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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI OM PRAKASH KANT & SHRI PAVAN KUMAR GADALE
O R D E R Per Bench : These appeals by the Revenue are directed against separate orders of even date passed by the learned Commissioner of Income-tax (Appeals)-58, Mumbai [in short, the Ld.CIT(A)] for assessment years 2015-16, 2016-17 & 2020-21 arising from the order passed by the learned Assessing Officer under section 195(2) of 2 Viamcom18 Media Private Limited the Income-tax Act, 1961 (in short, the Act) directing the assessee to withhold tax on payments to non resident Companies.
2. The issue in dispute involved in these appeals being identical, permeating from same set of facts and circumstances and, therefore, we have heard these appeals together and disposed off by way of this consolidated order, for convenience and to avoid repetition of facts.
3. In these appeals, identical grounds have been raised; therefore, for brevity, the grounds of appeal in 2015-16 are only reproduced below:-
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 Corporation, USA/IGSM, UK/MEASAT, Malaysia for transponder charges on the ground that payment did not constitute royalty u/s 9(l)(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 for transponder charges are specifically covered by Explanation 6 to section 9(l)(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, the CIT (A) has erred in not taking into account that Explanation 6 to section 9(l)(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?" 4. Briefly stated facts of the case are that assessee is a company incorporated in India and during relevant period was engaged in broadcasting television
3 Viamcom18 Media Private Limited channels from India which included marketing of advertising airtime on different channels and distribution of chose channels. The assessee availed satellite signal reception and transmission facility (i.e. transponder facility) and paid service fee to following three entities:- 1. Intelsat Corporation USA (Intelsat) 2. Intelsat Global Sales and Marketing, UK (IGSM) 3. MEAST Satellite System, Malaysia 5. At the time of payment, the assessee approached in terms of section 195(2) of the Act before Assessing Officer for determining the portion of sum towards service fee as not taxable in India, hence not liable for deduction of tax at source. The assessing officer, in all the relevant orders held the payment made to those parties in India as “royalty” as per the Double Taxation Avoidance Agreement (DTAA between India and the respective country) and accordingly, held the assessee as liable for withholding the tax at source. According to the Assessing Officer, the definition of the “royalty” as per India USA DTAA includes, the payment made for any process and as the term “process” is not defined in the DTAA, he imported the term from the Act. He observed that as per new Explanation 6 (inserted by the Finance Act , 2012) to section 9(1)(vi) of the Act, the term “process” include transmission of satellite (including uplinking, amplification, conversion for downlinking of any signal). The learned Assessing Officer has noted that identical issue of withholding of tax on transponder facility services has been allowed in favour of the assessee in the case of ‘Asia Satellite Telecommunication Co Ltd 197 Taxman 263 (Del HC). However, he did not follow the decision because the Special Leave Petition filed by the department was pending before the Hon’ble Supreme Court. The learned Assessing Officer further
4 Viamcom18 Media Private Limited observed that in the orders passed by the Ld.CIT(A) in earlier years, the transponder service fee has been held as ‘royalty’ income.
In view of above, the learned Assessing Officer held the payment for transponder service fee made to various parties as listed above as “royalty” in terms of DTAA as well as under Explanation to section 9(1)(vi) of the Act. On appeal by the assessee before the Ld.CIT(A), the assessee has been allowed for not withholding the tax on payment of said sum. The relevant finding of the Ld.CIT(A) in appeal for assessment year 2015-16 in order dated 16/09/2020 is reproduced below:- 5. FINDINGS The assessee is engaged in the business of marketing advertising air time of different television channels, distribution of these channels etc The assessee has made payment for transponder service fees paid to three entities namely: 1) Intelsat Corporation, USA (Intelsat) 2) Intelsat Global Sales and Marketing, UK (IGSM) 3) MEAST Satellite System, Malaysia (MEASAT) The payment to the above three recipients is involved in a number of cases, therefore the same is divided together. The assessee applied for an order u/s 195 (2) for nil withholding tax certificate for payment of transponder service fees to the above service providers. The Assessing Officer rejected the assessee's application observing as under: "The submission of the applicant have been perused The Finance Act 2012 has inserted a new explanation to section 9(1)(vi) which defines the term 'royalty'. As per the new Explanation 6, the term 'process', as referred to the definition of 'royalty' under the IT Act, includes transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal). The new explanation also states that 'process' (which includes transmission by satellite) shall be 'royalty' under the IT Act whether or not such process in secret. In light of the said explanation, it is held that payment of transponder service fees to Intelsat by Applicant is a 'process' and thus it is in the nature of royalty income taxable in India in terms of the provisions of Section 9(1)(vi) of the IT Act as well as treaty.
