DCIT (IT) 4(1)(1), MUMBAI V. RELIANCE JIO INFOCOMM LTD, MUMBAI

ITA 936/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4232 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 3 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-05-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: I
• Assessment Year: 2016-2017
• Appeal Filed On: 10-02-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NISHANT SAMAIYA
• Keywords: Business income; Double taxation relief; Retrospective amendment; Permanent establishment; Set aside

Judgement Text

P A G E | 1 ITA NO. 936/MUM/2017 A.Y. 2016 - 17 DEPUTY COMMISSIONER OF INCOME TAX (IT) - 4(1)(1) VS. M/S RELIANCE JIO INFOCOMM LTD. IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI RAVISH SOOD, JUDICIAL MEMBER ITA NO.936/MUM/2017 (ASSESSMENT YEAR: 2016 - 17 ) DEPUTY COMMISSIONER OF INCOME TAX (IT) - 4(1)(1), ROOM NO. - 1712, AIR INDIA BUILDING, NARIMAN POINT, MUMBAI 400021 VS. M/S RELIANCE JIO INFOCOMM LTD., 9 TH FLOOR, MAKER CHAMBERS IV, 222 NARIMAN POINT, MUMBAI 400 021 PAN AABCI6363G (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI NISHANT SAMAIYA , D.R RESPONDENT BY: SHRI SUNIL MOTI LALA & SHRI BHAVYA SUNDESHA , A.RS DATE OF HEARING: 1 4 .03 .2019 DATE OF PRONOUNCEMENT: 1 0 .05 .2019 O R D E R PER RAVISH SOOD, JM THE PRESENT APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 57, MUMBAI , DATED 21.10.2016 THAT WAS PASSED BY HIM WHILE DISPOSING OFF THE APPEAL FILED BY THE ASSESSEE UNDER SEC. 248 OF THE INCOME TAX ACT,1961 (FOR SHORT I - T ACT ). THE REVENUE ASSAILING THE ORDER OF THE CIT(A) HAS RAISED BEFORE US THE FOLLOWING GROUNDS OF APPEAL: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT AN AMOUNT PAID BY RELIANCE JIO INFOCOMM LTD. (RJIL OR THE ASSESSEE ) TO RELIANCE JIO INFOCOMM PTE LTD., (RJPIL ), SINGAPORE FOR AVAILING BANDWIDTH SERVICES WAS NOT LIABLE TO TAX IN INDIA, AS ROYALTY AS PER THE PROVISIONS OF THE INCOME - TAX ACT, 1961 P A G E | 2 ITA NO. 936/MUM/2017 A.Y. 2016 - 17 DEPUTY COMMISSIONER OF INCOME TAX (IT) - 4(1)(1) VS. M/S RELIANCE JIO INFOCOMM LTD. ('THE ACT') AND THE INDIA - SINGAPO RE DOUBLE TAXATION AGREE MENT ('DTAA' )? 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD.CIT(A) ERRED IN CONCLUDING THAT THE PAYMENTS MADE BY THE ASSESSEE TO RJIPL FOR PROVISION OF BANDWIDTH SERVICES WILL BE IN THE NATURE OF BUSINESS PROFITS AND CANNOT BE CLASSIFIED AS ROYALTY EITHER UNDER THE ACT OR THE INDIA - SINGAPORE DTAA ? 3. THE APPELLANT PRAYS THAT THE - ORDER OF THE CIT(A) BE SET ASIDE ON THE ABOVE GROUND(S) AND OF THE ASSESS ING OFFICER BE RESTORED. 4. THE APPELLANT CRAVES LEAVE TO AMEND OR ALTER ANY GROUND OR ADD A NEW GROUND WHICH MAY BE NECESSARY. 