TaxTMI 
TaxTMI 
2026 (1) TMI 1118
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....als, the grounds raised by the Revenue in ITA No.5246/Mum/2025 are reproduced as follows for ready reference: - "1. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in upholding that the assessee was not liable to deduct tax at source w/s 195 of the Act on payments made to intelsat UK, for transponder charges on the ground that the payment did not constitute royalty u/s. 9(1) (vi) of the Act or under the India-UK DTAA?" 2. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in in not taking into account that the payments made by the assessee to Intelsat Corporation, UK for transponder charges are specifically covered by Explanation 6 to Section 9(1)(vi) as being included in the expression 'process' and hence fall under definition of Royalty as per Explanation 2 to section 9(1)(vi) of the Act?" 3. "Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in not taking into account that the Explanation 6 to section 9(1)(vi) of the IT Act was inserted by the Indian Parliament by way of Finance Act, 2012 as a declaratory and clarificatory amendm....
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....provisions of the India-UK Double Taxation Avoidance Act ("DTAA"), the assessee filed appeal under 248 of the Act before the learned CIT(A), after payment of such withholding taxes by the assessee. The learned CIT(A), after considering the submissions of the assessee, decided the appeal in favour of the assessee following the decision of the Hon'ble Bombay High Court in Neo Sports Broadcast Pvt Ltd. vs. PCIT, in ITA No.1487 of 2018, in which reliance was placed on the decisions of the Hon'ble Delhi High Court in Asia Satellite Telecommunications Co. Ltd. vs. DIT, reported in (2011) 332 ITR 340 (Del.), and DIT vs. New Skies Satellite BV, reported in (2016) 382 ITR 114 (Del.). Accordingly, the learned CIT(A) held that the payment made towards the use of the transponder facility is not in the nature of a Royalty and the assessee is not liable to deduct tax at source while making payments towards transponder service charges to Intelsat UK. In further appeal by the Revenue against the aforesaid decision dated 28.08.2019 passed by the learned CIT(A), the Tribunal, vide its order dated 30.07.2021 in ITA No.7077/Mum/2019 and others, after considering the preliminary objection of the Revenu....
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....e remand report disagreeing with the submissions of the assessee and submitted that transponder charges paid by the assessee to Intelsat UK are chargeable to tax in India as Royalty for the "use of" or "right to use of process" as per Explanation-6 to section 9(1)(vi) of the Act. The Assessing Officer further submitted that the term "process" has been defined under Explanation-6 to section 9(1)(vi) of the Act, and as per the same, the process is not required to be "secret" to fall under the definition of Royalty. By referring to the provisions of Explanation-6 to section 9(1)(vi) of the Act, the Assessing Officer submitted that the expression "process" includes and shall be deemed to have always included transmission by satellite, including up-linking, amplification, conversion for down-linking of any signal. Therefore, the Assessing Officer submitted that the transponder charges will clearly fall under the definition of "process", as per Explanation-6 to section 9(1)(vi) of the Act. As regards the reliance placed by the assessee on the provisions of the India-UK DTAA, the AO submitted that the term "process" is not defined in the DTAA, and accordingly, the definition of the term "....
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..... Being aggrieved, the Revenue is in appeal before us. 10. During the hearing, the learned Departmental Representative ("learned DR") vehemently relied upon the remand report filed by the Assessing Officer before the learned CIT(A) and submitted that transponder service fees paid by the assessee to Intelsat UK is taxable in India as Royalty, and therefore, the assessee rightly deducted the taxes under section 195 of the Act while making payment of transponder service fees to Intelsat UK. 11. On the other hand, the learned Authorized Representative ("learned AR"), vehemently relying upon the findings of the learned CIT(A), submitted that this issue has been decided in favour of the tax payer by various decisions of the Hon'ble Courts and Tribunals, which were followed by the learned CIT(A) while allowing the appeal of the assessee. 12. We have considered the submissions of both sides and perused the material available on record. In the present case, the assessee entered into an agreement with Intelsat UK for availing transponder services for up-linking and down-linking of satellite signal for broadcasting television channels in India. Accordingly, pursuant to the agreement,....
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....ll not assert, any property interest in or to, or lien upon, the property or assets of Intelsat, including but not limited to, the Satellite and/or any components) thereof and/or any Intelsat-Provided Facilities (collectively, the "Intelsat Assets")." 13. As per the assessee, Intelsat UK was merely providing transponder services to the assessee for transmission of signals through the satellite, which facilitated the assessee in up-linking and down-linking of satellite signals for broadcasting television channels of the assessee in India. There is no dispute in the present case that the satellite is owned and managed by Intelsat UK. As per the assessee, it has no rights/control/access or interest in such satellite. Further, as per the terms of the agreement, it was a responsibility of the assessee for the provision, installation, operation, maintenance of, and for securing all necessary licenses and/or authorisations for, all earth station facilities and equipment for transmitting or receiving signals from the satellite in accordance with requirements set forth in the service order. 14. In the instant case, there is not dispute that Intelsat UK is a tax resident of UK under Ar....
