Tribunal: No Tax Withholding on Payments to Singapore Entity

Assistant Commissioner of Income-tax (IT) – 4 (1) (1), Mumbai Versus Reliance Jio Infocomm Ltd

Assistant Commissioner of Income-tax (IT) – 4 (1) (1), Mumbai Versus Reliance Jio Infocomm Ltd - TMI Issues Involved:
1. Tax withholding obligation on payments for bandwidth services under Section 195 of the Income Tax Act, 1961.
2. Interpretation of the term 'royalty' under Section 9(1)(vi) of the Income Tax Act and Article 12 of the India-Singapore DTAA.
3. Applicability of Explanation 5 and 6 to Section 9(1)(vi) in the context of the India-Singapore DTAA.
4. Taxability of payments for Operations and Maintenance (O&M) services as fees for technical services under Section 9(1)(vii) of the Income Tax Act and Article 12 of the India-Singapore DTAA.

Detailed Analysis:

1. Tax Withholding Obligation on Payments for Bandwidth Services:
The Assessing Officer challenged the CIT(A)'s decision that tax was not required to be deducted at source on payments made by the assessee to Reliance JioInfocomm Pte Limited, Singapore (RJIPL) for bandwidth services. The CIT(A) held that these payments did not constitute 'royalty' under Section 9(1)(vi) of the Income Tax Act, 1961, or Article 12 of the India-Singapore DTAA. The Tribunal found that this issue was already covered in the assessee's favor by a coordinate bench decision in ITA Nos. 6331 to 6334/Mum/2018, dated 15th November 2019.

2. Interpretation of the Term 'Royalty':
The Tribunal examined whether the payments for bandwidth services could be considered 'royalty' under the India-Singapore DTAA. The CIT(A) concluded that the payments did not amount to royalty because the assessee only received access to services and not to any equipment or process. The Tribunal upheld this view, noting that the term 'royalty' under the India-Singapore DTAA is narrower than under the Income Tax Act. The Tribunal also emphasized that amendments in the Act cannot be read into the treaty provisions without amending the treaty itself.

3. Applicability of Explanation 5 and 6 to Section 9(1)(vi):
The Tribunal addressed the Departmental Representative's argument that Explanation 5 and 6 to Section 9(1)(vi) should be applied to interpret the term 'process' in the India-Singapore DTAA. The Tribunal rejected this argument, stating that the term 'process' is not a treaty term per se but a word used in defining 'royalty'. The Tribunal held that the domestic law definition of 'process' cannot be imported into the treaty under Article 3(2) of the DTAA. The Tribunal also discussed the concept of static vs. ambulatory interpretation and concluded that the retrospective amendments in domestic law could not override the treaty provisions.

4. Taxability of Payments for Operations and Maintenance (O&M) Services:
The Tribunal examined whether payments for O&M services could be considered fees for technical services under Section 9(1)(vii) of the Income Tax Act and Article 12 of the India-Singapore DTAA. The CIT(A) had held that these payments did not make available technical knowledge, experience, skill, know-how, or processes to the assessee, and thus could not be classified as fees for technical services. The Tribunal upheld this view, noting that the services were routine maintenance and did not involve any transfer of technology. The Tribunal also pointed out that in the absence of a Permanent Establishment (PE) in India, the business profits of RJIPL could not be taxed in India under Article 7 of the DTAA.

Conclusion:
The Tribunal dismissed the appeal, upholding the CIT(A)'s decision on all grounds. The payments made by the assessee to RJIPL for bandwidth services and O&M services were not subject to tax withholding under Section 195, as they did not constitute 'royalty' or 'fees for technical services' under the India-Singapore DTAA. The Tribunal emphasized the importance of treaty provisions and rejected the application of domestic law amendments to override the treaty.