UNITED HOME ENTERTAINMENT P.LTD,MUMBAI vs. ADIT (IT) 2(2), MUMBAI

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

BEFORE SHRI AMIT SHUKLA (JUDICIAL MEMBER) AND SHRI ASHWANI TANEJA (ACCOUNTANT MEMBER)

I.T.A. No.5171/Mum/2013 -A.Y. 2012-13 I.T.A. No.5172/Mum/2013 -A.Y. 2012-13 I.T.A. Nos.5173/Mum/2013 -A.Y. 2013-14 I.T.A. Nos.5174/Mum/2013 -A.Y. 2013-14 I.T.A. Nos.5175/Mum/2013 -A.Y. 2013-14 I.T.A. Nos.5176/Mum/2013 -A.Y. 2013-14 I.T.A. Nos.5177/Mum/2013 -A.Y. 2013-14 I.T.A. Nos.5178/Mum/2013 -A.Y. 2013-14 I.T.A. Nos.5179/Mum/2013 -A.Y. 2013-14 I.T.A. Nos.5180/Mum/2013 -A.Y. 2013-14 I.T.A. Nos.5181/Mum/2013 -A.Y. 2013-14

United Home Entertainment Pvt Ltd vs ADIT (International Taxation) 4th Floor, Peninsula Tower-1 2(2), Mumbai Ganpatrao Kadam Marg, Lower Parel, Mumbai PAN : AAACU6668D (Appellant) (Respondent)

Appellant by Shri Madhur Agarwal Respondent by Smt Rampriya Raghavan, Sr DR

Date of hearing : 17-11-2016 Date of order : 28 -11-2016

O R D E R Per Bench: These appeals have been filed by the aforesaid assessee against the consolidated order passed by the Commissioner of Income-tax (Appeals)-

2 I.T.A. Nos.5171 to 5181/Mum/2013 11, Mumbai [hereinafter called CIT(A)] for assessment years 2012-13 and 2013-14 comprising of 11 appeals. It was informed that identical issue is involved in all these appeals, therefore, these appeals were heard together and are disposed of by this common order. 2. First, we shall take up the appeal in ITA No.5171 /Mum/2013 filed by the assessee on the following grounds:- “Based on the facts and circumstances of the case, United Home Entertainment Private Limited (' Appellant') respectfully craves leave to prefer an appeal under Section 253 of the lncome-tax Act, 1961 ('Act') against the order passed by the learned Commissioner of Income-tax (Appeals) - 11 ['CIT(A)']. On the facts and circumstances of the case and in law the learned CIT(A): General 1. erred in not condoning the delay in filing the appeal before him and accordingly dismissing the appeal as not maintainable; 2. erred in holding that tax is required to be deducted at source on the amount payable by the Appellant to Intelsat Global Sales and Marketing Limited ('Intelsat') [mentioned by the CIT(A) as PanAmSat Corporation] under the Transponder Service Agreement (' Agreement') ; Treating the impugned service charges as royalty 3. erred in holding that the transponder service charges paid by the Appellant to Intelsat under the Agreement are in the nature of royalty under the provisions of the Double Taxation Avoidance Agreement between India and United Kingdom [mentioned by the CIT(A) as India - USA Tax Treaty] and the Act; Taxability of the service charges 4. erred in holding that Intelsat has a 'business connection' in India, through the uplink station located in Parel, India; . 5. erred in holding that the uplink station forms the source of income for Intelsat as far as transmission of programs of the Appellant's television channels uplinked from India are concerned; 6. should have appreciated that the Hon'ble Delhi High Court in case of Intelsat (ie payee) has held that the receipts for rendering transponder services are not taxable in India and hence there cannot be any deduction of tax at source;

3 I.T.A. Nos.5171 to 5181/Mum/2013 Interest under Section 244A of the Act 7. erred in not granting interest under Section 244A of the Act (on TDS), arising consequent to the above grounds. The above grounds of appeal are without prejudice to each other.

