Income Received By UK Telecom Company From Indian Telecom Company For Rendering Roaming Services To Customers Abroad Is Not ‘Royalty’: ITAT

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that income received by a UK telecom company from an Indian telecom company for rendering roaming services to customers abroad is not ‘royalty’.

The bench of Amit Shukla (Judicial Member) and Gagan Goyal (Accountant Member) has observed that payments made to a non-resident company for providing standard bandwidth services cannot be characterized as ‘royalty’ under DTAA. The amount received by the assessee from Vodafone Idea Limited (VIL) in the form of roaming charges is not taxable.

The appellant/assessee, Telefonica UK Ltd., is a company incorporated under the laws of the United Kingdom of Great Britain and Northern Ireland (UK) and is a tax resident of the UK. The assessee is a non-resident telecommunication service provider, primarily engaged in the business of providing mobile and broadband services along with various other ancillary services such as text, media messaging, games, music, video, and data connections in the United Kingdom.

The arrangement of VIL with the assessee is that the assessee will provide telecommunication services to the customers of VIL, and for rendering the services to the customers of VIL, the assessee would receive consideration from VIL. Therefore, the agreement entered into by the assessee with VIL is a service agreement under which the telecommunication services are provided by the assessee to the customers of VIL. The network of the assessee and related processes or equipment are used by the assessee for providing telecommunication services. VIL has no access to the network of the assessee or related processes or equipment that are used by the assessee to provide the services.

The assessee received Rs. 7,45,72,448 for providing roaming services and a discount settlement in connection therewith from VIL. The amount received by the assessee was not offered to be taxed by the assessee since the roaming services were rendered outside India, i.e., in the UK. Therefore, according to the assessee, the income did not accrue or arise in India. The income received by the assessee was not chargeable to tax as royalty or fees for technical services (FTS) under the provisions of the Act and under the provisions of the India-UK Double Taxation Avoidance Agreement (DTAA).

The department initiated reassessment proceedings, noting that the amount received by the assessee in lieu of roaming service is covered within the meaning of ‘process’ stipulated in Explanation to Section 9(1)(vi) to constitute royalty.

The tribunal noted that no right, as mentioned in Explanation 2 to Section 9(1)(vi), or any kind of use of any process or equipment has been provided to VIL. There is nothing on record to suggest that VIL has the right to use or has used the process or equipment owned by the assessee, and it is abundantly clear that the assessee is using its own process, equipment, and network to render roaming services to customers of VIL in the UK.

Counsel For Appellant: Hiten Chande

Counsel For Respondent: S Anbuselvam

Case Title: M/s. Telefonica UK Limited Versus DCIT

Case No.: ITA No.771/Mum/2023 & 772/Mum/2023

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