DEPUTY COMMISSIONER OF INCOME TAX (IT) , CIRCLE-2(2), BENGALUR, BENGALURU V. SAUDI TELEKOM COMPANY, KINGDOM OF SAUDI ARABIA

ITA 2389/BANG/2024

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The case involves Saudi Telekom Company, a non-resident telecommunication carrier based in Saudi Arabia, which entered into an International Telecommunications Services Agreement with Vodafone Essar South Limited (now Vodafone Idea Limited) for providing interconnect services. These services were provided outside India, and no part of the activities was performed in India. The Income Tax Department of India initiated re-assessment proceedings against Vodafone, which led to an ex-parte assessment order against Saudi Telekom Company, asserting tax liability in India. The CIT(A) reversed this decision, leading to the current appeals by the revenue. The tribunal's decision was influenced by the judgments of the Karnataka High Court and the Supreme Court, which clarified that such payments to non-resident telecom operators for inter-connectivity services are not taxable as royalty in India.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 470541 (ITAT-BANGALORE)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-02-2025
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2009-2010
• Other Referred Cases: Vodafone Idea Ltd. vs. DCIT
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NEERA MALHOTRA
• Assessee Lawyers: ALIASGAR RAMPURWALA
• Keywords: Reassessment proceedings
• Section: 147; 148; 144; 250; 201; 271(1)(c); 201(1)

