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TMI Blog2024 (5) TMI 909X X X X Extracts X X X X X X X X Extracts X X X X ..... oyalty under section 9(1)(vi), Explanation 2,5 and 6. Thus as following the decision of Vodafone Idea Ltd. [ 2023 (7) TMI 1164 - KARNATAKA HIGH COURT] we hold that the payments received by the assessee cannot be held to be royalty under section 9(1)(vi) of the Act. Further the revenue has not made out a case that there is a permanent establishment of assessee in India in order to tax the receipt by assessee in India as it is arising from extra territorial sources. Accordingly, in our opinion, the payments received by assessee amounts to be business profits of the assessee which is taxable in the recipient country. Decided in favour of assessee. - Smt Beena Pillai, Judicial Member And Shri Laxmi Prasad Sahu, Accountant Member For the Assessee : Shri Rohan Sogani, CA And Shri Naman Maloo, CA For the Revenue : Shri A. Sreenivasa Rao, CIT-DR ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present appeals arises out of the final assessment orders passed separately on 04.01.2024 for A.Ys. 2014-15 and 2017-18. The Ld.AR submitted that the issues contested in both the appeals are identical and are in respect of the interconnect utility charges that was held to be royalty in the hands of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 9(1)(vi) of the Act. Identical view was taken by the DRP in both the assessment years under consideration. 4.4 On receipt of the DRP directions, the Ld.AO for both the assessment years under consideration made addition in the hands of the assessee in respect of payment received from against the IUC charges as Royalty u/s. 9(1)(vi) of the Act. 4.5 Aggrieved by the order of the Ld.AO, assessee is in appeal before this Tribunal. 5. At the outset, it is submitted that, the assessee is headquartered in Hongkong did not have Double Taxation Avoidance Agreement during the relevant assessment years under consideration. It is submitted that, the DTAA between India and Hongkong has been notified to be into force from 30.11.2018. The Ld.AR submitted that though there was no DTAA between India and Hongkong for the relevant AYs under consideration, the payment received from Indian customers cannot be taxed in India u/s. 9(1)(vi) Explanation 2 or to that extent Explanation 5 and 6 of the Act. He submitted that Hon ble Jurisdictional High Court in case of Vodafone Idea Ltd. vs. DDIT reported in (2023) 152 taxmann.com 575 has considered the issue in the hands of the deductor, wherein the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra) and came to the conclusion that interconnect utility charges cannot be taxed as royalty in India u/s. 9(1)(vi) of the Act in the hands of the non-resident assessee as there is no use or process or a equipment that was made available to the customers in India. He also referred to the following decisions which have discussed the applicability of section 9(1)(vi) for the IUC charges in great detail:- Vodafone Idea Limited (Earlier Known as `Vodafone South Limited') Which Now Stands Merged With 'Idea Cellular Ltd'.) ITA No.160/2015 to 164/2015 and 64/2020 to 66/2020. [Karnataka High Court] HCG Global Communications Ltd. [2024] 158 taxmann.com 633 [Bangalore ITAT] [Entity based in Hong-Kong] Orange (formerly known as France Telecom) [2024] 158 taxmann.com 186 [Bangalore ITAT]. Telecom Italia Sparkle Singapore Pte. Ltd. [2023] 155 taxmann.com 404 [Bangalore ITAT] [Not Royalty as per Section 9(1)(vi), Refer Para 9.1 Onwards] Al Telekom Austria Aktiengesellschaft [2023] 156 taxmann.com 155 [Bangalore ITAT]. Telefonica Depreciation Espana SA [2023] 154 taxmann.com 436[Bangalore ITAT]. Dialog Axiata PLC [2024] 159 taxmann.com 6 [Mum-ITAT]. Telefonica UK Ltd. [2023] 203 ITD 17 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'patent, invention, model, design, secret formula or process or trade mark' are to be understood as belonging to the same class of properties viz. intellectual property. 8.2.3 We also note that 'Intellectual property' as understood in common parlance means, Knowledge, creative ideas, or expressions of human mind that have commercial value and are protectable under copyright, patent, service mark, trademark, or trade secret laws from imitation, infringement, and dilution. Intellectual property includes brand names, discoveries, formulas, inventions, knowledge, registered designs, software, and works of artistic, literary, or musical nature. 8.2.4 We also refer to the commentary in Prof.Klaus Vogel's Commentary on Double Taxation Convention, wherein, the term Royalty is defined as under: Paragraph 2 contains definition of the term royalties . These relate, in general, to rights or property constituting different forms of literary and artistic property, the elements of intellectual property specified in the text and information concerning industrial, commercial or scientific experience. The definition applies to payments for the use of, or the entitlement to use, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signal), cable, optic fibre or by any other similar technology, whether or not such process is secret. 8.2.9 By insertion of Explanation 5 6, meaning of word 'Process' has been widened. As per these explanations, the word 'Process' need not be secret , and situs of control possession of right, property or information has been rendered to be irrelevant. As per Explanation 5 6 , the word 'process' includes and shall be deemed to 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. Most importantly, the Explanation does not do away with the requirement of successful exclusivity of such right in respect of such process being with the person claiming 'royalty' for granting its usage to a third party. 