OMAN TELECOMMUNICATIONS COMPANY SAOG,OMAN V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE INTERNATIONAL TAX 2(2)(2), DELHI, DELHI

SA 140/DEL/2024

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The case involves Oman Telecommunications Company SAOG, a non-resident corporate entity, which received interconnectivity usage charges from Vodafone India for providing roaming and termination of international voice traffic services. The Indian tax authorities treated these receipts as royalty income and later as FTS, subjecting them to tax in India. The assessee contested this characterization, arguing that the services provided were automated and did not involve human intervention, thus not qualifying as FTS under the Income-tax Act or the India-Oman DTAA. The Dispute Resolution Panel (DRP) initially recharacterized the income as FTS but also considered it as other income if not classified as FTS. The Tribunal, referencing judicial precedents and the automated nature of the services, ruled in favor of the assessee, stating that the income should be treated as business income and taxed in Oman, not India.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 473577 (ITAT-DELHI)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Others
• Pronouncement Date: 24-10-2024
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Next Hearing Date: 25-09-2024
• Assessment Year: misc
• Appeal Filed On: 02-05-2024
• Other Referred Cases: CIT v. Bharti Cellular Ltd., CIT v. Vodafone South Ltd., CIT v. Tata Teleservices Ltd.
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIJAY B.VASANTA
• Assessee Lawyers: S.K. AGGARWAL
• Keywords: Business income; Question of law; TDS; Double taxation relief
• Section: 147; 148; 144; 142(1); 195; 56; 251; 72; 194J; 9(1); 9(1); 9(1)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘D’ NEW DELHI BEFORE SHRI SAKTIJIT DEY, VICE-PRESIDENT AND SHRI NAVEEN CHANDRA, ACCOUNTANT MEMBER ITA No.2080/Del/2024 Assessment Year: 2014-15 With S.A. No.140/Del/2024 [Arising out of ITA No.2080/Del/2024] Assessment Year: 2014-15 Oman Telecommunications Company SAOG, VP Finance Office, PO box 789, Postal Code 11, Ruwi Muscat, Sultanate of Oman Vs. DCIT, International Tax -2(2)(2), Delhi PAN :AABCO4203F (Appellant) (Respondent) ORDER PER SAKTIJIT DEY, VICE-PRESIDENT Captioned appeal by the assessee calls into question the final assessment order dated 02.03.2024 passed under section 147 read with section 144 of the Income-tax Act, 1961 (in short ‘the Act’) for Assessee by Sh. S.K. Aggarwal, CA Department by Sh. Vijay B. Vasanta, CIT(DR) Date of hearing 25.09.2024 Date of pronouncement 24.10.2024 ITA No.2080/Del/2024 AY: 2014-15 2 | P a g e the assessment year 2014-15, in pursuance to directions of learned Dispute Resolution Panel (DRP). 2. The dispute in the present appeal is confined to taxability of an amount of Rs.4,42,33,967/- as Fee for Technical Services (FTS) and, in alternative, as other income under section 56 of the Act. 3. Briefly the facts are, the assessee is a non-resident corporate entity incorporated in Oman and a tax resident of that country. As stated, the assessee is engaged in the business of fixed-line, internet and data, mobile and wholesale communication services. In course of providing such services, the assessee, in the year under consideration, had received an amount of Rs.4,42,33,967/- from an Indian corporate entity, viz., Vodafone Essar South Limited (in short ‘Vodafone’) for providing roaming and termination of international voice traffic services, otherwise known as interconnectivity charges. Whereas, the assessee has not offered such receipts to tax in India. The Assessing Officer further noticed that while remitting the interconnectivity charges, Vodafone had not deducted tax at source under section 195 of the Act. Being of the view that income assessable to tax has escaped assessment, the Assessing Officer reopened the assessment under section 147 ITA No.2080/Del/2024 AY: 2014-15 3 | P a g e of the Act by issuing a notice under section 148 of the Act. As alleged by the Assessing Officer, in response to the notice issued under section 148 of the Act, the assessee neither filed any return of income nor complied with the said notice and other statutory notices issued under section 142(1) of the Act. Alleging non- compliance by the assessee, the Assessing Officer proceeded to complete the assessment ex-parte, to the best of his judgment, invoking the provisions of section 144 of the Act. While doing so, he treated the disputed receipts of Rs.4,42,33,967/- as royalty income under the provisions of the Act and brought it to tax. Accordingly, he framed the draft assessment order. 