ASST. COMMISSIONER OF INCOME TAX, (INTERNATIONAL TAXATION)-4(3)(1), MUMBAI, MUMBAI vs. UNITED HOME ENTERTAINMENT PVT LTD., MUMBAI

Assessment Year : 2016-17 Asst. Commissioner of United Home Entertainment Pvt. Income Tax Ltd., (International Taxation)-4(3)(1), vs. 1st Floor, Room No. 634, Building No. 14, 6th Floor, Kautilya Bhavan, Solitaire Corporate Park, BKC, Guruhargovindji Marg, Mumbai-400051 Chakala Andheri (E), PAN : AAACU6668D Mumbai-400093 (Appellant) (Respondent) For Assessee : NONE For Revenue : Shri Krishna Kumar, Sr.DR Date of Hearing : 14-05-2025 Date of Pronouncement : 27-05-2025 O R D E R PER VIKRAM SINGH YADAV, A.M : This is an appeal filed by the Revenue against the order of the Ld. Commissioner of Income Tax (Appeals)-National Faceless Appeal Centre (NFAC), Delhi [„Ld.CIT(A)‟], dated 19-12-2024, pertaining to Assessment Year (AY) 2016-17, wherein the Revenue has taken the following grounds of appeal: 1. "Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in holding that the assessee was not liable to deduct tax at source u/s 195 of the Act on payments made to Intelsat Global Sales and Marketing Limited for transponder charges on the ground that payment did not constitute royalty u/s 9(1)(vi) of the Act or under the relevant DTAA?

2. "Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in not taking into account that the payments made by the assessee to Intelsat Global Sales and Marketing Limited for transponder charges are specifically covered by Explanation 6 to section 9(1)(vi) as being included in the expression 'process' and hence fall under definition of royalty as per Explanation 2 to section 9(1)(vi) of the Act?

3. "Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in not taking into account that Explanation 6 to section 9(1)(vi) of the Act was inserted by the Legislature by way of Finance Act, 2012 as a declaratory and clarificatory amendment with retrospective effect from the day the source rule on royalty came into effect to specify the intent of the law as it was always meant and understood?

4. "Whether on the facts and circumstances of the case and in law, the CIT(A) has erred in not taking into account that the term 'process' is not defined in the relevant DTAA and hence its meaning has to be derived from the domestic law of India?"

i. The payments to Intelsat are not taxable as royalty for the use of process under the Act since receipt of transponder services do not constitute the use of or the right to use any process [judgment of the Delhi High Court in the case of Asia Satellite Telecommunications Limited [(ITA No 131 to 134 of 2003) and the Bangalore Tribunal in the case of M/s Wipro Limited (80 TTJ 191) relied upon]. ii. The payments to Intelsat are not taxable as royalty for the use of process even under the provisions of the India-UK Double Taxation Avoidance Agreement ('Treaty') since no secret process was used by Intelsat while providing the services to the assessee

[(judgment of the Delhi Tribunal in the case of Panamsat (103 TTJ 861) relied upon). iii. The payment to Intelsat cannot be regarded as fees for technical services under the Act since the use of transponder services are only for the purpose of transmitting the satellite signals and the assessee is not interested in the technology used inside the transponder. iv. Further, the payments to Intelsat are not taxable as fees for included services under the provisions of the Treaty since no technical knowledge/experience, etc. was made available by Intelsat to the assessee while providing transponder services [(judgment of the Delhi Tribunal in the case of Panamsat Supra) relied upon]. v. The payment to Intelsat cannot be regarded as payment for the use of equipment under the Act since the use of transponder Services do not constitute the use of equipment [(judgment of the Delhi Tribunal in the case of Asia Satellite Telecommunications Co. Ltd. (85 ITD 478 relied upon).

8. None appeared on behalf of the assessee nor was any adjournment application filed.

“The issue is deductibility of tax at source under Section 195(2) on payment made by appellant to M/s Intelsat Global Sales and Marketing Ltd. (UK). Before me detailed submission was made. There is Judicial precedent in case of appellant itself: A: (ITA No. 2841 to 2856/Mum/2012) dated 25.10.2016 (AY 10-11 to 12-13) B: (ITA Nos. 5171 to 5181/Mum/2013) dated 28.11.2016 (AY 12-13 to 13-14) C (52 CCH 98) dated 09.02.2018 (AY 13-14 to 16-17) The above has genesis in decision in case of Intelsat Corporation of Delhi High Court vide order in ITA 977/2011 and ITA 530 and 545/2012. The decisions at Sr.Nos, A, B, C above are that with regards to payment to Intelsat Corporation and Intelsat Global Sales and Marketing Limited (U.K.) not being royalty, there is no need to deduct tax at source. Facts and circumstances are identical, as decided by Hon. ITAT in case of appellant itself. Following the same, I hold that the appellant is not liable to deduct tax at source under Section 195. Therefore, this ground is allowed for statistical purposes.”

