9911796707
TMI Blog2014 (4) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... sequently upholding the order of the learned Asst. Director of Income Tax (Intl. Tax)-2(2) ['ADIT'] directing the Appellant to withhold tax from such payments under section 195 of the Act. It is prayed that the Ld. ADIT be directed to consider the transponder fees as not subject to tax withholding under section 195 of the Act and that consequently, the order passed by the learned ADIT under section 195 of the Act be quashed." 2. The assessee is a company incorporated in India and is primarily engaged in broadcasting television channels from India. It is also engaged in marketing of advertising airtime on these channels, distribution of the channels, marketing and distribution of films through its film division 'Studio 18' and production of program content/television software. The assessee has been provided with a 24 hour, satellite signal reception and retransmission service ('transponder service') by Intelsat Corporation (previously known as 'PanAmsat Corporation'), a USA Corporation. In consideration for transponder service, the assessee has to pay transponder service fee to Intelsat which is a tax resident of USA under Article 4 of the India-USA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal has again decided the issue in favour of the assessee by following the decision of the Hon'ble Delhi High Court in the case of Asia Satellite Communication Co. Ltd. (supra). Similarly in the case of WNS North America Inc. (152 TTJ 145), the Tribunal has again considered an identical issue and decided the same in favour of the assessee by holding that the retrospective amendment in the act will not affect the benefit available under the DTAA. The Ld. Counsel thus submitted that in all the decision of the Tribunal where the payee is same it has been held that the payment in question for providing transponder service is not royalty and, therefore, not taxable in India in the absence of PE of the payee in India. The Ld. AR then referred Article 12(3) of India-USA Double Taxation Avoidance Agreement (DTAA) and submitted that the term royalty has been defined in the treaty and, therefore, the amendment in the definition of the royalty in the Act would not affect the provisions of DTAA. He has pointed out that the definition under Article 12(3) of Indo-US treaty and pre amended definition of royalty u/s 9(1)(vi) are identical and, therefore, the subsequent amendment in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atellite Co. or the telecasting Co, will be through sophisticated instruments either installed at the ground stations owned by the satellite companies or through the instruments installed at the earth stations owned and operated by telecasting companies. The time of telecast and the nature of programme, all depends upon the telecasting companies, and, thus, they are using that process. Thus the Ld. DR has submitted that the terms of agreement clearly show that the use of process was provided by the satellite companies to the telecasting companies whereby the telecasting companies are enabled to telecast their programmes by uplinking and downlinking the same with the help of that process. The Ld. DR has submitted that both the Act as well as DTAA recognizes the payment for use of "Process" as royalty and taxable in the source country. What is "Process" is explained by way of Explanation 6 to section 9(1)(vi) of the Act. The Ld. DR thus submitted that when a term is not defined in the treaty then by virtue of Article 3(2) of the treaty, the meaning of the same is to be understood as given in the Act. Alternatively, the Ld. DR has submitted that use of transponder facility is also use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that the decision in the case of Poompuhar Shipping Corporation Ltd (supra) is not on the point of transponder service but it is on the point of use of equipment/plant. Further in the case of Verizon Communications Singapore Pte. Ltd. (supra), the Hon'ble High Court has not gone into the applicability of extended definition of the Act which is contrary to the definition of royalty under the DTAA. The Ld. Counsel has relied upon the decision of Hon'ble Delhi High Court in the case of Nokia Networks OY, wherein the High Court has considered the issue of royalty as per the amended definition of the Act and decided that when a particular payment does not fall within the purview of royalty as per treaty the same cannot be taxed as per the definition given in the Act. The Ld. AR has also relied upon the decision of Hon'ble Andhra Pradesh High Court in the case of M/s Sanofi Pasteur Holding SA, v. Department of Revenue. To counter the arguments of Ld. DR, the Ld. AR has submitted that the AO and CIT(A) treated the assessee's case as identical to Asia Satellite Communication Co. Ltd (supra) and the CIT(A) has followed the decision of Special Bench in the case of New ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television, broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience including gains derived from the alienation of any such right or property which are contingent on the productivity, use of disposition thereof; and (b) Payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of article 8(Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of article 8." 9. The definition of royalty under the Act is given in Explanation 2 of section 9(1)(vi) as under:- Income by way of royalty payable by- "Explanation 2.