2. BRIEFLY STATED, THE ASSESSEE IS A COMPANY INCORPORATED IN INDIA AND IS ENGAGED IN THE BUSINESS OF ROLLING OUT TELECOM SERVICES IN INDIA. IN ORDER TO AVAIL BANDWITH SERVICES THE ASSESSEE HAD ENTERED INTO A BANDWITH SERVICES AGREEMENT (FOR SHORT AGREEMENT) DATED 01.06.2015 WITH RELIANCE JIO INFOCOMM PTE. LTD. (FOR SH ORT RJIPL) I.E A COMPANY INCORPORATED AND A TAX RESIDENT OF SINGAPORE . RJIPL WAS HOLDING A FACILITY BASED OPERATOR LICENSE IN SINGAPORE WHICH ENABLED IT TO ESTABLISH, INSTALL, MAINTAIN , OPERATE AND PROVIDE TELECOMMUNICATION SERVICES IN SINGAPORE AND ALSO PROVIDE BANDWITH SERVICES TO THE SERVICE RECIPIENTS ACROSS THE GLOBE. AS PER THE TERMS OF THE AFORESAID AGREEMENT DATED 01.06.2015, THE ASSESSEE REMAINED UNDER AN OBLIGATION TO WITHH O LD TAX , IF ANY , ON THE PAYMENTS WHICH WERE TO BE MADE TO RJIPL FOR PRO VISION OF BANDWITH SERVICES. IN PURSUANCE OF THE AFORESAID TERMS , THE ASSESSEE WHICH HAD REMITTED USD 13,45,500 TO RJIPL FOR PROVISION OF BANDWITH SERVICES HAD DEPOSITED TAXES O F INR RS. 95,14,725/ - ON 07.08.2015 @ 11.11% [I.E RATE OF 10% UNDER ARTICLE 12 OF THE DTAA DULY GROSSED UPON IN TERMS OF SEC.195A] IN TERMS OF SEC.195 OF THE I - T ACT . HOWEVER, THE ASSESSEE THEREAFTER H OLDING A CONVICTION THAT IT WAS NOT OBLIGATED TO DEDUCT TAX AT SOURCE UNDER SEC.195 FROM THE AFORESAID PAYMENT MADE TO RJIPL CARRIED THE MATTER BY WAY OF AN APPEAL BEFORE THE CIT(A) UNDER SEC. 248 OF THE I - T ACT , THEREIN CLAIMING THAT NO TAX WAS REQUIRED TO BE DEDUCTED ON THE AFORESAID AMOUNT PA ID TO RJIPL . P A G E | 3 ITA NO. 936/MUM/2017 A.Y. 2016 - 17 DEPUTY COMMISSIONER OF INCOME TAX (IT) - 4(1)(1) VS. M/S RELIANCE JIO INFOCOMM LTD. 3. THE ASSESSEE IN THE COURSE OF THE APPELLATE PR OCEEDINGS SUBMITTED BEFORE THE CIT(A) THAT THE AMOUNT REMITTED BY IT TO RJIPL FOR PROVISION OF BANDWITH SERVICES WAS THE LATTERS BUSINESS INCOME. IT WAS AVERRED BY THE ASSESSEE THAT AS RJIPL DID NOT HAVE ANY BUSINESS CONNECTION OR A P ERMANENT E STABLISHMENT (FOR SHORT PE) IN INDIA, THEREFORE, AS PER ARTICLE 7 OF THE INDIA - S INGAPO RE DTAA THE AMOUNT REMITTED BY THE ASSESSEE TO RJIPL COULD NOT HAVE BEEN BROUGHT TO TAX IN INDIA. IN SUM AND SUBSTANCE, IT WAS THE CONTENTION OF THE ASSESSEE THAT AS THE PAYMENTS MADE TO RJIPL TOWARDS BANDWITH S E R VICES WAS THE LATTERS BUSINESS PROFITS, THEREFORE, THE SAME IN THE ABSENCE OF ITS PE OR A BUSINESS CONNECTION IN INDIA COULD NOT BE TAXED IN INDIA A S PER ARTICLE 7 OF THE INDIA - SINGAPO RE DTAA. INSOFAR THE NATURE OF THE BANDWITH SERVICES RENDERED BY RJIPL TO THE ASSESSEE WAS CONCERNED, IT WAS SUBMITTED THAT AS THE PROVISION OF THE SAID SERVICES WERE FULLY AUTOMATIC AND DID NOT INVOLVE ANY HUMAN INTERVENTION, THEREFORE, THE SAME DID NOT FALL WITHIN THE REALM OF FEES FOR TECHNICAL SERVICES (FOR SHORT FTS) AS DEFINED UNDER SEC.9(1)(VII) OF THE I - T ACT . IN FACT, IT WAS THE CONTENTION OF THE ASSESSEE THAT AS THE REMITTANCE TOWARDS BANDWITH SERVIC ES WAS A SIMPLICITER PAYMENT OF A FEE FOR USE OF A STANDARD F ACILITY THAT WAS PROVIDED TO ALL THOSE WILLING TO PAY FOR IT, THEREFORE, THE SAME COULD NOT BE HELD AS FEES RECEIVED FOR RENDERING OF TECHNICAL SERVICES . I N SUPPORT OF HIS AFORESAID CONTENTION RELIANCE WAS PLACED BY THE ASSESSEE ON THE JUDGEMENT OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. BHARTI CELLULAR LTD. (2010) 193 TAXMAN 97 (SC). ALTERNATIVELY, IT WAS THE CONTENTION OF THE ASSESSEE THAT AS REND ERING OF THE BANDWITH SERVICES BY RJIPL TO THE ASSESSEE DID NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE OR EXPERIENCE TO THE ASSESSEE , THUS THE SAME ON THE SAID COUNT ALSO COULD NOT BE BROUGHT WITHIN THE SWEEP OF THE DEFINITION OF FTS UNDER ARTICLE 12 OF THE INDIA - SINGAPO RE DTAA. APART THERE FROM, IT WAS SUBMITTED THAT THE PAYMENT P A G E | 4 ITA NO. 936/MUM/2017 A.Y. 2016 - 17 DEPUTY COMMISSIONER OF INCOME TAX (IT) - 4(1)(1) VS. M/S RELIANCE JIO INFOCOMM LTD. MADE BY THE ASSESSEE TO RJIPL COULD ALSO NOT BE CONSTRUED AS R OYALTY UNDER THE I - T ACT , AS WELL AS UNDER THE INDIA - SINGAPO RE DTAA. IN ORDER TO BUTTRESS HIS AFORESAID CLAIM , IT WAS SUBMITTED BY THE ASSESSEE THAT NEITHER RJIPL HAD IN ANY WAY TRANSFERRED ALL O R ANY RIGHTS IN RESPECT OF ANY P ROCESS TO THE ASSESSEE , NOR WAS THE ASSESSEE MAKING USE OF ANY SUCH PROCESS . IN SUM AND SUBSTANCE, IT WAS THE CLAIM OF THE ASSESSEE THAT IT WAS MERELY RECEIVING STANDARD BANDWITH SERVICES FROM RJIPL . I T WAS THE CONTENTION OF THE ASSESSEE THAT AS THE AMOUNT PAID TO RJIPL WAS NEITHER TOWARDS USE OF (OR OBTAINING RIGHT TO USE) INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT NOR TOWARDS USE OF (OR OBTAINING RIGHT TO USE) ANY PROCESS , THEREFORE, THE SAME COULD NOT BE BROUGHT WITHIN THE DEFINITION OF THE TERM R OYALTY AS ENVISAGED IN THE I - T ACT . APART THERE FROM, IT WAS SUBMITTED BY THE ASSESSEE THAT THE CONSIDERATION RECEIVED BY RJIPL ALSO DID NOT QUALIFY AS ROYALTY AS PER ITS NARROW DEFINITION UNDER THE INDIA - SINGAPO RE DTAA. IT WAS SUBMITTED BY THE ASSESSEE THAT FOR A PAYMENT TO QUALIFY AS ROYALTY UNDER THE INDIA - SINGAPO RE DTAA, IT WAS INDISPENSABLY REQUIRED THAT THE CONSIDERATION PAID FOR THE PROCESS, IF ANY, WAS FOR A SECRET PROCESS I.E THE IPR IN THE PROCESS WAS OWNED/REGISTERED IN THE NAME OF THE PAYEE. I T WAS THUS SUBMITTED BY THE ASSESSEE THAT AS IT HAD MADE THE PAYMENT TO RJIPL FOR AVAILING BANDWITH SERVICES WHICH WERE STANDARD TELECOM SERVICES AND NOT FOR MAKING ANY USE OF A PROCESS , WHETHER SECRET OR NOT, THEREFORE, THE SAME CLEARLY FELL BEYOND THE REALM OF THE DEFINITION OF R OYALTY BOTH UNDER THE I - T ACT AND THE INDIA - SINGAPORE TAX TREATY. 4. THE CIT(A) AFTER DELIBERATING ON THE C ONTENTIONS ADVANCED BY THE ASSESSEE OBSERVED THAT RJIPL DID NEITHER HAVE ANY BUSINESS CONNECTION OR A PE IN INDIA. ACCORDINGLY, IT WAS OBSERVED BY HIM THAT IN THE ABSENCE OF ANY BUSINESS CONNECTION OR PE IN INDIA THE INCOME EARNED BY THE SAID FOREIGN ENTITY UNDER THE AGREEMENT FOR PROVISION OF P A G E | 5 ITA NO. 936/MUM/2017 A.Y. 2016 - 17 DEPUTY COMMISSIONER OF INCOME TAX (IT) - 4(1)(1) VS. M/S RELIANCE JIO INFOCOMM LTD. BANDWITH SERVICES WOULD NOT BE LIABLE TO TAX IN INDIA . INS OFAR THE CONTENTIONS ADVANCED BY THE ASSESSEE THAT THE PAYMENTS MADE TO RJIPL WERE FOR AVAILING STANDARD TELECOM SERVICES AND NOT BY WAY OF FTS WERE CONCERNED , THE SAME DID FIND FAVOUR WITH THE APPELLATE AUTHORITY. IN FACT, THE CIT(A) AFTER DELIBERATING ON THE TERMS OF THE AGREEMENT OBSERVED THAT AS THE ASSESSEE WAS ONLY AVAILING STANDARD BANDWITH SERVICES WHICH DID NOT REQUIRE ANY HUMAN INTERVENTION, THEREFORE, THE SAME COULD NOT BE