VIACOM 18 MEDIA P.LTD,MUMBAI vs. DCIT (IT) 4(3)(1), MUMBAI

1 ITA 618/Mum/2017

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “L”, MUMBAI

Before Shri Mahavir Singh(JUDICIAL MEMBER) AND Shri G Manjunatha (ACCOUNTANT MEMBER)

I.T.A No.618/Mum/2017 (Assessment year: 2016-17)

Viacom 18 Media Pvt Ltd vs Dy.CIT(International Taxation)- Zion Bizworld, Subhash 4(3)(1), Mumbai Road-A, Near Garware Office, Vile Parle (E), Mumbai-400 057 PAN : AAACM9164E APPELLANT RESPONDENT

Appellant by Shri Arvind Sonde Respondent by Shri M.V. Rajguru

Date of hearing 18-07-2018 Date of pronouncement -10-2018 O R D E R Per G Manjunatha, AM : This appeal filed by the assessee is directed against order of the

CIT(A)-55, Mumbai dated 20-10-2016 and it pertains to AY 2016-17.

The assessee has raised the following grounds of appeal:-

“1. On the facts, and in the circumstances of the case, and in law, the learned Commissioner of Income-tax (Appeals) - 55, Mumbai ['CIT(A)'] has erred in dismissing the Appellant's appeal, holding that the payments of transponder fees by the Appellant to Intelsat Corporation, USA, ('Intelsat'), are taxable as 'royalty1 under the Income-tax Act, 1961 ('the Act'), and under the India-USA Tax Treaty ('the Treaty'), and consequently, subject to tax withholding under Section 195 of the Act. 2. On the facts, and in the circumstances of the case, and in law, the learned CIT(A) ought to have held that the transponder fees payable by the Appellant to Intelsat are not taxable in India and consequently, not subject to tax withholding under Section 195 of the Act.”

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is primarily engaged in broadcasting television channels from India. The

assessee has been provided with a 24 hour satellite signal reception and

retransmission service (transponder service) by Intelsat Corporation, a

USA Corporation as per agreement between the assessee and Intelsat Corporation dated 19th August, 2011. In consideration for the

transponder service, the assessee had to pay transponder service fees.

As per the agreement between the parties, the taxes, if any payable on

the transponder service fees is to be borne by the assessee. Intelsat

Corporation is a tax resident in USA under Article 4 of the India USA tax

treaty. The assessee claimed that Intelsat Corporation does not have

any permanent establishment in India, therefore, as per Article 12 of the

treaty, royalty income and fees Fees for included service is taxable in

India (and consequently withholding in India) at the rate of 15% whereas

rate as per the Income-tax Act is 10.506%. The assessee was of the

view that the payment to Intelsat Corporation are not taxable in India and

hence, it was not required to deduct tax at source from transponder fees

paid to Intelsat Corporation. Accordingly, the assessee has deposited

tax of Rs.14,55,153 on 05-06-2015 and preferred this appeal as per the

provisions of section 248 with respect to the net fees of US$1,00,000 per

month payable to Intelsat Corporation for April and May, 2015.

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contended that the transponder fees paid to Intelsat Corporation was not

subject to tax in India and hence requested that the same could not be

subjected to withholding tax in India u/s 195 of the Income-tax Act, 1961.

The assessee further claimed that Intelsat Corporation is a resident of

USA and is eligible to claim benefits of the treaty in respect of payment

received from the assessee. It was further claimed that as per section

90(2) of the Act, the provisions of the Act or the treaty whichever is more

beneficial can be adopted by the non resident taxpayer. The assessee

further claimed that payments made to Intelsat Corporation in respect of

transponder services is in the nature of business profits and can only be

brought to tax in India under Article 7 of the treaty, where the

requirement of permanent establishment is a must. Since Intelsat

Corporation does not have any permanent establishment in India, such

profits will not be taxable under the treaty. The assessee also explained

the nature of services rendered by Intelsat Corporation. According to

the assessee, transponder services that Intelsat Corporation renders are

standard services, which are rendered to any person, who is willing to

pay for the same. There is nothing secret / confidential about such

services along with technical details thereof are publicly available.

