The Income Tax Appellate Tribunal, Mumbai, has clarified that receipts from international telecommunication services such as voice termination and bandwidth provision do not qualify as royalty or fees for technical services under India’s double taxation avoidance agreements unless there is a transfer of technical knowledge, skill, or process. This decision reinforces the principle that mere provision of infrastructure-based services cannot be recharacterized as taxable royalty.
Background & Facts
The Dispute
The appeals involve two wholly-owned foreign subsidiaries of Reliance Jio Infocomm Limited: Reliance Jio Infocomm Pte. Limited (Singapore resident) and Reliance Jio Infocomm USA Inc. (US resident). Both entities provided telecommunication services - including voice termination, bandwidth, IP transit, and annual operational and maintenance (O&M) services - to their Indian parent company, Reliance Jio Infocomm Limited (RJIL), during the assessment year 2019-20. The Revenue treated these receipts as taxable in India under Section 9(1)(vi) and (vii) of the Income Tax Act, 1961, as royalty or fees for technical services (FTS), and also invoked Article 12 of the respective Double Taxation Avoidance Agreements (DTAAs) with Singapore and the United States.
Key Facts
- The Singapore subsidiary received payments of ₹44,17,39,679 during A.Y. 2019-20 for services rendered to RJIL
- The US subsidiary was engaged in identical services under the same contractual framework
- The services involved technical infrastructure but did not include transfer of proprietary technology, know-how, or process to RJIL
- RJIL was already assessed as assessee-in-default for non-deduction of TDS on these payments
- The Assessing Officer issued a notice under Section 147 and passed a final assessment order on 30.09.2025
- The Dispute Resolution Panel (DRP) directed the AO to pass the order on 25.07.2025
Procedural History
- 30.09.2025: Final assessment order passed under Section 147 read with Section 144C(13) for A.Y. 2019-20
- 25.07.2025: DRP issued direction under Section 144C(5) for reassessment
- 24.03.2026: Hearing held before ITAT Mumbai Bench
- 17.04.2026: Judgment pronounced
The Parties' Positions
For the Assessee
- Argued that the services rendered were purely infrastructure-based and did not involve transfer of technical knowledge, skill, or process
- Contended that the receipts should be classified as business profits under Article 7 of the relevant DTAAs
- Highlighted absence of any Permanent Establishment in India
- Emphasized that taxing the same income in the hands of both the payer (RJIL as assessee-in-default) and the recipient (assessee) amounted to double taxation
- Relied on the Tribunal’s own earlier decision in ITA Nos. 6331-6334/Mum/2018 for A.Y. 2018-19, which had ruled in favor of the assessee on identical facts
For the Revenue
- Maintained that the services constituted FTS under Section 9(1)(vii) and Article 12 of the DTAAs
- Argued that the technical nature of the services implied transfer of know-how
- Relied on the DRP’s direction and the AO’s interpretation to sustain the assessment
Relief Sought
The assessee sought:
- Quashing of the assessment order dated 30.09.2025
- Reclassification of receipts as business profits, not royalty or FTS
- Exclusion of the income from taxable income in India
- Relief from double taxation arising from concurrent assessment of RJIL as assessee-in-default
The Legal Issue
The central question was whether receipts from international voice termination and bandwidth services provided by foreign subsidiaries to their Indian parent constitute "royalty" or "fees for technical services" under Section 9(1)(vi)/(vii) of the Income Tax Act and Article 12 of the India-Singapore and India-US DTAAs, in the absence of any transfer of technical knowledge, skill, or process.
Arguments Presented
For the Appellant
The assessee relied on the Tribunal’s own precedent in ITA Nos. 6331-6334/Mum/2018 for A.Y. 2018-19, where it was held that mere provision of bandwidth and voice termination services, without any transfer of technical expertise, cannot be classified as FTS or royalty. It further cited the coordinate bench’s decision in ITA No. 2991/Mum/2023 for A.Y. 2020-21, delivered on 17.04.2026, which followed the same reasoning. The assessee emphasized the "make available" condition under Article 12, which requires the recipient to gain access to technical knowledge, experience, or skill. Since RJIL merely used the infrastructure without receiving any technical input, the services fell outside the scope of royalty or FTS.
For the Respondent
The Revenue contended that the technical complexity of the services inherently involved transfer of know-how and therefore qualified as FTS. It relied on the DRP’s direction and the AO’s interpretation that the nature of the services rendered was inherently technical. However, it did not produce any evidence or contractual clause demonstrating that technical knowledge was made available to RJIL.
The Court's Analysis
The Tribunal undertook a detailed analysis of the language of Article 12 in both the India-Singapore and India-US DTAAs. It noted that both treaties define "royalty" and "fees for technical services" identically, requiring that the payment be made for the "use of, or the right to use, any copyright, patent, design, model, plan, secret formula or process" or for "information concerning industrial, commercial or scientific experience." Crucially, the Tribunal emphasized the judicially established requirement of the "make available" condition, as interpreted in CIT v. Samsung Electronics Co. Ltd. and CIT v. Nokia Networks Oy, which mandates that the recipient must gain access to technical knowledge, skill, or process.
"The mere provision of bandwidth, voice termination, or maintenance services, even if technically complex, does not amount to making available technical knowledge or experience to the recipient. The services rendered were operational and infrastructural, not knowledge-based."
The Tribunal further observed that the Revenue had failed to produce any documentation, contract clause, or expert testimony indicating that RJIL received or was entitled to use any proprietary technical information. The fact that RJIL was already assessed as assessee-in-default for non-deduction of TDS further reinforced the argument that the same income was being taxed twice.
The Tribunal also noted that the Finance Act 2026 had rendered the limitation challenge under Section 153 infructuous, but this did not affect the substantive issue of taxability. The consistency of the Tribunal’s own rulings across multiple assessment years - 2018-19, 2020-21, and now 2019-20 - was deemed decisive. The Bench held that deviation from its own precedent without material distinction would violate the principle of consistency in tax jurisprudence.
The Verdict
The appeals were allowed in part. The Tribunal set aside the assessment order dated 30.09.2025, held that the receipts from voice termination, bandwidth, and O&M services do not constitute royalty or fees for technical services under Section 9(1)(vi)/(vii) or Article 12 of the DTAAs, and ruled that such income qualifies as business profits under Article 7. The income of ₹44,17,39,679 is excluded from the taxable income of both appellants. The Tribunal directed the Assessing Officer to recompute the total income accordingly, without including the disputed receipts, and to ensure no double taxation arises from RJIL’s concurrent assessment as assessee-in-default.
What This Means For Similar Cases
Business Profits Trump Royalty Classification Without 'Make Available'
- Practitioners must now rigorously examine whether a service involves transfer of technical knowledge before classifying it as FTS or royalty
- Mere technical complexity or use of proprietary infrastructure is insufficient; the recipient must gain access to know-how, skill, or process
- Contracts should explicitly state whether technical knowledge is being transferred
Double Taxation Risk Must Be Addressed Proactively
- If the payer is assessed as assessee-in-default for non-deduction of TDS, the recipient cannot be taxed on the same income unless the payment is clearly classified as royalty or FTS with valid documentation
- Taxpayers should raise double taxation objections at the assessment stage and preserve evidence of TDS defaults
Precedent-Based Consistency Is Binding
- Tribunals are bound by their own consistent rulings on identical facts across assessment years
- Revenue cannot re-litigate settled issues without new evidence or material distinction
- Taxpayers should cite prior favorable orders from the same bench as binding authority
