Standby maintenance revenues classified as business income, not taxable as FTS. Assessing Officer to apportion restoration income.

The Tribunal determined that standby maintenance revenues are not taxable as Fees for Technical Services (FTS) but as business income. Income from restoration activities was classified as business income, with only a portion attributed to India. The assessee was not liable for interest under section 234B but was liable for interest under section 234D. The Tribunal directed the Assessing Officer to apportion the income from restoration activities based on the length of the cable in Indian territorial waters for the relevant assessment years.

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Issues Involved:
1. Taxability of income from standby maintenance revenues as 'Fees for Technical Services' (FTS) under section 9(1)(vii) of the Income Tax Act, 1961.
2. Taxability of income from restoration activity as FTS or business income under section 9(1)(i) of the Act.
3. Liability to pay interest under section 234B of the Act.
4. Liability to pay interest under section 234D of the Act.

Detailed Analysis:

1. Taxability of Income from Standby Maintenance Revenues as FTS
The primary issue was whether the standby maintenance revenues earned by the assessee are taxable in India as 'Fees for Technical Services' under section 9(1)(vii) of the Income Tax Act, 1961. The assessee argued that these revenues should not be classified as FTS since they do not involve the actual rendering of technical services but are merely for maintaining infrastructure for potential future use. The Tribunal agreed with the assessee, referencing its decision from earlier years (1998-99 to 2000-01), which held that standby maintenance charges do not constitute technical services as defined under section 9(1)(vii). The Tribunal emphasized that there was no actual rendering of services, no mark-up, and the charges were in the nature of reimbursement of fixed costs.

2. Taxability of Income from Restoration Activity
The second issue was whether the income from restoration activities should be taxed as FTS or business income. The Tribunal held that the restoration activities did not constitute technical services since they did not involve any managerial, technical, or consultancy services as defined in Explanation 2 to section 9(1)(vii). Instead, the Tribunal classified these revenues as business income under section 9(1)(i) because the assessee was merely providing a standard facility for carrying telecommunication traffic. However, the Tribunal also noted that only a portion of the cable system falls within Indian territorial waters, and therefore, only a fraction of the income should be attributed to operations in India. The Tribunal directed the Assessing Officer (AO) to apportion the income based on the length of the cable in Indian territorial waters.

3. Liability to Pay Interest under Section 234B
The Tribunal followed its earlier decision and the jurisdictional High Court's ruling in DIT vs NGC Network Asia LLC (313 ITR 187), concluding that the assessee was not liable to pay interest under section 234B.

4. Liability to Pay Interest under Section 234D
The Tribunal accepted that the levy of interest under section 234D was applicable, as confirmed by the Hon'ble Bombay High Court in CIT vs. Indian Oil Corporation Ltd. (2012) 25 Taxmann.com 284.

Consolidated Judgment:
The Tribunal's consolidated order for the assessment years 2001-02 to 2008-09 held that:
- Standby maintenance revenues are not taxable as FTS but as business income.
- Restoration activity revenues are business income, with only a portion attributable to India.
- The assessee is not liable for interest under section 234B.
- The assessee is liable for interest under section 234D.

The Tribunal directed the AO to verify and apportion the income from restoration activities based on the length of the cable in Indian territorial waters. The findings for the assessment year 2001-02 were applied mutatis mutandis to the subsequent years.

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