TMI Blog2017 (8) TMI 1429X X X X Extracts X X X X X X X X Extracts X X X X ..... sion by the satellite including uplinking, amplification, conversion for downlinking of signals which falls in the expression "Process" as per Explanation 6 of section 9(1)(vi) - 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 – there was no reason to interfere in the decision of CIT(A) – Decided against Assessee. - ITA No.3776/Mum/2015 - - - Dated:- 7-8-2017 - Shri Shamim Yahya, AM And Shri Ravish Sood, JM For The Appellant : Ms.Armaity Ichhaporia For The Respondent : Shri M.V.Rajguru (Sr.DR) ORDER Per Shamim Yahya, AM This appeal by the assessee is directed against order of learned CIT(A) dated 27.02.2015 and pertains to assessment year 2013-2014. 2. The grounds of appeal read as under:- 1. On the facts, and in the circumstances of the case, and in law, the learned Commissioner of Income-tax (Appeals) - 55, Mumbai ['CIT(A)1] has erred in dismissing the Appellant's appeal and confirming the order of the Asst. Director of Incometax (International Taxation) - 2(2), Mumbai, holding that the payments of transponder fees by the Appellant to In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not qualify as 'Royalty' as per Section 9(1) (vi) of the IT Act. Further, it is also submitted that payment of transponder service fees is also not in the nature of Fees for Included Services ('FIS*) as per the provisions of Article 12 of the India - USA Tax Treaty. It is submitted that Intelsat would be providing transponder service to Viacom 18 and not any technical service. Further, the said transponder service does not make available any technology, experience, skill etc. Accordingly, the same would not qualify as FIS under the India - USA Tax Treaty. The applicant submitted that given that Intelsat does not have any PE in India, the payment of transponder service fees would not be taxable in India in absence of PE. The applicant: has also filed a copy of the letter obtained from Intelsat confirming that Intelsat does not have a PE in India. The applicant places reliance on various decisions including the decision of the Delhi High court in the case of Asia Satellite Telecommunications Co. Ltd [2011] 197 Taxman 263 and the decision of the Mumbai ITAT in the case of B4U international Holdings Limited 21 taxman.com 529. The submissions of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellant s AR submission. Having considered both, I find that the issue involved in this appellant is covered against the appellant by the order of jurisdictional Income-tax Appellate Tribunal, Mumbai Bench Order No.ITA 1584/Mum/2010 in A.Y. 2009-10 in appellant s own case, wherein the Hon ble ITAT has held as under:- `Thus it is clear that in the case of Siemens Aktiengesellschaft (supra) it was found that the payment was not royalty as defined in the clauses of agreement and, therefore, it could not be taxed as royalty as per the provisions of the Act. The Hon ble High Court though was of the view that if any term is not at all defined in the treaty then considering the express language of Article 1(2) of the Indo-German DTAA, the term defined in the act even by subsequent to the date of agreement would be applicable as set out in the Article 1(2) of the treaty. Therefore, the said decision will not help the case of the assessee before us because the Explanation 6 defines the term process and not royalty and further there is no change in the definition of royalty by virtue of Explanation 6. The other decisions relied upon by the assessee are based on the decision of Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal High Court. Hence he submitted that the ratio from the decision in assessee s own case should be followed and hence the issue should be decided against the assessee. 6.2 In this regard, the learned DR has made the following written submissions:- The above captioned appeal has been fixed for hearing on today i.e. 15.6.2017 and the same was finally heard on the same day. The undersigned sought permission to make written submissions in the matter, which was granted by the Hon'ble Members. The same may kindly be taken on record. 2. The only issue involved in this appeal relates to whether the payments of transponder fees by the assessee to Intelsat Corporation, U.S.A. are taxable as 'royalty' under the IT. Act, 1961 and under the Inda-U.S.A. Tax treaty and consequently, subject to withholding of tax under section 195 of the IT, Act. 3. During the course of hearing, it was brought to the kind notice of the Bench that the issue under consideration has been covered in favour of Revenue by the decision of this Bench in assessee's own case for A.Y. 2009-10 to A.Y. 2011-12 in ITA Nos 1584 1585/Mum/2010 and 1091 1092/Mum/2011. The same is also re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;ble Members that on a similar situation, in the case of M/ Gartner Ireland Ltd. Vs/ DDIT(IT), Murnbai, the ITAT, Mumbai 'L' Bench while deciding the similar issue has held in page 7 (para- 9) of the order dated 21.9.2016 as under: The reliance placed by the learned representative on the subsequent decision of the Hon'ble Delh High Court in the case of the Infrasoft Ltd. (supra), in our view, does not justify departure from the decision of Tribunal dated 24.7.2013 (supra) because the decision of Hon'bie Karnataka High Court in the case of Wipro Ltd. (supra) is specific to the transaction before us, aibiet in the hands of the payer of such income. Therefore, as per principal of judicial consistency and considering that the decision of Tribunal dated 24.7.2013 (supra) has not been altered by any higher authority, e deem it fit and proper to decide the issue in favour of Revenue and against the assesses. Thus, following the precedent, stand of the Revenue is upheld and assessee fails. The plea of the learned representative before us, based on the