Interconnect Charges not Subject to Tax as Royalty: ITAT [Read Order]

The Bangalore Bench of Income Tax Appellate Tribunal(ITAT)The Bangalore Bench of the Income Tax Appellate Tribunal (ITAT) ruled that interconnect charges are not taxable as royalty.

The Revenue-appellant,appealed against the order dated 07.10.2024 passed by CIT(A),which allowed the A1 Telekom Austria Aktiengesellschaft,respondent-assessee,challenge to a reassessment order passed under Section 143(3) read with Section 147 for AY 2013-14.

In this case, the assessee, a non-resident telecom operator based in Austria, received Rs. 208,42,638 from Vodafone South Ltd., an Indian entity. The payment was earlier held taxable as royalty in proceedings under Section 201, a decision upheld by the coordinate bench. Based on this, a notice under Section 148 was issued on 26.02.2021, and the assessee filed a return of income on 26.03.2021.

After considering objections and issuing notices under Sections 142(1) and 148, the Assessing Officer(AO) treated the payments as royalty taxable in India under the Income-tax Act and the India-Austria Double Taxation Avoidance Agreement(DTAA). A reassessment order taxing Rs. 11,47,52,968 as royalty was passed on 11.05.2022.

Comprehensive Guide of Law and Procedure for Filing of Income Tax Appeals, Click Here

The assessee appealed to the Commissioner of Income Tax(Appeals)[CIT(A)], citing a similar case involving Vodafone Idea Ltd., where the Karnataka High Court ruled against the Revenue, and the Supreme Court dismissed the Revenue’s Special Leave Petition(SLP). The CIT(A) held that the Supreme Court’s decision established that interconnect charges are not royalty, and allowed the assessee's appeal.

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Read More: The two member bench comprising Prashant Maharishi(Vice President) and  Soundararajan K(Judicial Member) reviewed the arguments and the orders of the lower authorities. It noted that the issue was whether interconnect service charges of Rs. 11,47,52,968 from Vodafone and Bharti Airtel were taxable as royalty under the Income-tax Act or the DTAA.

The appellate tribunal found that the CIT(A) had relied on the Karnataka High Court’s decision, which was upheld by the Supreme Court, holding that interconnect charges are not royalty. Similar rulings in cases like Belgacom International and Maxis International were also cited. As the coordinate benches had ruled the same in identical cases, the tribunal upheld the CIT(A)’s order and dismissed the appeal.

To Read the full text of the Order CLICK HERE

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