TaxTMI 
TaxTMI 
2023 (4) TMI 1478
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....by the assessee to Reliance Jio Infocomm UK (RJIUK) for availing bandwidth services as it did not amount to income of the payee by way of royalty within the meaning of clause (iva) to Explanation 2 of section 9(1)(vi) of the IT Act, 1961 read with Article 13(3)(b) of India-UK DTAA" C. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in not taking into account that in absence of a definition of the terms 'use of or right to use' and 'process' in Article 13 of the India-UK DTAA in relation to royalty, Article 3(3) of the said DTAA allows for taking recourse to the meaning contained in the domestic law of the State applying the Treaty (that is, India)" D. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in not considering Explanation 5 and 6 to section 9(1)(vi) of the Act in relation to payment made by the assessee to M/s. RJIUK for bandwidth services in light of direct mandate provided by Article 13(3) of the India-UK DTAA" E. "Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in not considering Explanation 5 and 6 to section 9(I)(vi) of....
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....iable to be taxed in India. And therefore, the assessee is not under any obligation to deduct tax at source u/s 195 of the Act. The Ld. CIT(A) noted that the same issue cropped up before his predecessor and the aforesaid view taken by the latter was upheld by this Tribunal in the assessee's own case in ITA. Nos. 6331 to 6334/Mum/2018 dated 05.11.2019. Following the same, the Ld. CIT(A)/NFAC held that the assessee was not obliged to deduct tax at source while making payment to M/s. RJIUK for bandwidth services and declared so in terms of section 248 of the Act. 5. Assailing the action of the Ld. CIT(A)/NFAC, the Ld. DR brought to our notice that the Ld. CIT(A) erred in following the earlier order of this Tribunal because, first of all, the DTAA under consideration in that decision was the India-Singapore Tax Treaty, whereas in this case the applicable DTAA is the India-UK Tax Treaty. The Ld. DR further relied on the decision of the Hon'ble Madras High Court in the case of Verizon Communication Singapore Pte Ltd. Vs. ITO (TCA No. 230/2012). According to him, this judgment of the High Court was squarely applicable wherein it had been held that IPLC/Bandwidth Services is to ....
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....ownlinking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret. Thus, according to the Ld. DR, going by the domestic law meaning, in absence of specifically assigned definition in the Treaty, it is very much clear that the characterization of the payments for bandwidth services clearly fall within the scope of the expression 'Royalty' and hence the assessee was liable to deduct tax at source. The Ld. DR therefore pleaded that the impugned action of the Ld. CIT(A) be reversed. 8. Per contra, the Ld. AR, supporting the order of the Ld. CIT(A) submitted that the issue with regard to non-applicability of withholding tax on payment made by M/s. RJIL (assessee) for bandwidth services is squarely covered in M/s. RJIL's favour in its own case by the orders referred infra of the same bench of the Mumbai Tribunal: - (i) Reliance Jio Infocomm Limited - ITA Nos. 6331 to 6334/Mum/2018; (ii) Reliance Jio Infocomm Limited - 108 Taxmann.com 325 (page no. 28 to 34) (iii) Reliance Jio Infocomm Limited - ITA. No. 5207/Mum/2019. 9. The Ld. AR thereafter drew our attention to the copy of the Agreement ....
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.... the right not 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." 12. Referring to the above relevant clauses, the Ld. AR showed us that the definition of 'royalty' as per the Indo Singapore Treaty as well as the Indo UK Treaty is the same, without any difference. Therefore, according to him, the ratio laid by the Tribunal in assessee's own case for earlier years was rightly followed by Ld. CIT(A)/NFAC while passing the impugned order for the relevant year. 13. Countering the Ld. DR's reliance on the decision of Hon'ble Madras High Court in the case of M/s. Verizon Communication (supra), the Ld. AR submitted that the facts are clearly distinguishable. The Ld. AR placed before us a chart, which is found placed at page nos. 2 to 24 of the Paperbook ('PB'), in which he demonstrated that M/s. RJIUK has only provided standard bandwidth services to M/s. RJIL and while doing so it has not provided any equipment to M/s RJIL. Therefore, the Ld. AR submitted that M/s. RJIL did not use nor was it conferred with the right t....
