2022 (5) TMI 1339 - AT - Income Tax

TDS u/s 195 - withhold tax on payment to non-resident companies - payments made to Intelsat Corporation, USA/IGSM, UK/MEASAT, Malaysia for transponder charges - whether payment did not constitute royalty u/s 9(1)(vi) of the Act or under the relevant DTAA? - CIT(A) has deleted the addition - HELD THAT - As decided in own case 2018 (7) TMI 2248 - ITAT MUMBAI since no income was chargeable in the hands of the recipient, there was no liability on the part of the assessee to deduct tax at source on the similar payments for transponder facility. Further, the Ld. CIT(A) has followed binding precedents of jurisdictional High Court in the case of New Sports Broadcast Put Ltd 2019 (6) TMI 250 - BOMBAY HIGH COURT wherein it is held that transponder charges are not in the nature of 'Royalty income in the hands of recipients despite amendment to section 9(1) (vi) of the Act. In view of binding precedent of the Tribunal and Hon'ble High Court followed by the Ld. CIT(A) in respective impugned orders, we do not find any error or infirmity in the impugned orders passed by the Ld. CIT(A) on the issue in dispute relevant to the orders of Assessing Officer u/s 195(2) of the Act. Accordingly, we uphold the finding of the Ld. CIT(A) in impugned orders. Grounds raised by the Revenue in these appeals are accordingly dismissed

Issues Involved:
1. Whether the payments made by the assessee to non-resident companies for transponder services constitute "royalty" under Section 9(1)(vi) of the Income Tax Act and relevant Double Taxation Avoidance Agreements (DTAAs).
2. Whether the term "process" used in the definition of "royalty" in the DTAAs should be interpreted based on the domestic law of India.
3. Whether Explanation 6 to Section 9(1)(vi) of the Income Tax Act, inserted by the Finance Act, 2012, applies retrospectively and affects the interpretation of "royalty" in the context of international treaties.

Detailed Analysis:

1. Definition of "Royalty" and Payments for Transponder Services:
The primary issue was whether the payments made by the assessee to Intelsat Corporation, USA, Intelsat Global Sales and Marketing, UK, and MEASAT Satellite System, Malaysia for transponder services should be classified as "royalty" under Section 9(1)(vi) of the Income Tax Act and the relevant DTAAs. The Assessing Officer (A.O) held that these payments constituted royalty, as they involved the use of a "process" (transmission by satellite), which falls under the definition of royalty as per Explanation 6 to Section 9(1)(vi). Consequently, the A.O directed the assessee to withhold tax on these payments.

2. Interpretation of "Process" in DTAAs:
The A.O argued that since the term "process" is not defined in the relevant DTAAs, its meaning should be derived from the domestic law of India. The A.O relied on Explanation 6 to Section 9(1)(vi), which includes transmission by satellite within the scope of "process," thus classifying the payments as royalty.

3. Applicability of Explanation 6 and Retrospective Effect:
The assessee contended that the payments did not constitute royalty under the DTAAs and cited the decisions of the Hon'ble Bombay High Court in Neo Sports Broadcast Pvt. Ltd. and the Hon'ble Delhi High Court in Asia Satellite Communication Company Ltd. and Skies Satellite BV. These judgments held that transponder charges paid to non-residents are not taxable as royalty, even considering the amendment to Section 9(1)(vi). The courts emphasized that amendments to domestic law cannot retrospectively alter the terms of an international treaty without amending the treaty itself.

CIT(A) Decision:
The Commissioner of Income Tax (Appeals) [CIT(A)] followed the precedents set by the Bombay High Court and Delhi High Court, concluding that the transponder charges paid by the assessee were not taxable as royalty in India. The CIT(A) noted that the High Courts had considered the amendment to Section 9(1)(vi) and held that such amendments could not affect the interpretation of international treaties.

ITAT Decision:
The Income Tax Appellate Tribunal (ITAT) upheld the CIT(A)'s decision, reiterating that the payments for transponder services did not constitute royalty under the relevant DTAAs. The ITAT emphasized the binding precedents of the Bombay High Court and Delhi High Court, which had already ruled on similar issues. The ITAT dismissed the revenue's appeals, stating that the transponder charges paid by the assessee to the non-resident entities were not subject to withholding tax in India.

Conclusion:
The ITAT concluded that the payments made by the assessee for transponder services to Intelsat Corporation, USA, Intelsat Global Sales and Marketing, UK, and MEASAT Satellite System, Malaysia did not constitute royalty under Section 9(1)(vi) of the Income Tax Act or the relevant DTAAs. The tribunal upheld the CIT(A)'s decision, which was based on the binding precedents of the Bombay High Court and Delhi High Court. The appeals filed by the revenue were dismissed, and the assessee was not required to withhold tax on the payments for transponder services.

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