TMI Blog2002 (11) TMI 263X X X X Extracts X X X X X X X X Extracts X X X X ..... . In the year under consideration it operated two satellites available at its disposal, namely, AsiaSat-I, taken by the assessee on lease located at 105.5 degree East and AsiaSat-II, owned by it located at 100.5 degree East. It is an admitted position that the satellites are used for telecommunications and broadcasting services throughout the region. The company lease out its transponder capacity to various customers listed at pages 481 to 483 of the Paper Book for broadcasting and telecommunication so that their signals could be delinked to various locations. One of such agreements, copy placed at pages 9 to 261 of the Paper Book, was entered into on 21-2-1995 with Satellite Television Asian Region Ltd. owning TV channels like Star Plus, Star News etc. to make available transponder capacity for a period of 12 years with the rental income from the lease of such transponder capacity starting from US $ 27,50,000 in the utilisation period of 1995 onwards. The Assessing Officer found that the geographical area within which the signals can be received (called as footprint) includedIndiaamongst other countries. It was observed that the revenue of the TV channel companies was mainly from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee and the Assessing Officer. An additional argument was raised by the Assessing Officer before the first appellate authority to the effect that the assessee's case was also covered under section 9(1)(vi) and the payments received by it were in the nature of 'Royalty'. The Ld. CIT(A) accepted the assessee's contention and held that the provisions of section 9(1)(i) were not applicable to the facts of the case. However, the Assessing Officer was directed to compute the income in the light of the provisions of section 9(1)(vi), as in the opinion of the CIT(A), it was the latter section which was rightly applicable to the facts of the case. Validity of assessment 3. At the outset the Ld. counsel for the assessee did not press the validity of notice issued under section 142(1) by the Assessing Officer and the consequential assessment. Accordingly ground Nos. 2 and 3 of the assessee's appeal on this issue stand dismissed as not pressed. Overall legal position 4. Before proceeding to deal with the merits of the case vis-a-vis the legal position, it is pertinent to mention that in the year under consideration there was no tax treaty in existence governing the Avoidan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable their programmes inIndia, theLd. DRcontended that it established a business connection inIndiaas contemplated by clause (i) of section 9(1). It was pleaded that the chain of the activities involved in the entire process included four persons, namely, TV channels (customers), the assessee, the cable operators and the viewers inIndia. It was submitted that all these persons were working in a cycle and the main focus of the entire exercise was to show programmes inIndia. It was therefore urged that there was a direct business connection of the assessee inIndia. It was further stated that there was no requirement in the provisions of this section that the business connection should be that of the assessee only. If in the chain of events any business connection is found to have been established inIndia, the income accruing therefrom was liable to be considered in section 9(1)(i). It was still further pointed out that the income which is received or is deemed to be received or accrues or arises inIndiais straightway covered in the later part of section 5(2). If any income is directly accruing or arising in India there is no point in considering the applicability of section 9(1) wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ld. CIT(A) in this regard. It was submitted that the assessee had no business connection inIndia. Referring to the judgment of R.D. Aggarwal Co.'s case it was submitted that the business connection inIndiashould be that of the non-resident, namely, the assessee in the present case, and not that of the TV channels. Further reference was made to Explanation (a) to section 9(1)(i) to submit that in order to be covered under clause (1), it was necessary to show that the business operations were also carried out inIndia. Only that proportion of the income which related to the operations carried out inIndiawas taxable under section 9(1)(i). It was therefore submitted that as the assessee had neither any business connection in India nor any operations were carried out in India, therefore the learned CIT(A) was justified in holding that clause (i) of section 9(1) was not attracted. In the rejoinder the learned DR submitted that Rule 10 of IT Rules, 1962 deals with the case of determination of income in the case of non-resident. According to him such rule would come into operation only when Explanation (a) of sub-clause (i) was attracted. Still further it was submitted that the operations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The ITO at Amritsar computed the income of the assessee by adding Rs. 54,558 towards 5 per cent of the net total value of yarn sold by the non-resident company to the Indian merchants in the previous year because in his view there subsisted business connections between non-resident and the assessee. When the matter finally travelled to the Supreme Court it was held that some commercial activity was undoubtedly carried on by the assessee in the matter of procuring orders inIndiabut on this account no business connection of the assessee with a non-resident within the taxable territory resulted. It was laid down that the expression "business connection" postulates a real