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....his Court is disinclined to conclusively determine or record a finding as to whether the amendment to 9(1)(vi) is indeed merely clarificatory as the Revenue suggests it is, or prospective, given what its nature may truly be. The issue of taxability of the income of the assessees in this case may be resolved without redressal of the above question purely because the assessee has not pressed this line of arguments before the court and has instead stated (75 US) 330, 19 L Ed 396 (1869) 223 F2d 668 (8th Cir. 1955) 134 Cal App 3d 428 105 Ill App 3d 661 ITA 473/2012, 474/2012, 500/2012 & 244/2014 Page 29 that even if it were to be assumed that the contention of the Revenue is correct, the ultimate taxability of this income shall rest on the interpretation of the terms of the DTAAs. Learned Counsel for the assessee has therefore contended that even if the first question is answered in favour of the Revenue, the income shall nevertheless escape the Act by reason of the DTAA. The court therefore proceeds with the assumption that the amendment is retrospective and the income is taxable under the Act. 59. On a final note, India's change in position to the OECD Commentary cannot b....
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....nnot bring about a unilateral amendment into a treaty concluded between two Sovereign States. In this regard, the Ld. AR drew our attention to page no. 93 of the paper book wherein the Hon'ble Bombay High Court has framed the following questions of law for their consideration : - "(a) Whether on facts and circumstances of the case and in law, the Tribunal erred in holding that the amount payable by payee was not taxable as royalty in the hands of the payee, under the DTAA between India and Netherlands and hence not liable for tax withholding u/s. 195? (b) Whether on facts and circumstances of the case and in law, the Tribunal erred in relying upon the decision of Hon'ble Delhi High Court in case of payee i.e. New Skies Satellites NV, Netherlands to hold that the amount was not taxable under the treaty in hands of payee without appreciating that the provisions of section 9(1)(vi) are pari-materia with the Royalty itxa-1395-2016.odt provisions under the DTAA as also held by Madras High Court in case of Poompuhar Shipping 360 ITR 257 and Verizon Communication Singapore Pte ITR 575 (Mad.)? (c) Whether on facts and circumstances of the case and in law, the Trib....
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....is disinclined to conclusively determine or record a finding as to whether the amendment to 9(1)(vi) is indeed merely clarificatory as the Revenue suggests it is, or prospective, given what its nature may truly be. The issue of taxability of the income of the assesses in this case may be resolved without redressal of the above question purely because the assessee has not pressed this line of arguments before the court and has instead stated that even if it were to be assumed that the contention of the Revenue is correct, the ultimate taxability of this income shall rest on the interpretation of the terms of the DTAAs. Learned Counsel for the assessee has therefore contended that even if the first question is answered in favour of the Revenue, the income shall nevertheless escape the Act by reason of the DTAA. The court therefore proceeds with the assumption that the amendment is retrospective and the income is taxable under the Act." 5 The Court further observed that mere amendments in the Act would not over-ride the provisions of Double Tax Avoidance Agreement (for short "DTAA"). It was held that: "on a final note, India's change in position to the OECD Commentary can....
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.... of the High Court of Delhi correctly observed that mere positions taken with respect to the OECD Commentary do not alter the DTAA's provisions, unless it is actually amended by way of bilateral re-negotiation. This was put thus: "68. 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 in which such change in position can be relevant is if such change is incorporated into the agreement itself and not otherwise. A change in executive position cannot bring about a unilateral legislative amendment into a treaty concluded between two sovereign states. 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 C....
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....yalty' or not, in the light of Indo-Singapore DTAA in earlier year/s and answered the question in favour of the assessee. Having perused the definition of the 'royalty' in Indo-Singapore DTAA and India-UK DTAA (supra), we note that they are in pari materia and therefore the ratio laid down by this Tribunal in assessee's own case in earlier years (supra) is applicable with equal force in the case before us as well. Accordingly, the contention of the Revenue to that extent is held to be devoid of any merit and is thus rejected. 20. Thus, the Ld. AR had rightly relied on the findings given by this Tribunal in the assessee's own case for AY 2018-19 in ITA. Nos.6331 to 6334/Mum/2018 dated 05.11.2019. In the decided case, this Tribunal followed their earlier order in assessee's own case for AY 2016-17 reported in 108 taxmann.com 325, wherein it was held that the fees paid for bandwidth services did not constitute 'royalty' as defined in India-Singapore tax treaty (identical to India-UK DTAA). The relevant findings are noted to be as under: "8. We have heard the authorized representatives for both the parties, perused the orders of the lower aut....
