2022 (2) TMI 1239 - AT - Income Tax

Transponder service fees not taxable as royalty income under Income Tax Act

ACIT (IT) -4 (3) (1), Mumbai Versus M/s Viacom 18 Media Pvt. Ltd.

ACIT (IT) -4 (3) (1), Mumbai Versus M/s Viacom 18 Media Pvt. Ltd. - TMI Issues:Applicability of withholding tax on transponder service fees paid by the assessee under section 195 of the Income Tax Act, 1961.Detailed Analysis:1. Issue 1: Applicability of withholding tax under section 195 of the ActThe Revenue appealed against the orders of the Ld. CIT(A) regarding the withholding tax on transponder service fees paid by the assessee. The Assessing Officer held the payments as 'royalty' under the Act and directed tax withholding. However, the Ld. CIT(A) followed the decision of the Hon'ble Bombay High Court, stating that transponder charges to non-residents are not taxable as 'royalty.' The Ld. CIT(A) also considered the relevant Double Taxation Avoidance Agreement (DTAA) provisions and concluded that the payments were not taxable in India. The Revenue contended that the term 'process' includes transmission by satellite, making the payments royalty. The assessee cited Tribunal decisions where similar payments were not subject to withholding tax.2. Issue 2: Interpretation of 'process' and 'royalty'The Assessing Officer relied on the Finance Act 2012, which included 'process' in the definition of 'royalty.' The Ld. CIT(A) and the Tribunal considered various judgments, including those of the Hon'ble Bombay and Delhi High Courts, to determine that transponder charges did not constitute 'royalty income.' The Tribunal upheld the Ld. CIT(A)'s findings, emphasizing that no tax deduction was required on such payments.3. Issue 3: DTAA provisions and tax liabilityThe Revenue argued that DTAA provisions should align with domestic law definitions, making transponder services payments taxable. However, the Ld. CIT(A) and the Tribunal, following precedent, held that the payments were not royalty income and thus not subject to withholding tax. The Tribunal dismissed the Revenue's grounds, upholding the Ld. CIT(A)'s decision.In conclusion, the Tribunal dismissed the Revenue's appeals, affirming that the transponder service fees paid by the assessee were not liable for withholding tax as they did not constitute 'royalty income' under the Act or relevant DTAA provisions. The decision was based on established legal interpretations and precedents, emphasizing that the term 'process' did not encompass the payments made by the assessee.