5 Viamcom18 Media Private Limited
The definition of Royalties as per Article 12 of the India - USA Tax Treaty includes the payment made for use of any 'process'. The terms 'process' is not defined in the India-USA Tax Treaty. Therefore, the definition of the term process has to be imposed from the Act. Thus, the payment made for transmission by satellite is a royalty even under the lax treaty.
The reference to decision of the Hon'ble Delhi High Court made by the applicant has not been accepted by the department and the SLP has been preferred in this case. Also, the orders passed earlier, in the case of the applicant treating the transponder services fee as ' royalty income' has been upheld by the id. CIT(A) and IT AT. "
Basically, the Assessing Officerheld these payments as royalty on the basis of Honourable ITAT order and on the basis of explanation to section 9 (1J(vi) of the IT Act.
Hon'ble ITAT in the case of Intelsat initially confirmed the finding of Assessing Officerhowever subsequently on the basis of Delhi High Court wherein the honourable High Court has held that the income of Intelsat is not taxable in India, held that these payments are not subject to TDS.
In the case of IGSM and MEASAT Honourable ITAT held that TDS is deductable in India. Before me, the assessee submitted that subsequent to the above honourable jurisdictional High Court i.e. Bombay High Court in the case of Neo Sports Broadcast Pvt Ltd (ITA no. 1487 of 2018) held that transponder charges paid to non-resident is not taxable as royalty. While doing so the honourable Bombay High Court has relied on Delhi High Court order in the case of Asia Satellite Communication Company Ltd (2011) 332 ITR 340 and Skies Satellites BV(2016) 382 ITR 114.
It was also submitted that the facts of assessee's case are similar to the above case and in the view of binding decision of jurisdictional High Court transponder charges cannot be held as royalty and therefore the assessee cannot be asked to deduct TDS on the same. Therefore, to decide the issue in the present case, we have to decide following two points - 1) Weather the issue is covered by the decision of Bombay High Court in the case of Neo Sports. 2.) Weather the honourable High Court has considered explanation to section 9(1)(vi) wherein the royalty is defined.
For ready references, the finding in the case of the Neo Sports is reproduced below.
"1. This Appeal is filed by the revenue to challenge the judgment of Income 7~ax Appellate Tribunal/following questions ore presented for our consideration;
6 Viamcom18 Media Private Limited
(a) Whether, on the facts and in the circumstances of the case and in law, the Hon'ble ITAT erred in deleting the addition towards Satellite Space Fees/transponder charges relying on the decision of Hon'ble Delhi High Court in the case of Asia Satellite Telecommunication 238 CTR (Del) 233, without considering the amendment in section 9(1)(vi) w.r.e.f. 01.06.1976 [by Finance Act, 2012], wherein the intent of legislature in respect of 'royalty' has been clarified thereby deeming the said charges to be 'royalty' in nature? (b) Whether, on the facts and in the circumstances of the case and in law, the Hon'ble ITAT erred in deleting the addition of Rs.5l44,17,143/- after considering the ex-post facto agreement between the assessee and (he Nimbus and not considering the main agreement dtd. 18.03.2006 between the assesses and the Nimbus?
in question (a) the revenue contends that the Satellite Space Fees and transponder charges paid by the assessee were in the nature of royalty payments. From the perusal of the impugned judgment of Income Tax Tribunal {'Tribunal' for short) we notice that the revenue's main thrust before the Tribunal was that the charges paid were capital expenditure and not revenue expenditure. However, in this context, the Tribunal did observe fleetingly on the question of charges being royalty payments. We have therefore heard the learned Counsel for the parties on merits on this issue raised by the revenue.
3. We notice that an identical issue came up for consideration before Delhi High Court in case of Asia Satellite Telecommunications Co. Ltd. Vs. DIT, reported in (2011) 332 ITR 340. It was the case in which the assessee a non-resident was engaged in safe/We communication, having control of satellites. The assesses would provide use of transponder facility on satellite to the television companies outside India, which in turn would be routed to the operators in India, who would pass them on to the customers. The question was whether the payments made to the non-resident were in the nature of royalty and therefore come within the scope of section 9(1) of the Income Tax Act, 1961 ('the Act' for short). The Court by a detailed judgment held that the payments were not in the nature of royalty charges. The Court made a distinction between transfer of rights in respect of property and transfer of rights in the property. 4. Later on similar issue once again came before Delhi High Court in the case of Directorate of Income tax Vs. New Skies Satellite BV, reported in (2016) 382 ITR 114 The Court followed the earlier decision in case of Asia Satellite Telecommunication (supra) and dismissed the revenue's Appeal. It was held that the explanations added below section 9(1) of the Act were not merely clarificatory in nature. Respectfully agreeing with the said decisions of the Delhi High Court, this question is not considered."
7 Viamcom18 Media Private Limited While doing so, the honourable Bombay High Court relied on the judgement of honourable Delhi High Court mentioned above.
