TaxTMI 
TaxTMI 
2023 (2) TMI 1111
X X X X Extracts X X X X
X X X X Extracts X X X X
....vii) of the Income Tax Act, 1961? 2. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred both on facts and in law holding that the 'communication charges' paid by the assessee to TATA INC would not be taxable under Indo-US DTAA, despite the fact that TATA INC made available process of transfer of calls from locations outside India to the business locations inside India and vice versa, which was squarely covered under Article 12(4)(b) of the Indo-US DTAA of the 'fee for included services' and was hence taxable under DTAA? 3. Whether on the facts and circumstances of the case the Ld. CIT(A) has erred both on facts and in law in allowing communication charges of Rs. 2,50,67,848/- paid to TATA INC, despite the fact that as per clarification received from Assistant Director(C-1), "Resources and Monitoring/Term Cell), Department of Telecommunication, M/s TATA INC did not possess unified license with applicable authorization from the DOT and hence was not legally permitted to provide any such telecom services in India and also it has not entered into any agreement with the assessee for providing any business facilities or services? 4. Whether ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bject to section 195 as it does not involve in income component arising to the non-resident company. The appellant has stated that the payment was for communication costs to the non-resident company and such company provided inbound and outbound facility to the appellant. The entire process was automated and did not involve any human intervention: The first contention raised by the appellant was based on the fact that since there was no income component in the payment made the liability u/s 195 to deduct TDS did not arise. This argument has been examined It is seen that the judgment of GE Technologies India Vis CIT has clearly laid down this premise that only where a payment to a non resident is assessable in India, the payer is bound to deduct tax on the same. If there is no income component in the sum paid to the non-resident liability of section 195 would not arise. The operative part of the judgment is as under:- "9. One more aspect needs to be highlighted Section 195 falls in Chapter XVII which deals with collection and recovery. Chapter XVII-B deals with deduction at source by the payer. On analysis of various provisions of Chapter XVII one finds use of different expression....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ngle integral, inseparable Code and, therefore, the provisions relating to TDS applies only to those sums which are "chargeable to tax" under the I T. Act. It is true that the judgment in Eli Lilly (supra) was confined to Section 192 of the I T. Act. However, there is some similarity between the two. If one looks at Section 192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays any income "chargeable under the head salaries". Similarly, Section 195 imposes a statutory obligation on any person responsible for paying to a non-resident any sum "chargeable tinder the provisions of the Act", which expression, as stated above, do not find place in other Sections of Chapter XVII. It is in this sense that we hold that the I T. Act constitutes one single integral inseparable Code. Hence, the provisions relating to TDS applies only to those sums which are chargeable to tax under the I T. Act. " 4.4. In view of the clear ratio of the Supreme Court judgment the argument of the appellant that if there is no taxable amount in the payment made no liability u/s 195 arises. Now the basic issue is to examine as to whether the non-resident was taxable on a paymen....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... constitute FTS and do not arise or accrue in India. "73. The undisputed fact is that none of the operations of the FTOs are in India. The call is delivered outside India and is carried and terminated outside India. Under these circumstances, the question is whether the FTO is liable to pay tax on the income derived by it, on the ground that, the income is received or is deemed to have been received in India or on the ground ITA Nos. 3593 TO 3596/Del/2012 [Bharti Airtel Ltd vs. ITO(TDS)) & ITA Nos. 4076 TO 4079/De1/2012 [ITO(TDS) vs. Bharti Airtel Ltd] that, the income accrues or arises in India or is deemed to accrue or arise in India, during the relevant year. On facts, it is clear that Section 5(2)(a) is not applicable, as the payments were neither received nor deemed to have been received by the 'FTOs' in India. The first part of Section 5(1)(2)(b) is also not applicable. Hence, we have to test the receipts, as per the deeming provisions contained in the I T Act i.e. whether the receipt in question can be deemed to accrue or arise in India, u/s. 9, read with section 5(2)0) of the Act. 74. The payment in question does