TMI Blog2001 (10) TMI 1153X X X X Extracts X X X X X X X X Extracts X X X X ..... ake of convenience. 3. Before proceeding to deal with these appeals, it would be appropriate to bring out brief facts of the case. The brief facts as taken from the orders of the CIT(Appeals) are that the assessee was in the business of telecasting programmes in India and abroad via satellite in the name and style of Raj TV. In order to enable the telecasting of programmes, the assessee company (RAJ) entered into an agreement with Reuter Television Ltd., (RTV), having its Registered Office at 85, Fleet Street, London on 27.10.95 for availing the services of transponder and unlinking. In the Asst. year 1996-97, in consideration of RTV providing space segments and unlinking services to the assessee (RAJ), Raj TV made following payments during the Financial Year ending 31.3.1996:-- Date of Payment Amount 01.02.1996 ₹ 2,02,12,500 27.03.1966 ₹ 1,02,54,000 Total ... ₹ 3,04,66,500 Thus, the total payment was made in a sum of ₹ 3,04,66, 500/=. According to the Revenue, while making this payment, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le 7 of DTAA., the profits of an enterprise of a contracting state shall be taxable only in that state unless the enterprise carries on business in other contracting state through a permanent establishment situated therein. 7. The learned CIT (Appeals) further held that the profits of RTV cannot be taxed in India because of DTAA., between India and U.K. He relied upon the decision of the Karnataka High Court in the case of CIT v. R.M. Muthiah (202 ITR 508) in favour of the assessee. Therefore, the CIT (Appeals) concluded in this appeal that the profits of RTV are not liable to be taxed in India, under the provisions of the IT Act, 1961, and hence no tax is deductible under Section 195 of the I.T. Act and, therefore, the assessee should not be treated as assessee-in-default under Section 201(1) of the I.T. Act and no interest consequent to that under Section 201(1A) is chargeable. The Revenue being aggrieved against the order of the CIT (Appeals), has filed ITA Nos. 1827 1828/Mds/98 before this Tribunal. 8. I.T.A. No. 1503 (Mds)/1999 is filed by the assessee against the order of the CIT (Appeals). The facts pertaining to this appeal are that in this case, the assessee has ne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or arise in India or in other words, whether the payments, in question, arise to RTV in India. The learned CIT (Appeals) held that RTV does not appear to have a permanent establishment in India and also held that on the facts and circumstance of the case, business profits of RTV do not accrue or arise in India within the meaning of Article 7 of D.T.A.A. These findings were similar to that of the CIT (Appeals) which is the subject matter in the appeals of the Revenue before us in ITA Nos. 1827 1827/Mds/98. The learned CIT (Appeals), however, gone to the extent of examining Article 13 of DTAA whether the said payment to RTV would be considered as within the terms 'Royalty' or 'Fees for Technical Services'. The CIT (Appeals), after considering all the facts formed an opinion that the payments, in question, are consolidated lump-sum payments for Royalty falling under the provisions of Article 13(3)(b) and fees for Technical Services falling under the provisons of Article 13(4)(b) of DTAA. The CIT(Aooeals) also discussed with regard to applicability under D.T.A.A., and held that DTAA., prevails over I.T. Act. Therefore, he concluded that the payments upon which no TDS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration for the use of 'industrial, commercial or scheitific equipment', since the satellite has been put in space through a rocket and is being maintained in a particular orbit by an earth station belonging to the Russian Company so that it can be used as part of the system of Satellite TV broadcasting. For maintenance of the satellite and the transponders therein, technical personnel in an each station of the Russian Company are necessary. Thus, the payments in question are consolidated lump sum payments for 'Royalties' under Article 13(3)(b) and 'Fees for technical services' under Article 13(4)(b) of the DTAA. 2) The CIT (Appeals) failed to appreciate that as per Article 13(2)(b) of the DTA Agreement between India and UK, 'Royalty' payments under 13(3)(b) and 'Fees for technical services' under 13(4)(b) may be taxed in the contracting state in which they arise (India) and according to the law of that State; but if the beneficial owner of royalties and fees for technical services is a resident of other contracting State (UK) the tax so charged still not exceed 10% of the gross amount of royalties and fees for technical services. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partmental Representative also argued that Section 40(a)(i) is applicable and the authorities below have rightly disallowed the payments against the assessee, upon which no TDS was deducted. 