Accordingly, payment for provision of transponder services cannot be

considered as payments for use of a secret process and, therefore, are

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not in the nature of royalty. The assessee has placed its reliance on

certain judicial precedents including the decision of Delhi ITAT in the

case of New Skies Satellite N.V.

and also on analysis of provisions of section 9(1)(vi) of the Income-tax

Act, 1961 and Article 12 of the India USA DTAA held that the ITAT has

already considered the issue of withholding of tax on payments made to

Intelsat Corporation for rendering transponder services in assessee’s

own case for AY 2009-10 in ITA 1584/Mum/2010 (2014) 44

Taxman.com 1 wherein after elaborate discussion on the facts of the

case and after discussing the reason for deviating from the Hon’ble Delhi

High Court decision in the case of Asia Satellite has arrived at a

conclusion that the payment made to non resident for payment related to

use of transponder capacity constitute royalty, both under the Income-

tax Act as well as under the India USA Treaty. The facts of the present

case are exactly similar to the case which has already been considered

by the ITAT. The payment made by the assessee to Intelsat

Corporation constitute royalty both under the Income-tax Act as well as

under the India USA DTAA and hence, liable to tax in India. Since there

is no dispute over the resident status of non resident, tax u/s 195 would

be deductible at the rate specified in the India USA DTAA. Accordingly,

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the Ld.CIT(A) dismissed the appeal filed by the assessee. The relevant

observations of the Ld.CIT(A) is extracted below:-

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non-resident for services relating to use of transponder capacity constitute royalty, both under the Income Tax Act as well as under the India-US Treaty, The operative portion of the IT AT judgment detailing the facts and current law on the issue, is reproduced below: "7. We have considered the rival submissions as well as relevant material on record. The question before us is whether the fee payable by the assessee to Intelsat Corporation, a tax resident of USA is in the nature of "Royalty" in the light of amended provisions of section 9(l)(vi) as well as under Article 12 oflndo-US DTAA, The id. Counsel for the assessee has given much emphasis on the submission that any amendment in the Act would not affect the beneficial provisions of DTAA and consequently the payment by the assessee cannot be treated as royalty by unilateral act of amendment in Act. There is no quarrel on this point that as per section 90(2)' in relation to the assessee to whom DTAA applies, the provisions of Act shall apply to the extent they are more beneficial to that assessee. In other words if the assessee is c?."sd by DTAA and the provisions of DTAA are more beneficial then there is no need to go into the provisions of the Act. The decision of Hon’ble Jurisdictional High Court in the case of Siemens Aktiengesellscha/t (supra) as well as in the case ofDIT v. Infrasoft Ltd. [2013] 39 taxmann.com 88/[2014j 220 Taxman 273 (Delhi) are relevant on this point. 8. The term "Royalty" has been defined in DTAA as well as in the Act. As per Article 12(3) of the !ndo-US DTAA, the term "Royalty" is defined as under:— 'ARTICLE 12- Royalties and Fees for included Services. The Term "Royalties" as use.d.m this, article means: Payments made of any kind received as 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, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience including gains derived from the alienation of any such right or property which are contingent on the productivity, use of disposition thereof; and 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. 9. The definition of royalty under the Act is given in Explanation 2 of section 9(l)(vi) as under:— Income by way of royalty payable by- 'Explanation 2.— For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any