4. Against the draft assessment order so framed, assessee raised objections before learned DRP. While disposing of the objections of the assessee, learned DRP did not agree with the characterization of the receipts by the Assessing Officer as royalty income. After examining the nature of services, learned DRP observed that the interconnectivity charge is a cost that a mobile operator pays to another operator for carrying through/terminating a call. According to learned DRP, payment made is in the nature of compensation paid by the originating network to the receiving ITA No.2080/Del/2024 AY: 2014-15 4 | P a g e network towards the cost of carrying the call and internet-based services. Learned DRP observed, interconnect usage charges are charges paid between the telecom companies for usage of each other’s networks and towers when their usages are outside the subscription region. Learned DRP held that since the payment of interconnect charges is for services, even though, it involves usage of certain infrastructures. Learned DRP observed that under GST regime also, such facility is regarded as services for the purpose of levy of tax. Proceeding further, learned DRP referred to Explanation 2 to section 9(1)(vii) of the Act and observed that rendition of any managerial, technical or consultancy services has to be treated as FTS. Learned DRP observed, the meaning of the term ‘technical’ involves application of special knowledge, skill, expertise with respect to particular art, science, profession or occupation. Therefore, fees received for services provided by regulated professionals in various field fall within the ambit of FTS. Learned DRP observed, any services, whether through machines or human efforts, involving application of specialized knowledge, skill or expertise, has to be treated as technical services. Thus, learned DRP ultimately concluded that fees received by the assessee are for ITA No.2080/Del/2024 AY: 2014-15 5 | P a g e rendition of technical services qualifying as FTS under the provisions of the Act. Thereafter, referring to the definition of FTS under Article 14 of India – Oman Double Taxation Avoidance Agreement (DTAA), learned DRP held that the payments made also qualify as FTS under the Treaty provisions. 5. Without prejudice, learned DRP held, in case, the receipts cannot be treated as either royalty or FTS, it cannot be treated as business income in the hands of the assessee. Therefore, such income has to be taxed under the residual clause as other income under section 56 of the Act as well as under Article 24 of India – Oman DTAA. However, he directed the Assessing Officer to treat the receipts as other income on protective basis. In terms with the directions of learned DRP, the Assessing Officer passed the final assessment order treating the receipts as FTS on substantive basis and as other income on protective basis. 6. Ground nos. 1 and 5, being general grounds, do not require specific adjudication. Whereas, at the time of hearing, learned counsel for the assessee, on instructions, did not press ground no. 4. Accordingly, ground no. 4 is dismissed. Thus, the surviving issues arising for consideration in terms with ground no. 2 and 3 ITA No.2080/Del/2024 AY: 2014-15 6 | P a g e are, whether the receipts can be considered as FTS or alternatively as other income. 7. Learned counsel appearing for the assessee in addition to the oral submissions made at the time of hearing, has furnished written synopsis, which reads as under: “2.2.2 No human intervention is involved in provision of roaming services and termination of international voice traffic services. It is submitted that the receipts of the Appellant from roaming and termination of international voice traffic services to be taxable as FTS under Article 14 of the DTAA. the receipt shall pertain to the payment towards any managerial, technical or consultancy service provided by the service provider. Roaming services and termination of international voice traffic services provided by Appellant using its own system is a standard service provided by Appellant. The entire process of inter connectivity of calls is automated and there is no intervention of any human involvement. In the absence of any human involvement, charges received by Appellant from roaming services and termination of international voice traffic are not considered payments for technical services as propounded in various judicial precedents. 