TaxTMI 
TaxTMI 
2022 (3) TMI 1561
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....peals)-2, New Delhi [hereinafter referred to as 'the Hon'ble CIT (A)'] has erred as follows: 1. That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in upholding the position adopted by the Learned Assessing Officer ('Learned AO') that the network connectivity charges are in the nature of "Royalty" or "Fee for technical services" under the provisions of the Act and the India-United Kingdom Double Taxation Avoidance Agreement ('India-UK DTAA'). 2. That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in upholding the disallowance of network connectivity charges under section 40(a)(i) of the Act, in the hands of the Appellant. 3. That on the facts and circumstances of the case and in law, the Hon'ble CIT(A) has erred in disregarding the Appellant's submission that the subject payments by the Appellant to BT Pic are in the nature of business income of BT Pic and therefore not taxable in India in absence of Permanent Establishment of BT Pic in India in accordance with Article 5 read with Article 7 of the India-UK DTAA. That the above grounds of appeal are without prejudice to each other. That the Appellant r....
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.... firm belief that the provisions of Telegraph Laws (Amendment Act, 1961), wherein telegraph has been defined in section 3(1) of the said Act, squarely apply and came to the conclusion that it has not been using any apparatus provided by BTPLC is also not acceptable. 10. Referring to the amendment brought in the provisions of section 195 by introduction of Explanation 2, the Assessing Officer was of the opinion that withholding of tax should be done irrespective of the fact that whether the non-resident has any business connections/presence in India or not. 11. Referring to Article 13(3) of the India UK DTAA, the Assessing Officer was of the opinion that the payment for network connectivity services given to BT PLC is royalty. 12. Placing strong reliance on the judgment of the Hon'ble Madras High Court in the case of Verizon Communications, Singapore Pte Ltd 361 ITR 575, the Assessing Officer came to the conclusion that the payment given/credited by the assessee to BT Pic for network connectivity services is to be treated as payment of royalty within the meaning of clause (iii) of Explanation 2 to section 9(1)(vi) of the Act and, therefore, the assessee was liable for withhol....
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....refore, the decision deals with the definition of royalty provided for in DTAA between India and Netherlands and India Thailand and definition of Royalty as per India Thailand DTAA is same as definition in India UK DTAA. Therefore, it cannot be said that the decision of the Hon'ble High Court of Delhi in the case of New Skies [supra] is not applicable on the facts of the case in hand. 18. We further find that the Hon'ble High Court of Delhi in the case of New Skies Satellite [supra] has categorically held that the amendments made in domestic law are not effective retrospectively. The definition of the term 'Royalty under the DTAA which has now been affirmed by the Hon'ble Supreme Court in the case of Engineering Analysis Center of Excellence Pvt Ltd. [2021] 432 ITR 471 wherein it has been held by the Hon'ble Supreme Court that the amendments in the domestic law cannot be read into treaties, unless DTAAs are amended by way of bilateral negotiations. 19. Next proposition made by the ld. DR is that the case in hand is a case of equipment royalty. 20. For this, we would like to refer to the terms of Article 13 of the India -UK DTAA wherein royalty has been defined as....
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....e owners who manage and opearte their own equipment for provision of telecommunication services. 24. It would be pertinent to understand the service module by which it can be seen that the aragment between the assessee and BT is in the nature of service contract pursuant to which BT is responsible for provision of network connectivity service for transmission of telecommunication services outside India in consideration for appropriate service charges. 25. A closer look at the business module shows that network of BT including the related equipment is used by BT. Thus, for provision of network connectivity services of the assessee in relation to its subscribers and no access/control whatsoever in relation to such network, any equipment is provided to the assessee. 26. If we consider the business module in a practical aspect, then we would know that there may be multiple routes by way of any given transmission of telecom traffic can reach the desired destination and the assessee has no knowledge of the equipment being used for provision of the service. 27. For example, if a person is making an international call from India to a resident of UK, then the service provider of that pe....
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....ts and has distinguished the decision of the Hon'ble Madras High Court in the case of Verizon Communications [supra]. The relevant findings read as under: "18. Further, it would be imperative to mention that the decision of the Hon'ble Madras High Court was distinguished by the co-ordinate bench in the decision of Bharti Airtel Limited v ITO, (2016) 46 CCH 304 (Delhi-Trib) wherein this Hon'ble Tribunal whilst dealing with the issue of Inter-Connect Usage charges (similar to the charges being paid by the Assessee in the case at hand) and whilst correctly following the decisions of the Hon'ble Delhi High Court in New Skies (Supra) held as under:- "64. Recently, the Hon'ble Delhi High Court in the case PIT vs. New Skies Satellite BT & Ors. hi IT A No. 473/2012 & Ors. Vide judgment dated 8.2.2016 has held us under:- "39. It is now essential to decide the second question i.e. whether the assessees in the present case will obtain any relief from the provisions of the DTAAs. Under Article 12 of the Double Tax Avoidance Agreements, the general rule states that whereas the State of Residence shall have the primary right to tux royalties, the Source State shall concurrently have th....
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....the Section 9(l)(vi). The question is therefore, whether in an attempt to interpret the two definitions uniformly, i.e. the domestic definition and the treaty definition, the amendments will have to be read into the treaty as well. In essence, will the interpretation given to the DTAAs fluctuate with successive Finance Act amendments, whether retrospective or prospective? The Revenue argues that it must, while the Assessees argue to the contrary. This Court is inclined to uphold the contention of the latter. 41. This Court is of the view that no amendment to the Act, whether retrospective or prospective, can be read in a manner so as to extend in operation to the terms of an international treaty. In other words, a clariftcatory or declaratory amendment, much less one which may seek to overcome cm unv elcome judicial interpretation of law, cannot be allowed to have the same retroactive effect :n an international instrument effected between two sovereign states prior to such amendment In the context of international law, while not every attempt to subvert the obligations under the treaty is a breach, il is nevertheless a failure to give effect to the intended trajectory of the trea....
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....direct the Assessing Officer to delete the impugned addition. 38. In the result, the appeal of the assessee is allowed. 39. The revenue has raised the following grounds of appeal: "1. On the facts and circumstances of the case, whether the Id. CIT(A) was correct in restricting the disallowance u/s 40(a)(ia) of the IT Act, 1961 to the amount 'payable' on the basis of decision of Hon'ble Supreme Court in the case of Victor Shipping Services Pvt. Ltd. and ignoring the fact that the same has been overruled by the Hon'ble Apex Court in the case of M/s Palam Gas Service vs CIT. 2. On the facts and circumstances of the case, whether the Id. CIT(A) was correct in allowing the deduction U/s 80IA @30% of eligible profits, ignoring the fact that the matter is pending for adjudication before the Hon'ble Delhi High Court in AY 2010-11. 3. On the facts and circumstances of the case, whether the Id. CIT(A) was correct in allowing the appeal of the assessee on the ground of disallowance of variable license fee, ignoring the fact that the Department has filed SLPs in the cases of CIT Vs. Bharti Hexacom Limited (2013) 40 taxmann.Com 40(Delhi) and Vodafone Mobile Services Limited Vs Delhi Hig....