TaxTMI 
TaxTMI 
2024 (5) TMI 908
X X X X Extracts X X X X
X X X X Extracts X X X X
....AO"] u/s 201(1)/(1A) pursuant to the aforesaid revision-order dated 27.03.2014 passed by CIT (TDS), Bhopal u/s 263. 2. The background facts leading to these appeals are summed up as under: (i) ITA No. 415/Ind/2014 - The assessee-company is engaged in the business of providing telecom services through pre-paid and post-paid connections. In order to provide such services, the assessee allowed certain amounts to distributors/dealers of pre-paid vouchers. Further, the assessee also took services from Other Telecom Operators ["OTOs"] and paid 'roaming charges' to those OTOs. For the Financial Year 2009-10 relevant to Assessment-Year 2010-11, the AO passed an order dated 30.03.2012 u/s 201(1)/(1A) treating the assessee as defaulter for non-deduction of tax at source (TDS) u/s 194H out of amounts allowed to distributors/dealers of pre-paid vouchers and created demand of TDS plus interest. Subsequently, the CIT (TDS), Bhopal passed revision-order dated 27.03.2014 terming the aforesaid order dated 30.03.2012 passed by AO as erroneous-cum-prejudicial to the interest of revenue on the ground that the AO had not examined the applicability of TDS u/s 194J out of roaming charges paid....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... therefore, no notice is required to be issued in this respect." Accordingly, the ITA No. 265/Ind/2018 has again come up before us for the limited purpose to adjudication of Ground No. 4, 5 & 7 relating to TDS u/s 194J out of roaming charges paid to OTOs. 3. Since both appeals are inter-linked, they were heard together and are being disposed of by this consolidated order for the sake of convenience and clarity. 4. At the start of hearing, Ld. AR for assessee prayed to hear and adjudicate the second appeal being ITA No. 265/Ind/2018. He submitted that if this appeal is decided in favour of assessee, the first appeal being ITA No. 415/Ind/2014 would become infructuous as the assessee's grievance would come to an end. Ld. DR for revenue agreed to this prayer. We proceed accordingly. ITA No. 265/Ind/2018: 5. As noted earlier, this appeal has come up before us for adjudication of Ground No. 4, 5 & 7 (i.e. IV, V & VII) raised by assessee. We take up these grounds. Ground No. IV & V: 6. These grounds read as under: "Ground No. IV: NON DEDUCTION OF TDS U/S 194J OF THE ACT ON PAYMENT OF ROAMING CHARGES TO THE OTHER TELECOM OPERATORS ("OTO") : ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Therefore, the assessee has raised two separate grounds, namely Ground No. IV and Ground No. V to deal both points respectively. 8. The expression "fee for technical services" is defined in Explanation 2 to section 9(1)(vii) as under: "Explanation 2. - For the purposes 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 services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". Further, the expression 'royalty" is defined in Explanation 2 & 6 to section 9(1)(vi) as under: "Explanation 2.-For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for- (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Ltd. (2016) 72 taxmann.com 347 (Karnataka) dated 28.07.2016. The Hon'ble Karnataka High Court has, in following paras of judgement, noted the entire background, the remand direction of Hon'ble Supreme Court, the subsequent exercise done by department and taking into consideration all these aspects, finally upheld ITAT's order holding that roaming service does not involve any human invention and therefore outside the ambit of FTS: "4. The assessee, in all the appeals, is a mobile service provider Company. As per the assessee, whenever any roaming facilities is provided to the customer and subscriber, it is taking connectivity of that with another mobile service provider Company. As per the assessee, the payment made to the another mobile service provider Company is by way of revenue sharing contract and no technical services are involved nor any payment is made for technical services. However, as per the appellants - Revenue, the payment made by the assessee to the another mobile service provider Company for utilization of the roaming mobile data and the connectivity would fall in the arena of "technical services" and, therefore, TDS was required to be deducted under Sectio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce. Decision of the Delhi High Court in CIT v. BHARTI CELLULAR LTD.319 ITR 139 (Del) set aside and matter remanded to the Assessing Officer with directions." After this decision, the Ld. Assessing Officer examined the technical expert of the C-DOT on 29.09.2010 in respect of IUC and which were cross examined on 04.10.2010 by M/s. Bharti Cellular Limited, Delhi. The technical experts re-examined on 04.10.2010 on this issue and admitted that roaming services does not require any human intervention, it operates automatically. The Ld. AR also drawn our attention on independent opinion taken from Director CMAI, Ex-Director (C&M), BSNL, Ex-Member Telecom Commission on 24.12.2010 and admitted that whole interconnected uses process, no manual intervention is required. He further drawn our attention on page No.651 to 652 for post-paid as well as prepaid roaming charges charged between the operators from Mr. Kapoor Singh Guliani. The appellant also taken opinion from Former Chief Justice of India Mr. Kapadia on IUC post technical examination, cross-examined and re-examination who also opined that Hon'ble Supreme Court decision dated 12.08.2010 is an order not judgment a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e before us, the assessee has paid roaming charges i.e. IUC Charges to various operators at Rs. 10,18,92,350/-. Respectfully following above judicial precedents, we hold that these charges are not fees for rendering any technical services as envisaged in Section 194J of the Act. Therefore, we reverse the order of the ld CIT (A) and assessee's appeal is allowed on this ground also." 14. Reading of the above order clearly show that fact - situation was essentially similar to the one here in the case of the assessee. Assessee was also treated as one in default for failure to deduct tax at source on roaming charges paid to other distributors. Therefore the coordinate bench of the Tribunal in the case of Bharti Hexacom Ltd. (supra) would squarely apply. We also find that the said decision has been followed by Ahmedabad bench in the case of Vodafone Essar Gujarat Ltd. v. ACIT (TDS) (ITA NO.386/Add/2011, dt. 07.07.2015). Following these, we are of the opinion that assessee could not have been deemed as one in default for non-deduction of tax at source on roaming charges paid by it to other service providers. Ground 3 is allowed." 