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TMI Blog2024 (3) TMI 1062X X X X Extracts X X X X X X X X Extracts X X X X ..... [ 2016 (8) TMI 422 - KARNATAKA HIGH COURT] to whom the assessee has received the IUC charges has held that the assessee is entitled to take benefit under DTAA and that the amendment to provision of section 9(1)(vi) inserting the Explanation cannot be read into the provisions of DTAA by relying on the decision of the Hon'ble Apex Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. [ 2021 (3) TMI 138 - SUPREME COURT] . It is also pertinent to point out that the lower authorities have relied on the decision of the Tribunal in the case of Vodafone South Ltd [ 2015 (1) TMI 1018 - ITAT BANGALORE] which has now been reversed by the Hon'ble High Court [ 2016 (8) TMI 422 - KARNATAKA HIGH COURT] thereby holding that the order of the lower authorities to be perversed. We would also place reliance on the decision relied upon by the assessee in the case of New Skies Satellite BV [ 2016 (2) TMI 415 - DELHI HIGH COURT] whereas held that the provision of the DTAA cannot be altered unless by way of amendment through bilateral renegotiation after duly considering the decision of Hon ble Madras High Court in the case of Verizon Communications Singapore Pte. Ltd. [ 2013 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( IUC for short) are to be taxed in India as per the provisions of Income Tax Act as well as the DTAA entered into between India and Sri Lanka and held that as per the provision of section 5 of the Act, the said receipts are to be taxed as royalty . 4. The assessee filed its objection before the learned Dispute Resolution Panel ('ld. DRP' for short) challenging the draft assessment order passed by the ld. A.O. The ld. DRP disposed off the objections raised by the assessee vide order dated 31.05.2022 by upholding the order of the ld. A.O. that the receipts are in the form of Interconnect Usage Charges which are liable to be taxed in India as Royalty . The ld. A.O. then passed the final assessment order dated 14.06.2022 in pursuance of the ld. DRP's direction and determined the total income at Rs. 4,16,80,240/- by holding the receipt received by the assessee from Vodafone South Ltd as Royalty income taxable in India. 5. Ground no. 6 pertains to the addition made by the ld. A.O. holding that the IUC charges received by the appellate are royalty under the India-Sri Lanka DTAA. The facts of these grounds are that the assessee is a telecommunication operator based in Sri Lank ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned receipt in pursuance to the direction of the Hon ble DRP. 7. The learned Authorised Representative ('ld. AR' for short) proceeded to argue on the merits of the case raised in ground no. 6 of the appeal. The ld. AR for the assessee further contended that the network and the related equipments are used solely by the assessee for the purpose of providing carriage services to VSL and that no access or control pertaining to the said network or equipment is provided by the assessee to VSL. The ld. AR further contended that the assessee has not given any right to VSL to use the network of the assessee nor was any intellectual property rights pertaining to the assessee was rendered to VSL as per the service contract entered into by the assessee and VSL. The ld. AR further submitted that there was no transfer of rights and neither was it a secret formula or process which consideration would be Royalty as per Explanation 2 of section 9(1)(vi) of the Act. The ld. AR also contended that the said receipt from VSL was otherwise a business income which cannot be taxed in India for the reason that the assessee does not have a permanent establishment in India and, hence, will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ble Madras High Court in the case of Verizon Communications Singapore Pte. Ltd. vs. ITO [2014] 361 ITR 575 (Mad) and the orders of the lower authorities. 9. We have heard the rival submissions and perused the materials available on record. It is observed that the assessee being a non resident company is a licensed telecommunication service provider within and outside Sri Lanka and providing international carriage and connectivity services to telecom operators of other countries for facilitating seamless connectivity and carriage of international telecommunication traffic in Sri Lanka. The assessee has provided the said services to VSL which is a licensed telecommunication service provider in India vide an agreement for providing services of connecting international calls originating from India on the network of Vodafone through the network of the assessee. The assessee connects the call carried by Vodafone through its International Long Distance (ILD) network to the user in Sri Lanka. The assessee s contention is that as per the service agreement entered into by the assessee and Vodafone, the calls originating in India of Vodafone are connected with the network of the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possession over the right, property or information and that the said process need not be a secret process. Further the explanation 6 to section 9(1)(vi) of the Act was with retrospective effect from 01.06.1976. The ld. A.O. relied on the decision of the Hon ble Madras High Court in the case of Verizon Communications Singapore Pte. Ltd. (supra) where the payment made towards interconnect charges are held to be consideration in respect of a process both under I T Act as well as under DTAA. The ld. A.O. also placed reliance on the decision of the Tribunal in the case of New Skies Satellite NV (supra) and Vodafone South Ltd. vs. Deputy Director of Income-tax (International Taxation) [2015] 53 taxmann.com 441 (Bangalore - Trib.) which has held such receipt to be taxable as royalty as per the provision of I T Act and DTAA. The ld. A.O./DRP held the same to be in the nature of royalty . 