2016 (8) TMI 553 - AT - Income Tax

Data/ signal transmission - receipt of signal/data which was retransmitted by the assessee-company in India - India-U. K. DTAA - P.E. in India - assessee engaged in providing satellite capacity through space segment and related services to the Indian customers - Held that - The assessee is maintaining an equipment in India through its associated enterprise for the purpose of testing quality of signal retransmitted in India. Therefore, this Tribunal is of the considered opinion that so long as the assessee is maintaining any equipment in India, it has to be construed that the assessee is rendering services in India. Now, the assessee claims that the equipment installed at Chandigarh and Chennai was dismantled from the year 2004. However, dismantling of machinery/ equipment installed at Chandigarh and Chennai is not brought on record by the authorities below. The assessee has to maintain the quality of signal which was retransmitted. If the quality of the signal/data is very poor then the recipient company may not accept the service as it was claimed before this Tribunal. Therefore, there is an obligation on the part of the assessee-company to maintain good quality of signal/data to be retransmitted so that Videsh Sanchar Nigam Ltd. or other companies which may redistribute the signal to their respective customers. Therefore, this Tribunal is of the considered opinion that it is obligation on the part of the assessee to maintain the quality of signal/data which was retransmitted. If the assessee-company dismantled the equipment/ machinery installed at Chandigarh and Chennai in the year 2004, it is not known how the assessee is testing the quality of signal retransmitted to India. The so-called earth station maintained by Videsh Sanchar Nigam Ltd. and other companies in India may be downlinking the signal/data from the satellite. The question arises for consideration is whether the earth station said to be maintained by Videsh Sanchar Nigam Ltd. and other companies could receive signal/data without any intervention by the assessee-company in India. This fact was not examined by both the authorities below. Further, how the signals were received in India without intervention of the assessee-company needs to be examined. This Tribunal is of the considered opinion that the technical experts from Videsh Sanchar Nigam Ltd. or very any other companies which entered into agreement with the assessee- company needs to be examined about the mode of receipt of signal/data which was retransmitted by the assessee-company in India. Since the Assessing Officer has not examined the technical experts, this Tribunal is of the considered opinion that to appreciate the real services rendered by the assessee, the matter needs to be reexamined by the Assessing Officer. Accordingly, the orders of the lower authorities are set aside and the entire issue is remitted back to the file of the Assessing Officer. The Assessing Officer shall reexamine the matter afresh after examining the technical experts from Videsh Sanchar Nigam Ltd. who is responsible for maintaining the earth station in India or any other companies which has entered into similar agreement with the assessee and bring on record the actual services rendered by the assessee consequent to the agreement said to be entered into telecasting companies/telecom operators and, thereafter, decide the issue in accordance with law after giving a reasonable opportunity to the assessee. - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Permanent Establishment (PE) in India
2. Attribution of Income to PE
3. Classification of Payments as "Royalty" or "Fee for Technical Services"
4. Levy of Interest under section 234B
5. Deduction of Tax at Source Rate

Detailed Analysis:

1. Permanent Establishment (PE) in India:
The primary issue was whether the assessee-company, incorporated in the UK and providing transponder capacity on a satellite, had a PE in India. The assessee argued that it had no PE in India as it did not provide services within India and its satellite was stationed in orbit. The equipment for downlinking signals was owned by Videsh Sanchar Nigam Ltd. (VSNL), and any machinery previously installed by an associated group company had been removed by 2004. The Tribunal noted that the assessee maintained equipment in Chandigarh and Chennai for testing signal quality, which indicated a service presence in India. Therefore, the Tribunal concluded that the assessee had a PE in India as long as it maintained equipment in the country.

2. Attribution of Income to PE:
The assessee contended that even if it had a business connection in India, only the income attributable to operations in India could be taxed. Citing judgments from the Supreme Court, the assessee argued that no portion of its income should be attributable to the group company's equipment in India. The Tribunal found that the equipment in Chandigarh and Chennai was used for testing signal quality, indicating that the assessee performed activities in India. The Tribunal remitted the issue back to the Assessing Officer to examine the extent of income attributable to the Indian operations and the dismantling of the equipment.

3. Classification of Payments as "Royalty" or "Fee for Technical Services":
The assessee argued that payments received could not be classified as "royalty" under the India-UK Double Taxation Avoidance Agreement (DTAA) and were not "fees for technical services" as defined by the Madras High Court. The Tribunal noted that the nature of the services provided by the assessee involved maintaining signal quality, which implied a technical service. However, the Tribunal remitted the issue back to the Assessing Officer to re-examine the actual services rendered and their classification under the DTAA.

4. Levy of Interest under section 234B:
The Revenue's appeal included the issue of interest levied under section 234B. The assessee claimed that such interest was not applicable. Since the main issue was remitted back to the Assessing Officer, the Tribunal also remitted the issue of interest under section 234B for reconsideration.

5. Deduction of Tax at Source Rate:
For the assessment years 2002-03 and 2003-04, the Revenue argued that tax should have been deducted at 15%, while the Commissioner of Income-tax (Appeals) had determined a 10% rate. The Tribunal noted that the main issue of services rendered was remitted back to the Assessing Officer, who was directed to reconsider the appropriate rate of tax deduction at source in accordance with the DTAA and the nature of the income.

Conclusion:
The Tribunal set aside the orders of the lower authorities and remitted the entire issues back to the Assessing Officer for a fresh examination. The Assessing Officer was instructed to re-examine the technical aspects of the services provided, the presence of equipment in India, and the classification of payments, and to decide the issues in accordance with the law after giving a reasonable opportunity to the assessee. All appeals by the assessee and the Revenue were allowed for statistical purposes.

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