7. The aforesaid shows that the Tribu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing to the charges of the Stock Exchange and the Apex Court, ultimately, found that no TDS on such payment was deductible under Section 194J of the Act. But the learned Counsel for the appellants - Revenue attempted to contend that in paragraphs 7 and 8 of the above referred decision of the Apex Court, it has been observed that if a distinguishable and identifiable service is provided, then it can be said as a "technical services". Therefore, he submitted that in the present case, roaming services to be provided to a particular mobile subscriber by a mobile Company is a customize based service and therefore, distinguishable and separately identifiable and hence, it can be termed as "technical services". 11. In our view, the contention is not only misconceived, but is on non-existent premise., because the subject matter of the present appeals is not roaming services provided by mobile service provider to its subscriber or customer, but the subject matter is utilization of the roaming facility by payment of roaming charges by one mobile service provider Company to another mobile service provider Company. Hence, we do not find that the observations made are of any help to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....High Court, the said view would be binding on the appellant-revenue. Learned predecessor Division Bench had directed the counsel for the appellant-revenue to obtain necessary instructions from the CBDT as to the way forward. 4. Mr. Zoheb Hossain, learned standing counsel for the revenue has handed over a letter dated 21st April, 2022 written by JDIT(OSD)(L&R), New Delhi addressed to the Commissioner of the Income Tax, High Court Cell (Judicial), New Delhi. The said letter is taken on record. The said letter reads as under :- 'To, The Commissioner of Income-tax (Judicial), High Court Cell, Delhi Respected Sir, Sub: Urgent Instructions required in the case of Commissioner of Income-tax (TDS-2) v. M/s Tata Teleservices Ltd.[ITA No. 1417/2018]- regarding. Kindly refer to your e-mail dated 11th April 2022 on the above-mentioned subject. In this regard, I am directed to convey that SLP in the case of CIT (TDS), Bangalore v. Vodafone South Ltd. (2016) 72 Taxmann.com 347 (Kar) has not been approved by Board for the following reason: "As it has been repeatedly established in various cases, involving the iss....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e question in the case of one assessee and question its correctness in the case of some other assesses. Revenue cannot pick and choose......" 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 roaming. 8. The Supreme Court in Berger Paints India Ltd. v. CIT [2004] 135 Taxman 586/266 ITR 99 has held that if the revenue has not challenged the correctness of the law laid down by the High Court and has accepted it in the case of one assessee, then it is not open to the revenue to challenge its correctness in the case of other assessee without just cause. 9. Keeping in view the aforesaid mandate of law and the letter dated 21st April, 2022, this Court is of the view that the appellant-revenue has consciously elected not to challenge the aforesaid judgment of the Karnataka High Court, which hold that no TDS is required to be deducted by the assessee on payment of interconnect user charges as it cannot be categorized as fee for technical services. 10. Consequently, this Court is of the view that it is not ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ourt in the case of CIT vs. Bharti cellular Ltd. (175 Taxman 573) whereby the Hon'ble High Court held that the roaming charges paid by the operator to other operator is not in the nature of fee for technical services (FTS). The revenue carried the matter to the Hon'ble Supreme Court. The Hon'ble Supreme Court in the case of CIT vs. Bharati Cellular Ltd.(193 Taxman 97) has observed that the issue can be decided after the expert's opinion on the point whether any human intervention is required for providing interconnected roaming services by other cellular operators. The relevant observations of the Hon'ble Supreme Court in para. 7 to 10 are as under: "7. The problem which arises in these cases is that there is no expert evidence from the side of the Department to show how human intervention takes place, particularly, during the process when calls take place, let us say, from Delhi to Nainital and vice versa. If, let us say, BSNL has no network in Nainital whereas it has a network in Delhi, the interconnect agreement enables M/s Bharti Cellular Ltd. to access the network of BSNL in Nainital and the same situation can arise vice versa in a given case. During the traffic of su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....) within a period of four weeks from the date of receipt of the order of this Court. Liberty is also given to respondent No. 1 to examine its expert and to adduce any other evidence." Thus, the Hon'ble Supreme Court directed the AO in each of the cases to examine the technical expert from the side of the department and to decide the matter. Though the AO, while deciding the issue has considered the statement of the expert who was examined in the case of Bharti Cellular, however, we note that in the case of Bharti Hexacom Ltd. (supra), Jaipur Bench of this Tribunal has decided this issue by giving a finding that no intervention is required for providing the roaming facility to the other operators/subscribers. We further note that in the case of Idea Cellular Ltd. vs. ITO (supra) Jaipur bench of the Tribunal again considered an identical issue in paras 2 to 4 as under: "2. The ld. Counsel for the assessee at the outset contends that the issues in question is squarely covered by the Hon'ble ITAT, Jaipur Bench decision in the case of M/s Bharti Hexacom Limited Vs. ITO (TDS)-II, Jaipur in ITA No. 656/JP/2010 order dated 12/06/2015, which 3 ITA 94 to 96/JP/2013 & 917/JP....