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consideration which would be the income of the recipient chargeable under the head "Capita! gains") for- the transfer of all or any rights (including the granting of a (licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property: the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; the imparting of any information concerning technical industrial, commercial or scientific knowledge, experience or skill ; the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) the transfer of all or any rights (including the granting of a (licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or -the rendering of any services in connection with the activities referred to in sub-clauses (1) to 93[(iV), (iva) and (v).' 10-Sofar as the term “Royalty" defined in the Explanation 2 of section 9(1)(vi), there is no change or amendment in the term royalty as such. Therefore, the definition of term royalty remained unchanged despite insertion of Explanation 6 by Finance Act 2012, Even otherwise the term "Royalty" is defined in the DTAA, therefore, any amendment in the definition of "Royalty" affecting adversely to an assesses covered by the DTAA would be inconsequential due to the protection of DTAA. The clause (b) of Article 12(3) of DTAA and clause (iva) of Explanation 2 of section 9(l)(vi) are parimateria of DTAA and clause (i) to (v) except clause (iva) are also pari material. It is pertinent to note that there is no change in the definition of term "Royalty" as provided in Explanation 2 of section 9(l)(vi) of the Act, by virtue of the retrospective amendment inserting of Explanation 6 to this clause of section 9(l)(vi). We are concerned with the definition of royalty which is common under the DTAA as well as under the Act to the extent " payment of any kind received as consideration for the use of, or the right to use -— — — any process, industrial, commercial or scientific equipment". The term process, industrial, commercial or scientific equipment are not defined in DTAA. Therefore, the meaning of such term under the Act shall apply by virtue of Article 3(2) of Indo-US DTAA which reads as under: — ARTICLE 3 - General Definitions "As regards the application of the Convention by a Contracting State any term not defined therein shall, unless the context otherwise requires or the competent authorities agree to a common meaning pursuant to the provision of article 27 (Mutual Agreement procedure], have the meaning which it has

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under the laws of that State Concerning the taxes to which the Convention applies" 11. Apart from the ordinary contextual meaning, the term process has been defined in Explanation 6 of section 9(l)(vi) of the Act as under:— "Explanation 6.—For the removal of doubts, it is hereby clarified 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), cable, optic fibre or by any other similar technology, whether or not such process is secret;" 12. The introduction of Explanation 6 with retrospective effect w.e.f 1.6.1976 is an expression as intended by the legislature of the meaning of term process in the context of transmission by satellite is clarificatory in nature and, therefore, it does not amend the definition of royalty per se.There is no quarrel on the point that any payment for use or right to use of process is in the nature of royalty as per the provisions of Article 12(3) of DTAA as well as the Explanation 2 of section 9(l)(vi) of the Act. Since the term process is not defined under the DTAA, therefore, by virtue of Article 3(2) of the Indo-US DTAA, the meaning of term process as defined in the Act would apply for this purpose. We say so as a word 'process' is a term of wide import and, accordingly, has to be construed in a generic sense. The same has in fact been the subject matter of elucidation by the Ho 'ble apex court in a number of cases, viz. Chillies Exports Ltd. v. CIT [1997] 225 ITR 814/92 Taxman 68 (SQ;Ujagar Prints v. Union of India [1989] 179 ITR 317 (SC); Dy. CST, Board of Revenue (Taxes) v. Pio Food Packers [1980] 46 STC 63 (SC), explaining the same in the context of processing of goods, which though would apply and hold. There is nothing in the language of the relevant provision/s of either the Act or of the DTAA constricting or restricting the scope of the term, which has thus to be examined and considered contextually. As such, even de hors Explanation 6 to section 9(l)(vi), which only abundantly clarifies matters, a process could only reasonably be regarded as including a process/es as specified in Explanation 6 (supra). The same must, therefore, be regarded as within the contemplation of the said term and, thus, the term 'royalty' as defined by Explanation 2 to section 9(l)(vi) and Article 12(3) of the Indo-US DTAA. The foregoing, however, does not detract from the fact that the term 'process' being not defined, the extant definition of the same, i.e. as per the domestic law, shall apply in terms of Article 3(2) of the said treaty. The Hon'ble Madras High Court in the case of Verizon Communications Singapore (P.) Ltd. (supra) while considering an identical issue has observed in para 33 as under:— "33. Faced with the decisions of the Authority for Advance Ruling, Explanations 4 and 5 were inserted under Finance Act, 2012, with effect from 01.06.1976. Under Explanation 5, the Legislature sought to clarify the definition of 'royalty' to include the consideration in respect of any right, property or information whether or not possession or control of such right, property or information is with the payer; such right, property or information is used directly by the payer; the location of such right, property or information is in India. Explanation 6 further clarifies that the expression 'process' included transmission by satellite (including up-linking,