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....ent made by the assessee to RJIPL for availing the bandwith services would fall within the sweep of "royalty" is concerned, we are unable to persuade ourselves to accept the same. In our considered view, the amendment in Sec. 9(1)(vi) will not have any bearing on the definition of "royalty" as contemplated in the India-Singapore DTAA. Our aforesaid view is fortified by the order of the Hon'ble High Court of Bombay in the case of The CIT v. Reliance Infocomm Ltd. (IT Appeal No. 1395 of 2016, dated 05.02.2019). The Hon'ble High Court in its aforesaid judgment had after referring to the judgments of the Hon'ble High Court of Delhi in the case of DIT v. New Skies Satellite BV [2016] 382 ITR 114/238 Taxman 577/68 taxmann.com 8 and CIT v. Siemens Aktiongesellschaft [2009] 310 ITR 320/177 Taxman 8/(Bom.) had after deliberating on the amendment made available on the statute by the Explanation 6 to Sec. 9(1)(vi), observed that mere amendment in the I-T Act would not override the provisions of DTAA treaties. In the backdrop of our aforesaid observations, we shall now further deliberate on the definition of „royalty? as contemplated in the India-Singapore tax treaty. In our ....
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....e High Court of Delhi in the case of DIT v. New Skies Satellite BV [2016] 382 ITR 114/238 Taxman 577/68 taxmann.com 8 and CIT v. Siemens Aktiongesellschaft [2009] 310 ITR 320 (Bom)] had after deliberating on the amendment made available on the statute by the Explanation 6 to Sec. 9(1)(vi), observed that mere amendment in the I-T Act would not override the provisions of DTAA treaties. In the backdrop of our aforesaid observations, we shall now further deliberate on the definition of "royalty" as contemplated in the India- Singapore tax treaty. In our considered view there is substantial force in the contention advanced by the ld. A.R that though the term "royalty" as used in Article 12 of India-Hungary DTAA takes within its sweep " ... transmission by satellite, cable, optic fibre or similar technology", however, the definition of "royalty" in the India-Singapore tax treaty with which we are concerned has a narrow meaning. In fact, we find that despite the fact that the India-Singapore tax treaty was amended by Notification No. SO 935(E), dated 23.03.2017, however, the definition of "royalty" therein envisaged had not been tinkered with and remains as such. We thus in terms of our a....
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....(1)(vi), observed that mere amendment in the I-T Act would not override the provisions of DTAA treaties. In the backdrop of our aforesaid observations, we shall now further deliberate on the definition of „royalty" as contemplated in the India-Singapore tax treaty. In our considered view there is substantial force in the contention advanced by the ld. A.R that though the term "royalty" as used in Article 12 of India-Hungary DTAA takes within its sweep " ... transmission by satellite, cable, optic fibre or similar technology", however, the definition of "royalty" in the India-Singapore tax treaty with which we are concerned has a narrow meaning. In fact, we find that despite the fact that the India-Singapore tax treaty was amended by Notification No. SO 935(E), dated 23.03.2017, however, the definition of "royalty" therein envisaged had not been tinkered with and remains as such. We thus in terms of our aforesaid observations are of the considered view that the amount received by RJIPL from the assessee for providing standard bandwidth services could not be characterised as "royalty" as per the India- Singapore DTAA, and as rightly observed by the CIT(A), was in fact the "busi....
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....gally sustainable merits. In any event, even though the decision relied upon refers to the aforesaid decision, it does not at all deal with the interplay of domestic law definitions, under article 3(2), with undefined treaty expressions. Of course, that is only one of the aspects of the matter and there are many other nuances of the matter which need to be taken note of, analysed and taken a conscious call on. Let us, in this backdrop, neatly identify and then deal with the core issue, as being raised before us now, and that core issue is the interpretation to be assigned to the expression "process" for the purpose of Article 12(3)(a) which provides that "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: (a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process (Emphasis, by underlining, supplied by us now), or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of ....
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....h domestic law meaning of a term used in, but not defined in, the Indo Singapore tax treaty. The thrust of learned Departmental Representative's argument is that in such a situation, i.e. when a term used in a treaty is not defined in the treaty, domestic law meaning of the term must prevail. The expression "process", on the basis of this argument and on the strength of article 3(2) of treaty itself, is claimed to cover "transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret" as is the case of bandwidth services provided by RJ-S. It is also pointed out that the adoption of domestic law meaning for treaty purposes, as it is mandated by the treaty itself vide article 3(2), remains unaffected by the provisions of Section 90(2). The question of treaty superiority, under the provisions of the Indian Income Tax Act 1961, comes into play only when the domestic law meaning is not assigned by the treaty itself. 11. There is a fundamental fallacy, in our humble understanding, in this argument, and the fallacy lies in the proposition th....
