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
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
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
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