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2006 (8) TMI 238 - AT - Income TaxInterpretation of statutes - Applicability of art. 12.3(a) and art. 12.4(b) of the treaty - Income taxable in India - payments to non-resident companies - broadcasters or television channels - DTAA between India and USA - whether the payment is for the "use of the secret process" - Whether the payment can be considered and taxed as "fees for included services" under art. 12.4(b) Or Royalty receipt - secret process - HELD THAT:- In the case before us, though PanAmSat is engaged in the business of transmitting TV signals from one place to another; it has not agreed to transfer any technology relating to this activity to the broadcasters. It has merely undertaken to transmit the signals sent by the broadcaster for a price. That essentially is a service contract. The example given in the MoU cannot be understood, in our view, to mean that wherever a satellite is used in relation to the rendering of a service, it must be assumed that there is a transfer of technology relating to the area of communication through satellite. This is made clear if reference is made to the, sentence found earlier in the paragraph that "The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc. are made available to the person purchasing the service, within the meaning of para 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available" We thus hold that the payment does not also fall within art. 12.4(b) as "fees for included services". Since the transponder-technology is available off the shelf in the form of published literature, it is no longer a secret process and hence the payment, even if it is assumed to be in consideration for the use of a technological process, does not amount to royalty under the treaty. The argument that the payment in the present case is linked to the productivity is found to be irrelevant in terms of the agreement. We have already referred to the agreement between the assessee and Turner Broadcasting Inc. of USA, which is representative of all the agreements, in which the service fee is payable monthly. Even if it is assumed that the payment of the fee is linked to the productivity, meaning thereby that it is linked to the number of hours the transponder is utilized by the broadcaster, art. 12.3(a) requires that the consideration should amount to "gains derived from the alienation of any such right or property which are contingent on the productivity." The right referred to is the right to use the secret process. Since we have held that there is no right conferred to the broadcaster to use any secret process developed by the assessee, the payment of the service fee, even if it is assumed to be contingent on the productivity (number of hours of transmission) cannot be considered to be royalty. There is no evidence to show that it was Pan Am Sat which helped the broadcasters in setting up the earth-stations; in fact, and on the contrary, the responsibility was that of the broadcasters. Even assuming that the broadcasters did get enriched with the knowledge of the technology involved in setting up the earth stations, such technology, knowledge, skill, etc. did not get transmitted from the assessee. The argument fails. The order of the AARin Steffen, Robertson and Kirsten Consulting Engineers & Scientists, In re [1997 (10) TMI 393 - ADVANCE RULING AUTHORITY], with respect, recognizes this position, though the decision was rendered vis-a-vis s. 9(1)(vii)(c) and s. 9(1)(vi)(c) of the IT Act. It was held that the statutory test for determining the place of the accrual of the royalty or fees for technical services "is not the place where the services, for which the payments are being made, are rendered but the place where those services are utilized". If this test is applied, the payments may be taxable as royalties in India under the Act on the footing that the services are utilized in India. But then when we come to cl. (b) of art. 12.7 of the Indo-US treaty, we find that the payment should relate to services "performed" in India in order to be taxed in India. The performance of the services is not in India and it is several thousand kilometers above the earth. The word "performed" is equivalent to "rendered". The word "utilised" connotes an idea in total contrast with the idea conveyed by the words "performed" and "rendered". A service could be "performed" or "rendered" in a place which is different from the place where it is "utilised". Whereas the Act uses the word "utilised" the treaty uses the word "performed" . Our views on the interpretation of art. 12.7 are only prima facie views, though the debate before us was quite interesting as well as illuminating. There was reference to the various treaties which USA had entered into with other countries such as Thailand, China and Australia and also to the internal documents of the US to show how the US Government have understood the provisions of art. 12.7 of the treaty. These arguments were presented before us with ability and learning, but we have refrained from giving our final views on the same as we consider it to be unnecessary in the light of our basic finding that the payments made to the assessee before us are not "royalties" within the meaning of art. 12.3(a) or "fees for included services" within the meaning of art. 12.4(b). The source rule embodied in art. 12.7 would come into play only when we find that the payment is royalty or fees for included services. Thus, we have held that the amounts cannot be assessed as royalty under art. 12.3(a). In the result, ITA is allowed in part.
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