Interconnect Charges Not Royalty: Key Update Explained

When reading Interconnect Charges Not Royalty: Key Update Explained, the important part is to keep the core facts intact while presenting the context in a clearer way for readers.

What This Update Means

Readers should treat this as a tax and compliance update, not as personal advice.

Key Reader Takeaways

• The High Court followed its earlier ruling that interconnect service charges are not taxable as royalty.
• The Revenues appeal was dismissed due to lack of merit and binding…
• The Karnataka High Court considered whether interconnect service charges paid to foreign telecom operators constitute royalty and are thus taxable.
• The issue had already been addressed by a Co-ordinate Bench in an earlier judgment dated 14.07.2023, which held that such payments for interconnect services and transfer of capacity in foreign countries do not amount to royalty.

LAMORC DIGITAL Context

The detailed section below preserves the source-backed information so readers can review the full context and important details in one place.

The Karnataka High Court considered whether interconnect service charges paid to foreign telecom operators constitute royalty and are thus taxable. The issue had already been addressed by a Co-ordinate Bench in an earlier judgment dated 14.07.2023, which held that such payments for interconnect services and transfer of capacity in foreign countries do not amount to royalty. The earlier ruling also noted that, in subsequent assessment years, the Income Tax Appellate Tribunal had held that tax was not deductible on payments made to non-resident telecom operators, and this position was not disputed by the Revenue. The Revenue had also revised its earlier stance in light of tribunal decisions.

Read SC Judgment in this case: SC dismissed SLP for Delay & Lack of Merit on Interconnect Charges Taxability

In the present case, the Learned Single Judge relied on the Co-ordinate Bench’s decision. The Division Bench found no infirmity in that order. Accordingly, following the binding precedent, the appeal filed by the Revenue was dismissed, reaffirming that interconnect service charges are not taxable as royalty.

FULL TEXT OF THE JUDGMENT/ORDER OF KARNATAKA HIGH COURT

Heard Sri. E.I.Sanmathi, learned counsel for the appellants and Sri. Sagar Agarwal, learned counsel for the respondent.

2. Perused the appeal papers.

3. The question involved in the appeal is as to whether interconnect service charges paid would amount to royalty.

4. The above issue was considered by a Co-ordinate Bench of this court in ITA.No.160/2015 and connected appeals. By judgment dated 14.07.2023 it is held that interconnect service charges would not constitute royalty. Paragraph No.21 of the judgment reads as follows:

“The third question is, whether the payments made to NTOS for providing interconnect services and transfer of capacity in foreign countries is chargeable to tax as royalty. It was argued by Shri. Pardiwala, that for subsequent years in assessee’s own case, the ITAT has held that tax is not deductable when payment is made to non­resident telecom operator. This factual aspect is not refuted. Thus the Revenue has reviewed its earlier stand for the subsequent assessment years placing reliance on Viacom etc 35, rendered by the ITAT. In that view of the matter this question also needs to be answered against the Revenue.”

5. Learned Single Judge has also placed reliance on the above decision of the Co-ordinate Bench. Therefore, we do not find any infirmity in the order under challenge.

6. Following the decision of Co-ordinate Bench dated 14.07.2023 in ITA No.160/2015 and connected appeals, the above appeal stands dismissed.

Readers should treat this as a tax and compliance update, not as personal advice.

This article is for general information based on available source information. It should not be considered legal, tax, investment, or financial advice.