Supreme Court Upholds Vodafone Idea’s Non-Liability for TDS on Payments to Non-Resident Telecom Operators

 Vodafone Idea Ltd (TS-547-SC-2024)

Facts:
1. The Assessing Officer (AO) issued a notice to Vodafone, asserting that the company failed to deduct TDS on payments made to the NTOs and Belgacom for the years 2008–09 to 2015–16, as mandated by Section 195 of the Income Tax Act, 1961.

2. The AO deemed Vodafone a defaulter under Section 201 for not deducting TDS and classified the payments as ‘royalty’ or ‘Fee for Technical Services’ (FTS), making them taxable under Indian law.

3. Vodafone countered the AO’s notice by explaining that the NTOs provided telecom services outside India and thus, TDS deduction was not necessary under Indian jurisdiction. Despite this, the AO passed an assessment order labeling Vodafone a defaulter.

Hon SC held as below:
1. The case was governed by the 2021 Engineering Analysis judgment, which held that payments for software use by Indian companies to non-residents do not constitute ‘royalty’ and are not taxable in India.

2. Payments made by Vodafone to non-resident telecom operators for interconnectivity and bandwidth usage do not give rise to taxable income in India.

3. Therefore, Vodafone is not obligated to deduct TDS on these payments under Section 195 of the Income Tax Act.