TaxTMI 
TaxTMI 
2017 (8) TMI 1429
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....'), and consequently, subject to tax withholding under Section 195 of the Act. 2. On the facts, and in the circumstances of the case, and in law, the learned CIT(A) ought to have held that the transponder fees payable by the Appellant to Intelsat are not taxable in India and consequently, not subject to tax withholding under Section 195 of the Act. The Appellant craves leave to add, alter, amend or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing." 3. In this case the Assessing Officer passed the following order dated 11.12.2012 u/s 195(2) of the Income-tax Act, 1961. "Intelsat is a company incorporated under the laws of United States of America ('USA'), A copy of the tax residency certificate issued to Intelsat by Department of Treasury, Internal Revenue Services, USA has been filed by the Applicant vide letter dated 12 September 2012. Intelsat has entered into an agreement with the applicant to provide with a 24 hour, satellite signal reception and transponder service. Copy of the agreement with Intelsat is pro....
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....w Explanation 6, the term 'process', as referred to the definition of 'royalty' under the IT Act, includes transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal). The new explanation also states that 'process' (which includes transmission by satellite) shall be 'royalty' under the IT Act whether or not such process is secret. In light of the said explanation, it is held that payment of transponder service fees to Intelsat by Applicant is a 'process' and thus it is in the nature of royalty income taxable in India in terms of the provisions of Section 9(1)(vi) of the IT Act as well as treaty. The definition of Royalties as per Article 12 of the India - USA Tax Treaty includes the payment made for use of any 'process'. The term 'process' is not defined in the India-USA Tax Treaty. Therefore the definition of the term process has to be imported from the Act. . Thus, the payment made for transmission by satellite is a royalty even under the tax treaty. The reference to decision of the Hobble Delhi High Court made by the applicant has not been accepted by the department a....
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....ation 6 as well as Explanation below sub-section (2) of Section 9. Further the benefit of the decision of Hon'ble Madras High Court in the case of Verizon Communications Singapore Pte. Ltd. (supra) was not available at the time of those decisions, therefore, the same are not applicable in the facts of the assessee's case. In fact, the said decision, based on the situs of the process itself supports the Revenue's case of the same being a process as contemplated under Explanation 2 to s.9(1)(vi). In view of the above discussion we do not find any reason to interfere with the orders of authorities below.' Thus, placing reliance to the order of jurisdictional ITAT, the appellant's appeal is dismissed." 5. Against the above order, assessee is in appeal before us. 6. We have heard both the Counsel and perused the records. Learned Counsel of the assessee contended that, although ITAT Mumbai in assessee's own case has decided the same issue against the assessee, but subsequently decisions have come from Hon'ble Delhi High Court and Hon'ble Calcutta High Court on the same issue in which the issue has been decided in favour of the assessee. Learned Counsel of the asse....
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.... A copy of the said order was also submitted by the undersigned for kind perusal. It was accordingly prayed that the same be treated as covered matter. 4. However, the Ld. AR of the assessee contended that subsequently the issue has then been decided by the various appellate authorities in favour of the assessee in other cases and has relied on the decisions in the case of DIT vs New Skies Satellite BV, [2016] 68 taxmann.com 8 (Delhi HC), DIT(IT) Kolkotta vs ATN International Ltd, [2016] 72 taxmann.com 353 (Calcutta), ADD1T (IT) vs Taj TV Ltd [2016] 72 taxmann.com 143 (Mum. Trib) and claimed that the isue may be decided in favour of the assessee. The assessee also relied on the decision of the Hon'ble Bombay High Court in the case CIT vs Smt Godavari Saraf reported in [1978] 113 !TR 539 (Bom) wherein it was held that when section 140A(3) has already been declared ultra vires by competent High Court in country, authority like Tribunal acting anywhere in country has to respect law laid down by High Court, though of different State, so long as there is no contrary decision of any other High Court on that point. 5. In this regard, it is humbly submitted that the a....
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....t acceptable. This is for the reason that the view of the Hon'ble Karnataka High Court is specific to the transaction which involves the assessee herein, whereas the contrary view of the Hon'ble Delhi High Court is not specific to the assessee before us. In this view of the matter and in the absence of the any decision of the jurisdictional High Court, we find no reason to depart from the earlier decision of the Tribunal in assessee's own case for A.Y. 2007-08 with a view of maintaining consistency." 7. In view of the above, it is humbly prayed that the issue under consideration in the case of the present assessee may treated as covered in favour of Revenue by the decision of the Hon'ble Mumbai Tribunal in assessee's own case for A.Y, 2009-10 to A.Y. 2011-12 vide order dated 28.3.2014 (supra)." 6.3 Per contra, the learned Counsel of the assessee has given following written submission against the above:- As per learned DR As per the Appellant In paragraph 3, the learned DR relies on the Hon'ble Tribunal's earlier decision in the Appellant's case for AY 2009-10 to AY 2011-12 (at pages 1 to 11 of LPB) The learned DR has not contr....
