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Income Tax Appellate Tribunal, MUMBAI BENCH “L”, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI ASHWANI TANEJA
आदेश ORDER PER BENCH:
The aforesaid appeals have been filed by the assessee against impugned order dated 31.01.2012, passed by Ld. CIT (Appeals)-11, Mumbai. All the appeals relates to proceedings/ orders under section 195(2) and the Ld. CIT(A) has passed the consolidated orders in respect of separate orders passed by the Assessing Officer u/s 195(2). In all the appeals grounds of appeal taken by the assessee are common, therefore, for the sake of ready reference grounds of appeal taken in one of the appeal is reproduced herein below:- “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 Income-tax Act, 1961 (‘Act’) against the order passed by the learned Commissioner of Income-tax (Appeals)-11 [CIT(A):-
3 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 On the facts and circumstances of the case and in law the learned CIT (A). General 1. erred in holding that tax is required to be deducted at source on the amount of USD 28,500 per month payable by the Appellant to Intelsat Corporation (‘Intelsat’) under the Transponder Services Agreement (‘Agreement’); Treating the impugned service charges as royalty
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 Act. 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 States of America; Treating the service charges as fees for technical services
4. erred in holding that the transponder service charges paid by the Appellant to Intelsat under the Agreement are also in the nature of fees for technical services under the provisions of the Act; Taxability of service charges in the hands of Intelsat
5. erred in holding that Intelsat has a ‘business connection’ in India, through the uplink station of Esse Shyam Communication Limited (‘ESL’) and the cable and direct to home operators located in India; 6. erred in holding that the uplink station of ESL forms the source of income for Intelsat as far as transmission of programs of the Appellant’s television channels uplinked from India are concerned; 7. should have appreciated that the Hon’ble Delhi High Court in the case of Intelsat (i.e. 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; Entitlement for interest under Section 244A of the Act
8. erred in not granting interest under section 244A of the Act on the taxes deposited, arising consequent to the above grounds.
4 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 The above grounds of appeal are without prejudice to each other”.
2. The core issue involved in these appeals is taxability of the payment made by the assessee to ‘Intelsat Corporation US’ and ‘Intelsat Global Sales and Marketing Limited, UK’ for availing transponder facility in pursuance of Service Agreement read with Service orders. Brief facts and background of the case are that, the assessee is an Indian Company which owns and operates a TV Channel “Hungama”, which is an entertainment channel for kids. The assessee has executed an agreement with Intelsat Corporation, a US corporation (‘Intelsat US’) for provision for transponder services. The broad arrangements for provision of the Services were as under:-
The appellant has been provided with the Service by Intelsat; The appellant needs to follow Intelsat’s procedures for initiating or terminating transmission to the satellite; In case the Service fails to meet standards, the fee payable for the service by the Appellant is to be reduced. The fee shall also be reduced if degraded Services are provided; No right, interest or lien upon the property or assets of Intelsat, including any satellite or related equipment, is granted by Intelsat to the Appellant; and Intelsat’s tax liability in India, if any, would be borne by the Appellant”.
5 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 In consideration for the said services, the assessee has to make the payment to Intelsat. The assessee leased its transponder capacity and bandwidth to various customers in India and outside India, who used the transponders for their business in India. In consideration for the said services received for transponder, the assessee has to make the payment to Intelsat. Since the said payment made to the Intelsat as per the applicant and payee was not taxable in India either as ‘royalty’ or as ‘fee for technical services’, the assessee therefore, made an application before the Assessing Officer under section 195 for non-deduction of TDS. In the said application, the assessee had also stated that the said amount is neither taxable under the Domestic Law (Indian Income Tax Act) nor under the provisions of Indo-US DTAA or Indo-UK DTAA. The assessee’s submissions before the Assessing Office in this regard has been summarized by the Ld. Assessing Officer in one of the order in the following manner:- The payments to Intelsat are not taxable as royalty for the use of process under the Act since receipt of transponder services do not constitute the use of or the right to use any process [judgment of the Delhi High Court in the case of Asia Satellite Telecommunications Limited (ITA No 131 to 134 of 2003) and the Bangalore Tribunal in the case of M/s Wipro Limited (80 TTJ 191) relied upon].