2.2.3. The Hon'ble Delhi High Court in case of CIT v. Bharti Cellular Ltd. [2009] 319 ITR139/[2008] 175 Taxman 573 (copy enclosed at page no 61-71 of paper book) has held that: “13. We have already pointed out that the expression fees for technical services' as appearing in section 194.J of the said Act has the same meaning as given to the expression in Explanation 2 to section 9(1)(vii) of the said Act. In the said Explanation the expression fees for technical services' means any consideration for rendering of any managerial, technical or consultancy services. The word technical' is preceded by the word 'managerial and succeeded by the word 'consultancy' Since the expression technical services' is in doubt and is unclear, the rule of noscitur a sociis is clearly applicable. …………….. ITA No.2080/Del/2024 AY: 2014-15 7 | P a g e This would mean that the word \"technical would take colour from the words 'managerial and consultancy', between which it is sandwiched. ……………. 15. From the above discussion, it is apparent that both the words 'managerial and consultancy involve a human element. And, both, managerial service and consultancy service, are provided by humans. Consequently, applying the rule of noscitur a sociis the word technical as appearing in Explanation 2 to section 9(1)(vii) would also have to be construed as involving a human element. But the facility provided by MTNL/other companies for interconnection/port access is one which is provided automatically by machines. It is independently provided by the use of technology and that too, sophisticated technology, but that does not mean that MTNL/other companies which provide such facilities are rendering any technical services as contemplated in Explanation 2 to section 9(1)(vii) of the said Act. This is so because the expression technical services takes colour from the expressions managerial services and consultancy services which necessarily involve a human element or, what is nowadays fashionably called human interface. In the facts of the present appeals, the services rendered qua interconnection/Port access do not involve any human interface and, therefore, the same cannot be regarded as technical services as contemplated under section 194J of the said Act. 20. Before concluding we would also like to point out that the interconnect/port access facility is only a facility to use the gateway and the network of MTNL/other companies MTNL or other companies do not provide any assistance or aid or help to the respondents/assessees in managing, operating, setting up their infrastructure and networks. No doubt, the facility of interconnection and port access provided by MTNL/other companies is technical in the sense that it involves sophisticated technology. The facility may even be construed as a service in the broader sense such as a communication service. But, when we are required to interpret the expression technical service', the individual meaning of the words technical' and 'service' have to be shed. And, only the meaning of the whole expression 'technical services' has to be seen. Moreover, the expression technical service' is not to be construed in the abstract and general sense but in the narrower sense as circumscribed by the expressions 'managerial service and consultancy service' as appearing in Explanation 2 to section 9(1)(vii) of the said Act. Considered in this light, the expression 'technical service' would have reference to only technical service rendered by a human. It would not include any service provided by machines or robots\". ITA No.2080/Del/2024 AY: 2014-15 8 | P a g e 2.2.4. The Hon'ble Karnataka High Court in case of CIT v. Vodafone South Ltd. [2016] 72 taxmann.com 347 (Karnataka) following the judgement of Hon'ble Delhi High court in case of Bharti Cellular Ltd. (Supra) held that roaming/ Interconnect Usage charges are not in nature of fees for technical services. In this case it was held as under: (copy enclosed at page no 72-86 of paper book) “9. We may record that in the decision of the Apex Court in the case of Bharti Cellular Ltd. (supra) the Apex Court after having found that whether human intervention is required in utilizing roaming services by one telecom mobile service provider Company from another mobile service provider Company, is an aspect which may require further examination of the evidence and therefore, the matter was remanded back to the Assessing Officer. Further, in the impugned order of the Tribunal, after considering the above referred decision of Bharti Cellular. Limited, the Tribunal has further not only considered the opinion, but found that as per the said opinion the roaming process between participating entities is fully automatic and does not require any human intervention. Therefore, we do not find that the aforesaid decision in the case of Bharti Cellular Ltd. would be of any help to the appellants - Revenue 12. As such, even if we consider the observations made by the Apex Court in the case of Bharti Cellular Ltd. supra, whether use of roaming