9911796707
TMI Blog2023 (7) TMI 1164X X X X Extracts X X X X X X X X Extracts X X X X ..... 20, 65/2020, 66/2020 are directed against the common order dated November 28, 2019 in IT(IT)A Nos. 1160-1161/Bang/2015 and 2818/Bang/2017 for A.Y. [Assessment Years] 2013-14 to 2015-16 passed by the ITAT [Income Tax Appellate Tribunal], have been admitted to consider following questions of law: 1. Whether the Income-Tax Appellate Tribunal (ITAT) was correct in holding that the application of the Double Taxation Avoidance Agreement (DTAA) cannot be considered in proceedings under Section 201 of the Act and that it is not open to the payer to take benefit of the DTAA when he is making payment to a non- resident? 2. Whether the ITAT was correct in holding that amendment to provisions of royalty under Section 9(1)(vi) by inserting Explanation 5 and 6 under the Income-tax Act (hereinafter referred to as the 'Act') will also result in amendment of the DTAAS? 3. Whether ITAT was correct in holding that payments made to non-resident telecom operators for providing interconnect services and transfer of capacity in foreign countries is chargeable to tax as royalty in view of the inclusion of the terms "right" & "process" in the clarificatory Explanation 2, 5 and 6 of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Right to Use]. In pursuance to the EIG agreement, Omantel had transferred certain portion of its capacity in the EIG cable system to Belgacom and in turn, Belgacom had transferred a portion of its capacity to the assessee for consideration. 5. The AO [Assessing Officer] issued a notice stating that the payments made by assessee to NTOs and Belgacom for the A.Y. 2008-09 to 2015-16 were made without deducting TDS [Tax Deducted at Source] under Section 195 of the Income Tax Act 1961 and assessee was liable to be treated as 'defaulter' under Section 201 of the Act. Assessee sent its reply explaining that the NTOs are located outside India and they provide telecom services outside India. Hence, it was not necessary to deduct TDS in India. 6. The AO passed an assessment order dated January 28, 2013 holding assessee as 'defaulter' for failure to deduct TDS while making payments to the NTOs and Belgacom. The AO also held that payments made to NTOs for provision of bandwidth and IUC [Inter- connectivity Usage Charges] are taxable under the head 'other income' and treated the same as Royalty/FTS[Fee for Technical Services]. 7. Assessee challenged AO's order before the CIT(A) [Commissioner ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of, or for the right to use certain intellectual property, firstly, the grantor of that right should be denuded from that property and it should vest completely with the recipient and secondly, the possession, dominion and control over such property should be fully granted to the user. The amendment brought by the Finance Act, 2012 by insertion of Explanation 5 seeks to do away with the second condition but the first condition remains unchanged; * the NTOs have not denuded themselves of utilising the process. The payment made by assessee to the NTOs is not the payment for the use or the right to use process or the equipment as alleged by the Revenue, as held by the judgment of the Delhi High Court in Asia Satellite Telecommunications Company Limited Vs. Director of Income Tax [2011] 238 CTR 0233 and Director of Income Tax Vs. New Skies Satellite BV [2016] 133 DTR 0185 (Del). Re: Question No. 4 as follows: * the NTOs have no presence of any nature in India. The AO has observed that no part of the telecom network of the NTOs is located in India. Hence in the absence of any permanent establishment of NTOs in the country, the income is not taxable in India. Re: Questio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hargeable to tax; * the characterisation of a certain receipt, whether it is in the nature of Royalty or not, is a mixed question of law and fact and the onus in this regard cannot be discharged by placing reliance on authorities. Re: Question No. 2: * the payments made by assessee to the NTOs for international carriage and connectivity as well as to Belgacom for utilization of under-sea cable system, qualify as royalty under Clauses (i), (ii) and (iii) of Explanation 2 to Section 9(i)(vi) of the Act. This proposition gets reinforced by the clarificatory amendment made retrospectively by insertion of Explanation 6 to Section 9(1)(vi)of the Act. However, with or without this amendment, the payments of this nature are always qualified as Royalty; * the authorities below have recorded a concurrent finding that the payments were chargeable to tax in India as Royalty. This finding is based on agreements between assessee and payees, opinion of experts in the field of telecommunication and provisions governing Royalty in the Act and the DTAA; * the definition of royalty under the DTAA entered into with various countries is in consonance with the Act; * assessee's content ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trospective amendments to Section 9 of the Act by insertion of Explanation 6 does not affect the definition of Royalty; * Engineering Analysis was rendered in the context of Section 14 of the Copyright Act, 1957 whereas the submarine cable system and the telecom network falls under the Patents Act, 1970; * assessee's contention with regard to impossibility of performance to deduct tax, is untenable for more than one reason. Firstly because even without the clarificatory amendment, the transaction was taxable as Royalty. Secondly because the show cause notice [September 2011] was issued by the AO prior to the amendment coming into force. Thirdly, there are judicial precedents prior to the amendment which lay down that such transactions amounted to Royalty and chargeable to tax in India both under the domestic law and Treaty. 11. In support of his contentions, Shri. Shrivastsava has placed reliance upon following authorities: * Verizone Communications Singapore Pte. Ltd. Vs. Income Tax Officer, International Taxation-1 2013 SCC Online Mad 3316 (para no. 100); * CIT, Delhi Vs. Bharti Cellular C.A. No. 6691/2010. 12. We have carefully considered the rival contentions and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that an assessee is entitled to take the benefit under a DTAA between two countries. Hence, the ITAT's view that DTAA cannot be considered in proceedings under Section 201 of the Act is tenable. 19. The second question for consideration is whether the ITAT was correct in holding that the amendment to provisions of Section 9(1)(vi) inserting the Explanations will result in amendment of DTAA. The answer to this question must be in the negative because in Engineering Analysis, the Apex Court has held that Explanation 4 to Section 9(1)(vi) of the Act is not clarificatory of the position as on 01.06.1976 and in fact expands that position to include what is stated therein vide Finance Act, 2012. 20. The Explanation 5 and 6 to Section 9(1)(vi) of the Act has been inserted with effect from 01.06.1976. This aspect has also been considered in Engineering Analysis holding that the question has been answered by two Latin Maxims, lex no cogit ad impossibilia i.e. the law does not demand the impossible, and impotentia excusat legem i.e. when there is disability that makes it impossible to obey the law, the alleged disobedience of law is excused and it is held in Engineering Analysis as follo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
