Taxability of "Interconnect service charges": Supreme Court Rejects Income Tax Dept's SLP against Belgacom Over Gross Delay in Filing [Read Judgment]

In a recent ruling, the Supreme Court of India dismissed the Special Leave Petition filed by the Deputy Commissioner of IncomeTax (International Taxation) against Belgacom International Carrier Services regarding taxability of "interconnect service charges" paid to the respondent amounted to "royalty". The dismissal was citing an unexplained "gross delay" of 390 days in filing the appeal.

The case challenged a final judgment and order dated September 27, 2024, passed by the High Court of Karnataka at Bengaluru in Writ Appeal No. 679/2024, which had ruled in favour of the respondent Belgacom International Carrier Services, regarding the taxability of interconnect service charges. The Income Tax Department had filed interlocutory applications seeking the condonation of this delay and permission to cure defects in the filing.

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The central question before the High Court was whether "interconnect service charges" paid to the respondent amounted to "royalty" payments liable for tax in India. The High Court dismissed the appeal filed by the Income Tax Department, upholding the previous ruling in favour of the taxpayer. The Court relied on a specific judgment delivered by a Coordinate Bench of this Court on July 14, 2023. It was ruled that the earlier judgment had established that payments made to non-resident telecom operators for providing interconnect services do not constitute "royalty."

The High Court has found that the Single Judge whose order was being challenged in this appeal had correctly applied this precedent. The Division Bench found no legal error in that order.

The two-judge bench comprising Justice J.B. Pardiwala and Justice Vijay Bishnoi found the explanation for the 390-day delay unsatisfactory. Furthermore, the Court observed that there were "no good grounds" to interfere with the impugned order passed by the High Court. Consequently, the Special Leave Petition was dismissed on the grounds of both the gross delay and the lack of merit, leading to the disposal of all pending applications.

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