2024 (3) TMI 1476 - HC - Income Tax

Interconnect service charges are not royalties, treated as service receipts rather than payments for intellectual property use

THE DEPUTY COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION, CIRCLE-2 (1), BENGALURU Versus M/s DEUTSCHE TELEKOM AG

The HC held that interconnect service charges do not constitute royalty. A Co-ordinate Bench of the court considered the issue and concluded that such ... Interconnect service charges paid would amount to royalty or not? - HELD THAT:- The above issue was considered by a Co-ordinate Bench of this court in [2023 (7) TMI 1164 - KARNATAKA HIGH COURT] it is held that interconnect service charges would not constitute royalty. Issue framed: whether interconnect service charges paid constitute 'royalty.' A Co-ordinate Bench previously held that interconnect service charges do not constitute royalty, relying on factual findings that the ITAT in the assessee's subsequent years had held tax was not deductible when payment was made to a non-resident telecom operator and that Revenue had 'reviewed its earlier stand for the subsequent assessment years placing reliance on Viacom etc35.' The judgment records: 'The third question is, whether the payments made to NTOS for providing interconnect services and transfer of capacity in foreign countries is chargeable to tax as royalty. It was argued by Shri.Pardiwala, that for subsequent years in assessee's own case, the ITAT has held that tax is not deductable when payment is made to non-resident telecom operator. This factual aspect is not refuted. Thus the Revenue has reviewed its earlier stand for the subsequent assessment years placing reliance on Viacom etc35, rendered by the ITAT. In that view of the matter this question also needs to be answered against the Revenue.' The Single Judge followed that Co-ordinate Bench decision; the appeal was dismissed.