TaxTMI 
TaxTMI 
TaxTMI 
2018 (10) TMI 1858
X X X X Extracts X X X X
X X X X Extracts X X X X
.... to the Appellant despite the entire sums received by the Appellant having been processed under Section 195 of the Act in accordance with the order of the Income-tax Department itself issued under Section 197 of the Act. The Appellant therefore prays the disallowance be deleted. Ground No 3 The learned CIT(A) has erred in concluding that the Appellant is not a telecasting company and failing to apply the provisions of Circular 742 issued by the Central Board of Direct Taxes. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 4 The learned CIT(A) has erred in holding that the channel companies have a business connection in India as per the provisions of Section 9(l)(i) of the Act. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 5 The learned CIT(A) has erred in holding that the channel companies carried out operations in India as per Explanation (a) to Section 9(1)(i) of the Act. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 6 The learned CIT(A) has erred in holding that the Appellant has ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e, Ground No 12 The learned CIT(A) has erred in holding that the provisions of Section 40(a)(i) of the Act apply to the payment made by the Appellant to the channel companies despite treating the Appellant as an agent of the channel companies. The Appellant respectfully submits that the above basis of assessment is erroneous and should be set aside. Ground No 13 The learned CIT(A) has erred in not applying the provisions of Section 40(a)(i) of the Act to only that portion of the payment made to the channel companies that represents income that has been considered to be chargeable to tax in India. The Appellant prays that the disallowance be restricted accordingly. Ground No 14 Without prejudice to Grounds 1 to 13 above, the margin retained by the Appellant, as an agent, from the activity of selling airtime is not taxable in India. Ground No 15 The learned CIT(A) has erred in contending that International Global Networks BV (formerly known as Satellite Television Asian Region Advertising Sales BV) ['SAS BV] is a 'conduit1 for the Appellant and that the advertisement revenues earned by SAS BV are taxable in the hands of the Appellant. The Appellant respe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eous and should be set aside. Ground No 6 The learned CIT(A) has erred in holding that the channel companies carried out operations in India as per Explanation (a) to Section 9(1 )(i) of the Act. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 7 The learned CIT(A) has erred in relying on his order for Assessment Year 2000-01 and holding that the Appellant has not refuted, inter-alia, the following findings of the learned Assessing Officer, which are erroneous and contrary to facts: * predominant footprint of the satellite is only in India; * the decoders are provided to the cable operators either by the Appellant or by the channel companies or their agents in India; * Star India Private Limited ('SIPL') is a direct subsidiary of the Appellant; * majority of the business operations of the channel companies are in India. The Appellant respectfully submits that the above findings are erroneous and contrary to facts and should be set aside. Without prejudice to the above, it is also submitted that the above findings are not relevant in determining whether the channel companies carried out operations....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ead with Section 92 of the Act apply to the payments received by the Appellant from the channel companies for provision of content. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 17 The learned CIT(A) has erred in holding that the payments received by the Appellant from the channel companies towards the provision of transponder capacity are taxable as royalty under Section 9(l)(vi)of the Act. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 18 The learned CIT(A) has erred in holding that the provisions of Section 92B read with Section 92 of the Act apply to the payments received by the Appellant from the channel companies towards the provision of transponder capacity. The Appellant respectfully submits that the above finding is erroneous and should be set aside. Ground No 19 The learned CIT(A) has erred in not determining the arm1 s length price of the payments received by the Appellant from the channel companies towards the provision of transponder capacity and directing the Assessing Officer to arrive at the appropriate price. Ground No 20 The ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s in the nature of compensatory payment and is of penal in character b. that since the tax was not deducted at source it was obligatory on the part of the assessee to make the deficit good by way of making payment towards advance tax; c. that since the assessee failed to pay the advance tax, the provisions of section 234B and 234C of the Income-tax Act, 1961 have been correctly applied by the Assessing Officer" The appellant prays that the order of the Ld.CIT(A) on the above grounds be set aside and that of the Assessing Officer restored. 