2024 (9) TMI 1815 - HC - Income Tax

Interconnect service charges paid to non-residents are not 'royalty' and are taxable as telecommunications service fees

The Deputy Commissioner of Income Tax International Taxation, Circle 2 (2), Bengaluru, The Commissioner of Income Tax International Taxation, The Central Board of Direct Taxes New Delhi Versus Orange 78 Rue Olivairer De Serres Paris (France) Rep. By Its Authorized Signatory Vodafone Idea Limited, Vodafone Idea Limited,

HC held that interconnect service charges paid to non-residents do not constitute 'royalty' for accrual of income in India. A Co-ordinate Bench ruled such ... Accrual of income in India - 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 ITA.No.160/2015 and connected appeals. By judgment VODAFONE IDEA LIMITED (FORMERLY KNOWN AS M/S. VODAFONE MOBILE SERVICES LTD.) [2023 (7) TMI 1164 - KARNATAKA HIGH COURT] it is held that interconnect service charges would not constitute royalty. The sole issue is whether interconnect service charges paid by a taxpayer constitute 'royalty.' A Co-ordinate Bench previously held (14.07.2023, ITA No.160/2015 and connected appeals) that such interconnect service charges do not amount to royalty. The judgment noted that the Tribunal (ITAT) in subsequent assessment years had held tax was not deductible when payments were made to non-resident telecom operators and that the Revenue had reviewed its earlier stand, relying on Viacom and related ITAT decisions. The court reproduced Paragraph No. 21: '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 relied on that decision; the appeal was dismissed.