and intimate relation between trading activity carried on outsideIndiaand trading activity withinIndia, the relation between the two contributing to the earning of income by the non-resident in his trading activity. We further note that in the case of CIT v. Freid Krupp Industries [1981] 128 ITR 27 (Mad.) it was held that where a person purchases, machinery, as goods, from a foreigner and utilises it in commercial operations in India and earns income therefrom, the foreigner in such a principal to principal transacti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other cases referred to before us and the authorities below are all confined to the situation where the goods/technology was sold outside India and when such goods or technology was utilised by the customers in India it was held to be not the case of any business connection of the non-residents in India. But the facts before us are distinguishable from call those cases because the duty of the assessee is to amplify the programmes and then pass over the same inIndia. Assessee would acquire the right to receive the income only when these programmes are made available inIndia. So the crux of the contracts with the TV channels is to ensure that the assessee provides the signals inIndiaafter carrying out certain processes in the space. Similarly all the TV channels approach the assessee only because it hasIndiain its footprint. HadIndiabeen not in its footprint, no customer interested in showing their programmes inIndiawould have availed the services of the assessee. If the assessee had only amplified the programmes and passed over to its customer outsideIndia, who in turn had made arrangement for sending the same to cable operators for use inIndia, it would have been the case of no bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are not carried out inIndia. The contention of the Department is that the third step, namely, the relaying of the programmes inIndiaamounts to the operations carried out inIndia. It is no doubt true that the footprint area of the assessee's satellites includesIndiaand the programmes of the TV Channels are ultimately viewed inIndia. The question arises that merely because the footprint area includesIndiaand the programmes are viewed inIndia, is it sufficient enough to hold that the business operations are also carried out inIndia? The answer to this question, in our considered opinion has to be in negative. The key words used in Explanation (a) are the "operations" and "carried out inIndia". In order to establish that the business operations are carried out inIndiait is necessary to point out any part of the assessee's operations which were being carried out in theterritoryofIndia. No office or agent or subsidiary of the assessee is situated inIndiawhich acts between it and the cable operators in facilitating the receipt of the signals. No machinery or computer etc. is installed by the assessee inIndiathrough which the programmes are reachingIndia. The process of amplifying and rela ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived were segregated from the wave in the satellite and after amplifying the same were mounted on assessee's wave which had different wavelength from the wavelength on which the signals, were received. It was stated that these signals, containing programmes of the TV channels were relayed from the transponder of the satellite and the downlinking was done by the cable operators who were catching the waves through dish antennas at their end and then passing them over to the viewers. It was urged that in this entire process the transponder was not used by the customers who were paying lease rental to it. It was emphasised that in order to "use" anything it was necessary that there should be physical contact between the user and the thing to be used. Our attention was drawn at page 269 of a book "Words and Phrases Legally Defined" urging that the physical contact was necessary in order to constitute "use". 6.2 The Ld. counsel submitted that sub-clause (iii) to Explanation (2) to section 9(1)(vi) defining 'Royalty' stipulates amongst others, the use of "secret process". While inviting our attention towards the statutory provision it was vehemently argued that the word 'secret' is us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... every provider of every instrument or facility used by a person could not be regarded as providing technical service and the fact that the telephone service provider had installed sophisticated technical equipment in its Exchange to ensure connectivity to its subscribers did not make it a provision of a technical service to the subscribers. Taking the aid of this judgment the Ld. counsel pleaded that the act of making available the transponder capacity to its customers, could not be regarded as the use of secret process by its customers. As the assessee in question had only given on lease the transponder capacities to its customers, the Ld. counsel stated that it could not be equated with the use of secret process by its customers. Reference was also made to the decision of Chennai Bench in the case of ITO (TDS) v. Raj Television Network Ltd. [IT Appeal Nos. 1827 and 1828] in which it was held that Raj TV was not liable to deduct tax at source and accordingly section 40(a)(i) could not be invoked. Throwing light on the details of this case it was submitted that the assessee was in the business of telecasting programmes in India and abroad, via satellite, in the name and style of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that this clause includes the use of any industrial, commercial or scientific equipment in the scope of "Royalty". As the insertion was made w.e.f. assessment year 2002-2003 and the effect of which was to include in the ambit of royalty the use of industrial, commercial or scientific equipment, it was pointed out that the case of the assessee was that of hiring of transponder being the equipment of this nature and at the maximum it could be covered only in this Clause. The assessment year under consideration being 1997-98, it was stated that the said clause could not be applied. Our attention was drawn at page 31 of the order of the Chennai Bench in the aforecited case to this effect wherein it was held that before the insertion of clause (iva), the hiring of equipment being the transponder was not covered in the definition of 'royalty' in the Income-tax Act, 1961. 