TaxTMI 
TaxTMI 
2022 (5) TMI 614
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....ether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in concluding that the amount received by the assessee from Tata Communications Ltd. (erstwhile VSNL) as 'standby maintenance charges was not in the nature of 'Fees for technical services' under section 9(1)(vii) of the Income tax Act, 1961 without appreciating the fundamental fact that the act of maintenance of infrastructure by the assessee by way of deploying cable ships, submersible equipment, keeping trained staff on standby and maintenance and operation of Network Operation Centre under the Construction and Maintenance Agreement dated 14.12.1995, is itself in the nature of rendering managerial and technical services under section 9(1)(vii) of the Act as the assessee is rendering services by way of constantly monitoring the under-sea cable systems? 2. Whether on the facts and the circumstances of the case and in law, the Ld. CIT(A) erred in concluding that the amount received by assessee from Tata Communications Ltd (erstwhile VSNL) as standby maintenance charges was not in nature of 'Fee for technical services' under section 9(1)(vii) of the Income tax Act, 1961 with....
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....nating arrangements for unassigned capacity and providing periodic reports for Assignment, Routing etc. are highly specialized activities which come under the purview of "management", "technical" as well as "consultancy" services for the purposes of section 9(1)(vii) of the IT Act? 7. The appellant prays that the order of the CIT(A) may be set aside on the above ground and that of the assessing officer restored." 4. The only issue arising in present appeal filed by the Revenue is whether the amount received by the assessee from Tata Communications Ltd as "standby maintenance charges" is in the nature of "Fees for Technical Services" under section 9(1)(vii) of the Act. 5. The brief facts of the case pertaining to this issue as emanating from record are: The assessee owns certain high-capacity fibre-optic telecommunication cables which provided telecommunication link between the United Kingdom and Japan and which lands in 13 countries. The major part of the cables worldwide is installed outside the territorial waters but they come ashore in certain countries in order to connect into the domestic telecommunication system. The assessee filed its return of income for the ....
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.... the Co-ordinate Bench of Tribunal in assessee"s own case in Reliance Globalcom Ltd. v/s DCIT, in ITA Nos. 2304 & 2335/Mum/2019, vide order dated 28/06/2021, for assessment year 2014-15, while holding that amount received by the assessee towards "standby maintenance charges" from Tata Communications Ltd is not in the nature of "Fees for Technical Services" under section 9(1)(vii) of the Act, observed as under: "5. We have heard the ld. authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by the ld. A.R to drive home his aforesaid contention. Admittedly, the issue involved in the cross appeals lies in a narrow compass, viz. (i) that as to whether the CIT(A) had rightly observed that the Standby Maintenance Charges received by the assessee from TCL was not liable to be taxed as FTS and was to be brought to tax as its "business income"; and (ii) that as to whether the CIT(A) had rightly concluded that the entire amount of ITA Nos. 2304,2305 & 2335/Mum/2019 A.Ys. 2014-15 & 2015-16 6 Reliance Globalcom Limited VS. DC....
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....nder:- 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 entire cable ITA Nos. 2304,2305 & 2335/Mum/ 2019 A.Ys. 2014-15 & 2015-16 7 Reliance Globalcom Limited VS. DCIT (IT) -4(1)(1) system is to be operated and maintained by founding signatory in co-ordination with relevant landing party signatory. Flag Network Operation Centre (FNOC) has to provide overall network service surveillance and over all co-ordination of maintenance and repair operations of Flag cable system. The Flag has to co-ordinate the deployment of the vessels for repairs and maintenance operation in accordance with the....
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....ance 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 9(1)(vii) defines "fees for technical services" in the following manner:- "Explanation (2)- For the purpose of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of service of technical or other personnel) but does not include consideration for any construction, assembly, m....
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....d 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 which are as under:- A.Y. 1998-99 A.Y. 1999-00 A.Y. 2000-01 Revenues from standby maintenance charges 512,955 1,226,860 2,072,453 Total costs incurred (as per auditor's certify-cate) (857,093) (2,0,77,219) (2,800,495) Profit- (Loss) from stand-by maintenance activities (344,138) (850,359) (728,042) It has been contended that there is a loss in this account. 71. Thus, on the facts and circumstances of the case as well as looking to the nature of standby maintenance cost, we hold that the receipts from standby maintenance char....
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....tandby 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 of cable in the territorial waters of India which can be considered to compute assessees income taxable in India and the same has been correctly done by the assessee in its return of income. 13. At this stage, we may also refer to the Additional Ground of appeal no. 2 which has been raised before us and which reads as under: "2. On the facts and circumstances of the case and in law, the Learned CJT(A) erred in holding that the receipts from Indian p....
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....ion 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 Xi) 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 discussion shows, the dispute revolves around computation of the income from standby maintenance activities attributable in India. On this aspect, before proceeding further, we notice that in Assessment Years 2001-02 to 2008-09, the Tribunal vide order dated 15.06.2015 (supra) has dealt with similar issue, of course qua the revenues earned from "Restoration Services". On this aspect, the Tribunal held such receipts to be in the nature ....