TMI Blog2014 (4) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... inserted on the statute by Finance Act, 2007 w.r.e.f 01.06.1976 - The use of transponder by the assessee for telecasting/broadcasting the programme involves the transmission by the satellite including uplinking, amplification, conversion for downlinking of signals which falls in the expression "Process" as per Explanation 6 of section 9(1)(vi) - the payments made for use/ right to use of process falls in the ambit of expression "royalty" as per DTAA as well as provisions of Income Tax Act – there was no reason to interfere in the decision of CIT(A) – Decided against Assessee. - ITA NO.1584/Mum/2010, ITA NO.1585/Mum/2010, ITA NO.1091/Mum/2011, ITA NO.1092Mum/2011 - - - Dated:- 28-3-2014 - SHRI SANJAY ARORA AND SHRI VIJAY PAL RAO, JJ. For the Appellant : Shri F.Y. Irani For the Respondent : Ms. Neeraja Pradhan JUDGEMENT ORDER Vijay Pal Rao, Judicial Member These four appeals by the assessee are directed against the composite order of CIT(A) dated 13.01.2009 arising from the order passed u/s 195(2) of the Income Tax Act., for assessment year 2009-10 to 2011-12 respectively. The assessee raised common grounds in all the four appeals as under:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... USA Tax Treaty. Consequently the AO held that the subject payments are liable to tax witholding. Aggrieved by the order of AO the assessee filed appeal before CIT(A). 3. The CIT(A) confirmed the order of the AO by following the decision of Sepecial Bench of this Tribunal in case of New Skies Satellite v. ADIT (121 ITD 1). 4. Before us, the Ld. Counsel for the assessee has submitted that decision of Special Bench of this Tribunal in the case of New Skies Satellite v. ADIT (supra), has been reversed by the Hon'ble Delhi High Court in the case of Asia Satellite Communication Co. Ltd. reported in (332 ITR 340). He has further contended that in the case of payee i.e. Intelsat Corporation v. ADIT, the Delhi Bench of this Tribunal by following the decision of Hon'ble High Court in the case of Asia Satellite Communication Co. Ltd. (supra) vide its order dated 4.03.2011 held that no liability to tax can be fastened on the assessee under the Act. The Ld. AR then referred the decision of this Tribunal in the case of Times Global dated 13.01.2012 involving the issue of payment for transponder service by the same payee as in the case of the assessee. The Tribunal in the case of Ti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... text of the Hongkong based entity and India has no tax treaty with Honkong. The payments were made by a non-resident to non-resident. Therefore, the case of the assessee is distinguishable from the case of Asia Satellite Communication Co. Ltd.(supra) as the assessee is a company incorporated in India and the payment is made by a resident to a non-resident. She has further submitted that payment made in the case of Asia Satellite Communication Co. Ltd. was (supra) by a foreign channel owner to Asia Sat Hongkong both non-residents for a feed that is meant to be viewed in India and the Hon'ble High Court of Delhi has held that Asia Sat was not taxable in India based on the territorial nexus by observing that there is no use of process. The Ld. DR has submitted that in view of the amendment in section 9(1)(vi) whereby Explanation 6 has been inserted to clarify that the expression 'Process' includes and shall be deemed to have always included transmission by satellite including up-linking, amplification, conversion or down-linking of any signal. The decision f Hon'ble of Delhi High Court is no more relevant on this point. She has also referred the various clauses of agre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atellite Communication Co. Ltd (supra) by considering the amended provisions of section 9(1)(vi) of the Act. Since these decisions are later decisions and passed after considering the earlier decision, therefore, the Ld. DR has submitted that the decision of Hon'ble Madras High Court should be preferred over the earlier decisions. In support of her contention she has relied upon the decision of Jurisdictional High Court in the case of CIT v. Thana Electricity Supply Ltd. (206 ITR 727). 6. In rebuttal, the Ld. Counsel for the assessee has submitted that the royalty is defined in the treaty which is identical to the definition of the Act prior to the amendment, therefore, the decision in the case of Asia Satellite Communication Co. Ltd. (supra) is applicable on this issue. He has emphasized the provisions of Article 3(2) of the Indo-US DTAA and submitted that it is provided that any term not defined in the treaty the meaning is given in the Act will be applied. Since the term Royalty has been defined under Article 12(3) of the treaty, therefore, the definition under the Act is not relevant. The Ld. AR has then submitted that the decision of Hon'ble Madras High Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n.Com 24) 7. We have considered the rival submissions as well as relevant material on record. The question before us is whether the fee payable by the assessee to Intelsat Corporation, a tax resident of USA is in the nature of Royalty in the light of amended provisions of section 9(1)(vi) as well as under Article 12 of Indo-US DTAA. The Ld. Counsel for the assessee has given much emphasis on the submission that any amendment in the Act would not affect the beneficial provisions of DTAA and consequently the payment by the assessee cannot be treated as royalty by unilateral act of amendment in Act. There is no quarrel on this point that as per section 90(2) in relation to the assessee to whom DTAA applies, the provisions of Act shall apply to the extent they are more beneficial to that assessee. In other words if the assessee is covered by DTAA and the provisions of DTAA are nore beneficial then there is no need to go into the provisions of the Act. The decision of Hon'ble Jurisdictional High Court in the case of CIT v. Siemens Aktiengesellschaft (supra) as well as in the case of DIT v. Infrasoft Ltd. are relevant on this point. 8. The term Royalty has been defined in D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or (v) the rendering of any services in connection with the activities referred to in sub-clauses (1) to 93[(iV), (iva) and] (v). 