Interconnect Service Payments Do Not Constitute “Royalty” Under Income Tax Act: Supreme Court sustains Karnataka HC Decision [Read Order]
The Supreme Court dismissed the appeal on both, delay and the substantive merits of the case.
Supreme - court - Taxscan
Supreme - court - Taxscan
The Supreme Court of India recently dismissed a Special Leave Petition filed by the Income Tax Department against the respondent M/s Belgacom International Carrier Services SA (Belgacom), affirming the decision of the Karnataka High Court that payments for interconnect services do not constitute “royalty” under the Income Tax Act, 1961.
The primary question up for contention within the present appeal was whether interconnect service charges paid to non-resident telecom carriers amount to “royalty”, and in the event that they, does such interconnect service charge become liable to tax in India.
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The special leave petition before the apex court arose from proceedings in and out of the final judgment and order passed by the Karnataka High Court in Writ Appeal No.668 of 2024 filed by the Revenue against a prior order of the High Court in Writ Petition No.5110/2021.
Before the High Court, the Revenue was represented E.I. Sanmathi.
The Karnataka High Court Bench of Justice S.G.Pandit and Justice C.M. Poonacha delivered a judgment dated 2nd September, 2024 wherein reference was made to the decision of a co-ordinate Bench of the Karnataka High Court in M/s Vodafone Idea Limited Vs. Deputy Director Of Income Tax (ITA No.160/2015) and connected matters, where it was held that interconnect service charges would not constitute royalty..
The Division Bench of the Karnataka High Court, in its judgment made specific reference to paragraph 21 of the Coordinate Bench judgment where it was noted that the ‘Income Tax Appellate Tribunal had already held that tax was not deductible on payments made to non-resident telecom operators, and this factual position was not disputed’. Observing that the Revenue itself had reviewed its earlier stand in later assessments, the Court answered the question against the Revenue.
In the present appeal, the Revenue was represented by Raghavendra P Shankar, Madhulika Upadhyay, Karan Lahiri, Pallavi Mishra, Udai Khanna and Rashmi Malhotra.
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The Bench of Justice B.V. Nagarathna and Hon’ble Mr Justice R. Mahadevan at the outset, recorded a gross delay of 227 days in filing the SLP and found the reasons for condonation inadequate, dismissing the application for condonation of delay.
The Court further ruminated on the merits of the SLP in terms of an earlier order dated July 14, 2025 in The Deputy Commissioner Of Income Tax (International Taxation) Vs. M/s M.I. Limited (Diary No.27624/2025) and other related orders passed by the apex court.
Resultantly, the conclusion by the Karnataka High Court that interconnect service payments do not qualify as “royalty” under the Income Tax Act, 1961 remains intact as the appeal stands dismissed both on delay and on the substantive merits as recorded by the Court.
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