6.6 It was categorically stated that sub-clause (c) to clause (vi) was not applicable to the facts of the case. Even assuming that the payment made by the customers was royalty as contemplated in Explanation (2), the Ld. counsel argued that the amount in question payable by the customers was not in respect of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hin the former expression. It was explained that no income was derived by its customers from any source inIndia. Elaborating the word "source", it was stated that it may encompass the payer of income or the activity which gives rise to the income. To be more precise it was stated that source could not refer to the payer but only to the activity which resulted in the income. It was explained that the source is the activity which results into the income. Citing an example of an Advocate arguing in a court inIndiaon behalf of its foreign clients, it was stated that source could not be the foreign client who had made the payment but was the exercise of profession in arguing the case inIndia. Referring to the provisions of section 3 of the IT Act, 1961, prior to the amendments carried on by the Finance Act, 1999, it was stated that first proviso to section 3(2) allowed liberty to the assessee to adopt more than one period as the "previous year" for different sources of his income. Relying on the case of Seth Shiv Prasad v. CIT [1972] 84 ITR 15 (All.) it was stated that theHon'ble Courthas held that a source of income may be described as the spring or fount from which a clearly defined c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness. Explaining the process in the satellite, it was stated that after the signals are uplinked from the earth stations in the satellite these are amplified and the frequency of each signal is shifted which is done in the part of the satellite called transponder. Referring to literature contained in the paper book supplied by the Ld. AR, it was stated on behalf of the revenue that it was only with the help of the processes/undertaken at the transponder in the satellite that the signals received from the customers become fit for relay in the footprint area. It was stated that the customers of -the assessee, namely, the TV channels were utilising the process contained in the transponders for the purposes of their business carried on inIndiaand earning income from sources inIndia. While inviting our attention towards clause (vi) of Explanation (2) it was tendered by the Ld. DR that this clause has set to rest any controversy arising out of the submissions of the Ld. counsel on behalf of the assessee, inasmuch as the rendering of any service in connection with the use of process as envisaged in clause (iii) has specifically been covered under clause (vi) to the Explanation (2). In the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eduction of tax at source under section 201 with respect to certain sums paid to RTV, resident of London. The question that arose in that case was whether the RTV was in receipt of any income paid by the Indian company whichIndiacould charge to tax by the terms of DTAA. It was pointed out that in that case the Tribunal held that RTV was not receiving any income in the nature of fees for technical services or royalty within the terms of Treaty. It was urged that in the case a under consideration the only issue involved was the construction of section 9(1). Explaining further it was urged that in that case RTV was providing uplinking services and down linking services were provided by another foreign company namely Intersputnik (a Russian company). It was stated that in the facts of the present case the uplinking services were being provided by the customer company itself and downlinking services were being provided by the assessee-company. It was also submitted that in that case the earth station uplinked to the origin company whereas it is not so in the present case where the earth station uplinked to the TV channels. It was further urged that no contention was raised in that case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used or services utilised for the purposes of a business or profession carried on by such person inIndiaor for the purposes of making or earning any income from any source inIndia: Explanation 2 - For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for (i) ......... (ii) ........ (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (iv) ......... (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) ......... (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (v)". 