TaxTMI 
TaxTMI 
TaxTMI 
2025 (12) TMI 1429
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed 01.02.2024 for admission of additional ground of appeal. The ld. Counsel for the assessee made statement at Bar that he is not pressing said application. In light of the statement made by ld. Counsel for the assessee, the application filed under Rule 11 of the Income-tax (Appellate Tribunal) Rules, 1963 for admission of additional ground of appeal is dismissed as not pressed. 5. The primary issue involved in appeal is nature of receipts by the assessee/appellant from India for providing satellite transmission services. The assessee has claimed the said receipts as not taxable in India under India-Hong Kong Double Tax Avoidance Agreement (DTAA). Whereas, the Assessing Officer (AO) has held the said receipts as 'process royalty' as well as 'equipment royalty' u/s. 9(1)(vi) of the Act and also under Article 12 of India-Hong Kong DTAA. The facts of the case in brief as emanating from records are: The assessee is a tax resident of Hong Kong. The assessee is engaged in the business of providing satellite transponder capacity to its customers across the world including India. The assessee does not have any satellite in India or Indian orbital slots, nor does the assessee has any equ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of Engineering Analysis Centre of Excellence (P) Ltd., 432 ITR 471 has affirmed the decision rendered in the case of DIT vs. New Skies Satellite BV (supra). 7. Per contra, the ld. DR vehemently supported the impugned order. The ld. DR filed his written submissions, the same are reproduced hereunder: - "The assessee, a Hong Kong-based entity, contends that transponder fees are not taxable as "Royalty" under the India-Hong Kong DTAA, relying on the Delhi High Court's judgment in DIT v. New Skies Satellite BV. Their defense rests on the principle that the "static" definition of Royalty in a Treaty cannot be overridden by a subsequent unilateral amendment to the domestic Income Tax Act. The Department submits that this defense is legally untenable in the present case. Unlike the treaties in New Skies (which pre-dated the amendment), the India-Hong Kong DTAA was signed in 2018, six years after the Finance Act, 2012 expanded the definition of Royalty. Furthermore, applying the Supreme Court's ruling in Gramophone Co. of India Ltd., the clear legislative mandate of the Indian Parliament regarding "process" must prevail, rendering the income taxable as Royalt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Gramophone Company of India Ltd. v. Birendra Bahadur Pandey [1984] provides the ultimate safeguard for the Revenue. In Gramophone, the Supreme Court held that while courts should endeavor to harmonize municipal law with international law, the Municipal Law (Parliamentary Statute) prevails in case of a clear conflict. Key Extracts for submissions: * On Legislative Supremacy: "National courts cannot say yes if Parliament has said no to a principle of international law. National Courts will endorse international law but not if it conflicts with national law." * On Clear Statutes: 'If statutory enactments are clear in meaning, they must be construed according to their meaning even though they are contrary to the comity of nations or international law." Application: The Parliament, via Finance Act 2012, explicitly expressed its Sovereign Will to tax satellite transmission services as "Royalty" (Explanation 6). This is a clear statutory enactment. Relying on Gramophone, the Tribunal/Court cannot bypass this clear legislative mandate by citing "International Law" or "Treaty Interpretation" theories like those in New Skies.....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the assessee for data transmission services are in the nature of royalty as per amended definition u/s. 9(1)(vi) of the Act. The Hon'ble High Court held that even if such fees partake the character of royalty u/s. 9(1)(vi) of the Act as per the amended provisions but such amendment would not affect the definition of royalty as defined in Article 12 of India-Thailand DTAA which is narrower than the definition of royalty under the provisions of the Act. The fees received by the assessee for providing satellite transmission services do not fall within the meaning of royalty under Article 12 of India-Thailand DTAA. The substantial question of law for consideration before the Hon'ble High Court in the case of DIT vs. New Skies Satellite BV (supra) were: "2. The substantial question framed by this Court is two-fold; (1) whether the receipts of the assessee's earned from providing data transmission services, fall within the term royalty under the Income Tax Act, 1961, and (2) if the answer to the first is in the affirmative, whether the assessee's would be eligible for the benefit under the relevant Double Tax Avoidance Agreements." 11. The Hon'ble High Court....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... '3. The term "royalties" as used in this article means payments of any kind received as a consideration for the alienation or the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph films, phonographic records and films or tapes for radio or television broadcasting), any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.' Article 12(4), Indo Netherlands Double Tax Avoidance Agreement : '4. The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.' Section 9(1)(vi), Explanation 2, Income Tax Act, 1961 "(iii) the use of any patent, invention, model, design, secret formula or process....
