TaxTMI 
TaxTMI 
TaxTMI 
2023 (10) TMI 1574
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....and circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the assessment order issued by the Ld. AO, wherein income of the appellant has been assessed at INR 10411 67342/- 2. That on the facts and circumstances of the case and in law, the Ld. CIT(A), while passing his order, has conveniently ignored the fact that adequate opportunity was not given to the appellant during the course of the assessment proceedings which is against the principles of Intelsat Global Sales and Marketing Limited, C/o Price water house Coopers Pvt. Ltd. 8th Floor, Prestige Palladium Bayan, 129-140, Greams Road, Chennai-600 006 Vs. DCIT, Circle 1(2), Chennai. (Appellant) (Respondent) natural justice and therefore the assessment order for the subject year is bad in law and deserves to be quashed. 3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) and the Ld. AO have grossly erred in overlooking the customer confirmations and statements made on oath, of independent third party customers, wherein the customers have confirmed that no equipment of appellant is present in India and that appellant has no role in uplinking and downlinking of signals....
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....n upholding the application of force of attraction rule under the India-UK DTAA, without even holding that the appellant has a PE in India as per Article 5 of the India-UK DTAA. 11. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has grossly erred in upholding the levy of interest under Section 234B of the Act. 12. That on the facts and circumstances of the case, the Ld. AO erred in initiating penalty proceedings under section 271(1)(c) of the Act." 3. The additional grounds along with the additional evidence filed by the assessee are not pressed. 4. Briefly stated, Intelsat Global Sales and Marketing Limited ("assessee" or "Appellant" or "IGSML") is a company registered under the laws of UK and is a tax resident of UK for the purpose of the Double Taxation Avoidance Agreement between India and UK ("India-UK DTAA") and hence eligible to be governed by the provisions of the India-UK DTAA being more beneficial to it. The assesee is engaged in the business of providing 'satellite transmission services' to customers around the world, including India. The mechanism of satellite transmission services as explained by the assessee is tabul....
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....services ("FTS") and royalty and concluded the matter by characterising the receipts of the assessee as royalty under India-UK DTAA. The Ld. CIT(A)/DRP upheld the assessment order and held that the payment should be treated as royalty. On appeal before the Chennai Tribunal, the Tribunal remanded the matter back to the file of the Ld. AO to decide the issue afresh with its directions contained in para 16 of its order. The relevant extract of the directions given by the Tribunal is as under: "The question arises for consideration is whether the Earth Station said to be maintained by VSNL and other companies could receive signal/data without any intervention by the assessee-company in India. This fact was not examined by both the authorities below. Further, how the signals were received in India without intervention of the assessee-company needs to be examined. This Tribunal is of the considered opinion that the technical experts from VSNL or very any other companies which entered into agreement with assessee- company needs to be examined about the mode of receipt of signal/data which was retransmitted by the assessee company in India. Since the Assessing Officer has not exam....
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....ssessment order while deciding the impugned issue. He also brought to our notice that there was an inadvertent mention regarding the presence of equipment of the assessee in India in the first round of appeal which fact has not been disputed by the Ld. AO in the second round of appeal. The ld. AR further submitted that both Ld. AO / CIT (A) exceeded their jurisdiction by not following the specific directions of the Chennai Tribunal. 6.3 The Ld. AR placed before us the detailed written submissions with respect to his above averments which are reproduced below: "Ground 1 to 9 Appellant's matter is squarely covered by the decision of Delhi High Court and Delhi ITAT in case of Intelsat Corporation (a group company of Appellant) 3.1 Same business and services: The satellite transmission services rendered by the Appellant are same as the services rendered by Intelsat Corporation. 3.2 The above is evidenced by the fact that in a group reorganization undertaken in 2018, the contracts of Intelsat Corporation were assigned to the Appellant supported by the following documents: ● Assignment and assumption agreement between Intelsat Corpora....