“9. Now we shall take up the issues on merits. The main issue involved in this appeal is that amount paid to M/s Intelsat Inter Corporation, USA under the transponder service agreement for the transponder service charges paid by the assessee to Intelsat under the said agreement has 9 to 5181/Mum/2013 been treated as „royalty‟ under the provisions of the Act. According to the assessee, it was neither „royalty‟ nor Fee for Technical Services (FTS). It is noted by us that this issue has been dealt in extenso by the Tribunal in its order dated 25-10-2016. Relevant part of the same is reproduced hereunder:- “7. We have carefully considered the rival submissions, perused the relevant finding given in the impugned orders as well as various decisions as relied upon by the parties before us. At the threshold it is noticed that, in the case of the payee, i.e., Intelsat Corporation US, the Hon'ble Delhi High Court vide order dated 19.08.2011 and then again reaffirmed vide order dated 28.09.2012 in & 545/2012, following the order of its own court in Asia Satellite Communications Ltd (ITA 131/2003 decided on 31.01.2011),have categorically held that payment received by Intelsat is not taxable in India under the provisions of Indo-US-DTAA. Once in the case of the payee it has been categorically held that the said amount is not taxable, then assessee is not obliged to deduct TDS and, therefore, the impugned proceedings under section 195 deserves to be quashed. Otherwise also, this issue of payment of transponder charges made to Panamsat (later on name was changed to Intelsat Corporation) has been subject matter of issue before various Courts including that of the ITAT, Mumbai Bench in the case Taj TV Ltd. In the said case, the Tribunal has observed and held as under:- 18. Now, coming to the issue of disallowance of various expenses under section 40(a)(i) like,'transponder charges" and 'up linking charges' as raised in ground No.2(i) and 2 (ii), it is seen that these, payments has been paid to PanAmSat International Systems Inc. USA for providing facility of transponder for telecasting 'Ten Sports' channel in various countries including India. The assessee entered into an agreement with PanAmSat to utilize the transponder facility providing by the said US based company for telecasting its sports channel which are on the footprint of transponder of PanAmSat. The Revenue's case beforeus is that, firstly, it is taxable under section 9(1)(vi) as 'royalty]' and also under Article 12(3){b) of Indo US-DTAA. Similarly, the up linking charges paid for up linking the channels to PanAmSat Satellite for delay intransmission and for up linking signals for live events from the venue of the events to the satellite have been treated to be 'royalty'. Since, the assessee had not deducted 'FDS under section 195, disallowance under section 40(a){i) has been made. The assessee's case before us is that, firstly, PanAmSat is a USA based company, therefore, Indo-U'S DTAA is applicable and since it does not have any PE or business connection inIndia, therefore, the payment made to a non-residentoutside India for auailinq service of equipment placed outside India cannot be taxed in India. In support of such a contention decision of Hon'ble Bombay High Court in the case of DIT vs. Set Satellite (supra) has been relied upon. In any case, it has been submitted that, even otherwise also the definition of "royalty" under Article 12(3) of Indo-US-DTAA is also not applicable, because transponder charges is only use of facility and it is not an equipment and does not amount to use of any copyright effecting work, secret formula, process etc or any other term described in para 3 of Article 12. The Ld. CIT(A) has held that it is not a 'royalty' and secondly, even otherwise also by virtue of Article' 12(7) such a royalty cannot be taxed 'in India, because it is not borne by PE or fixed place of the US company in India. The Ld. DR has strongly relied upon amended definition of the 'royalty' under the Act, wherein the scope and definition of 'royalty' has been enlarged by the newly inserted Explanation (v) and (vi)by the Finance Act, 2012 with retrospective effect from01-06-19761 and has contended that the said definition into DTAA also, that is, the definition of royalty has to be taken from the Domestic Law. In support, the Ld.DR has strongly relied upon the decision of _ High Court in the case of Verizon Communications Singapore Pte Ltd. (supra) and the ITAT decision in the case of Viacom.18 Media Pvt Ltd.

