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2018 (11) TMI 591 - AT - Income TaxTDS u/s 195 - payment for use of transponder space as Royalty u/s 9(1)(vi) - India US DTAA - income accrued in India - P.E. in India - Held that - Since facts are identical and it is undisputed that the payment is not taxable in the hands of the recipient. Respectfully following the precedent of the Hon ble Apex Court in the case of G. E. Technology Centre Pvt. Ltd. (2010 (9) TMI 7 - SUPREME COURT OF INDIA) we are of the considered opinion that when this income is not chargeable to tax in the hands of the recipient, no liability is there on the assessee to deduct tax at source. Accordingly, in the background of the aforesaid discussion and precedent, we set aside the orders of the authorities below and decide the issue in favour of the assessee.
Issues Involved:
1. Transponder Charges: Classification as Royalty under Section 9(1)(vi) and applicability of Section 195. 2. Retrospective Amendment to Section 9 and its applicability. 3. Compliance with CA Certificate as per Rule 37BB and previous appellate decisions. 4. Nature of Payment: Acquisition of rights or use of equipment. 5. Effective Control and Use of Transponder. Detailed Analysis: 1. Transponder Charges: Classification as Royalty under Section 9(1)(vi) and Applicability of Section 195: The primary issue concerns whether the payment for the use of transponder space qualifies as "Royalty" under Section 9(1)(vi) of the Income Tax Act and Article 12 of the India-US DTAA. The Assessing Officer (AO) determined that the payment for transponder space constitutes royalty, necessitating tax deduction at source (TDS) under Section 195. The AO's stance was supported by the retrospective amendment to Section 9, which included a definition of "process," thus classifying the payment as royalty. The assessee contested this, citing earlier ITAT judgments and the lack of a direct definition of "process" in the treaty. 2. Retrospective Amendment to Section 9 and Its Applicability: The AO applied the retrospective amendment made by the Finance Act, 2012, to Section 9, which defined "process" and hence treated the payment as royalty. The assessee argued that the amendment should not affect the benefit claimed under the DTAA, as there was no change in the treaty with the USA. The AO, however, held that the amendment was applicable, making the payment liable to be taxed as royalty. 3. Compliance with CA Certificate as per Rule 37BB and Previous Appellate Decisions: The assessee relied on a CA certificate (Form 15CB) and previous appellate decisions, which stated that payments made for the use of transponder space to Intelsat Corporation were not taxable in India. The AO dismissed this reliance, stating that the retrospective amendment to Section 9 overruled these precedents. Additionally, the AO noted the assessee's non-compliance with requests for specific documentation, which weakened their position. 4. Nature of Payment: Acquisition of Rights or Use of Equipment: The AO concluded that the payment for transponder space constituted royalty because it involved the use or right to use a process, as defined under the amended Section 9(1)(vi). The assessee contended that the payment did not represent acquiring rights or using any industrial, commercial, or scientific equipment, and thus should not be classified as royalty. The AO's interpretation was that the transponder's role in amplifying and relaying signals constituted a process, thereby making the payment taxable as royalty. 5. Effective Control and Use of Transponder: The AO emphasized that ZEE had effective control and use of the transponder to the extent of the capacity assigned, which involved a series of actions constituting a process. This control and use led to the conclusion that the payment was for a process, hence classified as royalty. The assessee argued that the control of the satellite remained with Intelsat, and the payment was merely for the use of transponder space, not for any process or equipment. Judgment: The Tribunal, after considering the arguments, referenced the Hon'ble Delhi High Court's decision, which held that similar payments to Intelsat Corporation were not taxable in India. The Tribunal noted that as per the Supreme Court's decision in G.E. Technology Centre Pvt. Ltd. vs. CIT, there is no obligation to deduct TDS if the income is not chargeable to tax in the hands of the recipient. Consequently, the Tribunal ruled in favor of the assessee, stating that since the payment was not taxable in the hands of Intelsat Corporation, the assessee had no liability to deduct tax at source. Conclusion: The Tribunal set aside the orders of the lower authorities and decided the issue in favor of the assessee, concluding that the payment for transponder space was not taxable as royalty and thus did not require TDS deduction. The other grounds of appeal were deemed academic and not addressed. The appeal by the assessee was allowed.
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