Bandwidth Charges Not Royalty Under India-Singapore DTAA: ITAT Delhi

Telstra Singapore Pte Ltd., a tax resident of Singapore, filed its return of income for AY 2022-23, declaring total income of Rs. 1,95,520. The case was selected for complete scrutiny under CASS. During assessment proceedings, the Assessing Officer treated receipts of Rs. 8,90,26,680 received from Indian customers for providing international telecommunication connectivity services such as International Private Leased Circuits (IPLC) and Multi-Protocol Label Switching (MPLS) as royalty under section 9(1)(vi) of the Income-tax Act, 1961 and Article 12(3) of the India-Singapore DTAA.

The assessment order was passed under section 143(3) read with section 144C following directions of the Dispute Resolution Panel. Aggrieved, the assessee preferred an appeal before the ITAT.

Question Before Tribunal: Whether amount received by a Singapore-resident telecom service provider from Indian customers for bandwidth and connectivity services is taxable in India as royalty under section 9(1)(vi) of the Income-tax Act and Article 12(3) of the India–Singapore DTAA.

Tribunal’s Decision: The Tribunal held that the issue was covered in favour of the assessee by its own earlier decisions, upheld for assessment years from 2011-12 onwards, and further affirmed by the Delhi High Court. It was reiterated that provision of bandwidth services constitutes a pure service arrangement and does not involve use or right to use any equipment or process by the customer.

Therefore, the receipts could not be characterised as royalty either under the Act or under the India-Singapore DTAA. The addition of Rs. 8,90,26,680 was directed to be deleted. Penalty proceedings initiated under section 270A were held to be purely consequential and required no independent adjudication. The appeal of the assessee was allowed in full.

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