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2018 (7) TMI 2248 - AT - Income TaxTDS u/s 195 - tax withholding on payments of transponder fees by the Appellant to Intelsat Corporation, USA, ('Intelsat'), are taxable as 'royalty' - India- USA Tax Treaty - HELD THAT - We note that the Hon ble Apex Court in the case of G. E. Technology Centre Pvt. Ltd. 2010 (9) TMI 7 - SUPREME COURT has held that where an amount is payable to a non-resident, the payer s obligations to deduct tax at source arises only when such remittances is a sum chargeable under the Act, i.e., chargeable u/s. 4, 5, 9 of the Act in the hands of the recipient. It has further been expounded that section 195(2) of the Act is not merely a provision to provide information to the ITO(TDS), so that the department can keep track of the remittances being made to non residents outside India, rather it gets attracted to the case where payment made in a composite manner which has an element of income chargeable to tax in India and the payer seeks determination of the appropriate proportion of such sum so chargeable . From the above case law it emerges that when in the hands of the nonresident recipient, the sum paid is not chargeable under the Act, there is no liability on the payer to deduct tax at source. Also in INTELSAT CORPORATION 2011 (8) TMI 1248 - DELHI HIGH COURT held income received from the activities undertaken by the respondent/assessee would not be exigible to tax in India. Similar payments received by the Intelsat Corporation USA have been held to be not chargeable to income tax in the hands of the same recipient - no liability fasten on the assessee to deduct tax at source on payments made to Intelsat Corporation USA. Hence, the additional grounds of the assessee deserve to be allowed. Accordingly, we hold that since the Hon ble High Court has held that the payment was not income chargeable to tax in the hands of the same recipient, there was as a corollary no liability on the part of the assessee (the payer) to deduct tax at source on the similar payment made to the same payee. Hence, the assessee succeeds on the additional ground.
Issues Involved:
1. Taxability of transponder fees paid by the appellant to Intelsat Corporation, USA, under the Income-tax Act, 1961, and the India-USA Tax Treaty. 2. Liability of the appellant to deduct tax at source under Section 195 of the Income Tax Act, 1961. 3. Consideration of additional grounds based on the Delhi High Court's judgment regarding the taxability of transponder fees. 4. Reference to decisions of other tribunals on similar issues. 5. Request for referral to a larger/special bench to resolve conflicting views. Issue-wise Detailed Analysis: 1. Taxability of Transponder Fees: The primary issue was whether the payments made by the appellant to Intelsat Corporation, USA, for transponder services were taxable as 'royalty' under the Income-tax Act, 1961, and the India-USA Tax Treaty. The assessing officer and the Commissioner of Income Tax (Appeals) had held these payments to be taxable as royalty, thus subject to tax withholding under Section 195 of the Act. The appellant argued that the transponder fees should not be considered taxable in India. 2. Liability to Deduct Tax at Source: The appellant contended that, according to the Hon'ble Delhi High Court's judgment, the transponder fees were not taxable in the hands of Intelsat Corporation, USA. Consequently, there should be no liability on the appellant to deduct tax at source under Section 195 of the Income Tax Act. The appellant cited the Supreme Court's decision in G. E. Technology Centre Pvt. Ltd. vs. CIT, which stated that the obligation to deduct tax at source arises only when the remittance is chargeable to tax in the hands of the recipient. 3. Additional Grounds: The appellant raised additional grounds, arguing that the transponder fees payable to Intelsat Corporation should not be taxable in India, based on the Delhi High Court's judgments in similar cases. The Tribunal admitted these additional grounds, emphasizing the importance of substantial justice and referencing several case laws, including the Supreme Court's decision in National Thermal Power Co. Ltd. v CIT. 4. Reference to Other Tribunal Decisions: The appellant referred to decisions of the Mumbai Tribunal in cases with identical facts and issues, such as Taj TV Ltd. and United Home Entertainment Pvt. Ltd., where similar payments were not considered taxable in India. The Tribunal acknowledged these references but ultimately focused on the Delhi High Court's judgments. 5. Request for Referral to a Larger/Special Bench: The appellant suggested that if the Tribunal decided to follow its previous decision in the appellant's own case, which conflicted with other tribunal decisions, the issue should be referred to a larger or special bench. However, this request became moot as the Tribunal decided the case based on the Delhi High Court's judgments and the Supreme Court's ruling in G. E. Technology Centre Pvt. Ltd. Conclusion: The Tribunal concluded that, based on the Delhi High Court's judgments and the Supreme Court's decision in G. E. Technology Centre Pvt. Ltd., the payments made to Intelsat Corporation, USA, were not chargeable to tax in the hands of the recipient. Consequently, there was no liability on the appellant to deduct tax at source under Section 195 of the Income Tax Act. The additional grounds raised by the appellant were allowed, and the other grounds became academic and otiose. All the appellant's appeals were allowed.
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