M/s Telefonica UK Limited vs. Deputy Commissioner of Income Tax, International Taxation, Circle-4(1)(2), Mumbai [TS-580-ITAT-2023(MUM)] dated 22nd September,2023.

Facts:

• Telefonica UK Ltd, tax resident of UK entered into an agreement with Vodafone Idea Limited (VIL) to provide roaming services to VIL’s customers while they are in UK and consequently received Rs.45 Cr from VIL in lieu of roaming services which was not offered to tax since the services were provided outside India.
• Revenue held that the amount received in lieu of roaming service is covered within the meaning of ‘process’ stipulated in Explanation to Section 9(1)(vi) to constitute royalty.
• Revenue initiated reassessment proceedings and relying on Madras HC ruling in Verizon and coordinate bench ruling in Vodafone South (subsequently reversed by Jurisdictional HC in Vodafone Idea) held that the amount received by Assessee in lieu of roaming service is covered within the meaning of ‘process’ stipulated in Explanation to Section 9(1)(vi) to constitute royalty.
• Aggrieved, the assessee filed an appeal with the ITAT.

Issue:

• Whether income from telecom roaming service rendered outside India will be taxable as Royalty?

Held:

• ITAT observed that in assessee’s arrangement with VIL, no right as mentioned in Explanation 2 to Section 9(1)(vi) or any kind of use of any process/equipment has been provided to VIL.
• Relying on Bangalore ITAT ruling in Telefonica Depreciation Espana wherein it was held that the broader definition of process to constitute royalty in terms of Explanation 5 and 6 cannot affect the definition royalty stipulated in Article 13 India-UK DTAA in absence of amendment to the said DTAA.
• Relying on jurisdictional HC ruling in Reliance Infocomm wherein it was held that payment made to a non resident company for providing standard bandwidth services cannot be characterised as ‘royalty’ under DTAA.
• ITAT held that rendering roaming services to its customers abroad cannot be considered as ‘royalty’ as stipulated under Section 9(1)(vi) or Article 13 of India-UK DTAA in absence of grant of right to use the process or property to the said Indian telecom company.
• Thus, ITAT ruled in the favour of the assessee.

M/s Service Now Nederland BV vs. Assistant Commissioner of Income Tax Officer International Taxation),3(1)(2), New Delhi [TS-585-ITAT-2023(DEL)] dated 29th August, 2023

Facts:

• Assessee, a Netherlands based Company, received Rs.125.11 Cr for provision of subscription, professional and training services to various customers in India but did not offer the same to tax under the premise that the said income is exempt under India-Netherlands DTAA.
• Revenue rejected assessee’s claim and held the said receipts to be FTS as the services are provided services provided by assessee are standard and customized services and that ‘make available’ clause is not relevant for the second part of Article 12(5)(b) i.e. it is not relevant for development and transfer of a technical plan or technical design. DRP also confirmed the said receipts as FTS.
• Aggrieved, the assessee filed an appeal with the ITAT.

Issue:

• Whether receipts from subscription, professional and training services will be considered as FTS?

Held:

• ITAT observed that ‘make available’ is applicable to the entire expressions mentioned in Article 12(5)(b). ITAT also noted that while providing the subscription, professional and training services, no technical knowledge, knowhow etc. is made available to the customers, thus the same does not fall under FTS under Article 12(5) of India-Netherlands DTAA.
• Relying on Karnataka HC ruling in De Beers wherein it was held that FTS means making available technical knowledge, skill, know how process which enables the person acquiring the service to apply technology contained therein and relying on SC ruling in Kotak Securities wherein it was held that the common services are provided to every person which does not amount to technical services which is sought by user for any specific purpose.
• ITAT opined that “since assessee had merely granted access to software, it does not fall within the definition of FTS even as per the Act”.
• Thus, ITAT ruled in the favour of the assessee.

Indium IV (Mauritius) Holdings Limited vs. Deputy Commissioner of Income Tax, International Taxation, Circle-2(2)(1), Mumbai [TS-591-ITAT-2023(MUM)] dated 06th October, 2023

Facts:

• Assessee is a tax resident of Mauritius. For AY 2017-18, Assessee declared a Long term capital loss of Rs.14.35 Cr. and carried it forward under Section 74(1) and claimed exemption of STCG of Rs.2.19 Cr under Article 13 of India-Mauritius DTAA.
• Revenue observed that since the capital gains derived by tax resident of Mauritius in India is exempt, the question of carrying forward of long term capital losses from capital gain transactions does not arise at all, hence, denied the claim of carry forward of LTCL.
• Aggrieved, the assesse filed an appeal with the ITAT.

Issue:

• Whether assesse will be allowed to carry forward LTCL as per India Mauritius DTAA?

Held:

• ITAT observed that under the head capital gains, STCG / STCL and LTCG /LTCL are distinct and separate streams of income and thus, “the provisions of section 90(2) will apply to each stream of income and not the head of income”.
• ITAT opined that as per Section 90(2), Assesse is eligible to claim the beneficial provisions of the treaty in respect of STCG and for LTCL, the Assesse has only option to apply the provisions of Section 74 and accordingly, it chose to carry forward LTCL.
• ITAT concluded that the assesse has rightly claimed beneficial provisions of the India-Mauritius DTAA in respect of STCG and allows to carry forward LTCL as per Section 74.
• Thus, ITAT ruled in the favour of the assesse.