6. Since the facts are common and appeals are heard together, these are being consolidated by way of this common order. 7. Brief facts are as under:- The assessee, Satellite Television Asian Region Limited is a company incorporated in Hong Kong and is engaged in the media industry. With effect from April 1, 1999, the Assessee sold advertising airtime acquired from nonresident television content aggregators (hereinafter referred to as "channel companies'), interalia, for the Star Plus, Star Movies, Star World, Channel V, Star Gold and Star News channels (hereinafter referred to as the "Channels'). For the purposes of selling advert....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oard of Direct Taxes ('CBDT'), the advertisement revenues collected during the Assessment Year 2001-02, pertaining to invoices raised by SAS BV prior to April 1, 1999, had been offered to tax in the return of income of SAS BV filed for the Assessment Year 2001-02. The Assessee filed its return of income along with the audited financial statements prepared for the India operations for the Assessment Year 2001-02 on October 31, 2001, declaring a net taxable income of Rs. 40,09,85,520/-after claiming a deduction for the cost of advertising airtime purchased by it from the channel companies. Since the payments made to the channel companies were claimed to be not taxable in India, the Assessee did not withhold any taxes on payments made to the channel companies for the purchase of advertising airtime. Further, for the claimed reason that no income was received by the Assessee or accrued to the Assessee in respect of the subscription revenues, the Assessee did not report any income to tax in this respect in its return of income. The A.O. completed the assessment on the following basis: Disallowing the payments to the channel companies for cost of advertising airtime purchased, u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l companies, on a net income basis. In doing so, the amount of income has been adjusted for the arms-length value under Section 92C, and the payments made to Asiasat have been disallowed in computing the net income under provisions of section 40(a)(i), on the grounds that Asiasat is taxable in India and no taxes have been deducted by the Appellant in respect of payments to it. (v) Income received from various channel companies for provision of content has been taxed as royalty, on a net income basis. In this respect, the income of the Appellant has been adjusted in respect the arms-length value under section 92C. (vi) Deduction claimed in respect of allocated head office expenses have been disallowed pursuant to an adjustment made to the arms length price under section 92. (vii) Disallowing the claim made by the Appellant during the assessment proceedings that the deduction allowable in respect of commission payable to SIPL should be computed on the basis of invoices raised, rather than on the basis of actual collections as claimed at the time of filing the return. (viii) Consequential interest under Sections 234B and 234C of the I.T. Act has been levied. 9. Against the ab....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t in the nature of 'royalty' and CIT(A) again refer to his order for A.Y.1999-2000. He held as under:- "As held therein, it is clear that the distribution income belongs to SIPL and not to the Appellant. The income cannot be subject to tax in the hands of the Appellant. The A.O. is directed to delete the addition of Rs. 104,60,03,594/- on account of distribution income earned by SIPL while computing the taxable income of the Appellant. Also as concluded in the appeal order for Assessment Year 1999-2000, though the distribution right is a right, it is not covered by the definition of royalty under section 9(l)(vi) of the I.T. Act." 14. As regards assessee's contention that SAS BV is not a 'conduit' for the assessee and that the advertisement revenues are not taxable in the hands of the assessee, either on this count or on account of it being received from SAS BV. Even if the advertisement revenues are taxed in the hands of the assessee, these should be taxed as per the provisions of Circular 742 on a receipt basis. The ld. CIT(A) directed for the deletion of addition. 