2016 (9) TMI 215 - HC - Income Tax

Royalty payment - whether the payments made by the assessee to the foreign company, Shin Satellite Company of Thailand, are in the nature of the royalty within the meaning of Article 12(3) of the DTTA between India and Thailand? - Held that - What is important is the permission to take the benefit of a copyright either in the film or in the television broadcasting. In case, the assessee had paid any amount in consideration of exploitation of any copyright of the foreign party, the payment in that case would have taken the character of royalty. But payment was made because the television programmes produced by the assessee were digitally broadcast through the satellite of the foreign party. The foreign party appears to be in the business of broadcasting television programmes through its satellite. The assessee who is a producer of the tele-programmes provides the contents in the form of tapes. The foreign party broadcasts the contents through its satellite and in lieu of such broadcasting, foreign party was paid various sums from time to time. We are, as such, unable to agree with Mr.Agarwal that the payment made by the assessee partakes the character of royalty. - Decided in favour of assessee

Summary

Issues:
1. Tax effect below ?20 lakhs - Circular issued by CBDT.
2. Appeal against judgment of Income Tax Appellate Tribunal.
3. Interpretation of payments made to a foreign company under the Double Taxation Agreement between India and Thailand.

Issue 1: Tax effect below ?20 lakhs - Circular issued by CBDT

The High Court of Calcutta considered the argument raised by the Senior Advocate for the assessee regarding the tax effect being below ?20 lakhs, citing a circular issued by the CBDT. The revenue, represented by another advocate, contended that the tax effect exceeded ?20 lakhs, justifying the appeal to be pressed. The Court refrained from deciding the tax effect issue due to its complexity and the lack of a corresponding right for the assessee under the circular to dismiss the appeal. The Court proceeded with the matter, setting aside the dispute over the tax effect.

Issue 2: Appeal against judgment of Income Tax Appellate Tribunal

The appeal was filed against a judgment and order passed by the Income Tax Appellate Tribunal related to the assessment years 2001-02, 2002-03, and 2003-04. The Tribunal had dismissed the appeals by the revenue, leading to the dismissal of cross-objections as well. The revenue, being aggrieved, approached the High Court, raising specific questions for consideration related to the nature of payments made by the assessee to a foreign company under the Double Taxation Agreement between India and Thailand.

Issue 3: Interpretation of payments under the Double Taxation Agreement

The case involved payments made by the assessee to a foreign company for hiring a transponder to transmit TV programs through satellite. The revenue contended that the payments constituted royalty under the agreement between India and Thailand. However, the CIT(A) and the Tribunal disagreed, holding that the payments did not qualify as royalty. The Tribunal rejected the argument that the payments were for the use of industrial, commercial, or scientific equipment, emphasizing that the agreement was for a service rather than equipment use. The High Court concurred with this view, stating that the payments were not for the exploitation of copyright but for broadcasting television programs through the foreign company's satellite. The Court referred to precedents and upheld the decision that the payments did not amount to royalty under the agreement, ultimately dismissing the appeal filed by the revenue.

This detailed analysis of the judgment from the High Court of Calcutta covers the issues related to the tax effect, the appeal against the Tribunal's judgment, and the interpretation of payments under the Double Taxation Agreement between India and Thailand.