TMI Blog2008 (6) TMI 378X X X X Extracts X X X X X X X X Extracts X X X X ..... Further the Hon ble Supreme Court in the case of Transmission Corpn. of A.P. Ltd. v. CIT [ 1999 (8) TMI 2 - SUPREME COURT] held that if the assessee has made no application u/s 195(2) tax must be deducted u/s 195(1) and further held that provisions of section 195 are wide enough to consider any sum payable under the Act. In view of this the amount paid by the assessee-company to the foreign company for hiring the transponder are indeed chargeable under the Act and as no tax is deducted the AO is correct in invoking the provisions of section 40(a)(i) and the CIT(A) is not correct in deleting the same. Support can also be drawn from the decision of the Hon ble Gujarat High Court in the case of CIT v. Vijay Ship Breaking Corpn.[ 2003 (3) TMI 91 - GUJARAT HIGH COURT] for the proposition that having not made any tax deduction at source disallowance of amount u/s 40(a)( i) was justified. In the above referred case the issue was payment of interest by a resident to a non-resident and the Hon ble High Court of Gujarat considered the provisions of section 9(1)(v)(b) r/w section 5(2) and section 40(a)( i) and held that the payment of accrued interest to foreign concerns is an amount ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... idence filed by the assessee during assessment proceedings that the business of Sanskar T.V. started during the year. (5)On the facts and in the circumstances of the case and in law, the Ld. CIT(A)-XI has erred in admitting the new evidence as a certificate dated 10-5-2004 from M/s. Star in contravention of rule 46A of the Income-tax Rules, 1961." 3. The learned D.R. submitted that the amount of transponder charges/rent paid to M/s. Shim Satellite Public Co. Ltd. for the purpose of uplinking of TV channel in its broadcasting through satellite should be covered by provisions of section 195 of the Act and consequently the disallowance made under section 40( a )( i ) by the Assessing Officer should be upheld. It was submitted that the CIT(A) has erred in allowing the expenditure stating that the provisions of section 195 of the Income-tax Act, 1961 are applicable with effect from 1-4-2002 and not before. It was submitted that provisions of section 9(1)( vi ) were always applicable and consequently, as no withholding of tax was made, the disallowance made by the Assessing Officer should be upheld. 4. With reference to ground Nos. 2 and 5 it was submitted that the Assessing O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ness income only. Consequently there is no withholding tax on such payments as the taxpayer takes shelter under the definition of the term "royalty" as provided in the Income-tax Act since the same is more beneficial to him. It is therefore, proposed to amend section 9 so as to widen the scope of the term "royalty" as provided in Explanation 2 of clause ( vi ) of sub-section (1) of section 9 so as to include in its ambit consideration for the use of or the right to use, industrial, commercial or scientific equipment. The proposed amendment will take effect from 1-4-2002 and will accordingly, apply in relation to the assessment year 2002-03 and subsequent assessment years." Relying upon the above explanatory note the learned AR submitted that the transponder hire charges/uplinking charges received by foreign satellite owner from an Indian company is not taxable in India. There is no continuity of relationship as transponder hire and uplinking is an isolated transaction and hence there is no PE or business connection of foreign satellite owner said to exist in India. Therefore no part of income is said to be attributable to Indian operations consequently there is no need to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There was modification to the Appendix C vide amendment to the agreement entered on 7-12-2000 regarding changes in technical specifications. This agreement was further amended by another amendment dated 24-1-2002 mainly for Appendix A for the payment schedule." 8. The foreign satellite company is governed by DTAA between Government of India and Government of the kingdom of Thailand which was notified in GSR 915(E), dated 27-6-1986, in 161 ITR (St.)/82. As per the DTAA the terms of PE, Royalty were defined Article 12 of the above DTAA defines royalties as under : "The term "royalties" as used in this Article means payments of any kind received as consideration for the alienation or the use of, or the fright to use, any copyright of literary, artistic or scientific work (including cinematograph films, phonographic records, and films or tapes for radio or television broadcasting), any patent, trade mark, design or model, secret formula or process, or for the use of, or the right to use industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience." 