2024 (2) TMI 453 - AT - Income Tax

Satellite transmission services income not taxable as royalty or technical fees under Section 9(1)(vi) and 9(1)(vii)

ITAT Delhi held in favor of the assessee regarding income from satellite transmission services. The AO had classified revenue from voice, data and ... Income deemed to accrue or arise in India - revenue earned by the assessee from the provisions of transmission services of voice, data and programmes of space segment capacity on Satellites to customers - AO held it in the nature of “Royalty” u/s 9(1)(vi) of the Income Tax Act and Article 12(4) of the India-Netherland DTAA - Alternatively, he held that the revenue earned by the assessee is “Fee for Technical Services” u/s 9(1)(vii) of the Act r.w. Article 12(5) of the India- Netherlands DTAA. HELD THAT:- As in earlier years, Hon’ble Delhi High Court [2016 (2) TMI 415 - DELHI HIGH COURT] answered the questions in favour of the assessee held that India's change in position to the OECD Commentary cannot be a fact that influences the interpretation of the words defining royalty as they stand today. The only manner in which such change in position can be relevant is if such change is incorporated into the agreement itself and not otherwise. A change in executive position cannot bring about a unilateral legislative amendment into a treaty concluded between two sovereign states. It is fallacious to assume that any change made to domestic law to rectify a situation of mistaken interpretation can spontaneously further their case in an international treaty. Therefore, mere amendment to Section 9(1)(vi) cannot result in a change. Consequently, since we have held that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word 'royalty' in Asia Satellite [2011 (1) TMI 47 - DELHI HIGH COURT] when the definitions were in fact pari materia (in the absence of any contouring explanations), will continue to hold the field for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amended jointly by both parties to incorporate income from data transmission services as partaking of the nature of royalty, or amend the definition in a manner so that such income automatically becomes royalty. The Revenue has not pointed any change into facts and circumstances of the present case. We therefore, respectfully following binding precedent (supra), hereby direct the AO to delete the impugned addition. Non granting credit of taxes as deducted at source - As assessee submitted that appropriate direction may be given to the assessing authority for granting credit of the tax already deducted and CIT DR has no objection in this regard - HELD THAT:- Considering the submissions made at bar, we direct the AO to verify the correctness of the claim of the assessee and give credit of the tax deducted at source in accordance with law. If the taxes have been deducted and deposited in government account as per provision of law, the AO would grant credit of same. This Ground of assessee’s appeal is allowed. Issues involved:The judgment involves issues related to the assessment year 2020-21, including the classification of payments received by the assessee for data transmission services, specifically whether they constitute business profits, royalty, or fee for technical services under the Income Tax Act and the India-Netherlands Double Taxation Avoidance Agreement. The judgment also addresses the denial of credit for taxes deducted at source, charging of interest under Sections 234A and 234B of the Act, and the initiation of penalty proceedings under Section 270A of the Act.Grounds of Appeal:1. The appellant challenged the assessment of tax liability in India, arguing that the payments received for data transmission services should not be taxable in India due to the absence of a Permanent Establishment under the India-Netherlands DTAA. * The appellant contended that the payments were not 'Royalty' as defined under the Income Tax Act and the DTAA. 2. The appellant disputed the characterization of payments as 'Royalty' or 'Fee for Technical Services' under the Act and the DTAA, citing previous judicial decisions in their favor.3. The appellant sought credit for taxes deducted at source, which was not fully granted by the assessing officer.4. The appellant objected to the charging of interest under Sections 234A and 234B of the Act.5. The appellant contested the initiation of penalty proceedings under Section 270A of the Act.Judgment Details:The judgment addressed the appellant's contentions regarding the tax liability on payments received for data transmission services. The Tribunal referred to previous judicial decisions and upheld the appellant's arguments based on the interpretation of 'Royalty' under the Act and the DTAA.The Tribunal directed the assessing officer to delete the addition made to the appellant's income, as the facts and circumstances remained unchanged from previous years. The Tribunal relied on a binding precedent set by the Delhi High Court and ruled in favor of the appellant.Regarding the denial of credit for taxes deducted at source, the Tribunal directed the assessing officer to verify and grant credit if the taxes were deducted and deposited in accordance with the law.The Tribunal allowed the appellant's appeal against the charging of interest under Sections 234A and 234B, considering it consequential in nature.The Tribunal dismissed the appellant's appeal against the initiation of penalty proceedings under Section 270A as premature.In conclusion, the Tribunal partly allowed the appellant's appeal, providing relief on the tax liability issue and the credit for taxes deducted at source, while addressing the interest charges and penalty proceedings in accordance with the law.Please let me know if you need further clarification or details on any specific aspect of the judgment.