TaxTMI 
TaxTMI 
2026 (2) TMI 80
X X X X Extracts X X X X
X X X X Extracts X X X X
....) 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 amendment with retrospective effect from the day and source rule on royalty came into effect to specify the intent of the law and does not provide a new law?" 4. Whether on the facts and circumstances of the case and in law, the Lal. CIT(A) has erred in not taking into account that the term process is not defined in Article 13 of India UK DIAA and hence its meaning has to be derived from the domestic law of India as required by Article 3(3) of India UK DTAA?" 5. Whether on the facts and circumstances of the case and in law, the Ld. CFT(A) has erred in no....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(A), after calling for a remand report and considering detailed submissions of both parties, reiterated the earlier conclusion in favour of the assessee. The Revenue is now in further appeal before us. 3. Before us, the Ld. counsel for the assessee submitted that identical issue has been adjudicated by the Co-ordinate Bench in favour of the assessee. 4. Before us, the Ld. DR submitted that decision of the Hon'ble Delhi High Court in the case of New Skies Satellite BV (supra) has been challenged by the Revenue before the Hon'ble Supreme court vide diary No. 23909/2016 and the same is pending adjudication before the Hon'ble Supreme Court and matter is not yet finally settled. 5. We have heard the rival submissions and carefully perused the material on record. The Revenue's principal contention is founded upon the insertion of Explanation 6 to section 9(1)(vi) by the Finance Act, 2012 with retrospective effect, whereby the expression "process" is deemed to include satellite transmission, whether or not such process is secret. It is contended that since the term "process" is not defined in the India-UK DTAA, the amended domestic law definition must be imported into the treaty ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....conditions of this MSA and such Service order." * "2.2 Intelsat - Provided Facilities: Intelsat shall provide each Service using satellite and / or terrestrial facilities owned and / or operated by Intelsat and / or third parties under contract with Intelsat (the "Intelsat-Provided Facilities")." * "2.3 Space Segment Allocation: Intelsat reserves the right to assign and/or reassign Customer's space segment allocation within the satellite identified in the Service Order move the Service to a different satellite and/or a different orbital location (the satellite being used for the Service at any given time referred to herein as the "Satellite"), or in any way to alter the method by which it provides a Service, provided that any such change not result in a failure of the Service to meet the Service Specifications. Except in emergency circumstances, Intelsat shall notify Customer of any changes to its allocation as soon as reasonably practicable prior to such change and shall use reasonable efforts to min disruption to Customer's Service during any such change." * "3.4 Customer-Provided Facilities: Unless otherwise specified in the Service Order, Cust....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret.Thus, it is the plea of the Revenue that as per Explanation-6 to section 9(1)(vi) of the Act, the "process" is not required to be "secret" in order to fall under definition of the term "Royalty" as provided in Explanation-2 to section 9(1)(vi) of the Act and specifically includes transmission by satellite including up-linking, amplification, conversion for down-linking of any signal. Therefore, as per the Revenue, the transponder service fees paid by the assessee to Intelsat UK are chargeable to tax in India as per the provisions of the Act. As regards the taxability under the India-UK DTAA, it is the plea of the Revenue that since the term "process" is not defined under the tax treaty, accordingly, as per the provisions of Article 3(3) of the India-UK DTAA, the definition of the term "process" as provided under the Act shall apply. 16. On the other hand, the assessee placed reliance upon the definition of the term "Royalty", as provided in Article 13(3) of the India-UK DTAA, which reads as follows: - "3. F....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... been evidence of a deliberate inclusion to influence the reading of the section. There is sufficient evidence for us to conclude that the process referred to in Article 12 must in fact be a secret process and was always meant to be such. In any event, the precincts of Indian law may not dictate such conclusion. That conclusion must be the result of an interpretation of the words employed in the law and the treatises, and discussions that are applicable and specially formulated for the purpose of that definition. The following extract from Asia SatelliteTelecommunications Co. Ltd's case (supra) takes note of the OECD Commentary and Klaus Vogel on Double Tax Conventions, to show that the process must in fact be secret and that specifically, income from data transmission services do not partake of the nature of royalty. "74. Even when we look into the matter from the standpoint of Double Taxation Avoidance Agreement (DTAA), the case of the appellant gets boost. The Organisation of Economic Cooperation and Development (OECD) has framed a model of Double Taxation Avoidance Agreement (DAA) entered into by India are based. Article 12 of the said model DTAA contains a definit....
X X X X Extracts X X X X
X X X X Extracts X X X X
....could well be considered as a payment for the leasing of industrial, commercial or scientific equipment. Similar considerations apply to payments made to lease or purchase the capacity of cables for the transmission of electrical power or communities (e.g. through a contract granting an indefeasible right of use of such capacity) or pipelines (e.g. for the transportation of gas or oil). 75. Much reliance was placed upon the commentary written by Klaus Vogel on Double Taxation Conventions (3rd Edition)'. It is recorded therein: The use of a satellite is a service, not a rental (thus correctly, Rabe, A., 38 RIW 135 (1992), on Germany's DTC with Luxembourg); this would not be the case only in the event the entire direction and control over the satellite, such as its piloting or steering, etc. were transferred to the user.' 76. Klaus Vogel has also made a distinction between letting an asset and use of the asset by the owner for providing services as below: 'On the other hand, another distinction to be made is letting the proprietary right, experience, etc., on the one hand and use of it by the licensor himself, e.g., within the frame....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 parimateria (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 amend the definition in a manner so that such income automatically becomes royalty. It is reiterated that the Court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no Double Tax Avoidance Agreement." 19. Thus, the Hon'ble Delhi High Court in the decision cited (supra) held that unless the provisions of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ayments made to the non-resident were in the nature of royalty and therefore come within the scope of section 9(1) of the Income Tax Act, 1961 ('the Act' for short). The Court by a detailed judgment held that the payments were not in the nature of royalty charges. The Court made a distinction between transfer of rights in respect of property and transfer of rights in the property. 4. Later on similar issue once again came before Delhi High Court in the case of Directorate of Income-tax Vs. New Skies Satellite BV, reported in (2016) 382 ITR 114. The Court followed the earlier decision in case of Asia Satellite Telecommunication (supra) and dismissed the revenue's Appeal. It was held that the explanations added below section 9(1) of the Act were not merely clarificatory in nature. Respectfully agreeing with the said decisions of the Delhi High Court, this question is not considered." 22. We find that similar findings have been rendered by the Coordinate Bench of the Tribunal in the following decisions: - * ACIT (IT)vs. Viacom 18 Media (P.) Ltd., (2022) 134 taxmann.com 243 (Mumbai Tribunal) * ACIT (IT) vs. Viacom 18 Media (P.) Ltd., (202....
X X X X Extracts X X X X
X X X X Extracts X X X X
....amendment in section 9(i)(vi) of the Act vide Finance Act, 2012 cannot be read into the India-UK DAA. 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." 25. Therefore, respectfully following the decisions of the Hon'ble High Courts and Co-ordinate Bench cited supra, we do not find any infirmity in the findings of the learned CIT(A) in coming to the conclusion that the payment of transponder service fees by the assessee to Intelsat UK do not fall within the meaning of the term "Royalty" as per the India-UK DTAA. As regards the other findings of the learned CIT(A) regarding the non-taxability of the payment as "Fees for Technical Services", a....