REGARDED AS TECHNICAL SERVICES , AND THUS THE PAYMENT MADE BY THE ASSES SEE FOR THE SAME COULD NOT BE CHARACTERISED AS FTS UNDER SEC.9(1)(VII) OF THE I - T ACT . INSOFAR THE DEFINITION OF FTS ENVISAGED IN INDIA - SINGAPO RE DTAA WAS CONCERNED, THE CIT(A) TAKING COGNIZANCE OF ARTICLE 12(3) OF THE TAX TREATY OBSERVED THAT AS RJIPL BY PROVIDING BANDWITH SERVICES DID NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL , KNOWHOW OR PROCESS TO THE ASSESSEE WHICH WAS SIMPLY AVAILING THE SAID STANDARD FACILITY , THUS THE SAME COULD ALSO NOT BE CONSTRUED AS FTS UNDER THE INDIA - SINGA PORE TAX TREATY. 5. IT WAS FURTHER OBSERVED BY THE CIT(A) THAT THE ASSESSEE HAD ONLY RECEIVED AN ACCESS TO SERVICE AND NOT ANY ACCESS TO ANY EQUIPMENT THAT WAS DEPLOYED BY RJIPL FOR PROVI DING THE BANDWITH SERVICES . APART THERE FROM, IT WAS OBSERVED BY THE CIT(A) THAT THE ASSESSEE ALSO DID NOT HAVE ANY ACCESS TO ANY PROCESS WHICH HELPED IN PROVIDING SUCH BANDWITH SERVICES. IN FACT, IT WAS NOTICED BY HIM THAT ALL INFRASTRUCTURE AND PROCESS REQUIRED FOR PROVISION OF B ANDWITH SERVICES WAS ALWAYS USED AND HAD REMAINED UNDER THE CONTROL OF RJIPL AND WAS NEVER GIVEN EITHER TO THE ASSESSEE OR TO ANY PERSON AVAILING SUCH SERVICES. FURTHER , IT WAS OBSERVED BY THE CIT(A) THAT AS THE PROCESS INVOLVED TO PROVIDE THE BANDWITH SER VICE S WAS NOT SECRET I.E THE INTELLECTUAL PROPERTY RIGHTS (FOR SHORT IPR) IN THE PROCESS WAS NOT OWNED/REGISTERED IN THE NAME OF RJIPL , BUT WAS A STANDARD P A G E | 6 ITA NO. 936/MUM/2017 A.Y. 2016 - 17 DEPUTY COMMISSIONER OF INCOME TAX (IT) - 4(1)(1) VS. M/S RELIANCE JIO INFOCOMM LTD. COMM ERCIAL PROCESS FOLLOWED BY THE INDUSTRY PLAYERS, THUS THE SAME COULD NOT BE CLASSIFIED AS A SECRET PROCESS AS WAS REQUIRED UNDER THE INDIA - SINGAPO RE DTAA FOR THE SAME TO QUALIFY AS R OYALTY . T HE CIT(A) TAKING COGNIZANCE OF THE DEFINITION OF R OYALTY UNDER THE INDIA - SINGAPO RE DTAA , OBSERVED THAT AS THE AMOUNT PAID BY THE ASSESSEE TO RJIPL WAS NE ITHER TOWARDS USE OF (OR FOR OBTAINING RIGHT TO USE) INDUSTRIAL , COMMERCIAL , SCIENTIFIC EQUIPMENT, NOR TOWARDS USE OF (OR FOR OBTAINING RIGHT TO USE) ANY PROCESS, THEREFORE, THE PAYMENTS MADE BY THE ASSESSEE FOR AVAILING BANDWITH SERVICES COULD NOT BE HELD AS R OYALTY EITHER UNDER THE I - T ACT OR THE TAX TREATY . I N THE BACKDROP OF HIS AFORESAID OBSERVATIONS THE CIT(A) CONCLUDED THAT THE PAYMENTS MADE BY THE ASSESSEE TO RJIPL FOR PROVISION OF BANDWITH SERVICES WERE IN THE NATURE OF BUSINES S PROFITS AND COULD NOT BE CLASSIFIED AS FTS OR ROYALTY EITHER UNDER THE I - T ACT OR INDIA - SINGAPO RE DTAA. ON THE BASIS OF HIS AFORESAID DELIBERATIONS, IT WAS FURTHER OBSERVED BY HIM THAT AS RJIPL DID NOT HAVE ANY BUSINESS CONNECTION OR A PE IN INDIA, THER EFORE, THE BUSINESS PROFITS COULD NOT BE TAXED IN INDIA. IN THE BACKDROP OF HIS AFORESAID OBSERVATIONS THE CIT(A) FINDING FAVOUR WITH THE CLAIM OF THE ASSESSEE THAT NO TAX WAS DEDUCTIBLE ON THE PAYMENT/CREDIT MADE TO RJIPL , ALLOWED THE APPEAL . 