2016 (11) TMI 1528 - AT - Income Tax

Income accrued in India - Addition of royalty - amount paid to M/s Intelsat Inter Corporation, USA under the transponder service agreement for the transponder service charges paid by the assessee to Intelsat under the said agreement - according to the assessee, it was neither royalty nor Fee for Technical Services (FTS) - tds liability - Held that - Hon ble Delhi High Court in the case of payee, viz. M/s Intelsat Corporation, USA 2011 (8) TMI 1248 - DELHI HIGH COURT has categorically held that payment received by Intelsat Corporation is not taxable in India under the provisions of Indo US DTAA. Thus, in the case of payee, it has been categorically held that said payment is not taxable, then the assessee is not obliged to deduct TDS, therefore, the impugned proceedings u/s 195 deserves to be quashed. Thus, after taking into account all the facts and circumstances of the case, we find that the issue stands squarely covered by the decision of the Mumbai Bench of the Tribunal in assessee s own case and, therefore, the issue raised in the appeal before us stands allowed in terms of earlier order of the Tribunal which shall apply mutatis mutandis on the issue raised in this appeal before us. Accordingly we hold that the assessee was not liable to deduct tax at source. - Decided in favour of assessee. Interest u/s 244A on refund of extra TDS deposit u/s 195 - Held that - This issue has been sent by the Tribunal in its aforesaid order back to the file of the AO to be decided after considering latest CBDT circular No.11 of 2016 dated 26th April, 2016. Thus, we direct the AO to follow earlier order of the Tribunal on this issue. This issue should be decided afresh by the AO accordingly.

Issues Involved:
1. Condonation of delay in filing the appeal before CIT(A).
2. Tax deduction at source (TDS) on payments to Intelsat Global Sales and Marketing Limited under the Transponder Service Agreement.
3. Classification of transponder service charges as royalty under the Double Taxation Avoidance Agreement (DTAA) between India and the UK.
4. Existence of a business connection in India for Intelsat.
5. Source of income for Intelsat through the uplink station in India.
6. Applicability of the Delhi High Court judgment regarding Intelsat's taxability in India.
7. Entitlement to interest under Section 244A of the Income Tax Act on TDS refunds.

Detailed Analysis:

1. Condonation of Delay:
The Tribunal considered the reasons for the delay in filing the appeal before the CIT(A). The appellant attributed the delay to the restructuring within the Disney India Group and the additional workload on the centralized tax function. The Tribunal found the reasons to be genuine and supported by documentary evidence, including an affidavit from the Senior Manager, Taxation. The Tribunal noted that the delay was inadvertent and not intentional, thus granting the condonation of delay.

2. TDS on Payments to Intelsat:
The main issue was whether the payments made to Intelsat under the Transponder Service Agreement were subject to TDS. The Tribunal referred to its earlier decision, which had ruled in favor of the assessee, stating that such payments were not taxable in India under the Indo-US DTAA. The Tribunal reiterated that since the Delhi High Court had held that payments to Intelsat were not taxable in India, the assessee was not obligated to deduct TDS.

3. Classification of Transponder Service Charges as Royalty:
The Tribunal examined whether the transponder service charges constituted royalty under the DTAA between India and the UK. It referred to the definition of royalty under Article 12 of the DTAA and concluded that the payments did not fall within this definition. The Tribunal emphasized that the definition of royalty in the DTAA should not be influenced by amendments to the domestic law, thus rejecting the Revenue's contention that the payments were royalty.

4. Business Connection in India:
The CIT(A) had held that Intelsat had a business connection in India through the uplink station in Parel. The Tribunal disagreed, noting that the Delhi High Court had already addressed this issue, concluding that Intelsat did not have a business connection in India. The Tribunal found no merit in the CIT(A)'s finding and rejected it.

5. Source of Income for Intelsat:
The CIT(A) had also held that the uplink station in India was the source of income for Intelsat. The Tribunal referred to the Delhi High Court's observation that Intelsat's income from leasing transponder capacity was not taxable in India. The Tribunal concluded that the CIT(A)'s finding was incorrect and not supported by the facts.

6. Applicability of Delhi High Court Judgment:
The Tribunal emphasized that the Delhi High Court's judgment in favor of Intelsat was binding and applicable to the present case. Since the High Court had ruled that payments to Intelsat were not taxable in India, the Tribunal held that the assessee was not required to deduct TDS on such payments.

7. Interest under Section 244A:
The Tribunal addressed the issue of interest on TDS refunds under Section 244A. It referred to its earlier order, which had directed the AO to decide the issue afresh in light of the latest CBDT circular. The Tribunal reiterated this direction, allowing the ground for statistical purposes.

Conclusion:
The Tribunal allowed the appeals, granting condonation of delay, ruling that the payments to Intelsat were not subject to TDS, and rejecting the CIT(A)'s findings on business connection and source of income. The issue of interest under Section 244A was remanded to the AO for fresh consideration. The Tribunal's order applied to all the consolidated appeals, following the same reasoning and conclusions.

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