The payments to Intelsat are not taxable as royalty for the use of process even under the provisions of the India - USA Double Taxation Avoidance Convention ('Treaty') since no secret process was used by Intelsat while providing the services to the applicant (judgment of the Delhi Tribunal in the case of Panamsat (103 TTJ 861) relied upon).
The payment to Intelsat cannot be regarded as fees for technical services under the Act since the use of transponder services are only for the purpose of 6 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 transmitting the satellite signals and the applicant is not interested in the technology used inside the transponder.
Further, the payments to Intelsat are not taxable as fees for included services under the provisions of the Treaty since no technical knowledge / experience, etc was made available by Intelsat to the applicant while providing transponder services (judgment of the Delhi Tribunal in the case of Panamsat (Supra) relied upon).
The payment to Intelsat cannot be regarded as payment for the use of equipment under the Act since the use of transponder Services do not constitute the use of equipment (judgment of the Delhi Tribunal in the case of Asia Satellite Telecommunications Co. Ltd. (85 ITD 478 relied upon).
The Assessing Officer held that the applicant’s contentions are not acceptable in view of the decision of the Delhi Tribunal in the case of New Skies Satellites BV, Shin Satellite Public Company Limited and Asia Satellite Telecommunications Limited (126 TTJ 1) which held that the services rendered through satellites for telecommunication / broadcasting, amounts to a 'process'. It was held that it is not necessary for the services rendered to be through a 'secret process' in order to constitute 'royalty', as defined in the Act as well as under the relevant tax treaties. Therefore, payments for such services constitute 'royalty' as per the provisions of the Act, as well as under the relevant tax treaties. AO further observed that this decision of the Delhi Tribunal has been passed after considering the judgments relied upon by the assessee. Relying upon the abovementioned judgment, Assessing officer held that the payments made by the applicant to Intelsat qualify as ‘royalty’ and the applicant accordingly was directed that taxes @10% plus applicable surcharge and cess on gross payments made 7 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 to Intelsat for the period April 2011 to March 2012 should be deducted and paid.
Before the Ld. CIT (A), the assessee made very elaborate submissions challenging that, neither under the provisions of Income-tax Act nor under the Treaty with Indo-US or Indo-UK the said payment can be reckoned as “royalty”. The assessee’s detailed submissions have been incorporated by the Ld. CIT (A) right from pages 3 to 30 of the appellate order. The Ld. CIT(A) though observed that the facts of the present case was quite similar to the facts of the case of the Delhi High Court decision in the case of New Skies Satellite BV, but only to the extent of operation of transponder, up-linking facilities etc. However, major difference in the two cases is that, in the case of the assessee the up-linking facilities are situated in India, whereas in the case before the Hon’ble Delhi High Court the payer was non-resident and in the present case payer- assessee is resident of India. Thereafter, he proceeded to analyze the technological aspect of satellite communication system and its different components which has been discussed by him in detail from pages 31 to 39 of the Appellate Order. Thereafter, he referred to the decision of the Hon’ble Karnataka High Court in the case of Antrix Corp. Ltd. in Writ Appeal No.882 to 885 of 2009, judgment and order dated 06.02.2010. After extensively quoting the decision of Hon’ble Karnataka High Court, he held that, it is not only in the nature of “royalty” but is also in the nature of ‘Fee for Technical Services’ (FTS). He further proceeded to held that, the same is also taxable as ‘business income’ in India under section 9(1)(i), because Intelsat has business connection in India as the up-linking is from India.