10. So far as the term Royalty defined in the Explanation 2 of section 9(1)(vi), there is no change or amendment in the term royalty as such. Therefore, the definition of term royalty remained unchanged despite insertion of Explanation 6 by Finance Act 2012. Even otherwise the term Royalty is defined in the DTAA, therefore, any amendment in the definition of Royalty affecting adversely to an assessee covered by the DTAA would be inconsequential due to the protection of DTAA. The clause (b) of Article 12(3) of DTAA and clause (iva) of Explanation 2 of section 9(1)(vi) are pari materia of DTAA and clause (i) to (v) except clause (iva) are also pari material. It is pertinent to note that there is no change in the definition of term Royalty as provided in Explanation 2 of section 9( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een the subject matter of elucidation by the Hon'ble apex court in a number of cases, viz. Chillies Exports Ltd. v. CIT [1997] 225 ITR 814 (SC); Ujagar Prints v. Union of India [1989] 179 ITR 317 (SC); Dy. CST, Board of Revenue (Taxes) v. Pio Food Packers [1980] 46 STC 63 (SC), explaining the same in the context of processing of goods, which though would apply and hold. There is nothing in the language of the relevant provision/s of either the Act or of the DTAA constricting or restricting the scope of the term, which has thus to be examined and considered contextually. As such, even de hors Explanation 6 to section 9(1)(vi), which only abundantly clarifies matters, a process could only reasonably be regarded as including a process/es as specified in Explanation 6 (supra). The same must, therefore, be regarded as within the contemplation of the said term and, thus, the term 'royalty' as defined by Explanation 2 to section 9(1)(vi) and Article 12(3) of the Indo-US DTAA. The foregoing, however, does not detract from the fact that the term 'process' being not defined, the extant definition of the same, i.e. as per the domestic law, shall apply in terms of Article 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts, which initially were allotted by the International Telecommunication Union to UK, and subsequently handed over to China. These satellites neither use Indian orbital slots nor are they positioned over Indian airspace. The footprints of AsiaSat 1 and AsiaSat 2 extend over four continents, viz., Asia, Australia, Eastern Europe and Northern Africa. It enters into an agreement with TV channels, communication companies or other companies who desire to utilize the transponder capacity available on the appellant's satellite to relay their signals. The customers have their own relaying facilities, which are not situated in India. From these facilities, the signals are beamed in space where they are received by a transponder located in the appellant's satellite. The transponder receives the signals and on account of the distance the signals have travelled, they are required to be amplified. The amplification is a simple electrical operation. Thereafter, the frequency on which the signals are to be downlinked is changed only in order to facilitate the transmission of signals so that, there is no distortion between the signals that are being received and the signals that are being ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia. The process of amplifying and relaying the programmes is performed in the satellite which is not situated in the Indian airspace. The transponder functioned on its own. The High Court held that the terms 'lease of transponder capacity', 'lessor', 'lessee' and 'rental' used in the agreement would not be the determinative factors. It is the substance of the agreement which is to be seen. The High Court went through the various clauses of the said agreement and held that the control always remained with the appellant and the appellant had merely given access to a broadband available with the transponder, to particular customers. Merely because the transponder has its footprint on various continents, it would not mean that the process has taken place in India. Thus the Delhi High Court followed the decision of the Apex Court reported in [2007] 288 ITR 408 (Ishikawajama-Harima Heavy Industries Ltd. v. Director of Income Tax) and held that services rendered outside India would have nothing to do with the permanent establishment in India and hence there was no process carried out in India or was there any business in India which could be attributed to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the application of the term 'royalty' to the said transaction on the premise of territorial jurisdiction in-as-much as the said 'process' was not being used in India. However, the said decision endorses the conceptual understanding of term 'process', i.e., as explained by us at para 12 of this order. Even, the same, if at all, impinges on Explanation 5 to section 9(1)(vi), has nothing to do with Explanation 6 thereto. In fact, to our mind, it is not the situs of the property or the process, but of the rights therein, that is relevant. Without doubt, the rights in or for the use of the process vesting in the assessee are, thus, located in India, whereat the signals are downlinked as also uplinked from. Again, the same has to be read in conjunction with Explanation below section 9(2), inserted on the statute by Finance Act, 2007 w.r.e.f 01.06.1976.The decision in the case of Asia Satellite Communication Co. Ltd (supra) is thus completely inapplicable in the given facts and circumstances of the case, even as clarified by the Hon'ble Madras High Court in the case of Verizon Communications Singapore Pte. Ltd (supra). The use of transponder by the assessee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e treaty then considering the express language of Article 1(2) of the Indo-German DTAA, the term defined in the act even by subsequent to the date of agreement would be applicable as set out in the Article 1(2) of the treaty. Therefore, the said decision will not help the case of the assessee before us because the Explanation 6 defines the term process and not royalty and further there is no change in the definition of royalty by virtue of Explanation 6. The other decisions relied upon by the assessee are based on the decision of Hon'ble Delhi High Court in the case of Asia Satellite Communication Co. Ltd (supra) which was prior to the amendment and without considering the Explanation 6 as well as Explanation below sub-section (2) of section 9. Further the benefit of the decision of Hon'ble Madras High Court in the case of Verizon Communications Singapore Pte. Ltd (supra) was not available at the time of those decisions, therefore, the same are not applicable in the facts of the assessee's case. In fact, the said decision, based on the situs of the process itself supports the Revenue's case of the same being a process as contemplated under Explanation 2 to s. 9(1))( ..... 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