Judgement Text

"IT(IT)A Nos.2389&2399/Bang/2024 Saudi Telekom Company, Riyadh IN THE INCOME TAX APPELLATE TRIBUNAL “C’’ BENCH: BANGALORE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI PRAKASH CHAND YADAV, JUDICIAL MEMBER IT(IT)A Nos.2389 & 2399/Bang/2024 Assessment Year: 2009-10 DCIT (IT) Circle-2(2) Bangalore Vs. Saudi Telekom Company PO Box No.87912 King Abdul Aziz Communication Complex AI Mursalat Riyadh, FOREIGN Saudi Arabia - 999999 PAN No.ABFCS1518N APPELLANT RESPONDENT Assessee by : Mr. Aliasgar Rampurwala, A.R. Revenue by : Ms. Neera Malhotra, D.R. Date of Hearing : 11.02.2025 Date of Pronouncement : 13.02.2025 O R D E R PER BENCH: Both these appeals of the revenue are arising from the order of ld. CIT(A) dated 7.11.2024 and relates to assessment year 2009-10 having DIN & Order No.ITBA/APL/S/250/2024-25/1070161402(1) passed u/s 250 of the Income Tax Act, 1961 (in short “The Act”). 2. It is relevant to mention here that ITA No.2389 /Bang/2024 is in respect of the quantum proceedings and ITA No.2399/Bang/2024 is in respect of penalty u/s 271(1)(c) of the Income Tax Act, 1961 (in short “The Act”). 3. Facts of the case are that the assessee, a non-resident company, incorporated under the laws of the Kingdom of Saudi IT(IT)A Nos.2389&2399/Bang/2024 Saudi Telekom Company, Riyadh Page 2 of 4 Arabia (KSA), is a telecommunication carrier operating as a provider of telecommunications services under the laws of KSA. The Assessee is a tax resident of KSA. The Company provides international telecommunication services/interconnect and roaming services (hereinafter referred to as 'Interconnect\" services) to telecommunication operators and service providers worldwide. The Company has entered into International Telecommunications Services Agreement (agreement') with Vodafone Essar South Limited (now Vodafone Idea Limited) (Vodafone) dated January 1, 2008, an Indian telecom operator, for the provision of interconnect services. Such interconnect services are provided by STC outside India and no part of the activities for provision of interconnect services is performed in India. Further, Vodafone does not have any control or physical possession over any process/Infrastructure/equipments owned by STC and used for performing the services outside India. In the absence of any income chargeable to tax in India, the Assessee did not file its return of income in India for the AY under consideration. A proceeding under section 201(1) and 201(1A) of the Act was initiated in the case of Vodafone and during the proceedings it was observed that Vodafone had paid certain amounts to the Company towards interconnect charges on which taxes were required to be deducted at source. Consequently, the learned Deputy Commissioner of Income-tax (International Taxation), Circle 2(1), Bangalore initiated re-assessment proceedings vide notice under section 148 of the Act dated March 29, 2016. The Ld. AO further issued certain notices and a show cause notice (dated November 22, 2017) during the course of the reassessment proceedings. Subsequently, the Learned. AO passed an ex-parte assessment order under section 147 read with section 144 of the Act, dated December 19, 2017, on the basis of details obtained from the ongoing proceedings under section 201 of the Act in the case of Vodafone. IT(IT)A Nos.2389&2399/Bang/2024 Saudi Telekom Company, Riyadh Page 3 of 4 4. Aggrieved with the order of AO, the assessee preferred an appeal before the ld. CIT(A) and contended that the issue involved in this case is as to whether the inter-connect service charges received by the assessee would fall under the category of royalty and hence not chargeable to tax in India. The ld. CIT(A) observed that M/s. Vodafone South Ltd. i.e. now Vodafone Idea Ltd. was engaged in providing international long-distance services to its subscribers as well as subscribers of its customers. As a part of its international long distance service business, M/s. Vodafone Idea Ltd. was responsible for providing connectivity to calls originating or terminating outside India. In order to achieve this facility, M/s. Vodafone Idea Ltd. has availed the services of the present assessee and made certain payments on account of these inter-connect services. The ld. CIT(A) following the verdict of Hon’ble Karnataka High Court rendered in the case of M/s. Vodafone Idea Ltd vide ITA Number 160 of 2015 dated 14.07.2023 allowed the appeal of the assessee. The ld. CIT(A) has also relied upon the case of Engineering Analysis. 5. The ld. D.R. appearing on behalf of the revenue strongly relied upon the orders of authorities below. 6. The ld. Counsel for the assessee relied upon the judgement of Hon’ble jurisdictional High Court in the case of Vodafone Idea Ltd. 7. We have heard the rival submissions and perused the materials available on record. We are of the view that the issue involved in the present appeal is squarely covered by the judgement of Hon’ble Karnataka High Court in the case of Vodafone Idea Ltd. (supra), wherein the Hon’ble High Court through its judgement dated 14.7.2023 held as under: “The third question is whether the payments made to NTOs for providing inter-connectivity services and transfer of capacity in foreign IT(IT)A Nos.2389&2399/Bang/2024 Saudi Telekom Company, Riyadh Page 4 of 4 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 deductible when payment is made to non- resident telecom operator. This factual aspect is not refuted. Thus, the Revenue has reviewed its earlier stand for the subsequent assessment years placing reliance on Viacom (supra), etc., rendered by the ITAT. In that view of the matter, this question also needs to be answered against the Revenue.” 7.1 We further observe that SLP filed by the revenue against the verdict of Hon’ble jurisdictional High Court has already been dismissed by the Hon’ble Supreme Court in its decision dated 26.7.2024, therefore, respectfully following the view of the Hon’ble Supreme Court the appeal of the revenue stands dismissed. Since we have already dismissed the appeal of the revenue on quantum proceedings, appeal of the revenue in penalty proceedings become infructuous and is also dismissed. 8. In the result, both the appeals of the revenue are dismissed. Order pronounced in the open court on 13th Feb, 2025 Sd/- (Waseem Ahmed) Accountant Member Sd/- (Prakash Chand Yadav) Judicial Member Bangalore, Dated 13th Feb, 2025. VG/SPS Copy to: 1. The Applicant 2. The Respondent 3. The CIT 4. The DR, ITAT, Bangalore. 5 Guard file By order Asst. Registrar, ITAT, Bangalore. "