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2023 (10) TMI 618 - AT - Income TaxCharacterization of income earned by the assessee - Income accrued in India - royalty receipt - assessee derived income from transmitting of satellite signals from ship to the customers and vice versa - For provision of such services assessee purchased airtime on the satellite from Inmarsat Global Ltd., which is the group concern of the assessee and owns the satellite and is based in UK. Assessee is a tax resident of Netherland and is eligible to claim treaty benefit as per Indo Netherland DTAA - assessee claimed that in the absence of a permanent establishment in India the income is not chargeable to tax in India HELD THAT - As decided in assessee own case 2018 (12) TMI 1321 - ITAT MUMBAI Amounts received by the assessee for the use of transponder of tele-communication service charges are not royalty u/s 9(1)(vi) of the Act and also under Article 12(8) of Indo Netherland DTAA. Scope of amendment - As decided in New Skies Satellite BV 2016 (2) TMI 415 - DELHI HIGH COURT held 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 supra note that such income automatically becomes royalty. It is reiterated that the Court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no Double Tax Avoidance Agreement.
Issues Involved:
1. Characterization of income earned by the assessee. 2. Existence or otherwise of a Permanent Establishment (PE) in India. 3. Levying of interest under section 234A of the Act. 4. Levying of excess interest under section 234B of the Act. 5. Initiation of penalty under section 270A of the Act. Summary: Characterization of Income Earned by the Assessee: The primary issue was whether the amounts received by the assessee for providing satellite telecommunication services should be characterized as 'royalty' under Section 9(1)(vi) of the Income Tax Act and Article 12(8) of the Indo-Netherland DTAA. The Tribunal found that the issue is covered by the decisions of the Hon'ble Delhi High Court in the cases of DIT Vs. New Skies Satellite and Asia Satellite Communication Co. Ltd., which held that such amounts are not in the nature of royalty. The Tribunal also noted that the Department's appeals against these decisions are pending before the Hon'ble Supreme Court. The Tribunal followed its earlier decisions and held that the amounts received by the assessee are not royalty and are, therefore, not taxable in India in the absence of a Permanent Establishment (PE). Existence or Otherwise of a Permanent Establishment (PE) in India: The assessee, a tax resident of the Netherlands, claimed that it did not have a PE in India and thus, its income should not be taxable in India. The Tribunal noted that the assessee provided telecommunication services from outside India and did not have any assets or employees in India. The Tribunal found that the facts and circumstances in this year remain the same as in the past years, where it was held that the assessee did not have a PE in India. Levying of Interest under Section 234A of the Act: The assessee challenged the levy of interest under Section 234A of the Act. The Tribunal restored this ground to the file of the Assessing Officer to decide in accordance with law after providing adequate opportunity of being heard to the assessee. Levying of Excess Interest under Section 234B of the Act: The assessee also challenged the levy of excess interest under Section 234B of the Act. This ground was similarly restored to the file of the Assessing Officer to decide in accordance with law after providing adequate opportunity of being heard to the assessee. Initiation of Penalty under Section 270A of the Act: The assessee challenged the initiation of penalty under Section 270A of the Act. The Tribunal found this ground to be premature and dismissed it. Conclusion: The appeal of the assessee was partly allowed. The Tribunal held that the amounts received by the assessee for providing satellite telecommunication services are not royalty and are not taxable in India in the absence of a PE. The issues related to the levy of interest under Sections 234A and 234B were restored to the Assessing Officer, while the challenge to the initiation of penalty under Section 270A was dismissed as premature.
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