9911796707
TMI Blog2024 (10) TMI 699X X X X Extracts X X X X X X X X Extracts X X X X ..... 1)(vi) of the Act. After a detailed analysis, the Hon ble Court finally came to the conclusion that bandwidth charges cannot be treated as royalty for use or right to use of an equipment, secret formula or process. The Hon ble Court held that the amendment made to domestic law, cannot automatically be imported to the treaty provisions without making corresponding changes in them. Hon ble Court has observed, the consideration that the service recipient pays also cannot possibly be recognized as being intended to acquire a right in respect of a patent, invention, process or equipment. Thus, the ratio laid down by the Hon ble Jurisdictional High Court as noted above will not only apply to the payees located in treaty countries but also to payees located in non-treaty countries. Thus, in the ultimate analysis, we hold that the bandwidth charges remitted by the assessee to the service providers cannot be treated as royalty either under the treaty provisions or under section 9(1)(vi) of the Act. Therefore, the assessee was not required to deduct tax at source. Grounds are allowed. Taxability of annual maintenance charges (AMC) paid to certain foreign companies as FTS requiring deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - FAA held that since the Indian branch of the payee has not played any role in the transaction of arranging loan or reimbursement of interest etc., no part of the receipt towards agency fee can be attributed to the Indian Branches. Therefore, there was no liability on the assessee to deduct tax at source - HELD THAT:- FAA has given a clear factual finding that the payee banks though have branches in India, however, the Indian Branches had not played any role either arranging loan or reimbursement of loan. He has given a finding that the Assessing Officer has not recorded any factual finding regarding the role played by the Indian Branches. In the context of the aforesaid factual position, he held that since Indian Branches have not played any role of facility agent, no part of the agency fee can be attributed to the Indian Branches, even if they are held as PE. Revenue has failed to bring any material before us to controvert the aforesaid factual position brought on record by learned first appellate authority. No valid reason to interfere with the decision of learned first appellate authority. Ground is dismissed. - Shri Saktijit Dey, Vice-President And Shri Naveen Chandra, Acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Agreements (DTAAs) with the contracting countries, where the foreign telecom services providers are located. It was further submitted by the assessee that the receipts are to be treated as business income at the hands of such foreign entities and in absence of their Permanent Establishment (PE) in India, the receipts cannot be made taxable under the relevant provisions of the DTAAs. 6. The Assessing Officer, however, did not accept the submissions of the assessee. Referring to the definition of royalty under Section 9(1)(vi) read with its Explanation, the Assessing Officer held that the payments made are in the nature of royalty as they are basically for the use or right to use of equipment or process. In this context, he relied upon certain judicial precedents. Thus, ultimately, he held that the remittances made by the assessee, being in the nature of royalty under section 9(1)(vi) of the Act, the assessee was required to deduct tax at source at the rate of 20%. The assessee having failed to do so, the Assessing Officer not only raised demands under section 201(1), but also levied interest under section 201(1A) of the Act. 7. The assessee contested the aforesaid decision of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... usively decided in favour of the assessee by the decision of the Hon ble Jurisdictional High Court in case of CIT Vs. Telstra Singapore Pte. Ltd. While seized with an identical issue relating to taxability of bandwidth charges as royalty income, the Hon ble Jurisdictional court had occasion to interpret the provisions contained under section 9(1)(vi) of the Act and, more specifically, what is meant by secret formula/process etc. as used in Explanation 2, 5 and 6 under section 9(1)(vi) of the Act. After a detailed analysis, the Hon ble Court finally came to the conclusion that bandwidth charges cannot be treated as royalty for use or right to use of an equipment, secret formula or process. The Hon ble Court held that the amendment made to domestic law, cannot automatically be imported to the treaty provisions without making corresponding changes in them. In this context, the following observations of the Hon ble Delhi High Court would be of much relevance: 102. As would be evident from the above, the Court in New Skies Satellite while expressing serious doubt' as to whether the amendments could either be viewed as being clarificatory, ultimately desisted from rendering a conclus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, we have no hesitation in holding that the issues which were sought to be canvassed on these set of appeals stand conclusively answered and settled by this Court in Asia Satellite and New Skies Satellite. Any doubt that could have been possibly harboured with respect to the amendments introduced in Section 9 stand laid to rest by virtue of the binding declaration of the law by the Supreme Court in Engineering Analysis. We also find ourselves unable to either discern a distinction that could be legitimately acknowledged to exist or draw a wedge between satellite and telecom cases