TaxTMI 
TaxTMI 
TaxTMI 
2024 (5) TMI 909
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.... support of the same, assessee has filed a letter which is scanned and reproduced as under: Accordingly, ground nos. 1-2 for A.Y. 2014-15 and ground no. 1 for A.Y. 2017-18 stands dismissed as not pressed. 3. The Ld.AR submitted that Ground nos. 3-4 for A.Y. 2014-15 and Ground nos. 2-3 for A.Y. 2017-18 are on single issue of payment received towards IUC held as royalty in the hands of the assessee u/s. 9(1)(vi) of the act. 4. Brief facts of the case are as under: 4.1 Assessee is a non-resident company registered in Hongkong. It had received payment of Rs. 20,19,231/- for A.Y. 2014-15 and Rs. 36,97,710/- for A.Y. 2017-18 from M/s. Vodafone South Ltd., an Indian entity during the relevant assessment years. On examination of records, the Ld.AO was of the opinion that the assessee's income was chargeable to tax in India as the deductor did not deduct TDS under the provisions of section 191 of the act that would fasten to assessee. The Ld.AO further observed that provisions of section 201 were invoked in the deductor's case on a cumulative default by the deductor for not deducting tax and remitting the money to the non-resident companies. Based on these background, the Ld.AO reopene....
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....y assessee cannot be characterised as "royalty" as defined in the relevant Article of DTAA; * in Viacom 18 Media Limited Vs. ADIT22 rendered by ITAT Mumbai and relied upon by the ITAT for the A.Ys. 2009-10 to 2011-12' the ITAT has held that TDS was deductable at source. However, for subsequent years in assessee's own cases23, the ITAT has taken a different view and held that the definition in the DTAA could not be enlarged by relying upon the provisions of Explanations 5 and 6; * that, for a payment to be characterised as one for use of, or for the right to use certain intellectual property, firstly, the grantor of that right should be denuded from that property and it should vest completely with the recipient and secondly, the possession, dominion and control over such property should be fully granted to the user. The amendment brought by the Finance Act, 2012 by insertion of Explanation 5 seeks to do away with the second condition but the first condition remains unchanged; * the NTOs have not denuded themselves of utilising the process. The payment made by assessee to the NTOs is not the payment for the use or the right to use process or the equipment as alleged by the ....
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.... interconnectivity utility charges as Royalty under the Act, since the payment is made to "use the process" or "an equipment". 8.2 It is an admitted fact that, service provider in India entered into agreement with assessee for international carriage and connectivity services, against which, an interconnectivity charges were received by the assessee. We refer to the term "Process" that occurs under clause (i), (ii) and (iii) to Explanation 2 to Section 9(vi). It reads 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, 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 s....
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....ently copying or infringing the right." 8.2.5 Thus the word "process" thus must also refer to specie of intellectual property, applying the rule of, ejusdem generis or noscitur a sociis, as held by Hon'ble Supreme Court in case of CIT vs. Bharti Cellular reported in (2011) 330 ITR 239. 8.2.6 We refer to the decision of Hon'ble Madras High Court in case of CIT vs. Neyveli Lignite Corpn. Ltd. reported in (2000) 243 ITR 459 wherein Hon'ble High Court observed as under: "10. 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". 8.2.7 It is an admitted fact that there is no transfer of any intellectual property rights or any exclusive rights that ha....
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.....2.11 The above decisions, lay down that, in order to satisfy 'use or right to use', the control and possession of right, property or information should be with service recipient. 8.2.12 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(....
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.... the phrase 'right to use' implies the existence of such control. Even in a case where the customer 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 ob....
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....b has meaning to employ for any purpose, to employ for attainment of some purpose or end, to avail 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 equip-ment 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 'equip....
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....face with the equipment, operates it or controls its functioning in some manner, 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 i....
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....iz., all business, secrets of a commercial or industrial 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. 9. Also Hon'ble Karnataka High Court in case of Vodafone Idea Ltd. (supra) has already answered question of law no. 3 in favour of assessee by holding that payment to NTOs for providing inter connect services and transfer of capacity in foreign countries cannot be charged as royalty as there is no "use" or "right to use" process or equipment as alleged by the revenue. Hon'ble High Court also held that granter of the right (being the non-resident assessee in the present assessee) to b....