6 . AGGRIEVED , THE REVENUE HAS ASSAILED THE ORDER OF THE CIT(A) IN APPEAL BEFORE US. THE LD. AUTHORIZED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE ADVERTED TO THE FACTS OF THE CASE AND TOOK US THROUGH THE RELEVANT OBSERVATIONS OF THE CIT( A) IN CONTEXT OF THE ISSUE UNDER CONSIDERATION. THE LD. A.R TOOK US THROUGH THE G ROUND S OF APPEAL RAISED BY THE REVENUE BEFORE US AND SUBMITTED THAT THE ORDER OF CIT(A) HAS BEEN ASSAILED BEFORE US ONLY TO THE EXTENT HE HAD CONCLUDED THAT THE PAYMENT MADE BY THE ASSESSEE TO RJIPL FOR PROVIDING BANDWITH SERVICES WERE IN THE NATURE OF BUSINESS PROFITS AND C OULD NOT BE CLASSIFIED AS R OYALTY EITHER UNDER THE I - T ACT OR THE INDIA - SINGAP O R E P A G E | 7 ITA NO. 936/MUM/2017 A.Y. 2016 - 17 DEPUTY COMMISSIONER OF INCOME TAX (IT) - 4(1)(1) VS. M/S RELIANCE JIO INFOCOMM LTD. DTAA. IN SUM AND SUBSTANCE, IT WAS THE CONTENTION OF THE LD. A.R THA T THE REVENUE HAS ACCEPTED THE OBSERVATIONS OF THE CIT(A) THAT THE PAYMENT MADE BY THE ASSESSEE TO RJIPL COULD NOT BE HELD AS FTS. INSOFAR THE ISSUE AS TO WHETHER THE CIT(A) WAS RIGHT IN LAW AND FACTS OF THE CASE IN CONCLUDING THAT THE AMOUNT REMITTED BY T HE ASSESSEE TO RJIPL WAS NOT TO BE HELD R OYALTY WAS CONCERNED, THE LD. A.R TOOK US THROUGH THE DEFINITION OF ROYALTY AS ENVISAGED IN EXPLANATION 2 TO SEC.9(1)(VI) OF THE I - T ACT . IT WAS AVERRED BY THE LD. A.R THAT AS THE CONSIDERATION WAS NOT PAID BY THE ASSESSEE FOR THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT OF RJIPL , THUS THE SAME WAS NOT COVERED BY THE DEFINITION OF R OYALTY AS DEFINED IN CLAUSE (IVA) TO E XPLANATION 2 OF SEC.9(1)(VI) OF THE I - T ACT . APART THE RE FROM, THE LD. A.R IN ORDER TO BUTTRESS HIS CLAIM THAT THE PAYMENT MADE BY THE ASSESSEE FOR THE BANDWITH SERVICES ALSO DID NOT FELL WITHIN THE REALM OF THE DEFINITION OF THE TERM ROYALTY UNDER ARTICLE 12(3) OF THE INDIA - SINGAP ORE DTAA , TOOK US THROUGH THE SAME . IN FACT, THE LD. A.R IN ORDER TO FORTIFY HIS AFORESAID CONTENTION SUBMITTED THAT UNLIKE THE DEFINITION OF TERM R OYALTY AS USED IN INDIA - HUNG A RY DTAA WHEREIN TRANSMISSION BY SATELLITE, CABLE, OPTIC FIBRE OR SIMILAR TECHNOLOGY... WAS SPECIFICALLY INCLUDED WITHIN THE DEFINITION OF ROYALTY UNDER ARTICLE 12(3) OF THE SAID TAX TREATY, NO SUCH MENTION WAS AVAILABLE IN THE DEFINITION OF THE SAME AS ENVISAGED IN THE INDIA - SINGAP O RE TAX TREATY. IT WAS FURTHER SUBMITTED BY THE LD. A.R THAT TH OUGH THE LEGISLATURE IN ALL ITS WISDOM HAD VIDE THE FINANCE ACT, 2012 WITH RETROSPECTIVE EFFECT FROM 01.06.1976 INCORPORATED EXPLANATION 6 TO SEC. 9(1)(VI) OF THE I - T ACT , WHICH THEREIN CLARIFIES THAT THE EXPRESSION PROCESS INCLUDE S AND SHALL BE DEEMED TO HAVE ALWAYS INCLUDED TRANSMISSION BY SATELLITE (INCLUD ING UP - LINKING, AMPLIFICATION, CONVERSION FOR DOWN LINKING OF ANY SIGNAL), CABLE , OPTIC FIBRE OR BY ANY OTHER SIMILAR TECHNOLOGY , WHETHER OR NOT SUCH PROCESS IS SECRET , HOWEVER, NO SUCH MENTION WAS P A G E | 8 ITA NO. 936/MUM/2017 A.Y. 2016 - 17 DEPUTY COMMISSIONER OF INCOME TAX (IT) - 4(1)(1) VS. M/S RELIANCE JIO INFOCOMM LTD. AVAILABLE IN THE NARROW MEANING OF THE TERM ROYALTY IN THE INDIA - SING A P O RE TAX T REATY. IN SUM AND SUBSTANCE , IT WAS THE CONTENTION OF THE LD. A.R THAT NOW WHEN THE DEFINITION OF ROYALTY AS ENVISAGED IN ARTICLE 12(3) OF THE INDIA - SINGAP O RE T AX TREATY DOES NOT PROVIDE FOR INCLUSION OF TRANSMISSION BY SATELLITE, CABLE, OPTIC FIBRE OR BY ANY OTHER SIMILAR TECHNOLOGY WITHIN THE REALM OF THE DEFINITION OF R OYALTY , THEREFORE , THE CONSIDERATION RECEIVED BY RJIPL FROM THE ASSESSEE FOR RENDERING OF THE BANDWITH SERVICES COULD NOT BE CHARACTERISED AS ROYALTY IN ITS HANDS. 