Jio Infocomm USA's Receipts For Voice Termination Services Not Taxable As Royalty Or FTS In India: ITAT Mumbai

The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) has ruled that Rs. 23.20 crore received by Reliance Jio Infocomm USA Inc. for providing voice termination services to Reliance Jio Infocomm Ltd. cannot be treated as royalty or fees for technical services (FTS) under Indian tax law or the India–US tax treaty.

It said the income is in the nature of business profits and therefore not taxable in India.

The decision was delivered by Judicial Member Beena Pillai and Accountant Member Bijayananda Pruseth. The tax department had argued that the payments amounted to “process royalty," pointing to the use of telecom infrastructure, software and network systems. This position had earlier been endorsed by the Dispute Resolution Panel, which viewed the services as falling within the definition of “process”.

Reliance Jio Infocomm USA Inc., a wholly owned arm of Reliance Jio Infocomm Ltd., operates telecom infrastructure and provides international long-distance services, including voice termination, from the United States. During the assessment year 2020–21, it received Rs 23.20 crore from the Indian entity for handling such calls. The company maintained that this was business income, and since it did not have a permanent establishment in India, it should not be taxed here.

Before the tribunal, the company explained how the service works: calls are routed through its overseas network, using its own equipment and systems. Nothing is handed over to the Indian entity: no equipment, no technology, and no process. What the customer gets is a completed call, not access to the underlying infrastructure.

The bench looked at earlier rulings on similar telecom arrangements, including the Karnataka High Court's decision in Vodafone Idea Ltd.. Those rulings have consistently drawn a line between using a service and having the right to use equipment or a process. In such cases, the payment is not royalty.

The tribunal also dealt with the tax department's reliance on amendments to the Income Tax Act that expand the meaning of “process”. It made it clear that changes in domestic law cannot, by themselves, widen the scope of what is taxed as royalty under a tax treaty.

Consequently, the bench held that the Rs. 23.20 crore is taxable as business profits in the US and cannot be taxed in India, either as royalty or FTS. The appeal filed by Reliance Jio Infocomm USA Inc. was allowed.

For Assessee: Advocate Nimesh Vora & Moksha Mehta

For Revenue: Krishna Kumar, (SR. DR)