ITO (IT) 1.2.2, MUMBAI vs. BENNET COLEMAN & CO LTD, MUMBAI

In sum and substance, the solitary issue raised by the Revenue before us is whether the assessee was required to deduct tax at source under section 195 of the Act on payment of transponder charges/transponder service fees, considering it as payment of Royalty.

The brief facts of the case are that the assessee is a company incorporated in India and is engaged in providing media publishing services in India and South Asia, which include publishing newspapers, magazines and books, operating television channels, radio and digital business, publishing news content on the internet, and specialised content publishing and other online services. The assessee entered into an agreement with a UK-based company, namely, Intelsat Global Sales and Marketing Limited (“Intelsat UK”), for up-linking and down-linking of satellite signals for broadcasting television channels in India. Under this agreement, the assessee was regularly making payments to Intelsat UK towards transponder service fees as per the arrangement between the assessee and Intelsat UK. As per the agreement, the taxes, if any, payable on the transponder service fees are to be borne by the assessee. Accordingly, as per the assessee, purely out of abundant caution, while making the remittance to Intelsat UK, taxes were withheld by Bennett Coleman & Co. Ltd. (A.Ys. 2018-19 and 2019-20) 4 the assessee on a grossed-up basis. As the assessee was of the view that the transponder service fees paid to Intelsat UK is not chargeable to tax in India under the Act as well as the provisions of the India-UK Double Taxation Avoidance Act (“DTAA”), the assessee filed appeal under 248 of the Act before the learned CIT(A), after payment of such withholding taxes by the assessee. The learned CIT(A), after considering the submissions of the assessee, decided the appeal in favour of the assessee following the decision of the Hon’ble Bombay High Court in Neo Sports Broadcast Pvt Ltd. vs. PCIT, in of 2018, in which reliance was placed on the decisions of the Hon’ble Delhi High Court in Asia Satellite Telecommunications Co. Ltd. vs. DIT, reported in (2011) 332 ITR 340 (Del.), and DIT vs. New Skies Satellite BV, reported in (2016) 382 ITR 114 (Del.). Accordingly, the learned CIT(A) held that the payment made towards the use of the transponder facility is not in the nature of a Royalty and the assessee is not liable to deduct tax at source while making payments towards transponder service charges to Intelsat UK. In further appeal by the Revenue against the aforesaid decision dated 28.08.2019 passed by the learned CIT(A), the Tribunal, vide its order dated 30.07.2021 in and others, after considering the preliminary objection of the Revenue that the learned CIT(A) passed the orders without affording opportunity of hearing to the Assessing Officer, remitted the matter to the file of the learned CIT(A) for de novo adjudication.

Accordingly, in compliance with the directions of the Tribunal, an opportunity was provided to the Assessing Officer having jurisdiction over the TDS matter, and the remand report was called for after forwarding the Bennett Coleman & Co. Ltd. (A.Ys. 2018-19 and 2019-20) 5 submissions of the assessee. Before the learned CIT(A), during the appellate proceedings which culminated in the impugned orders before us, the assessee submitted that the transponder service fees paid to Intelsat UK are not chargeable to tax in India under the Act as well as the India-UK DTAA for the following reasons: - Payment of transponder service fees does not constitute “Royalty”;  Payment of transponder service fees does not constitute “Fees for  Technical Services”; Income from transponder service fees is not taxable as “business  income” in the absence of Permanent Establishment of Intelsat UK in India under the India-UK DTAA.

In respect of its contention, the assessee placed reliance upon various judicial pronouncements of the Hon’ble High Courts and Tribunals, wherein it has been held that transponder charges do not constitute Royalty under the tax treaty and hence are not taxable in India. As regards the taxability of transponder charges as “Fees for Technical Services”, the assessee submitted that, as there was no element of human intervention in providing such services and the payment was for mere use of sophisticated technology, the payment of transponder charges does not constitute “Fees for Technical Services”. The assessee further submitted that the income from transponder charges is in the nature of business profit and would be taxable in India under Article 7 of the India-UK DTAA, provided Intelsat UK has a Permanent Establishment in India in terms of Article 5 of the India-UK DTAA. However, as Intelsat UK does not have a Permanent Establishment in India, the payment

