S.254(1): Appellate Tribunal-Stay- Order of Tribunal granting stay of 50 per cent of amount demanded did not require any interference

.[S. 5, 6, 9(1)( vi), 90,201(1), 201(1A)]

Assessee company was engaged in business of providing telecom services to its subscribers in India.

It entered into agreements with non-resident telecom operators (NTOs) for providing bandwidth and

interconnect capacity outside India. AO opined that payments made in consideration of said services

were in nature of royalty as per Explanations 5 and 6 to section 9(1)(vi) . AO viewed that assessee did

not deduct tax at source while making payments to non-resident companies, held that assessee was to

be regarded as assessee in default under section 201(1) and 201(1A). In appellate proceedings,

Tribunal granted stay of 50 per cent of tax demanded pending final disposal of appeal. On Writ

Petition in High Court, High court allowed the Writ and held that in view of this, a detailed discussion

is required as to whether section 90(2) is of such nature as to nullify all acts of Parliament which

create tax liability under the Act, may be not in terms of the rights determined under the DTAA.

However, assessee has not raised that issue for adjudication in these writ petitions. This aspect would

have been possible had the assessee questioned the legality of the Finance Act, 2012,

inserting Explanations 5 and 6 to section 9(1)(vi). From the various aspects discussed above, it is

opined that assessee has not been able to make outprima facie case to opine that assessment of tax

liability as determined by the AO is wholly untenable or illegal. A prima facie case is made out by the

revenue that payments made by the assessee qualify as having been paid by the 'payer' and the

payment made to NTOs/Belgacom is the amount 'received' and fall within the definition of 'income'

under section 5(2). Besides, as the amounts paid are admittedly towards services rendered by the

NTOs in terms of the agreement with the assessee in India, it would be 'Royalty' as defined in section

9(1)(vi) more fully elaborated in Explanations 5 and 6 inserted by Finance Act of 2012. impugned

order of Tribunal granting stay of 50 per cent of amount demanded did not require any interference.

Vodafone South Ltd. .v.DY.DIT (2014) 267 CTR 544/223 Taxman 281 (Kar)(HC)