Charges Paid For Bandwidth To Overseas Telecom Operators Not Royalty U/S 9(1)(vi) Of Income Tax Act: Delhi HC Rejects Plea Against Airtel

A division bench of Justices Vibhu Bakhru and Tejas Karia relied on CIT v. Telstra Singapore Pte. Ltd. (2024) the High Court had held that where those availing services provided by a foreign telecom company were not accorded a right over the technology, infrastructure or any intellectual property, the agreements merely enabling availment of services cannot be construed as royalty taxable in India.

In the case at hand, the Assessing Officer had passed an order holding Airtel to be in default as it had failed to deduct the withholding tax on the payments made to overseas entities.

The AO had found that certain payments, which were made for bandwidth charges to foreign telecom service providers as well as the annual maintenance charges and other charges were either in the nature of fees for technical services [FTS] or royalty and thus were chargeable to tax under the Act.

The Commissioner of Income Tax (Appeals) accepted Airtel's contention that certain charges being remitted to entities overseas were not chargeable to tax, and therefore, it was not obliged to deduct tax at source. However, it rejected the contention that bandwidth charges paid to telecom service providers overseas are not in the nature of royalty.

It thus preferred an appeal before ITAT which held that payment for bandwidth service does not qualify as 'royalty' under Section 9(1)(vi) of the Income Tax Act, 1961.

Section 9 deals with cases where income is deemed to accrue or arise in India.

Section 9(1)(vi)/ (vii) deals with cases where Royalty or fees for technical services (FTS) is deemed to be accrued or arise in India.

On Revenue's appeal, the High Court observed, “Undisputedly, the questions raised are covered by the earlier decisions of this court in New Skies Satellite BV [68 taxmann.com8] [2016] and CIT v. Telstra Singapore Pte. Ltd. : [2024] 165 taxmann.com 85 (Delhi). Thus, the charges paid for bandwidth to overseas telecom service providers cannot be construed as royalty in the meaning of Section 9(1)(vi) of the Act.”

The appeal was accordingly dismissed.

Appearance: Mr Ruchir Bhatia, SSC, Mr Anant Mann, JSC Ms Aditi Sabharwal and Mr Abhishek Anand, Advocates for Appellant

Case title: The Pr. Commissioner Of Income Tax - International Taxation -1 v. Bharti Airtel Ltd

Citation: 2025 LiveLaw (Del) 508

Case no.: ITA 103/2025

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