TaxTMI 
TaxTMI 
2020 (10) TMI 604
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....ted out that the assessee has filed the appeals for Assessment 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 circumstanc....
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....e is conspicuous by its absence in the Tax Treaty which is applicable in the Appellant's case. 1.4 That 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 sec....
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....uble Taxation Conventions, 2001, Report of the Technical Advisory Group ('TAG'), all of which unequivocally and consistently state that rendition of a service by a service 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 c....
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.... of a service. v) The Hon'ble Supreme Court dismissed the Revenue's Special Leave Petition CC 6392/2010 against the decision ofthe AAR in Cable & Wireless (supra). 2.9 That the learned AO erred by contending that various 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 ....
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.... any source outside India as royalty without appreciating the specific exclusion as contained in section 9(1)(vi)(b) of the Act. 4. Without prejudice to the above, on the facts and circumstances of the case and in law, the ld. While holding the entire sums received by the Appellant 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 cust....
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.... [2016] 68 taxmann.com 8 (Del.). The Assessing Officer at page 18 in para 11.2 wrongly alleges that the assessee is owner of the process. The Ld.AR for the assessee pointed out that Hon'ble Delhi High Court has reversed the decision of Special bench in New Skies Satellite BV which is reported in 68 taxmann.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 ....
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....ssing Officer had made passing reference to the definition under Article 12 of the DTAA. Then he took us to the decision of Hon'ble Delhi High Court in New Skies Satellite (supra), wherein it was held that the definition of 'Royalty' will continue to hold the field for the purpose of Double Tax Avoidance Treaty Agreement. He also stressed that the admission of SLP against any High Court 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 appr....
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....ot attract 'Royalty' under the Act or the Tax Treaty. 14. The Revenue authorities are of the view that the consideration received by the assessee falls within the definition of Royalty both u/s 9(1)(vi) of the Act and also under provisions of Tax Treaty. 15. We find that the similar issue arose before the Hon'ble Delhi High Court in Asia Satellite Telecommunications Co. Ltd. vs. Director of 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 ....
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....her in Thaicom Public Co.Ltd. [2018] 96 taxmann.com 577, the Delhi Bench of the Tribunal held that despite the amendment in the Act, income from digital broadcast services through transponders is not 'Royalty' as per India Thailand Treaty. Similar propositions have been laid down in various other decisions of Tribunal. 19. The Pune Bench of the Tribunal in John Deere India Pvt. Ltd. vs DDIT in ITA Nos.905 to 908/Pun/2015 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 la....
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....nilateral 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 Double Tax Avoidance Agreement the expression 'laws in force' would not only include a tax already covered by the treaty but would also include any other tax as taxes of a substantially 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 entere....
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....we hold that where the provisions of DTAA overrides the provisions of Income-tax Act and the definition of 'royalty' having not been undergone any amendment in DTAA, the assessee was not liable to withhold tax on the lease line charges paid by it. The amended provisions of section 9(1)(vi) of the Act brought into force by the Finance Act, 2012 are applicable to domestic laws and the said amended definition cannot be extended to DTAA, where the term has been defined originally 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 ....