2023 (2) TMI 921 - AT - Income Tax

Income deemed to accrue or arise in India - Royalty receipt - payment received by the Assessee from the customers is on account of use of process involved in the transponders and its amounts to royalty within the meaning of section 9(l)(vi) and also amounts to royalty within the meaning of respective articles of DTAA - income earned by the assessee from providing digital broadcasting services through its transponders to customers in India was not taxable in India under the relevant DTAA - HELD THAT - The issue with regard to functions performed by transponders could not be categorized as process stands settled. As in case of Director of Income Tax Vs. New Skies Satellite 2016 (2) TMI 415 - DELHI HIGH COURT settled the controversy holding that all that the customers gets through the agreement with the Assessee is mere access to a broadband width available in the transponder. The control over the parts of the satellite and naturally transponder remains with the Assessee. At no point does the Assessee cede control over the satellite to the customers. Logically therefore, since the transponder is a part of satellite that cannot be severed from it, there can be no independent control of the transponders without control of the satellite itself. As concluded by HC that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word royalty in Asia Satellite 2011 (1) TMI 47 - DELHI HIGH COURT , when the definitions were in fact pari materia (in the absence of any contouring explanations), will continue to hold the field for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amended jointly by both parties to incorporate income from data transmission services as partaking of the nature of royalty, or amend the definition in a manner so that such income automatically becomes royalty. Appeal of the revenue is dismissed.

Summary

Issues Involved:
1. Interpretation of the term 'Royalty' under the Income Tax Act and Double Tax Avoidance Agreement (DTAA).
2. Taxability of income earned by the assessee from providing digital broadcasting services through its transponders to customers in India under the relevant DTAA.

Analysis:

Issue 1: Interpretation of the term 'Royalty'
The appeal before the Appellate Tribunal ITAT Delhi involved the interpretation of the term 'Royalty' under the Income Tax Act and the Double Tax Avoidance Agreement (DTAA). The Revenue challenged the order of the Ld. Commissioner of Income Tax (Appeals) regarding the taxability of receipts earned by the Assessee from providing data transmission services. The Revenue contended that the Finance Act 2012 did not affect Article 12 of the DTAA and that the interpretation of the term 'Royalty' given by the Hon'ble Delhi High Court in a previous case should continue to hold. The Tribunal referred to a judgment by the Hon'ble Delhi High Court in another case which clarified that the functions performed by transponders could not be categorized as a 'process.' The Court held that the customers only received access to broadband width available in the transponder, and the control over the satellite and transponder remained with the Assessee. Consequently, the Tribunal upheld the decision of the Ld. Commissioner of Income Tax (Appeals) and dismissed the appeal of the Revenue.

Issue 2: Taxability of Income from Digital Broadcasting Services
The second issue in the appeal was the taxability of income earned by the Assessee from providing digital broadcasting services through its transponders to customers in India under the relevant DTAA. The Revenue argued that the income should be taxable in India under the DTAA. However, the Tribunal, following the precedent set by the Hon'ble Delhi High Court, concluded that the income earned by the Assessee did not fall within the definition of 'Royalty' under the DTAA. The Tribunal emphasized that the control over the satellite and transponder remained with the Assessee, and customers only received access to the broadband width. Therefore, the Tribunal upheld the decision of the Ld. Commissioner of Income Tax (Appeals) and dismissed the appeal of the Revenue.

In conclusion, the Appellate Tribunal ITAT Delhi affirmed the decision of the Ld. Commissioner of Income Tax (Appeals) regarding the taxability of receipts earned by the Assessee from providing data transmission services and providing digital broadcasting services through its transponders to customers in India under the relevant DTAA. The Tribunal held that the functions performed by the transponders did not constitute a 'process,' and the income earned did not fall within the definition of 'Royalty' under the DTAA.