2024 (9) TMI 1827 - HC - Income Tax

Interconnect service charges not 'royalty' for tax purposes; assessment set aside, taxpayer relieved of royalty tax

HC held that interconnect service charges do not constitute royalty. The court, relying on a Co-ordinate Bench decision, concluded such charges fall ... Interconnect service charges - royalty receipt 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. Decided against revenue. Issue framed: whether interconnect service charges paid to non-resident telecom operators constitute 'royalty' for tax deduction purposes. A Co-ordinate Bench held that interconnect service charges do not constitute royalty, and for subsequent assessment years the Revenue 'has reviewed its earlier stand' relying on ITAT precedents (including Viacom) and the fact that tax was not deductible when payments were made to non-resident telecom operators. The decision records: 'In that view of the matter this question also needs to be answered against the Revenue.' The Single Judge applied that Co-ordinate Bench ruling and found no infirmity in the impugned order. On that basis the appeal was dismissed, following the earlier Co-ordinate Bench decision dated 14.07.2023 in ITA No. 160/2015 and connected appeals. Essential legal reasoning: characterization of interconnect service charges as consideration for capacity/technical services (not royalty), reliance on ITAT precedents, and application of precedent by a coordinate bench and the Single Judge.