not accrue or arise to the 'FTOs', through ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ees for included services may also be taxed in the Contracting State in which they arise and according to the laws of that State,' but if the beneficial owner of the royalties or fees for included services is a resident of the other Contracting State, the tax so charged shall not exceed: A in the case of royalties referred to in sub-paragraph (a) of paragraph 3 and fees for included services as defined in this Article [other than services described in Subparagraph (b) of this paragraph): during the first five taxable years for which this Convention has effect, (a) 15 per cent of the gross amount of the royalties or fees for included services as defined in this Article, where the payer of the royalties or fees is the Government of that Contracting State, a political subdivision or a public sector company; and (b) 20 per cent of the gross amount of the royalties or fees for included services in all other cases; and (ii) during the subsequent years, 15 per cent of the gross amount of royalties or fees for included services; and in the case of royalties referred to in subparagraph (b) of paragraph 3 and fees for included services as defined in thi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndividuals making the payments; or (e) to an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in Article 15 (Independent Personal Services). 4.7. The article 12(4)(b) clearly states that for in service to be classified as an included service the technical knowledge should be made available to the recipient or as to enable him to apply the technology to be used In the present case the communication charges are being paid for inter communication services. These can in no manner be seen to make available in knowledge to the recipient of the service that is the appellant in this case. In the absence of any knowledge being available the consideration being paid cannot fall within the definition of fee for included services. Therefore, the amount would not be taxable under DTAA. The services under the domestic legislation also do not constitute technical services specifically in view of decision of CIT vs. Bharti Airtel of the Delhi High Court which was in principle agreed to by the H'bl Supreme Court. In view of these facts and the clear judicial mandate of the jurisdictional High C....
X X X X Extracts X X X X
X X X X Extracts X X X X
....td. v. Dy. DIT(IT) (xi) 182 ITD 526 (Bang.) Edgeverve Systems Ltd. v. Dy. Asstt. CIT (IT) (xii) 173 DTR 308 (Pune) EPRSS Prepaid Recharge Services India (P.) Ltd. v. ITO 7. Further, ld. Counsel of the assessee contended that now similar issue has also been dealt with by Hon'ble Delhi High Court in the case of CIT (TDS) vs. Tata Teleservices Ltd. in ITA 1417/2018 vide order dated May 30, 2022. The question before the Hon'ble High Court was, "Whether the ITAT was correct in holding that no TDS under section 194J of the Income Tax Act was required to be deducted by the assessee on payment of interconnect user charges as it could not be categorized as fee for technical services?" Hon'ble High Court has noted that Hon'ble Karnataka High Court in the case of CIT, TDS, Bangalore vs. Vodafone South Ltd. 2016 (72) taxmann.com 347 (Karnataka) has decided the aforesaid issue in favour of the respondent-assessee. After some discussion, the Hon'ble Delhi High Court concluded as under :- "7. Admittedly, the Karnataka High Court and various Tax Tribunals have taken the view that there is no human intervention involved in providing the Interconnect services whether it be for data link or ro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....d to the vendor AGC Network Ltd., formerly Avaya Global Connect Ltd It is common knowledge that many of the office products such as Windows 2008 to 2010 are sold by Microsoft under limited user license, which clearly means that the use has limited and restricted right to use the software. It cannot mean that every licensed software product, user of which is permitted u/s 52 of the Copyright Act, is a license which would enable the user the commercially exploit the intellectual property for earning income. The appellant is also seen to be engaged in the business of providing software services but it has no income from royalty which would be possible earned from the commercial exploitation of license. The accounts of the appellant company are also subject to the Audit and the Auditor has considered these software as an integral part of computer eligible for depreciation @ 60% as per Annexure - TI' to the Tax Audit Report. Thus the software purchased by the appellant is in the nature of limited user license which are off the shelf software products and do not fall under the category of intangible assets. The Spl. Bench ITAT in the case of Anyway India Enterprises (supra) the Hyder....