INCOME TAX OFFICER -4(3)(2), MUMBAI , MUMBAI vs. ZEE ENTERTAINMENT ENTERPRISES LIMITED, MUMBAI

from AY 2013-14 are read as under::-

1. Whether on the facts and circumstances of the case and in law, Ld. 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 Corporation, USA for transponder charges on the ground that the payment did not constitute royalty u/s 9(l)(vi) of the Act or under the India-USA DTAA?

2 Zee Entertainment Enterprises Ltd.

2. Whether on the facts and circumstances of the case and in law, Ld. CIT (A) has erred in not taking into account that the payment made by the assessee to Intelsat Corporation, USA 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(l)(vi) of the Act? 3. Whether on the facts and circumstances of the case and in law, Ld. CIT (A) has erred in not taking into account that the Explanation 6 to section 9(l)(vi) of the Act was inserted by the Indian Parliament 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 and does not provide a new law? 4. Whether on the facts and circumstances of the case and in law, Ld. ITAT has erred in not taking into account that the insertion of Explanation 6 to section 9(l)(vi) of the Act by the Indian Parliament by way of Finance Act, 2012 fulfils all the tests laid down by a Constitution Bench of Hon’ble Supreme Court in the case of CIT (Central)-1, New Delhi vs Vatika Township Pvt Ltd, 2015 (1) SCC 1, for being declaratory and clarificatory in nature and hence explaining and clarifying the existing law; 5. Whether on the facts and circumstances of the case and in law, Ld. CIT (A) has erred in not taking into account that the term 'process' is not defined in Article 12 of India-USA DTAA and hence its meaning has to be derived from the domestic law of India as required by Article 3(2) of India-USA DTAA? 6. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in not taking into account the meaning of the term 'process' as provided in Explanation 6 to section 9(l)(vi) of the Act is the domestic law meaning of the that term from 1.6.1976 as clarified by the Finance Act, 2012 and hence the meaning for purpose of Article 12 of India-USA DTAA as prescribed by Article 3(2) of India- USA DTAA?

5. Upon careful consideration, we note that facts are identical. Ld.CIT(A) has allowed the assesees appeal by holding as under: "i) The Id. Assessing Officer erred in taw and facts in holding the payment for use of transponder space as Royalty and applying provisions of section 195 of the Act treated the assessee in default for Rs. 83.07.415/- u/s 201(1) of the 3 Zee Entertainment Enterprises Ltd.

Act. The reasons given by him for doing so are wrong, contrary to the facts of the case and against the provisions of law."

When posted for hearing the appellant made a written submission and also pointed to decision of Hon. ITAT in dated 06.11.2018 in case of appellant itself for A. Y. 2013-14, Q 4.

6. We note that in assesses own case for AY 2013-14 vide order dated 26.11.2018, the ITAT has held as under:-

“10. We have heard both the counsel and perused the records. At the outset, the ld. Counsel of the assessee submitted that as per the decision of Hon'ble Delhi High Court the transponder fee are not taxable in the hands of the recipient Intelsat Corporation, USA, there cannot be any liability on the assessee to deduct tax at source u/s. 195 of the Act. Further, the assessee has made submissions in this regard that as per the law laid down by the Hon'ble Apex Court in the case of G. E. Technology Centre Pvt. Ltd. vs. CIT (327 ITR 456)(SC), there is no liability to deduct TDS when the income is held to be not chargeable to tax in the hands of the recipient.

4 Zee Entertainment Enterprises Ltd. information to the ITO(TDS), so that the department can keep track of the remittances being made to non residents outside India, rather it gets attracted to the case where payment made in a composite manner which has an element of income chargeable to tax in India and the payer seeks determination of the "appropriate proportion of such sum so chargeable". From the above case law it emerges that when in the hands of the nonresident recipient, the sum paid is not chargeable under the Act, there is no liability on the payer to deduct tax at source. Now we note that the Hon'ble Delhi High Court in the case of DIT(International Taxation) vs. Intelsat Corporation (in dated 19.08.2011) considering the issue of chargeability of tax of similar payments received by Intelsat Corporation, USA has held as under: The respondent assessee is a tax resident company of the United States of America with its registered office located in Washington D.C. The assessee owns and operates global network of telecommunication satellites in outer space. It is engaged in the business of transmitting telecommunication signals to and fro from the earth station(s). Its customers are various TV Channels, NICNET and Internet Service providers. For this purpose, the assessee enters into contracts with various parties around the world. The assessee leased its transponder capacity and bandwidth to various customers in India and outside India, who used the transponders for their business in India. According to the assessee, for the aforesaid activities no income accrued or attributed to India and therefore, the assessee was not liable to be taxed in India. For this reason, in respect of assessment year in question, i.e., Assessment Year 2007-08 it filed ?Nil? income return. The A.O., however, going by the past history of the assessments in the case of assessee in the years 1996-97 to 2004-05 held that certain percentage of the income of the assessee was exigible to tax in India as it was attributed to the receipts from the customers in India. The matter was referred to the Disputes Resolution Panel (DRP). Objections preferred by the assessee were dismissed by the DRP and the DRP directed the A.O. to compute the income as per the draft order prepared by it. In arriving at the conclusion that revenue receipts on account of providing transmission services to its identified customers was in the natureof royalty to be taxed @ 10% of the total revenues, as per Article 12(7)(b) of the DTAA between India and the USA and the provisions of Section 9(1)(vi) of the Income-Tax Act, reliance was placed on the judgment dated 16.10.2009 of the Special Bench of the ITAT, Delhi in the caseof New Skies Satellite NV v. ADIT, International Taxation, Circle- 2(1),New Delhi. Pursuant to the directions given by the DRP the Assessing Officer passed assessment orders and taxed the income pertaining to satellite transmission service/telecasting companies as royalty income. This order of the Assessing Officer was challenged before the ITAT. The ITAT has allowed the appeal of the assessee. Perusal of the order of the Tribunal would reveal that it is relied upon the judgment of this Court in the case of Asia Satellite Communication Company Ltd. v. DIT and Vice Versa in I.T.A. Nos.131 and 134/2003 decided on 31.01.2001. Operative

