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of <h1>Inter-connect Charges from Indian Telecoms Not Taxable as 'Royalty' Under India-Spain DTAA; Ruled as Business Profits.</h1> <h3>M/s. Telefonica Depreciation Espana SA, C/o. BSR & Co. LLP Versus The ACIT (IT) /DCIT (IT), Circle – 2 (2), Bangalore.</h3> M/s. Telefonica Depreciation Espana SA, C/o. BSR & Co. LLP Versus The ACIT (IT) /DCIT (IT), Circle – 2 (2), Bangalore. - [2024] 118 ITR (Trib) 302 (ITAT ... Issues Involved:1. Lack of jurisdiction of AO to pass Order2. Challenging the Re-assessment Proceedings/order u/s 1473. Main Grounds - Taxability of inter-connect charges u/s 9(1)(vi) & (vii) of the Act (as 'royalty' and 'fees for technical services') and under Article 13 of India-Spain DTAA4. Interest under section 234A, 234B & 234C5. General groundsSummary:1. Lack of Jurisdiction of AO to Pass Order:The assessee did not press this issue for AY 2010-11 and AY 2011-12.2. Challenging the Re-assessment Proceedings/order u/s 147:This issue was not pressed by the assessee for AY 2010-11, AY 2011-12, and AY 2012-13.3. Main Grounds - Taxability of Inter-connect Charges:The primary issue revolved around whether the inter-connect charges (IUC) received by the assessee from Indian telecom operators could be taxed as 'royalty' or 'fees for technical services' (FTS) under Section 9(1)(vi) & (vii) of the Act and Article 13 of the India-Spain DTAA. The Tribunal held that:- The payments received by the assessee towards interconnectivity utility charges cannot be considered as royalty or FTS to be taxed in India.- The term 'process' under Explanation 2 to Section 9(1)(vi) implies intellectual property and does not include publicly available processes.- The insertion of Explanation 5 & 6 by the Finance Act, 2012, which expanded the definition of 'process', does not affect the definition of 'royalty' under the DTAA.- The Tribunal referred to several decisions, including the Karnataka High Court's ruling in Vodafone South Ltd., which supported the assessee's stance.- The Tribunal concluded that the IUC charges are business profits of the assessee, taxable in the resident country (Spain) and not in India, as there is no permanent establishment of the assessee in India.4. Interest under Section 234A, 234B & 234C:The Tribunal noted that the interest computed under these sections is consequential to the main issue on merits and thus did not require separate adjudication.5. General Grounds:The general grounds raised in the appeals were considered non-substantial and did not require adjudication.Conclusion:The appeals filed by the assessee were partly allowed, with the main issue regarding the taxability of inter-connect charges decided in favor of the assessee, and the other grounds either dismissed as not pressed or deemed consequential. Order pronounced in the open court on 10th August, 2023.
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