9 ITA 618/Mum/2017

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, after the amendment introduced in the year 2012, with effect from 01.06.1976, irrespective of possession, control with the payer or use by the payer or the location in India, the consideration would nevertheless be treated as 'royalty'. The decisions cited, hence, cannot be pressed into service to understand the scope of the expression 'royalty'." 13. The expression process has been understood by the Hon'ble High Court in the light of Explanation 6 inserted by the Finance Act 2012 w.e.f 1.6.1976 and it was observed that the decision relied upon by the assessee cannot be pressed into service to understand the scope of expression royalty while distinguishing the decision of Hon'ble Delhi High Court in the case of Asia Satellite Communication Co. Ltd (supra), the Hon 'ble Madras High Court in para 42 and 43 has held as under:— "42. The decision relied on by the assessee, particularly with reference to the Delhi High Court reported in 332 ITR 340 (Asia Satellite v. DIT) is also '-'•""•""'-' Distinguishable. This relates" tff'a case of*an assessee/lessee of a satellite called AsiaSat 1 which was launched in April 1990 and was the owner of a satellite called AsiaSat 2 which was launched in November 1995. These satellites were launched by the appellant and were placed in a geostationary orbit in orbital slots, which initially were allotted by the International Telecommunication Union to UK, and subsequently handed over to China, These satellites neither use Indian orbital slots nor are they positioned over Indian airspace. The footprints of AsiaSat 1 and AsiaSat 2 extend over four continents, viz., Asia, Australia, Eastern Europe and Northern Africa. It enters into an agreement with TV channels, communication companies or other companies who desire to utilize the transponder capacity available on the appellant's satellite to relay their signals. The customers have their own relaying facilities, which are not situated in India. From these facilities, the signals are beamed in space where they are received by a transponder located in the appellant's satellite. The transponder receives the signals and on account of the distance the signals have travelled, they are required to be amplified. The amplification is a simple electrical operation. Thereafter, the frequency on which the signals are to be downlinked is changed only in order to facilitate the transmission of signals so that, there is no distortion between the signals that are being received and the signals that are being relayed from the transponder. The transponder operations are commonly known, which are carried out not only in satellite transmission but also in the case of terrestrial transmission. There is no change in the content of the signals whatsoever that is carried out by the appellant in the transponder. Thereafter, the signals leave the transponder and are relayed over the entire footprint area where they can be received by the facilities of the appellant's customers or their customers. Its role is confined in space where the transponder which it makes available to its customers performs a function which it is designed to perform. It is claimed by the appellant that no pan of the income generated by it from the customers to whom the aforesaid services are provided was chargeable to tax in India

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and for this reason no return income was filed in India. The Tribunal found that the transponder was not equipment and hence the payment made by the TV channels to the appellant could not be regarded as one for use of equipment. The Tribunal held that the appellant had not leased out any equipment but had only made available the process that was carried out in the transponder to its customers. Insofar as income earned by the appellant from its customers in India is concerned, the Tribunal held that this would qualify as 'royalty' as defined in Explanation 2 to Section 9(l)(vi) of the Act 43.Therefore, issues which arose for consideration in the appeal before the Delhi High Court related to Clauses (i), (vi) and fvii} of sub-Section (1) of the Section 9 of the Act. The High Court held that even when the appellant had business connection in India, no part of the appellant's income was chargeable to tax in India in terms of Section 9 (l)(i)t as no operations to earn the income were carried on iajndia. The Delhi High Court held that carrying out the operations in India, wholly or at least partly, is sine qua non for the application of Clause (i) of sub-section (1) of Section 9 of the Act. Merely because the footprint area included India and ultimate consumers/viewers are watching the programmes in India, even when they are uplinked and relayed outside India, would not mean that the appellant is carrying out its business operations in India. No machinery or computer, etc. is installed by the appellant in India through which the programmes are reaching India. The process of amplifying and relaying the programmes is performed in the satellite which is not situated in the Indian airspace. The transponder functioned on its own. The High Court held that the terms 'lease of transponder capacity', 'lessor', 'lessee' and 'rental' used in the agreement would not be the determinative factors. It is the substance of the agreement which is to be seen. The High Court went through the various clauses of the said agreement and held that the control always remained with the appellant and the appellant had merely given access to a broadband available with the transponder, to particular customers. Merely because the transponder has its footprint on various continents, it would not mean that the process has taken place in India. Thus the Delhi High Court followed the decision of the Apex Court reported in [2007] 288 ITR 408 (Ishikawajama-Harima Heavy Industries Ltd. v. Director of Income Tax} and held that services rendered outside India would have nothing to do with the permanent establishment in India and hence there was no process carried out in India or was there any business in India which could be attributed to the Indian territory. Thus the High Court held that the income earned by the assesee would not qualify as 'royalty', as defined in Explanation 2 to Section 9(l)(vi) of the Income Tax Act. As seen from the facts, the said judgment was rendered in the year 2011t much before the amendment under Finance Act, 2012. Further after the decision reported in [[2007] 288 ITR 408 (Ishikawajama-Harima Heavy Industries Ltd. v. Director of Income Tax) an explanation was inserted below subsection 2 of Section 9, with effect from 01.06.1976 under

