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| Payments to foreign firms by call centres taxable in India: ITAT |
| Press Trust Of India / New Delhi Sep 08, 2008, 00:35 IST |
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Foreign companies providing connectivity and other technical services to domestic call centres through their overseas offices are liable to pay tax on their income in India, the sectoral tribunal has said.
According to the decision by the Income Tax Appellate Tribunal (ITAT) in two cases filed by the Hyderabad-based Frontline Software and Call World Technologies, the domestic call centres have to deduct tax at source on payments made to foreign companies on support services from abroad.
Referring to the payments made to overseas companies for providing call connectivity and maintenance services, the tribunal said, “The transaction clearly falls under the definition of ‘royalty’... and royalty payment to NRI is deemed to accrue and arise in India, and therefore payment is subject to tax deducted at source (TDS).”
Besides, the tribunal also clarified that a company availing of the connectivity service has the responsibility to deduct TDS despite the location of the foreign firm’s equipment.
In the case concerned, Frontline Software and Call World Technologies had not deducted TDS while making payments to the US-based IGTL Solutions and True Dial Technologies Inc, respectively.
The tribunal also rejected the argument of the companies that the entire activity for availing of the connectivity facilities from IGTL and True Dial took place in the US and therefore the income of foreign firms has no link to India and thus not taxable here.
Dismissing the appeal of the companies, the tribunal confirmed the decision of Commissioner of Income Tax (appeals) who had held that the payments made by the two companies to the US firms ‘is nothing but royalty’.
The services were taken by the two Hyderabad companies to generate and also cater to the outbound PSTN (Public switched telephone network) calls within the US through the equipment of the foreign companies.
PSTN is the normal landline phone connection, and is used by industrial premises routed through the switchboard. BPOs use this technology for inbound calls and local calls.
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