2018 (7) TMI 1165 - AT - Income Tax

Transponder fees taxed as royalty under IT Act & tax treaty.

The ITAT upheld the decision that transponder fees paid by the assessee to MEASAT are considered royalty under the Income Tax Act and India-Malaysia Tax ... TDS u/s 195 - payments of transponder fees by the Appellant to MEASAT Satellite Systems Snd. Bhd, Malaysia ('MEASAT') are taxable under the Income tax Act, 1961 and under the India-Malaysia Tax Treaty - Held that:- The present issue in the appeal as to whether the assessee was liable for deducting the TDS on transponder fee payable to MEASAT Malaysia has to be decided against the assessee by following the decision of the ITAT in assessee’s own case hereinabove, since the reasoning submitted by assessee to deviate from the earlier order of the tribunal in assessee’s own case had already been dealt with hereinabove. It will further be not out of place to mention that in judicial hierarchy decisions of honourable High Court are ranked higher than that of the tribunal. In some of the decisions of the tribunal referred by the learned counsel of the assessee, the decision in favour of assessee was also rendered by taking into account the fact that it had been conclusively held by honourable High Court that the income was not chargeable to tax in the hands of the payee. Hence, there was no liability on the part of payer to deduct tax at source. In the present case, we find that except for the assessee’s submission that the recipient being non-resident is not chargeable to tax on the sum paid, there is no decision of honourable High Court backing the scheme. Furthermore, we are not sitting in judgement on the chargeability in hands of the recipient as the facts and the necessary background material are not available on record before us. - decided against assessee Issues Involved:1. Taxability of transponder fees under the Income Tax Act, 1961 and the India-Malaysia Tax Treaty.2. Liability to deduct tax at source under Section 195 of the Income Tax Act, 1961.3. Applicability of previous judicial decisions to the current case.4. Consistency and binding nature of tribunal decisions in successive years.Detailed Analysis:1. Taxability of Transponder Fees:The primary issue is whether the payments of transponder fees by the assessee to MEASAT Satellite Systems Snd. Bhd., Malaysia (MEASAT), are taxable under the Income Tax Act, 1961, and the India-Malaysia Tax Treaty. The ld. Commissioner of Income Tax (Appeals) held that the transponder fees are taxable as royalty, both under the Act and the Treaty. This conclusion was based on previous ITAT decisions in similar cases, including the assessee's own case, where it was held that the use of transponder capacity involves a process as defined under Explanation 6 of Section 9(1)(vi) of the Act, thus qualifying as royalty.2. Liability to Deduct Tax at Source:The assessee contested its liability to deduct tax at source under Section 195 of the Act on the remittances made to MEASAT. The assessee argued that the payments were business income of the non-resident, and in the absence of a permanent establishment in India, these amounts were not liable to tax in India. However, the ld. Commissioner of Income Tax (Appeals) and the ITAT upheld that the payments were in the nature of royalty and thus subject to TDS under Section 195.3. Applicability of Previous Judicial Decisions:The assessee cited several judicial decisions, including those of the Hon'ble Mumbai Tribunal and the Hon'ble Delhi High Court, to argue that the transponder fees should not be taxable in India. The ITAT, however, followed its previous decisions in the assessee's own case and similar cases, which had consistently held that such payments are taxable as royalty. The Tribunal noted that the decisions of the Hon'ble Madras High Court in the case of Verizon Communications Singapore Pte. Ltd. and the Hon'ble Delhi High Court in New Skies Satellite BV were considered, but it chose to follow the former, which supported the Revenue's case.4. Consistency and Binding Nature of Tribunal Decisions:The Tribunal emphasized the importance of consistency in judicial decisions, especially when there is no contrary decision from the jurisdictional High Court. It was noted that the Tribunal's decisions in the assessee's own case for successive years had consistently held the transponder fees to be taxable as royalty. The Tribunal cited the principle of judicial hierarchy, where High Court decisions rank higher than Tribunal decisions, and the rule of certainty and consistency, which mandates following previous decisions unless there are valid reasons to deviate.Conclusion:The ITAT upheld the order of the ld. Commissioner of Income Tax (Appeals), holding that the transponder fees paid by the assessee to MEASAT are in the nature of royalty under both the Income Tax Act and the India-Malaysia Tax Treaty. Consequently, the assessee was held liable to deduct tax at source under Section 195 of the Act. The Tribunal dismissed the appeals filed by the assessee, maintaining consistency with its previous decisions in the assessee's own case and similar matters. The judgment reinforces the principle of following established judicial precedents to ensure certainty and consistency in tax matters.