Telecom service receipts not taxable as royalty or technical fees where no equipment rights, know-how transfer, or India-sourced income arose.

Receipts from interconnectivity and international private leased circuit services were treated as non-taxable in India because they did not constitute royalty or fees for technical services. The Tribunal applied earlier co-ordinate bench and jurisdictional High Court rulings, noting that the services were standard telecom services rendered outside India, involved no transfer of rights in equipment or process, gave no right to use equipment, and did not make available technical knowledge, skill, experience, know-how, or processes. The treaty definition was treated as more restrictive and therefore prevailed where beneficial. Section 5(2) was also rejected because the income arose from services performed outside India.

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Issues: (i) Whether receipts from provision of interconnectivity services and international private leased circuit services were taxable as royalty, fees for technical services, or under section 5(2) of the Income-tax Act, 1961.

Analysis: The Tribunal followed its earlier decision in a materially identical matter and the jurisdictional High Court rulings on similar telecom receipts. It noted that the services were standard telecom services rendered outside India, with no transfer of rights in equipment or process, no use or right to use any equipment by the Indian customers, and no making available of technical knowledge, skill, experience, know-how, or processes. The deeming provisions for royalty and fees for technical services were held inapplicable on the facts, and the treaty definition was treated as more restrictive and therefore controlling where beneficial. The alternative reliance on section 5(2) was also rejected because the income was held to arise from services performed outside India.

Conclusion: The receipts were held not taxable in India as royalty, fees for technical services, or under section 5(2), and this issue was decided in favour of the assessee.

Ratio Decidendi: Standard telecom connectivity services rendered outside India, without transfer of rights, use of equipment, or making available of technical knowledge, do not constitute royalty or fees for technical services, and such receipts are not taxable in India merely because the payer is in India.

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