Pursuant to the opportunity granted by the learned CIT(A), the Assessing Officer furnished the remand report disagreeing with the submissions of the assessee and submitted that transponder charges paid by the assessee to Intelsat UK are chargeable to tax in India as Royalty for the “use of” or “right to use of process” as per Explanation-6 to section 9(1)(vi) of the Act. The Assessing Officer further submitted that the term “process” has been defined under Explanation-6 to section 9(1)(vi) of the Act, and as per the same, the process is not required to be “secret” to fall under the definition of Royalty. By referring to the provisions of Explanation-6 to section 9(1)(vi) of the Act, the Assessing Officer submitted that the expression “process” includes and shall be deemed to have always included transmission by satellite, including up-linking, amplification, conversion for down-linking of any signal. Therefore, the Assessing Officer submitted that the transponder charges will clearly fall under the definition of “process”, as per Explanation-6 to section 9(1)(vi) of the Act. As regards the reliance placed by the assessee on the provisions of the India-UK DTAA, the AO submitted that the term “process” is not defined in the DTAA, and accordingly, the definition of the term “process” provided under the Act shall apply.

In response to the remand report furnished by the AO, the assessee filed its written submission. After considering the submissions filed by both

During the hearing, the learned Departmental Representative (“learned DR”) vehemently relied upon the remand report filed by the Assessing Officer before the learned CIT(A) and submitted that transponder service fees paid by the assessee to Intelsat UK is taxable in India as Royalty, and therefore, the assessee rightly deducted the taxes under section 195 of the Act while making payment of transponder service fees to Intelsat UK.

On the other hand, the learned Authorized Representative (“learned AR”), vehemently relying upon the findings of the learned CIT(A), submitted that this issue has been decided in favour of the tax payer by various decisions of the Hon’ble Courts and Tribunals, which were followed by the learned CIT(A) while allowing the appeal of the assessee.

We have considered the submissions of both sides and perused the material available on record. In the present case, the assessee entered into an agreement with Intelsat UK for availing transponder services for up-linking and down-linking of satellite signal for broadcasting television channels in India. Accordingly, pursuant to the agreement, the assessee regularly made payments to Intelsat UK for availing such transponder services. The relevant

As per the assessee, Intelsat UK was merely providing transponder services to the assessee for transmission of signals through the satellite, which facilitated the assessee in up-linking and down-linking of satellite

In the instant case, there is not dispute that Intelsat UK is a tax resident of UK under Article 4 of the India-UK DTAA, and therefore, while determining the taxability of the transponder service fees in the hands of Intelsat UK, the provisions of India-UK DTAA shall be applicable to the extent they are more beneficial as per section 90(2) of the Act.

As per the Revenue, by the Finance Act, 2012, with retrospective effect from 01.06.1976, Explanation-6 was inserted in section 9(1)(vi) of the Act, which clarifies the meaning of the term “process” as used in Explanation-2 to section 9(1)(vi) of the Act. As per the Explanation-6 to section 9(1)(vi) of the Act, the term “process” includes and shall be deemed to have always included transmission by satellite (including, up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret. Thus, it is the plea of the Revenue that as per Explanation-6 to section 9(1)(vi) of the Act, the “process” is not required to be “secret” in order to fall under definition of the term

On the other hand, the assessee placed reliance upon the definition of the term “Royalty”, as provided in Article 13(3) of the India-UK DTAA, which reads as follows: - “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.” (Emphasis supplied)

Thus, as per the assessee, in order for a payment to be termed as Royalty under the provisions of the India-UK DTAA, the same needs to be a payment for the use of a “secret process” and not just “process”. As per the assessee, the payment made by it to Intelsat UK for the use of the transponder facility for transmission of its channel is not for any secret

