Tribunal Upholds Decision: No TDS on Payments to Foreign Company

The Tribunal dismissed both appeals filed by the revenue, upholding the CIT(A)'s decision that the assessee was not required to deduct TDS on the payments made to M/s New Skies Satellites N.V. The Tribunal concluded that the payments do not constitute 'royalty' and are not taxable in India in the absence of a PE.

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Issues Involved:
1. Whether the payment made to M/s New Skies Satellites N.V. for satellite bandwidth capacity constitutes 'royalty' under section 9(1)(vi) of the Income Tax Act.
2. Whether the payment is taxable in India in the absence of a Permanent Establishment (PE) of M/s New Skies Satellites N.V. in India.
3. Whether the assessee was liable to deduct tax at source (TDS) under section 195 of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Payment Constituting 'Royalty':
The primary issue was whether the payment made by the assessee to M/s New Skies Satellites N.V. for satellite bandwidth capacity constitutes 'royalty' under section 9(1)(vi) of the Income Tax Act. The Assessing Officer held that such a payment constitutes 'royalty' as defined in Explanation 2 to section 9(1)(vi), relying on the decision of ITAT Delhi Bench in the case of Asia Satellite Tele-communications Co. Ltd. vs DCIT. However, the CIT(A) concluded that the payment does not constitute 'royalty' but is a 'business profit' of M/s New Skies Satellites N.V., which is not taxable in India as it does not have a PE in India. The Tribunal upheld the CIT(A)'s decision, noting that the Tribunal and the Delhi High Court had consistently held that such payments do not amount to 'royalty' in the hands of M/s New Skies Satellites N.V.

2. Taxability in India in Absence of PE:
The second issue was whether the payment is taxable in India in the absence of a PE of M/s New Skies Satellites N.V. in India. The CIT(A) held that the payment constitutes 'business income' under Article 7 of the DTAA between India and the Netherlands and, since M/s New Skies Satellites N.V. does not have a PE in India, the payment is not taxable in India. The Tribunal agreed with this conclusion, emphasizing that the issue had been settled in favor of the payee by the Tribunal and the Delhi High Court.

3. Liability to Deduct TDS under Section 195:
The third issue was whether the assessee was liable to deduct TDS under section 195 of the Income Tax Act. The Tribunal noted that the liability to deduct TDS under section 195 arises only if the payment is chargeable to tax in India. Since it had been conclusively held that the payment to M/s New Skies Satellites N.V. is not taxable in India, the assessee was not liable to deduct TDS. The Tribunal also addressed the revenue's argument regarding the retrospective amendment to section 9(1)(vi) by the Finance Act, 2012, stating that this amendment does not affect the interpretation of 'royalty' under the DTAA.

Conclusion:
The Tribunal dismissed both appeals filed by the revenue, upholding the CIT(A)'s decision that the assessee was not required to deduct TDS on the payments made to M/s New Skies Satellites N.V. The Tribunal concluded that the payments do not constitute 'royalty' and are not taxable in India in the absence of a PE. The order was pronounced in the open court on 7th September, 2015.

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