TDS on payments to non-resident satellite company for downlinking signals; matter remanded to assess DTAA treatment.

Taxability of payments to a non-resident satellite company for downlinking and international footprints was examined in light of the amended scope of fee for included services and retrospective explanations. The tribunal directed re-evaluation of whether such payments qualify as royalty or fee for included services or instead constitute business profits under the applicable double taxation agreement with the United States, with the assessing officer to decide afresh after hearing the taxpayer on treaty entitlement; the appeal was allowed for statistical purposes and the matter remitted for fresh adjudication.

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Issues: Whether the payments made to a non-resident satellite owner for down-linking/data transmission services are taxable in India as royalty/fee for included services under section 9(1)(vi) and section 195 of the Income-tax Act, 1961, or whether such payments constitute business profits not taxable in India by virtue of the DTAA between India and the USA.

Analysis: The matter involves (i) the statutory definition of royalty under section 9(1)(vi) as amended (including Explanations 5 and 6 inserted by Finance Act, 2012 with retrospective effect), and (ii) the applicability of the DTAA to determine whether the payments are taxable in India as business profits or as royalty/fees for included services. The lower orders did not fully examine the effect of the DTAA on the taxability of the payments in the hands of the non-resident recipient. The question whether the payments remain untaxable in India under the DTAA requires fresh consideration in light of the statutory amendments and the treaty provisions and entitlement to treaty benefits.

Conclusion: The issue is remitted for fresh adjudication to the assessing authority to decide, after affording opportunity of being heard, whether the payments constitute royalty/fee for included services taxable in India or constitute business profits not taxable in India under the DTAA.

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