"3. The term "royalties" as used in this Article means: a) payments of any kind received as a consideration for the use of or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, includinq gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; and b) payments of any kind received as consideration for the use of or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport)from activities described in paragraph 2(c) or 3 of Article 8". The article gives exhaustive definition of the term „royalty' and therefore, the definition and scope of 'royalty' is to be seen from the Article alone and no definition under the domestic Act or law is required to be considered or seen or any amendment made in such definition whether retrospective or prospective which can be read in a manner so as to extend any operation to the terms as defined or understood in the Treaty. The Legislature or Parliament while carrying out amendment to interpret or define a given provision under the domestic Law of the country cannot supersede or control the meaning of the word which has been expressly defined in a Treaty negotiated between executives of two foreign nations. The payment of transponder charges to PanAmSat and up linking cannot be treated as a consideration for 'use' or right to use' any copyright of various terms used in para 3(a) like copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting or in any manner relates to any patent or trademark, design, secret formula or process, It is also not use or right to use any industrial, commercial, or scientific equipment. There is no such kind of right to use which is given by Pan Am Sat to assessee. Thus, the said payment does not fall within the ambit of the terms used in para 3 of Article 12. So far as the reading of amended definition of „royalty‟ as given in section 9(1)(vi) into treaty, Hon‟ble Delhi High Court in its latest judgment in the case of DIT vs New Skies Satellite (supra), wherein it has considered Hon‟ble Madras High Court decision in the case of Verizon Communications Singapore Pte Ltd (supra) also, have discussed the issue threadbare and came to the conclusion in the following manner:- "60. Consequently, since we have held that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word "royalty" in Asia Satellite, supra note 1, when the definitions were in fact pari material (in the absence of any contouring explanations), will continue to hold the filed for the purpose of assessment years preceding (ne-Finance Act, 2012 and in all cases which involve a, Double Taxation Avoidance Agreement, unless the said DTAAs are amended jointly by both partners to incorporate income from data transmission services as partaking of the nature Of royalty, or amend the definition in a manner so that such income , automatically becomes royalty. It is reiterated that the Court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 20 12 where there exists no Double Tax Avoidance Agreement". The aforesaid decision takes care of all the arguments relied upon by the Ld. DR including that of the Verizon Communications Singapore Pte Ltd's. The Hon'ble High Court specifically clarified as to why the said decision Madras High Court cannot be applied in such case after observing as under.- 31. In a judgment by the Madras High Court in Verizon Communications Singapore Pte Ltd. V.The Income Tax Officer, International Taxation 1,[2014j 361 ITR 575 (Mad), the Court held the Explanations to be applicable to not only the domestic definition but also carried them to influence the meaning of royalty under Article 12. Notably, in both cases.the clarificatory nature of the amendment ioo s not questioned, but was instead applied squarely to assessment years predating the amendment. The crucial difference between the judgments however lies in the application of the amendments to the DTAA. Thus, respectfully following the ratio laid down by the Hon‟ble Delhi High Court, we hold that, the definition of royalty as enlarged by Finance Act, 2012 with retrospective effect will not have any affect in Article 12 of DTAA”. In the aforesaid decision, the Tribunal has taken note of the ratio and law upheld by the Hon'ble Delhi High Court in the latest case of New Skies Satellite (supra) and Asia Satellite Telecommunications and has held that the payment made for transponder charges will not fall in the nature of 'royalty' and also the scope of enlarged definition of 'royalty' given in section 9(l)(vi) will not apply in DTAA.

7. So far as the issue relating to FTS is concerned, we find that, this Tribunal in B4u International Holdings (supra) on similar payment made to Panamsat, it was held that they do not satisfy the test of “make available” as enshrined in Article 12(3) in Indo-US-DTAA and thus, the said payment cannot be held to be taxable as being for technical services and secondly, on this ground also, the provision of TDS is' not attracted. In any case Ld. CIT '(A) cannot hold that same payment would fall in the nature of 'royalty' and at same time would be reckoned as 'FTS' also. Lastly, as regards the issue of business communication in India, as pointed by the Ld Counsel, Shri Madhur Agarwal that Hon‟ble Delhi High Court in the case of Intelsat has taken note of this fact while deciding the issue of taxability of receipts in favour of Intelsat that, it has leased its transponder capacity and bandwidth to the various customers in India and outside India who have used the transponder for business in India. Thus, in the light of this observation and fact noted by the Hon‟ble Delhi High Court in the case of the payee and otherwise also we do not find any merits that, simply because the transponders have been used in for business in India will tantamount to business connection of Intelsat in India and, accordingly, such an observation and finding of the CIT(A) is hereby rejected by us. Thus, the issues raised by the assessee in grounds No.1 to 7 are squarely covered by various decisions as discussed above and respectfully following the same we hold that assessee is not liable to deduct TDS.” “10. It is noted from the above that the bench relied upon various judgments including the judgment of Taj TV Ltd wherein decision relied upon by the Ld. DR in the case of Viacom.18 has been considered in detail. Apart from that the main point to be noted here is that the bench took note of a vital fact that Hon‟ble Delhi High Court in the case of payee, viz. M/s Intelsat Corporation, USA has categorically held that payment received by Intelsat Corporation is not taxable in India under the provisions of Indo US DTAA. Thus, in the case of payee, it has been categorically held that said payment is not taxable, then the assessee is not obliged to deduct TDS,

therefore, the impugned proceedings u/s 195 deserves to be quashed. Thus, after taking into account all the facts and circumstances of the case, we find that the issue stands squarely covered by the decision of the Mumbai Bench of the Tribunal in assessee‟s own case and, therefore, the issue raised in the appeal before us stands allowed in terms of earlier order of the Tribunal which shall apply mutatis mutandis on the issue raised in this appeal before us. Accordingly we hold that the assessee was not liable to deduct tax at source.”