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2017 (8) TMI 1429 - AT - Income TaxTDS u/s 195 - holding that the payments of transponder fees by the Appellant to Intelsat Corporation, USA, ( Intelsat ) as taxable as royalty - India-USA Tax Treaty - Held that - As decided in assessee s own case 2014 (4) TMI 737 - ITAT MUMBAI the payments were made 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 application of the term royalty to the transaction on the premise of territorial jurisdiction in-as-much as the said process was not being used in India - Without doubt, the rights in or for the use of the process vesting in the assessee are located in India, where at the signals are downlinked as also uplinked from it has to be read in conjunction with Explanation below section 9(2), inserted on the statute by Finance Act, 2007 w.r.e.f 01.06.1976 The use of transponder by the assessee for telecasting/broadcasting the programme involves the transmission 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.
Issues Involved:
1. Taxability of transponder fees as 'royalty' under the Income-tax Act, 1961 and India-USA Tax Treaty. 2. Obligation to withhold tax under Section 195 of the Income-tax Act, 1961. Detailed Analysis: 1. Taxability of Transponder Fees as 'Royalty' under the Income-tax Act, 1961 and India-USA Tax Treaty The primary issue was whether payments made by the assessee to Intelsat Corporation for transponder services were taxable as 'royalty' under the Income-tax Act, 1961 and the India-USA Tax Treaty. The Assessing Officer (AO) held that these payments constituted 'royalty' under Section 9(1)(vi) of the Income-tax Act, 1961, as amended by the Finance Act, 2012, which included transmission by satellite as 'royalty'. The AO also referenced Explanation 6, which clarifies that 'process' includes transmission by satellite, thus classifying the payments as 'royalty' under both the Act and the India-USA Tax Treaty. The assessee contended that the transponder fees were not for the use of any copyright, patent, trademark, or similar property, and therefore, should not be classified as 'royalty'. They argued that the payments were for availing transponder facilities and not for the use of any 'process'. The assessee cited decisions from the Delhi High Court and Mumbai ITAT in similar cases that supported their position. The CIT(A) upheld the AO's decision, relying on the jurisdictional ITAT's previous ruling in the assessee's own case, which classified such payments as 'royalty'. The CIT(A) noted that the definition of 'royalty' under the India-USA Tax Treaty includes payments for the use of any 'process', and since the term 'process' was not defined in the treaty, it had to be interpreted as per the Income-tax Act, which includes satellite transmission. 2. Obligation to Withhold Tax under Section 195 of the Income-tax Act, 1961 The AO directed the assessee to withhold taxes on the payments made to Intelsat Corporation at the applicable rates for 'royalty' income to non-residents, as per the Income-tax Act. The assessee argued that since the payments were not 'royalty', there was no obligation to withhold tax under Section 195. The ITAT reviewed the submissions and noted that the Tribunal in the assessee's own case for previous assessment years had decided the issue in favor of the Revenue, classifying the payments as 'royalty'. The Tribunal also considered subsequent favorable decisions from the Delhi and Calcutta High Courts, which had ruled in favor of the assessee on similar issues. However, the Tribunal emphasized the principle of judicial consistency and decided to follow its previous rulings in the assessee's own case, which had not been overturned by a higher authority. The Tribunal acknowledged the assessee's reference to the Delhi High Court's decision in the case of New Skies Satellite BV, which differed from the Madras High Court's ruling in Verizon Communications Singapore Pte. Ltd. Despite this, the Tribunal chose to adhere to its earlier decisions, citing the need for consistency and the absence of a jurisdictional High Court ruling on the matter. Conclusion The ITAT upheld the CIT(A)'s order, confirming that the payments made by the assessee to Intelsat Corporation were taxable as 'royalty' under the Income-tax Act, 1961 and the India-USA Tax Treaty. Consequently, the assessee was obligated to withhold tax under Section 195 of the Act. The appeal filed by the assessee was dismissed, maintaining the classification of transponder fees as 'royalty' and the requirement to withhold tax.
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