8.2.10 We may also refer to the following decisions of AAR wherein meaning of the phrase use or right to use has been explained. Decision of Authority For Advance Ruling(hereinafter referred to as AAR), in case of Cable Wireless Networks India(P.)Ltd., In re, reported in (2009) 182 Taxman 76 Decision o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned senior counsel for the applicant sought to contend, relying on the decision of Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. v. CTO [1990] 77 STC 182 which was affirmed by the Supreme Court, that mere custody or possession of equipment without effective control can only result in use of the equipment whereas a right to use the equipment implies control over the equipment. We do not think that such distinction has any legal basis. In the case of Rashtriya Ispat Nigam Ltd. (supra), what fell for consideration was the expression transfer of right to use any goods occurring in a sales-tax enactment. Obviously, where there is a transfer, all the possessory rights including control over the goods delivered will pass on to the transferee. It was in that context, emphasis was laid on 'control'. The Supreme Court affirmed the conclusion of the High Court that the effective control of machinery even while the machinery was in use of the contractor remained with RIN Ltd. which lent the machinery. The distinction between physical use of machinery (which was with the contractor) and control of the machinery was highlighted. The ratio of that decision ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dinary meaning', the word 'use' as a noun, is the act of employing a thing; putting into action or service, employing for or applying to a given purpose . In the New Shorter Oxford Dictionary, more or less the same meaning is given. The very first meaning noted there is: the action of using something; the fact or state of being used; application or conversion to some purpose . Another meaning given is Make use of (a thing), especially for a particular end or purpose; utilize, turn to account... cause (an implement, instrument etc.) to work especially for a particular purpose; manipulate, operate . The various shades of meanings given in the decided cases in America are referred to in Words and Phrases, Permanent Edition Vol. 43A. Some of them are quoted below : The word 'use' means to make use of; convert to one's service; to avail oneself of; to employ . (Miller v. Franklin County) The word 'use' means the purpose served, a purpose, object or end for useful or advantageous nature . (Brown v. Kennedy) 'Use' means to employ for any purpose, to employ for attainment of some purpose or end, to convert to one's service or to put to one's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt owned and installed by BTA. The questions to be asked and answered are: Does the availment of service involve user of equipment belonging to BT or its agent by the applicant ? Is the applicant required to do some positive act in relation to the equipment such as operation and control of the same in order to utilize the service or facility ? Does the applicant deal with any BT equipment for adapting it to its use ? Unless the answer is 'yes', the payment made by the applicant to BTA cannot be brought within the royalty clause (iva). In our view, the answer cannot be in the affirmative. Assuming that circuit is equipment, it cannot be said that the applicant uses that equipment in any real sense. By availing of the facility provided by BTA through its network/circuits, there is no usage of equipment by the applicant except in a very loose sense such as using a road bridge or a telephone connection. The user of BT's equipment as such would not have figured in the minds of parties. As stated earlier, the expression 'use' occurring in the relevant provision does not simply mean taking advantage of something or utilizing a facility provided by another through its o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nectivity or otherwise. But, it cannot be inferred from this fact alone that the bulk of consideration paid is for the use of that item of equipment. 13.3 In cases where the customers make use of standard facility like telephone connection offered by the service provider, it does not admit of any doubt that the customer does not use the network or equipment of the service provider. But, where the service provider, for the purpose of affording the facility, has provided special infrastructure/network such as a dedicated circuit (as in the instant case), controversies may arise as to the nature of payment received by the service provider because it may not stand on the same footing as standard facility. However, even where an earmarked circuit is provided for offering the facility, unless there is material to establish that the circuit/equipment could be accessed and put to use by the customer by means of positive acts, it does not fall under the category of 'royalty' in clause (iva) of Explanation 2. 8.2.14 We also refer to the commentary relied by the Ld.Counsel form Prof. Klaus Vogel's Commentary on Double Taxation Convention , wherein Secrete formulae or process is de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal has held that payments made by an Indian telecom company for identical services, as rendered by the present assessee will not fall within the ambit of Royalty under section 9(1)(vi), Explanation 2,5 and 6. There has been nothing contrary to the above observations brought on record by the revenue. a) Telefonica De Espana SA vs. ACIT/DCIT reported in [2023] 154 taxmann.com 436 (Bangalore Trib.) b) Telefonica De Espana SA vs. DCIT in IT(IT)A Nos. 215 216/Bang/2023 by order dated 17.08.2023 c) Al Telekom Austria Aktiengesellschaft vs. DCIT in IT(IT)A Nos. 336, 338 339/Bang/2023 by order dated 25.08.2023 d) Telecom Italia Sparkle Singapore Ptd. Ltd. vs. DCIT in IT(IT)A Nos. 579 580/Bang/2020 IT(IT)A No. 1138/Bang/2022 by order dated 31.08.2023 11. Based on the above discussion and respectfully following the decision of Hon'ble Karnataka High Court in case of Vodafone Idea Ltd. (supra), we hold that the payments received by the assessee cannot be held to be royalty under section 9(1)(vi) of the Act. Further the revenue has not made out a case that there is a permanent establishment of assessee in India in order to tax the receipt by assessee in India as it is arising from ex ..... 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