August 2019

Article 7, 12 of India-Singapore DTAA – Provision of standard bandwidth services could not be classified as FTS or royalty under India-Singapore DTAA

GEETA JANI | DHISHAT B. MEHTA
Chartered Accountants

18. TS-305-ITAT-2019 (Mum.)

DCIT vs. Reliance Jio Infocomm Ltd.

ITA No.: 936/Mum/2017

A.Y.: 2016-17

Date of order: 10th May, 2019

 

Article 7, 12 of India-Singapore DTAA – Provision of standard bandwidth services could not be classified as FTS or royalty under India-Singapore DTAA

 

FACTS

Taxpayer, an Indian company, was engaged in the business of providing telecom services in India. During the year under consideration, Taxpayer entered into an agreement with a Singapore Company (FCo) for availing bandwidth services. As per the terms of the agreement, Taxpayer withheld taxes on payments made to FCo for rendition of services.

 

However, Taxpayer subsequently appealed before the CIT(A) u/s 248 of the Act on the ground that the amount paid for bandwidth services was not taxable in India and hence was not subject to withholding u/s 195 of the Act on the basis of the following:

 

Bandwidth charges were in the nature of business income for FCo and in the absence of permanent establishment (PE) or business connection in India, it was not taxable under Article 7 of the India-Singapore DTAA.

 

Provision of the bandwidth services was fully automated and did not involve any human intervention. Hence, such services did not qualify as FTS under the Act or the DTAA.

 

Payments made to FCo were merely for receiving standard bandwidth services and not for making any use of a ‘process’, whether secret or not; therefore, it does not qualify as ‘royalty’ under the Act as well as the DTAA.

 

CIT(A) observed that Taxpayer had only received an access to service and all the infrastructure and processes required for provision of bandwidth services were always used and remained under the control of FCo and were never given either to Taxpayer or to any person availing such services. It was thus concluded that the payments made by Taxpayer to FCo for provision of bandwidth services could not be classified as FTS or royalty either under the Act or the DTAA. The payment made was in the nature of

--->

Past Issues

Flip-Book
HTML View
Current Issue