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....rience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic." (Emphasis supplied) 17. Thus, as per the assessee, in order for a payment to be termed as Royalty under the provisions of the India-UK DTAA, the same needs to be a payment for the use of a "secret process" and not just "process". As per the assessee, the payment made by it to Intelsat UK for the use of the transponder facility for transmission of its channel is not for any secret process, as the transponder facility is rendered through standard facilities, and the transponder technology is available off the shelf. Therefore, there is no secret about the process. Accordingly, it is the plea of the assessee that the transponder fees do not tantamount to fees in relation to any secret process, and therefore, do not fall within the definition of the term "Royalty" as provided in Article 13(3) of the India-UK DTAA. 18. We find that while considering the similar issue of taxability of trans....
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.... and telecommunication enterprises) frequently enter into transponder leasing agreements under which the satellite operator allows the customer to utilize the capacity of a satellite transponder to transmit over large geographical areas. Payments made by customers under typical transponder leasing agreements are made for the use of the transponder transmitting capacity and will not constitute royalties under the definition of paragraph 2; these payments are not made in consideration for the use of, or right to use, property, or for information, that is referred to in the definition (they cannot be viewed, for instance, as payments for information or for the use of, or right to use, a secret process since the satellite technology is not transferred to the customer). As regards treaties that include the leasing of industrial, commercial or scientific (ICS) equipment in the definition of royalties, the characterization of the payment will depend to a large extent on the relevant contractual arrangements. Whilst the relevant contracts often refer to the lease of a transponder, in most cases the customer does not acquire the physical possession of the transponder but simply its....
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....fe to rely upon the same. However, what is ignored is that when the technical terms used in the DTAA are the same which appear in Section 9(1)(vi), for better understanding all these very terms, OECD commentary can always be relied upon. The Apex Court has emphasized so in number of judgments clearly holding that the well-settled internationally accepted meaning and interpretation placed on identical or similar terms employed in various DTA As should be followed by the Courts in India when it comes to construing similar terms occurring in the Indian Income Tax Act. ... 78. There are judgments of other High Courts also to the same effect. (a) Commissioner of Income Tax Vs. Ahmedabad Manufacturing and Calico Printing Co., (139 ITR 806 (Guj.)] at Pages 820-822. (b) Commissioner of Income Tax Vs. Vishakhapatnam Port Trust [(1983) 144 ITR 146 (AP)] at pages 156-157. (c) N.V. Philips Vs. Commissioner of Income Tax [172 ITR 521) at pages 527 & 538-539." 59. On a final note, India's change in position to the OECD Commentary cannot be a fact that influences the interpretation of the words defining royalty as they stand today. The only manner ....
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.... "(a) Whether, on the facts and in the circumstances of the case and in law, the Hon'ble ITAT erred in deleting the addition towards Satellite Space Fees/transponder charges relying on the decision of Hon'ble Delhi High Court in the case of Asia Satellite Telecommunication 238 CTR (Del) 233, without considering the amendment in section 9(1)(vi) w.e.f. 01.06.1976 [by Finance Act, 2012], wherein the intent of legislature in respect of 'royalty' has been clarified thereby deeming the said charges to be 'royalty' in nature." 21. While deciding this issue in favour of the taxpayer, the Hon'ble Jurisdictional High Court, vide order dated 23.04.2019, observed as follows:- "2. In question (a) the revenue contends that the Satellite Space Fees and transponder charges paid by the assessee were in the nature of royalty payments. From the perusal of the impugned judgment of Income Tax Tribunal ("Tribunal' for short) we notice that the revenue's main thrust before the Tribunal was that the charges paid were capital expenditure and not revenue expenditure. However, in this context, the Tribunal did observe fleetingly on the question of charges being royal payments....
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....that the amended meaning of the term "process" in the Act needs to be incorporated in the definition of the term "Royalty" under Article 13 of the India-UK DTAA by virtue of Article 3(3) of the India-UK DTAA. 24. We find that the taxability of transponder service fees in the hands of the recipient, i.e., Intelsat UK, came up for consideration before the Coordinate Chennai Bench of the Tribunal in Intelsat Global Sales and Marketing Ltd. vs. DCIT, in IT(TP)A No.49/Chny/2018 and others. While deciding the issue in favour of Intelsat UK, the Co-ordinate Chennai Bench of the Tribunal vide order dated 16.10.2023 held that such receipts cannot be taxed as process Royalty, by observing as follows: - "16. As regards the taxability of receipts of process royalty, the Ld. AR argued that no secret process is involved in provision of services by the assessee since the mechanism of providing satellite transmission services is available in the public domain. The assessee owns satellite which include transponders and provide satellite transponder services to its customers as per eleven parameters to be adhered or provided to the customers of the assessee i.e. VSNL etc. The assessee is....