TaxTMI 
TaxTMI 
2019 (12) TMI 206
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.... six appeals include one duplicate appeal because for A. Ys. 2013 - 14 & 2014 - 15, the revenue earlier filed one appeal only i.e. ITA No. 1367/Bang/2015 but later filed two separate appeals in ITA No. 1176 & 1177/Bang/2017 and all three are heard together. These three appeals have arisen out of a combined rectification order dated 12.05.2015 passed by the AO for these two years. Remaining three appeals of the revenue are for A. Ys. 2013 - 14 to 2015 - 16. 2. All these appeals were heard together along with three Stay Petitions and all these are disposed of by this common order for convenience. 3. Relevant brief facts are that in the three appeals of the assessee for A. Ys. 2013 - 14 to 2015 - 16, the issue in dispute is about the liability of the assessee to deduct TDS from IUC/bandwidth Charges paid to foreign carriers. The department has held that these payments are taxable in the hands of the recipients both as Royalty as well as FTS and therefore, the assessee was liable to deduct TDS and since, the assessee has not done so, demand is raised u/s 201 (1) and 201 (1A). 4. In A.Ys. 2008 - 09 to 2012 - 13, the stand of the department was same but as per an earlier tribunal ord....
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....acts and circumstances of the case and in law, the learned CIT(A) has erred in holding that IUC and bandwidth payments made by the Appellant to the foreign carriers qualify as 'royalty' as defined in Explanation 2 to section 9( 1 ) (vi) of the Act. 3.1.1 The learned CIT(A) has erred in holding that provision of interconnect services and bandwidth by the foreign carriers results in 'use of or 'transfer of right to use' the process belonging to the foreign carriers by the Appellant and hence, IUC and bandwidth payments qualify as a royalty under clause (i) and (iii) of Explanation 2 to section 9(1 )(vi) of the Act. 3.1.2 The learned CIT(A) has erred in holding that provision of interconnect services and bandwidth by the foreign carriers result in 'use of equipment belonging to the foreign carriers by the Appellant and hence, IUC and bandwidth payments qualify as royalty under clause (iva) of Explanation 2 to section 9( 1 )(vi) of the Act. 3.1.3 The learned CIT(A) has erred in upholding the order of the learned Tax Officer treating the IUC and bandwidth payments as royalty under the amended provisions of section 9(1)(vi) of the Act, despite the fact that ....
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....har Shipping Corporation Ltd. 38 taxmann.com 150. 4. Ground No. 4 - Non characterization of IUC and bandwidth payments as Fee for Technical Services (`FTS')/ Fee for Included Services (`FIS') 4.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned Tax Officer holding that IUC and bandwidth payments qualify as FTS as defined under section 9(1)(vii) of the Act. 4.2 Without prejudice to ground 4.1 above, on the facts and circumstances of the case and in law, the learned CIT(A)/ Tax Officer has erred in not holding that IUC and bandwidth payments are made in relation to the business carried on the by the Appellant outside India and hence, even if construed as FTS under the Act, such payments cannot be taxed in India by virtue of section 9(1)(vii)(b) of the Act. 4.3 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned Tax Officer holding that IUC and bandwidth payments qualify as FTS/ FIS as defined under the respective DTAAs. 4.4 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not taking cogni....
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....le for payment of the tax demand in cases involving non-deduction of tax at source and only interest liability under section 201(1A) of the Act, if any, can be levied in such cases. 6. Ground No. 6 - Non-applicability of section 206AA of the Act 6.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned Tax Officer holding that section 206AA overrides the provisions of the DTAAs and hence, should be applied even in case of payments made to foreign carriers, which are covered by the applicable DTAAs. The Appellant craves leave to add, alter, amend or withdraw any of the above grounds at or before the hearing of the appeal." IT(IT)A No. 1161/Bang/2015:- (By Assessee -Assessment Year: 2014-15) "The Appellant respectfully submits that: On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax Appeals - 12, Bengaluru ['learned CIT(A)'] has erred in passing an order under section 250 of the Income Tax Act, 1961 (`Act'), confirming the allegation of the Deputy Director of Income Tax, International Tax, Circle 1(1), Bengaluru (` learned Tax Officer'). Each of ....