8 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012
Before us, the Ld. Counsel for the assessee, Mr. Madhur Agarwal submitted that, this issue now stands squarely covered by the judgment of the Hon’ble Delhi High Court in the case of Intelsat Corporation, that is, in the hands of the payee in Income-tax Appeal No.977 of 2011 and 530 and 545 of 2012. Once in case of the payee itself it has been held that the amount is not taxable in India either as ‘royalty’ or as ‘FTS’, then assessee is not obliged to deduct TDS on such payments. He submitted that, though the said decision of Hon’ble Delhi High Court in the case of the payee is for the earlier assessment years, however, the same ratio and principle will apply in the subsequent years as the judgment of the Hon’ble High Court still holds the law qua the payee. Not only that, in the case of New Skies Satellite BV, in Income-tax Appeal No. 473 474, 500 of 2012 and 244 of 2014, the Hon’ble Delhi High Court vide judgment dated 08.02.2016 have again held that, under the provisions of DTAA the said payment cannot be taxed as ‘royalty’. While coming to this conclusion, the Hon’ble High court has also discussed and analyzed the amendments made in section 9(1)(vi) by the Finance Act, 2012 enlarging the scope of ‘royalty’ with retrospective effect and held that the said amendment cannot be read into DTAA. Mr. Agarwal pointed out that, ITAT Mumbai Bench in the case of Taj TV Ltd. in and other appeals, vide order dated, 05.07.2016 have dealt exactly with similar issue of payment made to Panamsat Corporation which is again the same payee, as the name of Panamsat has now been changed to Intelsat Corporation. In that case, the Tribunal has discussed and analyzed all the relevant 9 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 decisions on this point and also relevant provisions of the DTAA for coming to the conclusion that such a payment does not fall within the scope and ambit of ‘royalty’ under the DTAA and the amended provisions of 9(1)(vi) will not apply on the provisions of the DTAA. On the issue of FTS also, Mr. Agarwal pointed out that this Tribunal in the case of ‘B4 International Holdings’ in order dated28.05.2012, the Tribunal has held that the payment made to Panamsat will not amount to ‘fee for technical services’ under the DTAA, because the condition of “make available” is not being satisfied. Before us, he has filed a summary of various decisions on this point and the synopsis of the ruling which for the sake of the ready reference is reproduced below: S. Name Forum Asst. Summary of the ruling Remarks No. Year Involved 1 Intelsat Delhi 2007 Following the Delhi . Though the Corporation High -08 High Court ruling in the case captioned appeals in US (ITA 977/ Court of Asia Satellite Tele- the Appellant’s case 2011 communications Co. pertain to AY 2010- Pronounced Limited (332 ITR 340), 11 to AY 2012-13, on 19 Aug., Upheld the Delhi the nature and terms 2011 Tribunal’s ruling (ITA of the arrangement No 5443/Del/2010) remain same and that Intelsat Corporation’s hence, these rulings Receipts are not taxable should squarely in India after recording apply in the that the assessee had Appellant’s case leased its transponder capacity to various customers in India and . The nature and outside India terms of the 2 Intelsat Delhi 2006- The Delhi High Court arrangement Corporation High 07 following its ruing in between the Appellant and (ITA 530 and Court and ITA No.977/2011 (Sr. Intelsat UK are 545/2012) 2008- No.1 above) and held Pronounced 09 that Intelsat similar to those between the On 28 Corporation’s receipts Appellant and September Are not taxable in India 2012 Panamsat Corporation/ Intelsat Corporation 3 B4U Mumbai 2002- The Mumbai Tribunal International Tribunal 03 held that the issue of - Holdings Ltd whether payments made 10 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 (52 SOT 545) to Panamsat Limited, a pronounced US company and 28 May 2012 Advance Satellite, a UK company for Transponder services, were subject to withholding tax in India, was squarely covered by the Delhi High Court ruling in the case of Asia Satellite (supra).
Further, payments were also not taxable fees for technical services the ‘make available’ Condition was not satisfied.