20. The learned DR., also placed reliance on Section 5 and Section 9 of the I.T. Act and argued that the same are applicable to this case also. The learned DR., filed a paper book containing records to show that No Objection Certificate under Section. 195 of the I.T. Act was issued in favour of the assessee which was cancelled and the assessee was directed to deduct TDS and subsequently, the assessee also filed Indemnity Bond before the authorities and subsequently for some period, as was mentioned in the Order of the CIT (Appeals), the assessee deposited TDS on certain payments and, therefore, argued that the assessee was, therefore, under obligation to deduct TDS as per Section 195 of the I.T. Act and since it was not deducted, the assessee is liable to be proceeded against accordingly. The learned DR., also relied upon the Board's Circular No. 152 dated 27.11.74, Circular No. 742 dated 2.5.96 and Circular No. 765 dated 15.4.98 and also relied upon the decisions of various Courts in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee argued that by amendment in I.T. Act with effect from 01.04.2001, new term for 'Royalty' has been inserted, which could at the most, would cover the case of the Revenue in view of the facts and circumstances of the case, but this is not applicable retrospectively to the case of the assessee. 23. The learned counsel for the assessee further submitted that the case law reported in 239 ITR 587 (supra) is not applicable to the facts of the present case throughout he learned DR, has relied upon the same as at that time, DTAA was not applicable. He further argued that agreement with RTV was terminated in September 1997 and no further business was being pursued and hence no continuity was maintained. He also relied upon certain portions of the agreement between the assessee and the RTV and submitted that the same would show that the payments, in question, never arose in India. According to the learned counsel for the assessee, the TDS was paid for some time from 1989 in pretext and as such, the assessee cannot be held liable for this admission. 24. The learned counsel for the assessee further argued that Section 40(a)(i) of the I.T.Act was not applicable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; ii) the imparting of the any information concerning the working of, or the use of patent, invention, model, design, secret formula or process or trade mark or similar property; iii) the use of patent, invention, model, design, secret formula or process or trade mark or similar property; iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; v) the transfer of all or any rights (including the granting of licence) in respect of any copy rights, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting but not including consideration for the sale, distribution or exhibition of cinematographic films; or vi) the rendering of any services in connection with the activities referred to in Sub-clauses (1) to (V). TECHNICAL FEES are defined in Explanation 2 to Section (1) (vii) of I.T.A. ACT: Explanation 2 : For the purpose of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responding law in force in that country, and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement.) ((2) Where that Central Government has entered into an agreement with the Government of any country outside India under Sub-section(1) for granting relief of tax, or as the case may be, avoidance of double taxation, the, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee.) Other Sums. SECTION 195(1), CHAPTER XVII-B: 195. ((1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest on securities) or any other sum chargeable under the provisions of this Act (not being income chargeable under the head 'Salaries' shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force S: ARTICLE 7 OF D.T.A.A. -- BUSINESS PROFITS: 1. The profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cinematography films or work on films, tape or other mens of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design, or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; 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 income derived by an enterprise of a contracting State from the operations of ships or aircrafts in International traffic. 4. For the purpose of paragraph 2 of this Article, and subject to paragraph 5 of this Article, the term Fees for Technical services means payments of any kind of any person in consideration for the rendering of any technical or consultancy service (including the provision of services of technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in parag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd that sometimes effect to the provisions of double taxation avoidance agreement is not given by the assessing officers when they find that the provisions of the agreement are not in conformity with the provisions of the Income-tax Act, 1961. 