TaxTMI 
TaxTMI 
2019 (10) TMI 910
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....acility on the satellite was covered under the definition of the royalty as per the provisions of the Income Tax Act. This issue has been dealt straight away by the Hon'ble Delhi High Court in ITA 473/2012 in DIT Vs New Skies Satellite BV. The relevant question framed by the Hon'ble Court is as under: "(1) whether the receipts of the assessees earned from providing data transmission services, fall within the term royalty under the Income Tax Act, 1961." 4. The Hon'ble Court while dismissing the appeal of the revenue held as under: "50. There are therefore two sets of circumstances. First, where there exists no definition of a word in issue within the DTAA itself, regard is to be had to the laws in force in the jurisdiction of the State called upon to interpret the word. The Bombay High Court seems to accept the ambulatory approach in such a situation, thus allowing for successive amendments into the realm of "laws in force". We express no opinion in this regard since it is not in issue before this Court. This Court's finding is in the context of the second situation, where there does exist a definition of a term within the DTAA. When that is the case, there is ....
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.... the software irrespective of whether or not a further right to make copies is granted. The decision of the Delhi Bench of the ITAT has dealt with this aspect in its judgment in Gracemac Co. Vs. ADIT 134 TTJ (Delhi) 257 pointing out that even software bought off the shelf, does not constitute a "copyrighted article" as sought to be made out by the Special Bench of the ITAT in the present case. However, the above argument misses the vital point namely the assessee has opted to be governed by the treaty and 46 2013 (358) ITR 259 that the language of the said treaty differs from the amended Section 9 of the Act. It is categorically held in CIT Vs. Siemens Aktiongesellschaft, 310 ITR 320 (Bom) that the amendments cannot be read into the treaty. On the wording of the treaty, we have already held in Ericsson (supra) that a copyrighted article does not fall within the purview of Royalty. Therefore, we decide question of law no.1 & 2 in favour of the assessee and against the Revenue." 52. Thus, an interpretive exercise by the Parliament cannot be taken so far as to control the meaning of a word expressly defined in a treaty. Parliament, supreme as it may be, is n....
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....ither a separate law, or through an amendment to the original law, make the amendment effective. Similarly, amendments to domestic law cannot be read into treaty provisions without amending the treaty itself. 53. Finally, States are expected to fulfill their obligations under a treaty in good faith. This includes the obligation to not defeat the purpose and object of the treaty. These obligations are rooted in customary international law, codified by the VCLT, especially Article 26 (binding nature of treaties and the obligation to perform them in good faith); Article 27 (Internal law and observance of treaties, i.e. provisions of internal or municipal law of a nation cannot be used to justify omission to perform a treaty); General rule of interpretation under Article 31 (1) ( i.e. that it shall be interpreted in good faith, in accordance with ordinary meaning to be given to the terms of a treaty) and Article 31 (4) (A special meaning shall be given to a term if it is established that the parties so intended). The expression "process" and treaty interpretation in this case. 54. Neither can an Act of Parliament supply or alter the boundaries of the definition under ....
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....ma". A lot has been said about the relevance or otherwise of punctuation in the context of statutory construction. In spoken English, it would be unwise to argue against the importance of punctuation, where the placement of commas is notorious for diametrically opposite implications. However in the realm of statutory interpretation, courts are circumspect in allowing punctuation to dictate the meaning of provisions. Judge Caldwell once famously said "The words control the punctuation marks, and not the punctuation marks the words." It has been held in CGT v. Budur and Hindustan Const v. CIT that while punctuation may assist in arriving at the correct construction, yet it cannot control the clear meaning of a statutory provision. It is but, a minor element in the construction of a statute, Hindustan Const. 56. The courts have however created an exception to the general rule that punctuation is not to be looked at to ascertain meaning. That exception operates wherever a statute is carefully punctuated. Only then should weight undoubtedly be given to punctuation; CIT v. Loyal Textile; Sama Alana Abdulla vs. State of Gujarat; Mohd Shabbir vs. State of Maharashtra; Lew....