9. Section 40( a )( i ) of the Income-tax Act, which is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t with this claim of the assessee for the reason that the digital broadcast service agreement is for providing service for digital broadcast only. The service description in Appendix B is as under : "1.Service Description 1.1SSA shall provide a digital channel including video and audio signal for broadcasting Customer s television programs. 1.2SSA shall provide the Digital Broadcast Service at the Thaicom Teleport and DTH centre (The "Teleport Facilities") located in Pranthum Thani Province, Thailand. 1.3SSA shall provide the Digital Broadcast Service as an MCPC platform. 1.4SSA shall provide the Digital Broadcast Service by means of equipment including digital compression system and uplink system, and personal located at the Teleport facilities. 1.5The Digital Broadcast Service shall begin from receiving a source signal in PAL format including video and audio signals from a tape play system the feed the source signal into an encoder to encode the source signal in a stream of 4 Mbps for one digital channel without any encryption and multiplex this stream into one MPEG-2/DVB transport stream of an MCPC platform then fed into the uplink system from an equalizer through a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e rental income could be charged to tax only after clause ( iva ) of the Explanation came into effect is not acceptable - Merely because the lease rentals were fixed on annual basis it cannot be said that the payment is for any consideration other than, rendering of said services - Activity which is resulting into income in the hands of TV channels who are non-residents is the ultimate viewership of programmes transmitted by them in the footprint areas including India - Thus, these TV channels were not only carrying on their business in India but were also earning income from the source in India - Accordingly lease rent paid by the TV channels to the assessee was royalty within the meaning of section 9(1)( vi ) read with Explanation 2. The transponder is not an equipment itself. In other words, it is not capable of performing any activity when divorced from the satellite. It was fairly conceded by the authorised representative that the transponder in itself without other parts of satellite is not capable of performing any functions. Rightly so because satellite is not plotted at a fixed place. It rotates in the same direction and speed as the earth. If it had been fixed at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... you are permitted uplinking through VSNL s own earth station are not later than two years of issue of this NOC. ( b )You will adhere to Programme Advertising Code. We further advise that the remittance towards the service fee shall be allowed on production of following documents : 1. Original invoices from M/s. Shim Satellite Co. Ltd., Thailand. 2. Income-tax Paid Challan As can be seen from the above RBI permission also the fee is considered as Annual Service Fee which include hiring of Transponder and Uplinking Services. The only conclusion that can be drawn from the above facts is that the fee paid by the assessee-company is not hire charges for Equipment but Fee for Services in the domain of Digital Broadcast. Thus transponder service fee paid by the assessee-company to foreign company are covered by the definition of royalty and as this sum is chargeable to tax under the Act the assessee should have deducted tax and consequently provisions of section 40( a )( i ) are applicable in this case. 12. Not only that, in the case of Satellite Television Asia Region Ltd. v. Dy. CIT [2006] 99 ITD 91 (Mum.) (wherein one of us is a party) the issue of deduction of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( i ), disallowed said payment - Whether since on examination of nature of operations carried out by channel companies in their business of telecasting it was clear that ultimate delivery of programmes was made by channel companies in India and outcome of all agreements entered into between assessee and channel companies and those of cable operators were all finally culminating in India, it could be said that channel companies were having business connection with India and assessee was acting as an agent of channel companies - Held yes - Whether therefore, assessee was liable to deduct tax at source on payments made to channel companies - Held yes - Whether since assessee did not deduct tax at source on payments made to channel companies, Assessing Officer was justified in disallowing payments made to channel companies under section 40( a )( i ) - Held, yes" The facts in the present case are similar to the facts of the case considered above. As already discussed above the assessee paid the service fee to the non-resident for use of transponder and uplinking facility in the satellite and the said sum was paid without deducting tax. Since the amount paid is considered as ro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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