TaxTMI 
TaxTMI 
2011 (1) TMI 47
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....s 'the Act'). ITA No. 131 of 2003 filed by the assessee was admitted on the following substantial questions of law : "(i) Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amounts received by the Appellant (a non-resident) from its non-resident customers for availing transponder capacity was chargeable to tax in India where the satellite was not stationed over Indian airspace and in directing how much income is to be determined? (ii) Whether on the facts and in the circumstances of the case Tribunal was right in holding that the Appellant had a business connection inIndia through or from which it earned income? (iii) Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the amount paid to the Appellant by its customers represented income by way of royalt....
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....issue whether income of the assessee is taxable under section 9(1)(vii) of the Income-tax Act, 1961? (iv) Whether ITAT is right in holding that transponders cannot be regarded as equipment under Explanation 2 clause (iva) to section 9(1)(vi) of the Income-tax Act, 1961?" 3. Though both the parties have preferred appeals and are therefore, they are appellants in their respective appeal. For the sake of convenience, M/s. Asia Satellite would be referred to as the appellant and the Director, Income-tax is referred to as the Revenue, hereinafter. 4. A glimpse of questions of law enumerated above gives a fair idea of the contours and the nature of dispute involved. However, it would still be necessary to highlight the factual premises under which the dispute has arisen. This job can be accomplished by taking stock of the factual matrix of ITA No. 131 of 2003, as the similar scenario prevails in the other appeal as well. Re : Statement of Facts 5. The appellant/assessee, viz., Asia Satellite Telecommunications Co. Ltd., is a company incorporated in Hong ....
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....nly in satellite transmission but also in the case of terrestrial transmission. There is no change in the content of the signals whatsoever that is carried out by the appellant in the transponder. Thereafter, the signals leave the transponder and are relayed over the entire footprint area where they can be received by the facilities of the appellant's customers or their customers. 7. It is the case of the assessee that it has no role whatsoever to play either in the uplinking activity or in the receiving activity. Its role is confined in space where the transponder which it makes available to its customers performs a function which it is designed to perform. The only activity that is performed by the appellant on earth is the telemetry, tracking and control of the satellite . This is carried out from a control centre at Hongkong. 8. For this reason, it is claimed by the appellant that no part of the income generated by it from the customers to whom the aforesaid services are provided was chargeable to tax inIndia and for this reason no return income was filed inIndia. However, Deputy Commissioner of Income-tax (Non-resident Circle),New Delhi as Assessing Officer is....
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....e with India, the proprietary rights in the nature of copyright, etc. in the downlinked beam did not belong to the appellant but belonged to the T.V. channels. He held that there was no evidence on record to hold that the appellant had any India specific beaming facility. He found that on the basis of the facts brought on record it could not be said that the downlinked beam could be restricted to any particular region or country. According to the CIT(A), it was the responsibility of the appellant to keep the equipment in good shape and to ensure the quality of the downlinked beam in the footprint area in respect of a beam uplinked by the customer. He found that the telemetry, tracking and control operations were carried out from Hong Kong and that no beam was uplinked from India. His finding was that the agreements were signed outside India and the payments were also received outside India. Only the signals could be received in India but as a matter of fact these were not received in India either by the appellant or its agent but by cable TV operators who had agreements for reception of signals with the TV channels to whom the property in the signal belonged. He accordingly h....
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.... issue as to whether the amounts received by the appellant were liable to be taxed in India in terms of section 9(1)(vi) of the Act. Argument of the revenue in this behalf was that the appellant received payments from some companies located outside India which companies in turn received payments from Indian companies or companies operating in India in respect of signals received in India and, therefore, the provisions of section 9(1)(vi) would be attracted. According to the Assessing Officer, the appellant would fall within the definition of royalty as the said term was defined in Explanation 2 below section 9(1)(vi), as it was a payment for use of "similar property". The CIT(A) held that the issue to be decided was whether the customers were merely using a physical asset or were they using the process installed in the transponder. According to him, the signals were uplinked by the customers and were received in the transponder. The complicated devices in the transponder segregated the programme from the beam, amplified them, mounted them on new beams of wavelengths different from the original wavelength of the customers and transmitted the programmes on the new beam in the footpri....
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....omputed as if depreciation had been allowed in the earlier years. However, he rejected the contention of the appellant that it was entitled to a deduction by way of depreciation on the entire cost of the asset by relying on section 38 of the Act. He held that the C Band of AsiaSat 2 generated only 75 per cent of the total revenues of AsiaSat 2, and therefore, 75 per cent of the depreciation that was calculated on the actual cost ought to be allowed as a deduction. He considered the question as to what portion of the income so arrived at was to be considered chargeable to tax inIndia. He noted that the Assessing Officer had not given any reason as to why 80 per cent of the revenues should be attributed toIndia. He also noted that the appellant was located inHong Kong and, therefore, a substantial part of its business was likely to come from clients of Chinese and Japanese origin. He rejected the appellant's contention that the test to be applied whilst pro-rating the income would be either the number of countries which are covered by the footprint or the Gross National Product (GDP) per capita of the countries covered by the footprint. He held that appropriate ratio to be applied wo....
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....ed between it and the cable operators in facilitating the receipt of the signals. No machinery was installed by the appellant in India through which the programmes were reaching India. The Tribunal further found that the Department had not brought to its notice any operation which was done by the appellant in India and hence it held that the provisions of section 9(1)(i) would have no application. 17. The Tribunal next dealt with the question as to whether the provisions of section 9(1)(vi) would be attracted. The Tribunal noted that the only operation conducted by the appellant was confined to receiving the signals, amplifying them and after changing the frequency, relaying them back to earth. However, the Tribunal held that the word "used" in clause (iii) of Explanation 2 to section 9(1)(vi) must be given the meaning which it has in common parlance. According to the Tribunal it was not necessary that there must be a physical connection with the item to be used. It is held that as long as the user derived advantage out of the property by amplifying the signals, it would tantamount to "use" within the meaning of clause (iii). It further held that there was a physical contact of ....
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....of equipment. The Tribunal held that the appellant had not leased out any equipment but had only made available the process that was carried out in the transponder to its customers. 19. As regards the contention that even if the payment was to be regarded as one falling within the definition of royalty, nevertheless, as the TV channels were non-residents, the income could not be brought to tax by virtue of sub-clause (c) of section 9(1)(vi), the Tribunal held that the TV channels were using the services of the appellant for the purpose of their business, which business was being carried on in India. The Tribunal took the view that business is carried on at a place where some activity capable of producing income is carried on. The source of income of the TV channels were the Indian advertisers who made payment for advertising their products during the course of the relay of the programmes in India. The other source of revenue was the cable operators who caught the signals and distributed them to the public. According to the Tribunal, therefore, the essential activity was to make available the programmes of the TV channels in India and, therefore, they found that the TV channels w....
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....enditure incurred by it. The Tribunal held that the income received by the appellant would be chargeable to tax under the head "Profits and gains of business or profession". Therefore, the Tribunal held that the computation would have to be made in accordance with Chapter IV-D. The Tribunal stated that if the starting point of the computation of the total income was only the revenue relatable to India, then, only the proportionate expenses relating to India should have been deducted rather than deducting the expenses in total from the net revenue relatable to India and thereafter apportioning the net income of the South Beam and C Band to India. The Tribunal, therefore, set aside the computation and directed that it would be done de novo by the Assessing Officer. The computation to be done would involve two steps. First, the Assessing Officer would have to calculate the gross receipts relatable toIndia and thereafter deduct therefrom the expenses in relation to income attributable toIndia. 22. Having said so, the Tribunal then dealt with the question as to what was the depreciation that would be allowed to the appellant. The Tribunal held that there was a difference between inco....
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....med to be received inIndia in such year by or on behalf of such person; or (b) Accrues or arises or is deemed to accrue or arise to him inIndia during such year. Explanation 1.-Income accruing or arising outsideIndia shall not be deemed to be received inIndia within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared inIndia. Explanation 2.-For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India." 25. It is clear from the reading of the aforesaid provision that a non-resident is liable to pay tax on the income derived by him, which is received or deemed to be received in India or which accrues or arises or is deemed to accrue or arise in India during the relevant year. Thus, a non-resident is under an obligation to pay tax in respect of income generated....
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....f, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central Government : Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of a licence) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India. Explanation (2)** ** ** (iii) The use of any patent, invention, model, design, secret formula or process or trade mark or similar property; &nb....
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....peration was done by the appellant in India and therefore, section 9(1)(i) of the Act would have no application. The appellant has challenged the finding of the Tribunal holding that it had a business connection inIndia. However, it was accepted at the bar that in case the finding of the Tribunal that there was no operation inIndia is affirmed, issue as to whether the appellant had business connection inIndia would be of academic interest. 27. Insofar as income earned by the appellant from its customers in India is concerned, the Tribunal has held that this would qualify as 'royalty' as defined in Explanation 2 to section 9(1)(vi) of the Act. 28. As far as applicability of clause (vii) of section 9(1) of the Act is concerned, though this was an issue raised by the revenue for the first time before the Tribunal, the Tribunal admitted the additional ground as purely legal, at the same time the Tribunal also refused to answer this issue. Basically, therefore, issues which arise for consideration in this appeal concern clauses (i), (vi) and (vii) of sub-section (1) of the section 9 of the Act and we proceed to deal with these issues in that order. Re : Applicability of section....
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.... accrued or arisen in India. It was argued that Explanation 1 created a fiction by laying down a deeming provision. It was also argued that the words 'directly or indirectly' used in clause (i) of sub-section (1) of section 9 of the Act clearly demonstrated that wider possible interpretation to this deeming provision was to be given. It was the endeavour of the learned counsel to demonstrate that a causal link was established to attract the deeming provision inasmuch as the appellant by providing its services to the TV channels was making it possible for those TV channels to relay their programmes in India and the viewers watching those programmes as well as cable operator located in India were making payments to the TV channels and these TV channels were in turn out of those earnings were making payments to the appellant with whom these TV channels were directly connected. 31. On the other hand, Mr. S. Ganesh, learned Senior counsel appearing for the appellant, submitted that the Tribunal with well supported reasoning had arrived at the conclusion that income did not accrue or arise in India under clause (i) of sub-section (1) of section 9 of the Act and heavily relied upon the....
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....ons in India. The Tribunal has rightly emphasized the expressions "operations" and "carried out in India" occurring in Explanation (a) to hold that these expression signify that it was necessary to establish that any part of the appellant's operations were carried out in India. No machinery or computer, etc. is installed by the appellant inIndia through which the programmes are reachingIndia. The process of amplifying and relaying the programmes is performed in the satellite which is not situated in the Indian airspace. Even the Tracking, Telemetering and Control (TTC) operations are also performed outsideIndia inHong Kong. No man, material or machinery or any combination thereof is used by the appellant in theIndian territory. There is no contract or agreement between the appellant either with cable operators or viewers for reception of signals inIndia. 34. We, thus, hold that section 9(1)(i) is not attracted in the present case. Re : Applicability of section 9(1)(vi) 35. The Tribunal has covered the case of the assessee under this provision and therefore, it is the subject-matter of challenge in the appeal filed by the appellant. To recapitulate briefly the process....
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....its operations, the charges paid by it to AsiaSat are not covered by clause (iii) of Explanation 2 to section 9(1)(vi) of the Act and therefore, the same are not "royalty". 38. The learned Senior counsel referred to and gave his own analysis to the Standard Agreement entered into by AsiaSat with its customers, which is summarized below : Definition of 'AsiaSat 1' as per which, the appellant is the operator of the satellites. Clause 3.2(ii) and (iii), Clause 3.4 as per which, submitted the learned Senior counsel, not only the appellant is the operator of the satellite and to obtain the requisite licenses to operate the satellite and maintain the same, the appellant remains in the control of this satellite and is in fact prohibited from giving control of operation of satellite or any part thereof to its customers. 39. He also referred to the ruling of the Authority for Advance Rulings in the case of ISRO Satellite Centre [ISACT] (ISRO) In re [2008] 307 ITR 59 (New Delhi) pointing out that the process of operation of a satellite and the role played by the transponder therein and the control and operation of the transponder have been discuss....
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....t. CCT [2001] 124 STC 426, which reads as under : "9. Thus if the transaction is one of leasing/hiring/letting simpliciter under which the possession of the goods, i.e., effective and general control of the goods is to be given to the customer and the customer has the freedom and choice of selecting the manner, time and nature of use and enjoyment, though within the frame work of the agreement, then it would be a transfer of the right to use the goods and fall under the extended definition of "sale". On the other hand, if the customer entrusts to the assessee the work of achieving a certain desired result and that involves the use of goods belonging to the assessee and rendering of several other services and the goods used by the assessee to achieve the desired result continue to be in the effective and general control of the assessee, then, the transaction will not be a transfer of the right to use goods falling within the extended definition of "sale". Let me now clarify the position further, with an illustration which is a variation of the illustration used by the Andhra Pradesh High Court in the case of Rashtriya Ispat Nigam Ltd. v. Commercial Tax Officer. Illustration : ....
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....ansport operator renders no other service to the customer. Therefore, the transaction involves transfer of right to use the lorry and thus be a deemed sale." 42. Mr. Ganesh also submitted that the language of section 9(1)(vi) was almost verbatim and identical to the language which also had earlier been used in international tax treaties. In that international tax treaties, the term 'royalty' came up for discussion before the Courts in the following cases : (a) CIT v. Ahmedabad Mfg. & Calico Printing Co. [1983] 139 ITR 806 (Guj.). (b) CIT v. Vishakhapatnam Port Trust [1983] 144 ITR 146 (AP). (c) M.V. Philips v. CIT [1988] 172 ITR 521 (Cal.). (d) CIT v. Neyvali Lignite Corpn. Ltd. [2000] 243 ITR 459 (Mad.). 43. It was, thus, urged th....
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....nbsp; 'Use' in context means only 'usage simpliciter' and nothing more; (b) Legislature has 'intentionally' used the expression 'use' because in other sub-clause of Explanation 2 to section 9(1)(vi) wherever required expression used is 'use or right to use'; (c) In view of the aforesaid distinction maintained deliberately by the Legislature, hence it is not the case of 'causus omissus'; (d) Thus, according to the respondent it makes no difference in what capacity the appellant allows someone to use the process. 46. His alternate submission was that even if the control is relevant, the same was with the customer (whom the services were provided). For this purpose, he referred to the definition of transponder, which makes a difference between satellite as carrier and the transponder. According to him, what is relevant is the 'control of the tran....
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....p; 6. Physical control is neither necessary nor warranted in present context. The control of satellite is with appellant. However, more relevant and effective control of the 'use' of the transponder is with the broadcaster. 47. Mr. Sabharwal also joined the issue with the learned counsel on the applicability of the judgment in the case of ISRO (supra). He submitted that the appellant was not right in relying upon the ISRO's case (supra) because of the following reasons : (a) ISRO's case (supra) does not apply to the facts of the present case. (b) The difference lies in the type of the transponder being used. There are two types of transponder being used, i.e., Active or Passive. (c) The difference as recognized is that the process of "Amplification" takes place in the communication active s....
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....bsp; 'Activities stand in Sub-clause (iii)' - Thus reiterating the difference further and extending it to include more than mere IPR. 49. He also referred to Article 12-Royalties in the book "Interpretation and Application of Tax Treaties" by Ned Shelton. This article with captioned 'Royalties' makes reference to satellite services and states that : (i) They were always included; and (ii) In fact for removal of doubts/to clarify Australian-Canadian DTAA has been even amended. Following passage from the book was relied for this purpose : "An increasingly important issue is the treatment of payments made for satellite services. There has been a view in one particular country, for example, at least by tax officials there, that payments by customers for satellite TV services is a royalty. Separately, as an illustration of the importance of this area, the definition of royalty in the Australia-Canad....
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....case why would anyone pay royalty for use of trademark. (c) Importantly 'patented process' will be protected but 'process' if not registered will be widely used and hence, there is no question of same being 'secret' also. (d) Alternatively, even assuming for the argument that the 'process' is IPR, the same merely gives right to control the use. In present context it will mean that "Access to process is restricted/checked or made secure and thus process kept for intended user". However, the same has been used it being "unknown process or unknown mysterious entity". (e) IPR even otherwise, has to do with commercial exploitation after recognition of right in process, which is not same thing as it being "secret". The exclusive right has been recognized of assessee and broadcaster is being given 'use of process' right through restrictive access. Thus, it....
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....tax jurisdiction of the source country, i.e., where services are utilized in regard to use of process embedded in the active transponder, [control whereof is with the broadcaster] and in view of use of word 'process', which does not have to be 'secret' but having restrictive access to be commercially exploitable. 52. The entire controversy revolves round the interpretation which is to be given to sub-clause (vi) of section 9(1) of the Act. This sub-clause makes income by way of royalty payable by certain persons as chargeable to tax. These persons pay the 'royalty' made either by the Government or a resident or a non-resident. We have to keep in mind that section 9 of the Act is a deeming provision and if the situation specified therein exists, it is to be deemed that income has accrued or arisen in India. The term 'royalty' is assigned a specific meaning in Explanation 2 to sub-clause (vi) of section 9(1) of the Act. We have already pointed out above that in this case, we are concerned with sub-clauses (i), (iii) and (vi) of the said Explanation. Though these sub-clauses have already been reproduced above, for the sake of continuity in our discussion, we take note of these sub-....
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.... (2) Clause says that the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property. (3) It is settled law that the words of a statute are first understood in their natural, ordinary or popular sense and phrases and sentences are construed according their grammatical meaning unless that leads to some absurdity or unless there is something in the context, or in the object of the statute to suggest the contrary. In a case if the language of the statute is not clear and there is need to resort to aids of construction, such aids can be either internal or external. Internal aids of constructions are definitions, exceptions, Explanations, fictions, deeming provisions, headings, marginal notes, preamble, provisos, punctuations, saving clauses, non obstante clauses, etc. The external aids are dictionaries, earlier Acts, history of legislation, parliamentary history, parliamentary proceedings, state of law as it existed when the law....
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.... effect from 1-6-1976, the Explanation inserted by the Finance Act, 2007 has been substituted by the following Explanation : "Explanation.-For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vii) or clause (viii) of sub-section (1) and shall be included in the total income of the non-resident, whether or not, - (i) the non-resident has a residence or place of business or business connection inIndia; or (ii) the non-resident has rendered service inIndia." From plain reading of the Explanation inserted with effect from 1-6-1976 by the Finance Act, 2007 which has been again substituted by the Finance Act, 2010 with retrospective effect from 1-6-1976, it is clear that income of a non-res....
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....consistent with the provisions of this Act or the agreement, have the same meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf. Explanation.-For the removal of doubts, it is hereby declared that the charge of tax in respect of a foreign company at a rate higher than the rate at which a domestic company is chargeable, shall not be regarded as less favourable charge or levy of tax in respect of such foreign company." (7) The four clauses of sub-section (1) lay down the scope of power of Central Government to enter into an agreement with another country. Clause (a) contemplates situations where tax has already been paid on the same income in both the countries and in that case it empowers the Central Government to grant relief in respect of such double taxation. Clause (b) of section 90 which is wider than clause (a) provides that an agreement may be made for the avoidance of double taxation of income under this Act and the corresponding laws enforced in that country. Clauses (c) and (d) essentially deal wi....
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.... indeterminate in duration and residuary in character. Lump sum consideration is not decisive of the matter. That sum may be agreed for the transfer of one right, two rights and so on all the rights but not the ownership. Thus, the definition of term 'royalty' in respect of the copyright, literary, artistic or scientific work, patent, invention, process, etc. does not extend to the outright purchase of the right to use an asset. In case of royalty, the ownership on the property or right remains with owner and the transferee is permitted to use the right in respect of such property. A payment for the absolute assignment and ownership of rights transferred is not a payment for the use of something belonging to another party and, therefore, no royalty. In an outright transfer to be treated as sale of property as opposed to licence, alienation of all rights in the property is necessary. 56. As noticed above, the Tribunal has held that the appellant is deriving income from lease of transponder capacity of its satellites. The appellant is deriving income from lease of transponder capacity of its satellites. The appellant is amplifying and relaying the signals in the footprint area aft....
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.... knowledge, though not protected by a patent, was assessable as royalty. In the case of DCM Ltd.'s case (supra), the issue related to transfer of comprehensive technical information know-how and supply of equipment. It was held that the collaboration agreement dealing with the dispatch of one or more of its engineers, technologists to visit the factory site of the assessee, train the factory personnel and to commission the specified processes, would not create a permanent establishment. Therefore, it was held that the payments were not in the nature of 'royalty'. In Modern Threads (I) Ltd.'s case (supra), it was held that the payments were made in instalments to Italian company for supply of technical know-how and also for supply of basic process engineering documentation for designing, construction and operation of plant subject to their liability on account of rectifying form, it was held that the amount paid for supply of technical know-how and basic engineering documentation for setting of the plant in India for manufacturing of PTA was the business profit in the hands of Italian company in the absence of permanent establishment in India. 58. In the light of our discussion e....
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....nbsp;. The transponder receives the signal and on account of the distance these signals have to travel, they are required to be amplified. After amplification frequency of signals are downlinked to facilitate the transmission of signals. This is how the signals are received over various parts of the earth spanning numerous countries includingIndia. (e) The outcome, thus, would entirely depend upon the question as to whether any "process" is used by the TV Channels and also whether a "secret process" is required to bring within the ambit of Explanation 2. 60. Once we keep in mind the aforesaid important aspects, it is not difficult to find the answer to the question posed. In fact, we can say that it is so provided by the AAR in ISRO's case (supra). A close scrutiny of the said ruling of the AAR would clearly reveal that where the operator has entered into an agreement for lease of transponder capacity and has not given any control over parts of satellite /transponder, the provisions of sub-clause (vi) would not apply. In the present case also, the appellant had me....
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....gnals in space at two frequencies i.e., 1575.42 MHz (L1) and 1176.45 MHz (L5) which are accessed for the GAGAN project undertaken by the applicant. It is also seen that the navigation transponder which uplinks and downlinks the data is a passive transponder unlike the communication transponder. 15. It will be relevant to know the connotation of the term 'transponder'. In McGraw Hill's Dictionary of Scientific and Technical Terms, the meaning given is "a transmitter-receiver capable of accepting the challenge of an interrogator and automatically transmitting an appropriate reply". In Chamber's Dictionary of Science and Technology, 'transponder' (communication), is defined as an equipment forming part of a communications satellite , which receives signals from a ground station at one frequency and retransmits them to another ground station or to domestic satellite receivers at another frequency". 16. It is clear that the applicant in the course of carrying out its objectives and operations will not be using any equipment of IGL satellite or the transponder. What the applicant needs to do is to adjust or tune its system to access the navigation transponder space....
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....onder is ensured when it responds to the directions sent through the ground station. Such directions, it is stated, are akin to the operation of TV by remote control apparatus. We find it difficult to accept this contention. The fact that the transponder automatically responds to the data commands sent from the ground station network and retransmits the same data over a wider footprint area covered by Inmarsat satellite does not mean that the control and operation of transponder is with the applicant. Undoubtedly, the applicant does not operate the transponder; it gets access to the navigation transponder through the applicant's own network/apparatus. The data sent by the applicant does not undergo any change or improvements through the media of transponder. In essence, it amounts to the provision of a communication/navigational link through a facility owned by IGL and exclusively operated/controlled by it. The operation and regulation of transponder is always with IGL. It is also pertinent to notice that a navigation transponder unlike a communication transponder is not an active transponder in the sense it does not amplify. It is a passive transponder, as pointed out by the....
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....nbsp; (a) Electrical Power Generation by solar arrays and Storage Battery of the satellite , which is common to and supports multiple transponders on board the satellite . (b) Common input antenna for receiving signals from the customers' ground stations, which are shared by multiple transponders. (c) Common output antenna for retransmitting signals back to the footprint area on earth, which are shared by multiple transponders. (d) Satellite positioning system, including position adjusting thrusters and the fuel storage and supply system therefor in the satellite . It is this positioning system which ensures that the location and the angle of the satellite is such that it receives input signals properly and retransmits the same to the exact desired footprint area. ....
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....s part of satellite , which is fixed in the satellite and is neither moving in itself nor assisting the satellite to and the transponder, namely, a part of it, playing howsoever important role, cannot be termed as equipment." 67. Even after stating so, the Tribunal did not take the aforesaid view to its logical conclusion, viz., the process carried on in the transponder in receiving signals and retransmitting the same, is an inseparable part of the process of the satellite and that process is utilized only by the appellant who is in control thereof. Whether it is done with or without amplification of the signal would not make any difference, in such a scenario. 68. We are inclined to agree with the argument of the learned Senior counsel for the appellant that in the present case, control of the satellite or the transponder always remains with the appellant. We may also observe at this stage that the terms "lease of transponder capacity", "lessor", "lessee" and "rental" used in the agreement would not be the determinative factors. It is the substance of the agreement which is to be seen. When we go through the various clauses of the said agreement,....
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....y has been transferred by the carrier to the customer ? The answer is obviously in the negative, as there is no transfer of the "use of the lorry" for the following reasons : (i) the lorry is never in the control, let alone effective control of the customer; (ii) the carrier decides how, when and where the lorry moves to the destination, and continues to be in effective control of the lorry; (iii) the carrier can at any point (of time or place) transfer the consignment in the lorry to another lorry; or the carrier may unload the consignment en route in any of his godowns, to be picked up later by some other lorry assigned by the carrier for further transportation and delivery at destination. (ii) On the other hand, let us consider the case of a customer (say a factory) entering into a contract with the transport operator, under which the transport operator has to provide a lorry to the customer, between the hours 8.00 a.m. to 8.00 p.m. at the customer's factory for its use, at a fixed hire per day or hire per km. subject to an assured minimum, for a period of one mon....
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....rk of each member. The appellant was to develop, design, engineer, procure equipment, materials and supplies to erect and construct storage tanks including marine facility (jetty and island breakwater) for transmission and supply of LNG to purchasers, to test and commission the facilities, etc. The contract involved : (i) offshore supply, (ii) offshore services, (iii) onshore supply, (iv) onshore services and (v) construction and erection. The price for offshore supply and offshore services was payable in US dollars, that for onshore supply and onshore services and construction and erection partly in US dollars and partly in Indian rupees. The payment for offshore supply of equipment and materials supplied from outsideIndia was received by the appellant by credit to a bank account inTokyo and the property in the goods passed to Petronet on the high seas outsideIndia. Though the appellant unloaded the goods, cleared them from Customs and transported them to the site, it was for and on behalf of Petronet and the expenditure including the customs duty was reimbursed to it. The price of offshore services for design and engineering including detailed engineering in relation to the suppl....
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....ly such part of the profits as was reasonably attributable to the operation carried out inIndia. (ii) That having regard to Article 7(1) of the Convention for Avoidance of Double taxation and Fiscal Evasion with respect to Taxes on Income between India and Japan read with paragraph 6 of the Protocol supply of equipment or machinery (sale of which was completed around, the order having been placed directly by the overseas office of the enterprise) would be within the meaning of the phrase "directly or indirectly attributable to that permanent establishment" and, therefore, so much of the amount received or receivable by the appellant as was directly or indirectly attributable to the permanent establishment as postulated in paragraph 6 of the Protocol would be taxable in India. The price of the offshore services would be deemed to accrue or arise under section 9(1)(vii) of the Income-tax Act, 1961. And inasmuch as fees for technical services were specifically provided in Article 12 of the Convention, they would not fall under Article 7. Therefore, the price of the offshore ....
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....; That for attracting the tax there had to be some activities through the permanent establishment. If income arose without any activity of the permanent establishment, even under the Convention the taxation liability in respect of overseas services would not arise in India. Section 9 spelled out the extent to which the income of a non-resident would be liable to tax inIndia. Section 9 had a direct territorial nexus. Relief under a Double Taxation Avoidance Treaty, having regard to the provisions contained in section 90(2), would arise only in the event taxable income of the assessee arose in oneContractingState on the basis of accrual of income in anotherContractingState on the basis of resident. So far as accrual of income inIndia was concerned, taxability must be read in terms of section 4(2) read with section 9, whereupon the question of seeking assessment of such income inIndia on the basis of the Double Taxation Treaty would arise. Paragraph 6 of the Protocol to the Convention was not applicable, because, for the profits to be "attributable directly or indirectly", the permanent establishment must be involved in the activity giving rise to the profits. ....
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....ppellant outsideIndia, only because they were connected with the permanent establishment, even in relation to the principle of apportionment would apply." [Emphasis supplied] 72. The Tribunal has made an attempt to trace the fund flow and observed that since the end consumers, i.e., persons watching TV in India are paying the amounts to the cable operators who in turn are paying the same to the TV channels, the flow of fund is traced to India. That is a far-fetched ground to rope in the appellant in the taxation net. The Tribunal has glossed over an important fact that the money which is received from the cable operators by the telecast operators is treated as income by these telecast operators which has accrued in India and they have offered and paid tax. Thus, the income which is generated in India has been duly subjected to tax in India. It is the payment which is made by the telecast operators who are situated abroad to the appellant which is also a non-resident, i.e., sought to be brought within the tax net. 73. For the aforesaid reasons, it is difficult to accept such far-fetched reasoning with no causal connection. 74. Even when we look into the matter from the stan....
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....pment. A different, but much less frequent, transaction would be where the owner of the satellite leases it to another party so that the latter may operate it and either use it for its own purposes or offer its data transmission capacity to third parties. In such a case, the payment made by the satellite operator to the satellite owner could well be considered as a payment for the leasing of industrial, commercial or scientific equipment. Similar considerations apply to payments made to lease or purchase the capacity of cables for the transmission of electrical power or communities (e.g., through a contract granting an indefeasible right of use of such capacity) or pipelines (e.g., for the transportation of gas or oil)." 75. Much reliance was placed upon the commentary written by Klaus Vogel on 'Double Taxation Conventions (3rd Edition)'. It is recorded therein : "The use of a satellite is a service, not a rental (thus correctly, Rabe, A., 38 RIW 135 (1992), on Germany's DTC with Luxembourg); this would not be the case only in the event the entire direction and control over the satellite , such as its piloting or steering, etc. were transferred to....
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....ntention that such companies would not be resident in Mauritius within the meaning of Article 3 read with Article 4 of the DTAC. 86. There is a further reason in support of our view. The expression liable to taxation has been adopted from the Organisation for Economic Co-operation and Development Council (OECD) Model Convention 1977. The OECD commentary on article 4, defining resident, says : "Conventions for the avoidance of double taxation do not normally concern themselves with the domestic laws of the Contracting States laying down the conditions under which a person is to be treated fiscally as "resident" and, consequently, is fully liable to tax in that State". The expression used is liable to tax therein, by reasons of various factors. This definition has been carried over even in Article 4 dealing with resident in the OECD Model Convention 1992. 87. In A Manual on the OECD Model Tax Convention on Income and on Capital, at paragraph 4B.05, while commenting on Article 4 of the OECD Double Tax Convention, Philip Baker points out that the phrase liable to tax used in the first sentence of Article 4.1 of the Model Convention has raised a number of issues, and observes : ....