-For the purposes of this clause, "royalty" means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... --------- any process, industrial, commercial or scientific equipment". The term process, industrial, commercial or scientific equipment are not defined in DTAA. Therefore, the meaning of such term under the Act shall apply by virtue of Article 3(2) of Indo-US DTAA which reads as under:- ARTICLE 3 - General Definitions "As regards the application of the Convention by a Contracting State any term not defined therein shall, unless the context otherwise requires or the competent authorities agree to a common meaning pursuant to the provision of article 27 (Mutual Agreement procedure), have the meaning which it has under the laws of that State Concerning the taxes to which the Convention applies" 11. Apart from the ordinary contextual meaning, the term process has been defined in Explanation 6 of section 9(1)(vi) of the Act as under:- "Explanation 6.-For the removal of doubts, it is hereby clarified that the expression "process" includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ority for Advance Ruling, Explanations 4 and 5 were inserted under Finance Act, 2012, with effect from 01.06.1976. Under Explanation 5, the Legislature sought to clarify the definition of 'royalty' to include the consideration in respect of any right, property or information whether or not possession or control of such right, property or information is with the payer; such right, property or information is used directly by the payer; the location of such right, property or information is in India. Explanation 6 further clarifies that the expression 'process' included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret. Thus, after the amendment introduced in the year 2012, with effect from 01.06.1976, irrespective of possession, control with the payer or use by the payer or the location in India, the consideration would nevertheless be treated as 'royalty'. The decisions cited, hence, cannot be pressed into service to understand the scope of the expression 'royalty'." 13. The expression process has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o change in the content of the signals whatsoever that is carried out by the appellant in the transponder. Thereafter, the signals leave the transponder and are relayed over the entire footprint area where they can be received by the facilities of the appellant's customers or their customers. Its role is confined in space where the transponder which it makes available to its customers performs a function which it is designed to perform. It is claimed by the appellant that no part of the income generated by it from the customers to whom the aforesaid services are provided was chargeable to tax in India and for this reason no return income was filed in India. The Tribunal found that the transponder was not equipment and hence the payment made by the TV channels to the appellant could not be regarded as one for use of equipment. The Tribunal held that the appellant had not leased out any equipment but had only made available the process that was carried out in the transponder to its customers. Insofar as income earned by the appellant from its customers in India is concerned, the Tribunal held that this would qualify as 'royalty' as defined in Explanation 2 to Section 9(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s seen from the facts, the said judgment was rendered in the year 2011, much before the amendment under Finance Act, 2012. Further after the decision reported in [2007] 288 ITR 408 (Ishikawajama-Harima Heavy Industries Ltd. v. Director of Income Tax) an explanation was inserted below subsection 2 of Section 9, with effect from 01.06.1976 under Finance Act, 2007 to get over the decision of the Supreme Court. Hence this decision of the Delhi High Court is distinguishable and has no relevance to the case on hand which has to be considered on the strength of the law prevailing now." 14. After considering the definition of royalty under Article 12 of the DTAA as well as u/s 9(1)(vi), The Hon'ble High Court had held that the definition of royalty under DTAA and Indian Income Tax act are pari materia in para 100 as under:- "100. The definition of 'royalty' under DTAA and the Indian Income Tax Act are in parimateria. As rightly pointed out by the Revenue, Explanation 6 defines 'process' to mean and include transmission by satellite (including uplinking, amplification, conversion for downlinking of any signal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nals which falls in the expression "Process" as per Explanation 6 of section 9(1)(vi). Hence 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. 16. In the case of CIT v. Siemens Aktiengesellschaft (supra) the question before the Hon'ble High Court was that when the payment does not fall under the term of royalty as per the provisions of DTAA, the same can be taxed as royalty in terms of the definition in the Act. Thus it is clear that the payment in the said case was not found as royalty in terms of DTAA between India and Germany. However it was taxed by the revenue authorities on the basis of the definition of royalty as per the Income Tax Act. The Hon'ble High Court has held in para 40 and 41 as under:- "40 In our opinion, even in the absence of royalty being defined under the clauses of the agreement, if it amounts to any industrial or commercial profit it would be taxable under clause III provided there is a PE in India unless we hold that considering the Explanation to section 9 brought by the Finance Act, 2007 t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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