The Karnataka High Court has held that no Tax Deduct at Source(TDS) deduction on Vodafone Idea for inter-connectivity usage & bandwidth charges.
The assessee holds an International Long Distance(ILD) License and provides telecommunication services. It was responsible to provide connectivity to calls originating or terminating outside India. To provide ILD services, the assessee avails certain services offered by NTOs to provide seamless connectivity to its customers.
Assessee had entered into agreements with non-resident telecom operators (NTOs) for international carriage and connectivity services. As per the agreement, the assessee has to pay inter-connectivity charges to NTOs.
Assessee entered into a CTA with MIS Belgacom International Carrier Services S.A. to acquire bandwidth capacity on EIG which works through a submarine cable system and M/s. Omantel Telecommunications Company is a member of the consortium which owns the EIG system.
The agreement allowed each party to transfer to another telecommunication entity the whole or a part of its total allocated capacity in the EIG Cable system without any restrictions by way of an IRU. In pursuance of the EIG agreement, Omantel had transferred a certain portion of its capacity in the EIG cable system to Belgacom and in turn, Belgacom had transferred a portion of its capacity to the assessee for consideration.
The AO issued a notice stating that the payments made by the assessee to NTOs and Belgacom for the A.Y. 2008-09 to 2015-16 were made without deducting TDS under Section 195 of the Income Tax Act 1961 and the assessee was liable to be treated as ‘defaulter’ under Section 201 of the Act.
The CIT(A) vide order dated March 25, 2013, dismissed the assessee’s appeal holding that payments made to NTOs are chargeable to tax in India under Section 195 of the Act as Royalty. He held that the IUC payments could not be taxed under the head ‘other income’. On further appeal, the ITAT has partly allowed the assessee’s appeal and confirmed the findings recorded by the CIT(A). Hence, this appeal.
The division bench comprising of Justice P.S. Dinesh Kumar and Justice Ramachandra D. Huddar has held that since the assessee was entitled to the benefits under the Double Taxation Avoidance Agreement (DTAA), it was not liable to deduct tax at source.
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