X X X X Extracts X X X X
X X X X Extracts X X X X
....icer. 4. We have heard the rival contentions of both the parties and perused the material available on the record. The issue about levy of TDS U/s 194J on the roaming charges paid by the telecom operators to service providers and applicability of Section 194J has been considered in detail by this very Bench in the case of M/s Bharti Hexacom Limited (supra). After considering the issues in detail, it has been held that there is no human intervention involved in providing these services, therefore, roaming charges paid by the assessee do not amount to fee for technical services U/s 194J of the Act read with Section 9(1)(vii). Following our own judgment, we are upholding the order of the ld CIT(A) holding that the assessee is not liable for TDS u/s 194J, interest thereon and consequently not being the assessee in default. The orders of ld. CIT(A) are uphold." Thus it is clear that the Jaipur bench has given a finding of fact that no intervention is required for providing roaming facility and consequently the roaming charges paid by the assessee to other service providers cannot be treated as fees for technical services. Accordingly, following the orders of the co-ord....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ding effect on the Bangalore Tribunal. 3.5 Reliance is also placed on the following decisions: 1. Bharat Sanchar Nigam Ltd. [2017] 87 taxmann.com 152 (Delhi - Trib.) 2. Pan AmSat International Systems Inc. [2006] 9 SOT 100 (DELHI ITAT) 3. Asia Satellite Telecommunications Co Ltd [2011] 197 Taxman 263 (Delhi) 4. New Skies Satellite BV [2016] 68 Taxmann.com 8 (Delhi) 5. Neo Sport Broadcast (P.) Ltd. [2019] 107 Taxmann.com 17 (Bombay) 6. Viacom18 Media (P.) Ltd. [2022] 134 taxmann.com 243 (Mumbai - Trib.) - Para 9 page 656 of PB which has followed Bom HC decision in Neo Sports as opposed to earlier ITAT adverse view in own case 7. J&P Coats Ltd. No.11/Bang/2014, ITA 382 & 1493/Bang/2015, 2135/Bang/2016 and 1365- 1367/Bang/2019 8. Engineering Analysis Centre of Excellence (P.) Ltd . [2021] 125 taxmann.com 42 (SC) 3.6 It is submitted by the Ld. AR that the services rendered by the assessee are standard telecom services which are automated, requiring no human intervention. Hence, it is submitted that the same cannot be considered as "FTS". Reliance is placed on the decision of Hon'ble Delhi Tribunal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t chargeable under the head "Capital gains") for - (i) the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property;' 5.2.1 The term "process" used under Explanation 2 to section 9(1)(vi) in the definition of 'royalty' does not imply any 'process' which is publicly available. The term "process" occurring under clauses (i), (ii) and (iii) of Explanation 2 to section 9(1)(vi) means a "process" which is an item of intellectual property. Clause (iii) of the said Explanation reads as follows: "(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property" Clauses (i) & (ii) of the said explanation also use identical terms. 5.2.2 The words which su....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for allowing another to make use of that thing which may be either physical or intellectual property or thing. The exclusivity of the right in relation to the thing for which royalty is paid should be with the grantor of that right. Mere passing of information concerning the design of machine which is tailor-made to meet the requirement of a buyer does not by itself amount to transfer of any right of exclusive user, so as to render the payment made therefor being regarded as royalty". 5.2.7 It is an admitted fact that there is no transfer of any intellectual property rights or any exclusive rights that has been granted by the assessee to the service recipients for using such intellectual property. Therefore Explanation 2 to section 9(1)(vi) cannot be invoked. 5.2.8 Further we note that by Finance Act, 2012, Explanation 5 & 6 were added with retrospective effect from 1.6.1976 which reads as under:- "Explanation 5: For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not - (a) The possession or control of such right, property o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nformation should be with payer. 5.2.12 In the decision of Authority For Advance Ruling, in case of Cable & Wireless Networks India(P.)Ltd., In re(supra), a similar issue was considered wherein Cable & Wireless Networks India(P.)Ltd was a company incorporated in India part of Cable & Wireless Group of companies. Cable & Wireless Networks India(P.)Ltd., was engaged in providing international long distance and domestic long distance telecommunication services in India. As per the agreement Cable & Wireless Networks India(P.)Ltd., would provide the Indian leg of service of using its own network and equipments and network of other domestic operators. Similarly, the international leg of services would be provided by the UK group company using its international infrastructure and equipments. The Cable & Wireless Networks India(P.)Ltd., sought for advance ruling in respect of nature of payments made by Cable & Wireless Networks India (P.) Ltd., to the UK Group company, whether the payment is taxable as 'royalty' or 'FTS' under section 9(1)(vi)/(vii). The AAR relied on following decisions: * Decision of Hon'ble Supreme Court in case of BSNL vs. UOI reported in (2006) 3 ST....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stomer is authorized to use the equipment of which he is put in possession, it cannot be said that such right is bereft of the element of control. We may clarify here that notwithstanding the above submission, it is the case of applicant that, it has neither possession nor control of any equipment of BTA. 12.6 The other case cited by the learned counsel for applicant to explain the meaning of expressions 'use' and 'right to use' is that of BSNL v. UOI (2006) 3 STT 245 (SC). Even that case turned on the interpretation of the words "transfer of right to use the goods" in the context of sales-tax Acts and the expanded definition of sale contained in clause (29A) of section 366 of the Constitution. The question arose whether a transaction of providing mobile phone service or telephone connection amounted to sale of goods in the special sense of transfer of right to use the goods. It was answered in the negative. The underlying basis of the decision is that there was no delivery of goods and the subscriber to a telephone service could not have intended to purchase or obtain any right to use electro-magnetic waves. At the most, the concept of sale in any subscrib....