X X X X Extracts X X X X
X X X X Extracts X X X X
....agination to comprehend the extent and length of negotiations that take place when two nations decide to regulate the reach and application of their legitimate taxing powers. In Union of India v. AzadiBachao Andolan [2003] 263 ITR 706/132 Taxman 373 (SC) where the Indo Mauritius Double Tax Avoidance Convention was before the Supreme Court, the Court said the following of the essential nature of these treaties, "132. An important principle which needs to be kept in mind in the interpretation of the provisions of an international treaty, including one for double taxation relief is that treaties are negotiated and entered into at a political level go ahead and have several considerations as their bases. Commenting on this aspect of the matter, David R. Davis in Principles of International Double Taxation Relief, David R. Davis, Principles of International Double Taxation Relief, Pg.4 (London Sweet & Maxwell, 1985)points out that the main function of a Double Taxation Avoidance Treaty should be seen in the context of aiding commercial relations between treaty partners and as being essentially a bargain between two treaty countries as to the division of tax revenues between the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....". 45. At the very outset, it should be understood that it is not as if the DTAAs completely prohibit reliance on domestic law. Under these, a reference is made to the domestic law of the Contracting States. Article 3(2) of both DTAAs state that in the course of application of the treaty, any term not defined in the treaty, shall, have the meaning which is imputed to it in the laws in force in that State relating to the taxes which are the subject of the Convention. "Indo Thailand DTAA: ARTICLE 3: GENERAL DEFINITIONS 2. In the application on the provisions of this Convention by one of the Contracting States, any term not defined herein shall, unless the context otherwise requires, have the meaning which it has for the purposes of the laws in force in that State relating to the taxes which are the subject of this Convention. Indo Netherlands DTAA: ARTICLE 3: GENERAL DEFINITIONS 2. As regards the application of the Convention by one of the States any term not defined herein shall, unless the context otherwise requires, have the meaning which it has under the law of that State concerning the taxes to which the Convention a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tes. It is fallacious to assume that any change made to domestic law to rectify a situation of mistaken interpretation can spontaneously further their case in an international treaty. Therefore, mere amendment to Section 9(1)(vi) cannot result in a change. It is imperative that such amendment is brought about in the agreement as well. Any attempt short of this, even if it is evidence of the State's discomfort at letting data broadcast revenues slip by, will be insufficient to persuade 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 "royalty" in Asia Satellite, 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....a) protects the assessee from 'Treaty Override' only where treaty was already in existence at the time of amendment to domestic law. Where the treaty comes into existence at later point of time as is the case here, where India-Hong Kong DTAA was signed in the year 2018, the provisions of Act would apply. We do not find favour with the said submission of the ld. DR. The DTAA between two sovereign nations is also akin to Legislation. Any amendment in the domestic law does not impact the provisions of the DTAA unless two sovereigns mutually decide to amend the terms of DTAA. When DTAA is signed between two nations defining 'royalty' in narrower sense, knowingly too well that existing provisions of domestic Act provide for much wider definition of royalty, it was the conscious call taken by the sovereigns. Now, at a later point of time provisions of domestic law cannot be superimposed over DTAA provisions by the Revenue to disregard DTAA provisions. 15. Thus, in light of facts of the case and decisions referred above, we hold that the fee received by the assessee for providing satellite transmission services does not fall within the definition of royalty under Article 12 of India....