DDIT (IT) 2(1), MUMBAI V. SPRINT COMMUINICATIONS COMPANY LP, MUMBAI

ITA 5156/MUM/2009

• Counselvise Citation: [2017] 126 COUNSELVISE.COM (IT) 8589 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 1 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-11-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 28-08-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 09-09-2009
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Double taxation relief; Permanent establishment
• Section: 234B; 6; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA , A M AND SHRI SANDEEP GOSAIN , J M ./ I.T.A. NO S . 5156/MUM/2009, 569 & 3808/MUM/2010 ( / ASSESSMENT YEAR S : 2005 - 06, 2006 - 07 , AND 2007 - 08 ) DDIT(IT) - 2(1), R. NO. 120, 1 ST FLOOR, SCINDIA HOUSE, BALLARD ESTATE, N. M. ROAD, MUMBAI - 400 038 / VS. M/S. SPRINT COMMUNICATIONS COMPANY LP C/O. SR BATLIBOI & CO. CAS, 18 TH FLOOR, EXPRESS TOWERS, NARIMAN POINT, MUMBAI - 400 021 ./ ./ PAN/GIR NO. AAYFF 1407 P ( REVENUE ) : ( ASSESSEE ) . /CO NO. 74 /MUM/2010 (ARISING OUT OF ITA NO. 5156/MUM/2009) AND ./ I.T.A. NO. 2744/MUM/2012 ( / ASSESSMENT YEARS: 2005 - 06 AND 200 8 - 0 9 ) M/S. SPRINT COMMUNICATIONS COMPANY LP C/O. SR BATLIBOI & CO. CAS, 18 TH FLOOR, EXPRESS TOWERS, NARIMAN POINT, MUMBAI - 400 021 / VS. DDIT(IT) - 2(1), R. NO. 120, 1 ST FLOOR, SCINDIA HOUSE, BALLARD ESTATE, N. M. ROAD, MUMBAI - 400 038 ./ ./ PAN/GIR NO. AAYFF 1407 P ( ASSESSEE ) : ( REVENUE ) REVENUE BY : SHRI SAMUEL DARSE ASSESSEE BY : SHRI HARSH KAPADIA / DATE OF HEARING : 30.10.2017 / DATE OF PRONOUNCEMENT : 07.11 .2017 2 ITA NO S . 5156/M /09, 569 & 3808/M/ 10, CO NO.74/M / 10 AND 2744/M/12 M/S. SPRINT COMMUNICATIONS COMPANY LP / O R D E R PER BENCH : TH ESE ARE A PPEAL S BY THE REVENUE FOR THE ASSESSMENT YEARS 2005 - 06, 2006 - 07 AND 2007 - 08 AND CROSS OBJECTION BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2005 - 06 AND APPEAL BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2008 - 09 , AGAINST THE RESP ECTIVE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS) . SINCE THE ISSUES ARE COMMON AND CONNECTED, ALL THE APPEALS WERE HEARD TOGETHER. THESE HAVE BEEN CONSOLIDATED AND DISPOSED OF TOGETHER BY THIS COMMON ORDER. 2. THE ISSUES IN THE APPEAL S RELATE TO TAXAB ILITY OF PAYMEN TS RECEIVED FOR LEASING OUT A DEDICATED INTERNATIONAL BANDWIDTH OF THE CABLE BY THE ASSESSEE TO ITS CUSTOMERS IN INDIA FOR FACILITATING TRANSFER OF DATA. THE ASSESSEES PLEA IS THAT THIS D OES NOT AMOUNT THE ROYALTY UNDER THE INCOME TAX ACT, 1961 A ND AS PER THE INDO - USA DTAA. ANOTHER ISSUE RAISED IS THE INTEREST CHARGEABLE U/S. 234B. 3. AT THE OUTSET , IN THIS CASE, THE LD. COUNSEL OF THE ASSESSEE HAS SUBMITTED A PETITION AS UNDER: PETITION/LETTER DATED 24 OCTOBER, 2017 ASSESSMENT YEAR (A Y'): 2005 - 06 - ITA 5156/MUM/2009 (DEPARTMENTS APPEAL) AND CO 74/MUM/2010 (ASSESSEES CO) 2006 - 07 - ITA 569/MUM/2010 (DEPARTMENTS APPEAL) 2007 - 08 - ITA 3808/MUM/2010 (DEPARTMENTS APPEAL) 2008 - 09 - ITA 2744/MUM/2012 (ASSESSEES APPEAL) WE REFER TO THE CA PTIONED APPEALS SCHEDULED FOR HEARING ON 30 OCTOBER 2017 BEFORE L BENCH OF THE HONBLE INCOME TAX APPELLATE TRIBUNAL, MUMBAI. 