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....lows a High Court decision on similar issue, more so in absence of a contrary judgment of any other High Court. Reliance was also placed by the Appellant on decision in Siemens India Ltd v. K. Subrahmanian, ITO [1983] 143 ITR 120 (Bom) wherein it was similarly noted that so far as the legal position is concerned, the ITO is bound by a decision of the Supreme Court and jurisdictional High Court. The ITO would be equally bound by a decision of another High Court on the point, because not to follow that would be to cause grave prejudice to the assessee. It is undisputed that there is no contrary decision of any High Court on the issue of taxability of transponder payments under the treaty. Thus, in the absence of any contrary judgments of any other High Court on the issue of taxability of transponder payments under the treaty, judicial discipline requires the Hon'ble Tribunal to follow the above decisions of the Hon'ble High Courts. Without prejudice, the Hon'ble Mumbai Tribunal has already taken a position of following the Hon'ble Delhi High Court's decision in New Skies Satellite BV (benefit of which was not available to it earlier while deciding the ear....
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....i.e. Intelsat's own case, held in assessee's favour - that transponder payments are not taxable, vide orders dated 19 August 2011 and 28 September 2012 (submitted at pages 139 to 141 and pages 142 to 143 respectively). In this context, the Appellant submits that once an item of receipt in the hands of the foreign company has been held to be not liable to tax in India, then there can be no obligation to deduct tax under Section 195 of the Act. Accordingly, the Appellant's appeal needs to succeed. We may point out that it was similarly held by the Mumbai Tribunal in the case of United Home Entertainment (supra) that transponder payments made by assessee to Intelsat Corporation (same payee in the present appeal) are not liable for deduction of tax under section 195. because in case of the recipient (Intelsat) the income is held to be not taxable in India. (See para 7 ai page 96 of LPB and para 8 at page 103 of LPB.). This proposition is not dealt by the Hon'ble Mumbai Tribunal in the Appellant's case for the earlier years. Thus, Gartner s decision is clearly distinguishable on facts. In paragraph 7, the learned DR has urged that the matter be treated as....
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....quarrel on this point that as per section 90(2) in relation to the assessee to whom DTAA applies, the provisions of Act shall apply to the extent they are more beneficial to that assessee. In other words if the assessee is covered by DTAA and the provisions of DTAA are not beneficial then there is no need to go into the provisions of the Act. The decision of Hon'ble Jurisdictional High Court in the case of Siemens Akiiengeseilschaft (supra) as well as in the case of CITv. Infrasoft Lid. [2013] 39 taxmann.com 88/[2014] 220 Taxman 273 (Delhi) are relevant on this point. 8. The term "Royalty" has been defined in DTAA as well as in the Act. As per Article 12(3) of the Indo-US DTAA, the term "Royalty" is defined as under:- 'ARTICLE 12- Royalties and Fees for included Services. The Term "Royalties" as used in this article means: (a) Payments made of any kind received as consideration for the use of, or the right to use, any 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, any patent, trade mark, design or....
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.... there is no change or amendment in the term royalty as such. Therefore, the definition of term royalty remained unchanged despite insertion of Explanation 6 by Finance Act 2012. Even otherwise the term "Royalty" is defined in the DTAA. therefore, any amendment in the definition of "Royalty" affecting adversely to an assessee covered by the DTAA would be inconsequential due to the protection of DTAA. The clause (b) of Article 12(3) of DTAA and clause (iva) of Explanation 2 of section 9(l){vi) are pari materia of DTAA and clause (i) to (v) except clause (iva) are also pari material. It is pertinent to note that there is no change in the definition of term "Royalty" as provided in Explanation 2 of section 9(IXvi) of the Act. by virtue of the retrospective amendment inserting of Explanation 6 to this clause of section 9(l)(vi). We are concerned with the definition of royalt) which is common under the DTAA as well as under the Act to the extent - " payment of any kind received as consideration for the use of. or the right to use ------- --any process, industrial, commercial or scientific equipment". The term process, industrial, commercial or scientific equipment are not defin....
