Sum received by UK based Co. for allowing Indian telecom operators to use its Virtual Voice Network wasn’t FTS

Facts

a)    Assessee (Interroute Communications Ltd.), a UK based Company, was engaged in the business of providing international telecommunication network connectivity to various telecom operators around the world.

b)    It entered into an agreement with the Indian telecom operators, viz., Vodafone Essar South Limited and Tata Telecommunications Ltd to allow them to use its Virtual Voice Network (VVN), i.e., a facility used to connect the call to the end-operators.

c)    Assessee contended that sum received by it under the aforesaid agreement was in nature of business income and should not be taxable in India in absence of its permanent establishment in India.

d)    Assessing Officer (AO) opined that the payment received by the assessee for allowing Indian telecom operators to use its VVN should be taxable as royalty or FTS as per Article 13 of the India-UK Double Taxation Avoidance Agreement (DTAA).

e)    The CIT(A) confirmed the order of the AO. Aggrieved assessee filed the instant appeal before the tribunal.

The tribunal held in favour of assessee as under-

1)    Payment was made to the assessee for using its services and not for the use of any scientific equipment or technology. Therefore, the said payment couldn't be treated as royalty as per Article 13 of the India-UK DTAA.

2)    Further, payment for a service can be brought to tax as 'FTS' under Article 13 of the India-UK DTAA only when technology is made available to the service recipient, i.e., recipient of service is enabled to perform the same service with the use of technology without recourse to the service provider.

3)    In the instant case, VVN facility was not made available to the assessee since it wasn't able to apply that technology without recourse to the service provider. Therefore, payment in question couldn't be taxed as 'FTS'.

4)    Hence, sum received by the assessee for allowing the Indian telecom operators to use its Virtual Voice Network (VVN) couldn't be treated as either royalty or fee for technical service (FTS) in terms of Article 13 of the India-UK DTAA- [2016] 68 taxmann.com 160 (Mumbai - Trib.)