6.16 The factual position involved in this case rotates around the cycle of transmission of TV programmes. It starts with TV channels (customers of the assessee) uplinking the signals containing the TV programmes; thereafter the satellite receives the signals and after amplifying and changing their frequency relays it down in India and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t therefore follows that the physical connection with the item to be used is not necessary in each circumstances. In the present age of modernization where numerous developed applications of science have become part of life and the extend of development of technology is so fast, it would really be unfair to restrict the meaning of the word "use" to only "physical use". The plain construction of the word "use" in our considered opinion refers to the deriving advantage out of it by employing for a set purpose. That apart we find that there was physical contact of the signals of the TV channels with the process in the transponder provided by the assessee. It is only when those signals come in contact with the process in the transponder that the desired results are produced. It can be illustrated by way of an example of extracting juice from fruits etc. with the help of juicer. When the fruits are put in juicer, the process embedded in it converts the fruits into juice by separating the leftover. Can we say that in the process of extracting juice there is no physical contact of juice with the process in juicer? In our considered opinion the answer can be only in negative. In the like m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... word 'secret' before the word 'processes well for the reason that there is no comma after the use of the word 'secret' till the end of clause (iii) and if the intention has been to apply the word 'secret' before the word 'process' also, a comma would have been used after the word 'formula'. It is true that the commas and semi colons etc. play an important role in interpreting a provision but the same are not the only criteria. Law is trite on the point that the interpretation which leads to absurdity has to be avoided. The foremost principle of interpretation is that the construction should be done in such a way which validates the provision. If we accept the contention of the Ld. AR that the word 'secret' pre-fixed to 'formula' in Explanation (2) clause (iii) should be pre-fixed to 'process' as well, in that case it will also have to be read before the subsequent words used in Explanation (2) clause (iii) namely, 'trademark' and 'similar property'. 'Trademark' is a symbol legally registered for use as representing a company or a product. Generally trademark is the description of a particular product of the company which is used to distinguish it from similar products of other com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ls to convert sunlight into electrical power, a battery system to store energy and power the satellite during periods when sunlight is blocked (eclipsed) by the earth or moon, gyros to stabilize the satellite to keep the footprint properly aligned on the ground and a structure to contain and protect the repeater during launch and after operations begin on orbit. The repeater section is designed according to the relay requirements and typically consists of an antenna system (two reflectors one for receiving and other for transmitting) and microwave electronics that are used to receive, modify in frequency, amplify, modify in polarization and retransmit the television or other signals. The path of each channel from receiving antenna to the transmitting antenna is called a transponder. The transponder is used to amplify and shift the frequency of each signal. The uplink signals emanate from the uplink earth station and enter the repeater through the receiving antenna. This antenna on the satellite transforms the wireless (electromagnetic) signals into an electrical form suitable for amplification in the Low Noise Receiver (LNR). Due to the 36,000 kms. distance from the ground all the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ire process as set out in the succeeding para it becomes palpable that what the TV channels are using is the process made available by the assessee through its transponder. The function of the satellite in the transmission chain is to receive the modulated carrier that earth stations emits as uplinking, amplify them and retransmit them and downlink for reception at the destination earth stations. We have noted above the meaning of the word "process" as a "series of actions or steps taken in order to achieve a particular end". Considering the role of the assessee in the light of meaning of the term 'process' it becomes evident that the 'particular end' namely, viewership by the public at large is achieved only through the 'series of steps taken' by receiving the uplinked signals, amplifying them and relaying them after changing the frequency in the footprint area including India. The 'particular end' is achieved only through the 'series of steps taken' in this regard. 6.21 It is noted that page 176 of the book Commercial Satellite Communication by Stephen C. Pascal and David J. Withers, placed in the paper book by the Ld. AR shows that what the assessee was doing to its customers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... them by their subscribers as falling within the definition of "fees for technical services in section 194J of the Act." In this case it was held that mere collection of a fee for use of standard facility provided to all those willing to pay for it did not amount to the fee having been received for technical services. It was further held that the subscribers to a cellular telephone service were using the facility and had not entered into contract to receive a technical service. It was further held that the fact that the telephone service provider had installed sophisticated technical equipment in the exchange to ensure connectivity to its subscribers did not make its provision of technical service to the subscribers. When the facts of this case are