. 27. For example, if a person is making an international call from India to a resident of UK, then the service provider of that person does not know through which service provider call reaches the desired destination, as service provider in India has no knowledge of the equipment being used for provision of the service. 28. Consdiering the facts of the case in hand, the assessee as a service provider is only concerned with the transfer of telecommunication traffic through availing service from BT without having any knowldege or any manner of acess in respect of the equipment being used for these services. Thus, it can be safelyy concluded that the assessee does not obtain/recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and whilst correctly following the decisions of the Hon ble Delhi High Court in New Skies (Supra) held as under:- 64. Recently, the Hon ble Delhi High Court in the case PIT vs. New Skies Satellite BT Ors. hi IT A No. 473/2012 Ors. Vide judgment dated 8.2.2016 has held us under:- 39. It is now essential to decide the second question i.e. whether the assessees in the present case will obtain any relief from the provisions of the DTAAs. Under Article 12 of the Double Tax Avoidance Agreements, the general rule states that whereas the State of Residence shall have the primary right to tux royalties, the Source State shall concurrently have the right to tax the income, to the extent of 15% of the total income. Before the amendment brought about by the Finance Act of 2012, the definition of royalty under the Act and the DTAAs were treated as pari materia. The definitions are reproduced below: Article 12(3), Indo Thai Double Tax Avoidance Agreement: 3. The term royalties as used in this article means payments of any kind received as a consideration for the alienation or the use of, or the right to use, any copyright of literary, artistic or scientific work (including cin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the view that no amendment to the Act, whether retrospective or prospective, can be read in a manner so as to extend in operation to the terms of an international treaty. In other words, a clariftcatory or declaratory amendment, much less one which may seek to overcome cm unv elcome judicial interpretation of law, cannot be allowed to have the same retroactive effect :n an international instrument effected between two sovereign states prior to such amendment In the context of international law, while not every attempt to subvert the obligations under the treaty is a breach, il is nevertheless a failure to give effect to the intended trajectory of the treaty. Employing interpretive amendments in domestic law as a means to imply contoured effects in the enforcement of treaties is one such attempt, which falls just short of a breach, but is nevertheless, in the opinion of this Court, indefensible. 64.1 After considering the Vienna Convention on the Law of Treaties, 1969 (VCLT) and the judgments of the Hon'ble Supreme Court of Canada and other precedents, the Hon ble High Court further has held as under 60. Consequently, since we have held that the Finance Act, 2012 will no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Apex Court in the case of M/s Palam Gas Service vs CIT. 2. On the facts and circumstances of the case, whether the Id. CIT(A) was correct in allowing the deduction U/s 80IA @30% of eligible profits, ignoring the fact that the matter is pending for adjudication before the Hon ble Delhi High Court in AY 2010-11. 3. On the facts and circumstances of the case, whether the Id. CIT(A) was correct in allowing the appeal of the assessee on the ground of disallowance of variable license fee, ignoring the fact that the Department has filed SLPs in the cases of CIT Vs. Bharti Hexacom Limited (2013) 40 taxmann.Com 40(Delhi) and Vodafone Mobile Services Limited Vs Delhi High Court [ITA No 730 of 2016] on the same issue. 4. The appellant craves leave for reserving the right to amend, modify, alter, add or forego any ground(s) of appeal at any time before or during the hearing of this appeal. 40. Since we have allowed the appeal of the assessee in ITA No. 9590/DEL/2019, Ground No. 1 of Revenue s appeal becomes otiose. 41. Ground No. 2 relates to the deduction u/s 80IA of the Act @ 30% of eligible profit. 42. A perusal of the ground itself shows that the Revenue is in appea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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