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....nvoked, under article 3(2), to dislodge the judicial interpretation. Quite clearly, therefore, but for the binding force of article 3(2), this statutory definition does not come to the rescue of Assessing Officer's case, and it is this binding force of article 3(2) which does not come into play in explaining the word "process" used in definition of a treaty term i.e. royalty. Of course, "royalty" is a treaty term but since it is well defined term in the treaty, its domestic law meaning is not relevant for treaty purposes. The expression "process" is defined in the domestic law but this definition is in the limited context of explaining the term "royalty" under the domestic law, it cannot be borrowed in the treaty for understanding connotations of "royalty" under the treaty. It cannot be, in our humble understanding, open to pick up a part of the definition of royalty under the domestic law and supply the same to an undefined expression in the definition of royalty under the treaty. The expression 'process' is not a treaty term per se, or a reference point, used in the treaty, rather it is an expression or word used in defining the treaty term 'royalty'. The expr....
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.... static interpretation or by way of dynamic or ambulatory interpretation. In plain words, the meaning to be assigned to the undefined treaty terms should be given in the light of the law as it stood at the point of time when treaty was entered into or the law as it stands at the point of time when related taxes are levied. If the static interpretation is to be given, it does not come to the rescue of the revenue's case. The expression "process" was not, at the point of time relevant to static interpretation, not statutorily defined, and if the judicial interpretation of term "process", without the aid of Explanation 6 to Section 9(1)(vi), is to be taken into account, it does not support the case of the revenue either. There is no dispute on this fundamental position. It is also elementary that when Hon'ble Courts lay down the law, or when a judicial interpretation is given, it is not from prospective effect, and it relates back to the point of time when law was legislated. Effectively, therefore, judicial ruling, without taking into account Explanation 6 to Section 9(1)(vi) will hold the field, and undisputedly these rulings do not help the case of the revenue. However, apa....
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....ement applies". While in the former, there is emphasis on "laws in force", which is what Their Lordships have taken very careful note of, in the latter it simply refers to "meaning which it has under the law of that State" without making any specific reference to the laws in force or the laws as they prevailed at any other point of time. We may also add that Their Lordships were dealing with Old German (i.e. India- Federal Republic of Germany) tax treaty [(1960) 40 ITR (St) 21] in which the expression 'royalty' itself was not defined, and the question, therefore, arose whether the definition of 'royalty', as it stood at the point of time when taxes were levied, could be adopted. 16. Apart from the fact that "royalty" is a neatly defined expression in the current Indo Singapore tax treaty that we are concerned with, the expression "laws in force", which was subject matter of focus of judicial analysis in the said case, does not find place in the treaty before us. That is, however, not really true of all the tax treaties currently in force. There are tax treaties which still use the same expression. Our attention was, for example, invited to India Australia D....
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.... sovereign nations" because "it is open to a sovereign legislature to amend its laws", Their Lordships have put in a word of caution by suggesting an element of "reasonableness" in construing the treaty superiority vis-à-vis the domestic law by observing that "a DTAA entered into by the Government in exercise of the powers conferred by section 10(1) [sic- section 90(1)] while considering section 10(2) [sic- section 90(2)] has to be reasonably construed [Emphasis, by underlining, supplied by us now]". In the Siemen's decision (supra) itself, while quoting, with approval, Hon'ble Supreme Court of Canada's decision in the case of Her Majesty The Queen v. Melford Developments Inc. 82 DTC 6281, Their Lordships had also observed that "The ratio of that judgment, in our opinion, would mean that by an unilateral amendment it is not possible for one nation which is party to an agreement to tax income which otherwise was not subject to tax". Quite clearly, therefore, whatever be the approach adopted, for the purpose of article 3(2) i.e. static or ambulatory, a unilateral treaty override, howsoever subtle, is not really permissible. 20. It is important to bear in m....
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....s approach seems to be at variance with the international practices wherein connotations of 'treaty override' refer to a situation in which domestic legislation of a treaty partner jurisdiction overrules the provisions of a single treaty or all treaties hitherto having had effect in that jurisdiction. That will be the end result of a domestic law amendment of an undefined treaty term, in departure from the current position, and import such amended meaning of that term, under article 3(2), in the treaty situations as well. Such an approach, on the first principles, is unsound inasmuch as it is well settled in law that the treaty partners ought to observe their treaties, including their tax treaties, in good faith. Article 26 of Vienna Convention on Law of Treaties provides that, "Pacta sunt servanda: Every treaty in force is binding on the parties to it and must be performed by them in good faith". What it implies is that whatever be the provisions of the treaties, these provisions are to be given effect in good faith. Therefore, no matter how desirable or expedient it may be from the perspective of the tax administration, when a tax jurisdiction is allowed to amend the sett....