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Finance Act, 2007 to get over the decision of the Supreme Court. Hence this decision of the Delhi High Court is distinguishable and has no relevance to the case on hand which has to be considered on the strength of the law prevailing now." 14. After considering the definition of royalty under Article 12 of the DTAA as well as u/s 9(l)(vi), The Hon'ble High Court had held that the definition of royalty under DTAA and Indian Income Tax act are parimateria in para 100 as under:— "100. The definition of 'royalty' under DTAA and the Indian Income Tax Act are in parimateria. As rightly pointed out by the Revenue, Explanation 6 defines 'process' to mean and include transmission by satellite (including uplinking, amplification, conversion for downlinking of any signal) cable, optic fibre, or by any other similar technology, whether or not such process is secret. Thus, apart from the relevance and applicability of Clause (iva) that the payment is for the use or right to use of the equipment, the Tribunal held that the payment for the bandwidth amounts to royalty for the use of the process. The Tribunal also pointed out that out by reason of the long distance, to maintain the required speed, boosters are kept at periodical intervals. Going by this too, in any event, the payment received by the assesses was rightly assessed as 'royalty' and would constitute so for the purposes of DTAA." 15. Turning to the facts of the assessee's case the undisputed facts are that the payments in question was payable to the Intelsat is for user of transponder capacity by the assessee for telecastinq/broadcasting of its various programmes on television channels including marketing and advertising airtime etc. The Hon'ble Delhi HighCourt in the case of Asia Satellite Communication Co. Ltd (supra) ousted the 'royalty' to the_said transaction, on the premise of territorial jurisdiction in-as-much as the said 'process' was not being used in India. However, said decision endorses the conceptual understanding of term 'process', i.e., as explained bv us at para 12 of this order. Even, the same, if at all, impinges on ExpIanation 5 to section9(l)(vi), has nothing to do with Explanation 6 thereto. In fact, to our mind, it is not the situs of the property or the process, but of the rights therein, that is relevant Without doubt, the rights in or for the use of the process vesting in the assessee are, thus, located in India, whereat the signals are downlinked as also uplinked from. Again, the same has to be read in conjunction with Explanation below section 9(2), inserted on the statute by Finance Act, 2007 w.e.f. 01.06.1976.The decision in the case of Asia Satellite Communication Co. Ltd (supra) is thus completely inapplicable in the given facts and circumstances of the case, even as clarified by the Hon'ble Madras High Court in the case of Verizon Communications Singapore (P.) Ltd.(supra). The use of transponder by the assessee for telecasting/broadcasting the programme involves the transmission by the satellite including uplinking, amplification, conversion for downlinking of signals which falls in the expression "Process" as per Explanation 6 of section 9(l)(vi). Hence the payments made for use/ right to use of process falls in the ambit of expression "royalty" as per DTAA as well as provisions of Income Tax Act.

