TMI Blog2023 (7) TMI 1164X X X X Extracts X X X X X X X X Extracts X X X X ..... is the underlying principle of Section 195 - Thus it is clear that an assessee is entitled to take the benefit under a DTAA between two countries. Hence, the ITAT s view that DTAA cannot be considered in proceedings under Section 201 of the Act is tenable. Whether the ITAT was correct in holding that the amendment to provisions of Section 9(1)(vi) inserting the Explanations will result in amendment of DTAA? - The answer to this question must be in the negative because in Engineering Analysis, the Apex Court has held that Explanation 4 to Section 9(1)(vi) of the Act is not clarificatory of the position as on 01.06.1976 and in fact expands that position to include what is stated therein vide Finance Act, 2012. The Explanation 5 and 6 to Section 9(1)(vi) of the Act has been inserted with effect from 01.06.1976. This aspect has also been considered in Engineering Analysis holding that the question has been answered by two Latin Maxims, lex no cogit ad impossibilia i.e. the law does not demand the impossible, and impotentia excusat legem i.e. when there is disability that makes it impossible to obey the law, the alleged disobedience of law is excused. Whether the payments ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Special Counsel For Shri. K.V. Aravind, Senior Standing Counsel And Shri. M. Dilip, Standing Counsel) JUDGMENT P.S. DINESH KUMAR, J. These appeals are filed by the assessee. ITA Nos. 160/2015, 161/2015, 162/2015, 163/2015 and 164/2015 are directed against the common order dated December 30, 2014 in IT(IT)A Nos. 1814 to 1818 734/Bang/2013 for A.Y. [Assessment Years] 2008-09 to 2012-13 and ITA Nos. 64/2020, 65/2020, 66/2020 are directed against the common order dated November 28, 2019 in IT(IT)A Nos. 1160-1161/Bang/2015 and 2818/Bang/2017 for A.Y. [Assessment Years] 2013-14 to 2015-16 passed by the ITAT [Income Tax Appellate Tribunal] , have been admitted to consider following questions of law: 1. Whether the Income-Tax Appellate Tribunal (ITAT) was correct in holding that the application of the Double Taxation Avoidance Agreement (DTAA) cannot be considered in proceedings under Section 201 of the Act and that it is not open to the payer to take benefit of the DTAA when he is making payment to a non- resident? 2. Whether the ITAT was correct in holding that amendment to provisions of royalty under Section 9(1)(vi) by inserting Explanation 5 and 6 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ational Carrier Services S.A. [ Belgacom ] to acquire bandwidth capacity on EIG [Europe-India Gateway] which works through a submarine cable system and M/s. Omantel Telecommunications Company [Omantel ], a member of consortium which owns the EIG system. The agreement allows each party to transfer to other telecommunication entity the whole or a part of its total allocated capacity in the EIG Cable system without any restrictions by way of an IRU [Indefeasible Right to Use] . In pursuance to the EIG agreement, Omantel had transferred certain portion of its capacity in the EIG cable system to Belgacom and in turn, Belgacom had transferred a portion of its capacity to the assessee for consideration. 5. The AO [Assessing Officer] issued a notice stating that the payments made by assessee to NTOs and Belgacom for the A.Y. 2008-09 to 2015-16 were made without deducting TDS [Tax Deducted at Source] under Section 195 of the Income Tax Act 1961 and assessee was liable to be treated as defaulter under Section 201 of the Act. Assessee sent its reply explaining that the NTOs are located outside India and they provide telecom services outside India. Hence, it was not necessary t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evant Article of DTAA; in Viacom 18 Media Limited Vs. ADIT WP. No. 36/2018 rendered by ITAT Mumbai and relied upon by the ITAT for the A.Ys. 2009-10 to 2011-12, the ITAT has held that TDS was deductable at source. However, for subsequent years in assessee s own cases [194 ITD 263 and 134 taxmann.com 234 (Mum-Trib.)] , the ITAT has taken a different view and held that the definition in the DTAA could not be enlarged by relying upon the provisions of Explanations 5 and 6; that, for a payment to be characterised as one for use of, or for the right to use certain intellectual property, firstly, the grantor of that right should be denuded from that property and it should vest completely with the recipient and secondly, the possession, dominion and control over such property should be fully granted to the user. The amendment brought by the Finance Act, 2012 by insertion of Explanation 5 seeks to do away with the second condition but the first condition remains unchanged; the NTOs have not denuded themselves of utilising the process. The payment made by assessee to the NTOs is not the payment for the use or the right to use process or the equipment as alleged