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... one's self, to convert to one's service or to put to one's use or benefit". (Esfeld Trucking Inc. v. Metropolitan Insurance Co.) 12.8 The word 'use' in relation to equipment occurring in clause (iva) is not to be understood in the broad sense of availing of the benefit of an equipment. The context and collocation of the two expressions 'use' and 'right to use' followed by the words "equipment" suggests that there must be some positive act of utilization, application or employment of equipment for the desired purpose. If an advantage is taken from sophisticated equipment installed and provided by another, it is difficult to say that the recipient/customer uses the equipment as such. The customer merely makes use of the facility, though he does not himself use the equipment. 13. It is the contention of the revenue that dedicated private circuits have been provided by BTA through its network for the use of the applicant. The utilization of bandwidth upto the requisite capacity is assured on account of this. The electronic circuits being 'equipment' are made available for constant use by the applicant for transmission of da....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r, but, if it does nothing to or with the equipment (in this case, it is circuit, according to the revenue) and does not exercise any possessory rights in relation thereto, it only makes use of the facility created by the service provider who is the owner of entire network and related equipment. There is no scope to invoke clause (iva) in such a case because the element of service predominates. 13.2 Usage of equipment connotes that the grantee of right has possession and control over the equipment and the equipment is virtually at his disposal. But, there is nothing in any part of the agreement which could lead to a reasonable inference that the possession or control or both has been given to the applicant under the terms of the agreement in the course of offering the facility. The applicant is not concerned with the infrastructure or the access line installed by BTA or its agent or the components embedded in it. The operation, control and maintenance of the so called equipment, solely rests with BTA or its agent being the domestic service provider. The applicant does not in any sense possess nor does it have access to the equipment belonging to BTA. No right to modify or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l nature. In most of the countries, they enjoy at least relative protection or are capable of being protected. That is why Article 12(2) very properly use, in connection with such formulae, etc., the criterion 'right to use', which is pertinent to them (letting) as it is in the case of absolute proprietary rights. As a rule, the 'right to use' already come into existence in these instance by authorized information(legitimate disclosure of secrets) . It may be restricted in the point of time in respect of the period following the expiry of the license. On the difference between a product with relatively simple technology, and a business secret. We note that, in case of DCIT v. PanAmSat International Systems Inc., reported in (2006) 9 SOT 100 , Hon'ble Delhi High Court distinguished the decision of Asia Satellite Telecommunication Co. Ltd. v. Dy. CITT reported in (2003) 85 ITD 478 and held as under:- 19. The question that first comes up for consideration is whether section 9(1)(vi) of the Income-tax Act, read with the Explanation 2 below thereto, is applicable. This also involves the subsidiary question whether the issue is covered by the order of the Delhi Bench of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....urally takes us to the question whether there is anything in article 12.3(a) of the DTAA between India and USA which militates against such a view. It must be remembered that India had no DTAA with Hongkong and hence the view taken by the Tribunal (supra) with regard to the clause (iii) of Explanation 2 below section 9(1)(vi) would apply if we were to also interpret the same provision. But article 12.3(a) is worded as below : "The term 'royalties' as used in this article means : (a) payments of any kind received as consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use or disposition thereof; and" In Asia Satellite Telecommunication Co. Ltd.'s case (supra) the Tribunal pointed out, while repel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ying the rule of ejusdem generis or noscitur a socii. 20. That takes us to a consideration of the question whether the process carried on by the assessee is a secret process. On this question, we have weighed the elaborate arguments advanced by both the sides carefully and hold that so far as the transponder technology is concerned there appears to be no "secret technology", known only to a few. There is evidence adduced before us to show that the technology is even available in the form of published literature/book from which a person interested in it can obtain knowledge relating thereto. There is no evidence led from the side of the Department to show that the transponder technology is secret, known only to a few, and is either protected by law or is capable of being protected by law. This aspect of the matter was not required to be considered by the Tribunal in the case of Asia Satellite Telecommunication Co. Ltd. (supra) because the view taken by the Tribunal was that there was no requirement in clause (iii) of Explanation 2 below section 9(1)(vi) of the Act that the process involved, for which the payment is being made, should be a secret process. But in the view we ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... clause 3 of Article 13 of India-Spain DTAA. We are therefore of the opinion that the receipt of IUC charges cannot be taxed as Royalty under Article 13 in India of IndiaSpain DTAA. 5.2.18 The above observations are supported by the view expressed by Hon'ble High Court. Hon'ble High Court in the group of cases had considered following questions of law which are as under: "1. Whether the Income-Tax Appellate Tribunal (ITAT) was correct in holding that the application of the Double Taxation Avoidance Agreement (DTAA) cannot be considered in proceedings under Section 201 of the Act and that it is not open to the payer to take benefit of the DTAA when he is making payment to a non- resident? 2. Whether the ITAT was correct in holding that amendment to provisions of royalty under Section 9(1)(vi) by inserting Explanation 5 and 6 under the Income-tax Act (hereinafter referred to as the 'Act') will also result in amendment of the DTAAS? 3. Whether ITAT was correct in holding that payments made to non-resident telecom operators for providing interconnect services and transfer of capacity in foreign countries is chargeable to tax as royal....
