2024 (9) TMI 1812 - HC - Income Tax

Interconnect service charges and capacity transfer payments to non-resident telecom operator are not royalties; no TDS required

HC held that interconnect service charges and capacity transfer payments made to a non-resident telecom operator do not constitute royalty and are not ... Interconnect service charges paid would amount to royalty - whether the payments made to NTOS for providing interconnect services and transfer of capacity in foreign countries is chargeable to tax as royalty? - HELD THAT:- The above issue was considered by a Co-ordinate Bench of this court in M/S. VODAFONE IDEA LIMITED [2023 (7) TMI 1164 - KARNATAKA HIGH COURT] as held tax is not deductable when payment is made to non-resident telecom operator. This factual aspect is not refuted. This question also needs to be answered against the Revenue. Learned Single Judge has also placed reliance on the above decision of the Co-ordinate Bench. Therefore, we do not find any infirmity in the order under challenge. The sole issue is whether interconnect service charges paid to non-resident telecom operators constitute 'royalty.' A Co-ordinate Bench in ITA No.160/2015 (14.07.2023) held that interconnect service charges do not constitute royalty, observing: '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... This question also needs to be answered against the Revenue.' That decision noted the ITAT's earlier findings (including reliance on Viacom) and the Revenue's revised position for subsequent assessment years. The Single Judge relied on that Co-ordinate Bench ruling. Applying that precedent, the impugned order was affirmed and the appeal dismissed, concluding that payments for interconnect services are not taxable as royalty.