analysed thoroughly it becomes patent that the subject-matter under consideration before the Hon'ble High Court was to consider the relationship between the subscribers who use the telephone facility and the provider of the service. So in the chain of entire process only two persons were involved viz., one the actual user and the other the provider. In contrast the facts in the present case under consideration operate in different field ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch provides that rendering of any services in connection with the activities referred to, inter alia, in sub-clause (iii), namely, the use of any process etc. is also covered in 'Royalty'. So whether any process is used or any services in connection with process are provided the same falls within the meaning of term royalty as defined in Explanation (2). Reverting to the facts of the case we find that whether the TV channels used the process provided by the assessee or services in connection with the process, the same falls within the definition of 'Royalty'. 6.26 During the course of the arguments before us the Ld. AR has placed great emphasis on the insertion of Explanation (iva) to Explanation (2) by the Finance Act, 2001 w.e.f.1-4-2002. The case as made out was that the use or right to use any industrial, commercial or scientific equipment was brought within the scope of this Explanation only w.e.f. assessment year 2002-03. It was stated that as the lease rent was on account of use of transponder by the TV channels therefore it amounted to the use of a equipment by the customers of the assessee which could be the subject-matter for taxation only from assessment year 2002-03 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the same direction and speed as the earth. If it had been fixed at a particular place or the speed or direction had been different from that of earth, it could not have produced the desired results. Transponder is part of satellite, which is fixed in the satellite and is neither moving in itself nor assisting the satellite to move. We therefore find that the satellite is an equipment and the transponder, namely, a part of it, playing howsoever important role, cannot be termed as equipment. Hence the leasing out of transponders to various customers in a satellite cannot be equated with the leasing out of any equipment. Therefore the contention of the Ld. AR with reference to the applicability of clause (iva) of Explanation to the present case as supported by the Chennai Bench decision, is not acceptable for the reason that the assessee has not leased out any 'equipment.' (satellite) but has only made available the process (in the transponder) to its customers. We therefore hold that the consideration paid by the TV channels to the assessee has no connection with clause (iva) and falls within the clause (iii) read with clause (vi) of the term 'Royalty' as explained in Explanation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e for the manifest reason that the consideration for monthly payment is only for the use of taxi and the settlement of monthly payment is only a way to fix the amount once for the month rather than settling it on the daily basis. Similarly in the present case the payment of lease rent by the TV channels is fixed in advance rather than settling the charges on monthly or weekly or daily or hourly basis. It is only a measure for making the payment in lieu of the rendering of the services by the assessee by making available its transponder capacity for a fixed period. Merely because the lease rentals were fixed on annual basis we cannot say that the payment is for any consideration other than rendering services by amplifying and relaying the programme to its customers. Moreover it is also not the case of the assessee that the customers had not actually utilised the transponder capacity made available to them at any point of time and that naturally cannot be so because the airing of the programmes by the TV channels is a continuous process. We therefore hold that the lease rent received by the assessee is on account of utilising of services rendered by the assessee to its non-resident c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the TV channels inIndia. It is a continuous process through which the TV channels are showing their programmes inIndiathrough the medium of the assessee. Having purchased goods from a particular place and used it at different place does not match with the facts of present case to hold that no business was carried on in India for the simple reason that the only purpose of making programmes by the TV channels and then taking the assistance of assessee is to ensure that the signals containing the programmes are provided by the assessee in India itself. There is no need to consider the catena of judgments rendered in the context of sale of goods vis-a-vis the place of business, for the reason that sub-clause (c) of section 9(1)(vi), in no unambiguous words, refers to the royalty payable in respect of 'services utilised for the purpose of a business or profession carried on by such person in India ......' It was laid down in Steffen, Robertson Kirsten Consulting Engineers Scientists, Inre [1998] 230 ITR 206 (AAR)that the statutory test for determining the place of their accrual is not the place where the services, for which the payments are being made, are rendered but the place wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir programmes inIndiaand hence it is only this source which is resulting into income. We take an example where a manufacturer of a product situated outsideIndiagives advertisement to be viewed inIndia, Even if that manufacturer is situated outsideIndiaand