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royalty under Article 12 of the India US DTAA as well as section 9(l)(vi) of the Income Tax Act. This decision has been confirmed by ITAT in other similar decisions like ITA No. 2910 & 2911/Mum/2012 and ITA No.5143/Mum/2013. 16. The appellant has stressed the need for the process-to be a secret process in order to fall within the ambit of royalty. However, such a requirement has neither been read into the section by the Hon'ble High Court in Asia Satellite nor by the JTAT in the above judgment. In fact, the language of the Act is clear enough not to warrant use of the prefix 'secret' with the word process. With the amendment, the issue has become further clear. 17. This issue has been discussed at length in the assessee's own case by my predecessor in AY 2013-14, wherein the issue has been decided against the appellant. 18. 1 have considered the appellant's AR submission. Having considered the same, I find that the issue involved in this appeal is covered against the appellant by the order of jurisdictional Income-tax Appellate Tribunal, Mumbai Bench Order No.ITA 1584/MUM/2010 IN A.Y.2009-10 in appellant's own case, wherein the Hon'ble ITAT has held as under: "Thus it is clear that in the case of Siemens Aktiengesellschaft (Supra) it was found the payment was not royalty as defined in the clauses of agreement and, therefore, it could not be taxed as royalty as per the provisions of the Act. The Hon'ble High Court though was of the view that if any term is not at all defined in the treaty then considering the express language of Article 1(2) of the Indo-German DTAA, the term defined in the act even by subsequent to the date of agreement would be applicable as set out in the Article 1(2) of the treaty. Therefore, the said decision will not help the case of the assessee before us because the Explanation 6 defines the term process and not royalty and further there is no change in the definition of royalty by virtue of Explanation 6. The other decisions relied upon by the assessee are based on the decision of Hon'ble Delhi High Court in the case of Asia Satellite Communication Co.Ltd. (Supra) which was prior to the amendment and without considering the Explanation 6 as well as Explanation below sub-section (2) of Section 9. Further the benefit of the decision of Hon'ble Madras High Court in the case of Verizon Communications Singapore Pte. Ltd. (supra) was not available at the lime of chose decisions, therefore, the same are not applicable in the facts of ' the assessee's case. In fact, the said decision, based on the situs of the process itself supports the Revenue's case of the same being a process as contemplated under Explanation 2 to s,9(l)(vi). In view of the above discussion we do not find any reason to interfere with the orders of authorities below." 19. In light of the above discussion, it is held that the payment made by the appellant to Intelsat constitutes royalty both under the Income Tax Act as well as under of the India USA DTAA and hence, liable to tax in India. Since there is no dispute over the resident status of the non-resident, taxes under section 195 would be deductible at rates specified in the India UK DTAA. Thus, this ground of appeal is dismissed.”

Aggrieved by the order of Ld.CIT(A), the assessee is in appeal befor e

us.

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the issue involved in this appeal is squarely covered in favour of the

assessee by the decision of ITAT, Mumbai Bench “L” in assessee’s own

case for AYs 2013-14 to 2015-16 in IYA Nos. 599 to 614/Mum/2016,

where under similar set of facts, the ITAT held that when payment

received by the Intelsat Corporation, USA has been held to be not

chargeable to income-tax in the hands of the recipient, then it emerges

that no liability is fastened on the assessee-payer to deduct tax at

source on payment made to Intelsat Corporation, USA. The Ld.AR

further submitted that subsequent to the judgment in assessee’s own

case for AY 2009-10, a series of judgements have come in favour of the

assesses wherein it was categorically held that unless DTAA is

amended jointly by both parties to incorporate income, data transmission

services has partaking nature of royalty and cannot define in a manner

so that such income automatically become royalty. Finance Act, 2012

which inserted Explanations 4, 5 & 6 to section 9(1)(vi) itself would not

affect meaning of term “royalty” as mentioned in Article 12 of DTAA.

The Ld.AR further submitted that the Hon’ble Delhi High Court in the

case of Intelsat Corporation in I.T.A. No.530 of 2012 held that amount

received by Intelsat Corporation from Indian subscribers towards

transponder services is not taxable in India. Therefore, the provisions of

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withholding tax u/s 195 has no application.

Ld.CIT(A).

record and gone through the orders of authorities below. The solitary

issue that came up for our consideration is whether payments made by

the assessee to Intelsat Corporation, USA for rendering transponder

services is liable for withholding tax u/s 195 of the Income-tax Act, 1961.

The issue is no longer res integra. The ITAT, Mumbai Bench “L” in

assessee’s own case for AY 2013-14 to 2015-16 in ITAs No.599 to

614/Mum/2016 has considered the issue in the light of provisions of

section 9(1)(vi) and Article 12 of the India USA Tax Treaty and also by

following the decision of Hon’ble Delhi High Court in the case of DIT

(International Taxation) vs Intelsat Corporation held that 2011 (8) TMI

1248 held that no liability on the part of the assessee to deduct tax at

source on payment made to Intelsat Corporation, USA as the amount

received by the Intelsat Corporation, USA is held to be not chargeable to

income-tax in India. The relevant observations of the co-ordinate bench

is extracted below:-

“8. We have heard both the counsel and perused the records. We note that the Hon'ble Apex Court in the case of G. E. Technology Centre Pvt. Ltd. (supra), has held that where an amount is payable to a non-resident, the payer's

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obligations to deduct tax at source arises only when such remittances is a sum chargeable under the Act, i.e., chargeable u/s. ITA Nos. 5 99 t o 6 1 4/ Mu m / 2 0 16 Viacom 18 Media Pvt. Ltd 4, 5, 9 of the Act in the hands of the recipient. It has further been expounded that section 195(2) of the Act is not merely a provision to provide 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 ITA No. 977/2011 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 ITA Nos. 5 99 t o 6 1 4/ Mu m / 2 0 16 Viacom 18 Media Pvt. Ltd 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 nature of 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 case of 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

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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 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 ITA Nos. 5 99 t o 6 1 4/ Mu m / 2 0 16 Viacom 18 Media Pvt. Ltd 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

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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 position that issues raised in this appeal are directly covered by the judgment of this 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. 9. Similar order was passed by the Hon'ble Delhi High Court in the case of DIT(International Taxation) vs. Intelsat Corporation (in ITA No.530 & 545/2012 dated 28.09.2012), wherein the Hon'ble High Court has held as under: The Revenue claims to be aggrieved by the orders dated 2.2.2012 and 16.01.2012, whereby its appeals before the Tribunal were dismissed. The ITA Nos. 5 99 t o 6 1 4/ Mu m / 2 0 16 Viacom 18 Media Pvt. Ltd substantial question of law sought to be urged is whether the Tribunal fell into error in holding that the assessee did not incur any tax liability under provisions of the Income Tax Act? An elaborate discussion on the merits is not warranted since the impugned order and notices are based upon a previous order of the Tribunal dated 4th March, 2011 (ITA 5443/Del/2010), for AY 2007-08 that was subsequently followed by the Tribunal in its own decision for AY 2006-07 (ITA No.4662/Del/2011). This Court by its judgment and order dated 19th August, 2011 in ITA No.977/2011, affirmed the findings of the Tribunal by a reasoned order. In view of these developments, no substantial question of law can be said to arise; there is no infirmity in the finding of the Tribunal with regard to the taxability of the assessee for the assessment years in question i.e. 2006-07 and 2008-2009. The appeals are accordingly dismissed. 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

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payment made to the same payee. Hence, the assessee succeeds on the additional ground.” 8. We further notice that the Hon’ble Delhi High Court, in the case of

DIT (International Taxation) vs Intelsat Corporation (supra), has

considered the issue of payment received by M/s Intelsat Corporation,

USA for rendering transponder service within the meaning of section

9(1)(vi) of the Act and Article 12 of the India-USA Tax Treaty and held

that amount received from Indian subscribers for rendering transponder

services does not constitute royalty within the meaning of section 9(1)(vi)

and Article 12 of the India US Tax Treaty. The Hon’ble Delhi High Court,

while answering the question in favour of the assessee has considered

OECD Convention, Commentary thereon and the decision of Hon’ble

Supreme Court in the case of UOI & Another vs Azadi Bachao Andolan

& Another (2003) 263 ITR 706 (SC).

discussed above, we are of the considered view that the assessee is not

liable to deduct / withhold tax u/s 195 in respect of payment made to M/s

Intelsat Corporation, USA for rendering transponder services.

Therefore, we set aside the order passed by the Ld.CIT(A) and allowed

appeal filed by the assessee.

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Sd/- sd/- (Mahavir Singh) (G Manjunatha) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dt : 12th October, 2018 Pk/- Copy to : 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR /True copy/ By order Sr.PS, ITAT, Mumbai