service by one mobile service provider Company from another mobile service provider Company, can be termed as \"technical services\" or not, is essentially a question of fact. The Tribunal, after considering all the material produced before it, has found that roaming process between participating entities is fully automatic and does not require any human intervention. Coupled with the aspect that the Tribunal has relied upon the decision of the Delhi High Court for taking support of its view. 13. In our view, the Tribunal is ultimately fact finding authority and has held that the roaming process between participating company cannot be termed as technical services and, therefore, no TDS was deductible. We do not find that any error has been committed by the Tribunal in reaching to the aforesaid conclusion. Apart from the above, the questions are already- covered by the above referred decision of the Delhi High Court, which has been considered by the Tribunal in the impugned decision\". 2.2.5. The Appellant further submits that the revenue has accepted the above position held by Hon'ble Karnataka high court in case of CIT v. Vodafone South Ltd. [2016] 72 taxmann.com 347 (Karnataka) (Supra) and has not further challenged this in appeal before the ITA No.2080/Del/2024 AY: 2014-15 9 | P a g e Hon'ble Supreme Court. The same has been categorically noted by the Hon'ble Delhi High Court in the case of CIT v. Tata Teleservices Ltd. [2022] 142 taxmann.com 51 (Delhi) (copy enclosed at page no 87-90 of paper book). In Para 2 of the judgement Hon'ble Delhi High Court noted that, \"admittedly the Kamataka High Court in CIT, TDS v. Vodafone South Ltd. [2016] 72 taxmann.com 347/241 Taxman 497 has decided the aforesaid issue in favour of the respondent- assessee\". On the enquiry by the Hon'ble Delhi High Court bench, the learned standing counsel from the revenue filed the letter confirming that a conscious view was taken and no SLP was filed in case of Vodafone South Ltd. (supra). The content of the letter is as under: \"As it has been repeatedly established in various cases, involving the issue of liability of deduction of TDS us 194J for payments to other telecom companies for interconnect charges/access/port charges for reaming and data link that no human intervention was involved in the interconnect whether it was for data link or roaming, the charges paid could not be held to be in the nature of fees for technical services for the purposes of section 9(1) and section 194J of the Act In view of above, SLP in the case of CIT (TDS), Bangalore v. Vodafone South Ltd. (2016) was not filed. This is for your kind information and the needful.\" \"9. Keeping in view the aforesaid mandate of law and the letter dated 21st April, 2022, this Court is of the view that the appellant- revenue has consciously elected not to challenge the aforesaid judgment of the Karnataka High Court, which hold that no TDS is required to be deducted by the assessee on payment of interconnect user charges as it cannot be categorized as fee for technical services. 10. Consequently, this Court is of the view that it is not open to the revenue to challenge the correctness of the finding rendered by the Karnataka High Court in Vodafone South Ltd. (supra) in the case of other assessee without just cause. Accordingly, no substantial question of law arises for consideration in the present appeal and the same is dismissed\" 2.2.6. Relying on the judicial precedents, roaming charges and termination of international voice traffic charges received by Appellant does not involve any human intervention, Accordingly, the same cannot be taxable as Fees for technical Services (FTS) 2.2.7. Payment is for use of standard facility. ITA No.2080/Del/2024 AY: 2014-15 10 | P a g e The Appellant wish to reiterate that roaming represents a standard facility provided by a telecom operate to the subscribers of the other telecom operator and hence, roaming Charges do not fall within the purview of the definition of the term FTS as defined under section 9(1)(vii) of the Act. Provision of roaming services by the other telecom operators involves provision of standard services resulting into transmission of calls/SMS when a roaming subscriber makes/ receives calls while he is roaming in the telecom service area of the other telecom operator for which it is entitled to receive appropriate service charges from telecom operator. It is imperative to note that services provided by the other telecom operators are standard automated services, which are available for any telecom operator willing to avail those services (to enable its subscribes to make/receives calls when the subscribers are roaming) in consideration for payment of appropriate charges. 