TaxTMI 
TaxTMI 
2018 (5) TMI 2070
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.... raised by the Revenue and assessee in their respective cross-appeals for Assessment Year 2010-11 are as under :- ITA No. 2619/Mum/2016 (Revenue's appeal) "1. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in concluding that the amount of Rs. 6,24,92,883/- received by assessee as standby maintenance charges was not in nature of 'Fee for technical services' under section 9(1)(vii) of the Income tax Act, 1961 on the ground that no services were rendered during the year, ignoring the invoice available on record indicating charges paid towards such services and without appreciating that by incurring cost on maintaining infrastructures for co-ordination and setting up conditions for efficient rendering of services in relation to maintenance and repairs of cable system the assessee rendered managerial and technical service in the form of commercial advantage to assignees by ensuring that the cable system was in seamless operational condition at all times and in case of actual need for the repairs and maintenance, the same could be carried within least time. 2. Whether on the facts and in the circumstances of t....
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....bility to pay any advance tax." 4. Before we proceed to address the respective Grounds of appeal raised, a brief background of the dispute can be summarised as follows. At the outset, it was a common ground between the parties that a somewhat similar dispute came-up before the Tribunal in various assessment years starting from Assessment Year 1998-99. The Tribunal vide a common order in ITA Nos. 6254/Mum/2003 and others dated 06.02.2015 pertaining to Assessment Years 1998-99 to 2000-01 has decided somewhat similar issues. Similarly, the Tribunal vide its order in ITA Nos. 2255/Mum/2006 and others dated 15.06.2015 reiterated the earlier decision for Assessment Years 2001- 02 to 2008-09. In this background, we may now cull out the issues in the present appeal. 5. The assessee before us is a company incorporated in Bermuda and owns high capacity fibre optic telecommunication cable used for providing data and voice services. The assessee-company is a tax resident of Bermuda and its fibre optic telecommunication cable, which is laid under sea, provides a telecommunication link between U.K and Japan. At the time of hearing, it was explained that a major part of the cable system is ....
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....utable to India were further reduced by all related expenses and the resultant was sought to be determined as the profit or loss deemed to accrue or arise in India in terms of Sec. 9(1)(i) of the Act. Notably, in terms of the computation annexed with the return, a loss of Rs. 1,66,486/- was determined as loss attributable to India on standby maintenance activity. The return of income was filed at a total income of Rs. 8,17,000/- after taking into consideration the interest on income tax refund of Rs. 9,83,489/-. However, the Assessing Officer was not satisfied with the stand of the assessee in the course of the assessment proceedings as, according to him, the amounts received by the assessee from TCL were in the nature of 'fee for technical services' as defined in Explanation-2 to Section 9(1)(i) of the Act and, therefore, he brought to tax the same @ 20% in terms of Sec. 115A of the Act. Moreover, the Assessing Officer brought to tax the entire standby maintenance service revenue received on gross basis from TCL, which was contrary to assessee's assertion of attributing such revenue on the basis of the length of the cable in Indian territorial waters. The assessee had sought ....
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....came-up before the Tribunal for the first time in Assessment Years 1998-99 to 2000-01, and vide order dated 06.02.2015 it was held that the same are not in the nature of 'fee for technical services'. Subsequently, for Assessment Years 2001-02 to 2008-09, the matter again came-up before the Tribunal, and vide order dated 15.06.2015, the amount has been held not to be in the nature of 'fee for technical services' u/s 9(1)(vii) of the Act. The relevant discussion in the order of the Tribunal dated 06.02.2015 (supra) is as under :- "68. The second issue relates to taxability of 'standby maintenance charges' as fees for technical services u/s 9(1)(vii), as raised by the assessee in ground no. 4. As stated earlier, the assessee along with consortium of other parties has built the submarine fibre optic cable providing telecommunication link between UK and Japan. Under the terms of C&MA the FLAG cable system is to be jointly operated and maintained in efficient working condition or along with the founding signatory i.e. Flag and the landing party signatories. The operation and maintenance duties and rights has been elaborated in para 10 along with various sub clauses. The ent....