15. Learned CIT(A) in this regard reads as under:- "Prior to April 1, 1999, the Appellant granted the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ies under Section 40(a) (i) of the Act based on retrospective amendment in Section 195 of the Act cannot be made as law cannot expect you to do the impossible 1-3 1-3 - Mumbai ITAT in Appellant own case for subsequent years, i.e. AY 2007-08 and AY 200809 (Sr no 1 and 2 of legal paperbook) - Bombay HC in NGC Networks (India) Limited (ITA No 397 of 2015} (Sr no 9 of legal paperbook) - SC in case of Vodafone (341 ITR 1) (Sr no 6 of legal paperbook) - Mumbai ITAT in Appellant's own case for Section 271C issue for the same year (56 SOT 22} [Affirmed by Bombay HC (ITA No 181 and 183 of 2013) and Supreme Court] (Sr no 3 to 5 of legal paperbook) Mumbai ITAT in Rhodia Speciality Chemicals India Limited (ITA No 830/M/2014) (Attached as Annexure 1) - Mumbai ITAT in Kotak Mahmdra Old Mutual Insurance Limited (ITA No 3819/M/2014) (Attached as Annexure 2) (b) No retrospective amendment having been made in Section 40(a)(i) of the Act, no disallowance can be made 1-3 1-3 - Bombay HC in NGC Networks (India) Limited (if A~No 397~of 2015) (Sr no 9 of legal paperbook) - Mumbai ITAT in SKOL Breweries Ltd. v. ACIT (142 ITD 49) (Sr no 13 of legal paperbook) - Mumbai ITAT in Sonata Info....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Ltd (1 86 ITR 301) (Sr no 31 and 33 of legal paperbook) 2) Also, considering that the Global AuditedAccounts of Star Ltd were provided to the AO during the assessment proceedings, the AO could have himself computed the reasonably attributable head office expenses Reliance is placed on the decision of the Mumbai Tribunal in case of Mitsui Bank Ltd (35 TTJ 426) (Sr no 32 of legal paperbook) 3) An amount of Rs. 8,35,02,000 was incurred by the Assessee on General and administration expenses on a total turnover of Rs. 6,53.43,84,000. The Assessee claimed an amount of Rs. 2,83,06,650 as deduction under Section 44C of the Act being 5% of the adjusted total income being lower than the actual expenditure of Rs. 8,35,02,000. For Revenue's appeal : Sr. No. Particulars/ Issues Gr. No. Remarks 1. Disallowance of payments made AsiaSat for transponder hire charges under Section 40(a) (i) of the Act 1 Delhi HC in case of Asia Satellite Telecommunication (,332 ITR 340) (Sr no 28 of legal paperbook, - Delhi ITAT in ADIT vs Intelsat Corporation {ITA No 977/Del/201 1) (Sr no 29 of legal paperbook) - Refer Arguments taken in Assessee's appeal for Gr No 1-3 2. Taxation of adver....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s and role of each entity. Last but not the least, the channel companies have been separately assessed and they have discharged their tax liability and, therefore, there is no requirement by the assessee to deduct tax and accordingly, no disallowance can be made. 20. Similar proposition has been laid down by honourable Bombay High Court in the case laws mentioned here in above. We find that the Hon'ble jurisdictional High Court in the case of CIT vs. M/s. NGC Networks (India) Pvt. Ltd. (in Income Tax Appeal No. 397 of 2015 vide order dated 29.01.2018) has dealt with the similar issue as under: 2 Revenue urges the following question of law, for our consideration: "(a) "Whether on the facts and in the circumstance of the case and in law, the Tribunal is justified in holding that the disallowance of Channel Placement Fee cannot be made u/s.40(a)(ia) of the I.T.Act when the tax was deducted thereon u/s. 94C instead of Sec. 194J of the I.T. Act? (b)Whether on the facts and in the circumstances of the caseand in law, the Tribunal is justified in holding that the ChannelPlacement Fee is not in the nature of royalty u/s. 9(1)(vi) andso the tax is not required to b e deducted u/s. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssible Act i.e. to comply with a provision not in force at the relevant time but introduced later by retrospective amendment.This is in accord with the view taken by this Court in CIT v/s. CelloPlast (2012) 209 Taxmann 617 - wherein this Court has applied the legal maxim lex non cogit ad impossibilia (law does not compel a man to do what he cannot possibly perform). (e) In the present facts, the amendment by introduction of Explanation¬6 to Section 9(1)(vi) of the Act took place in the year 2012 with retrospective effect from 1976. This could not be have been contemplated by the Respondent when he made the payment which was subject to tax deduction at source under Section 194C of the Act during the subject Assessment Year, would require deduction under Section 194J of the Act due to some future amendment with retrospective effect. (f) Further, we also notice that under Section 40(a)(i) of the Act, under which the expenditure has been disallowed by the Revenue, meaning of royalty as defined therein, is that as provided in Explanation 2 to Section 9(1)(vi) of the Act and not Explanation 6 to Section 9(1)(vi) of the Act. Thus, the disallowance of expenditure under Section 