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.... Tax Officer has erred in not appreciating that IUC and bandwidth payments are made in relation to the business carried on the by the Appellant outside India and hence, even if construed as royalty under the Act, such payments cannot be taxed in India by virtue of section 9( 1 )(vi)(b) of the Act. 3.3 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned Tax Officer holding that IUC and bandwidth payments made by Appellant qualify as 'royalty' as defined under the applicable Double Taxation Avoidance Agreements (`DTAA') entered into between India and the country of residence of the foreign carriers. 3.3.1 The learned CIT(A) has erred in upholding the order of the learned Tax Officer holding that services provided by the foreign carriers to the Appellant involve 'use of the process belonging to such foreign carriers by the Appellant. 3.3.2 Without prejudice to ground 3.3.1 above, the learned CIT(A) has erred in not taking cognizance of the fact that there needs to be 'use of a secret process' for the payments to qualify as royalty for use of a process under the applicable DTAAs. 3.3.3....
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....s and circumstances of the case and in law, the learned CIT(A)/ Tax Officer has erred in not holding that provision of interconnect services and bandwidth is a standard facility and hence, IUC and bandwidth payments cannot be construed as FTS/ FIS either under the Act or under the applicable DTAAs. 4.6 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned Tax Officer holding that provision of interconnect services and bandwidth 'make available' technical knowledge, skill, know-how, process etc. to the Appellant and hence, IUC and bandwidth payments qualify as FTS/ FIS under the DTAAs, which contain a 'make available' clause in the definition of FTS/FIS. 4.7 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned Tax Officer holding that provision of interconnect services and bandwidth consists of development and transfer of a technical plan or design by the foreign carriers to the Appellant and hence, IUC and bandwidth payments qualify as FTS/ FIS under the respective DTAAs, which include payments made for the aforesaid activity w....
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....1(1), Bengaluru (`learned Tax Officer'). Each of the ground is referred to separately, which may kindly be considered independent of each other. 1. Ground No. 1- The impugned order passed by learned CIT(A) and also the order passed by the learned Tax Officer is bad in law and hence, void-ab-initio 1.1 On the facts and circumstances of the case and in law, and in view of the judgment of Hon'ble Supreme Court in the case of CIT Vs Spice Infotainment (CA 285 of 2014), the impugned order and also the order passed by the learned Tax Officer is 'bad in law' and 'void-ab-initio' since the same has been passed in the name of Vodafone South Limited which did not exist as on the date on which the orders were passed. 1.2 Without prejudice to ground No 1.1 above, the order passed by the learned CIT(A) is bad in law since the learned CIT(A) has held that payments are liable for tax withholding despite the favourable ruling of the Hon'ble Delhi Bench of the Tribunal in the case of Bharti Airtel Limited (178 TTJ 708 -dated March 17, 2016), wherein it has been held that interconnect charges paid to foreign carriers are not subject to tax withholding under sectio....
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....planation 2 to section 9(1)(vi) of the Act. 5.2.1 The learned CIT(A) has erred in holding that provision of interconnect services and bandwidth by the foreign carriers results in 'use of or 'transfer of right to use' the process belonging to the foreign carriers by the Appellant and hence, interconnect charges and bandwidth payments qualify as a royalty under clause (i) and (iii) of Explanation 2 to section 9(1)(vi) of the Act. 5.2.2 The learned CIT(A) has erred in holding that provision of interconnect services and bandwidth by the foreign carriers results in 'use of' equipment belonging to the foreign carriers by the Appellant and hence, interconnect charges and bandwidth payments qualify as royalty under clause (iva) of Explanation 2 to section 9(1)(vi) of the Act. 5.2.3 The learned CIT(A) has erred in upholding the order of the learned Tax Officer treating the interconnect charges and bandwidth payments as royalty under the amended provisions of section 9(1)(vi) of the Act, despite the fact that the amendments are unconstitutional and hence, cannot be relied upon in determining the characterization of these payments. 5.3 Without prejudice to ground 5....
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....ect and bandwidth payments qualify as FTS as defined under section 9(1)(vii) of the Act. 6.2 Without prejudice to ground 6.1 above, on the facts and circumstances of the case and in law, the learned CIT(A)/ Tax Officer has erred in not holding that interconnect and bandwidth payments are made in relation to the business carried on the by the Appellant outside India and hence, even if construed as FTS under the Act, such payments cannot be taxed in India by virtue of section 9(l)(vii)(b) of the Act. 6.3 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned Tax Officer holding that interconnect and bandwidth payments qualify as FTS/ FIS as defined under the respective DTAAs. 6.4 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not taking cognizance of the fact that provision of interconnect and bandwidth services does not involve 'human intervention' and hence, interconnect and bandwidth payments do not qualify as FTS/ FIS for the purposes of the Act or the applicable DTAAs. 6.5 On the facts and circumstances of the case and in law, the learned CIT(A)/ Tax Officer....