We find that while considering the similar issue of taxability of transponder service fees as Royalty, inter alia, under the India-Netherlands DTAA, which has an identical definition of the term “Royalty” as in the India- UK DTAA, the Hon’ble Delhi High Court, after considering the provisions of Explanation-6 to section 9(1)(vi) of the Act, in DIT vs. New Skies Satellite BV, reported in (2016) 382 ITR 114 (Del), observed as follows: - “58. Nevertheless, whether or not punctuation plays an important part in statute interpretation, the construction Parliament gives to such punctuation, or in this case, the irrelevancy that it imputes to it, cannot be carried over to an international instrument where such comma may or may not have been evidence of a deliberate inclusion to influence the reading of the section. There is sufficient evidence for us to conclude that the process referred to in Article 12 must in fact be a secret process and was always meant to be such. In any event, the precincts of Indian law may not dictate such conclusion. That conclusion must be the result of an interpretation of the words employed in the law and the treatises, and discussions that are applicable and specially formulated for the purpose of that definition. The following extract from Asia Satellite Telecommunications Co. Ltd's case (supra) takes note of the OECD Commentary and Klaus Vogel on Double Tax Conventions, to show that the process must in fact be secret and that specifically, income from data transmission services do not partake of the nature of royalty. "74. Even when we look into the matter from the standpoint of Double Taxation Avoidance Agreement (DTAA), the case of the appellant gets boost. The Organisation of Economic Cooperation and Development (OECD) has framed a model of Double Taxation Avoidance Agreement (DAA) entered into by India are based. Article 12 of the said model DTAA contains a definition of royalty which is in all material respects virtually the same as the definition of royalty contained in clause (ili) of Explanation 2 to Section 9(1) (vi) of the Act. This fact is also not in dispute. The leamed counsel for the appellant had relied upon the commentary issued by the OECD on the aforesaid model DTAA and particularly, referred to the following amendment proposed by OECD to its commentary on Article 12, which reads as under:

Much reliance was placed upon the commentary written by Klaus Vogel on Double Taxation Conventions (3rd Edition)'. It is recorded therein: The use of a satellite is a service, not a rental (thus correctly, Rabe, A., 38 RIW 135 (1992), on Germany's DTC with Luxembourg); this would not be the case only in the event the entire direction and control over the satellite, such as its piloting or steering, etc. were transferred to the user.' 76. Klaus Vogel has also made a distinction between letting an asset and use of the asset by the owner for providing services as below: 'On the other hand, another distinction to be made is letting the proprietary right, experience, etc., on the one hand and use of it by the licensor himself, e.g., within the framework of an advisory activity. Withinthe range from services, viz. outright transfer of the asset involved (right, etc.) to the payer o le royalty. The other, just as clear-cut extreme is the exercise by the payee of activities in the service of the payer, activities for which the payee uses his own proprietary rights, know-how, etc., while not letting or transferring them to the payer."

The Tribunal has discarded the aforesaid commentary of OECD as well as Klaus Vogel only on the ground that it is not safe to rely upon the same. However, what is ignored is that when the technical terms used in the DTAA are the same which appear in Section 9(1)(vi), for better understanding all these very terms, OECD commentary can always be relied upon. The Apex Court has emphasized so in number of judgments clearly holding that the well-settled internationally accepted meaning and interpretation placed on identical or similar terms employed in various DTA As should be followed by the Courts in India when it comes to construing similar terms occurring in the Indian Income Tax Act. ...

There are judgments of other High Courts also to the same effect. (a) Commissioner of Income Tax Vs. Ahmedabad Manufacturing and Calico Printing Co., (139 ITR 806 (Guj.)] at Pages 820-822.

On a final note, India's change in position to the OECD Commentary cannot be a fact that influences the interpretation of the words defining royalty as they stand today. The only manner in which such change in position can be relevant is if such change is incorporated into the agreement itself and not otherwise. A change in executive position cannot bring about a unilateral legislative amendment into a treaty concluded between two sovereign states. It is fallacious to assume that any change made to domestic law to rectify a situation of mistaken interpretation can spontaneously further their case in an international treaty. Therefore, mere amendment to Section 9(1)(vi) cannot result in a change. It is imperative that such amendment is brought about in the agreement as well. Any attempt short of this, even if it is evidence of the State's discomfort at letting data broadcast revenues slip by, will be insufficient to persuade this Court to hold that such amendments are applicable to the DTAAs.

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, when the definitions were in fact pari materia (in the absence of any contouring explanations), will continue to hold the field for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amended jointly by both parties 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 2012 where there exists no Double Tax Avoidance Agreement.”