7 . PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) SUBMITTED THAT THE CIT(A) WHILE DISPOSING OFF THE APPEAL HAD FAILED TO CONSIDER THE DEFINITION OF THE TERM ROYA LTY IN THE BACKDROP OF EXPLANATION 5 AND EXPLANATION 6 OF SEC.9(1)(VI) . IN SUM AND SUBSTANCE, IT WAS THE CONTENTION OF THE LD. D.R THAT AS THE E XPLANATION 5 AND EXPLANATION 6 OF SEC. 9(1)(VI) WERE DECLARATORY IN NATURE AND HAD ONLY CLARIFIED THE INTENT O F THE LEGISLATURE , THEREFORE, THE CONSIDERATION PAID BY THE ASSESSEE TO RJIPL WAS CLEARLY COVERED BY THE DEFINITION OF ROYALTY . APART THERE FROM, IT WAS AVE R RED BY THE LD. D.R THAT EVEN IF IT WAS TO BE ASSUME D THAT RJIPL HAD PROVIDED STANDARD TELECOM S ERVICES TO THE ASSESSEE, EVEN THEN THE SAME AS PER E XPLANATION 2 TO SEC.9(1)(VI) AND ALSO ARTICLE 12 OF THE INDIA - SINGAP O R E DTAA WOULD QUALIFY AS A PAYMENT OF ROYALTY BY THE ASSESSEE COMPANY. THE LD. D.R FURTHER ADVERTING TO THE BUSINESS MOD E L OF RJIPL SUB MITTED THAT THE LAT T ER IN ORDER TO FACILITATE THE PROVISION OF BANDWITH SERVICES HAD ESTABLISH ED INTERNATIONAL CONNECTIVITY POINTS THROUGH THE NETWORK OF SEA - CABLES ACROSS THE GLOBE . IT WAS SUBMITTED BY THE LD. A.R THAT FOR PROVIDING SUCH INTERNATIONAL CON NECTIVITY POINTS INDUSTRIAL , COMMERCIAL OR SCIENTIFIC EQUIPMENT IN THE F ORM OF S E A CABLE N ETWORK S YSTEM( OPTIC FIBR E TELECOMMUNICATION NETWORK) AND OTHER SOPHISTICATED SCIENTIFIC APPARATUS WAS DEPLOYED AND USED IN INDIAN SE A AND INDIAN P A G E | 9 ITA NO. 936/MUM/2017 A.Y. 2016 - 17 DEPUTY COMMISSIONER OF INCOME TAX (IT) - 4(1)(1) VS. M/S RELIANCE JIO INFOCOMM LTD. TERRITORY CALLED LAN DING POINTS SYSTEMS . IT WAS SUBMITTED BY THE LD. D.R THAT AS RJIPL WOULD REQUIRE ASSOCIATION OF DOMESTIC COMPANIES IN ORDER TO WORK AS AN INTERMEDIARY FOR INTERCONNECTING OFFSHORE SEA CABLE NETWORK AND ASSOCIATED INFRASTRUCTURE/EQUIPMENT SYSTEMS IN INDIA, THEREFORE, IT COULD SAFELY BE CONCLUDED THAT IT HAD A FIXED PLACE OF BUSINESS IN INDIA. IN THE BACKDROP OF HIS AFORESAID CONTENTION , IT WAS SUBMITTED BY THE LD. D.R. THAT THE OBSERVATIONS OF THE CIT(A) THAT ALL INFRASTRUCTURE AND PROCESS REQUIRED FOR PROVIDING OF BANDWITH SERVICES WAS ALWAYS USED UNDER THE CONTROL OF RJIPL AND THE SAME WAS NEVER GIVEN TO THE ASSESSEE OR TO ANY OTHER PERSON AVAILING SUCH SERVICES , WAS FOUND TO BE INCORRECT. APART THERE FROM, IT WAS THE CONTENTION OF THE LD. D.R THAT AS THE ASSESSEE COMPANY HAD THE RIGHT TO USE AND HAD USED THE PROCESS DURING THE COURSE OF BANDWITH NETWORK TRANSMISSION/RECEIVING BANDWITH SERVICES, THEREFORE , AS PER ARTICLE 12 OF THE DTAA AND EXPLANATION 5 AND EXPLANATION 6 OF SEC. 9(1)(VI) OF THE I - T ACT , THE PAYMENT MADE BY THE ASSESSEE TO RJIPL FOR AVAILING SUCH BANDWITH SERVICES WAS CLEARLY IN THE NATURE OF ROYALTY . FURTHER, THE LD. D.R ALSO DID PUT UP A N EFFORT TO DISTINGUISH THE CASE LAWS RELIED UPON BY THE ASSESSEE IN THE COURSE OF HEARIN G OF THE APPEAL. 