AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (9) TMI 1586
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....in the case in directing to deduct tax at source u/s 195 of the IT Act. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that no income accrues to M/s New Skies Satellites N.V. Rooseveltplanstoen 4, 2517 KR, the Hague, The Netherlands in India against the payment of US$ 17,00,000/- per annum for the supply of Satellite bandwidth for use in the Reliance Telecom Network." 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the payment for obtaining computer software is in the nature of royalty which is liable for taxation in India". 3. The facts in brief are that, the assessee company had entered into an agreement with M/s New Skies Satellites NV (which is a company incorporated in Rooseveltplanstoen 4, 2517 KR, the Hague, The Netherlands) for purchase/supply of Satellite bandwidth capacity as per agreement dated 12.12.2002, (subsequently amended on 18.12.2002). The assessee had made an application u/s 195(2) dated 03.11.2003 before the Assessing Officer for making the payment of charges of US$ 17,00,000/- per annum without deduction of tax at source to M/s New Skies Satellites.....
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....n pursuance of the order of the Assessing Officer. Thereafter, it was reiterated that said payment is not in the nature of 'royalty', as defined under Article 12 of DTAA albeit it constitutes "business income" in the hands of the M/s New Skies Satellites, which is governed by Article 7. Since the said company does not have a PE in India and, therefore, the same can not be taxable in India. The Ld CIT(A) after considering the entire issue in detail and various decisions of the Tribunal, came to the conclusion that the said payment made by the assessee does not constitute "royalty" and is only a "business profit" of M/s New Skies Satellites NV, which is not taxable in India as it does not have a PE in India. The detailed finding of the CIT(A) has been elaborated from pages 4 to 8 of the appellate order. 6. Before us, the Ld. Spl. Counsel for the revenue, Shri Parag Vyas, submitted that now in the wake of amendment brought in section 9(1)(vi) by Finance Act of 2012 with retrospective effect, such a payment for purchase of satellite bandwidth has to be examined from the angle of newly amended section. The nature of payment here in this case is for the "process" which falls within the ....
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....In pursuance thereof, the Tribunal in ITA Nos. 5385 to 5387/Del/2004 and other appeals in the case of M/s New Skies Satellites, decided the issue in favour of M/s New Skies Satellites NV vide order dated 09.11.2011, wherein it was held that the payment received by the M/s New Skies Satellites NV from various customers on account of providing facility of broadcasting and satellite bandwidth capacity cannot be taxed as "royalty". While coming to this conclusion, the ITAT Delhi Bench, relied upon the decision of Delhi High Court in the case of Asia Satellite Telecommunication Co. Ltd. vs DIT [2011] 197 Taxman 263. The relevant observation and finding of Tribunal reads as under :- "9. The Assessing Officer, however, went ahead with the assessment proceedings. The assessment order dated March 29, 2000 was passed assessing the income of the assessee at Rs. 160,28,03,316. According to the Assessing Officer, the appellant had a business connection in India and, therefore, was chargeable to tax in India. He rejected the appellant's contention that its revenues ought to be apportioned having regard to the number of countries covered by the footprint. According to him, the revenues woul....
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....n India either by the appellant or its agent but by cable television operators who had agreements for reception of signals with the television channels to whom the property in the signal belonged. He accordingly held that as the performance of the contract was not in India it could not be said that any income accrued to the appellant in India. He found that the circular, being Circular No. 742 dated May 2, 1996 [1996] 219 ITR (St.) 49, issued by the Central Board of Direct Taxes in connection with the taxation of foreign telecasting companies would have no application to the appellant's case. He rejected the argument of the Assessing Officer that the waves generated by the appellant on which the programmes were mounted penetrating Indian space to reach the footprint area. According to him, the substance of the agreement was the hiring of transponder time and it was not an agreement for carrying programmes of the customers. He further held that having regard to the judgment of the Supreme Court in the case of 20th Century Finance Corporation Ltd. v. State of Maharashtra [2000] 119 STC 182, the taxable event would have to be decided on the basis of the execution of the contract a....
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.... 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 footprint area of the beam. The payments that are made by the customers were for this purpose and not for the use of the physical asset simpliciter. The details of the operations carried in the transponder were not known to the customer, the customer made the payment because they were aware of the fact that the uplinked beam would be processed in the satellite and would be downlinked in the manner that it could be received by the customers viz., the television channels, communication companies or their agents. The Commissioner of Income-tax (Appeals) held that the customers were, therefore, using the secret process put in place in the transponder on the satellite and the payments were made for this purpose and not for merely the use of a physical asset. He, therefore, came to the conclusion that the amount paid to the appellant by its customers rep....
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....ial 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 the appropriate ratio to be applied would be the area of the country to the total area of the footprint with the areas of large water bodies like inland lakes, seas and oceans being ignored. He also cancelled the levy of interest under section 234B of the Act, but upheld the levy of interest under section 234A of the Act". 8. Mr. Mistry, further submitted that this decision of the Tribunal was challenged before the Delhi High Court, by the Revenue, wherein the Hon'ble High Court (in the case of the payee) upheld the aforesaid decision of the Tribunal and endorsed the views that such a payment made by the assessee cannot be taxed as "royalty" and accordingly, there is no liability to deduct TDS. Mr. Mistry also pointed out that in Assessment year 2006-07 & 2008-09, the Tribunal again in the case of M/s New Skies Satellite....
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.... of now has been settled in the case of the payee from the stage of the High Court that it does not constitute income in the hands of the payee, we accordingly, hold that assessee is not in default and was not liable to deduct TDS on such a payment u/s 195 and therefore, there is no liability of the assessee to deduct TDS on the payment made on account of purchase of satellite bandwidth capacity. 11. So far as arguments raised by the Special Counsel of the revenue on the issue that subsequent amendment brought in statute with retrospective effect should be considered for deciding the issue that such a payment now amounts to "royalty" and same is to be viewed afresh despite the finality of the issue in the case of the payee from the stage of the High Court, we are of the considered opinion that, it will be purely an academic exercise only. The reason being that, the assessee has liability to deduct TDS u/s 195, only when the payment of the sum in the hands of the non-resident is chargeable to tax under the relevant provisions of the Income Tax Act. Here in this case, it has already been upheld that such a sum is not chargeable to tax in India in the hands of the non-resident, that ....