Thus, the Hon’ble Delhi High Court in the decision cited (supra) held that unless the provisions of tax treaty are amended jointly by both parties to incorporate the amended definition of the term “Royalty” by the Finance Act, 2012, which inserted Explanation-6 to section 9(1)(vi) of the Act, such an amendment by itself would not result in any change in the definition of the term “Royalty” as defined in the provisions of the tax treaty.

We find that the following issue came up for consideration before the Hon’ble Jurisdictional High Court in PCIT vs. NEO Sports Broadcast Pvt. Ltd., in of 2018: -

While deciding this issue in favour of the taxpayer, the Hon’ble Jurisdictional High Court, vide order dated 23.04.2019, observed as follows:- “2. 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 royal 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 satellite communication, having control of satellites. The assessee 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.”

We find that similar findings have been rendered by the Co-ordinate Bench of the Tribunal in the following decisions: -  ACIT (IT) vs. Viacom 18 Media (P.) Ltd., (2022) 134 taxmann.com 243 (Mumbai Tribunal)

In the present case, as noted in the foregoing paragraphs, the Revenue has not disputed the contention of the assessee regarding the applicability of the India-UK DTAA to the instant case. Therefore, we do not find any infirmity in the findings of the learned CIT(A) in deciding this issue as per the provisions of the India-UK DTAA and rejecting the contention of the Assessing Officer that the amended meaning of the term “process” in the Act needs to be incorporated in the definition of the term “Royalty” under Article 13 of the India-UK DTAA by virtue of Article 3(3) of the India-UK DTAA.

We find that the taxability of transponder service fees in the hands of the recipient, i.e., Intelsat UK, came up for consideration before the Co- ordinate Chennai Bench of the Tribunal in Intelsat Global Sales and Marketing Ltd. vs. DCIT, in IT(TP)A No.49/Chny/2018 and others. While deciding the issue in favour of Intelsat UK, the Co-ordinate Chennai Bench of the Tribunal vide order dated 16.10.2023 held that such receipts cannot be taxed as process Royalty, by observing as follows: - “16. As regards the taxability of receipts of process royalty, the Ld. AR argued that no secret process is involved in provision of services by the assessee since the mechanism of providing satellite transmission services is available in the public domain. The assessee owns satellite which include transponders and provide satellite transponder services to its customers as per eleven parameters to be adhered or provided to the customers of the assessee i.e. VSNL etc. The assessee is not involved in carrying out this process. Intelsat Earth Station Standards, eleven parameters, data pointing Intelsat Global Sales and Marketing Limited vs DCIT calculator are available in public domain and therefore do not constitute secret information or process. No confidential information is provided by the assessee to its customers to tax the receipts as process royalty. The assessee has placed the unredacted version of the Bennett Coleman & Co. Ltd. (A.Ys. 2018-19 and 2019-20) 17

Therefore, respectfully following the decisions of the Hon’ble High Courts and Co-ordinate Bench cited supra, we do not find any infirmity in the findings of the learned CIT(A) in coming to the conclusion that the payment of transponder service fees by the assessee to Intelsat UK do not fall within the meaning of the term “Royalty” as per the India-UK DTAA. As regards the other findings of the learned CIT(A) regarding the non-taxability of the payment as “Fees for Technical Services”, and as business profit in the absence of a Permanent Establishment of Intelsat UK in India, the Revenue has not raised any ground in its appeals before us. Therefore, we are not rendering any findings on these issues.

Accordingly, we upheld the findings of the learned CIT(A) that the transponder service fees payable by the assessee to Intelsat UK are not taxable in India as Royalty as per the provisions of the India-UK DTAA, and therefore, the assessee is not liable to withhold taxes under section 195 of the Act. As a result, the solitary issue raised by the Revenue before us is decided in favour of the assessee and against the Revenue.

Since in all the appeals, the Revenue has raised identical grounds challenging the taxability of transponder service fees as Royalty, all these grounds are dismissed in view of our aforesaid findings and respective impugned order passed by the learned CIT(A) under section 248 read with section 254 of the Act are upheld.

In the result, all the appeals by the Revenue are dismissed. Order pronounced in the open Court on 14/01/2026