40(a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... an alleged conduit of Star Ltd. and taxing the revenue in the hands of Star India Private Limited ('SIPL') on accrual basis. In this regard it is the contention of the ld. counsel of the assessee that this issue has been decided in favour of the assessee by the Hon'ble jurisdictional High Court in the case of Director of Income Tax (IT) vs. Satellite Television Asian Region Ltd. (in Income Tax Appeal No. 1676 of 2013 vide order dated 16.06.2015), one of the question raised by the following: (1) Whether on the facts and in circumstances of the case and in law the Tribunal erred in holding that SAS BV (IGN BV) was not a conduit for the assessee or a sham entity even though it has been established by the Assessing Officer in the assessment order that there was no commercial expediency in setting up via media companies and the only aim of this arrangement was to avoid assessee's direct taxability in India.? 24. The Hon'ble High Court has decided the issue as under: 3. So far as question No.1 is concerned, the respondent-assessee assessee incorporated in Hong Kong, is engaged in broadcasting. With effect from 1 June 1994 the respondent-assessed/ engaged Satellite Telev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tment made to the arms length price u/s. 92. During the Assessment Year 2002-03, the assessee had incurred general and administrative expenses in relation to its worldwide advertising operations amounting to Rs. 49,45,93,000/-. As the assessee undertakes ad-sales business, through an agent in India, for 6 channels in India, based on the advertising revenues earned by these channels from the Indian operations the expense attributable to the assessee was calculated at Rs. 8,35,02,000/- (as reflected in the assessee's Indian accounts) and same was allocated to the Indian operations. As per the limitations of section 44C the deduction claimed was limited to Rs. 2,83,06,650/-. However, the entire expenditure has been disallowed on the grounds that certain details in relation to HO expenses allocated to the Indian operations, sought for by the T.P.O., were not submitted. Accordingly, the T.P.O. determined the arm's length price in relation to the HO expenses allocated to/the Indian operations at 'Nil', which was adopted by the Assessing Officer. 27. Upon the assessee's appeal, the ld. CIT(A) confirmed the addition. 28. Against this order, the assessee is in appeal befor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2 ITR 340) and the decision of Delhi ITAT in the case of ADIT vs Intelsat Corporation (in ITA No 977/Del/2011). 34. On this issue, the ld. CIT(A) has followed the decision of the Delhi ITAT in the case of Asia Satellite Telecommunications Co. Ltd. v. Dy. CIT [2003] 85 ITD 478 (Delhi) for the proposition that the payments for the lease of transponder amount to royalty. The Hon'ble Delhi High Court decision in this case has elaborately dealt with the issue and has reversed the ITAT order. Head notes from this order of the Hon'ble High Court may be gainfully referred as under: It is clear from the reading of section 5(2) that a non-resident is liable to pay tax on the income derived by him, which is received or deemed to be received in India or which accrues or arises or is deemed to accrue or arise in India during the relevant year. Thus, a non-resident is under an obligation to pay tax in respect of the income generated/earned by him in India. Section 9 lays down the various circumstances under which income would be deemed to accrue or arise in India. In the instant case, the endeavour of the revenue was to bring the case of the assessee within the mischief of all or ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ian airspace and even the Tracking, Telemetering and Control (TTC) operations were also performed outside India in Hongkong. No man, material or machinery or any combination thereof was used by the assessee in the Indian territory. There was no contract or agreement between the assessee with the cable operators or with the viewers for reception of the signals in India. Thus, section 9(1)(i ) was not attracted in the instant case. Applicability of section 9(1)( vi) The entire controversy revolved around the interpretation to be given to clause (vi) of section 9(1). This clause makes income by way of royalty payable by certain persons as chargeable to tax. Following principles are to be kept in mind while interpreting provisions of clause (vi) of section 9(1) : (1)Section 9 is a deeming provision and if the situation specified therein exists, it is to be deemed that income has accrued or arisen in India. (2)Clause (i ) says that the imparting of any information concerning the working of or the use of a patent, invention, model, design, secret formula or process or trade mark or similar property. (3)It is a