The Income Tax Appellate Tribunal (ITAT), New Delhi Bench held that the consideration received on Bandwidth services provided outside India is not taxable as ‘Royalty’ under India-Singapore Double Taxation Avoidance Agreement (DTAA).
The assessee company, Telstra Singapore Pte.Ltd. is incorporated in Singapore. It is engaged in the business of providing digital transmission of data through international private line or multi-protocol label switching, etc. to facilitate high speed data connectivity, which is referred to as ‘bandwidth services’.
The assessee provides bandwidth services outside India to its customers. It has entered into a Global Business Service Agreement (GBSA) with various customers. In case where services are provided by Indian telecom operator like Bharti Airtel in India and the services outside India are provided by the assessee, it enters into One Stop Shopping Services Agreement (OSS) with Bharti Airtel or any other Indian telecom operator, to facilitate single billing facility to the customer.
As per the agreement with the customer, uninterrupted 24X7 services are available to it. In case, the services are unavailable or not available at the requisite speed, the customer shall be entitled to rebate as per the rates agreed upon.
The assessee for the year under consideration, had filed the return of income at Nil.
The Assessing Officer was of the view that the amount received from Indian customers for the provisions of bandwidth services outside India was equipment/process royalty under section 9(1)(vi) of the Act read with Article 12(3) of the India Singapore Tax Treaty, which was upheld by the DRP.
The issue raised in the appeal filed by the assessee for different Assessment Years is against the chargeability of amount received from Indian customers for providing bandwidth services outside India as equipment or process royalty under section 9(1)(vi) of the Act and Article 12(3) of the India Singapore Tax Treaty.
The two member bench headed by the Vice President, Shushma Chowla clarified that mere receipt of service using equipment under the control, possession and operation of service provider would only be transaction of a service and not to “use or right to use” an equipment, and would not attract ‘Royalty’ under the Act or the Tax Treaty.
The other issue raised in this case was the definition of ‘Royalty’ has not been amended in the Tax Treaty, is the receipt taxable as ‘Royalty’.
The tribunal while addressing the issue said that the amendment, if any to the Income Tax Act cannot be applied to the Tax Treaty.
The tribunal clarified that the Tax Treaty between India Singapore specifically does not include “transmission by satellite, cable, optic fiber or similar technology” in the definition of ‘Royalty’ under the Tax Treaty and also where the Tax Treaty had not undergone any amendment, the provisions of DTAA being more beneficial to the assessee are attracted and the assessee is not liable to be taxed on the amount received from Indian customers for the provision of bandwidth services outside India.
Therefore, the tribunal held that the assessee company is a tax resident of Singapore, which is providing band width services to the various Indian Telecom Operators like Bharti Airtel in India and the services are being provided outside India and the consideration received by the assessee company is not taxable as ‘Royalty’ in view of the beneficial provisions of DTAA between India and Singapore under which the definition of ‘Royalty’ has not been amended.
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