TaxTMI 
TaxTMI 
2020 (10) TMI 604
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....essment Years 2011-12, 2012-13 & 2014-15 and Revenue is in cross-appeal for Assessment Year 2012-13. 3. In order to adjudicate the issue raised in the bunch of appeals, we may refer to the facts and issue raised in assessee's appeal in ITA No.1548/Del/2015 relating to Assessment Year 2011-12. ITA No.1548/Del/2015 [Assessment Year 2011-12] 4. The assessee has raised following grounds of appeal:- "The Appellant respectfully submits that the present appeal before the Hon'ble Income Tax Appellate Tribunal ('Hon'ble IT AT') is being filed on the following grounds: That the assessment order passed U/S 143(3) read with section 144C of the Income Tax Act, 1961 ('the Act') by the learned Deputy Commissioner of Income Tax, International Taxation- New Delhi ('the learned AO' / 'the ld. AO') in pursuance of the directions of the Hon'ble Dispute Resolution Panel- I ('Hon'ble DRP') is against law, contrary to facts and circumstances of the case and thus erroneous and unsustainable. 1. Grounds of Objection 1. Based on the facts and circumstances of the case and in law, the ld. AO, has erred in holding that payments amounting to IN....
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....the learned AO erred in facts and in law by not following the decision of the Hon'ble Andhra Pradesh High Court in the case of Sanofi Pasteur Holding SA vs Department of Revenue [2013] [354 ITR 316] which correctly holds that the retrospective amendments to the Act cannot be read as an amendment to the tax treaties by virtue of Article 3(2) of the tax treaties. While the judgment of the Hon'ble Andhra Pradesh High Court was in the context of India France tax treaty, the learned AO has failed to appreciate that the rationale of the said judgment is equally applicable to the case of the Appellant in the context of the Tax Treaty. 2. Based on the facts and circumstances of the case and in law, the learned AO has erred in holding that the payments received by the Appellant from Indian customers for provision of Bandwidth services to such customers is Royalty for the use of, or the right to use of an equipment and/ or use of a process and! or transfer of rights in a process and/ or services in connection with above process/ equipment, is taxable under section 9(1)(vi) of the Act read with Article 12(3) of the Tax Treaty in contravention of the following well-established facts ....
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....ervice provider using equipment or apparatus would not constitute Royalty, in contradistinction to specifically allowing or granting the use or right to use of such equipment or apparatus in the hands of the customer by way of renting or leasing of equipment or allowing the customer to commercially exploit such equipment for the customer's own benefit. 2.5. That the ld. AO has erred in holding that provision of bandwidth services involves use/ right to use equipment/ use of process without appreciating that a) no capacity or global network equipment (including cables) are earmarked or dedicated to any service recipient for its exclusive use or economic exploitation to their commercial benefit and further it is a technological impossibility to dedicate any infrastructure or capacity to any particular service recipient! payer; and b) the delivery of bandwidth service is nothing but a contract to transmit voice and data at a particular volume and speed and does not result in dedicating any identified capacity, segment or any portion or allowing any access to such global network of Appellant to the service recipient/ payer. 2.6. That the ld. AO has erred in stating that the pro....
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....ous decisions as relied upon by the Appellant do not apply in the case of the Appellant since these involve entirely different fact-situation and were rendered without considered the impact of Explanation 5. The learned AO failed to appreciate that the rationale of the decision of the Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd v Director of Income Tax (2011) (332 ITR 340)regarding the meaning of the term "use of equipment" in the definition of Royalty (prior to the Explanations 5 and 6 introduced by the Finance Act 2012) would be equally applicable while construing the expression in the Tax Treaty in the absence of any specific amendment to the Tax Treaty definition to the similar effect. 2.10 That the learned AO has erred in disregarding the fact that the case of New Skies Satellite NV and others v ADIT (2009) (319 ITR 269) was set aside and referred back by the Hon'ble Delhi High Court (vide order dated 17 February 2011) to the Hon'ble IT AT for fresh adjudication relying on the principles laid down by the Hon'ble Delhi High Court in case of Asia Satellite Telecommunications (supra). It is also pertinent to note that the ca....
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....ellant as taxable in India as per section 9 of the Act read with DT AA between India and Singapore, the ld. AO has erred in not excluding the amount pertaining to use of services provided by Bharti in India. 5. Based on the facts and circumstances of the case and in law, the ld.AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act. The grounds are without prejudice to each other." 5. Briefly in the facts of the case, the assessee company is incorporated in Singapore. It is engaged in the business of providing digital transmission of data through international private line or multi-protocol label switching, etc. to facilitate high speed data connectivity (hereinafter referred to as 'bandwidth services'). The assessee provides bandwidth services outside India to its customers. It has entered into Global Business Service Agreement ('GBSA') with various customers. In case where services are provided by Indian telecom operator like Bharti Airtel in India and the services outside India are provided by the assessee, it enters into One Stop Shopping Services Agreement('OSS') with Bharti Airtel or any other Indian telecom operator, to facilitate single billi....
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....nn.com 8, as the issue stands covered by Asia Satellite Telecommunications Co. Ltd. vs DCIT [2011] 332 ITR 340 (Del.). He also referred to the order of Tribunal where the said issue was allowed on remand. Then the Ld.AR for the assessee referred to para 11.3 onwards of the assessment order wherein reference was made to Explanation 5 under section 9(1)(vi) of the Act i.e. Equipment Royalty. Our attention was drawn to various paras of the assessment order wherein reference was made to the provision of Act and not to DTAA. The issue stands concluded in para 12 by the Assessing Officer which reads as under:- 12. "Therefore, the payments made to the Foreign Telecom Operators/Non-resident companies for international connectivity solutions through IPLC/MPLS/IP/VPN lines and network qualify as Royalty under the DTAAs, and accordingly liable to be taxed under Article 12 of the DTAA as equipment royalty/process royalty." 7. Referring to the synopsis filed on the issue raised, the Ld.AR for the assessee referred to para 2.2, which reads as under:- "2.2 The Appellant would like to submit that the consideration amount received for providing bandwidth services would not be taxable as equipm....
