The Karnataka High Court ruled that the Tax Authorities in India shall have no jurisdiction to bring to tax the income arising from extra-territorial source.
Facts
Assessee holds an ILD License and provides telecommunication services. It is responsible to provide connectivity to calls originating or terminating outside India. In order to provide ILD services, assessee avails certain services offered by NTOs to provide seamless connectivity to its customers.
Assessee had entered into agreements with NTOs for international carriage and connectivity services.
In pursuance to the EIG agreement, Omantel had transferred a certain portion of its capacity in the EIG cable system to Belgacom and in turn, Belgacom had transferred a portion of its capacity to the assessee for consideration. The AO issued a notice stating that the payments made by assessee to NTOs and Belgacom for the A.Y. 2008-09 to 2015-16 were made without deducting TDS under Section 195 of the Income Tax Act 1961 and assessee was liable to be treated as ‘defaulter’ under Section 201 of the Act. Assessee sent its reply explaining that the NTOs are located outside India and they provide telecom services outside India. Hence, it was not necessary to deduct TDS in India.
Submissions
Advocate Percy Pardiwala, for the Assessee, submitted that the payments made by assessee cannot be characterised as royalty or FTS or business profits, as no part of the activity was admittedly carried out in India.
Advocate Shrivastsava, for the Revenue, submitted that Section 195 of the Act mandates that the tax has to be deducted at source if the payment represents a sum chargeable to tax. If the payer does not think that tax is deductible or requires to be deducted at a lower rate, he could approach the AO under Sections 195(2), 195(3), 197 of the Act, for a nil deduction/lower deduction certificate.
Decision
The division bench of Justice P.S. Dinesh Kumar And Justice Ramachandra D. Huddar observed that it is clear that an assessee is entitled to take the benefit under a DTAA between two countries. Hence, the ITAT’s view that DTAA cannot be considered in proceedings under Section 201 of the Act is tenable.
The court said that It is held in Engineering Analysis that an assessee is not obliged to do the impossible. Admittedly, the A.Y.s under consideration are 2008-09 to 2012-13 and the Explanation has been inserted by Finance Act, 2012. In addition, it has also held that the assessee is entitled for the benefits under DTAA.
Case Title: M/S. Vodafone Idea Limited V/S Deputy Director Of Income Tax
Citation: ITA No. 160 Of 2015