X X X X Extracts X X X X
X X X X Extracts X X X X
....license holder and responsible for providing connectivity to calls originating/terminating outside India. Assessee has entered into an agreement with NTOs for international carriage and connectivity services. According to the assessee, payment made to NTOs is towards interconnectivity charges. 14. Assessee has also entered into a CTA with a Belgium entity Belgacom. Belgacom had certain arrangement with the Omantel for utilisation of bandwidth. Omantel transferred certain portion of its capacity to Belgacom and Page 24 of 28 IT(IT)A Nos. 2657/Bang/2019, 180/Bang/2021 & 817/Bang/2022 Belgacom had in turn transferred a portion of its capacity to the assessee. 15. Admittedly the equipments and the submarine cables are situated overseas. To provide ILD calls, assessee had availed certain services from NTOs. It is also not in dispute that Belgacom, a Belgium entity with whom assessee has entered into an agreement does not have any 'permanent establishment' in India. 16. Shri. Pardiwala contended that the payments made by assessee cannot be treated as either Royalty or FTS34 or business profits as no part of the activity was carried out in India. Revenue's reply....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ring Analysis as follows: "85. It is thus clear that the "person" mentioned in section 195 of the income Tax Act cannot be expected to do the impossible, namely, to apply the expanded definition of "royalty" inserted by explanation 4 to section 9(1)(vi) of the Income Tax Act, for the assessment years in question, at a time when such explanation was not actually and factually in the statute." "100. Also, any ruling on the more expansive language contained in the explanations to section 9(1)(vi) of the Income Tax Act would have to be ignored if it is wider and less beneficial to the assessee than the definition contained in the DTAA, as per section 90(2) of the Income Tax Act read with explanation 4 thereof, and Article 3(2) of the DTAA.........." 21. The third question is, whether the payments made to NTOS for providing interconnect services and transfer of capacity in foreign countries is chargeable to tax as royalty. It was argued by Shri. Pardiwala, that for subsequent years in assessee's own case, the ITAT has held that tax is not deductable when payment is made to non-resident telecom operator. This factual aspect is not refuted. Thus the Revenue has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elhi, ITA No. 3593 to 3596/Del/2012 order dated 17.03.2016 holding that roaming charges neither constituted FTS nor Royalty, as under: "25. Issue No. 1 WHETHER THE PAYMENT OF IUC BY ASSESSEE TO FTOS ARE TAXABLE AS FEE FOR TECHNICAL SERVICES U/S. 9(1)(vii) OF THE ACT. (As the Section 9(1)(vii) has already been extracted in the earlier paragraphs, we do not repeat the same.) 26. The Hon'ble Delhi High Court on this issue held as follows in the assessee's own case i.e. CIT vs. Bharti Cellular Ltd.(2009) 319 ITR 139 (Delhi):- "The expression 'fees for technical services' as appearing in s. 194J has the same meaning as given to the expression in Expln. 2 to s. 9(1)(vii). In the said Explanation. the expression 'fees for technical services' means any consideration. for rendering any (managerial, technical or consultancy services'. The word (technical' is preceded by the word (managerial' and ITA Nos. 3593 TO 3596/Del/2012 [Bharti Airtel Ltd. vs. ITO(TDS)] & ITA Nos. 4076 TO 4079/Del/2012 [ITO(TDS) vs. Bharti Airtel Ltd.] succeeded by the word 'consultancy'. Since the expression (technical services' is in ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sense that it involves sophisticated technology. The facility may even be construed as a 'service' in the broader sense such as a 'communication service'. But, while interpreting the expression 'technical service', the individual meanings of the words 'technical' and 'service' have to be shed. And only the meaning of the whole expression 'technical services' has to be seen. Moreover, the expression 'technical service' would have reference to only technical service rendered by a human. It would not include any service provided by machines or robots. Thus, the interconnect charges/ port access charges cannot be regarded as fees for technical services." [emphasis supplied] 27. The judgment of the Hon'ble Delhi High Court in the aforesaid case may thus be summarized as under: * The rule of noscitur a sociis is clearly applicable and the word 'technical' would take colour from the words 'managerial' and 'consultancy', between which it is sandwiched. * Both managerial service and consultancy service are provided by humans. Consequently, applying the rule of nos....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hnical services" shall have the same meaning as contained in Explanation 2 to clause (vii) of Section 9(1) of the Act. Right from 1979 various judgments of the High Courts and Tribunals have taken the view that the words "technical services" have got to be read in the narrower sense by applying the rule of Noscitur a sociis, particularly, because the words "technical services" in Section 9(1)(vii) read with Explanation 2 comes in between the words "managerial and consultancy services". The problem which arises in these cases is that there is no expert evidence from the side of the Department to show how human intervention takes place, particularly, during the process when calls take place, let us say, from Delhi to Nainital and vice versa. If, let us say, BSNL has no network in Nainital whereas it has a network in Delhi, the Interconnect Agreement enables M/s. Bharti Cellular Limited to access the network of BSNL in Nainital and the same situation can arise vice versa in a given case. During the traffic of such calls whether there is any manual intervention, is one of the points which requires expert evidence. Similarly, on what basis is the "capacity" of each service prov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e its expert and to adduce any other evidence. Before concluding, we are directing CBDT to issue directions to all its officers, that in such cases, the Department need not proceed only by the contracts placed before the officers." (Emphasis ours) 29.1 Thus in our view the proposition of law laid down in the judgment of the Hon'ble Delhi High Court have attained finality. The Hon'ble Supreme Court held that the issue as to whether there is involvement / presence of human element or not was a factual and technical matter and required to be examined. The other proposition have been accepted by the Hon'ble Supreme Court. As the Hon'ble Supreme Court was of the opinion that this factual aspect of human intervention was not examined by the AO, the matter was remanded to the AO for factual examination only. The AO in pursuance of the directions of the Hon'ble Supreme Court examined witness on oath and also gave the assessee the opportunity to cross examine them. He also re-examined the expert witness. Our decision will be based on the evidence so collected by the AO on this aspect of human intervention in the services rendered. It held that the word "technica....