Compensation Received Under An Arbitral Award Not "Other Income"

Background

In 1998, Mahanagar Telephone Nigam Limited ("MTNL") invited tenders for Code-Division Multiple Access ("CDMA") technology supply on a turnkey basis. In 1999, a contract was awarded to a joint venture between Fujitsu Ltd. ("Fujitsu"), a tax resident of Japan, and Fujitsu India Private Limited ("FIPL"), with FIPL designated as the lead partner. The project involved the supply of equipment and commissioning of a CDMA system for MTNL.

A dispute arose from the non-payment of dues under various purchase orders after commissioning and acceptance testing of the CDMA system by MTNL. In 2009, Fujitsu and FIPL invoked the arbitration clause and commenced arbitration proceedings against MTNL. During the assessment year 2019-20, Fujitsu received from MTNL compensation of the principal amount along with interest. In its tax return, Fujitsu classified the principal amount as "business income" and asserted that it was not taxable in India in the absence of a