2019 (4) TMI 1426 - AT - Income Tax

Income accrued in India - Royalty receipts taxability in India - as per AO provision of satellite transmission services to its customers fall under the royalty definition as given in Section 9(1)(vi) and Article 12 of the India USA - Assessee qualifies as a tax resident of USA in terms of Article 4 of DTAA - HELD THAT - It is not the case of the revenue that any change of fundamental facts happened for these assessment year so as to distinguish the same from those of the earlier years. In the case of Asia Satellites 2011 (1) TMI 47 - DELHI HIGH COURT upheld the contention of the assessee and even subsequent to the amendment of Section 9(1)(vi) by the Finance Act, 2012 with retrospective effect by way of Finance Act, 2012, when the revenue filed the review petition, the Hon ble High Court dismissed the review petition also. Further, post retrospective amendment by way of Finance Act, 2012 in Section 9(1)(vi) in the case of New Skies Satellite 2016 (2) TMI 415 - DELHI HIGH COURT held that the condition with respect to taxability of satellite transmission services in India would remain the same for the DTAA and amendment to the Act with a retrospective or prospective cannot be read in a manner so as to extend the operation to the terms of international treaty. When the issue no longer remains res integra and there is no change in the fundamental facts permeating all these years, we are of the considered opinion, there would be no justification to take a different view from the consistent view taken for the earlier years. We, therefore, while respectfully following the above lines of decisions, held the issue in favour of the assessee and answer the issue stating that the income received by the assessee cannot be taxed as royalty in India.

Summary

Issues:
Taxability of receipts as royalty under Section 9(1)(vi)(c) of the Indo-US DTAA.

Analysis:
1. The assessee, a US tax resident, challenged the order bringing receipts as royalty in India under Section 9(1)(vi) of the Income-tax Act, 1961. The assessee leased transponders to customers in India and abroad for telecommunication purposes. The Assessing Officer (AO) held the receipts taxable as royalty under the Act and DTAA, citing OECD Commentary and PanAm Sat International Systems Inc. decision.

2. The AO attributed and taxed different portions of the total revenue from Indian and global customers. After DRP directions, ?91.31,21,598 was taxed under Section 9(1)(vi)(c) of the DTAA. The assessee contended that consistent Tribunal decisions favored them, citing Asia Satellites and New Skies Satellite BV cases.

3. The Tribunal upheld the assessee's contention, noting no change in fundamental facts. Previous High Court decisions held that post-amendment, satellite transmission services' taxability under DTAA remained unchanged. The Tribunal, following precedent, ruled in favor of the assessee, stating the income cannot be taxed as royalty in India.

4. The judgment aligns with the consistent view of the High Court and Tribunal on the taxability of satellite transmission services. The decision emphasizes the importance of precedent and the non-applicability of retrospective amendments to international treaties. Consequently, the appeal of the assessee was allowed, and the income was not taxed as royalty in India.