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....ther the Act or of the DTAA constricting or restricting the scope of the term. which has thus to he examined and considered contextually. As such, even de hors Explanation 6 to section 9(l)(vi). which only abundantly clarifies matters, a process could only reasonably be regarded as including a process/es as specified in Explanation 6 (supra). The same must, therefore, be regarded as within the contemplation of the said term and, thus, the term 'royalty' as defined by Explanation 2 section 9(l)(vi) and Article 12(3) of the Indo-US DTAA. The foregoing, however, does not detract from the fact that the term 'process' being not defined, the extant definition of the same. i.e. as per the domestic law, shall apply in terms of Article 3(2) of the said treaty. The Hon'ble Madras High Court in the case of Verizon Communications Singapore (P.) Lid (supra} while considering an identical issue has observed in para 33 as under:- "33. Faced with the decisions of the Authority for Advance Ruling. Explanations 4 and 5 were inserted under Finance Act. 2012. with effect from 01.06.1976. Under Explanation 5. the Legislature sought to clarify the definition of 'royalty&....
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....o utilize the transponder capacity available on the appellant's satellite to relay their signals. The customers have their own relaying facilities, which are not situated in India. From these facilities, the signals are beamed in space where they are received by a transponder located in the appellant's satellite. The transponder receives the signals and on account of the distance the signals have travelled, they are required to be amplified. The amplification is a simple electrical operation. Thereafter, the frequency on which the signals are to be downlinked is changed only in order to facilitate the transmission of signals so that, there is no distortion between the signals that are being received and the signals that are being relayed from the transponder. The transponder operations are commonly known, which are carried out not only 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 appell....
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....hrough the various clauses of the said agreement and held that the control always remained with the appellant and the appellant had merely given access to a broadband available with the transponder, to particular customers. Merely because the transponder has its footprint on various continents, it would not mean that the process has taken place in India. Thus the Delhi High Court followed the decision of the Apex Court reported in [2007] 28S ITR 408 (Ishikawajama-Harima Heavy Industries Ltd. v. Director of Income Tax) and held that services rendered outside India would have nothing to do with the permanent establishment in India and hence there was no process carried out in India or was there any business in India which could be attributed to the Indian territory. Thus the High Court held That the income earned by the assessee would not qualify as 'royalty', as defined in Explanation 2 to Section 9(l)fvi) of the income Tax Act. As seen from the facts, the said judgment was rendered in the year 2011, much before the amendment under Finance Act, 2012. Further after the decision reported in [[2007] 288 ITR 408 (lahikawajama-Harima Heavy Industries Lid. v. Director of Income Ta....
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.... thereto. In fact, to our mind, it is not the situs of the property or the process, but of the rights therein, that is relevant. Without doubt, the rights in or for the use of the process vesting in the assessee are, thus, located in India, whereat the signals are downlinked as also uplinked from. Again, the same has to be read in conjunction with Explanation below section 9(2), inserted on the statute by Finance Act, 2007 w.r.e.f 01.06.1976.The decision in the case of Asia Satellite Communication Co. Ltd (supra) is thus completely inapplicable in the given fact* and circumstances of the case, even as clarified by the Hon'ble Madras High Court in the case of Verizon Communications Singapore (P.) Ltd. (supra). The use of transponder by the assessee for telecasting/broadcasting the programme involves the transmission by the satellite including uplinking, amplification, conversion for downlinking of signals which falls in the expression "Process" as per Explanation 6 of section 9(I)(vi). Hence the payments made for use/ right to use of process falls in the ambit of expression "royalty" as per DTAA as well as provisions of Income Tax Act. 16. In the case of Siemens Aktieng....
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.... by virtue of Explanation 6. The other decisions relied upon by the assessee are based on the decision of Hon'ble Delhi High Court in the case of Asia Satellite Communication Co. Ltd (supra) which was prior to the amendment and without considering the Explanation 6 as well as Explanation below sub-section (2) of section 9. Further the benefit of the decision of Hon'ble Madras High Court in the case of Verizon Communications Singapore Pie. Lid (supra) was not available at the time of those decisions, therefore, the same are not applicable in the facts of the assessee's case. In fact, the said decision, based on the situs of the process itself supports the Revenue's case of the same being a process contemplated under Explanation 2 to s. 9( 1 ))(vi). 18. In view of the above discussion we do not find any reason to interfere with the orders of authorities below." 7.1 Thereafter in other assessment years 2011-2012, 2012-2013, 2013- 2014, for the same assessee the Tribunal following the aforesaid order decided the issue in favour of the Revenue vide order dated 04.02.2015 and 10.02.2015 respectively. 7.2 We note that in coming to the aforesaid decision, thi....