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2023 (1) TMI 519 - AT - Income TaxRoyalty receipt - whether receipt from uplinking services construe royalty as per Article 12(3) of the DTAA? - HELD THAT:- We are of the considered view that the assessee provides services to its customers using its equipment outside India. Various satellite based telecommunication services provided by the assessee to its customers are standard services, provided by various other service providers in the industry. Thus, it can be safely stated that there is no ‘know how’ or ‘intellectual property’ involved in the provision of such services by the assessee. Moreover, various satellite-based telecommunication services nowhere envisage granting the use of, or the right to use any technology or process to the customers. The assessee is responsible for maintaining the continuity of the service using its own equipment and facilities since the possession and control of equipment is with the assessee. It is merely making an entrepreneurial use of its own equipment to provide services and it cannot be said that customers have a right to use the process, if any, involved or applied by the assessee in its capacity as a service provider. The customers are not granted the use of or the right to use any process by the assessee during the course of providing various satellite-based telecommunication services which means that the customers are merely availing a service from the assessee and are not bearing any risk with respect to exploitation of the assessee’s equipment involved in the provision of such service. Therefore, in our considered opinion, the amount received by the assessee from its customers in India as consideration for the provision of a service cannot be characterized as royalty for the use or right to use of a process. Heavy emphasis has been made on retrospective amendment brought by the Finance Act with special reference to Explanation 6 of section 9(1)(vi) of the Act.This issue has been well settled by the Hon'ble Jurisdictional High Court of Delhi in the case of New Skies Satellite 2016 (2) TMI 415 - DELHI HIGH COURT as held unless the said DTAAs are amended jointly by both parties to incorporate income from data transmission services as partaking of the nature of royalty, or amend the definition in a manner so that such income automatically becomes royalty. It is reiterated that the Court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no Double Tax Avoidance Agreement - question of law framed is accordingly answered against the Revenue. Also in the case of Asia Satellite Telecommunications Co. Ltd 2011 (1) TMI 47 - DELHI HIGH COURT Tribunal was not justified in holding that the amount paid to the assessee by its customers , represented, income by way of royalty, as the said expression is defined in the Explanation 2 to section 9(1)(vi). Receipts from Disaster Recovery Playout Services being treated as FTS - HELD THAT:- We find that the terms ‘managerial’, ‘technical’ and ‘consultancy’ appearing in the definition of ‘fees for technical services’ have not been specifically defined in the treaty and the Act. Managerial service signifies a service for management of affairs or services rendered in performing management functions. It involves controlling, directing, managing or administrating the business of the service recipient and can be rendered only with the application of human mind and must involve human interface/ human intervention. Similarly, ‘technical service’ means a service requiring expertise in technology. Services are of a ‘technical’ nature when special skills or knowledge related to technical field3 are required for provision of such services. Only those services which involve application of any expert technical education or skill can be classified as technical service and routine services, which do not require application of any technical knowledge or skill cannot be classified as technical service. Playout service is nothing but the broadcasting and/ or transmission of channels by the assessee for its customers, without any involvement in decision-making with respect to the playlists and the content being broadcasted. Moreover, the assessee does not have a right to edit, mix, modify, remove or delete any content or part thereof as provided by the customer. The disaster recovery playout service merely involves provision of uninterrupted availability of the playout service at a predetermined level. Therefore, receipts from disaster recovery playout services are not in the nature of FTS as envisaged under Article 12(4)(a) of the DTAA as they are not ancillary or subsidiary to disaster recovery uplinking and allied services. We are of the considered view that service must be related to application or enjoyment of the right, property, or information for which a payment in the nature of royalty is received and predominant purpose of the arrangement under which payment of service fee is received must be application or enjoyment of the right, property, or information in respect of which the royalty is received. Thus, both conditions must be cumulatively satisfied for services to be considered as ancillary or subsidiary to the payment of royalty. Therefore, in our considered view, receipts from disaster recovery playout services are not in the nature of FTS as they do not make available any technical knowledge, experience, skill, knowhow, or process or consist of the development and transfer of any technical plan or technical design. The facts of the case in hand clearly show that the assessee has provided Disaster Recovery Playout services to its customers through its facility in Singapore and the customers are not provided with any technology knowledge, experience, skill, know-how or processes as envisaged under Article 12(4)b of the DTAA. Further, receipts are also not in the nature of FTS as per Explanation 2 of section 9(1)(vii) of the Act. In light of the decisions referred to hereinabove, payments received by the assessee as consideration for providing disaster recovery playout services are not taxable as FTS and the Assessing Officer is directed to delete the same. Ground No. 3 with its sub-grounds is allowed.
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