2.2.8. Reliance in this regard is placed on the decision of the Hon'ble Madras High Court in the case of Skycell Communications v. DCIT 251 ITR 53, wherein it has been held as under: \"14. Technical service referred in section 9(1) (vii) contemplates rendering of a \"service\" to the payer of the fee. Mere collection of a \"for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received for technical services\" 2.2.9. Further reliance in this regard on the decision of the Hon'ble Mumbai Tribunal in the case of Pacific Internet India Pvt. Ltd., (318 ITR 179), where in the context of payments made by an internet service providers for obtained bandwidth from MTNI/VSNL for provisions of internet services to its subscribers, the Hon'ble Tribunal has held that bandwidth represents standard facility provided by MTNI/VSNL and hence, payments made by the assessee for bandwidth availed by the assessee cannot be construed as FTS for the purpose of the Act. 2.2.10. In view of the above judicial precedents, it is clear that payments made for use of standard facility provided by the service provider, even where it involves use of sophisticated equipment and trained personnel by the service provider, cannot be construed as FTS for the purpose of the Act. In the present case as well, roaming Charges paid by Vodafone to the Appellant represent payments made for standard facility provided by such telecom operators and hence, cannot be classified as FTS for the purpose of the Act ITA No.2080/Del/2024 AY: 2014-15 11 | P a g e 8. Whereas, learned Departmental Representative strongly relied upon the observations of learned DRP. 9. We have considered rival submissions in the light of judicial precedents relied upon and perused the materials on record. The dispute in the present appeal revolves around the issue of taxability of interconnectivity usage charges received by the assessee from Vodafone, an Indian entity. Learned DRP has explained the interconnectivity usage charges as the cost that a mobile operator receives for carrying through/terminating a call. In simple terms, it means provision of roaming and termination of international voice traffic services, which the assessee has provided to Vodafone. At the cost of repetition, we must observe, while framing draft assessment order, the Assessing Officer has characterized interconnectivity usage charges received by assessee as royalty income under section 9(1)(vi) of the Act. However, learned DRP has, apparently, disagreed with the Assessing Officer and recharacterized the interconnectivity usage charges as FTS both under the domestic law as well as the treaty provisions. Of course, alternatively, learned DRP has held that such receipts can also be ITA No.2080/Del/2024 AY: 2014-15 12 | P a g e treated as other income both under section 56 of the Act as well as under Article 24 of Indian Oman DTAA. 10. Keeping in perspective these facts, if we proceed to analyze the nature of services provided by the assessee to the Indian entity, it can be seen that such services were provided without any human intervention at any stage. The roaming services and termination of international voice traffic services were provided by the assessee using its own system located outside Indian and the entire process of providing such services is fully automated without any human element involved therein. In fact, learned DRP has acknowledged the fact that the interconnectivity usage involves high degree of machines powered by sophisticated software. Thus, the facts on record clearly indicate that the assessee has provided the services to the Indian entity through a standard facility and system set up by it, which is fully automated. 11. In case of CIT Vs. Bhari Cellular Limited (supra), the Hon’ble Delhi High Court while deciding identical nature of dispute has held that the expression ‘technical services’ as used in Explanation 2 to section 9(1)(vii) takes colour from the expression ‘managerial and consultancy services’, which necessarily involve a human ITA No.2080/Del/2024 AY: 2014-15 13 | P a g e element or human interface. The Hon’ble Court proceeded further to hold that the interconnect/port access facility is only a facility to use the gateway and the network of service provider. Hence, such service provider does not provide any assistance or aid or help to the service recipient in managing, operating and setting up their infrastructure and network. Though, the Hon’ble Court observed that the facility of interconnection and port access provided by a service provider is technical in sense that it involves sophisticated technology and the facility may even be construed as service in the broader sense, however, while interpreting the expression ‘technical services’ it cannot be construed in the abstract and general sense but in the narrower sense as circumscribed by the expression ‘managerial service and consultancy service’ as appearing in Explanation 2 to section 9(1)(vii) of the Act, which requires rendition of service through human interface. Identical view has been expressed by Hon’ble Karnataka High Court in case of CIT Vs. Vodafone South Limited (supra) and Hon’ble Delhi High Court in case of CIT Vs. Tata Teleservices Limited (supra). 