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....t decision does not render the same inoperative; decision of the Hon'ble Delhi High Court still remains operative. He then placed strong reliance on the ratio laid down by the Pune Bench of ITAT in John Deere India (P.) Ltd. vs DDIT [2019] 102 taxmann.com 267. 10. It was submitted that the assessee was providing standard services to its customers and similar services were being provided to many customers. It was further stressed by him that the unilateral Act of amendment in the Income Tax Act cannot be read into Tax Treaty, as the definition of Royalty under the India Singapore Treaty has not been amended. The Ld.AR for the assessee stressed that the reliance on the decision of Hon'ble Madras High Court in M/s Verizon Communications Singapore Pvt. Ltd. (supra) is misplaced as the same was not approved by the Hon'ble Delhi High Court in Asia Satellite Telecommunication Co.Ltd. (supra). He stressed that the issue which needs to be decided is whether the receipts on account of connectivity charges was Royalty or not under Article 12 of DTAA between India and Singapore. The Ld.AR for the assessee further pointed out that Ground of appeal Nos. 1 & 2 were on merits and Ground of appeal....
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....IT (2011) 232 ITR 340 (Del), which in turn has been followed in DIT Vs. (1) New Skies Satellite BV (2) Shin Satellite Public Co. Ltd. (2016) 382 ITR 114 (Del). The assessee therein was engaged in the business of lease of transponder or allocation of transponder capacity on satellite for digital transmission services. The issue before the Hon'ble High Court (supra) was whether the amounts received from customers for availing the transponder capacity was chargeable to tax in India as 'Royalty'. The Hon'ble Delhi High Court in the case of Asia Satellite Telecommunication Co.Ltd.(supra) held that the transaction does not result in 'Royalty' (equipment or process) under section 9(1)(vi) of the Act (prior to amendment by Finance Act, 2012). It was further held by the Hon'ble Delhi High Court in New Skies Satellite (supra) that the transaction does not result in 'Royalty' (equipment or process) as Section 9(1)(vi) of the Act, prior to amendment by Finance Act, 2012, was pari-materia with the definition of 'Royalty' as per the Tax Treaty and hence, the decision in the case of Asia Satellite (supra) was binding and required to be followed. 16. The Hon'ble Delhi High Court in New Skies Sate....
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....015 reported in [2019] 102 taxmann.com 267, order dated 23.01.2019 vide para 100 relied on decision of Hon'ble Delhi High Court in Asia Satellite Telecommunications Co. Ltd (supra) and held that there was no lease of equipment but only use of broadband facilities. Applying the said ratio to the facts of the present case, we hold that in the case of assessee, there is no question of any equipment royalty where the assessee was only using lease lines for transmitting data and it cannot be said to be a case of equipment Royalty. The Pune Bench of the Tribunal vide para 98 relied to the decision of T-3 Energy Services India Pvt.Ltd. vs JCIT, ITA No.826/PUN/2015, relating to assessment year 2010-11, order dated 02.02.2018 (supra) which in turn, had relied on the ratio laid down by the Hon'ble Delhi High Court in New Skies Satellite BV (supra) and held that consideration received for lease line charges does not constitute process Royalty. The relevant para 98 reads as under:- 98. "We find that objections raised by the learned Departmental Representative for the Revenue are not fully correct. The Assessing Officer had held it to be a case of both equipment and process royalty. As far as....
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....y similar character subsequent to the date of the agreement as set out in article I(2). Considering the express language of article I(2) it is not possible to accept the broad proposition urged on behalf of the assessee that the law would be the law as applicable or as define when the double taxation avoidance agreement was entered into." 22. In the facts of the case before the Hon'ble Bombay High Court the word 'royalty' was not defined in German Treaty and in that context, the Hon'ble Bombay High Court held that they were unable to accept the assessee's contention that law applicable would be law which existed at the time the DTAA was entered into. In the facts of the case before us, the word 'royalty' is defined in DTAA entered into between USA and India and applying the ratio in CIT Vs. Seimens Aktiongesellschaft (supra), we hold that once a term has been defined in DTAA, then the said term is to be applied unless and until the parties to the DTAA amends the same. The Hon'ble High Court of Delhi in DIT Vs. Nokia Networks OY (supra) had applied the proposition laid down by the Hon'ble Bombay High Court in CIT Vs. Seimens Aktiongesellschaft (supra) and held that the amendments ....
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....ginally and not amended." 20. Now coming to the next connected plea of the assessee that wherein the definition of 'Royalty' has not been amended in the Tax Treaty, is the receipt taxable as 'Royalty'? 21. We further hold that the amendment, if any to the Income Tax Act cannot be applied to the Tax Treaty. The Hon'ble Delhi High Court in DIT & Others vs Nokia Networks OY & Others [2013] 358 ITR 259 (Del) held as under:- "the assessee has opted to be governed by the treaty and 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." 22. The Hon'ble Bombay High Court in CIT vs Reliance Infocomm Ltd. Income Tax Appeal No.1395 of 2016 dated 05.02.2019 held that "mere amendments in the Act would not override the provisions of Double tax Avoidance Agreement". 23. In the above-said facts and circumstances of the case where the Tax Treaty between India Singapore specifically does not include "transmission by satellite, cable, optic fiber or similar technology" in the definition of 'Royalty' under the Tax Treaty and also where the T....