also making payment outsideIndiabut the source of Income of the TV channel is the advertisement which is relayed inIndia. The decision relied upon by the Ld. counsel in the case of Lady Kanchanbai is rather supporting the case of the revenue for the reason that in that case it was held that different branches of the assessee constituted separate sources of its income. If this analogy is applied to the facts of the instant case, it becomes clear that so far as the revenue of the TV channels from the advertisers and the cable operators inIndiais concerned, it is the relaying of programmes inIndiaand hence constitutes a separate source of income which is earned inIndia. We therefore hold that the TV channels, being the non-residents, are utilising the services of the assessee for earning income from advertisers and cable operators being the source inIndiaby ultimately relaying the programmes in the Indian territories. The contentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erviced 13 group companies inAsiaand Pacific in a similar manner. The information was then passed on to the Hongkong computer centre of the applicant. Y charged XT, the Indian company for the use of its computer setup in Hongkong and inUSA. On these facts applicant sought an advance ruling on the question whether the payment due to the applicant under the transactions with XT was liable to tax inIndia. It was held that the use of embedded secret software developed by the applicant for the purpose of processing raw data transmitted by XT would fall within the term 'royalty'. It was held that it was for the downloading of the software that the royalty was paid. It was held that from the facilities provided by the applicant to the Indian company, which were in the nature of online analytical date processing, it would be clear that the payment so received as "consideration for use or right to use .... Design or model, plan secret formula or process...." fell within the meaning of term 'royalty'. When the facts of the instant case under our consideration are compared with those before the authority for advance ruling, it is seen that both fall almost on the same track. The assessee in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subject-matter for taxation was the same, namely, deemed accrual or arising of income inIndiaand it was only the consideration of the correct sub-clause of section 9(1) which was applicable to the facts of the present case. It was stated that this was a legal ground going to the root of the case and as such the department was entitled to raise this ground for the first time before the Tribunal. It was explained that the subject-matter of consideration by the Bench was the same, namely the taxability of income under section 9(1) and the department was only urging for examining the taxability of the income of the assessee under section 9(1)(vii) also by way of an alternative submission, if the case was found to be not covered in section 9(1)(vi). Referring to certain decisions it was contended that the department was entitled to raise this additional ground for the first time before the Tribunal. In the opposition the Ld. counsel for the assessee strongly objected to the admission of this additional ground on the premise that it was never the case either of the Assessing Officer or of the CIT(A) that the income was taxable under section 9(1)(vii). During the course of arguments the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the consideration of second question, namely whether a ground can be raised before the Tribunal for the first time which is not emanating from the orders of the authorities below. There is no dispute about the fact that the purpose of the assessment proceedings before the authorities is to correctly assess the tax liability of an assessee in accordance with law. Determining the correct tax liability in accordance with law refers to the application of correct provision of the Act to the subject-matter. If all the facts are available on record and it is only the question of applicability of the correct section to those facts we do not find any reason to debar any party before the Tribunal from raising such a question of law even if it was not raised earlier or was not the subject-matter of consideration by the lower authorities. However it is important that before taking up any such issue for consideration the affected party must be given due opportunity to represent its case. The Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd. held that where the Tribunal was only required to consider the question of law arising from facts which were on record in the assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eals. Under these circumstances we are of the considered opinion that the revenue is entitled to raise this ground. We therefore admit this ground. 8. In view of the our decision on the applicability of section 9(1)(vi) to the facts of the present case in the preceding paras we do not consider it expedient to deal with the facts and rival contentions on the applicability of clause(vii) of section 9(1). Our view finds support from the decision of Special Bench of Tribunal Rahul Kumar Bajaj v. ITO [1999] 69 ITD 1 (Nag.). 