5 Zee Entertainment Enterprises Ltd. portion of the order of the Tribunal stating the manner in which the judgment of this Court in Asia Satellite?s case (supra) was relied upon, reads as under:- 3.2 Thereafter he drew our attention towards paragraph Nos.72 to 81 of the judgment. In paragraph No.72, it is mentioned that the Tribunal has made an attempt to trace the fund flow and observed that since the end customers being persons watching televisions in India are paying the amounts to cable operators who in turn are paying the same to TV Channels, the flow of fund is traced to India. This is a far-fetched ground to rope in payment received by the appellant in the taxation net. The Tribunal has glossed over an important fact that the money, which is received from the cable operators by the telecast operators, is treated as income by the telecast operators, which has accrued in India, and they have offered and paid tax. Thus, the income, which is generated in India, has been subjected to tax. It is the payment, which is made by the telecast operators who are situated abroad to the appellant, which is also a non-resident, i.e., sought to be brought within the tax net. It is concluded that it is difficult to accept such far-fetched reasoning with no causal connection. It may be mentioned here that the assessee has received revenues from Indian residents also, as can be seen from the table mentioned in the assessment order and reproduced by us while summarizing the order. 3.3 Thereafter he drew our attention towards paragraph No.79 of the judgment, in which it has been held that the Court is unable to subscribe to the view taken by the Tribunal in the impugned judgment on the interpretation of section 9(1)(vi) of the Act. Thus question No.3 was answered in favour of the assessee which is ? whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount paid to the appellant by its customers represented income by way of royalty as defined in Explanation 2 to Section 9(1)(vi) of the Act? In arriving at this decision, the Hon?ble Court inter alia referred to OECD convention, commentary thereon, commentary written by Klaus Vogel, decision in the case of Union of India and Another Vs. Azadi Bachao Aandolan and Another, (2003) ITR 706, CIT Vs. Ahamdabad Manufacturing and Calico Printing Company 139 ITR 806 (Gujarat), and CIT vs. Vishakhapatnam Port Trust, (1983) 144 ITR 146 (AP). 3.4 The revenue had also raised the question regarding applicability of section 9(1)(vii) for the first time before the Tribunal. Although this ground was admitted, it was not decided as the income was held to be assessable u/s 9(1)(VI). No argument was advanced by the learned counsel for the revenue before the Hon?ble Court in this matter. Therefore, the submission in the ground regarding applicability of section 9(1)(vii) was not accepted. The result of the decision is that the revenues received by the assessee is not taxable either u/s 9(1)(vi) or section 9(1)(vii) of the Act.? Learned Counsel for the Revenue could not dispute the positionthat issues raised in this appeal are directly covered by the judgmentofhis Court in the case of Asia Satellite Telecommunications Ltd. Vs. Commissioner of Income Tax (ITA 131/2003 decided on 31.01.2011). In that judgment, a categorical view is taken that the income received from the activities undertaken by the respondent/assessee would not be exigible to tax in India. Following that judgment, this appeal is dismissed.

6 Zee Entertainment Enterprises Ltd.

10. From the above case laws it is evident that similar payments received by the Intelsat Corporation USA have been held to be not chargeable to income tax in the hands of the same recipient. When this point is considered in light of the Hon'ble Apex Court decision in the case of G. E. Technology Centre Pvt. Ltd. (supra) it emerges that no liability fasten on the assessee to deduct tax at source on payments made to Intelsat Corporation USA. Hence, the additional grounds of the assessee deserve to be allowed. Accordingly, we hold that since the Hon'ble High Court has held that the payment was not income chargeable to tax in the hands of the same recipient, there was as a corollary no liability on the part of the assessee (the payer) to deduct tax at source on the similar payment made to the same payee. Hence, the assessee succeeds on the additional ground. 12. Since facts are identical and it is undisputed that the Hon'ble Delhi High Court has held that the payment is not taxable in the hands of the recipient. Respectfully following the precedent of the Hon'ble Apex Court in the case of G. E. Technology Centre Pvt. Ltd. (supra), we are of the considered opinion that when this income is not chargeable to tax in the hands of the recipient, no liability is there on the assessee to deduct tax at source. Accordingly, in the background of the aforesaid discussion and precedent, we set aside the orders of the authorities below and decide the issue in favour of the assessee. 13. Since the issue has been decided in favour of the assessee, the other limbs of the assessee's challenge in the grounds of appeal are treated as academic.”

7 Zee Entertainment Enterprises Ltd.

7. We further note that ld. Counsel of the assessee has further supported the order of ld.CIT(A) by referring to some other case laws on the same subject.

i. United Home Entertainment Pvt.Ltd. vs ADIT(IT) in to 5181/Mum/2013 ii. United Home Entertainment Pvt Ltd. vs DCIT (ITA No. 1289,1290 to 1302,1303 to 1308/Mum/2016 and ITA No. 264,266,269,270,270,272 & 273/Mum/2017 iii. CIT(IT) vs. M/s. Reliance Infocomm Ltd.(ITA 1395 of 2016)(Bom.)

9. Our above order applies mutatis mutandis for AY 2014-15 as above.

Pronounced in the open court on 01.03.2022