12. Revenue was unable to bring any contrary decision to our notice. Thus, keeping in view the ratio laid down in the judicial ITA No.2080/Del/2024 AY: 2014-15 14 | P a g e precedents cited before us, we hold that the receipts towards interconnectivity usage charges cannot be treated as FTS. 13. Having held so, now it is necessary for us to decide whether the receipts can be treated as other income under section 56 of the Act and under Article 24 of India – Oman DTAA. The line of thinking of learned DRP is, if a particular income cannot be characterized under any other heads of income provided under the Act, it has to be treated as other income under the residual provision of section 56 of the Act and similar provision under Article 24 of the Treaty. Learned DRP has further observed that as per the Treaty provisions, rights of taxation in respect of other income has been granted to the source country. Of course, learned DRP has added the receipts as other income on protective basis. 14. Be that as it may, one needs to look into the true meaning of ‘other income’ as provided under Article 24 of the Treaty. A reading of paragraph 1 of Article 24 makes it clearly that items of income not expressly dealt with in any of the other Articles of the Treaty shall be treated as other income under Article 24 of the Treaty. As rightly observed by learned DRP, it is a residual provision provided for taxability of income not specifically coming under any other ITA No.2080/Del/2024 AY: 2014-15 15 | P a g e Articles of the Treaty. As discussed in the earlier part of the order, the Assessing Officer had treated it as royalty income, whereas, learned DRP has treated it as FTS and suggested for addition as FTS on substantive basis. The aforesaid facts clearly indicate that the departmental authorities themselves were not sure regarding the true nature and character of the receipts. Merely, because a particular item of income cannot be treated as royalty or FTS, as such, receipts may not fit into the definition of royalty/FTS provided under the Treaty, that by itself would not make it taxable under the residual clause of the treaty. It needs to be seen, whether such income can come within the ambit of any other Article preceding Article 24 of the Treaty. Undisputedly, the roaming and termination of international voice traffic services were provided by the assessee in course of its regular business activities. Hence, it cannot be said that provision of such facility is not connected to assessee’s business activity. 15. That being the factual position on record, the interconnectivity usage charges have to be treated as business income, hence covered under Article 7 of India – Oman DTAA. However, since, the assessee did not have any Permanent ITA No.2080/Del/2024 AY: 2014-15 16 | P a g e Establishment (PE) in India, the business profit has to be taxed in the country of residence in Oman. Merely, because the income is not taxable in India under a particular head due to beneficial provisions under the Treaty, it cannot automatically lose its character, as in the present case, and made taxable as other income. The following decisions support the view: 1. Solvay Asia Pacific (P.) Ltd. Vs. Deputy Commissioner of Income-tax [2024] 159 taxamnn.com 90 (Delhi – Trib.) 2. Bangkok Glass Industry Co. Ltd. Vs. Asstt. CIT [2013] 34 taxmann.com 77 (Madras) 3. Ford India Ltd. Vs. Deputy Commissioner of Income Tax, [2017] 78 taxmann.com 5 (Chennai – Trib.) 16. Thus, taking an overall view in the context of facts and materials on record and the ratio laid down in the judicial precedents cited before us, we hold that interconnectivity usage charges received by the assessee are not taxable in India, either as FTS or as other income. Ground nos. 2 and 3 are allowed. 17. In the result, appeal is partly allowed. 18. Since, the appeal itself has been disposed of, the stay application having become infructuous is dismissed. Order pronounced in the open court on 24th October, 2024 Sd/- Sd/- (NAVEEN CHANDRA) (SAKTIJIT DEY) ACCOUNTANT MEMBER VICE-PRESIDENT Dated: 24th October, 2024. ITA No.2080/Del/2024 AY: 2014-15 17 | P a g e RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi "