Reliance Jio Infocomm USA Inc. vs Deputy Commissioner of Income Tax

Court/Forum: ITAT

Bench: Smt. Beena Pillai (Judicial Member) & Shri Bijayananda Pruseth (Accountant Member)

Order Date: 2026-04-17

Outcome: Assessee

Sections: Section 9(1)(vi), Article 12 of India-US DTAA

Core Ratio

Payments for standard telecommunication services without transfer of rights do not constitute 'Royalty' under the India-US DTAA.

Outcome

The ITAT ruled in favor of the assessee, Reliance Jio Infocomm USA Inc., holding that the receipts for voice termination services do not constitute 'Royalty' under section 9(1)(vi) of the Income Tax Act and Article 12 of the India-US DTAA. The tribunal found that the services provided were standard telecommunication services and not a secret process.

Favourability

Assessee

Core Issue

The central legal question was whether the payments received by the assessee for voice termination services should be classified as 'Royalty' under the Income Tax Act and the India-US DTAA.

Facts of the Case

Reliance Jio Infocomm USA Inc., a subsidiary of Reliance Jio Infocomm Limited, India, provided telecom network services including voice termination services. The AO treated the receipts from these services as 'Royalty', but the assessee argued they were business profits not taxable in India due to the absence of a PE.

Arguments by Assessee

The assessee argued that the services were standard telecommunication services and not 'Royalty' as there was no transfer of rights or use of a secret process. They also contended that the payments were business profits not taxable in India due to the absence of a PE.

Arguments by Revenue

The Revenue argued that the payments for voice termination services constituted 'Royalty' under section 9(1)(vi) of the Act and Article 12 of the India-US DTAA, as they involved the use of a process.

Key Sections & Provisions

Section 9(1)(vi) of the Income Tax Act defines 'Royalty', and Article 12 of the India-US DTAA deals with the taxation of royalties.

Ratio Decidendi

The tribunal held that the services provided by the assessee were standard telecommunication services and did not involve any transfer of rights or use of a secret process. Therefore, the payments could not be classified as 'Royalty' under the Income Tax Act or the India-US DTAA.

Court Reasoning & Analysis

• The tribunal noted that the services provided were standard telecommunication services.
• There was no transfer of rights or use of a secret process involved in the services.
• The tribunal relied on previous judgments that distinguished between standard services and royalty.
• The tribunal concluded that the payments were business profits not taxable in India due to the absence of a PE.

Key Observations

• The tribunal observed that the services were standard and did not involve any secret process.
• The tribunal noted that the payments were not for the use of any intellectual property.

Case Laws Cited

• Vodafone Idea Ltd. v. DDIT
• Telefonica UK Ltd. v. DCIT
• Bharti Airtel Ltd. v. ITO(TDS)

Related Issues

• Taxability of international telecom services
• Interpretation of 'Royalty' under DTAA
• Permanent Establishment in international tax

Important Passages

• The tribunal held that the services provided by the assessee were standard telecommunication services and did not involve any transfer of rights or use of a secret process.

Not Decided / Remanded

Ground No.1 regarding the validity of the assessment order was not adjudicated and left open.

Practical Takeaway

Practitioners should note that standard telecommunication services without transfer of rights or use of a secret process are not classified as 'Royalty' under the India-US DTAA.

Supporting Judgments

• Engineering Analysis Centre of Excellence Private Limited vs The Commissioner of Income Tax & Anr. (SC) — Payments for software do not constitute 'royalty' under Section 9(1)(vi) of the Income Tax Act, and thus, no tax is deductible at source under Section 195.
• The Authority for Advance Rulings (Income Tax) and Others vs Tiger Global International II Holdings (SC) — The DTAA between India and Mauritius allows capital gains to be taxed only in Mauritius, provided the entity holds a valid TRC.
• Maruti Suzuki India Ltd vs Commissioner of Income Tax (HC) — AMP expenses incurred by an assessee cannot be treated as an international transaction under Section 92B unless there is evidence of an agreement or understandi

Contrary Judgments

• Hyatt International Southwest Asia Ltd. vs Additional Director of Income Tax (SC) — A Permanent Establishment exists if the enterprise has a fixed place of business at its disposal through which it carries on its business activities.
• M/s DIT (International Taxation), Mumbai vs M/s Morgan Stanley & Co. INC (SC) — A Permanent Establishment exists if services are furnished through employees in India, and the arm's length price should be determined using the most appropriat
• Aditya Birla Nuvo Limited vs The Deputy Director of Income-tax (HC) — The beneficial ownership of shares, despite being registered in the name of a permitted transferee, determines the taxability of capital gains in India.