8 . WE HAVE HEARD THE AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD AND THE JUDICIAL PRONOUNCEMENT S RELIED UPON BY THEM. WE FIND THAT OUR INDULGENCE IN THE PRESENT APPEAL HAS BEEN SOUGHT BY THE REVENUE TO ADJUDICATE AS TO WHETHER THE CIT(A) IS CORRECT IN CONCLUDING THAT THE AMOUNT PAID BY THE ASSESSEE FOR AVAILING BANDWITH SERVICES TO RJIPL DID NOT CONSTITUTE ROYALTY AND WAS ITS BUSINESS PROFITS. ADMITTED LY, AS THE REVENUE HAS NOT ASSAILED THE OBSERVATIONS OF THE CIT(A ) THAT THE PAYMENTS MADE BY THE ASSESSEE TO RJIPL CANNOT BE HELD AS FTS, THEREFORE, WE CONFINE OURSELVES TO THE ISSUE TO THE EXTENT THE SAME HA S BEEN ASSAILED BY THE REVENUE BEFORE P A G E | 10 ITA NO. 936/MUM/2017 A.Y. 2016 - 17 DEPUTY COMMISSIONER OF INCOME TAX (IT) - 4(1)(1) VS. M/S RELIANCE JIO INFOCOMM LTD. US. AS IS DISCERNIBLE FROM THE RECORD , THE ASSESSEE PURSUANT TO THE TERMS OF THE AGREEMENT HAD ONLY RECEIVED STANDARD FACILITIES I.E BANDWITH SERVICES FROM RJIPL . IN FACT, AS OBSERVED BY THE CIT(A) , THE ASSESSEE ONLY HAD AN ACCESS TO SERVICE S AND DID NOT HAVE ANY ACCESS TO ANY EQUIPMENT DEPLOYED BY RJIPL FOR PROVIDING THE BANDWITH SERVICES. APART THERE FROM, THE ASSESSEE ALSO DID NOT HAVE ANY ACCESS TO ANY PROCESS WHICH HELPED IN PROVIDING OF SUCH BANDWITH SERVICES BY RJIPL . AS A MATTER OF FACT , ALL INFRASTRUCTURE AND PROCESS REQUIRE D FOR PROVISION OF BANDWITH SERVICES WAS ALWAYS USED AND UNDER THE CONTROL OF RJIPL , AND THE SAME WAS NEVER GIVEN EITHER TO THE ASSESSEE OR TO ANY OTHER PERSON AVAILING THE SAID SERVICES. WE ARE PERSUADED TO SUBSCRIBE TO THE OBSERVATIONS OF THE CIT(A) THAT AS THE PROCESS INVOLVED TO PROVIDE THE BANDWITH SERVICES WAS NOT A SECRET I.E IPR IN THE PROCESS WAS NOT OWNED/REGISTERED IN THE NAME OF RJIPL , BUT WAS A STANDARD COMMERCIAL PROCESS THAT WAS FOLLOWED BY THE INDUSTRY PLAYERS, THEREFORE, THE SAME COULD NOT BE CLASSIFIED AS A SECRET PROCESS WHICH WOULD HAVE BEEN REQUIRED FOR CHARACTERING THE AFORESAID PAYMENT MADE BY THE ASSESSEE TO RJIPL AS ROYALTY UNDER THE INDIA - SINGAP O R E DTAA. WE ARE FURTHER IN AGREEMENT WITH THE VIEW TAK EN BY THE CIT(A) THAT AS THE AMOUNT PAID BY THE ASSESSEE TO RJIPL WAS NE I THER TOWARDS USE OF ( OR FOR OBTAINING RIGHT TO USE ) INDUSTRIAL , COMMERCIAL OR SCIENTIFIC EQUIPMENT , NOR TOWARDS USE OF (OR FOR OBTAINING RIGHT TO USE) ANY SECRET FORMULA OR PROCESS , T HEREFORE, THE SAME COULD NOT BE CLASSIFIED AS PAYMENT OF ROYALTY BY THE ASSESSEE . INSOFAR THE LD. D.R HAD TRIED TO PRESS INTO SERVICE EXPLANATION 6 TO SEC. 9(1)(VI) , IN ORDER TO DRIVE HOME HIS CONTENTION THAT THE PAYMENT MADE BY THE ASSESSEE TO RJIPL FOR AVAILING THE BANDWITH SERVICES WOULD FALL WITHIN THE SWEEP OF ROYALTY IS CONCERNED, WE ARE UNABLE TO PERSUADE OURSELVES TO ACCEPT THE SAME. IN OUR CONSIDERED VIEW , THE AMENDMENT I N