2022 (2) TMI 1239 - AT - Income Tax

TDS u/s 195 - withholding of tax - payment of transponder service fees - nil withholding tax certificate on the payment of transponder services made to the service provider - AO rejected the application of the assessee holding that payment falls under the definition of Royalty both under the provisions of the Act as well as under DTAA between India and relevant country - HELD THAT - Identical payments made for transponder services has been in M/S VIACOM18 MEDIA PRIVATE LIMITED 2022 (1) TMI 939 - ITAT MUMBAI as not liable for withholding tax. - Decided against revenue.

Summary

Issues:
Applicability of withholding tax on transponder service fees paid by the assessee under section 195 of the Income Tax Act, 1961.

Detailed Analysis:

1. Issue 1: Applicability of withholding tax under section 195 of the Act
The Revenue appealed against the orders of the Ld. CIT(A) regarding the withholding tax on transponder service fees paid by the assessee. The Assessing Officer held the payments as 'royalty' under the Act and directed tax withholding. However, the Ld. CIT(A) followed the decision of the Hon'ble Bombay High Court, stating that transponder charges to non-residents are not taxable as 'royalty.' The Ld. CIT(A) also considered the relevant Double Taxation Avoidance Agreement (DTAA) provisions and concluded that the payments were not taxable in India. The Revenue contended that the term 'process' includes transmission by satellite, making the payments royalty. The assessee cited Tribunal decisions where similar payments were not subject to withholding tax.

2. Issue 2: Interpretation of 'process' and 'royalty'
The Assessing Officer relied on the Finance Act 2012, which included 'process' in the definition of 'royalty.' The Ld. CIT(A) and the Tribunal considered various judgments, including those of the Hon'ble Bombay and Delhi High Courts, to determine that transponder charges did not constitute 'royalty income.' The Tribunal upheld the Ld. CIT(A)'s findings, emphasizing that no tax deduction was required on such payments.

3. Issue 3: DTAA provisions and tax liability
The Revenue argued that DTAA provisions should align with domestic law definitions, making transponder services payments taxable. However, the Ld. CIT(A) and the Tribunal, following precedent, held that the payments were not royalty income and thus not subject to withholding tax. The Tribunal dismissed the Revenue's grounds, upholding the Ld. CIT(A)'s decision.

In conclusion, the Tribunal dismissed the Revenue's appeals, affirming that the transponder service fees paid by the assessee were not liable for withholding tax as they did not constitute 'royalty income' under the Act or relevant DTAA provisions. The decision was based on established legal interpretations and precedents, emphasizing that the term 'process' did not encompass the payments made by the assessee.