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....t evidence for us to conclude that the process referred to in Article 12 must in fact be a secret process and was always meant to be such. In any event, the precincts of Indian law may not dictate such conclusion. That conclusion must be the result of an interpretation of the words employed in the law and the treatises, and discussions that are applicable and specially formulated for the purpose of that definition. The following extract from Asia Satellite58 takes note of the OECD Commentary and Klaus Vogel on Double Tax Conventions, to show that the process must in fact be secret and that specifically, income from data transmission services do not partake of the nature of royalty. "74. Even when we look into the matter from the standpoint of Double Taxation Avoidance Agreement (DTAA), the case of the appellant gets boost. The Organisation of Economic Cooperation and Development (OECD) has framed a model of Double Taxation Avoidance Agreement (DTAA) entered into by India are based. Article 12 of the said model DTAA contains a definition of royalty which is in all material respects virtually the same as the definition of royalty contained in clause (iii) of Explanation 2 to....
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....e 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 ITA 473/2012, 474/2012, 500/2012 & 244/2014 Page 48 as its piloting or steering, etc. were transferred to the user.' 76. Klaus Vogel has also made a distinction between letting an asset and use of the asset by the owner for providing services as below: 'On the other hand, another distinction to be made is letting the proprietary right, experience, etc., on the one hand and use of it by the licensor himself, e.g., within the framework of an advisory activity. Within the range from services', viz. outright transfer of the asset i....
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....this Court to hold that such amendments are applicable to the DTAAs. 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 "royal ty" in Asia Satellite59 , when the definitions were in fact pari materia (in the absence of any contouring explanations), will continue to hold the field for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amended jointly by both parties to incorporate income from data transmission services as partaking of the nature of royalty, or amend the definition in a manner so that such income automatically becomes royalty. It is reiterated that the Court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no Double Tax Avoidance Agreement. 61. For the above reasons, it is held that the interpretation advanced by the Revenue cannot be accepted. The question of law framed is accordingly answered against the Revenue.....
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...., 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 retrospective effect from 01.06.1976 and has contended that the said definition is to be read into DTAA also, that is, the definition of 'royalty' has to be taken f rom the Domestic Law. In support, Ld. DR has strongly relied upon the decision of Madras High Court in the case of Verizon Communications Singapore Pte Ltd. (supra) and the ITAT decision in the case of Viacom 18 Media Pvt. Ltd. 19. First of all, let us examine the definition of "royalty" as been defined under Article 12 of the Indo-US-DTAA, which has been defined in the following manner: "3. The term "royalties" as used in this Article means: a) payments of any kind received as a consideration for the use of or the right to use, any copyright of a literary, artistic, or scien....
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....n'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 "royalty" in Asia Satellite, supra note 1, when the definitions were in fact pari material (in the absence of any contouring explanations), will continue to hold the pled for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amended jointly by both partners to incorporate income from data transmission services as partaking of the nature of royalty, or amend the definition in a manner so that such income automatically becomes royalty. It is reiterated that the Court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases prec....
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....elling a person to do something which is impossible, that is, when there is no provision for taxing an amount in India then how it can be expected that a tax should be deducted on such a payment. This view has been upheld by in catena of decisions including the ITAT Mumbai Benches in the case of Channel Guide India Ltd (supra) wherein, it has been held that, assessee cannot held to be liable for deducting TDS in view of the retrospective amendment which has come at a much later date. Thus, we hold that assessee was not liable to deduct TDS at the time of making the payments. Accordingly, disallowance under section 40(a)(i) could not have been made by the AO and the order of the CIT(A) is affirmed. Ground No.2(a) & (b) raised by the revenue are dismissed. 21. So far as ground No.3 is concerned, that th e distribution of income should be taxable as 'royalty' under section 9(1)(vi) up to 12th July, 2002, we are unable to concur with the divergent stand taken by the AO that for three months the payment will constitute 'royalty' and for balance nine months, the payment will constitute 'business income'. It has also been brought to our knowledge ....