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Income Tax Appellate Tribunal, MUMBAI BENCH “L”, MUMBAI
Before: SHRI G.S.PANNU & SHRI RAVISH SOOD
ORDER PER G.S.PANNU,A.M:
The captioned are 36 appeals pertaining to two different assessees but involving a common issue, therefore, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.
The first set of 30 appeals vide to 1308/Mum/2016, ITA Nos. 7303 to 7606/MUM/2016, ITA Nos. 264&266/MUM/2017, ITA Nos. 269& 270/MUM/2017 & ITA Nos. 272&273/MUM/2017 pertains to four different assessment years namely, assessment years 2013-14 to 2016-17 and the grievance is against the similarly worded multiple orders of the CIT(A), which in turn arise from the separate orders passed by the Assessing Officer under section 195(2) of the Income tax Act, 1961 (‘ the Act’) of different dates. In all the appeals, the sum and substance of the dispute relates to the nature of the payment made by the assessee to M/s.Intelsat Global Sales and Marketing Ltd., UK and/or to M/s. Intelsat Corporation, USA (Intelsat) for transponder services. In order to appreciate the controversy in its proper perspective, we may refer to the facts in ITA No.1289/Mum/2016, which is an appeal directed against the order of United Home Entertainment Private Limited,& Disney Broadcasting (India) Limited.
CIT(A) -58, Mumbai dated 29/12/2015, which in turn arises out of an order passed by the Assessing Officer under section 195(2)of the Act dated 26/03/2012.
The assessee, United Home Entertainment Private Limited, is a company incorporated under the provisions of the Companies Act, 1956 and is inter-alia, engaged in the business of entertainment, inasmuch as, it owns and manages the TV channel “Hungama”. This channel is canvassed to be the first Indian Entertainment channel for kids in Hindi with multi-genre localized & acquired content. The assessee company entered into a Transponder Service Agreement with Intelsat Global Sales & Marketing Ltd.,UK to avail the transponder service. When the assessee was required to make remittance of transponder fee to Intelsat, it approached the Assessing Officer for ‘Withholding Tax Certificate’ under section 195 of the Act and, inter-alia, contended that the amount paid to Intelsat was not taxable in India. The Assessing Officer vide his order dated 26/03/2012, however, took the view that the payment to Intelsat in terms of the service agreement dated 29/10/2010 was in the nature of ‘royalty’ as per the provisions of the Act as well as under the India-UK Double Taxation Avoidance Agreement (DTAA). Accordingly, the Assessing Officer held that the payment to Intelsat attracted tax @10% plus applicable surcharge as it was in the nature of royalty. The CIT(A) has since affirmed the action of the Assessing Officer, against which the assessee is in further appeal before us.
United Home Entertainment Private Limited,& Disney Broadcasting (India) Limited.
Before us, the Ld. Representative for the assessee pointed out that similar issue had come up on an earlier occasion before the Tribunal when assessee was to remit payments in the earlier period in pursuance to the same agreement with Intelsat, and the Tribunal vide order in others for assessment year2011-12 dated 25/10/2016 upheld the assessee’s point of view that the fee for transponder service paid by the assessee to Intelsat was not in the nature of royalty and that the same was not taxable in India, and thus the remittance did not warrant any deduction of tax at source. At the time of hearing, the Ld. Representative for the assessee has taken us through the decision of the Tribunal dated 25/10/2016(supra) and pointed out that the entire matrix has been fully dealt with, and, therefore, canvassed that the issue in the captioned proceedings is fully covered by the said precedent.
The Ld. Departmental Representative, on the other hand, did not controvert the factual matrix brought out by the Ld. Representative for the assessee, but pointed out that the CIT(A) has decided the issue by referring to a contrary view of the Tribunal in the case of Viacom 18 Media Pvt. Ltd. vs. ADT, 153 ITD 384(Mum) and he relied on the same.
In reply the Ld. Representative for the assessee pointed out that the subsequent payment made by the assessee to Intelsat corresponding to assessment years 2012-13 and 2013-14 also came up before the Tribunal and the Tribunal vide its order in to 5181/Mum/2013 dated 28/11/2016 reiterated its earlier order dated
United Home Entertainment Private Limited,& Disney Broadcasting (India) Limited.
