2019 (3) TMI 1893 - AT - Income Tax

Standby maintenance charges not 'Fee for Technical Services' under Income Tax Act. Indian operation income based on cable length.

The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal. Standby maintenance charges were not considered as 'Fee for ... Taxability of receipts of 'standby maintenance charges' in India - 'Fee for technical services' under section 9(1)(vii) - Appellant submits that the receipt of Standby Maintenance Charges from TCL is not taxable in India as the whole activity have been carried out outside India during the year under consideration - HELD THAT:- As decided in own case [2018 (5) TMI 2070 - ITAT MUMBAI] we notice that in Assessment Years 2001-02 to 2008-09, the Tribunal vide order [2015 (6) TMI 806 - ITAT MUMBAI] has dealt with similar issue, of course qua the revenues earned from “Restoration Services”. On this aspect, the Tribunal held such receipts to be in the nature of “business income‟, and after holding so, the Tribunal went on to deduce the method in terms of which the revenue could be apportioned to India operations in order to determine the income taxable in India. Tribunal deemed it fit to apportion the revenue on the basis of length of cable in the territorial waters of India. Though the decision has been rendered with respect to the restoration activity, so however, the methodology which has been found to be reasonable by the Tribunal is based on the fraction of length of entire cable system connected to India in its territorial waters. Drawing an analogy from the same, in the instant case too, we find that the standby maintenance charges recovered by the assessee from TCL only qua the length of cable in the territorial waters of India needs to be considered for computing the profits or income accruing to the assessee u/s 9(1)(i) Reasoning advanced by the Revenue to the effect that the standby maintenance charges are linked to the cable capacity is of no consequence for the present inasmuch as what is required to be decided is the income attributable to the business connection in India, which possibly is the length of the cable in the territorial waters of India - it is only the revenue from TCL which is on account of standby maintenance charges proportionate to the cable length in India that deserves to be considered for computing the profit or loss from standby maintenance activity attributable to India in terms of Sec. 9(1)(i) of the Act. Therefore, on this aspect, we uphold the plea of the assessee and direct the Assessing Officer to verify the calculation made by the assessee in this regard in its computation of income and recompute the income accordingly. Computation of the income from standby maintenance activities attributable in India - HELD THAT:- We find that the standby maintenance charges recovered by the assessee from TCL only qua the length of cable in the territorial waters of India needs to be considered for computing the profits or income accruing to the assessee u/s 9(1)(i) of the Act. The reasoning advanced by the Revenue to the effect that the standby maintenance charges are linked to the cable capacity is of no consequence for the present inasmuch as what is required to be decided is the income attributable to the business connection in India, which possibly is the length of the cable in the territorial waters of India. Therefore, in our view, it is only the revenue from TCL which is on account of standby maintenance charges proportionate to the cable length in India that deserves to be considered for computing the profit or loss from standby maintenance activity attributable to India in terms of Sec. 9(1)(i) of the Act. Therefore, on this aspect, we uphold the plea of the assessee and direct the Assessing Officer to verify the calculation made by the assessee in this regard in its computation of income and recompute the income accordingly. Thus, on this aspect, assessee succeeds as above. Charging of interest u/s 234B - HELD THAT:- As a settled proposition in terms of the judgment of Hon'ble Bombay High Court in the case of NGC Network Asia LLC, [2009 (1) TMI 174 - BOMBAY HIGH COURT] that there would be no chargeability of interest u/s 234B of the Act as the receipts on account of standby maintenance charges from TCL are subjected to withholding tax u/s 195 of the Act. On this aspect, it was also a common point between the parties that the said proposition has also been affirmed by the Tribunal in assessee’s own case in the orders. Thus, on this aspect, assessee succeeds. Issues Involved:1. Taxability of Standby Maintenance Charges as 'Fee for Technical Services' under Section 9(1)(vii) of the Income Tax Act, 1961.2. Attribution of Standby Maintenance Charges to Indian operations.3. Charging of interest under Section 234B of the Income Tax Act, 1961.Detailed Analysis:1. Taxability of Standby Maintenance Charges as 'Fee for Technical Services' under Section 9(1)(vii) of the Income Tax Act, 1961:The Revenue contended that the amount of Rs. 10,48,73,710 paid to the assessee as standby maintenance charges was in the nature of 'Fee for Technical Services' (FTS) under Section 9(1)(vii) of the Income Tax Act, 1961. The CIT(A) concluded that the amount was not FTS, as no services were rendered during the year. The Tribunal upheld the CIT(A)'s decision, referencing earlier Tribunal decisions in the assessee's own case for the years 1998-99 to 2000-01 and 2001-02 to 2008-09, which held that standby maintenance charges were not FTS. The Tribunal emphasized that standby maintenance charges were for maintaining infrastructure, not for actual services rendered, and were in the nature of reimbursement of fixed costs without any profit element.2. Attribution of Standby Maintenance Charges to Indian Operations:The assessee argued that the standby maintenance charges should be apportioned based on the length of the cable in Indian territorial waters vis-a-vis the total length worldwide. The CIT(A) disagreed, stating that the entire turnover (receipts from the Indian landing party, TCL) should be treated as turnover for the purpose of computing income attributable to business connection in India. The Tribunal, following its earlier decision, held that the revenue from TCL should be apportioned based on the length of cable in the territorial waters of India to compute the profit or loss attributable to India under Section 9(1)(i) of the Act. The Tribunal directed the Assessing Officer to verify the calculation made by the assessee and recompute the income accordingly.3. Charging of Interest under Section 234B of the Income Tax Act, 1961:The assessee contended that interest under Section 234B should not be charged, as the receipts from TCL were subjected to withholding tax under Section 195 of the Act. The Tribunal, referencing the Bombay High Court judgment in NGC Network Asia LLC and its own earlier decisions, held that no interest under Section 234B could be charged in this case, as tax was duly deducted.Conclusion:The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's appeal. The standby maintenance charges were not considered as FTS, the income attributable to Indian operations was to be computed based on the length of the cable in Indian territorial waters, and no interest under Section 234B was to be charged.