settled-law that the words of a statute are first understood in th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....has been again substituted by the Finance Act, 2010 with retrospective effect from 1-6-1976, it is clear that income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii ), irrespective of the fact whether the non-resident has a residence or a place of business or business connection in India or the nonresident has rendered services in India. Therefore, once the consideration is received by non-resident for the transfer of all or any rights, including the granting of a licence in respect of a patent, invention, model, design, secret formula or process or similar property or any copyright for literary, artistic or scientific work, the consideration received shall be deemed to accrue or arise in India and will be taxable in India. Section 90 provides relief from double taxation. The four clauses of sub-section (1) of section 90 lay down the scope of power of the Central Government to enter into an agreement with another country. Clause (a) contemplates situations where tax has already been paid on the same income in both the countries and in that case it empowers the Central Government to grant relief in respect of such double t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rights in the property, there is no transfer of the rights in rem which may be good against the world but not against the transferor. In that case the transferee does not have the rights which are indeterminate in duration and residuary in character. Lump sum consideration is not decisive for the matter. That sum may be agreed for the transfer of one right, two rights and so, on all the rights but not the ownership. Thus, the definition of the term 'royalty' in respect of the copyright, literary, artistic or scientific work, patent, invention, process, etc., does not extend to the outright purchase of the right to use an asset. In case of royalty, the ownership of the property or right remains with the owner and the transferee is permitted to use the right in respect of such a property. A payment for the absolute assignment and ownership of rights transferred is not a payment for the use of something belonging to another party and, therefore, not royalty. In an outright transfer to be treated as sale of property as opposed to licence, alienation of all rights in the property is necessary. In the instant case, the assessee was deriving income from the lease of the transpon....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... on board the satellite. (b )Common input antenna for receiving signals from the customers' ground stations, which are shared by multiple transponders. (c )Common output antenna for re-transmitting signals to the footprint area on earth, which are shared by multiple transponders. (d )Satellite positioning system, including position adjusting thrusters and the fuel storage and supply system therefor in the satellite. It is this positioning system which ensures that the location and the angle of the satellite is such that it receives input signals properly and re-transmits the same to the exact desired footprint area. (e )Temperature control system in the satellite, i.e., heaters to ensure that the electronic components do not cease to operate in conditions of extreme cold, when the satellite is in the 'shadow'. (f )Telemetry, tracking and control system for the purpose of ensuring that all the above mentioned systems are monitored and their operations are duly controlled and appropriate adjustments are made, as and when required. Each transponder requires continuous and sustained support of each of the above mentioned systems of the satellite, without which i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....oidance Agreement (DTAA), the case of the assessee got a boost. The Organisation of Economic Cooperation and Development (OECD) has framed a model of Double Taxation Avoidance Agreement (DTAA) entered into by India. 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 theExplanation 2 to section 9(1)(vi ). The assessee had relied upon the commentary issued by the OECD on the aforesaid model DTAA. The Tribunal had discarded the aforesaid commentary of the OECD only on the ground that it was not safe to rely upon the same. However, what was ignored was that when the technical terms used in the DTAA are the same as in section 9(1)(vi), for better understanding all these very terms, the OECD commentary can always be relied upon. The Apex Court has emphasized so in a number of judgments, clearly holding that the well-settled internationally accepted meaning and interpretation placed on identical or similar terms employed in the various DTAAs should be followed by the Courts in India when it comes to construing similar terms occurring in the I....