AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (10) TMI 699
X X X X Extracts X X X X
X X X X Extracts X X X X
....gn telecom service providers as royalty income under section 9(1)(vi) of the Income-tax Act, 1961 (in short 'the Act'). 4. Briefly the facts are, the assessee is a resident corporate entity providing mobile telecom services in India. Upon receiving certain information towards non-compliance with Tax Deducted at Source (TDS) provisions, proceedings under section 201 of the Act were initiated against the assessee. In course of such proceedings, the Assessing Officer noticed that the assessee had remitted substantial amount of revenue towards communication charges, cellular roaming charges, bandwidth charges, Annual Maintenance Charges (AMC), Fee for Technical Services (FTS), royalty, training, participation fee, purchase of software etc. without deduction of tax at source or has deducted TDS at lesser rate. 5. Insofar as bandwidth charges remitted to certain Foreign Telecom Service Providers, the Assessing Officer observed that while remitting such amounts to the Foreign Telecom Services Providers, the assessee has failed to deduct tax at source. Therefore, a show-cause notice was issued to the assessee, as to why the tax and interest thereon under section 201(1)/201(1A) should not....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t appellate authority observed that amendment made to the domestic law cannot automatically be made applicable to the treaty without making corresponding changes in the DTAAs. Thus, after examining the relevant provisions in respective DTAAs, learned first appellate authority held that the remittances made to foreign telecom service providers cannot be treated as royalty in cases where such foreign telecom service providers are located in countries with whom India has signed DTAAs. However, he held that the remittances can be treated as royalty in cases where payments were made to foreign telecom service providers located in countries with whom India has not signed any agreement. Accordingly, he disposed of the issue by granting partial relief to the assessee. 8. Before us, the assessee has submitted that even in respect of remittances made to entities located in non-treaty countries bandwidth charges cannot be treated as royalty in terms of section 9(1)(vi) read with its explanations. In this context, he relied upon a decision of Hon'ble Delhi High Court in case of CIT Vs. Telstra Singapore Pte. Ltd., [2024] 165 taxmann.com 85 (Delhi). 9. Learned Departmental Representative stro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hich appears to have weighed upon the Court to observe that the Explanations appear to have been introduced primarily to overcome binding judicial decisions. We, on an overall analysis of all of the above, find no justification to either draw a different line or doubt the correctness of the decisions handed down in Asia Satellite and New Skies. 103. We find ourselves unconvinced with the submissions addressed on this score by the appellants for the following additional reason. The amendments in Section 9 which were alluded to came to be introduced by virtue of Finance Act, 2012 with retrospective effect from 01 June 2012. It is pertinent to recall that the DTAA between Singapore and India, and with which we are concerned, originally came into force on 27 May 1994. The 3rd Protocol to that Convention came to be signed on 30 December 2016 and which entered into force on 27 February 2017. The MLI Convention came to be signed by the two nations on 07 June 2017 and was ratified on 21 December 2018 and 25 June 2019 respectively. However, and even though Section 9 in its amended form had come to exist on the statute book, no corresponding amendments were introduced in Article 12. In fac....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tions forming part of that statutory provision. The issue of the extent to which that provision would be applicable as well as the degree to which it could influence Article 12 of the DTAA, however, does not appear to have been critically evaluated. The tenor of that decision appears to suggest that it proceeded on the basis that Section 9 undoubtedly applied. With due respect, and for reasons aforenoted, we find ourselves unable to agree with or affirm the position as struck in Verizon. 106. We are also of the firm opinion that even if one were to assume that Explanations 2 and 6 to Section 9 of the Act applied, the position would remain unaltered. This since there was no transfer or conferment of a right in respect of a patent, invention or process. Customers and those availing of the services provided by Telstra were not accorded a right over the technology possessed or infrastructure by it. The underlying technology and infrastructure remained under the direct and exclusive control of Telstra. Parties availing of Telstra's services were not provided a corresponding general or effective control over any intellectual property or equipment. The agreements merely enabled them....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Grounds are allowed. 12. In ground no. 2, the assessee has challenged taxability of annual maintenance charges (AMC) paid to certain foreign companies as FTS requiring deduction of tax at source. 13. Briefly the facts are, in course of proceedings under section 201 of the Act, the Assessing Officer noticed that the assessee has remitted certain amounts to foreign entities towards AMC without deducting tax at source or has deducted at a lesser rate than the rate as applicable. Therefore, the Assessing Officer called upon the assessee to explain, why the deficit TDS should not be recovered by way of raising demand under section 201(1)/201(1A) of the Act. In response to the show-cause notice, the assessee furnished its reply stating that since the payments are not taxable at the hands of the recipients in India, there was no requirement of deduction of tax at source. The Assessing Officer, however, was not convinced with the submissions of the assessee and proceeded to hold that the payments made by the assessee, being in the nature of FTS, the assessee was required to deduct tax at source. Accordingly, he raised demands under section 201(1)/201(1A) of the Act. The assessee contest....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntal Representative, on the other hand, submitted that before the departmental authorities, the assessee, in essence, has accepted that the services provided by the service providers are technical in nature. He submitted, the only contention of the assessee before the departmental authorities was non-fulfillment of 'make available' condition by applying the MFN clause. He submitted, in view of the change in legal position regarding applicability of MFN clause, the contention of the assessee advanced before the departmental authorities is no more acceptable. He submitted, at this stage, the assessee cannot change its stand with regard to the nature of service as he has already accepted it to be technical service. 18. In rejoinder, learned counsel for the assessee submitted that there is no estoppel against the assessee in taking the stand that the services rendered are of non-technical nature. In support, he relied on certain judicial precedents. 19. We have considered rival submissions and perused the materials on record. We have also applied our mind to the judicial precedents cited before us. Undisputedly, the assessee has made remittances to certain foreign entities located in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en taken for the first time before us, have not been examined either by the Assessing Officer or by learned CIT(A). The nature of services rendered by the service providers, whether are of technical nature, has to be decided based on examination of specific facts relating to the services rendered. In our view, because of assessee's singular stand relating to non-fulfillment of make available condition, the preliminary issue regarding the nature of services have not been examined at any stage earlier. Therefore, we are inclined to restore this issue to the file of the Assessing Officer to factually verify assessee's claim that the services rendered do not fall withing the ambit of technical, managerial or consultancy services. While deciding the issue, the assessee must be provided reasonable opportunity of being heard. Ground is allowed for statistical purposes. ITA No.8044/Del/2019 (Revenue's Appeal) 22. Ground nos. 1 and 6 are general in nature, hence, do not require adjudication. 23. In view of our decision qua ground nos. 1 and 3 in assessee's appeal, ground nos. 2, 3 and 5, having become infructuous, do not require specific adjudication, hence are dismissed. 24. In ground ....