In a recent ruling the Mumbai bench of the Income Tax Appellate Tribunal ( ITAT ) observed that Interconnect usage charges paid to foreign Telecom Operators Not Taxable in India under India-Sri Lanka Double Taxation Avoidance Agreement ( DTAA )
The brief facts are that the assessee company was a nonresident telecommunication operator rendering international carriage and connectivity services to telecom operators of other countries to facilitate seamless connectivity and carriage of telecommunication traffic in Sri Lanka.
The assessee’s case was reopened by the Assessing Officer ( AO ) under Section 147 of the Income Tax Act, 1961 for the reason that the assessee has received payment of Rs.4,16,80,240/- during the year under consideration from M/s. Vodafone South Limited ( VSL )which is an Indian entity
The Assessing Officer observed that the income as taxable in India under ‘royalty’ and issued a draft assessment order under Section 144C of the Income Tax Act, determining the total income. However, the tribunal held that changes in domestic law do not automatically affect the provisions of the DTAA unless specifically amended. Citing jurisprudence including the Reliance Infocomm Ltd case, the tribunal ruled in favor of the assessee.
The tribunal held that the amendment or change in a domestic law cannot result in change in the provision of DTAA unless a specific amendment is brought about in DTAA. The assessee has also placed reliance on the decision of Jurisdictional High Court in the case of Reliance Infocomm Ltd, and various cases which has held this issue in favour of the assessee
The bench of Om Prakash Kanth ( Accountant member ) and Kavitha Rajagopal ( Judicial member ) held that the payment made towards interconnect usage charges to foreign telecom operators does not accrue or arise in India and in the absence of any permanent establishment in India could not be brought to tax in India under Article 7 of DTAA.
In the result, the appeal filed by the assessee is allowed.
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