2024 (9) TMI 1675 - HC - Income Tax

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 ... Accrual of income in India or not? - royalty income - interconnect service charges - HELD THAT:- As decided in M/S. VODAFONE IDEA LIMITED [2023 (7) TMI 1164 - KARNATAKA HIGH COURT] held that tax is not deductable when payment is made to non-resident telecom operator. This factual aspect is not refuted. No infirmity in the orders under challenge. 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.