11. In the above factual matrix, the primary issue that has to be dealt with is whether the IUC charges received by the assessee is in the nature of royalty under the Act and India-Sri Lanka DTAA. For the purpose of deciding this issue, it is pertinent to summarize the assessee s contention that the inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : Explanation 5. For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not (a) the possession or control of such right, property or information is with the payer; (b) such right, property or information is used directly by the payer; (c) the location of such right, property or information is in India. Explanation 6. For the removal of doubts, it is hereby clarified that the expression process includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret; ] (vii) income by way of fees for technical services 88 payable by (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or professi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply. 5. (a) Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority, or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are born by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. (b) Where under sub-paragraph (a) royalties or fees for technical services do not arise in one of the Contracting States, and the royalties relate to the use of or the right to use, the right or property, or the fees for technical services relate to services performed, in one of the Con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnected service would fall within the ambit of Royalty for which VSL was bound to deduct TDS on such payment. The ld. A.O. also relied on the decision of the Hon ble Madras High Court in the case of Verizon Communications Singapore Pte. Ltd. (supra) which has held the same to be as Royalty within the meaning of clause (iii) of Explanation 2 to section 9(1)(vi) of the Act. The lower authorities have also held that the decision of the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P.) Ltd. (supra) has not been taken into consideration for the reason that the Revenue has filed a review petition before the Hon'ble Apex Court. It is pertinent to point out that the Hon ble Karnataka High Court in the case of M/s. Vodafone Idea Limited (supra) which decision has relied on by the lower authorities has been reversed by the Hon'ble High Court by holding that the provision of section 9(1)(vi) of the Act inserting the Explanation should not be considered when the same is less beneficial to the assessee as per section 90(2) of the Act and that the provision of the Act cannot be read into the provision of DTAA unless there has been a specific amendmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... principle chargeable of Section 195. Hence, apart from Section 9(1), Sections 4, 5, 9, 90, 91 as well as the provisions of DTAA are also Source relevant, while applying tax deduction at provisions. (Emphasis supplied) 18. The above passage has been extracted in Engineering Analysis. Thus it is clear that an assessee is entitled to take the benefit under a DTAA between two countries. Hence, the ITAT'S view that DTAA cannot be considered in proceedings under Section 201 of the Act is tenable. 19. The second question for consideration is whether the ITAT was Correct in holding that the amendment to provisions of Section 9(1) (vi) inserting the Explanations will result in amendment of DTAA. The answer to this question must be in the negative because in Engineering Analysis, the Apex Court has held that Explanation 4 to Section 9(1)(vi) of the Act is not clarificatory of the position as on 01.06.1976 and in fact expands that position to include what is stated therein vide Finance Act, 2012. 20. The Explanation 5 and 6 to Section 9(1)(vi) of the Act has been inserted with effect from 01.06.1976. This aspect has also been considered in Engineering Analysis holding that the question ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Revenue is right in holding that withholding tax liability should be levied at a higher rate. It was contended Shri. Pardiwala that this issue is covered in assessee's favour in CIT Vs. M/s. Wipro and the same is not disputed. Hence, this question also needs to be answered against the Revenue. 24. The sixth question is whether assessee can be held liable for non-reduction of tax at source for payments made for the A.Ys. on the basis of amendment to Section 9(1) (vi) of the Act. This aspect has been considered by us while answering question No.2. It is held in Engineering Analysis that an assessee is not obliged to do the impossible, Admittedly, the A.Y.s under consideration are 2008-09 to 2012-13 and the Explanation has been inserted by Finance Act, 2012. In addition, we have also held that assessee is entitled for the benefits under DTAA. 15. From the above observation, it is pertinent to note that the Hon ble Karantaka High Court in the case of Vodafone South Ltd. (supra) to whom the assessee has received the IUC charges has held that the assessee is entitled to take benefit under DTAA and that the amendment to provision of section 9(1)(vi) inserting the Explanation cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X
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