as was suggested at the behest of the appellants. We note that the assessments in these cases was based on the decision of the Madras High Court in Verizon and the Special Bench of the Tribunal in New Skies Satellite. The latter decision no longer holds the field having been set aside by our Court in appeal. Insofar as Verizon as an individual assessee is concerned, the issue came to be answered in its favour at least by this Court in Verizone Communications. Although the appellants would contend that the said decision came to be rendered on the basis of a concession made by the appellant there, as we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as being intended to acquire a right in respect of a patent, invention, process or equipment. The word process being liable to be construed ejusdem generis is lent added credence by clause (iii) employing the expression or similar property which follows. It thus clearly appears to be intended to extend to a host of intellectual properties. This we observe only as an aside since the question raised in these appeals stands conclusively answered in any case in light of our conclusions rendered in the context of the extent of the applicability of Section 9 of the Act and the scope of Article 12 of the DTAA as explained in the preceding parts of this judgment. 11. It is clearly discernible from the observations of the Hon ble Jurisdictional High Court in paragraph 106 reproduced above; while interpreting the provisions of Explanations 2 and 6 to section 9(1)(vi) of the Act, the Hon ble Court has held that availing of services provided by the telecom service providers had not accorded a right over the technology possessed or infrastructure by it. The Hon ble Court has further observed that the customer has not been provided a corresponding general or effective control over any intelle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estrictive definition of FTS as per the treaties entered between India and some other OECD countries would apply. Hence, the make available condition provided in treaties between Indian and other OECD countries would apply. After examining the scope of AMC, learned first appellate authority observed that the AMC, per se, is predominantly in the nature of repair/replacement of defective parts. He further observed that the AMC contract nowhere provides for step-by-step training of assesee s resources to resolve the defects. Thus, he held that make available condition would not get satisfied. 15. However, he held that such payments can still be regarded as FTS, if they are ancillary and subsidiary services to the application and enjoyment of the right, property or information for which royalty has been received. Therefore, he directed the Assessing Officer to examine the issue qua the payment made to M/s. Gilat Satellite Network Ltd. As far as payment made to the Swedish entity, learned first appellate authority, after verifying the agreement, held that the service provider was required to provide support services along with sale of software licence. Therefore, the payments made were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able condition in India Israel and India Sweden, such restrictive clause can automatically be applied, the first appellate authority has relied upon certain judicial precedents to accept assessee s contention. It is further relevant to observe that before the departmental authorities, the assessee has never made any substantive argument disputing the nature of service as technical service. In fact, the assessee has taken a stand that since the Assessing Officer has treated the services as technical in nature, therefore, it is incumbent upon him to establish that the make available condition is satisfied. Therefore, to some extent, there was a tacit acceptance by the assessee before the departmental authorities that the services are of technical nature. Though, learned first appellate authority has held that one need not go to examine the applicability of make available condition as payment made would qualify as FTS, being payment made towards services for ancillary and subsidiary to royalty, however, in our view, such finding of learned CIT(A) is without properly examining the nature of services. 20. It will be apt to observe, because of assessee s single dimensional stand taken be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices. It was submitted that since the payment made is taxable as business income at the hands of the recipient, in absence of a PE, it is not taxable in India requiring the assessee to deduct tax. The Assessing Officer, however, did not accept the contentions of the assessee and held that the assessee was liable to deduct tax at source on such fee. While deciding assessee s appeal on the issue, learned first appellate authority held that since the Indian branch of the payee has not played any role in the transaction of arranging loan or reimbursement of interest etc., no part of the receipt towards agency fee can be attributed to the Indian Branches. Therefore, there was no liability on the assessee to deduct tax at source. 26. We have considered rival submissions and perused the materials on record. As could be seen from the observations of learned first appellate authority, he has given a clear factual finding that the payee banks though have branches in India, however, the Indian Branches had not played any role either arranging loan or reimbursement of loan. He has given a finding that the Assessing Officer has not recorded any factual finding regarding the role played by the I ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
