2022 (2) TMI 1200 - AT - Income Tax

Payments for Transponder Services Not Taxable as Royalty under Double Taxation Avoidance Agreements

The Asst. Commissioner of Income Tax (Intl. Taxation), 4 (3) (1), Mumbai Versus M/s Viacom 18 Media Pvt. ltd.

The Tribunal held that payments made for transponder services by the assessee to three entities are not taxable as royalty under the Double Taxation ... TDS u/s 195 - payment made for transponder charges - royalty u/s 9 (1) (vi) under the relevant double taxation avoidance agreement - Indo-US DTAA - HELD THAT:- As relying on own case [2022 (1) TMI 939 - ITAT MUMBAI] we are of the view that there is no infirmity in the order of The ld CIT (A) in holding that payment by assessee to a foreign company for utilization of transponder centered on a satellite is not in the nature of Royalty in terms of various Article of above Three DTAAs. Coming to the argument of the ld DR that relying on Article 3 (2) of The Treaty, term “process” as defined in Explanation [6] to section 9 (1) (vi) of The Act, should be read in to the treaty as the term “process” used in the treaty Article 12 (3) is not defined in Treaty, hence, meaning assigned domestic law should be used. We find that in Article 12 (3) of India Malaysia Treaty it is “ Secret Formula or process” is the term used and not “ process” , therefore meaning of term “ process” cannot be incorporated in the treaty, even otherwise, because then, the meaning of word “secret “ in treaty would become redundant. CIT (A) has also dealt with this argument of ld AO in his order and then order of ld CIT (A) worded identically in the issues decided by coordinate bench has been upheld. Therefore, this argument also deserves to be dismissed. - Decided against revenue. Issues Involved:1. Whether the tax is required to be deducted under Section 195 of the Income Tax Act on payment made for transponder charges constituting royalty under Section 9(1)(vi) of the Act or under the relevant Double Taxation Avoidance Agreement (DTAA).Issue-Wise Detailed Analysis:1. Tax Deduction on Transponder Charges as Royalty:The primary issue in this case is whether payments made for transponder services by the assessee to three entities (Intelsat Corporation, USA; Intelsat Global Sales and Marketing, UK; and MEAST Satellite System, Malaysia) are subject to tax deduction at source under Section 195 of the Income Tax Act, as they constitute royalty under Section 9(1)(vi) of the Act or under the relevant DTAA.Facts and Arguments:- The assessee, engaged in marketing advertisement time and distribution of television channels, made payments for transponder service fees to the aforementioned entities and applied for a nil withholding tax certificate under Section 195(2).- The Assessing Officer (AO) rejected the application, holding that these payments are taxable as royalty based on the explanation to Section 9(1)(vi) of the Act, and referred to the decision of the Delhi High Court in the case of Asia Satellite Communication Co Ltd (2011) 332 ITR 340, which held that such payments are not taxable in India.- On appeal, the Commissioner of Income Tax (Appeals) [CIT(A)] considered the relevant articles of the DTAAs with the USA, UK, and Malaysia, and concluded that the definition of 'royalty' in these treaties does not encompass transponder charges. The CIT(A) relied on the Bombay High Court's decision in Neo-Sports Broadcast Private Limited (ITA number 187 of 2018), which held that transponder charges paid to a non-resident are not taxable as royalty.Revenue's Appeal:- The Revenue argued that tax should be withheld on these payments, citing the decision in Commissioner of Income-tax Vs Siemens Aktiongesellschaft [2009] 177 Taxman 81 (Bombay) and the ITAT's earlier decision in the assessee's case.- The Revenue emphasized that the definition of 'process' in Explanation 6 of Section 9(1)(vi) should be applied, which includes transmission by satellite.Assessee's Counter-Arguments:- The assessee contended that the issue is covered in their favor by the coordinate bench's decision in their own case (TS-66-ITAT-2022(Mum)).- The assessee argued that the definition of 'royalty' in Article 12(3) of the DTAA should be considered, and there is no need to refer to Article 3(2) of the DTAA.Tribunal's Findings:- The Tribunal carefully reviewed the rival contentions and the orders of the lower authorities.- It noted that the CIT(A) had relied on the Bombay High Court's decision in Neo-Sports Broadcast Pvt Ltd, which followed the Delhi High Court's decisions in Asia Satellite Communications Ltd and New Skies Satellite BV, holding that transponder charges are not taxable as royalty.- The Tribunal upheld the CIT(A)'s decision, emphasizing that the definition of 'royalty' in the DTAAs with the USA, UK, and Malaysia is similar, and the term 'secret formula or process' does not include transponder charges.- The Tribunal dismissed the Revenue's argument that the definition of 'process' from Explanation 6 of Section 9(1)(vi) should be incorporated into the treaties, as it would render the term 'secret' redundant.Conclusion:- The Tribunal concluded that the payments made by the assessee to the three entities for transponder services are not taxable as royalty under the DTAAs with the USA, UK, and Malaysia.- Consequently, the assessee is not required to withhold tax on these payments.- All 65 appeals filed by the Revenue were dismissed.Order Pronouncement:- The order was pronounced in the open court on 24.02.2022.