judgment of Hon'bie Supreme Court in the case of Vegetable Products Ltd., 88 ITR 192 (SC), that where two view ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtainment Pvt. Ltd. (ITA No.5171 to 5l81/Mum/2013) (Mum.) (Pages 105-123 of LPB) Judicial discipline demands that the better wisdom of the Court below has to yield to the higher wisdom of the Court above. [Asst. Collector of Excise v. Dunlop 1985 AIR 330 (SC)] In paragraphs 4 and 5, the learned DR states that decision of the Hon'ble Bombay High Court in the case of CIT v Smt. Godavaridevi Saraf [(1978) 113 ITR 589] is distinguishable on facts as to sections of the Act involved the issue involved, as opposed to sections of the law involved in the facts of a case. In the Appellant's case, the issue of applicability to deduct TDS on transponder payments to a foreign company has been decided in Appellant's favour by the Hon'ble Delhi Court (in case of New Skies Satellite) and Hon'ble Calcutta High Court (in case of ATN International). Therefore, the Appellant humbly submits that these favourable decisions by a court higher than the Tribunal, vitiates the adverse judgment of Hon'ble Mumbai Tribunal in Appellant's case for earlier years relied upon by the learned DR. As was brought out in point of 1 the Written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of the Appellant (in point 5 of its written propositions furnished in course of the hearing) as to why reliance by the learned DR on the same is misplaced. Appellant's contentions on non-applicability of the decision in the case of Gartner are briefly reiterated below: In the case of Gartner, the Hon'ble Mumbai Tribunal had decided an earlier appeal against the assessee, following a negative decision of a higher court (Karnataka High Court) on the same transaction. However, in case of the Appellant, there is no negative decision of any High Court which is specific to the transaction (i.e. transponder payments to Intelsat). In fact, all High Court judgments on same issue of taxability of transponder payments are in Appellant's favour. In the case of Gartner there were conflicting decisions of the higher courts - Karnataka High court (on the same transaction) being negative and subsequent Delhi High Court being favourable. However, in case of the Appellant, there is no . conflicting High Court decision in connection with payments made to non-residents for availing transponder facility, which fact is not at all disputed even by the learned DR. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble Calcutta High Court in case of ATN International Ltd. (supra) were not available to the Hon'ble Mumbai Tribunal while deciding the Appellant's earlier appeals. Accordingly, while deciding subsequent appeals on identical issue in cases of Taj TV (supra) and United Home Entertainment (supra), the Hon'ble Mumbai Tribunal did not follow its own earlier decision in the case of the Appellant (which was being relied upon by the learned DR in the said cases), but instead followed the subsequent decision of the Hon'ble Delhi High Court in case of New Skies Satellite BV (supra). 7. We have carefully considered the submissions and perused the records. We find that this Tribunal in assessee s own case for assessment years 2009-2010 and 2011-2012 vide order dated 28th March, 2014 has considered the same issue. The Tribunal decided the issue in favour of the Revenue by holding as under:- 7. We have considered the rival submissions as well as relevant material on record. The question before us is whether the fee payable by the assessee to Intelsat Corporation, a tax resident of USA is in the nature of Royalty in the light of amended provisions of sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n but excluding any consideration which would be the income of the recipient chargeable under the head Capital gains ) forITA ( i) the transfer of all or any 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 any information concerning the working of. or the use of. a patent, invention, model, design, secret formula or process or trade mark or similar property; ( iii) the use of any 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; ( iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; (v) the transfer of all or any rights (including the granting of a (licence) in respect of any copyright, 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 includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion by satellite (including uplinking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret; 12. The introduction of Explanation 6 with retrospective effect w.e.f 1.6.1976 is an expression as intended by the legislature of the meaning of term process in the context of transmission by satellite is clarificatory in nature and, therefore, it does not amend the definition of royalty per se .There is no quarrel on the point that any payment for use or right to use of process is in the nature of royalty as per the provisions of Article 12(3) of DTAA as well as the Explanation 2 of section 9(l)(vi) of the Act. Since the term process is not defined under the DTAA, therefore, by virtue of Article 3(2) of the Indo-US DTAA, the meaning of term process as defined in the Act would apply for this purpose. We say so as a word 'process' is a term of wide import and, accordingly, has to be construed in a generic sense. The same has in fact been the subject matter of elucidation by the Hon'ble apex court in a number of cases, viz. Chillies Exports Ltd. v. CIT [1997] 225 TTR 814/92 Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice to understand the scope of the expression 'royalty'. 