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....er case law PB pg 98 to 119 ● United Home vs DCIT(IT) 4(3)(1) in ITA Nos, 1289 to 1308/ Mum/ 2016, 7303 to 7306/ Mum/ 2016 and ITA Nos 262 to 273/ Mum/2017 (Mumbai ITAT) -refer case law PB pg 120 to 132 ● United Home vs ADIT (IT)2(2) in ITA Nos. $171 to 5181/ Mum / 2013 (Mumbai ITAT) - refer case law PB pg 133 to 151 ● Independent News Services (P.) Ltd vs ITO (2018) 90 taxmann.com 163 (Delhi ITAT) refer case law PB pg 152 to 160 ● New Delhi Television Ltd vs ACIT (2020) 117 taxmann.com 212 (Delhi ITAT) -refer case law PB pg 161 to 195 ● Zee Entertainment Enterprises Ltd. vs ITO (ITA NO. 4652/ Mum: / 2016) (Mumbai ITAT) - refer case law PB pg 196 to 206 ● Viacom 18 Media Pvt Ltd vs ADIT (ITA No. 599 to 614 / Mum / 2016) (Mumbai ITAT) refer case law PB pg 207 to 215 ● ACIT vs Viacom 18 Media Pvt Ltd (ITA No. 1067/Mum/2021, 1087 to 1138/ Mum / 2021, 1151 to 1162/ Mum / 2021) (Mumbai ITAT) - order pronounced on February 24, 2022. Appellant's matter is squarely covered by judicial precedents in case of similar industry players wherein it is held that receipts for satellite trans....
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.... refer para 6, page 10 of the Assessment Order. ● Shipment documents of CSM equipment removed from India - refer PB pg 232 to 240; and ● List of permitted teleports in India as on December 29, 2011 and March 20, 2013 from the website of Ministry of Information and broadcasting (MIB) which evidences the fact that the teleports / earth stations listed with MIB pertains to the customers of the Appellant - refer PB pg 322 to 326 and 331 to 340. 3.10 The oath statements of the customers recorded by the Ld. AO also clearly evidenced the following (refer PB pg 393 to 416): ● The Appellant does not own any equipment, teleport, earth station or offices in India. All the operating facilities are situated outside India and maintained by the Appellant from outside India.. ● The Appellant does not provide any assistance/intervene in uplinking and downlinking of signals and this is the responsibility of the customer. ● The Appellant neither has any equipment in India for the purpose of monitoring signal strength in India nor has any monitoring station in India 3.11 During the course of the CIT(A) proceed....
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....nt in India, it has to be construed that the assessee is rendering services in India' - refer PB pg 222 Receipts not taxable as process royalty 3.19 No 'secret process' involved since the mechanism of providing satellite transmission services is available in the public domain. 3.20 Intelsat Earth Station Standards ('IESS'), 11 parameters, data pointing calculator are available in public domain and therefore, do not constitute secret information or process. 3.21 Amendment in section 9(1)(vi) of the Act vide Finance Act 2012 cannot be read into the IndiaUK DTAA. 3.22 No confidential information provided by the Appellant to its customers: Receipts not taxable as FTS 3.23 Customers contact the NOC team in US in case of any problems due to weather, satellite malfunctioning, interference due to various factors in space. 3.24 The Appellant does not 'make available' technical knowledge, information etc to its customers during the course of providing satellite transmission services. Receipts not taxable as business income in absence of any business connection in India 3.25 The Indian entity [ie Intels....
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....The Ld. AR has submitted that the impugned issue now stands settled by the decision(s) of the Delhi High Court and Delhi Tribunal in the case of a group company of the assessee, namely Intelsat Corporation USA. We have pursued the decision of the Delhi High Court in DIT vs. Intelsat Corporation in ITA No. 977/2011 (page 70 to 72 of the Case Law Paper Book) wherein the Delhi High Court dismissed the appeal of the Revenue relying on its decision in the case of Asia Satellite Telecommunications Co. Ltd. vs. DIT (2011) 197 Taxman 263 wherein it has been held that the payment for satellite transmission services is not in the nature of equipment and process royalty. The relevant extract of the decision of the Delhi High Court in the case of Intelsat Corporation is reproduced below: "ITA 977/2011 The respondent assessee is a tax resident company of the United States of America with its registered office located in Washington D.C. The assessee owns and operates global network of telecommunication satellites in outer space. It is engaged in the business of transmitting telecommunication signals to and fro from the earth station(s). Its customers are various TV Channels, NI....