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....tion of FNOC. So far as standby maintenance charges is concerned, it is not in respect of any actual rendering of services but to maintain infrastructures for co-ordination and setting up conditions for efficient rendering of services in relation to maintenance and repairs of cable system. There is a separate charge for repair and maintenance under the C&MA whereby, the assessee is actually required to undertake repair and maintenance and for which the assessee separately charges. Such a repair and maintenance is separate from standby maintenance cost, which is in the nature of reimbursement of fixed cost. The standby maintenance is a fixed annual charge which is payable not for providing or rendering services but for arranging standby maintenance arrangement which is required for a situation whenever some repair work in the undersea cable or terrestrial cable is actually to be performed or rendered. It is a facility or infrastructure maintained for ready to use or render the technical services or repair services, if required. On these facts we have to examine whether assessee is providing any service to VSNL in respect of standby maintenance. 70. Explanation 2 to section ....
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....tly, whether there is any actual rendering of services; secondly, is there any mark up or element of profit in the charge received for standby maintenance; and lastly whether it is in the nature of fixed annual charge which is to be recovered as proportionate cost of maintaing the standby facility ready for carrying out any maintenance or repair services. This charge is different from an annual maintenance contract, whereby repairs and maintenance is covered for a certain period or services. In the present case as evident from the clause 11.1, that so far as standby maintenance charges is concerned, it is in the form of fixed annual charge which is in the nature of reimbursement. It has been also brought on record that only actual cost incurred has been recovered from VSNL in providing the standby maintenance services. There is no profit element or mark up involved. The assessee has also provided the details of receipt and cost involved in providing standby maintenance services to VSNL for A.Ys. 1998- 99, 1999-2000 and 2000-01 which are as under:- Particulars Amount in US$ A.Y. 1998-99 A.Y. 1999-00 A.Y. 2000-01 Revenues from standby maintenance char....
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.... Network Operating Centre (NOC) for a quick response to repair the interruptions and co-ordination of maintenance. The said facility is maintained and can be mobilised at short notice for rendering any repair work whatever and wherever needed. Therefore, as per the Revenue, the standby maintenance charges are relatable to the cable capacity assigned to various landing parties and not the length of the cable. In other words, as per the Revenue, once such expenses on standby maintenance charges is allocated to TCL, i.e. the Indian landing party, with reference to the capacity used, it cannot be further apportioned based on the length of the cable so as to determine profit of the assessee attributable to the business connection in India. 12. The learned representative, however, pointed out that the income of the assessee, which is to be taxed in India, can be appropriately calculated only after apportioning the revenue on the basis of length of cable in the territorial waters of India for which the standby facility is being maintained by the assessee. Therefore, according to him, it is only such part of the total revenue received from TCL which is proportionate to the length o....
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....aw, the Learned CIT(A) erred in holding that the entire turnover (receipts from the Indian parties) of Standby Maintenance Charges from TCL is turnover for the purpose of taxation in India without giving notice for enhancement or opportunity to the Appellant. The Appellant submits that the CIT(A) ought not to have held that the entire turnover (receipt from the Indian parties) is liable to be treated as turnover for the purpose of taxation in India." 17. On this aspect, the short dispute relates to the manner in which the income from standby maintenance charges taxable in India u/s 9(1)(i) of the Act is to be computed. Said charges have been received by the assessee from TCL and, as per the assessee, portion thereof which is relatable to the length of cable in Indian territorial waters vis-a-vis the length of cable worldwide be taken as the total revenue deemed to accrue or arise in India from which relatable expenses are to be reduced so as to compute the income accruing or arising in India u/s 9(1)(i) of the Act. On the contrary, the stand of the CIT(A) is that the entire amount of revenue received on this score from TCL should be considered. 18. As the aforesaid d....