13. The expression process has been understood by the Hon'ble High Court in the light of Explanation 6 inserted by the Finance Act 2012 w.e.f 1.6.1976 and it was observed that the decision relied upon by the assessee cannot be pressed into service to understand the scope of expression royalty while distinguishing the decision of Hon'ble Delhi High Court in the case of Asia Satellite Communication Co. Lid (supra), the Hon'ble Madras High Court in para 42 and 43 has held as under:- 42. The decision relied on by the assessee, particularly with reference to the Delhi High Court reported in 332 ITR 340 (Asia Satellite v. DIT) is also distinguishable. This relates to a case of an assessee/lessee of a satellite called AsiaSat I which was launched in April 1990 and was the owner of a satellite called AsiaSat 2 which was launched in November 1995. These satellites were launched by the appellant and were placed in a geostationary orbit in orbital slots, which initially were allotted by the International Telecommunication Union to UK, and subsequently handed over to China. These satellites neither ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as defined in Explanation 2 to Section 9(l)(vi) of the Act. 43.Therefore, issues which arose for consideration in the appeal before the Delhi High Court related to Clauses (i). (vi) and (vii) of sub-Section fl) of the Section 9 of the Act. The High Court held that even when the appellant had business connection in India, no part of the appellant's income was chargeable to tax in India in terms of Section 9 (l)(i). as no operations to earn the income were carried on in India. The Delhi High Court held that carrying out the operations in India, wholly or at least partly, is sine qua non for the application of Clause (i) of sub-section (1) of Section 9 of the Act. Merely because the footprint area included India and ultimate consumers/viewers are watching the programmes in India, even when they are uplinked and relayed outside India, would not mean that the appellant is carrying out its business operations in India. No machinery or computer, etc. is installed by the appellant in India through which the programmes are reaching India. The process of amplifying and relaying the programmes is performed in the satellite which is not situated in the Indian airspace. The transpond ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... signal) cable, optic fibre, or by any other similar technology, whether or not such process is secret. Thus, apart from the relevance and applicability of Clause (iva) that the payment is for the use or right to use of the equipment the Tribunal held that payment for the bandwidth amounts to royalty for the use of the. process. The Tribunal also pointed out that out by reason of the long distance, to maintain the required speed, boosters are kept at periodical intervals. Going by this too, in any event, the payment received by the assessee was rightly assessed as 'royalty' and would constitute so for the purposes of DTAA. 15. Turning to the facts of the assessee's case the undisputed facts are that the payments in question was payable to the Intelsat is for user of transponder capacity by the assessee for telecasting/broadcasting of its various programmes on television channels including marketing and advertising airtime etc. The Hon'ble Delhi High Court in the case of Asia Satellite Communication Co. Ltd (supra} ousted the application of the term 'royalty' to the said transaction on the premise of territorial jurisdiction in-as-much as the said ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 41 While considering the DTAA the expression law in force would not only include a tax already covered by the treaty but would also include any other tax as taxes of a substantially similar character subsequent to the date of the agreement as set out in article 1(2). Considering the express language of article 1(2) it is not possible to accept the broad proposition urged on behalf of the assessee that the law would be the law as was applicable or as defined when the DTAA was entered into. The question however, would still remain, whether the income by wray of royalties other than those included in article 111(3) are subject to tax in India considering the DTAA when there is no PR .' 17. Thus it is clear that in the case of Siemens Akliengesellschaft (supra) it was found that the payment was not royalty as defined in the clauses of agreement and, therefore, it could not be taxed as royalty as per the provisions of the Act. The Hon'ble High Court though was of the view that if any term is not at all defined in the treaty then considering the express language of Article 1(2) of the Indo-German DTAA, the term defined in the act even by subsequent to the date o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rizon Communication (supra). Here we note that the aforesaid decision of Hon ble Madras High Court in Verizon Communication (supra) was also considered by Hon ble Delhi High Court in New Skies Satellite (supra), but the Delhi High Court chose to differ from Hon ble Madras High Court. The reference to the Hon ble jurisdictional High Court decision in the case of Smt.Godavari Devi Sarraf (supra) by the assessee s Counsel does not support the case of the assessee. In the said decision of Hon ble jurisdictional High Court, there was no issue of choosing a decision when Hon ble High Court s differ. 7.4 It is not the case here that the Hon ble Madras High Court decision in the case of Verizon (supra) is not relevant. The plea of the assessee s Counsel is that Hon ble Delhi High Court has differed from the same. This, in our considered opinion, cannot be a reason to differ from the Tribunal s decision in assessee s own case which has followed the Hon ble Madras High Court decision. Similar view was also expressed by this Tribunal in the case of Gartner Ireland Ltd. (supra). The contention of the learned Counsel of the assessee that there is no contrary decision of a High Court is not a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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