As regards the Amendment to the Act 2012, the same would not have impact on taxability as per the India-US and India-UK Treaty. 4 New Skies Delhi 2006- The Delhi High Court Satellite BV High 07 to relying on the ruling in - and Shin Court 2009- the case of Asia Satellite Satellite 10 (supra) held that receipts Public Co from lease of satellite (ITA No.473 transponders earned by /2012, 474/ the taxpayers 2012, 500/ incorporated in Thailand 2012 and and Netherlands do not 244/2014) constitute ‘royalty’ under Pronounced Article 12 of the on 8 respective tax treaties February 2016 The Court also considered the retrospective amendment to the definition of ‘royalty’ introduced vide Finance Act 2012 and held that The amendment to the Definition of ‘royalty’ under the Act will not impact the definition under the Treaty. 5 Taj TV Mumbai 2003- The Mumbai Tribunal Limited Tribunal 04 to ruling in the case of New - (ITA No. 2005- Skies (supra) has held 4678/M/07, 06 that payment of 412/M/2008 transponder charges 4176/M/09, does not fall within the 5537/M/08, definition of ‘royalty’ per 5536/M/08, Article 12 of the India- 4706/M/09) US tax treaty.
11 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 Pronounced On 5 July The Mumbai Tribunal 2016 Considered the retrospective amendment to the definition of ‘royalty’ introduced vide Finance Act 2012 and held that Such amendment under The Treaty and Accordingly, payment of Transponder charges Does not fall within the ambit of definition of ‘royalty’ per Article 12 of the India-US tax treaty.
In the light of these decisions, he submitted that, assessee is not obliged to deduct TDS for the payment made to Intelsat as it neither falls in the ambit of ‘royalty’ nor ‘FTS’ under the relevant treaty provisions of Indo-US-DTAA and Indo-UK- DTAA. (As in some cases, the payments have been made to Intelsat Corporation US and some cases payment have been made to Intelsat Global Sales and Marketing, UK). Lastly, Mr. Agarwal pointed out that, the Hon’ble Delhi High Court in the case of Intelsat while deciding the issue in favour of the Intelsat had also taken into the fact that it has leased its transponder capacity and bandwidth with various customers in India and outside India who used the transponders for their business in India, therefore, in the light of this fact taken note by the Hon’ble High Court while deciding the issue in favour, the remark and conclusion drawn by the Ld. CIT(A) that because the transponder is used by customers in India and therefore there is business connection in India and hence will also constitute business income in India, is no longer relevant.
12 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 6. On the other hand, Ld. DR submitted that, even though the provisions of DTAA are applicable in the present case, however, amendment brought in section 9(1)(vi) by way of insertion of Explanation (vi) by the Finance Act, 2012 with retrospective effect will have to be read into the treaty. In support of his contention, he strongly relied upon the decision of Hon’ble Bombay High Court in the case of Seimens AG, 310 ITR 320. He submitted that, the decision of the Hon’ble Delhi High Court in the case of New Satellite BV (supra) and the decision of the ITAT Mumbai Bench in the case of Taj TV would not be applicable. Sum and substance of his reasons are as under:- i) The question of law before the Hon'ble High court was not that whether Amendments in the I.T. Act can be read into the DTAA or not; ii) In the said case, old DTAA (1960) between India and Germany was under consideration; iii) The said decision was rendered in 2008 when the only clarificatory provision by way of Explanation in section 9 was the Explanation below S.9(2) inserted by the Finance Act 2007 doing away with the requirement of PE for Royalty; iv) That amendments/Explanations in the I.T. Act are being sought to be read into DTAA by virtue of Article 3(2) of the modern treaties; v) Section 9(1) (vi) up to and including Explanation 2 are substantive provisions as inserted by Finance Act 1976 and thereafter, Explanation 3 to 6 are only clarificatory provisions inserted subsequently.
13 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 vi) It is not disputed by the Revenue that the provisions of DTAA if beneficial to the assessee shall be preferred over the provisions of the I. T. Act.
Further, the perusal of Bombay High Court decision in the case of Siemens AG, supra would reveal that: i) Nowhere in the said order, the High Court has held that Amendments/ Explanations cannot be read into DTAA as it was not a question before the Hon'ble High Court; ii) The natures of services rendered in the said case were found to be not Royalty under the DTAA though found to be Royalty under the Act. Those services were found to fall under the expression "commercial or industrial profits" as per the then DTAA (Old) and therefore could not be taxed in India in absence of PE. The provisions of DTAA being more beneficial to the assessee were preferred over the provisions of the I.T. Act; iii) In paras 13,22 and 28 of its order, the Hon'ble HC has approved the insertion of Explanation below S.9(2) inserted by the Finance Act 2007, thereby implying that the Explanations inserted by Finance Act, 2007 could be read into modern DTAAs; iv) Mumbai Tribunal In the case of Viacom 18 Media (P.) Ltd.(2014) 162 TTJ 336 (Mum) has explained the import of Bombay HC decision in right perspective in paras 16 and 17 of its order while rejecting the assessee's argument that the HC has held that 14 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 amendments in the Act cannot be read into DTAAs; and v) The Bombay HC has approved ambulatory approach (para 22) to interpretation of treaties against Static approach adopted by the Delhi HC.
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 & 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 15 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 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-US- DTAA. Similarly, the up linking charges paid for up linking the channels to PanAmSat Satellite for delay in transmission 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 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- 16 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 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 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.
17 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 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 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 18 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 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.
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 Aktiongessellschaft, [2009] 310 ITR 320 (Bom), the Bombay High Court citing R v. Melford Developments Inc. held that 19 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 “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.
20 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 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 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.
So far as the issue relating to FTS is concerned, we find that, this Tribunal in B4U International Holdings (supra) on similar payment made to Panamsat, it was held that they do not satisfy the test of “make available” as enshrined in Article 12(3) in Indo-US-DTAA and thus, the said payment cannot be held to be taxable as being for technical services and secondly, on this ground also, the provision of TDS is not attracted. In any case Ld. CIT (A) cannot hold that same payment would fall in the nature of ‘royalty’ and at same time would be reckoned as ‘FTS’ also. Lastly, as regards the issue of business communication in India, as pointed by the Ld. 21 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 Counsel, Shri Madhur Agarwal that Hon’ble Delhi High Court in the case of Intelsat has taken note of this fact while deciding the issue of taxability of receipts in favour of Intelsat that, it has leased its transponder capacity and bandwidth to the various customers in India and outside India who have used the transponder for business in India. Thus, in the light of this observation and fact noted by the Hon’ble Delhi High Court in the case of the payee and otherwise also we do not find any merits that, simply because the transponders have been used in for business in India will tantamount to business connection of Intelsat in India and, accordingly, such an observation and finding of the CIT(A) is hereby rejected by us. Thus, the issues raised by the assessee in grounds No.1 to 7 are squarely covered by various decisions as discussed above and respectfully following the same we hold that assessee is not liable to deduct TDS.
So far as the issue of interest u/s 244A on refund of extra TDS deposited under section 195 as raised in ground No.8, we are of the opinion that this issue should be remanded back to the file of the Assessing Officer to decide the matter after considering the latest CBDT Circular No.11 of 2016 dated 26th April, 2016. We order accordingly. Thus, all the appeals filed by the assessee are treated as allowed.
In the result, all the appeals of the assessee are treated as allowed.
Order pronounced in the open court on 25th October, 2016.
22 यूनाइटेड होम एंटट�म�ट �ाइवेट �ल�मटेड United Home Entertainment Pvt Ltd ITAs No. : 2841 to 2856/Mum/2012 Sd/- Sd/- (अशवनी तनेजा) (अिमत शु�ला) लेखा सद�य �याईक सदस (ASHWANI TANEJA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 25th October, 2016. ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The CIT (Appeal) –4, Mumbai. 4) The CIT-16, Mumbai 5) िवभागीय �ितिनिध “एल”, आयकर अपीलीय अिधकरण, मुंबई/ The D.R. “L” Bench, Mumbai. 6) गाड� फाईल \ Copy to Guard File. आदेशानुसार/By Order / / True Copy / /