2022 (1) TMI 939 - AT - Income Tax

Tribunal Rules Transponder Charges Not 'Royalty' under Tax Law, No Withholding Tax Required

The Tribunal upheld the decision of the CIT(A) and dismissed the Revenue's appeals, ruling that payments made for transponder charges to non-resident ... TDS u/s 195 - payments made to Intelsat Corporation, USA/IGSM, UK/MEASAT, Malaysia for transponder charges - Whether payment did not constitute royalty u/s 9(l)(vi) of the Act or under the relevant DTAA? - whether CIT (A) has erred in not taking into account that the payments made by the assessee to Intelsat for transponder charges are specifically covered by Explanation 6 to section 9(l)(vi) as being included in the expression 'process' and hence fall under definition of royalty as per Explanation 2 to section 9(l)(vi) of the Act? - HELD THAT:- As decided in VIACOM 18 MEDIA PVT. LTD [2018 (7) TMI 2248 - ITAT MUMBAI] relying on G. E. Technology Centre Pvt. Ltd. [2010 (9) TMI 7 - SUPREME COURT] held that transponder charges are not in the nature of ‘Royalty income in the hands of recipients despite amendment to section 9(1)(vi of the Act. In view of binding precedent of the Tribunal and Hon’ble High Court followed by the Ld.CIT(A) in respective impugned orders, we do not find any error or infirmity in the impugned orders passed by the Ld.CIT(A) on the issue in dispute relevant to the orders of Assessing Officer u/s 195(2) of the Act. Accordingly, we uphold the finding of the Ld. CIT(A) in impugned orders - Decided in favour of assessee. Issues Involved:1. Liability to deduct tax at source under section 195 of the Income-tax Act, 1961 on payments made to non-resident companies for transponder charges.2. Classification of payments as 'royalty' under section 9(1)(vi) of the Act and relevant Double Taxation Avoidance Agreements (DTAAs).3. Applicability of Explanation 6 to section 9(1)(vi) inserted by the Finance Act, 2012.4. Interpretation of the term 'process' under the DTAAs and domestic law.Issue-wise Detailed Analysis:1. Liability to Deduct Tax at Source:The primary issue revolves around whether the assessee was liable to deduct tax at source under section 195 of the Income-tax Act, 1961 on payments made to Intelsat Corporation, USA, Intelsat Global Sales and Marketing, UK, and MEASAT Satellite System, Malaysia for transponder charges. The Assessing Officer held that these payments constituted 'royalty' and thus were subject to withholding tax, while the CIT(A) ruled in favor of the assessee, stating no tax deduction was required.2. Classification of Payments as 'Royalty':The Assessing Officer classified the payments as 'royalty' under section 9(1)(vi) of the Act and the relevant DTAAs. The officer relied on Explanation 6 to section 9(1)(vi), which includes transmission of satellite signals within the definition of 'royalty.' However, the CIT(A) and subsequent judicial precedents, including the Bombay High Court's decision in the case of Neo Sports Broadcast Pvt Ltd, held that transponder charges do not constitute 'royalty' under the DTAAs, thus negating the need for tax deduction.3. Applicability of Explanation 6 to Section 9(1)(vi):The Finance Act, 2012 introduced Explanation 6 to section 9(1)(vi) with retrospective effect, clarifying that 'process' includes satellite transmission. The Assessing Officer applied this explanation to classify transponder payments as 'royalty.' However, the CIT(A) and higher judicial authorities, including the Delhi High Court in Asia Satellite Telecommunication Co Ltd, ruled that such domestic law amendments cannot alter the terms of an international treaty unless the treaty itself is amended.4. Interpretation of the Term 'Process':The term 'process' is not defined in the relevant DTAAs. The Assessing Officer imported the definition from domestic law, which includes satellite transmission. However, judicial precedents, including the Delhi High Court's ruling in New Skies Satellite BV, emphasized that amendments to domestic law cannot retroactively affect treaty provisions. The CIT(A) and the Tribunal upheld this view, confirming that transponder charges are not 'royalty' under the DTAAs.Conclusion:The Tribunal upheld the CIT(A)'s decision, aligning with the binding precedents of the Bombay and Delhi High Courts, which ruled that transponder charges do not constitute 'royalty' and thus are not subject to tax deduction under section 195. The Tribunal dismissed the Revenue's appeals, affirming that the assessee was not liable to withhold tax on the payments made for transponder services.