25/10/2016(supra); and, in coming to such a decision, the Tribunal has considered the contrary view in the case of Viacom 18 Media Pvt. Ltd. (supra). Our attention was drawn to the following discussion in para 10 of the order dated 28/11/2006(supra) in this regard:- “10. It is noted from the above that the bench relied upon various judgments including the judgment of Taj TV Ltd wherein decision relied upon by the Ld. DR in the case of Viacom.18 has been considered in detail. Apart from that the main point to be noted here is that the bench took note of a vital fact that Hon’ble Delhi High Court in the case of payee, viz. M/s Intelsat Corporation, USA has categorically held that payment received by Intelsat Corporation is not taxable in India under the provisions of Indo US DTAA. Thus, in the case of payee, it has been categorically held that said payment is not taxable, then the assessee is not obliged to deduct TDS, therefore, the impugned proceedings u/s 195 deserves to be quashed. Thus, after taking into account all the facts and circumstances of the case, we find that the issue stands squarely covered by the decision of the Mumbai Bench of the Tribunal in assessee’s own case and, therefore, the issue raised in the appeal before us stands allowed in terms of earlier order of the Tribunal which shall apply mutatis mutandis on the issue raised in this appeal before us. Accordingly we hold that the assessee was not liable to deduct tax at source.”
Having heard the rival stands, we find that the short issue before us relates to the nature of payments made to Intelsat Global Sales & Marketing Ltd.,UK on account of Transponder fee in terms of an agreement dated 29/12/2010. The Tribunal vide its order dated 25/10/2016(supra)has perused and enumerated the terms and conditions of the service agreement dated 29/12/2010, and has considered its nature in the context of the provisions of the Act as well as the India-UK DTAA and has concluded that the payments are not in the nature of royalty. In coming to such decision, reliance has been placed mainly on the judgment of the Hon’ble Delhi High Court in the case of the payee before us i.e. Intelsat Corporation US, vide order dated 19/08/2011 and again reaffirmed by the Hon’ble High Court vide order dated 28/09/2012 in following an earlier
United Home Entertainment Private Limited,& Disney Broadcasting (India) Limited. judgment of the Hon’ble Delhi High Court itself in the case of Asia Satellite Communication Ltd., in dated 31/01/2011. As per the Tribunal, once it has been held in the case of Intelsat Corporation US, the payee itself, that the payments are not taxable in India; therefore, payer of such income i.e. assessee before us, was not obligated to deduct tax at source. For the said reason, the Tribunal quashed the proceedings under section 195 of the Act. In order to impart completeness, we hereby reproduce the relevant portion of the order of the Tribunal dated 25/10/2016(supra) as under:- 7. We have carefully considered the rival submissions, perused the relevant finding given in the impugned orders as well as various decisions as relied upon by the parties before us. At the threshold it is noticed that, in the case of the payee, i.e., Intelsat Corporation US, the Hon’ble Delhi High Court vide order dated 19.08.2011 and then again reaffirmed vide order dated 28.09.2012 in ITA No. 530 & 545/2012, following the order of its own court in Asia Satellite Communications Ltd (ITA 131/2003 decided on 31.01.2011), have categorically held that payment received by Intelsat is not taxable in India under the provisions of Indo-US-DTAA. Once in the case of the payee it has been categorically held that the said amount is not taxable, then assessee is not obliged to deduct TDS and, therefore, the impugned proceedings under section 195 deserves to be quashed. Otherwise also, this issue of payment of transponder charges made to Panamsat (later on name was changed to Intelsat Corporation) has been subject matter of issue before various Courts including that of the ITAT, Mumbai Bench in the case of Taj TV Ltd. In the said case, the Tribunal has observed and held as under:- “18. Now, coming to the issue of disallowance of various expenses under section 40(a)(i) like, ‘transponder charges’ and ‘up linking charges’ as raised in ground No.2(i) and 2(ii), it is seen that these, payments has been paid to PanAmSat International Systems Inc. USA for providing facility of transponder for telecasting ‘Ten Sports’ channel in various countries including India. The assessee entered into an agreement with PanAmSat to utilize the transponder facility providing by the said US based company for telecasting its sports channel which are on the footprint of transponder of PanAmSat. The Revenue’s case before us is that, firstly, it is taxable under section 9(1)(vi) as ‘royalty’ and also under Article 12(3)(b) of Indo-USDTAA. Similarly, the up linking charges paid for up linking the channels to PanAmSat Satellite for delay in transmission and for up linking signals