2. The correct legal position is that where a specific provision is made in the double taxation avoidance agreement, that provisions will prevail over the general provisions contained in the Income-tax Act, 1961. In fact the Double Taxation Avoidance Agreements which have been entered into by the Central Government under Section 90 of the Income-tax Act, 1961, also provide that the laws in force in either country will continue to govern the assessment and taxation of income in the respective country except where provisions to the contrary have been made in the Agreement. 3. Thus, where the Double Taxation Avoidance Agreement provides for a particular mode of computation of income,. the same should be followed, irrespective of the provisions in the Income-tax Act, where there is no specific provision in the agreement, it is the basic law, i.e., the Income-tax Act, that will govern the taxation of income. 29. This case law in our ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... never owned transponder in question. Explanation (a)(i) of Section 40 of the I.T. Act defines that amount not to be deductible in computation of the income, in case of an assessee -- interest, royalty, fees for technical services or other sum chargeable under this Act, which is payable outside India, on which tax has not been paid or deducted under Chapter XVII-B; and the definition of Royalty and Fees for technical services shall have same meaning as defined in Explanation (2) to Clause (6) (7) of Sub-section (1) of Section 9 of the I.T. Act. 33. After going through the definitions which are reproduced above for 'Royalty' and 'Fees for technical service', it is clear that these payments do not fall within the meaning of payment for hire charges of transponder. 34. A perusal of the definition of the term 'Royalty' as per I.T. Act reveals that only the payments for use or right to use certain specified intellectual property rights or payment for imparting any industrial, commercial or scientific information are regarded as Royalties. The payment in the case of the assessee for hire of transponder or up-linking services are not for use as specified in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er concerned Departments of the Ministries had give approval for the payment to RTV towards transponder hire charges and up-linking service and not for technical services as mentioned by the Assessing officer in the Assessment Orders. The assessee has made the payments after obtaining No Objection Certificate from the Assessing Officer, having jurisdiction over the matter and whenever application for No Objection Certificate was rejected, the assessee has deducted tax under protest to keep its business continuing. The NOC was issued by ACIT., Company Circle-IV(5), Chennai on 23.1.96, which is available on record, for payment of transponder and up-linking hire charges of $ 2.2 million. This certificate would absolve the assessee from the obligation of tax deduction under Section 195 of the I.T. Act. Sometimes, the assessee deducted tax and paid to the Department under pretext. But in our considered view, the same cannot be held as admission on the part of the assessee as these even happened subsequently when earlier order dated 23.1.1996 under Section 195 of the I.T. Act was withdrawn. The assessee made these payments under protest to the Revenue. We may observe here that the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be applicable in relation to the Asst. Year 2002-2003. Accordingly, Section 40(a)(i) would not be applicable to these appeals as Section 9 of the I.T. Act with regard to the definition of Royalty was not applicable to the payment in question. 40. We may further add here that if the payment towards use of equipment such as transponder falls within the existing definition of Royalty, then there was no need to amend the definition of Royalty in the proposed amendment by Finance Bill 2001 by which new clause has been inserted. At the cost of repetition, we may also add that Section 40(a)(i) would be applicable if the tax is not deducted and paid as per Chapter XVII-B on Royalties, fees for technical services and for that claim Royalty and fees for technical services shall have meaning as defined under Section 9(1)(6) (7) Explanation (2) of the I.T. Act. Chapter XVII-B deals with Section 195 of the I.T. Act, but Chapter IX of the I.T. Act deals with Double Taxation relief under Section 90 of the I.T. Act. Hence, Section 40(a)(i) of the I.T. Act would be applicable to payment made outside India and is covered by the definition of Section 9(1)(6) (7) of Explanation (2) of the I.T. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 43. In this cased, Article 7 of D.T.A.A., provides to avoid double taxation. It provides relief over I.T. Act and not to fasten liability if the assessee is not liable to deduct tax under I.T. Act. It is so provided under Section 90(2) of the I.T. act also that the provisions of this Act (I.T. Act) shall apply to the extent they are more beneficial to the assessee. The tax-payer can avail of the benefit of the D.T.A.A., if the same is more beneficial to him to that of the I.T. Act. 44. We are fortified, in our view, by the decision of the Bombay Bench of the I.T.A.T., in the case of Atlas Copco AB of Sweden v. DCIT (53 ITD 293) in which it has held:- Section 90 has been enacted with the intention to provide relief where assessee has paid taxes in India as well as in other country and for avoidance of double taxation income under the IT Act and corresponding law of the other foreign country. This presumes to be an accrual of income in the hands of the assessee under the IT Act. If the income is not liable to tax in India then the question of resorting to the provisions contained in DTAA WOULD NOT ARISE. DTAA do not fasten any liability on the assessee. The provisions of DTA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I.T.A.T., IN THE case of ACIT v. Interocean Shipping (I) (P) Ltd., (51 ITD 582) has held that: We are of the opinion that the hire charges paid to NR would be liable t be taxed in UK in view of the provisions contained in Article 7 of DTA. Since, the hire charges are not subjected to Indian Taxation, question of deducting any tax from the hire charges payable to NR does not arise. 48. These authorities are directly applicable to the facts of this case and would fortify our views as taken above. 49. On the contrary, the learned Departmental Representative relied upon the decision of the Supreme Court in the case of Transmission Corporation of A.P. Ltd. and Anr. v. CIT (239 ITR 587). In this case, the Assessment year involved was 1966-97. At that time, D.T.A.A., was not in existence as it was notified on 11.2.1994. It was decided in this case as to how much tax has to be deducted. According to the aforesaid Judgment, in case of any doubt, authorities resorted to proceeding under Section 195 of the I.T. Act and then they should deduct TDS according to the order under Section 195 or otherwise on gross payment. 50. We respectfully opine that this case is distinguishable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mere supervision made by Germany Engineers does not amount to the German company having a permanent establishment in India. We fail to understand, how this case will support the case of the Revenue. 54. The learned Departmental Representative further relied upon the decision of the Supreme Court in the case of Raghava Reddy and Anr. v. CIT (44 ITR 720). This case pertains to the Asst. years 1948-49 and 1949-50. In this case, the payment of commission was credited to the account of non-resident and this case is not directly relevant to the appeals under consideration by us and again, Explanation (1) to Section 5(2)(b) of the I.T. Act specifically provides that mere credit will not tantamount to accrual of income. This case would also not advance the case of the Revenue in any manner. The learned D.R., further relied upon the Circular No. 152 (supra) which deals with deduction of tax at source under Section 195 of the I.T. Act, from the payments to non-resident which are chargeable under the provisions of the I.T. Act. Circular No. 742 and Circular No. 765 (supra) deals with taxation of foreign telecasting fees, guidelines for computation of income etc. But in this case, the paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld very clearly reveal that the difference of ₹ 13,719/- is the TDS amount. 61. We have carefully considered both the grounds of appeal. The learned CIT (Appeals) has already directed the Assessing Officer to examine these issues and decide on merits and further directed the Assessing Officer to examine all the submissions of the assessee and in case discrepancy is not fully explained, sustain the addition to the extent of discrepancy. 62. The learned Departmental Representative very fairly stated that both the issues can alternatively be verified by the Assessing Officer. Therefore, we do not feel it necessary to go into the details of these grounds of appeal as the same have already been remitted to the file of the Assessing Officer by the CIT(Appeals). However, we also, remitting the same to the Assessing Officer, direct him to verify the claim of the assessee as per books of accounts and details furnished in this regard. The Assessing Officer shall give reasonable opportunity of being heard to the assessee in the matter. No other ground is urged or argued before us. 63. In the result, the first ground of appeal is allowed and the remaining two grounds of appeal a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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