TaxTMI 
TaxTMI 
2023 (9) TMI 1158
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.... the case of M/s. Telefonica Depreciation Espana SA vs. CIT in ITA No.2657/BANG/2019, 180/BANG/2022& 817/BANG/2022 for the A.Yrs. 2010-11 to 2012-13. 3. The brief facts are that assessee, i.e., Telefonica UK Ltd is a company incorporated under the laws of United Kingdom of Great Britain and Northern Ireland (UK) and is a tax resident of UK. The Assessee is a non-resident telecommunication service provider, primarily engaged in the business of providing mobile and broadband services along with various other ancillary services such as text, media messaging, games, music, video and data connections in the United Kingdom. 4. Since, Vodafone Idea Limited (hereinafter referred to as "VIL), a licensed telecommunication service provider in India, did not have a license and the infrastructure to provide telecommunication services in UK, it entered into an agreement with the Assessee to provide the roaming services to its customers travelling to UK whereby customers of VIL travelling to UK are able to make and receive calls while they are in UK, i.e., in the territory of the Assessee. In lieu of the services provided to VIL's customers, VIL is under an obligation to pay roaming charges....
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....geable to tax as royalty or FTS on the following grounds:- a. The agreement between the Assessee and VIL is an agreement to provide roaming facility to customers of VIL who are travelling to UK and are desirous of availing telecommunication services in the UK where VIL has no network and infrastructure to provide services to its customers travelling from India. Therefore, the network and the related process or equipment are used by the Assessee to provide services to the customers of VIL and, VIL has no access to the process or equipment used by the Assessee Hence, the consideration received by the Assessee is not in respect of any right, property or information as provided under section 9(1X(vi) of the Act. b. The services rendered by the Assessee does not involve transfer of any right in the process by VIL or use of any process by VIL which belongs to the Assessee. The insertion of Explanation -5 & 6 to section 9(1)(vi) of the Act only provides that the possession or control of process by the payer is not relevant and the process should not be a secret process for it to qualify as "royalty" however, the requirement of use of process by VIL or transfer of any right to any proc....
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....l over the "process" belonging to the NTO and no part of the telecom network of the NTO is located in India. However, what is relevant is that the NTO have transferred some rights in the "process" to the assessee for the purpose of transmission of telecommunication traffic. These rights allow assessee to access and use the process running over the telecom network of the NTO and hence the payments made by assessee constitutes Royalty, In this context reference is made to Explanation 5 to Section 9(1)(vi) which was introduced in the Finance Act 2012. c. Thus, after explanation 5 to section 9(1)(vi) it is not necessary that payer should have direct control or physical possession over the right, property or information. d. In order to explain the stand of one of the parties to the agreement that its intention was always not to construe the "process" as secret "process", Explanation 6 has been appended with retrospective effect. e. The considerations paid for use or right to use of process was already chargeable to tax as royalty. The Indian Courts over a period of time have interpreted the meaning of process in such a way which was contrary to the intention of the Indian Govt. wh....
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....aft assessment order had also held that the amount of Rs. 7,45,72,448 is chargeable to tax as FTS and the DRP has not approved the order of the Assessing Officer with respect to FTS and directed the Assessing Officer to tax the same as Royalty. 12. The Assessing Officer passed the final assessment order dated 25 January 2023 in conformity with the directions of the DRP and taxed the roaming charges as Royalty under the Act as well as DTAA. 13. Thereafter, the Assessing Officer passed another final assessment order dated 30/01/2023 without withdrawing the earlier final assessment order 25 January 2023 and the only difference was that in the order dated 30/01/2023, the Assessing Officer had mentioned the section 147 r.w.s. 144C(13) of the Act as opposed to section 144 r.ws. 144C(13) of the Act mentioned in the assessment order dated 25 January 2013. 14. First of all, we find that assessee has filed two appeals i.e. ITA No.771/Mum/2023 challenging the final assessment order dated 25/01/2023 passed u/s. 144 r.ws. 144C(13) and ITA No 772/Mum/2023 challenging the final assessment order dated 30/01/2023 passed u/s. 147 r.w.s 144C(13). Before us ld. DR clarified that the first final ass....
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....2 wherein the legislature has clarified that process also will include transmission by satellite or by various medium. It cannot be read dehors that some kind of right has to be transferred or given. The word "process" enshrined in Explanation-2 to section 9(1)vi) of the Act would mean a process which is an item of intellectual property. The words which surround the word 'process' in clauses (i) to (iii) of Explanation 2 to section 9(1)(vi) refer to various species of intellectual properties such as patent, invention, model, design, formula, trade mark etc. Therefore, applying the rule of ejusdem generis or noscitur a sociis, the word "process" must also refer to a specie of intellectual property. The expression 'similar property' used at the end of the list further fortifies the position that the terms 'patent, invention, model, design, secret formula or process or trade mark are to be understood as belonging to the same class of properties viz. intellectual property and, there must be exclusivity with respect to the intellectual property for which the royalty is paid by the Assessee. In the instant case, the process employed for rendering roaming services is n....
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....rd party 18. The ld. AO and ld. DRP have held that the provisions of Explanation - 5 & 6 is Clarificatory in nature and therefore, they are to be read in to the DTAA executed between India and UK. In this regard, the lower authorities have relied on the Judgment of Madras High Court case of Verizon (supra), the order of Bangalore Tribunal in case of Vodafone South (supra). The judgment of Madras High Court has been considered by the Delhi High Court in case of DIT New Skies Satellite B.V. (382 ITR 114) and, the High Court has held that Madras High Court has not given any reason for reading the amendment to the Act into the provisions of the DTAA. The relevant portion of the Judgment is reproduced as under:- 31. In a judgment by the Madras High Court in Verizon Communications Singapore Pte Ltd. v. ITO, International Taxation [2014] 361 ITR 575/224 Taxman 237 (Mag)/[2013] 39 taxmann.com 70, the Court held the Explanations to be applicable to not only the domestic definition but also carried them to influence the meaning of royalty under Article 12 Notably, in both cases, the clarificatory nature of the amendment was not questioned, but was instead applied squarely to assessment ye....