S. 40(a)(i) : Amounts not deductible-Deduction at source-Non-resident-Royalty-Fees for technical services-Payments to foreign telecom operators-Voice termination, bandwidth and operation and maintenance services-Services rendered through sophisticated network and technology but assessee neither acquired equipment nor right to use any equipment/process-No technical knowledge or know-how made available-Payments not royalty or fees for technical services under applicable DTAAs-Recipients having no permanent establishment in India-Payments constituted business profits not taxable in India-No obligation to deduct tax under section 195-Disallowance under section 40(a)(i) deleted-Revenue’s appeal dismissed. [ S. 9(1)(vi), 9(1)(vii), 90(2), 195]
The Assessing Officer disallowed ₹66,65,41,174 under section 40(a)(i) in respect of payments made to non-resident telecom operators towards voice termination services, bandwidth services and operation and maintenance services, holding that the payments were taxable as royalty and/or fees for technical services and that tax ought to have been deducted under section 195. The Tribunal held that the assessee merely purchased the output of the foreign operators’ networks, namely connectivity, carriage and termination of telecom traffic, while the network, equipment and technical processes remained under the possession and control of the foreign operators. No equipment was placed at the assessee’s disposal and no right to use any equipment or process was acquired. Further, no technical knowledge, skill, know-how or process was made available to the assessee; the technical personnel operated and maintained their own networks. Following the consistent decisions in the assessee’s own cases and the recipient-side cases, as well as the decision in Vodafone Idea Ltd., the Tribunal held that the payments were not taxable as royalty or FTS/FIS under the applicable DTAAs. In the absence of any permanent establishment of the recipients in India, the receipts were also not taxable as business profits under Article 7. Consequently, there was no obligation to deduct tax under section 195, and the disallowance under section 40(a)(i) was unsustainable. The deletion of ₹66,65,41,174 was accordingly upheld, and the Revenue’s appeal was dismissed. (AY. 2019-20) (ITA No. 3541/Mum/2026 dt. 21-08-2026)
DCIT v. Reliance Jio Infocomm Limited (Mum)(Trib.) [www.itatonline.org]
[Coram : Hon’ble Shri Amit Shukla, JM & Hon’ble Shri Arun Khodpia, AM]