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....agraph No.72, it is mentioned that the Tribunal has made an attempt to trace the fund flow and observed that since the end customers being persons watching televisions in India are paying the amounts to cable operators who in turn are paying the same to TV Channels, the flow of fund is traced to India. This is a far-fetched ground to rope in payment received by the appellant in the taxation net. The Tribunal has glossed over an important fact that the money, which is received from the cable operators by the telecast operators, is treated as income by the telecast operators, which has accrued in India, and they have offered and paid tax. Thus, the income, which is generated in India, has been subjected to tax. It is the payment, which is made by the telecast operators who are situated abroad to the appellant, which is also a non-resident, i.e., sought to be brought within the tax net. It is concluded that it is difficult to accept such far-fetched reasoning with no causal connection. It may be mentioned here that the assessee has received revenues from Indian residents also, as can be seen from the table mentioned in the assessment order and reproduced by us while summarizing the or....
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....uments on record including the assignment and assumption agreement between Intelsat Corporation and the assessee effective from July 2, 2018 whereby the existing contracts of Intelsat Corporation has been assigned to the assessee for rendering satellite transmission services. Therefore, the decision (supra) of the Delhi High Court in the case of group company of the assessee i.e. Intelsat Corporation should squarely apply to the assessee in the present case. We have also considered various decisions of High Courts and Tribunals on the similar issue in the case of customers and other industry players relied upon by the assessee (referred to in the written submissions reproduced above) wherein the authorities have categorically held that receipts for provision of satellite transmission services are not in the nature of royalty/ FTS chargeable to tax in India and the customer (i.e. payer) is therefore not required to withhold taxes on payment made to the service provider of such services. 10. In Asia Satellite Telecommunications Co. Ltd. (supra) the Hon'ble Delhi High Court by referring to the case of ISRO Satellite Centre 175 Taxman 97 (AAR) held that transponder and the process t....
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....her earth stations are owned by the assessee. The answer to both these questions is negative. The Ld. AO/ CIT(A) did not consider the documents / submissions filed by the assessee which comprised of confirmation letters received from customers of the assessee i.e. Times of India group, Disney India etc. (at pages 200 to 205, 282, 283 of PB) confirming that no equipment of the assessee was placed at their premises in India during the relevant period under consideration and that the assessee had no role in unlinking and downlinking of signals. The customers have merely availed the transponder services and IGSML does not support or provide them with any assistance in relation to the downlinking of the signals. It is undisputed that the assessee did not have any equipment in India for monitoring signal strength. The monitoring equipment ("CSM equipment") at Chennai placed in the premises of VSNL belonged to Intelsat Global Service Corporation which is a group company of the assessee. The CSM equipment was removed and shipped outside India in 2004. The CSM equipment was not required to render the services of the assessee and it continued to render services even after the equipment was s....
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....ormation or process. No confidential information is provided by the assessee to its customers to tax the receipts as process royalty. The assessee has placed the unredacted version of the customer contract (at pages 101 to 105 of the additional evidence) which clearly establishes that the redacted information i.e. allocated transponder, allocated bandwidth are merely commercial information. The amendment in section 9(i)(vi) of the Act vide Finance Act, 2012 cannot be read into the India-UK DTAA. The impugned issue is also covered by the decisions (supra) of the Delhi High Court in the case of Intelsat Corporation and Asia Satellite Telecommunication Co. Ltd. The case of the assessee also finds support by the decision of the Delhi High Court in New Skies Satellite BV (2016) 68 taxmann.com 8 (Delhi HC). The Ld. DR has not brought on record any material to controvert the above submissions of the Ld. AR. In the light of the above factual matrix of the case and legal position set out above, we are of the considered view that the impugned receipts cannot be taxed as process royalty. 17. Regarding the treatment of the receipts as FTS, the Ld. AR explained that the customers contact the....
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....vities which relate to marketing services viz. a. viz. services rendered by the assessee. Nothing has been brought on record by the Ld. AO/CIT(A) to establish relationship between marketing activities and the services provided by the assessee so as to establish a business connection or PE of the assessee in India. In the absence of any material brought on record by the Revenue, we are inclined to hold that the impugned receipts cannot be taxed as business income of the assessee in India as there is no business connection/PE of the assessee in India. Having held that the assessee does not have a PE in India the force of attraction rule cannot be applied to attribute any income of the assessee to India. 19. The next grievance of the assessee relates to levy of interest under section 234A of the Act which is consequential in nature. 20. The assessee has also challenged the levy of interest under section 234B of the Act. The Ld. AR submitted that the interest under section 234B of the Act cannot be levied on non-resident assessee. In support thereof he placed reliance on various decisions including the decision of the Delhi High Court in the case of DIT vs. Jacabs Civil Incorpora....