The Delhi High Court has dismissed an appeal filed by the Income Tax Department against Bharti Airtel Limited, ruling that payments made for bandwidth services to foreign telecom providers do not qualify as "royalty" under Section 9(1)(vi) of the Income Tax Act, 1961.
The Revenue's case stemmed from an order passed by the Assessing Officer (AO) on 28.03.2017, where Airtel was held to be in default under Sections 201(1), 201(1A), and 195 of the Act. The AO argued that Airtel should have deducted tax at source (TDS) on payments made to overseas entities for bandwidth services, annual maintenance, and related charges, treating them as either fees for technical services (FTS) or royalty.
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The Commissioner of Income Tax (Appeals) [CIT(A)] partly accepted Airtel’s appeal. It held that while some payments made to foreign entities were not chargeable to tax in India, and thus not subject to TDS, it disagreed with Airtel's claim that the bandwidth charges were also exempt, holding them to be royalty in nature.
Both Airtel and the Income Tax Department challenged the CIT(A)’s decision before the Income Tax Appellate Tribunal (ITAT). While the Department was unhappy that the AO’s ruling was set aside, Airtel contested the rejection of its stance on bandwidth charges.
ITAT ruled in Airtel’s favour, declaring that payments for bandwidth services to overseas telecom companies did not fall within the definition of "royalty" as per Section 9(1)(vi) of the Act. The Revenue then moved the High Court under Section 260A of the Income Tax Act.
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The key issue raised by the Revenue in the High Court was whether payments for bandwidth services qualify as royalty, especially considering the definition of "process" introduced by the Finance Act, 2012. The Department also questioned whether Double Taxation Avoidance Agreement (DTAA) provisions override retrospective amendments and cited previous judgments like Verzon Communication Singapore Pte Ltd. v. ITO.
“Whether the payment for bandwidth service do not qualify as 'royalty' under section 9(1)(vi) of the Income Tax Act, 1961, despite the clear definition of 'process'...” – Revenue’s contention
However, the division bench comprising Justice Vibhu Bakhru and Justice Tejas Karia rejected the appeal. The Court observed that the questions raised had already been settled in earlier judgments, including New Skies Satellite BV (2016) and CIT v. Telstra Singapore Pte. Ltd. (2024).
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“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.” – Delhi High Court
Finding no substantial question of law arising from the appeal, the High Court dismissed the Revenue's petition.
“In view of the above, no substantial question of law arises for consideration of this court. The appeal is accordingly dismissed.” – Justice Vibhu Bakhru, Justice Tejas Karia
This ruling reinforces that mere access to a foreign telecom service, without rights to underlying technology or infrastructure, does not amount to royalty under Indian tax law.
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
Case no.: ITA 103/2025