9. Computation of Income 9.1 Ground Nos. 2 and 3 of the Revenue's Appeal and 11 to 19 and 22 of the assessee's appeal deal with the determination of the quantum of income chargeable to tax inIndia. The Assessing Officer held that the income of the assessee arose on account of business connection inIndiawithin the meaning of section 9(1)(i) of the Act. When the question of determination of its quantum arose, he determined the quantum of assessable income by taking gross income at 90 per cent of the net revenue earned by the assessee from such channels as were popularly viewed in India and programmes directed for India and allowed deductions therefrom on account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an agreement made by the foreign companies with Government or with the Indian concern after31-3-1976. The non obstante clause in this section excludes the operation of sections 28 to 44C of the Act. Chapter XII of the Income-tax Act dealing with the determination of tax in certain special cases, contains section 115A which deals with the tax on dividends, royalty and technical services fees in the case of foreign companies. Clause (b) of sub-section (1) deals with rates on which income tax is chargeable on the receipts of foreign companies on account of royalty and fees for technical services etc. It is pertinent to note that like section 44D, this section also operates only when the technical services are received by the Government or an Indian concern. We find that both these sections namely 44D and 115A cannot be applied to the facts of the present case for the reason that in the case before us the payment of royalty to foreign companies is also made by non-resident companies and not by Government or Indian concern. Probably such a situation was not visualised by the Legislature at the time of enactment of the above referred provisions. In the absence of any special provision fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich the royalty received by the assessee, would fall. It was pointed out that since it was the case of deeming income under section 9(1), therefore the income was rightly taxable under the head "Income from other sources" and only the deductions as provided under Chapter IV-F were to be allowed. In the opposition the Ld. AR submitted that the business of the assessee was that of providing its transponder capacity to different customers on hire and therefore the exploitation of its assets was only in the capacity of businessman and hence the income was to be determined under Chapter IV-D namely "Profits Gains of business or profession". Placing reliance on the case of CITV. Cilag Ltd. [1968] 70 ITR 760 (Bom.) and CIT v. Gilbert Banker Mfg. Co. [1978] 111 ITR 529 (Bom.), it was pointed out by the Ld. counsel for the assessee that the royalty received was held to be taxable as business income. Similarly reliance was placed on an unreported decision of Bombay Bench in the case of Dy. CITV. Kraftwork Union A.G. [IT Appeal No. 8358 (Bom.) of 1988] for the proposition that the royalty was taxable under the head "Business income". 9.3a After considering the rival submissions we ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see is carrying on as its business. Ergo there remains no doubt that the income from such operations falls under Chapter IV-D. The decisions cited by the Ld. AR fortify our view. We therefore hold that the contention of the Ld. DR is not correct that the income should be considered under the head 'Income from other sources'. Resultantly the assessee is entitled to deductions available under this Chapter. 9.4 Now we are left with two aspects on this issue namely the apportionment of revenue earned by the assessee relatable toIndiaand deductibility of expenses therefrom. As regards the apportionment of the net revenue the Ld. Assessing Officer held that 90 per cent was attributable toIndia. However no specific basis was given for arriving at this conclusion. On the other hand the Ld. CIT(A) opined that the revenue was to be apportioned in the ratio of area of the country to the area of the footprint of the beam after ignoring the water bodies like ocean, etc. For apportionment of expenses, it was held that if the income of the assessee was to be taxed as 'Royalty', then no deduction was admissible and in case his view was changed by higher authorities and that of the Assessing Offi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which deductions are claimed from the gross revenue to work out the net revenue. If it is really net revenue then there was no point in further deducting the expenses as claimed by the assessee in its computation placed at page 7. It is also not understandable as to how only the payment of the lease rentals of Asiasat I Southern Beam itself is more than the net revenue shown by the assessee. We further find that the computation was made by the assessee as well as the Assessing Officer by restricting the net amount, after deduction of expenses from the net revenue, relatable toIndia. If the starting point of computation of total income was only the revenue relatable toIndiathen only the proportionate expenses relatable toIndiashould have been deducted rather than deducting the expenses in total from the net revenue relatable toIndiaand thereafter apportioning the net income of the southern beam toIndia. It is further noted that the assessee had claimed depreciation on the whole of the Asiasat-II, whereas apportionment of income was made only in the ratio of 47 82, namely the total countries covered under the footprint of Asiasat-I and Asiasat-II. This method of computation by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iation attributable to Indian income. Before the first appellate authority it was urged that the full amount of depreciation was admissible and there was no point in restricting it only to the C Band which was the producer of income relatable toIndia. For this proposition the reliance was placed on the decision of the Hon'ble Supreme Court in the case of Rajasthan State Warehousing Corporation v. CIT [2000] 242 ITR 450. It was also urged that the Assessing Officer was not justified in computing the Written Down