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....n cases involving non-deduction of tax at source and only interest liability under section 201(1A) of the Act, if any, can be levied in such cases. The Appellant craves leave to add, alter, amend or withdraw any of the above grounds at or before the hearing of the appeal." IT(IT)A No. 1367/Bang/2015:- (By Revenue -Assessment Year: 2013-14) "1. The Ld. CIT(A)-I V has upheld the view of the AO that IUC and capacity transfer payment made by VSL accrue or arise in India and ought to be taxed in the source country, as it is the source country which provides the opportunity to generate such income or profits. 2. The Ld. CIT(A) has opined that having held the payments taxable as royalty u/s 9(1)(w) and FTS u/s.9(i)(vii), it is not open for him to adjudicate on the taxability of the same income under the other sections of the Income Tax Act, 1961. 3. The Ld. CIT(A) has opined that the 'other income' or the 'residuary income' clause of the DTAA 's is triggered only when the payments received by a non resident does not get covered by any other article of the DTAA." IT(IT)A No. 1176/Bang/2017:- (By Revenue -Assessment Year: 2013-14) "6. The order of the learned....
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....source country which provides the opportunity to generate such income or profits. 2. The Ld. CIT(A) has opined that having held the payments taxable as royalty u/s 9(1)(vi) and FTS u/s.9(i)(vii), it is not open for him to adjudicate on the taxability of the same income under the other sections of the Income Tax Act, 1961. 3. The Ld.CIT(A) has opined that the 'other income' or the 'residuary income' clause of the DTAA 's is triggered only when the payments received by a non resident does not get covered by any other article of the DTAA." IT(IT)A No. 1313/Bang/2016:- (By Revenue -Assessment Year: 2014-15) "1. The Ld.CIT(A)-IV has upheld the view of the AO that IUC and capacity transfer payment made by VSL accrue or arise in India and ought to be taxed in the source country, as it is the source country which provides the opportunity to generate such income or profits. 2. The Ld. CIT(A) has opined that having held the payments taxable as royalty u/s 9(1)(w) and FTS u/s.9(i)(vii), it is not open for him to adjudicate on the taxability of the same income under the other sections of the Income Tax Act, 1961. 3. The Ld. CIT(A) has opined that the 'other i....
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..... 8. For that, in the facts and circumstances of the case, the Ld. CIT (Appeals) erred in law as well as on facts in holding that, the tax payable by a UK tax resident on royalties / FTS earned from India cannot exceed 15% in view of Article 13(3) of India-UK Tax Treaty and accordingly that, the withholding tax liability of the taxpayer can also not exceed 15% of the Royalty / FTS amount. 9. For that, any other ground or grounds may be allowed to be taken up at the time of hearing." IT(IT)A No. 2469/Bang/2018:- (By Assessee-Assessment Year: 2008-09) "The Appellant respectfully submits that: On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax Appeals - 12, Bengaluru [learned CIT(A)'] has erred in passing an order under section 254 read with section 250 of the Income Tax Act, 1961 (`Ace), confirming the order of the Deputy Director of Income Tax, International Tax, Circle 1(1), Bengaluru (`learned Tax Officer'). Each of the ground is referred to separately, which may kindly be considered independent of each other. 1. Ground No. 1- The impugned order passed by learned CIT(A) is bad in law and hence, void-ab-initio 1.1 On....
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....ransfer payments qualify as FTS/ FIS as defined under the respective Double Taxation Avoidance Agreements ('DTAAs'). 3.4 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that provision of interconnect services and transfer of capacity involve 'human intervention' and hence, IUC and capacity transfer payments qualify as FTS/ FIS for the purposes of the Act or the applicable DTAAs. 3.5 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned Tax Officer holding that provision of interconnect services and transfer of capacity 'make available' technical knowledge, skill, know-how, process etc. to the Appellant and hence, IUC and capacity transfer payments qualify as FTS/ FIS under the DTAAs, which contain a 'make available' clause in the definition of FTS/FIS. 3.6 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned Tax Officer holding that provision of interconnect services and transfer of capacity consists of development and transfer of a technical plan or design by the....