4 I.T.A. Nos.5171 to 5181/Mum/2013 by the Mumbai Bench of the Tribunal that use of transponder by the assessee for telecasting / broadcasting programmes involved transmission by satellite including uplinking, amplication, conversion by downlinking of signals and is covered within the definition of ‘process’ and payments made for use / right to use of ‘process’ is ‘royalty’ in terms of India USA DTAA as well as the Act. It was also held that definition of ‘royalty’ in Article 12(3)(4) includes payments for process and since term ‘process’ is not defined in India US DTAA, its definition in the Income-tax Act, 1961 should be applied. 5. In the rejoinder, the Ld. Counsel submitted that the Tribunal had delivered the judgment of co-ordinate bench of Mumbai Tribunal in the case of ADIT vs Taj TV Ltd dated 05-07-2016 wherein the bench had considered the judgment relied upon by the Ld. DR in the case of Viacom 18 Media Pvt Ltd and held that the impugned payment shall not amount to ‘royalty’. Under these circumstances, he requested for following the judgment of the Tribunal rendered in assessee’s own case in earlier years. 6. We have gone through the facts and circumstances of the case. As far as, prayer for condonation of delay in filing the appeal before Ld.CIT(A) is concerned, it is noted that the assessee submitted before us application dated 15-11-2016 wherein all the facts and circumstances of the case, which led to delay in filing the appeals before Ld.CIT(A) were explained in detail. Relevant part of the same reads as follows: “It is relevant to note that earlier appeals filed before the CIT(A) on this matter had been filed within the prescribed time and the CIT(A)'s order in respect of those appeals had been the subject matter of adjudication before your Honours at the hearing on 25 October 2016 (ITA No. 2841 to 2856/MUM/2012). In this regard we wish to submit as follows: Background

5 I.T.A. Nos.5171 to 5181/Mum/2013 1. The Appellant, a part of the Disney India Group has entered into an agreement with Intelsat Global Sales and Marketing Limited', UK (,Intelsat'), effective from 1 January 2011 for availment of transponder facility. 2. In consideration for the availment of transponder facility, the Appellant pays a monthly service fee to Intelsat. The contract between Intelsat and the Appellant is tax protected ie the withholding tax liability (if applicable) on such payments would be on the Appellant. 3. The Appellant has been filing monthly appeals with the CIT(A) under Section 248 of the Income Tax Act, 1961 ('Act') against the order issued by the assessing officer under Section 195(2) of the Act, which held that Intelsat's receipts from the Appellant for the provision of transponder facility was taxable in India as royalty and hence was subject to tax withholding. 4. The Appellant had filed monthly appeals to the CIT(A) for the period prior to February 2012 within the time prescribed under Section 249 of the Act. 5. For the same matter, there was an inadvertent delay in filing the appeals before the CIT(A) for the period February 2012 to January 2013. Accordingly, the Appellant while filing the appeal with the CIT(A) had also filed an application providing reasons for the delay and requested for condonation of the delay. The CIT(A) while adjudicating the appeal on merits, had dismissed the appeals as not maintainable on account of such delay, stating that the reasons for the delay were "vague, non-specific and too general". Our submissions 6. It is submitted that the subject appeals relate to payments for the period February 2012 to January 2013 and in February 2012, the Disney Group acquired a majority stake in the listed entity UTV Software Communications Limited ('UTV') (which additionally had 9 operating Indian subsidiaries. UTV was subsequently delisted from the stock exchanges in March 2012. A copy of the letter filed with the stock exchanges in this regard is enclosed as Annexure 1. 7. It is submitted that the Appellant does not have its own independent tax personnel and relies on the centralized tax function of the Disney India Group. Upto February 2012 and thereafter till September 2012, Disney India Group's centralized

6 I.T.A. Nos.5171 to 5181/Mum/2013 tax function was handled by a single personnel and he was entrusted with additional responsibility on account of the above acquisition of UTV. Further, post the acquisition, all tax matters of UTV and its subsidiaries were also transitioned to the existing personnel. Given this significant work load there was an inadvertent lapse in filing the appeals before the CIT(A) within the prescribed time. 8. The Disney India Group recruited an additional personnel, Manoj Sharma in October 2012 (a copy of his appointment letter is enclosed as Annexure 2) and given the significant ground that was required to be covered, the lapse in filing the appeals was discovered in March 2013. Immediately upon discovery of the lapse, Mr Sharma regularized the lapse and filed the appeals with the CIT(A) on 7 March 2013, requesting for condonation in the delay in filing the appeal. Based on the above, it is submitted there existed a reasonable cause for delay in filing the appeal and request Your Honours to take a sympathetic view and condone the delay on account of bonafide reasons and being an unintended default.” 7. Our attention was also drawn on various supporting documents in support of the averments made in the aforesaid petition. Copy of appointment letter issued to Mr. Manoj Sharma dated 22-10-2012 is filed on record. Our attention was also drawn on the detailed affidavit filed by Mr. Manoj Sharma wherein he deposed on oath the facts as were narrated in the aforesaid petition, which reads as under:-

“ AFFIDAVIT I, Manoj Sharma, am employed by The Wait Disney Company (India) Private Limited as Senior Manager, Taxation (Direct Tax), Corporate and do hereby state as under: 1. THAT I was appointed by my current employer on 22 October 2012 as part of the centralized tax function of the Disney India Group, which inter alia consisted of The Wait Disney Company (India) Private Limited, United Home Entertainment Private Limited,

7 I.T.A. Nos.5171 to 5181/Mum/2013 UTV Software Communications Limited and its subsidiaries. 2. THAT I was on probation for the first three months from my appointment date and my employment was confirmed thereafter.

8 I.T.A. Nos.5171 to 5181/Mum/2013 the CIT(A). These appeals were filed in terms of section 248 of the Act under which separate appeal was required for every transaction / payment. It has been stated that there has been restructuring in the organization of the assessee, multiple appeals were required to be filed. On earlier occasions, appeals were filed on time and relief was granted to the assessee. Under these circumstances, it cannot be said that there was a conscious or intentional decision on the part of the assessee for not filing appeal or for filing the appeal belatedly. It is apparently a case of inadvertent delay that occurred due to peculiar circumstances as narrated in detail in the petition by the assessee as well as affidavit by the Shri Manoj Sharma. The averments made in the petition or in the affidavit were not factually negated by the Revenue. Under these circumstances, we find that it will not be appropriate to shut the doors of justice to the assessee especially on those issues which have already been adjudicated in favour of the assessee on earlier occasions. Thus, taking into account all the facts of the case and peculiar circumstances of this case, we find it appropriate to grant condonation of delay in filing of appeals before Ld. CIT(A). 9. Now we shall take up the issues on merits. The main issue involved in this appeal is that amount paid to M/s Intelsat Inter Corporation, USA under the transponder service agreement for the transponder service charges paid by the assessee to Intelsat under the said agreement has

9 I.T.A. Nos.5171 to 5181/Mum/2013 been treated as ‘royalty’ under the provisions of the Act. According to the assessee, it was neither ‘royalty’ nor Fee for Technical Services (FTS). It is noted by us that this issue has been dealt in extenso by the Tribunal in its order dated 25-10-2016. Relevant part of the same is reproduced hereunder:-

“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 HighCourt 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 Taj TV Ltd. In the said case, the Tribunal has observed and held as under:-

10 I.T.A. Nos.5171 to 5181/Mum/2013 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 beforeus is that, firstly, it is taxable under section 9(1)(vi) as 'royalty]' and also under Article 12(3){b) of Indo- US-DTAA. Similarly, the up linking charges paid for up linking the channels to PanAmSat Satellite for delay intransmission and for up linking signals for live events from the venue of the events to the satellite have been treated to be 'royalty'. Since, the assessee had not deducted 'FDS 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-U'S DTAA is applicable and since it does not have any PE or business connection inIndia, therefore, the payment made to a non-residentoutside India for auailinq 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

11 I.T.A. Nos.5171 to 5181/Mum/2013 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 (v) and (vi)by the Finance Act, 2012 with retrospective effect from01-06-19761 and has contended that the said definition into DTAA also, that is, the definition of royalty has to be taken from the Domestic Law. In support, the Ld.DR has strongly relied upon the decision of _ 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.

"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, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, includinq 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

12 I.T.A. Nos.5171 to 5181/Mum/2013 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".

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 foreign nations. The payment of transponder charges to PanAmSat and up linking 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

13 I.T.A. Nos.5171 to 5181/Mum/2013 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 (ne-Finance Act, 2012 and in all cases which involve a, Double Taxation 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 amendment is in fact retrospective and applicable to cases preceding the Finance Act of 20 12 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 Honi'ble High Court specifically clarified as to why the said decision Madras Hiqh Court cannot be applied in such case after observing as under.-

14 I.T.A. Nos.5171 to 5181/Mum/2013 Income Tax Officer, International Taxation 1,[2014j 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 ioo s 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.

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(l)(vi) will not apply in DTAA.

15 I.T.A. Nos.5171 to 5181/Mum/2013 48. In Commissioner of Income Tax v. Seimens AktiongessellschaJt, [2009J 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".

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While considering the Double Tax A voidance 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 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 applicable or as define when the Double Tax Avoidance Agreement was entered into".

16 I.T.A. Nos.5171 to 5181/Mum/2013 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.

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 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 DT AA.”

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.

17 I.T.A. Nos.5171 to 5181/Mum/2013 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.

18 I.T.A. Nos.5171 to 5181/Mum/2013 assessee is not liable to deduct TDS.”

19 I.T.A. Nos.5171 to 5181/Mum/2013 considering latest CBDT circular No.11 of 2016 dated 26th April, 2016. Thus, we direct the AO to follow earlier order of the Tribunal on this issue. This issue should be decided afresh by the AO accordingly. This ground may be treated as allowed for statistical purpose.

Order was pronounced in the open court at the conclusion of hearing.

Sd/- Sd/- (AMIT SHUKLA) (ASHWANI TANEJA) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, Dt: 28th November, 2016 Pk/- Copy to: 1. The appellant 2. The respondent 3. The CIT(A) 4. The CIT 5. The Ld. Departmental Representative for the Revenue, G-Bench (True copy) By order

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