Value whereas no depreciation was claimed and allowed by the Dept. in any earlier year. The learned CIT(A) reversed the finding of the Assessing Officer on the issue of original cost vis-a-vis the Written Down Value, but however held that depreciation on the total Asiasat-II was not deductible. He relied on section 38(2) for this purpose. He however restricted it to 75 per cent as against 16 per cent computed by the Assessing Officer. Before us the learned AR reiterated the submissions as advanced before the first appellate authority and contended that depreciation was deductible on the total cost of Asiasat-II and not merely the portion which constitutes the basis for deter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o fall within the scope of section 5. The incomes which are exempt by virtue of section 10 are otherwise chargeable to tax and fall within the scope of total income. It is only as a result of the operation of section 10 that these do not form part of total income and are excluded as being exempt. If on the other hand an income does not fall within the charging section itself there is no question of including the same in the scope of total income or deducting expenses which gave effect to such income, from the income chargeable to tax inIndia. Therefore there is a glaring difference between the exempt incomes and the income which falls beyond the charging section and the expenses incurred to earn such incomes. The decision rendered by the Hon'ble Supreme Court in the case of Rajasthan State Warehousing Corpn. only concerns with the expenses which contribute to the incomes which are otherwise chargeable to tax but are exempt by virtue of the provisions of section 10. On the other hand we are discussing the deductability of depreciation/expenses that contributed to the earning of an income which is not at all includible in the scope of total income and hence is outside the ambit of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perusing the relevant material on this point we observe that the Ld. CIT(A) was justified in holding that section 44C was not attracted. It is patent that this section is applicable only in the cases of those non-residents who carry on business inIndiathrough their branches. In other words this section pre-supposes the existence of a branch office or other sub-office, by whatever name called, inIndiafor whose income the deduction on account of head office expenses situated outsideIndiais granted as stated in section 44C. If there is no branch inIndianaturally there will not arise any question of allowing any deduction towards head office expenses. Our view is fortified by the decision of Hon'ble Calcutta High Court in the case of Rupenjuli Tea Co. Ltd. v. CIT [1990] 186 ITR 301. Turning to the facts of the present case we find that the assessee does not have any office inIndia, therefore the provisions of section 44C would not be applicable. 9.4h In the final analysis on the aspect of computation of income, we hold that the Assessing officer would redo the exercise of computing the gross receipts and expenses relatable toIndia. In doing so he will keep into consideration our obs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TTJ (Delhi) 670 held that the assessee was not liable for interest under section 234B. Before us the Ld. DR contended that the Ld. CIT(A) was not justified in holding so. It was urged that the decision in Sedco Forex International Drilling Inc.'s case rested on its own facts under which the assessee was a non-resident company and the sums paid by the ONGC had already suffered deduction of tax at source and that was why it was held that no advance tax was required to be paid under section 234B. It was submitted that in the present case there is no confilict over the point that no customer had deducted any tax at source from the payments made to the assessee and that was why the said decision was not applicable. In the opposition the Ld. AR strongly relied on the order passed by the CIT(A) on this issue and contended that there was no infirmity in it, warranting any interference. 10.2 After considering the rival submissions and perusing the relevant material on record we find that the charge of interest for default in payment in advance tax is covered under section 234B of the Act. This section is attracted only when the assessee is liable to pay advance tax under section 208. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of income tax calculated as per clauses (a) to (c) of section 209(1) of the Act. The reference is not to the income on which the tax is deductible but to the amount of income tax which is actually deductible. As we have noted supra that unlike sections 44B, 44BB, 44BBA, 44BBB or 44D, containing special provisions for computing income of non-residents or foreign companies from different businesses or royalties etc., there is no special provision in the Act for computing income by way of royalties etc. payable by one non-resident to another non-resident, which is taxable in India, as are the facts prevailing in the case under consideration. Probably such a situation was not visualised by the Legislature. In such a situation income taxable inIndiacan only be computed by taking recourse to the normal provisions of the Act, which is a little difficult exercise. Be that as it may, the amount of income chargeable under the Act would vary from case to case and year to year even if other things are equal and accordingly the liability to pay tax inIndiacan hardly match with the liability of payer of income to deduct tax at source. If for example the total income tax liability of the assessee ..... 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