The case ITA 599/DEL/2021 involves an appeal by Telstra Singapore Pte. Ltd., Singapore, against the assessment order passed by the Deputy Commissioner of Income Tax (International Taxation), Circle-3(1)(1), New Delhi, for the assessment year 2017-18. The appeal addresses whether the bandwidth services provided by the appellant qualify as ‘Equipment Royalty’ or ‘Process Royalty’ under Article 12 of the India-Singapore Tax Treaty.
The details of the case are as follows:
The case was heard on 03.08.2022 before the Delhi Bench “D” of the Income Tax Appellate Tribunal (ITAT), comprising President Shri G.S. Pannu and Judicial Member Shri Challa Nagendra Prasad. The appellant was represented by Shri S.K. Aggarwal, CA, while the respondent was represented by Ms. Sapna Bhatia, CIT DR.
The appellant raised several grounds in the appeal, primarily challenging the final assessment order dated 31.03.2021 passed under section 143(3) read with section 144C(13) of the Income Tax Act, 1961. The key issue was whether the bandwidth services provided by Telstra Singapore Pte. Ltd. are covered as ‘Equipment Royalty’ or ‘Process Royalty’ under Article 12 of the India-Singapore Tax Treaty.
The appellant, Telstra Singapore Pte. Ltd., is a company incorporated in Singapore and is a tax resident of Singapore. It is engaged in the business of providing digital transmission of data through International Private Line (IPL) or Multi-Protocol Label Switching (MPLS) to facilitate high-speed data connectivity (hereinafter referred to as ‘bandwidth services’).
The appellant provides bandwidth services outside India to its customers under a Global Business Service Agreement (GBSA). It also enters into a One Stop Shopping Service Agreement (OSS) with Indian telecom operators like Bharti Airtel to facilitate single billing for customers.
The appellant argued that the provision of bandwidth services does not result in the use or right to use any equipment or process by the customer, and therefore, the consideration received for such services does not fall under the definition of royalty as per Article 12 of the India-Singapore Tax Treaty. The appellant relied on several judicial precedents, including the decisions of the Delhi ITAT in its own case for previous assessment years and various other rulings.
The Revenue relied on the Madras High Court’s decision in the case of Verizon Singapore Pte. Ltd. vs. ITO and the Special Bench of Delhi ITAT’s decision in the case of New Skies Satellite NV vs. ADIT, arguing that the amount received from Indian customers for the provision of bandwidth services outside India should be considered as equipment/process royalty under section 9(1)(vi) of the Income Tax Act, read with Article 12(3) of the India-Singapore Tax Treaty.
The Tribunal, after hearing both parties and reviewing the evidence, ruled in favor of the appellant. The Tribunal observed that the issue in appeal had been decided in favor of the appellant by the Tribunal in previous assessment years, holding that the consideration received for bandwidth services provided outside India is not taxable as ‘Royalty’ under the beneficial provisions of the India-Singapore Tax Treaty.
The Tribunal followed its previous decisions in the appellant’s own case for the assessment years 2011-12, 2012-13, 2014-15, 2015-16, and 2016-17, wherein it was consistently held that the provision of bandwidth services does not constitute royalty.
Based on the arguments presented and the evidence provided, the Tribunal ruled in favor of the appellant, directing the Assessing Officer to delete the additions made on account of ‘Royalty’. The appeal was allowed.
Order pronounced in the open court on this the 27th day of September, 2022.
G.S. PANNU
PRESIDENT
C.N. PRASAD
JUDICIAL MEMBER
Dated: 27/09/2022
*Kavita Arora, Sr. P.S.
Copy forwarded to:
1. Appellant
2. Respondent
3. CIT
4. CIT (A)
5. DR
Assistant Registrar, ITAT, Delhi Benches, New Delhi
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