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n one of the subscribers in the assessee's circle travels to the jurisdiction of another circle, the call gets connected automatically without any human intervention and it is for this, the roaming charges is paid by the assessee to the Visiting Operator for providing this service. Hence we have no hesitation to hold that the provision of roaming services do not require any human intervention and accordingly we hold that the payment of roaming charges does not fall under the ambit of TDS provisions u/ s 194J of the Act." 30. The Jaipur Bench of the Tribunal in the case of Bharti Hexacom Ltd. vs. ITO (TDS) in ITA 656/JP/2010 dated 12.6.2015 held as follows: "11. We have heard the rival contentions of both the parties and perused the material available on the record. After going through the order of the Assessing Officer, ld CIT(A); submissions of the assessee as well as going through the process of providing roaming services; examination of technical experts by the ACIT TDS, New Delhi in the case of Bharti Cellular Ltd.; thereafter examination made by M/s Bharti Cellular Ltd.; also opinion of Hon'ble the then Chief Justice of India Mr. S.H. Kapadia dated 03....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rt in Bharti Cellular Limited (supra). The Apex Court after examining the provisions of Section 9(l)(vii) of the Act, found that whenever there was a human intervention, it has to be considered as technical service. In the light to the above judgment of the Apex Court, the Department obtained an expert opinion from Sub-Divisional Engineer of BSNL. The Sub- Divisional Engineer clarified that human intervention is required for establishing the physical connectivity between two operators for doing necessary system configurations. After necessary configuration for providing roaming services, human intervention is not required. Once human intervention is not required as found by the Apex Court, the service provided by the other service provider cannot be considered to be a technical Service. It is common knowledge that, when one' of the subscribers in the assessee's circle travels to the jurisdiction of another circle, the call gets connected automatically without any human intervention. It is due to configuration of software system in the respective service provider's place. In fact, the Sub-Divisional Engineer of BSNL has explained as follows in response to Question No. 23....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... decided, the exhaustive standard of capacity of the transporter network will automatically re-route through another channel through another operator. Human intervention in setting up enhanced capacity has no connection or relation with the traffic of call. Thus it is clear that in the process of actual calls, no manual intervention is required. The finding of the revenue authorities that interconnection is a composite process, involving several processes which require human intervention is erroneous. The test laid down by the Hon'ble Supreme Court of India in its order when the case was remanded to the AO is to find out as to whether "during traffic of calls, is there was any manual intervention?". There is no reference to the issues of set up, installation or operation maintenance or repair of network as explained by the Ld. CIT(A). These decisions of the various Benches of the ITAT, when read with the judgment of the Hon'ble Delhi High Court as well as the Hon'ble Supreme Court, would settle this matter in favour of the assessee. But as a number of other decisions have been relied upon, we examine the same. 35. The Hon'ble Madras High Court in the case o....
X X X X Extracts X X X X
X X X X Extracts X X X X
...."assessee in default" u/s 201(1) on account of non-deduction of TDS u/ s 194J from payment made for use of tele-communication services i.e telephone charges, link charges and band width charges as 'fee for technical services" u/ s 9(1}(vii}-CIT(A} reversed findings of AO-Held, payments were made to MTNL & BSNL etc. for providing space for transmission of data for carriage of voice and for availing service of inter-communication, port access for which no human intervention was necessary- Payment cannot be characterized as "fee for technical services"-Thus, assessee cannot be held to be in default -for non-deduction of tax at source from payment of telecommunication. charges in terms of section 194J- Revenue's ground dismissed. 38. The Bangalore ITAT in the case of Wipro Ltd. vs. ITO (2003) 80 TTJ (Bang) 191 held as follows:- "Income deemed to accrue or arise in India-Fees for technical services/ royalty-Payment for transmission of data and software through uplink and down link services- Assessee engaged, inter alia, in the business of development of software providing on line software services through customer based circuits with the help of VSNL and foreig....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing up a call by the "FTO" from the Assessee is a "process". The definition of the term "process" rather the meaning of word "process" has been expanded by insertion of Explanation 6 to Section 9(1)(vi)of the Income Tax Act, introduced by the Finance Act, 2012 to include transmission by optic fibre or similar technology. Thus, after the amendment, transmission of call across gateway shall be a process under the Domestic Law. Even it is considered a process, as there is no use of it by the assessee, the definition of royalty is not attracted. c) The FTO provides technical services to the assessee by using its network. When the FTO is using its network, it cannot be said that assessee is using the network of the Non-Resident Operator. Hence, both the situations are mutually exclusive. As the assessee is not using the network of the FTO, the payment made is not for "use of process", hence, not in the nature of royalty. d) The AO's reliance on the judgment of the Chennai Bench of the Tribunal in the case of Verizon Communications Singapore Pte. Ltd. vs. ITO (2011) 45 SOT 263 (Chennai) is misplaced, as in that case the Indian Company obtained 'Leased Lines'....
X X X X Extracts X X X X
X X X X Extracts X X X X
....orking of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (emphasis ours) 49. By the Finance Act, 2012, Explanation 5 & 6 are added with retrospective effect from 1.6.1976 which reads as under:- "Explanation 5 - For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not - (a) The possession or control of such right, property or information is with the payer; (b) Such right, property or information is used directly by the payer; (c) The location of such right, property or information is in India. Explanation 6.- For the removal of doubts, it is hereby clarified that the expression "process" includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vice. Description(s) (see Schedule 1). All rates shall be stated in DOLLAR ($). Each Party shall invoice the other Party for the Service(s) provided based on actual call duration and number of calls (where applicable), which will be calculated in the relevant Service Descriptions. (b). Agreement between Bharti Airtel Ltd. (Bharti) and Airtel Tanzania Ltd. (Airtel) (copy enclosed at pages 39 to 74 of the PB): WHEREAS Bharti and Airtel are providers of international telecommunications services and WHEREAS, Bharti desires to procure certain telecommunications services provided by AIRTEL and AIRTEL desires to procure certain telecommunications services provided by Bharti; and WHEREAS, Parties, which are already providing carrier-tocarrier traffic, is now interested in creating a non-exclusive carrier-tocarrier relationship with Bharti; and WHEREAS, the Parties have agreed to enter into this Agreement to set out the arrangement between the parties in respect of the exchange of international telecommunication services as also the settlement rates in respect of the Service(s) listed in relevant Annexures attached. 3. OPERATIONAL MATTERS 3.1 Each Party s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt are not for renting, hiring, letting or leasing out of any of the network elements or resources to the other parties or for rendering telecommunication services on a reciprocal basis. The assessee merely delivers the call that originates on its network to one of the inter connection locations of the FTO and FTO carries and terminates the call on its network. The Assessee is nowhere concerned with the route, equipment, process or network elements used by the FTO in the course of rendering such services. 52. The term "process" used under Explanation 2 to section 9(1)(vi) in the definition of 'royalty' does not imply any 'process' which is publicly available. The term "process" occurring under clauses (i), (ii) and (iii) of Expl 2 to section 9(1)(vi) means a "process" which is an item of intellectual property. Clause (iii) of the said Explanation reads as follows: "(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property" Clauses (i) & (ii) of the said explanation also use the same coinage of terms. The words which surround the word 'process' in clauses (i) to (iii) of Expla....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... market to all those willing to pay, cannot constitute 'royalty' and is essentially in the nature of business income. The Hon'ble High Court of Madras in the case of CIT Vs. Nayveli Lignite Corporation Ltd. (2000) 243 ITR 0459 held that "the term (royalty' normally connotes the payment made to a person who has exclusive right over a thing for allowing another to make use of that thing which may be either physical or intellectual property or thing. The exclusivity of the right in relation to the thing for which royalty is paid should be with the grantor of that right. Mere passing of information concerning the design of machine which is tailor-made to meet the requirement of a buyer does not by itself amount to transfer of any right of exclusive user, so as to render the payment made therefor being regarded as royalty". The Hon'ble High Court of Calcutta in the case of N.V. Philips Gloeilampenfabrieken Eindhoven Vs. CIT (1988) 172 ITR 0521 held as under: "From the dictionary meaning of the term 'royalty', it appears that the said term connotes payments periodic or at a time for user by one person of certain exclusive rights belongin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ch specialised knowledge in the same way as a person holding a patent or owning a mineral right or having the copyright of a publication to allow a limited use of such specialised knowledge to others in confidence against payment in which case it is termed as royalty. However, once such specialized knowledge becomes public; such person loses the exclusivity in respect of such special knowledge and hence, loses the right to receive any royalty in respect of the same. Thus, for a payment to be classified assessee royalty, 'exclusivity' of the subject matter is of crucial relevance. 54. The Dictionary meaning of the term 'process' (as defined in Business Dictionary.com) is as under:- "Sequence of interdependent and linked procedures which, at every stage consume one or more resources (employee time, energy, machines, money) to convert inputs (data, material, parts, etc.) into outputs. These outputs then serve as inputs for the next stage until a known goal or end result is reached." As Cambridge Dictionaries Online, defines "process" to mean a series of actions that you take in order to achieve a result. 54.1 Hence, the term 'process'....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... terms i.e. in terms of ownership and physical presence, but the process embedded in the execution of a telecom infrastructure is the same and commonly available with all the telecom operators. The 'royalty' in respect of use of a 'process' would imply that the grantor of the right has an exclusive right over such 'process' and allows the 'use' thereof to the grantee in return for a 'royalty'. It is necessary that guarantee must 'use' the 'process' on its own and bear the risk of exploitation. The 'process' of running the networks in the case of all the telecom operators is essentially the same and they do not have any exclusive right over such 'process' so as to be in a position to charge a 'royalty'. For allowing the use of such process, the term 'use' in context of royalty connotes use by the grantee and not by the grantor. A 'process' which has been in public domain for some time and is widely used by everyone in the field cannot constitute an item of intellectual property for the purpose of charge of 'royalty'. Any compensation or consideration, if at all received for allowi....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... i) A person hiring a taxi will be paying a royalty for indirectly using the process of running of the engines of the taxi. ii) A person using a cable connection will be termed to be paying royalty in the form of cable charges for indirectly using the process of running of the systems of the cable operators. iii) A telephone subscriber using or making a call would be held as indirectly using the process of the service of telecom. 58. The Hon'ble Delhi High Court in the case of CIT vs. Bharati Cellular Ltd. reported in 319 ITR 139 has given a finding that the facility in question provided to the assessee is a "service" and in a broader sense a "communication service". The facility of interconnection is held as providing service which is "technical" in the sense that involved sophisticated technology. Thus the factual finding of the Jurisdictional High Court in this very facts and circumstances is that "technical services" is being provided by the FTO's to the assessee but that such "Technical Service" is not FTS as defined u/s. 9(1)(vii) of the Act as there is no human intervention. This finding that it is a "service" has not been upheld by the Hon....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kindreceived as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. (Emphasis ours) 59.4 Further, as per Article 12(3) of the Indo-US treaty, the term 'royalties' has been defined as under: "3. The term "royalties" as used in this Article means: (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of - a literary, artistic, or scientific work, including.- cinematography films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan,' secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or dispositio....