by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O under Sections 195(2), 195(3), 197 of the Act, for a nil deduction/lower deduction certificate; if the payer chooses not to deduct tax without obtaining certificates under Sections 195(2), 195(3), 197, the onus would lie upon him to establish. If he fails to do so, the consequences of Section 201(1)/201(1A) or Section 40(a)(i) of the Act would follow; the ITAT has rightly examined the question of onus and held that assessee had failed to establish that tax was not deducted at source; the agreements between the payee and assessee do not disclose or establish that the income is not chargeable to tax; the characterisation of a certain receipt, whether it is in the nature of Royalty or not, is a mixed question of law and fact and the onus in this regard cannot be discharged by placing reliance on authorities. Re: Question No. 2: the payments made by assessee to the NTOs for international carriage and connectivity as well as to Belgacom for utilization of under-sea cable system, qualify as royalty under Clauses (i), (ii) and (iii) of Explanation 2 to Section 9(i)(vi) of the Act. This proposition gets reinforced by the clarificatory amendment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to royalty. This proposition is applicable even without the amended Explanation 6; notwithstanding the amendment, the consideration in a transaction of this nature must be construed as having been paid for the use or right to use the process; Explanation 6 does not enlarge the scope of the definition of Royalty either under the Act or under the DTAA. It only clarifies what was already embedded in the definition; the decision in Engineering Analysis is under review in the Hon'ble Supreme Court in CIT Vs. ZTE Corporation Dy. No. 22013 of 2022. The reasoning of the case would not apply to the case on hand because retrospective amendments to Section 9 of the Act by insertion of Explanation 6 does not affect the definition of Royalty; Engineering Analysis was rendered in the context of Section 14 of the Copyright Act, 1957 whereas the submarine cable system and the telecom network falls under the Patents Act, 1970; assessee s contention with regard to impossibility of performance to deduct tax, is untenable for more than one reason. Firstly because even without the clarificatory amendment, the transaction was taxable as Royalty. Secondly because the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by the decision in GE Technolgy. We may record that a DTAA is a sovereign document between two countries. In GE Technology, the Apex Court has held as follows: 7. While deciding the scope of Section 195(2) it is important to note that the tax which is required to be deducted at source is deductible only out of the chargeable sum. This is the underlying principle of Section 195. Hence, apart from Section 9(1), Sections 4, 5, 9, 90, 91 as well as the provisions of DTAA are also relevant, while applying tax deduction at source provisions. (Emphasis supplied) 18. The above passage has been noted and extracted in Engineering Analysis. Thus it is clear that an assessee is entitled to take the benefit under a DTAA between two countries. Hence, the ITAT s view that DTAA cannot be considered in proceedings under Section 201 of the Act is tenable. 19. The second question for consideration is whether the ITAT was correct in holding that the amendment to provisions of Section 9(1)(vi) inserting the Explanations will result in amendment of DTAA. The answer to this question must be in the negative because in Engineering Analysis, the Apex Court has held that Explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tance, Belgacom has permitted utilisation of a portion of the bandwidth which it has acquired from Omantel. It is also not in dispute that the facilities are situated outside India and the agreement is with a Belgium entity which does not have any presence in India. Therefore, the Tax authorities in India shall have no jurisdiction to bring to tax the income arising from extra-territorial source. 23. The fifth question is whether the Revenue is right in holding that withholding tax liability should be levied at a higher rate. It was contended by Shri. Pardiwala that this issue is covered in assessee s favour in CIT Vs. M/s. Wipro ITA No. 181/2019 dated 29 November 2022 and the same is not disputed. Hence, this question also needs to be answered against the Revenue. 24. The sixth question is whether assessee can be held liable for non-reduction of tax at source for payments made for the A.Ys. on the basis of amendment to Section 9(1)(vi) of the Act. This aspect has been considered by us while answering question No. 2. It is held in Engineering Analysis that an assessee is not obliged to do the impossible. Admittedly, the A.Y.s under consideration are 2008-09 to 2012-13 and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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