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.... Circle 1(1), Bengaluru (`learned Tax Officer'). Each of the ground is referred to separately, which may kindly be considered independent of each other. 1. Ground No. 1- The impugned order passed by learned CIT(A) is bad in law and hence, void-ab-initio 1.1 On the facts and circumstances of the case and in law, and in view of the judgment of Hon'ble Supreme Court in the case of CIT Vs Spice Infotainment (CA 285 of 2014), the impugned order is 'bad in law' and 'void-ab-initio' since the same has been passed in the name of 'Vodafone South Limited' which did not exist as on the date on which the impugned order was passed. 1.2 Without prejudice to ground No 1.1 above, the order passed by the learned CIT(A) is bad in law since the learned CIT(A) has held that payments towards Interconnect Usage Charges (IUC) qualify as Fee for Technical Services ('FTS')/ Fee for Included Services ('FIS') despite the favourable ruling of the Hon'ble Delhi Bench of the Tribunal in the case of Bharti Airtel Limited (178 TTJ 708 - dated March 17, 2016), wherein it has been specifically held that IUC paid to foreign carriers do not qualify as FTS/ F....
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.... facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned Tax Officer holding that provision of interconnect services and transfer of capacity consists of development and transfer of a technical plan or design by the foreign carriers to the Appellant and hence, IUC and capacity transfer payments qualify as FTS/ FIS under the respective DTAAs, which include payments made for the aforesaid activity within the ambit of FTS/ FIS. 3.7 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in relying on its orders passed for Financial Years 2012-13 and 2013-14, wherein it has been held that where the DTAAs do not have a clause governing taxability of FTS/ FIS, provisions of the Act apply, without appreciating the fact that in such cases, the relevant Article of the DTAA dealing with taxation of Business Profits is applicable. 3.8 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in not following the binding decision of the Jurisdictional High Court in the case of Vodafone South Limited (now known as Vodafone Mobile Services Limited) (241 Taxmann 497), wherein the H....
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....ces (`FIS') despite the favourable ruling of the Hon'ble Delhi Bench of the Tribunal in the case of Bharti Airtel Limited (178 TTJ 708 - dated March 17, 2016), wherein it has been specifically held that IUC paid to foreign carriers do not qualify as FTS/ FIS, which has not been challenged by the Revenue Department and thus, has been accepted. 2. Ground No. 2 - Payments not liable to tax deduction at source 2.1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding the Appellant to be an `assessee-in-default' under section 201 of the Act for non-deduction of tax at source under section 195 of the Act on IUC and capacity transfer payments made to foreign carriers. 3. Ground No. 3 - Non characterization of interconnect and capacity transfer payments as Fee for Technical Services (`FTS')/ Fee for Included Services (`FIS') 3.1 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned Tax Officer holding that IUC and capacity transfer payments qualify as FTS as defined under section 9(1)(vii) of the Act. 3.2 Without prejudice to ground 3.1 above, on the f....
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....ts and circumstances of the case and in law, the learned CIT(A) has erred in not following the binding decision of the Jurisdictional High Court in the case of Vodafone South Limited (now known as Vodafone Mobile Services Limited) (241 Taxmann 497), wherein the Hon'ble High Court has held that roaming charges (similar to carrier charges) paid to domestic telecom operators cannot be termed as 'technical services' and decision of the Hon'ble Delhi Tribunal in the case of Bharti Airtel Limited, wherein it has been held that IUC payments made to foreign carriers do not qualify as FTS/ FIS. 4. Ground No. 4 - Withholding tax liability under section 201 of the Act cannot be recovered from the Appellant 4.1 Without prejudice to Grounds 1 to 3 above, on the facts and circumstances of the case and in law, the learned Tax Officer has erred in raising tax demand under section 201 of the Act without taking cognizance of the fact that the payer cannot be held liable for payment of the tax demand in cases involving non-deduction of tax at source and only interest liability under section 201(1A) of the Act, if any, can be levied in such cases. The Appellant craves leave to ad....
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.... case and in law, the learned CIT(A) has erred in upholding the order of the learned Tax Officer holding that IUC and capacity transfer payments qualify as FTS as defined under section 9(1)(vii) of the Act. 3.2 Without prejudice to ground 3.1 above, on the facts and circumstances of the case and in law, the learned CIT(A)/ learned Tax Officer has erred in not holding that IUC and capacity transfer payments are made in relation to the business carried on the by the Appellant outside India and hence, even if construed as FTS under the Act, such payments cannot be taxed in India by virtue of section 9(1)(vii)(b) of the Act. 3.3 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned Tax Officer holding that IUC and capacity transfer payments qualify as FTS/ FIS as defined under the respective Double Taxation Avoidance Agreements (`DTAAs'). 3.4 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in holding that provision of interconnect services and transfer of capacity involve 'human intervention' and hence, IUC and capacity transfer payments qualify as FTS/ FIS for the ....