X X X X Extracts X X X X
X X X X Extracts X X X X
....elhi in the case of Asia Satellite Telecommunications Co. Ltd. vs. Director of Income Tax (2011) 332 340 considered this issue and held as follows :- "The taxpayer, a Hong Kong based company, was engaged in the business of satellite communications and broadcasting facilities. This business: was carried out through the medium of satellites, owned and leased, which are placed in geostationary orbits. These satellites did not use Indian orbital slots. They also did not get placed over the Indian sky space on any occasion. The assessee entered into agreements with TV Channels & communication companies so that they are able to utilize its transponder capacity for data transmission. They could plink their signals on the transponder through their own earth stations. Such earth stations are located outside India. On receipt of the signals, the transponder amplifies the signal and sends it to the target area. The area so covered, called the footprint area, included the territory of India. The assessee held that its income was not chargeable to tax in India because it does not have any permanent establishment in India. In particular, it was argued that there was no office or custome....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uplinking the signals containing the television programmes ; thereafter the satellite received the signals and after amplifying 'and changing their frequency relayed it down in India and other countries where the cable operators caught the signals and distributed them to the public. Any person who had a dish antenna, could also catch the signals relayed from these satellites: 'The role of the assessee was that of receiving the signals, amplifying them and after changing the frequency relaying them on the earth. For this service, the television channels made payment to the assessee. The assessee was the operator of the satellites and was in control of the satellite. It had not leased out the equipment to the customers. The assessee had merely given access to a broadband width available in a transponder which can be utilized for the purpose of transmitting the signals of the customer. A satellite is not a mere carrier, nor is the transponder some- thing which is distinct and separable from the satellite as such. The trans-ponder in fact cannot function without the continuous support of various systems and components of the satellite. Consequently, it is entirely wrong to assu....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (Del) the Tribunal has held as under:- "There is a ''process'' involved in the activity carried on by the assessee. There is a comma after the words "secret formula or process" in art. 12.3(a) of Indo-US DTAA which indicates that both the words "formula" and "process" are qualified by the word "secret". The requirement thus under the treaty is that both the formula and the process, for which the payment is made, should be a secret formula or a secret process in order that the consideration may be characterised as royalty. Normally punctuation by itself cannot control the interpretation of a statutory provision. However, the punctuation-the use of the comma-coupled with the setting and words surrounding the words under consideration, indicates that under the treaty even the process should be a secret process so that the payment therefore, if any, may be assessed in India as royalty. The words which surround the words "secret formula or process", in art. 12.3(a) of the treaty refer to various species of intellectual properties such as patent, trade mark, design or model, plan, etc. Thus the words "secret formula or process" must also refer to a specie of int....
X X X X Extracts X X X X
X X X X Extracts X X X X
....company in India, same is not taxable in India." Further, at paras 8.1 to 8.3, the Hon'ble AAR held as under: "No material has been placed to show that C&W UK uses any secret process in the transmission of the international leg of the service, or that the applicant pays towards the use or right to use that secret process. It is well settled that telecom services are standard services. The arrangement between the applicant and C& W UK is for rendition of service and the applicant pays for the same. It is for C & W UK to see how it will provide that service. The applicant is not concerned with the same. The Revenue has thus failed to show how the payments made by the applicant will be royalty income in the hands of C&W UK."-Dell International Services India (P) Ltd., In re(2008) 218 CTR (AAR) 209 : (2008) 10 DTR (AAR) 249 : (2008) 305 ITR 37 (AAR) followed." 62.1 Applying the proposition laid down in the case laws to the facts of the case, we have to hold that the payment in question is not 'Royalty' as contemplated under the DTAAs. 62.2 Now the question is whether there would be any change in this position subsequent to the retrospective amendments brought out ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ax Avoidance Agreement: "3. The term "royalties" as used in this article means payments of any kind received as a consideration for the alienation or the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph films, phonographic records and films or tapes for radio or television broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience." Article 12(4), Indo Netherlands Double Tax Avoidance Agreement ITA 473/2012, 474/2012, 500/2012 & 244/2014 Page 31 "4. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience." Section 9(1)(vi), Explanation 2, Income Tax Act, 1961 "(iii) the use of any patent, invention, m....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... considering the Vienna Convention on the Law of Treaties, 1969 (VCLT) and the judgments of the Hon'ble Supreme Court of Canada and other precedents, the Hon'ble High Court further has held as under :- "60. Consequently, since we have held that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word "royalty" in Asia Satellite59 , when the definitions were in fact pari materia (in the absence of any contouring explanations), will continue to hold the field for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amended jointly by both parties to incorporate income from data transmission services as partaking of the nature of royalty, or amend the definition in a manner so 59 supra note 1 ITA 473/2012, 474/2012, 500/2012 & 244/2014 Page 50 that such income automatically becomes royalty. It is reiterated that the Court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no Double Tax Avoida....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lowing reasons:- (a) M/s Verizon Communications received International Private Leased Circuit charges from customers for providing point to point dedicated private line to communicate between offices that are geographically dispersed throughout the world, the said case the bandwidth capacity was dedicated for the use of the Indian customer irrespective of actual usage. In the case of the present assessee, no such point to point dedicated private line was made available by the FTOs. (b) In the case of Verizon Communications the customer has dedicated active internet connection at a particular speed, so that the contracted bandwidth is provided and the equipment at the customer end is also delivered by VCPL. In the case of the assessee no equipment is given by the FTO to the assessee. The assessee merely delivers a call using its own network, to the interconnection location of the FTOs which picks up the call and further transmit and terminates at the desired destination by using its own network. (c) In the case of Verizon Communication the customer has a significant economic interest in the VCPL's equipment to the extent of the bandwidth hired by the custo....