No accrual-based tax on royalty and interconnect charges paid to non-resident telecom operator when factual position unchallenged

The HC upheld that royalty/interconnect service charge receipts paid to a non-resident telecom operator do not attract accrual-based taxation in India where payment circumstances mirror the precedent, and the factual position that tax was not deductible on such payments was unchallenged. The court found no infirmity in the impugned orders, applying the earlier authority and dismissing the challenge to the assessment treatment of those cross-border telecom payments.

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Issues: Whether interconnect service charges paid to a non-resident telecom operator amount to royalty for tax purposes.

Analysis: The issue was considered on the facts and applicable law, including earlier decisions on taxation of payments to non-resident telecom operators. The decision of a Co-ordinate Bench in ITA No. 160/2015 and connected appeals dated 14.07.2023, which addressed whether payments for providing interconnect services and transfer of capacity abroad constitute royalty, concluded they do not. The present appeal follows and applies that reasoning to the payments in question, noting that the factual position concerning non-resident interconnect services in subsequent assessment years was not disputed and that the Revenue had reviewed its earlier stand in light of the cited tribunal decisions.

Conclusion: Interconnect service charges paid to the non-resident telecom operator do not constitute royalty; decision is in favour of the assessee.

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