United Home Entertainment Private Limited,& Disney Broadcasting (India) Limited. for live events from the venue of the events to the satellite have been treated to be ‘royalty’. Since, the assessee had not deducted TDS under section 195, disallowance under section 40(a)(i) has been made. The assessee’s case before us is that, firstly, PanAmSat is a USA based company, therefore, Indo-US DTAA is applicable and since it does not have any PE or business connection in India, therefore, the payment made to a non-resident outside India for availing service of equipment placed outside India cannot be taxed in India. In support of such a contention decision of Hon’ble Bombay High Court in the case of DIT vs. Set Satellite (supra) has been relied upon. In any case, it has been submitted that, even otherwise also the definition of “royalty” under Article 12(3) of Indo-US-DTAA is also not applicable, because transponder charges is only use of facility and it is not an equipment and does not amount to use of any copyright effecting work, secret formula, process etc or any other term described in para 3 of Article 12. The Ld. CIT(A) has held that it is not a ‘royalty’ and secondly, even otherwise also by virtue of Article 12(7) such a royalty cannot be taxed in India, because it is not borne by PE or fixed place of the US company in India. The Ld. DR has strongly relied upon amended definition of the ‘royalty’ under the Act, wherein, the scope and definition of ‘royalty’ has been enlarged by the newly inserted Explanation (vi) and (vi) by the Finance Act, 2012 with retrospective effect from 01.06.1976 and has contended that the said definition is to be read into DTAA also, that is, the definition of ‘royalty’ has to be taken from the Domestic Law. In support, Ld. DR has strongly relied upon the decision of Madras High Court in the case of Verizon Communications Singapore Pte Ltd. (supra) and the ITAT decision in the case of Viacom 18 Media Pvt. Ltd.
First of all, let us examine the definition of “royalty” as been defined under Article 12 of the Indo- US-DTAA, which has been defined in the following manner: “3. The term "royalties" as used in this Article means: a) payments of any kind received as a consideration for the use of or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, 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, or disposition thereof; and b) payments of any kind received as consideration for the use of or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph
United Home Entertainment Private Limited,& Disney Broadcasting (India) Limited.
1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8”.
The article gives exhaustive definition of the term ‘royalty’ and therefore, the definition and scope of ‘royalty’ is to be seen from the Article alone and no definition under the domestic Act or law is required to be considered or seen or any amendment made in such definition whether retrospective or prospective which can be read in a manner so as to extend any operation to the terms as defined or understood in the Treaty. The Legislature or Parliament while carrying out amendment to interpret or define a given provision under the Domestic Law of the country cannot supersede or control the meaning of the word which has been expressly defined in a Treaty negotiated between executives of two sovereign nations. The payment of transponder charges to PanAmSat and up linking charges cannot be treated as a consideration for ‘use’ or ‘right to use’ any copyright of various terms used in para 3(a) like copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting or in any manner relates to any patent or trademark, design, secret formula or process. It is also not use or right to use any industrial, commercial, or scientific equipment. There is no such kind of right to use which is given by Pan Am Sat to assessee. Thus, the said payment does not fall within the ambit of the terms used in para 3 of Article 12. So far as the reading of amended definition of ‘royalty’ as given in section 9(1)(vi) into treaty, Hon’ble Delhi High Court in its latest judgment in the case of DIT vs. New Skies Satellite(supra), wherein it has considered Hon’ble Madras High Court decision in the case of Verizon Communications Singapore Pte Ltd. (supra) also, have discussed the issue threadbare and came to the conclusion in the following manner:-
“60. Consequently, since we have held that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word “royalty” in Asia Satellite, supra note 1, when the definitions were in fact pari material (in the absence of any contouring explanations), will continue to hold the filed for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amended jointly by both partners to incorporate income from data transmission services as partaking of the nature of royalty, or amend the definition in a manner so that such income automatically becomes royalty. It is reiterated that the Court has not returned a finding on whether the United Home Entertainment Private Limited,& Disney Broadcasting (India) Limited. amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no Double Tax Avoidance Agreement”.
The aforesaid decision takes care of all the arguments relied upon by the ld. DR including that of the Verizon Communications Singapore Pte Ltd’s. The Hon’ble High Court has specifically clarified as to why the said decision of Madras High Court cannot be applied in such cases after observing as under:-
“31. In a judgment by the Madras High Court in Verizon Communications Singapore Pte Ltd. V. The Income Tax Officer, International Taxation I, [2014] 361 ITR 575 (Mad), the Court held the Explanations to be applicable to not only the domestic definition but also carried them to influence the meaning of royalty under Article 12. Notably, in both cases, the clarificatory nature of the amendment was not questioned, but was instead applied squarely to assessment years predating the amendment. The crucial difference between the judgments however lies in the application of the amendments to the DTAA. While TV Today, supra note 22 recognizes that the question will have to be decided and the submission argued, Verizon, supra note 23 cites no reason for the extension of the amendments to the DTAA.
Thus, respectfully following the ratio laid down by the Hon’ble Delhi High Court, we hold that, the definition of royalty as enlarged by Finance Act, 2012 with retrospective effect will not have any affect in Article 12 of DTAA”.
In the aforesaid decision, the Tribunal has taken note of the ratio and law upheld by the Hon’ble Delhi High Court in the latest case of New Skies Satellite (supra) and Asia Satellite Telecommunications and has held that the payment made for transponder charges will not fall in the nature of ‘royalty’ and also the scope of enlarged definition of ‘royalty’ given in section 9(1)(vi) will not apply in DTAA.
8. Before us Ld DR has heavily relied upon the decision of Bombay High Court in the Siemens AG to contend that nowhere the Court has laid down that amendment in the Domestic Law cannot be read into Treaty rather it is otherwise. We find that in the latest decision the Hon’ble Delhi High Court in the case of DIT vs. News Sky Satellite BV (Supra) have explained the ratio and principle of Hon’ble Bombay High Court in the case of Siemens Aktiongesellschaft (supra). The relevant observation of the Hon’ble Delhi High Court in the said case reads as under:- “48. In Commissioner of Income Tax v. Seimens
United Home Entertainment Private Limited,& Disney Broadcasting (India) Limited.
Aktiongessellschaft, [2009] 310 ITR 320 (Bom), the Bombay High Court citing R v. Melford Developments Inc. held that “The ratio of the judgment, in our opinion, would mean that by a unilateral amendment it is not possible for one nation which is party to an agreement to tax income which otherwise was not subject to tax. Such income would not be subject to tax under the expression “laws in force”. ********** ********* ********* While considering the Double Tax Avoidance Agreement the expression “laws in force” would not only include a tax already covered by the treaty but would also include any other tax as taxes of a substantially similar character subsequent to the date of the agreement as set out in article I(2). Considering the express language of article I(2) it is not possible to accept the broad proposition urged on behalf of the assessee that the law would be the law as applicable or as define when the Double Tax Avoidance Agreement was entered into.”
It is essential to note the context in which this judgment was delivered. There, the Court was confronted with a situation where the word royalty was not defined in the German DTAA. Following from our previous discussion on the bifurcation of terms within the treaty, in situations where words remain undefined, assistance is to be drawn from the definition and import of the words as they exist in the domestic “laws in force”. It was in this context that the Bombay High Court held that they were unable to accept the assessee’s contention that the law applicable would be the law as it existed at the time the Double Tax Avoidance Agreement was entered into. This is the context in which the ambulatory approach to tax treaty interpretation was not rejected. The situation before this Court however is materially different as there is in fact a definition of the word royalty under Article 12 of both DTAA, thus dispensing with the need for recourse to Article 3.
There are therefore two sets of circumstances. First, where there exists no definition of a word in issue within the DTAA itself, regard is to be had to the laws in force in the jurisdiction of the State called upon to interpret the word. The Bombay High Court seems to accept the ambulatory approach in such a situation, thus allowing for successive amendments into the realm of “laws in force”. We express no opinion in this regard since it is not in issue before this Court. This Court’s finding is in the context of the second situation, where there does exist a definition of a term within the DTAA. When that is the case, there is no need to refer to the laws in force in the Contracting States, especially to deduce the meaning of the definition under the DTAA and the ultimate taxability of the income under the agreement. That is not to say that the Court may be inconsistent in its interpretation of similar definitions. What that does imply however, is that just because there is a domestic
United Home Entertainment Private Limited,& Disney Broadcasting (India) Limited. definition similar to the one under the DTAA, amendments to the domestic law, in an attempt to contour, restrict or expand the definition under its statute, cannot extend to the definition under the DTAA. In other words, the domestic law remains static for the purposes of the DTAA.”
Thus the contention of the Ld. DR cannot be accepted in view of clarification given by the Hon’ble Delhi High Court that where the definition has been given in the Treaty then there is no requirement to look into domestic law or any amendment made therein. In view of the aforesaid decisions, we hold that the payment made by the assessee to Intelsat is not taxable as royalty in India and, therefore, assessee was not required to deduct TDS or withhold any tax on such payments. This proposition has been upheld by Hon’ble Supreme Court in the case of GE Technology Centre, 327 ITR 456 Following the aforesaid precedent and considering that the same has been rendered after relying on the judgment of the Hon’ble Delhi High Court in the case of one of the payee, i.e. Intelsat Corporation US, we find no reason to distract from the same in the instant year, since the facts and circumstances remain identical. In so far as reliance placed by the Ld. Departmental Representative on the decision of the Tribunal in the case of Viacom 18 Media Pvt. Ltd. (supra), the same has been appropriately dealt with by our Co-ordinate Bench in the assessee’s own case in its order dated 28/11/2016(supra) and, therefore, the said argument of the Ld. Departmental Representative is not potent so as to depart from the precedent in assessee’s own case. Thus, we hereby set-aside the order of the CIT(A) and hold that the assessee is not obligated to deduct tax at source on payments made for transponder services. Thus, on this aspect assessee succeeds. 7.1 The only other aspect raised by the assessee is by way of Additional Ground, which relates to the allowability of interest under section 244A of the Act on refund arising due to extra deposit of TDS
United Home Entertainment Private Limited,& Disney Broadcasting (India) Limited. under section 195 of the Act. It was a common point between the parties that the said issue was also before the Tribunal in the past, and vide order dated 25/10/2016(supra), the same has been sent back to the file of Assessing Officer to decide in the light of the CBDT Circular No.11 of 2016 dated 26/04/2016. Following the aforesaid precedent, in this year too, we direct the Assessing Officer to follow the earlier order of the Tribunal dated 25/10/2016(supra) on this aspect and decide the matter afresh and as per law. Thus, on this aspect assessee succeeds for statistical purposes. 7.2 Resultantly, the appeal of the assessee in for assessment year 2013-14 is allowed, as above.
In so far as the other 29 appeals in to 1302 & 1303 to 1308/MUM/2016(assessment years 2014-15 & 2015-16); ITA Nos. 7303 to 7606/MUM/2016 (assessment year 2015-16); and ITA Nos. 264,266,269,270,272&273/MUM/2017(assessment year 2016-17) are concerned, It was a common point between the parties that facts and circumstances are pari-materia to those considered by us in ITA No. 1289/Mum/2016 for assessment year 2013-14; thus, our decision therein shall apply mutatis mutandis in these appeals also.
The balance six appeals in 265,267,268&271 MUM/2017 for assessment year 2016-17 relate to payments made for transponder services to Intelsat by another assessee, namely, Disney Broadcasting (India) Limited
United Home Entertainment Private Limited,& Disney Broadcasting (India) Limited.
In this set of six appeals also, it was a common point between the parties that facts and circumstances are pari-materia to those considered by us in for assessment year 2013-14, in the earlier paragraphs; thus, our decision therein shall apply mutatis mutandis in these appeals also.
In the result, the appeals are allowed, as above. Order pronounced in the open court on 09/02/2018.