The honourable Delhi High Court has considered the amendment to section 9(1)(vi) and has held that no amendment to the Act, whether retrospective and prospective can be read in a manner so as to extent in operation to the terms of an international treaty- in other words clarificatory or declaratory amendment, much less one which may seek to overcome an unwelcome judicial interpretation of law, cannot be allowed to have same retrospective effect on an international instrument effected between two sovereign states prior to subject amendment - amendment to domestic law cannot be read into treaty provisions without amending the treaty itself. In view of the above, it can be held that honourable High Courts have decided that the transponder charges cannot be treated as royalty and while doing so they have considered the amendment to section 9(1)(vi). Now, to be on safer side, we have to see whether the term royalty defined in different treaties (USA, UK, Malaysia) have the same/similar words or not For ready reference, the definitions of royalty in these DTAAs are reproduced here under: Indo-US DTAA ARTICLE 12 - Royalties and fees far included services - 1. Royalties and fees for included arising in a Contracting State and paid to a resident of the other Contracting State may be beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed: (a) in the case of royalties within paragraph 3(a) of this Articles, and fees for technical services within paragraphs 4(a) and (c) of this Article,— (i) during the first five years for which this Convention has effect; (aa) 15 per cent of the gross amount of such royalties or fees for technical services when the payer of the royalties or fees for technical services is the Government of the first mentioned Contracting State or a political sub-division of that State, and (bb) 20 per cent of the gross amount of such royalties or fees for technical services in alt other cases; and (ii) during subsequent years, 15 per cent of the gross amount of such royalties or fees for technical services, and (b) in the case of royalties within paragraph 3(b) of this Article and fees for technical services defined in paragraph 4(b) of this Article, 10 per cent of the gross amount of such royalties and fees for technical services.
3. For the purposes of this Article, the term "royalties" 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 cinematography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; 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 income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic Indo-Malaysia DTAA ARTICLE 12 8 Viamcom18 Media Private Limited ROYALTIES 1 Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State 2. However, such royalties may also be faxed in the Contracting State in which they arise, and according to the laws of that State, but if the recipient is the beneficial owner of the royalties, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties.
The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of. or the right to use. any copyright of literary, artistic or scientific work eluding cinematograph films or films ot tapes used for television or radio broadcasting, any tent, trade mark, design or model, plan, secret formula or process, or for the use of. or the right assessee cannot be asked to withhold tax on the payments of transponder charges paid to these entities.”
Aggrieved by the finding of the Ld.CIT(A) on the issue in dispute in orders under reference, the Revenue is by way of the appeals before the Tribunal raising the grounds in respective appeals.
Before us, the assessee has filed a paper book containing compilation of judicial precedents on the issue in dispute including the decision of the Tribunal in the case of the assessee for A.Y. 2013-14 to 2015-16. 9. We have heard the rival submissions of the parties on the issue in dispute and perused the relevant material on record. In the appeal for assessment year 2015-16, the Ld.CIT(A) has considered the facts of one of the parties in whose case, the assessee sought determination of sum chargeable under the Act and consequential deduction of tax at source u/s 195(2) of the Act. The Ld.CIT(A) referred to master agreement between the assessee and Intersat Corporation, USA to highlight the services of transponding facility provided by the party. The Ld.CIT(A) has noted that while passing the order dated 28/03/2014, 04/02/2015 and 10/02/2015 in assessee’s own case, the Tribunal was not having any benefit of the decision of the Hon’ble Bombay High Court in the case of New Sports Broadcast Pvt Ltd (ITA 1487 of 2018) and, therefore, transponder payments were 9 Viamcom18 Media Private Limited held to be royalty, taxable under the Act / Treaty. However, subsequently, in to 614/Mum/2016 for assessment year 2013-14 to 2015-16 in order dated 09/07/2018 following the decision of GE Technology Centre Pvt Ltd (supra) held that since no income was chargeable in the hands of the recipient, there was no liability on the part of the assessee to deduct tax at source on the similar payments for transponder facility. Further, the Ld.CIT(A) has followed binding precedents of jurisdictional High Court in the case of New Sports Broadcast Pvt Ltd (supra), wherein it is held that transponder charges are not in the nature of ‘Royalty income in the hands of recipients despite amendment to section 9(1)(vi of the Act.
In view of binding precedent of the Tribunal and Hon’ble High Court followed by the Ld.CIT(A) in respective impugned orders, we do not find any error or infirmity in the impugned orders passed by the Ld.CIT(A) on the issue in dispute relevant to the orders of Assessing Officer u/s 195(2) of the Act. Accordingly, we uphold the finding of the Ld. CIT(A) in impugned orders. Grounds raised
by the Revenue in these appeals are accordingly dismissed.