SEC. 9(1)(VI) WILL NO T HAVE ANY BEARING ON THE DEFINITION OF ROYALTY AS P A G E | 11 ITA NO. 936/MUM/2017 A.Y. 2016 - 17 DEPUTY COMMISSIONER OF INCOME TAX (IT) - 4(1)(1) VS. M/S RELIANCE JIO INFOCOMM LTD. CONTEMPLATED IN THE INDIA - SINGAPORE DTAA. OUR AFORESAID VIEW IS FORTIFIED BY THE ORDER OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF T H E COMMISSIONER OF INCOME - TAX (IT) - 4 V S. M/S RELIANCE INFOCOMM LTD. (ITA NO, 1395 OF 2016, DATED 05.02.2019). THE HONBLE HIGH COURT IN ITS AFORESAID JUDGMENT HAD AFTER REFERRING TO THE JUDGMENTS OF THE HONBLE HIGH COURT OF DELHI IN THE CASE OF DIT VS. NEW SKIES SATELLITE BV ( 2016) 382 ITR 114 (DEL) AND CIT VS. AKTIONGESELLSCHAFT (2009) 310 ITR 320 (DEL) , HAD AFTER DELIBERATING ON THE AMENDMENT MADE AVAILABLE ON THE STATUTE BY THE EXPLANATION 6 TO SEC. 9(1)(VI) , OBSERVED THAT MERE AMENDMENT IN THE I - T ACT WOULD NOT OVERRIDE THE PROVISIONS OF DTAA TREATIES. I N TH E BACKDROP OF OUR AFORESAID OBSERVATIONS , WE SHALL NOW FURTHER DELIBERATE ON THE DEFINITION OF ROYALTY AS CONTEMPLATED IN THE INDIA - SINGAPORE TAX TREATY. IN OUR CONSIDERED VIEW THERE IS SUBSTANTIAL FORCE IN THE CONTENTION ADVANCED BY THE LD. A.R THAT THO UGH THE TERM ROYALTY AS USED IN ARTICLE 12 OF INDIA - HUNGARY DTAA TAKES WITHIN ITS SWEEP ... TRANSMISSION BY SATELLITE, CABLE, OPTIC FIBRE OR SIMILAR TECHNOLOGY , HOWEVER, THE DEFINITION OF ROYALTY IN THE INDIA - SINGAPORE TAX TREATY WITH WHICH WE ARE CONCERNED HAS A NARROW MEANING . IN FACT, WE FIND THAT DESPITE THE FACT THAT THE INDIA - SINGAPORE TAX TREATY WAS AMENDED BY NOTIFICATION NO. SO 935(E), DATED 23.03.2017, HOWEVER, THE DEFINITION OF ROYALTY THEREIN ENVISAGED HAD NOT BEEN TINKERED WITH AND REMAINS AS SUCH. WE THUS IN TERMS OF OUR AFORESAID OBSERVATIONS ARE OF THE CONSIDERED VIEW THAT THE AMOUNT RECEIVED BY RJIPL FROM THE ASSESSEE FOR PROVIDING STANDARD BANDWITH SERVICES COULD NOT BE CHARACTE RISED AS ROYALTY AS PER THE INDIA - SINGAPORE DTAA , AND AS RIGHTLY OBSERVED BY THE CIT(A), WAS IN FACT THE BUSINESS PROFITS OF RJIPL . INSOFAR THE TAXABILITY OF THE AFORESAID BUSINESS PROFITS IS CONCERNED, WE FIND THAT AS RJIPL DID NOT HAVE ANY BUSINESS CONNECTION OR A PE IN INDIA, THEREFORE, THE SAME AS PER P A G E | 12 ITA NO. 936/MUM/2017 A.Y. 2016 - 17 DEPUTY COMMISSIONER OF INCOME TAX (IT) - 4(1)(1) VS. M/S RELIANCE JIO INFOCOMM LTD. ARTICLE 7 OF THE INDIA - SINGAP O R E DTAA COULD NOT HAVE BEEN BROUGHT TO TAX IN INDIA. 9 . THE ORDER OF THE CIT(A) THAT AMOUNT RECEIVED BY RJIPL FROM THE ASSESSEE FOR PROVIDING STAN DARD BANDWITH SERVICES WAS ITS BUSINESS PROFITS, WHICH IN THE ABSENCE OF ITS BUSINESS CONNECTION OR PE IN INDIA COULD NOT BE BROUGHT TO TAX IN INDIA IS UPHELD IN TERMS OF OUR AFORESAID OBSERVATIONS AND THE APPEAL OF THE REVENUE IS DISMISSED . 10. THE APP EAL OF THE REVENUE IS DISMISSED IN TERMS OF OUR AFORESAID OBSERVATIONS. ORDER P RONOUNCED IN THE OPEN COURT ON 1 0 . 05 .2019 S D / - S D / - ( M.BALAGANESH ) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; 1 0 .05 .2019 PS. ROHIT / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI