TaxTMI 
TaxTMI 
2016 (12) TMI 1338
X X X X Extracts X X X X
X X X X Extracts X X X X
....r Section 253 of the Income-tax Act, 1961 ('Act') against the order passed by the learned Commissioner of Income-tax (Appeals)-11 [CIT(A):- On the facts and circumstances of the case and in law the learned CIT (A). General 1. erred in holding that tax is required to be deducted at source on the amount of USD 28,500 per month payable by the Appellant to Intelsat Corporation ('Intelsat') under the Transponder Services Agreement ('Agreement'); Treating the impugned service charges as royalty 2. erred in holding that the transponder service charges paid by the Appellant to Intelsat under the Agreement are in the nature of royalty under the provisions of the Act. 3. erred in holding that the transponder service charges paid by the Appellant to Intelsat under the Agreement are in the nature of royalty under the provisions of the Double Taxation Avoidance Agreement between India and United States of America; Treating the service charges as fees for technical services 4. erred in holding that the transponder service charges paid by the Appellant to Intelsat under the Agreement are also in the nature of fees for technical services under the provisions of the Act; Tax....
X X X X Extracts X X X X
X X X X Extracts X X X X
....its transponder capacity and bandwidth to various customers in India and outside India, who used the transponders for their business in India. In consideration for the said services received for transponder, the assessee has to make the payment to Intelsat. Since the said payment made to the Intelsat as per the applicant and payee was not taxable in India either as 'royalty' or as 'fee for technical services', the assessee therefore, made an application before the Assessing Officer under section 195 for non-deduction of TDS. In the said application, the assessee had also stated that the said amount is neither taxable under the Domestic Law (Indian Income Tax Act) nor under the provisions of Indo-US DTAA or Indo-UK DTAA. The assessee's submissions before the Assessing Office in this regard has been summarized by the Ld. Assessing Officer in one of the order in the following manner:- • The payments to Intelsat are not taxable as royalty for the use of process under the Act since receipt of transponder services do not constitute the use of or the right to use any process [judgment of the Delhi High Court in the case of Asia Satellite Telecommunications Limited (ITA No 131....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... qualify as 'royalty' and the applicant accordingly was directed that taxes @10% plus applicable surcharge and cess on gross payments made to Intelsat for the period April 2011 to March 2012 should be deducted and paid. 4. Before the Ld. CIT (A), the assessee made very elaborate submissions challenging that, neither under the provisions of Income-tax Act nor under the Treaty with Indo-US or Indo-UK the said payment can be reckoned as "royalty". The assessee's detailed submissions have been incorporated by the Ld. CIT (A) right from pages 3 to 30 of the appellate order. The Ld. CIT(A) though observed that the facts of the present case was quite similar to the facts of the case of the Delhi High Court decision in the case of New Skies Satellite BV, but only to the extent of operation of transponder, up-linking facilities etc. However, major difference in the two cases is that, in the case of the assessee the up-linking facilities are situated in India, whereas in the case before the Hon'ble Delhi High Court the payer was non-resident and in the present case payerassessee is resident of India. Thereafter, he proceeded to analyze the technological aspect of satellite communication s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed and analyzed all the relevant decisions on this point and also relevant provisions of the DTAA for coming to the conclusion that such a payment does not fall within the scope and ambit of 'royalty' under the DTAA and the amended provisions of 9(1)(vi) will not apply on the provisions of the DTAA. On the issue of FTS also, Mr. Agarwal pointed out that this Tribunal in the case of 'B4 International Holdings' in ITA No. 3326/M/2006, order dated28.05.2012, the Tribunal has held that the payment made to Panamsat will not amount to 'fee for technical services' under the DTAA, because the condition of "make available" is not being satisfied. Before us, he has filed a summary of various decisions on this point and the synopsis of the ruling which for the sake of the ready reference is reproduced below: S. No. Name Forum Asst. Year Involved Summary of the ruling Remarks 1 Intelsat Corporation US (ITA 977/ 2011 Pronounced on 19 Aug., 2011 Delhi High Court 2007 -08 Following the Delhi High Court ruling in the case of Asia Satellite Telecommunications Co. Limited (332 ITR 340), Upheld the Delhi Tribunal's ruling (ITA No 5443/Del/2010) that Intelsat Corporati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....412/M/2008 4176/M/09, 5537/M/08, 5536/M/08, 4706/M/09) Pronounced On 5 July 2016 Mumbai Tribunal 2003- 04 to 2005- 06 The Mumbai Tribunal ruling in the case of New Skies (supra) has held that payment of transponder charges does not fall within the definition of 'royalty' per Article 12 of the India- US tax treaty. The Mumbai Tribunal Considered the retrospective amendment to the definition of 'royalty' introduced vide Finance Act 2012 and held that Such amendment under The Treaty and Accordingly, payment of Transponder charges Does not fall within the ambit of definition of 'royalty' per Article 12 of the India-US tax treaty. - In the light of these decisions, he submitted that, assessee is not obliged to deduct TDS for the payment made to Intelsat as it neither falls in the ambit of 'royalty' nor 'FTS' under the relevant treaty provisions of Indo-US-DTAA and Indo-UKDTAA. (As in some cases, the payments have been made to Intelsat Corporation US and some cases payment have been made to Intelsat Global Sales and Marketing, UK). Lastly, Mr. Agarwal pointed out that, the Hon'ble Delhi High Court in the case of Intelsat while deciding the issue in favour of the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be read into DTAA as it was not a question before the Hon'ble High Court; ii) The natures of services rendered in the said case were found to be not Royalty under the DTAA though found to be Royalty under the Act. Those services were found to fall under the expression "commercial or industrial profits" as per the then DTAA (Old) and therefore could not be taxed in India in absence of PE. The provisions of DTAA being more beneficial to the assessee were preferred over the provisions of the I.T. Act; iii) In paras 13,22 and 28 of its order, the Hon'ble HC has approved the insertion of Explanation below S.9(2) inserted by the Finance Act 2007, thereby implying that the Explanations inserted by Finance Act, 2007 could be read into modern DTAAs; iv) Mumbai Tribunal In the case of Viacom 18 Media (P.) Ltd.(2014) 162 TTJ 336 (Mum) has explained the import of Bombay HC decision in right perspective in paras 16 and 17 of its order while rejecting the assessee's argument that the HC has held that amendments in the Act cannot be read into DTAAs; and v) The Bombay HC has approved ambulatory approach (para 22) to interpretation of treaties against Static approach adopted by....
X X X X Extracts X X X X
X X X X Extracts X X X X
....o-US DTAA is applicable and since it does not have any PE or business connection in India, therefore, the payment made to a non-resident outside India for availing service of equipment placed outside India cannot be taxed in India. In support of such a contention decision of Hon'ble Bombay High Court in the case of DIT vs. Set Satellite (supra) has been relied upon. In any case, it has been submitted that, even otherwise also the definition of "royalty" under Article 12(3) of Indo-US-DTAA is also not applicable, because transponder charges is only use of facility and it is not an equipment and does not amount to use of any copyright effecting work, secret formula, process etc or any other term described in para 3 of Article 12. The Ld. CIT(A) has held that it is not a 'royalty' and secondly, even otherwise also by virtue of Article 12(7) such a royalty cannot be taxed in India, because it is not borne by PE or fixed place of the US company in India. The Ld. DR has strongly relied upon amended definition of the 'royalty' under the Act, wherein, the scope and definition of 'royalty' has been enlarged by the newly inserted Explanation (vi) and (vi) by the Finance Act, 2012 with retros....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rious terms used in para 3(a) like copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting or in any manner relates to any patent or trademark, design, secret formula or process. It is also not use or right to use any industrial, commercial, or scientific equipment. There is no such kind of right to use which is given by Pan Am Sat to assessee. Thus, the said payment does not fall within the ambit of the terms used in para 3 of Article 12. So far as the reading of amended definition of 'royalty' as given in section 9(1)(vi) into treaty, Hon'ble Delhi High Court in its latest judgment in the case of DIT vs. New Skies Satellite(supra), wherein it has considered Hon'ble Madras High Court decision in the case of Verizon Communications Singapore Pte Ltd. (supra) also, have discussed the issue threadbare and came to the conclusion in the following manner:- "60. 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 "r....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ature of 'royalty' and also the scope of enlarged definition of 'royalty' given in section 9(1)(vi) will not apply in DTAA. 8. Before us Ld DR has heavily relied upon the decision of Bombay High Court in the Siemens AG to contend that nowhere the Court has laid down that amendment in the Domestic Law cannot be read into Treaty rather it is otherwise. We find that in the latest decision the Hon'ble Delhi High Court in the case of DIT vs. News Sky Satellite BV (Supra) have explained the ratio and principle of Hon'ble Bombay High Court in the case of Siemens Aktiongesellschaft (supra). The relevant observation of the Hon'ble Delhi High Court in the said case reads as under:- "48. In Commissioner of Income Tax v. Seimens Aktiongessellschaft, [2009] 310 ITR 320 (Bom), the Bombay High Court citing R v. Melford Developments Inc. held that "The ratio of the judgment, in our opinion, would mean that by a unilateral amendment it is not possible for one nation which is party to an agreement to tax income which otherwise was not subject to tax. Such income would not be subject to tax under the expression "laws in force". ********** ********* ********* While considering the Doubl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation of similar definitions. What that does imply however, is that just because there is a domestic definition similar to the one under the DTAA, amendments to the domestic law, in an attempt to contour, restrict or expand the definition under its statute, cannot extend to the definition under the DTAA. In other words, the domestic law remains static for the purposes of the DTAA." Thus the contention of the Ld. DR cannot be accepted in view of clarification given by the Hon'ble Delhi High Court that where the definition has been given in the Treaty then there is no requirement to look into domestic law or any amendment made therein. In view of the aforesaid decisions, we hold that the payment made by the assessee to Intelsat is not taxable as royalty in India and, therefore, assessee was not required to deduct TDS or withhold any tax on such payments. This proposition has been upheld by Hon'ble Supreme Court in the case of GE Technology Centre, 327 ITR 456. 9. So far as the issue relating to FTS is concerned, we find that, this Tribunal in B4U International Holdings (supra) on similar payment made to Panamsat, it was held that they do not satisfy the test of "make available"....