3 ITA NO S . 5156/M /09, 569 & 3808/M/ 10, CO NO.74/M / 10 AND 2744/M/12 M/S. SPRINT COMMUNICATIONS COMPANY LP IN ALL THE CAPTIONED MATTERS, THE PRINCIPAL ISSUE FOR ADJUDICATION BEFORE YOUR HONOURS IS WHETHER THE INCOME EARNED BY NON - RESI DENT ASSESSEE FROM PROVISION OF TELECOMMUNICATION SERVICES IS TAXABLE AS ROYALTY IN INIDA. THIS ISSUE HAS BEEN A SUBJECT MATTER OF SIGNIFICANT LITIGATION IN INDIA WITH CONTRARY DECISIONS OF VARIOUS COURTS. THE HONBLE DELHI HIGH COURT IN CASE OF ASIA SAT ELLITE TELECOMMUNICATIONS CO. LTD. VS. DIT [2011] 332 ITR 340 (DEL) AND DIT V. NEW SKIES SATELLITE BV [2016] 382 ITR 114 (DELHI) HAVE RULED IN FAVOR OF THE ASSESSEE, WHEREAS THE HONBLE MADRAS HIGH COURT IN CASE OF VERIZON COMMUNICATIONS SINGAPORE PTE. LTD . V.S ITO [2014] 361 ITR 575 (MADRAS) HAS RULED AGAINST AND HELD THAT THE SAME WOULD BE TAXABLE IN INDIA AS ROYALTY. WE UNDERSTAND THAT THE MATTER IS CURRENTLY PENDING BEFORE THE HONBLE SUPREME COURT FOR ADJUDICATION AND WE BELIEVE THAT THE ISSUE IS NOT LIKELY TO ATTAIN FINALITY IN NEAR FUTURE. GIVEN THE ABOVE AND CONSIDERING THAT COST OF LITIGATION (INCLUDING CONSUMPTION OF MANAGEMENTS TIME DEVOTED TO THE MATTERS) SIGNIFICANTLY OUTWEIGHS THE TAX DEMAND UNDER LITIGATION, SCC LP WISHES NOT TO FURTHER LIT IGATE THE LEARNED ASSESSING OFFICERS CONTENTION THAT THE PAYMENT RECEIVED BY THE ASSESSEE FROM INDIA FOR PROVISION OF TELECOMMUNICATION SERVICES WOULD BE TAXABLE AS ROYALTY. WITHOUT PREJUDICE TO THE ABOVE, THE ASSESSEE ALSO WISHES TO HUMBLY SUBMIT THAT NOT PURSUING THE LITIGATION ANY FURTHER SHOULD NOT BE TREATED AS THE ACCEPTANCE OF THE DEPARTMENTS CONTENTIONS. THE SOLE REASON WHY THE ASSESSEE HAS CHOSEN NOT TO PRESS THE GROUND IS BECAUSE IT IS NOT ECONOMICALLY BENEFICIAL FOR IT TO PURSUE THE MATTER A NY FURTHER. THE ASSESSEE RESERVES ITS RIGHT TO LITIGATE ANY SIMILAR ISSUE WHICH MAY ARISE IN ANY EARLIER OR SUBSEQUENT YEARS. 4. REFERRING TO THE ABOVE, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT IN THREE OF THE YEARS , I.E., ASSESSMENT YEARS 2005 - 06, 2006 - 07 AND 2007 - 08, THE LD. CIT(A) HAS DECIDED THE ISSUE OF TAXABILITY OF INCOME EARNED FROM THE PROVISION OF TELECOM SERVICE AS ROYALTY IN FAVOUR OF THE ASSESSEE. HOWEVER , FOR ASSESSMENT YEAR 2008 - 09, THE SAID ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE . THE LD. COUNSEL SUBMITTED THAT NOW THE ASSESSEE SEEKS TO WITHDRAW ITS APPEAL AND DOES NOT WANT TO CONTEST THE DEPARTMENT S APPEAL. IN THE CASE OF DEPARTMENTS APPEAL, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT HE AGREE WITH THE ASSESSMENT ORDER PASSE D BY THE ASSESSING OFFICER, FOR THE 4 ITA NO S . 5156/M /09, 569 & 3808/M/ 10, CO NO.74/M / 10 AND 2744/M/12 M/S. SPRINT COMMUNICATIONS COMPANY LP PROPOSITION THAT THE PAYMENT RECOVERED BY THE ASSESSEE FROM INDIA FOR PR OVISIONING OF TELECOMMUNICATION SERVICES WOULD BE TAXABLE AS ROYALTY. 5. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE DID NOT HAVE ANY OBJECTION TO THE CON C ESSION BEING MADE BY THE LD. COUNSEL OF THE ASSESSEE. 6. UPON CAREFUL CONSIDERATION, WE FIND THAT SINCE THE ASSESSEE IS NOT CONTESTING THE TAXABILITY OF THE INCOME RECEIVED BY IT FROM THE PROVISIONS OF TELECOMMUNICATION SERVICES TAXABLE AS RO YALTY, THE GROUND RAISED BY THE ASSESSEE ON THIS ISSUE IS DISMISSED AND T HE GROUNDS RAISED BY THE REVENUE ON THIS ISSUE ARE ALLOWED 7. ONE MORE ISSUE WHICH ARISES IN THESE APPEALS IS THE CHARGEABILITY OF INTEREST U/S. 234B. WE FIND THAT THIS ISSUE IS COVE RED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF DIT (IT) VS. NGC NETWORK ASIA LLC [2009] 222 CTR 85 (BOM) . IN THE SAID CASE, IT WAS EXPOUNDED THAT WHEN THE DUTY IS CAST ON THE PAYER TO PAY THE TAX AT SOURCE, ON FAILURE , NO MORE INTEREST CAN BE IMPOSED ON THE PAYEE ASSESSEE U/S. 234 B . RESPECTFULLY FOLLOWING THE PRECEDENT, WE HOLD THAT INTEREST U/S. 234B IN THIS CASE IS NOT CHARGEABLE. 8. IN CROSS OBJECTION NO.74/MUM/2010, THE ASSESSEE HAS RAISED TH E FOLLOWING GROUND: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED ASSESSING OFFICER HAS ERRED IN HOLDING THAT THE COMMISSIONER OF INCOME - TAX (APPEALS) [CIT()] ADMITTED SUBMISSIONS IN CONTRAVENTION OF RULE 46A OF THE INCOME - TAX RULES, 1962 I N RELATION TO THE RESPONDENT HAVING A PERMANENT ESTABLISHMENT IN INDIA. 5 ITA NO S . 5156/M /09, 569 & 3808/M/ 10, CO NO.74/M / 10 AND 2744/M/12 M/S. SPRINT COMMUNICATIONS COMPANY LP 9. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT HE SHALL NOT BE PRESSING THE CROSS OBJECTION. ACCORDINGLY, THE CROSS OBJECTION IS DISMISSED AS NOT PRESSED. 10. IN THE RESULT, THE AB OVE APPEALS ARE DECIDED AS UNDER: (I) ITA NOS.5156/MUM/2009, 569 & 3808/MUM/2010 (REVENUES APPEAL) THE REVENUES APPEALS ON THE GROUND RELATING TO TAXABILITY AS ROYALTY ARE DECIDED IN FAVOUR OF THE REVENUE. THE GROUND RELATING TO THE DELETION OF INTEREST U/S. 234B IS IN FAVOUR OF THE ASSESSEE. HENCE , THIS APPEAL BY THE REVENUE IS PARTLY ALLOWED. (II) ITA NO. 2744/MUM/2012 (ASSESSEES APPEAL) GROUND RELATING TO TAXABILITY OF ROYALTY IS DECIDED AGAINST THE ASSESSEE. THE ISSUE RELATING TO CHARGEABILITY OF INTEREST U/S. 234B IS DECIDED IN FAVOUR OF THE ASSESSEE. HENCE , THIS APPEAL IS PARTLY ALLOWED. (III) CO NO. 74/MUM/2010 IS HEREBY DISMISSED AS NOT PRESSED. ORDER PRONOUNCED IN THE OPEN COURT ON 07.11.2017 SD/ - SD/ - ( SANDEEP GOSAIN ) (S HAMIM YAHYA ) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 07.11.2017 . . ./ ROSHANI , SR. PS 6 ITA NO S . 5156/M /09, 569 & 3808/M/ 10, CO NO.74/M / 10 AND 2744/M/12 M/S. SPRINT COMMUNICATIONS COMPANY LP / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPO NDENT 3. ( ) / THE CIT(A) 4. / CIT - CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDE R, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI