VIACOM 18 MEDIA PRIVATE LIMITED,MUMBAI vs. DCIT (IT)-4(3)(1), MUMBAI

आयकर अपील�य अ�धकरण, मुंबई �यायपीठ ‘L’, मुंबई । IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES “L”, MUMBAI Before Shri Shamim Yahya, AM & Shri Ravish Sood, JM ITA No.3776/Mum/2015 : Asst.Year 2013-2014 M/s.Viacom 18 Media Private Limited Dy.Commissioner of Income-tax बनाम/ Zion Bizworld, Subhash Road-A (International Taxation)-4(3)(1) Near Garware Office, Vile Parle (E) Mumbai. Vs. Mumbai – 400 057. PAN : AAACM9164E. (अपीलाथ� /Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से /Appellant by : Ms.Armaity Ichhaporia ��यथ� क� ओर से /Respondent by : Shri M.V.Rajguru (Sr.DR) सुनवाई क� तार�ख / घोषणा क� तार�ख / Date of Hearing : 15.06.2017 Date of Pronouncement : 07.08.2017 आदेश / O R D E R Per Shamim Yahya, AM This appeal by the assessee is directed against order of learned CIT(A) dated 27.02.2015 and pertains to assessment year 2013-2014.

“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)1] has erred in dismissing the Appellant's appeal and confirming the order of the Asst. Director of Income- tax (International Taxation) - 2(2), Mumbai, holding that the payments of transponder fees by the Appellant to Intelsat Corporation, USA, ('Intelsat'), are taxable as 'royalty' 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 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited 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.

The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.”

“Intelsat is a company incorporated under the laws of United States of America ('USA’), A copy of the tax residency certificate issued to Intelsat by Department of Treasury, Internal Revenue Services, USA has been filed by the Applicant vide letter dated 12 September 2012. Intelsat has entered into an agreement with the applicant to provide with a 24 hour, satellite signal reception and transponder service. Copy of the agreement with Intelsat is provided by the applicant along with the application on 26 July 2012. As per the said agreement, in consideration for the transponder service, the applicant would pay transponder service fee to Intelsat The agreement entered by Intelsat with the applicant is a net of tax agreement wherein the obligation of withholding of taxes is on the applicant. Applicant has submitted that payment of transponder service fees to Intelsat cannot be characterized as 'Royalty' in terms of the provisions of Article 12 of the India — USA Tax Treaty as the payment is not for granting of any right to Viacom 18 to use any copyright, patent, trade mark, design or model, plan or secret formula, or process or for use of equipment Further it is submitted by the applicant that the transponder service fees

3 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited paid is paid for availing transponder facility/ transmission service and not for the 'use of the process’ which is used in providing the transmission service/ facility. Thus, it is submitted that transponder service fees does not qualify as 'Royalty' as per Section 9(1) (vi) of the IT Act. Further, it is also submitted that payment of transponder service fees is also not in the nature of Fees for Included Services ('FIS*) as per the provisions of Article 12 of the India — USA Tax Treaty. It is submitted that Intelsat would be providing transponder service to Viacom 18 and not any technical service. Further, the said transponder service does not make available any technology, experience, skill etc. Accordingly, the same would not qualify as FIS under the India - USA Tax Treaty. The applicant submitted that given that Intelsat does not have any PE in India, the payment of transponder service fees would not be taxable in India in absence of PE. The applicant: has also filed a copy of the letter obtained from Intelsat confirming that Intelsat does not have a PE in India. The applicant places reliance on various decisions including the decision of the Delhi High court in the case of Asia Satellite Telecommunications Co. Ltd [2011] 197 Taxman 263 and the decision of the Mumbai ITAT in the case of B4U international Holdings Limited 21 taxman.com 529. The submissions 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 is 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

4 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited 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. The definition of Royalties as per Article 12 of the India — USA Tax Treaty includes the payment made for use of any 'process'. The term 'process' is not defined in the India-USA Tax Treaty. Therefore the definition of the term process has to be imported from the Act. . Thus, the payment made for transmission by satellite is a royalty even under the tax treaty. The reference to decision of the Hobble 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 Ld. CIT (A). In view of the above, it is held that the payment made by the applicant to Intelsat is in the nature of 'royalty' under the IT Act as well as the tax treaty. Accordingly, your request for the grant of a NIL deduction certificate is not correct. You are directed to withhold taxes on the entire payment proposed to be made to Intelsat Corporation at rates as applicable to payment of royalty income to non-resident under provisions of IT Act i.e. @ 10% plus applicable surcharge @ 2% and education cess @ 3% i.e. effective tax withholding rate of 10.506%.” 4. Against the above order, assessee appealed before the learned CIT(A). The learned CIT(A) reproduced the assessee’s submission. But the learned CIT(A) upheld action of the Assessing Officer holding as under:-

“I have considered the A.O’s order as well as the appellant’s AR submission. Having considered both, I find that the issue involved in this appellant 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

5 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited 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 that 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 time of those 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(1)(vi). In view of the above discussion we do not find any reason to interfere with the orders of authorities below.’ Thus, placing reliance to the order of jurisdictional ITAT, the appellant’s appeal is dismissed.”

6 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited subsequently decisions have come from Hon’ble Delhi High Court and Hon’ble Calcutta High Court on the same issue in which the issue has been decided in favour of the assessee. Learned Counsel of the assessee submitted that these decisions have been followed by the Mumbai ITAT in other cases on similar issues in favour of the assessee. The reference to the case laws is as under:-

(i) DIT v. New Skies Satellite BV [(2016) 68 taxmann.com 8 (Delhi High Court) (ii) DIT (International Taxation) v. ATN International Ltd. [(2016) 72 taxmann.com 353 (Calcutta High Court)] (iii) ADDIT (International Taxation) v. Taj TV Ltd. [(2016) 72 taxmann.com 143 (Mumbai Tribunal)] (iv) Taj TV Ltd. v. ADDIT (International Taxation) [(2017) 77 taxmann.com 355 (Mumbai Tribunal)] (v) United Home Entertainment Pvt. Ltd. v. ADIT (International Taxation) [(2016) ITA No.2841 to 2853/Mum/2012 (Mumbai Tribunal)] (vi) United Home Entertainment Pvt.Ltd. v. ADIT (International Taxation) [(2016) ITA No.5171 to 5181/Mum/2013 (Mumbai Tribunal)]

6.1 Per contra, the learned Departmental Representative submitted that ITAT Mumbai has decided the issue in favour of the Revenue in assessee’s own case and the matter is in appeal by the assessee before the jurisdictional High Court. Hence he submitted that the ratio from the decision in assessee’s own case should be followed and hence the issue should be decided against the assessee.

6.2 In this regard, the learned DR has made the following written submissions:-

7 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited “The above captioned appeal has been fixed for hearing on today i.e. 15.6.2017 and the same was finally heard on the same day. The undersigned sought permission to make written submissions in the matter, which was granted by the Hon'ble Members. The same may kindly be taken on record. 2. The only issue involved in this appeal relates to whether the payments of transponder fees by the assessee to Intelsat Corporation, U.S.A. are taxable as 'royalty' under the IT. Act, 1961 and under the Inda-U.S.A. Tax treaty and consequently, subject to withholding of tax under section 195 of the IT, Act. 3. During the course of hearing, it was brought to the kind notice of the Bench that the issue under consideration has been covered in favour of Revenue by the decision of this Bench in assessee's own case for A.Y. 2009-10 to A.Y. 2011-12 in ITA Nos 1584 & 1585/Mum/2010 and 1091 & 1092/Mum/2011. The same is also reported as [2014] 44 taxmann.com 1 (Mumbai Trib)/[2014] 66 SOT 18 (Mum. Trib)/[2014] 162 TTJ 336. A copy of the said order was also submitted by the undersigned for kind perusal. It was accordingly prayed that the same be treated as covered matter. 4. However, the Ld. AR of the assessee contended that subsequently the issue has then been decided by the various appellate authorities in favour of the assessee in other cases and has relied on the decisions in the case of DIT vs New Skies Satellite BV, [2016] 68 taxmann.com 8 (Delhi HC), DIT(IT) Kolkotta vs ATN International Ltd, [2016] 72 taxmann.com 353 (Calcutta), ADD1T (IT) vs Taj TV Ltd [2016] 72 taxmann.com 143 (Mum. Trib) and claimed that the isue may be decided in favour of the assessee. The assessee also relied on the decision of the Hon'ble Bombay High Court in the case CIT vs Smt Godavari Saraf reported in [1978] 113 !TR 539 (Bom) wherein it was held that when section 140A(3) has already been declared ultra vires by competent High Court in country, authority like Tribunal acting anywhere in country has to respect law laid down by High Court, though of different State, so long

8 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited as there is no contrary decision of any other High Court on that point. 5. In this regard, it is humbly submitted that the above decision of the Jurisdictional High Court is on completely different facts and hence distinguishable. The facts in that case are that for A.Y. 1968-69, the A.O. had levied penalty under section 140A(3) of the Act for non-payment of self assessment tax. On appeal, the Tribunal relying on the decision of the Hon'ble Madras High Court in the case of A.M. Sail Maricar [1973] 90 ITR 116 wherein it was held that section 140A(3) was violative of provisions of Article 19(l)(f) of the Constitution and the said section was struck down by the by that High Court as being unconstitutional. The Tribunal held that it had no jurisdiction to go into the question of vires of particular provisions under the Act and proceeded on the footing that section 140A(3) was non- existent in view of the said decision of the Madras High Court and cancelled the order of the penalty. Thus, it can be seen that the said decision is not relevant to the facts of the present case a the same has been rendered in connection with non-existent section. 6. During the course of hearing, it was also pointed out to the Ho'ble Members that on a similar situation, in the case of M/ Gartner Ireland Ltd. Vs/ DDIT(IT), Murnbai, the ITAT, Mumbai 'L' Bench while deciding the similar issue has held in page 7 (para- 9) of the order dated 21.9.2016 as under: " The reliance placed by the learned representative on the subsequent decision of the Hon'ble Delh High Court in the case of the Infrasoft Ltd. (supra), in our view, does not justify departure from the decision of Tribunal dated 24.7.2013 (supra) because the decision of Hon'bie Karnataka High Court in the case of Wipro Ltd. (supra) is specific to the transaction before us, aibiet in the hands of the payer of such income. Therefore, as per principal of judicial consistency and considering that the decision of Tribunal dated 24.7.2013 (supra) has not been altered by any higher authority, e deem it fit and proper to decide the issue in favour of Revenue and against the assesses.

9 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited Thus, following the precedent, stand of the Revenue is upheld and assessee fails. The plea of the learned representative before us, based on the judgment of Hon'bie Supreme Court in the case of Vegetable Products Ltd., 88 ITR 192 (SC), that where two views are possible, one that is favourable to the assessee should be preferred, is also not acceptable. This is for the reason that the view of the Hon'ble Karnataka High Court is specific to the transaction which involves the assessee herein, whereas the contrary view of the Hon'ble Delhi High Court is not specific to the assessee before us. In this view of the matter and in the absence of the any decision of the jurisdictional High Court, we find no reason to depart from the earlier decision of the Tribunal in assessee's own case for A.Y. 2007-08 with a view of maintaining consistency." 7. In view of the above, it is humbly prayed that the issue under consideration in the case of the present assessee may treated as covered in favour of Revenue by the decision of the Hon'ble Mumbai Tribunal in assessee's own case for A.Y, 2009-10 to A.Y. 2011-12 vide order dated 28.3.2014 (supra).”

6.3 Per contra, the learned Counsel of the assessee has given following written submission against the above:-

As per learned DR As per the Appellant In paragraph 3, the learned The learned DR has not controverted DR relies on the Hon'ble subsequent favourable decisions of the Tribunal's earlier decision in higher authorities in following cases the Appellant's case for AY pronounced after Appellant's decision in 2009-10 to AY 2011-12 (at earlier years: pages 1 to 11 of LPB) • DIT v. New Skies Satellite BV & Ors. [2016] 68 taxmann.com 8 (Del HC); (Pages 19-42 of LPB) • DIT v. ATN International Ltd. [2016] 72 taxmann.com 353 (Cal. HC) (Pages 43-46 of LPB) In the above cases, it is held that transponder

10 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited charges paid by broadcasters to the satellite companies are not taxable in India as 'royalty', as defined under the tax treaties. The Hon'ble Delhi High Court further held that a retrospective amendment introduced by the Finance Act, 2012 to the definition of 'royalty' will not affect Article 12 of these tax treaties and any amendment to the Income- tax Act, 1961 ('the Act'), whether retrospective or prospective, cannot be read in a manner so as to extend its operation to the terms of an international treaty. The learned DR has also not controverted the following subsequent favourable decisions of the jurisdictional Mumbai Tribunal, countering the Appellant's negative decision and holding that payment for transponder charges are not taxable in India, following the above decision of the Delhi HC in case of New Skies Satellite BV (supra): • M/s. Taj TV Ltd. [2016] 72 taxmann.com 143 (Mum.); (Pages 47-65 of LPB); • M/s. Taj TV Ltd. [2017] 77 taxmann.com 355 (Mum.); (Pages 66-82 of LPB) • United Home Entertainment Pvt. Ltd. (ITA No.2841 to 2856/Mum/2012) (Mum.); (Pages 83-104 of LPB) • United Home Entertainment Pvt. Ltd. (ITA No.5171 to 5l81/Mum/2013) (Mum.) (Pages 105-123 of LPB) Judicial discipline demands that the better wisdom of the Court below has to yield to the higher wisdom of the Court above. [Asst. Collector of Excise v. Dunlop 1985 AIR 330 (SC)]

In paragraphs 4 and 5, the The principle of judicial discipline of binding learned DR states that nature of higher courts on lower courts is on

11 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited decision of the Hon'ble the issue involved, as opposed to sections of Bombay High Court in the the law involved in the facts of a case. In the case of CIT v Smt. Appellant's case, the issue of applicability to Godavaridevi Saraf [(1978) deduct TDS on transponder payments to a 113 ITR 589] is foreign company has been decided in distinguishable on facts as Appellant's favour by the Hon'ble Delhi Court to sections of the Act (in case of New Skies Satellite) and Hon'ble involved Calcutta High Court (in case of ATN International). Therefore, the Appellant humbly submits that these favourable decisions by a court higher than the Tribunal, vitiates the adverse judgment of Hon'ble Mumbai Tribunal in Appellant's case for earlier years relied upon by the learned DR. As was brought out in point of 1 the Written Submissions filed by the Appellant, reliance on this judgment of the Hon'ble Bombay High Court was made by the Appellant in support of its proposition that judicial discipline requires that a Tribunal follows a High Court decision on similar issue, more so in absence of a contrary judgment of any other High Court. Reliance was also placed by the Appellant on decision in Siemens India Ltd v. K. Subrahmanian, ITO [1983] 143 ITR 120 (Bom) wherein it was similarly noted that so far as the legal position is concerned, the ITO is bound by a decision of the Supreme Court and jurisdictional High Court. The ITO would be equally bound by a decision of another High Court on the point, because not to follow that would be to cause grave prejudice to the assessee. It is undisputed that there is no contrary decision of any High Court on the issue of

12 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited taxability of transponder payments under the treaty. Thus, in the absence of any contrary judgments of any other High Court on the issue of taxability of transponder payments under the treaty, judicial discipline requires the Hon'ble Tribunal to follow the above decisions of the Hon'ble High Courts. Without prejudice, the Hon'ble Mumbai Tribunal has already taken a position of following the Hon'ble Delhi High Court's decision in New Skies Satellite BV (benefit of which was not available to it earlier while deciding the earlier appeals of the Appellant) while deciding later cases of Taj TV and United Home Entertainment (supra) involving same kind of transaction i.e. transponder fees paid to Intelsat. Thus, the Hon'ble Mumbai Tribunal, having so followed the decision of the Delhi High Court, it is humbly submitted that the decision of the Hon'ble Delhi High Court and the later decisions of the Hon'ble Mumbai Tribunal be followed in the present appeal as well, given that the nature of transaction is same viz. transponder payments to Intelsat. In paragraph 6. the learned The learned DR has merely reproduced DR has reiterated his extract of the judgment (which is not in the reliance on the decision of context of transponder payments, but the Hon'ble Mumbai taxability of subscription fee) without rebutting Tribunal in the case of any of the arguments of the Appellant (in Gartner Ireland Limited vs. point 5 of its written propositions furnished in DDIT (IT) (ITA No. 2619 to course of the hearing) as to why reliance by 2611/Mum/2014 & the learned DR on the same is misplaced. 4534/Mum/2014). Appellant's contentions on non-applicability of the decision in the case of Gartner are briefly reiterated below:

13 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited • In the case of Gartner, the Hon'ble Mumbai Tribunal had decided an earlier appeal against the assessee, following a negative decision of a higher court (Karnataka High Court) on the same transaction. However, in case of the Appellant, there is no negative decision of any High Court which is specific to the transaction (i.e. transponder payments to Intelsat). In fact, all High Court judgments on same issue of taxability of transponder payments are in Appellant's favour. In the case of Gartner there were conflicting decisions of the higher courts - Karnataka High court (on the same transaction) being negative and subsequent Delhi High Court being favourable. However, in case of the Appellant, there is no . conflicting High Court decision in connection with payments made to non-residents for availing transponder facility, which fact is not at all disputed even by the learned DR. In the case of Gartner, there was a negative decision of a High Court on the same transaction, albeit in case of the payer. In the present appeal of the Appellant, the facts are contrary - Hon'ble Delhi High Court has in the recipient's case itself, i.e. Intelsat's own case, held in assessee's favour - that transponder payments are not taxable, vide orders dated 19 August 2011 and 28 September 2012 (submitted at pages 139 to 141 and pages 142 to 143 respectively). In this context, the Appellant submits that

14 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited once an item of receipt in the hands of the foreign company has been held to be not liable to tax in India, then there can be no obligation to deduct tax under Section 195 of the Act. Accordingly, the Appellant's appeal needs to succeed. We may point out that it was similarly held by the Mumbai Tribunal in the case of United Home Entertainment (supra) that transponder payments made by assessee to Intelsat Corporation (same payee in the present appeal) are not liable for deduction of tax under section 195. because in case of the recipient (Intelsat) the income is held to be not taxable in India. (See para 7 ai page 96 of LPB and para 8 at page 103 of LPB.). This proposition is not dealt by the Hon'ble Mumbai Tribunal in the Appellant's case for the earlier years. Thus, Gartner s decision is clearly distinguishable on facts. In paragraph 7, the learned The learned DR has not controverted the DR has urged that the detailed submissions made by the Appellant matter be treated as in the written propositions which were filed by covered against the the Appellant in course of the hearing, on Appellant by virtue of the why the said decision is no longer binding. decision of the Hon'ble The learned DR has failed to appreciate that Mumbai Tribunal in earlier post the Appellant's decision, the Hon'ble years Delhi High Court and Calcutta High Court have examined the issue and decided in assessee's favour. These being the only High Court judgments on same issue, judicial discipline requires that the same be followed by Tribunal while deciding identical issue, in absence of any contrary judgments of another High Court.

15 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited The benefit of the decisions of the Hon'ble Delhi Court in case of New Skies Satellite BV (supra) and Hon'ble Calcutta High Court in case of ATN International Ltd. (supra) were not available to the Hon'ble Mumbai Tribunal while deciding the Appellant's earlier appeals. Accordingly, while deciding subsequent appeals on identical issue in cases of Taj TV (supra) and United Home Entertainment (supra), the Hon'ble Mumbai Tribunal did not follow its own earlier decision in the case of the Appellant (which was being relied upon by the learned DR in the said cases), but instead followed the subsequent decision of the Hon'ble Delhi High Court in case of New Skies Satellite BV (supra).

“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 of Indo-US DTAA. The Ld. 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

16 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited apply to the extent they are more beneficial to that assessee. In other words if the assessee is covered by DTAA and the provisions of DTAA are not 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 Akiiengeseilschaft (supra) as well as in the case of CITv. Infrasoft Lid. [2013] 39 taxmann.com 88/[2014] 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 Indo-US DTAA, the term "Royalty" is defined as under:- 'ARTICLE 12- Royalties and Fees for included Services. The Term "Royalties" as used in this article means: (a) 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 (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 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 consideration which would be the income of the recipient chargeable under the head "Capital gains") for-

17 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited (i) 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; (ii) 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; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (iva) 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 (v) the rendering of any services in connection with the activities referred to in sub-clauses (1) to 93[(iv), (iva)and(v).' 10. So far 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 assessee 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 pari materia 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

18 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited "Royalty" as provided in Explanation 2 of section 9(IXvi) 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 royalt) 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 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(1 )(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

19 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited 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 Hon'ble apex court in a number of cases, viz. Chillies Exports Ltd. v. CIT [1997] 225 TTR 814/92 Taxman 68 (SO: Ujagar Prints v. Union of India [1989] 379 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 he 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 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.) Lid (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, properly 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

20 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited expression 'process' 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, 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. Lid (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 to a case of an assessee/lessee of a satellite called AsiaSat I 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 AsiaSal 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

21 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited 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 part of the income generated by it from the customers to whom the aforesaid services are provided was chargeable to tax in India and for this reason no return income was tiled 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 (vii) of sub-Section fl) 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). as no operations to earn the income

22 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited were carried on in India. 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] 28S 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 assessee would not qualify as 'royalty', as defined in Explanation 2 to Section 9(l)fvi) of the income Tax Act. As seen from the facts, the said judgment was rendered in the year 2011, much before the amendment under Finance Act, 2012. Further after the decision reported in [[2007] 288 ITR 408 (lahikawajama-Harima Heavy Industries Lid. v. Director of Income Tax} an explanation was inserted below subsection 2 of Section 9, with effect from 01.06.1976 under Finance Act. 2007 to get over the decision of the Supreme Court. Flence this decision of the Delhi High Court is distinguishable and has no

23 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited relevance to the ease 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 'fax 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 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 assessee 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 telecasting/broadcasting of its various programmes on television channels including marketing and advertising airtime etc. The Hon'ble Delhi High Court in the case of Asia Satellite Communication Co. Ltd (supra} ousted the application of the term '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, the said decision endorses the conceptual understanding of term 'process1, i.e., as explained by us at para 12 of this order. Even, the same, if at all, impinges on Explanation 5 to section 9(I)(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

24 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited 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.r.e.f 01.06.1976.The decision in the case of Asia Satellite Communication Co. Ltd (supra) is thus completely inapplicable in the given fact* 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(I)(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. 16. In the case of Siemens Aktiengescllschaft (supra) the question before the Hon’ble High Court was that when the payment does not fall under the term of royalty as per the provisions of DTAA. the same can be taxed as royalty in terms of the definition in the Act. Thus it is clear that the payment in the said case was not found as royalty in terms of DTAA between India and Germany. However it was taxed by the revenue authorities on the basis of the definition of royalty as per the Income Tax Act. The Hon'ble High Court has held in para 40 and 41 as under:— '40 In our opinion, even in the absence of royalty being defined under the clauses of the agreement, if it amounts to any industrial or commercial profit it would be taxable under clause III provided there . is a PE in India unless we hold that considering the Explanation to section 9 brought by the Finance Act, 2007 the requirement of PK is now of no consequence." "41 While considering the DTAA the expression "law 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

25 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited similar character subsequent to the date of the agreement as set out in article 1(2). Considering the express language of article 1(2) it is not possible to accept the broad proposition urged on behalf of the assessee that the law would be the law as was applicable or as defined when the DTAA was entered into. The question however, would still remain, whether the income by wray of royalties other than those included in article 111(3) are subject to tax in India considering the DTAA when there is no PR".' 17. Thus it is clear that in the case of Siemens Akliengesellschaft (supra) it was found that 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 Pie. Lid (supra) was not available at the time of those 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 contemplated under Explanation 2 to s. 9( 1 ))(vi). 18. In view of the above discussion we do not find any reason to interfere with the orders of authorities below.”

26 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited 7.1 Thereafter in other assessment years 2011-2012, 2012-2013, 2013- 2014, for the same assessee the Tribunal following the aforesaid order decided the issue in favour of the Revenue vide order dated 04.02.2015 and 10.02.2015 respectively.

7.2 We note that in coming to the aforesaid decision, this Tribunal has referred the decision of Hon’ble Madras High Court in the case of Verizon Communications Singapore Private Limited 361 ITR 575. In the said decision of the Tribunal the decision of the Hon’ble Delhi High Court in the case of a Asia Satellite Communications was also considered. Thus we note that there is a decision of ITAT in assessee’s own case in which ratio from the Hon’ble Madras High Court has been followed. Now the learned Counsel of the assessee is urging us that the decision of the Hon’ble Delhi High Court in the case of DIT v. New Skies Satellite BV (68 Taxmann.com 8) which is in favour of the assessee should be followed.

7.3 We note that there is no decision of the Hon’ble jurisdictional High Court on this subject. The Tribunal in assessee’s own case has rendered the decision against the assessee by placing reliance upon the decision of Hon’ble Madras High Court in the case of Verizon Communication (supra). Here we note that the aforesaid decision of Hon’ble Madras High Court in Verizon Communication (supra) was also considered by Hon’ble Delhi High Court in New Skies Satellite (supra), but the Delhi High Court chose to differ from Hon’ble Madras High Court. The reference to the Hon’ble jurisdictional High Court decision in the case of Smt.Godavari Devi Sarraf (supra) by the assessee’s Counsel does not support the case of the assessee. In the said

27 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited decision of Hon’ble jurisdictional High Court, there was no issue of choosing a decision when Hon’ble High Court’s differ.

7.4 It is not the case here that the Hon’ble Madras High Court decision in the case of Verizon (supra) is not relevant. The plea of the assessee’s Counsel is that Hon’ble Delhi High Court has differed from the same. This, in our considered opinion, cannot be a reason to differ from the Tribunal’s decision in assessee’s own case which has followed the Hon’ble Madras High Court decision. Similar view was also expressed by this Tribunal in the case of Gartner Ireland Ltd. (supra). The contention of the learned Counsel of the assessee that there is no contrary decision of a High Court is not acceptable in the light of Tribunal’s finding in assessee’s own case supra in paragraph 12 above wherein the Tribunal observed that “Hon’ble Madras High Court in the case of Verizon Communication (supra) while considering identical issue has observed in paragraph 33 as under…….”

7.5 Hence in the present situation, we have a Tribunal decision in assessee’s own case wherein ratio from decision of Hon’ble Madras High Court has been followed. Hence the learned Counsel of the assessee’s pleading to take a different stand on the basis of a Delhi High Court decision which has not followed the Hon’ble Madras High Court decision is not sustainable. This is more so in absence of any jurisdictional High Court decision and after noting the fact that assessee is in appeal before the Hon’ble jurisdictional High Court against the Tribunal’s decision in assessee’s own case wherein decision of a High Court has been specifically followed. Hence following the aforesaid consistent decisions of the ITAT in assessee’s own case, for successive four years, which has been appealed

28 ITA No.3776/Mum/2015. M/s.Viacom 18 Media Private Limited against but not yet reversed by Hon’ble jurisdictional High Court, we do not find any infirmity in the order of the learned CIT(A). Accordingly, we uphold the same.