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....of the fact that the payer cannot be held liable for payment of the tax demand in cases involving non-deduction of tax at source and only interest liability under section 201(1A) of the Act, if any, can be levied in such cases. The Appellant craves leave to add, alter, amend or withdraw any of the above grounds at or before the hearing of the appeal." IT(IT)A No. 2473/Bang/2018:- (By Assessee-Assessment Year: 2012-13) "The Appellant respectfully submits that: On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax Appeals - 12, Bengaluru ['learned CIT(A)'] has erred in passing an order under section 254 read with section 250 of the Income Tax Act, 1961 (Vice), confirming the order of the Deputy Director of Income Tax, International Tax, Circle 1(1), Bengaluru (`learned Tax Officer'). Each of the ground is referred to separately, which may kindly be considered independent of each other. 1. Ground No. 1- The impugned order passed by learned CIT(A) is bid in law and hence, void-ab-initio 1.1 On the facts and circumstances of the case and in law, and in view of the judgment of Hon'ble Supreme Court in the case of CIT Vs....
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....acts and circumstances of the case and in law, the learned CIT(A) has erred in holding that provision of interconnect services and transfer of capacity involve 'human intervention' and hence, IUC and capacity transfer payments qualify as FTS/ FIS for the purposes of the Act or the applicable DTAAs. 3.5 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned Tax Officer holding that provision of interconnect services and transfer of capacity 'make available' technical knowledge, skill, know-how, process etc. to the Appellant and hence, IUC and capacity transfer payments qualify as FTS/ FIS under the DTAAs, which contain a 'make available' clause in the definition of FTS/FIS. 3.6 On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the order of the learned Tax Officer holding that provision of interconnect services and transfer of capacity consists of development and transfer of a technical plan or design by the foreign carriers to the Appellant and hence, IUC and capacity transfer payments qualify as FTS/ FIS under the respective DTAAs, which incl....
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.... subsequent years i.e. A. Ys. 2012 - 13 to 2015 - 16 which are before the tribunal in the proceedings u/s 201 (1) and 201 (1A), the orders of DRP in assessment proceedings are submitted by him along with written submissions dated 29.09.2009 filed om 01.10. 2019 and as per these orders, DRP has followed the tribunal order rendered in the case of Bharti Airtel Ltd. (Supra) and noted that no appeal is filed by the department before Hon'ble High court against this tribunal order and hence, the same has attained finality and held that no disallowance can be made u/s 40a (i) of I T Act on account of non-deduction of TDS on IUC and bandwidth charges paid to non-resident telecom operators. He also submitted that DRP in A. Y. 2012 - 13 directed to verify this aspect as to whether revenue has filed appeal against the tribunal order in case of Bharti Airtel Ltd. (Supra) and if it is found that appeal is filed by the revenue in High Court than the issue stands decided against the assessee but if it is found that no such appeal is filed that no disallowance should be made on that account and as per the final assessment order passed by the AO in that year, no such disallowance was made. He also ....
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....ssessee and this tribunal order is challenged by the assessee before Hon'ble Karnataka High Court and the appeal is pending there. Hence, on this aspect, we prefer to follow the tribunal order in assessee's own case in preference to the tribunal order rendered in the case of Bharati Airtel Ltd. (Supra). Now, we deal with this contention of the learned AR of the assessee that in assessment proceedings in assessee's own case for A. Ys. 2012 - 13 to 2015 - 16, DRP has followed this tribunal order rendered in the case of Bharati Airtel Ltd. (Supra) and therefore, in the proceedings u/s 201 (1) also, this tribunal order should be followed. In our considered opinion, there is no merit in this argument because it is apparent that the earlier tribunal order in assessee's own case for A. Ys. 2008 - 09 to 2012 - 13 was not brought to the notice of DRP because even in A. Y. 2012 - 13 for which tribunal order in assessee's own case in the proceedings u/s 201 (1) is against the assessee on one aspect i.e. Royalty aspect, DRP has decided the issue in favour of the assessee and held that no TDS was required to be deducted. When on one aspect, the matter is decided against the assessee i.e. Royalt....