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2019 (10) TMI 910 - AT - Income TaxTDS u/s 195 - Payment for transponder charges - whether the payment made by the assessee amounts to royalty and liable to the provisions of TDS or not, and interpretation of provisions pertaining to Indo-US DTAA? - AO held that the assessee has failed to comply the provisions of TDS on the payment made to M/s Intelsat Corporation USA on account of payment of transponder charges for the satellite facility provided - HELD THAT - No disallowance u/s 40 (a) (i) can be made on account of programming cost paid to various non-residents and also payments made to PanAmSat and other non-residents. See NEW SKIES SATELLITE BV, SHIN SATELLITE PUBLIC CO. LTD. 2016 (2) TMI 415 - DELHI HIGH COURT and TAJ TV LTD., C/O. M/S. SURESH SURANA AND ASSOCIATES 2016 (12) TMI 1291 - ITAT MUMBAI - Decided against revenue.
Issues Involved:
1. Whether the payment made by the assessee for transponder charges amounts to royalty and is liable to the provisions of TDS. 2. Interpretation of provisions pertaining to the Indo-US DTAA. Detailed Analysis: Issue 1: Payment for Transponder Charges - Whether it amounts to Royalty and is liable to TDS Provisions The primary issue is whether the payment made by the assessee to M/s Intelsat Corporation USA for transponder charges qualifies as royalty under the Income Tax Act, 1961, and consequently, whether the assessee was required to deduct TDS on such payments. The Assessing Officer (AO) held that the payment for the use of transponder and uplinking facility on the satellite was covered under the definition of royalty as per the Income Tax Act. However, this issue was addressed by the Hon’ble Delhi High Court in DIT vs. New Skies Satellite BV, where it was held that: 1. When a term is defined within the DTAA, there is no need to refer to domestic laws, and amendments to domestic laws cannot alter the definition under the DTAA. 2. The court emphasized that the Parliament cannot unilaterally amend a treaty through domestic legislation. 3. The court also clarified that the term "process" in the context of the DTAA must be interpreted as a secret process, and payments for data transmission services do not constitute royalty. Additionally, the Hon’ble Court in Director of Income Tax vs. Nokia Networks rejected the applicability of amendments to domestic law on the interpretation of a Double Tax Avoidance Agreement (DTAA), reinforcing that such amendments cannot change the taxability under the DTAA. Issue 2: Interpretation of Provisions Pertaining to Indo-US DTAA The Coordinate Bench of ITAT, in the case of Taj TV Ltd., addressed a similar issue. The payments made for transponder and uplinking charges to PanAmSat International Systems Inc. USA were considered. The Revenue argued that these payments were taxable as royalty under section 9(1)(vi) of the Income Tax Act and Article 12(3)(b) of the Indo-US DTAA. However, the ITAT held that: 1. The definition of "royalty" under Article 12 of the Indo-US DTAA is exhaustive and should be interpreted independently of the domestic law definitions. 2. Payments for transponder charges do not fall under the definition of royalty as they do not involve the use of any copyright, patent, trademark, or industrial, commercial, or scientific equipment as defined in the DTAA. 3. The ITAT also emphasized that the amendments to the domestic law cannot be read into the treaty provisions unless the treaty itself is amended. The ITAT further cited the Hon’ble Delhi High Court's decision in DIT vs. New Skies Satellite BV, which clarified that amendments to the domestic law (Finance Act, 2012) do not affect the interpretation of Article 12 of the DTAA. Conclusion: Based on the above analysis, the ITAT concluded that the payments made by the assessee for transponder charges do not constitute royalty under the Indo-US DTAA. Consequently, the assessee was not required to deduct TDS on such payments. The appeal of the revenue was dismissed, and the order of the CIT(A) was upheld. Judgment: The present appeal by the revenue against the order of the CIT(A) dated 30.05.2016 was dismissed. The ITAT declined to interfere with the order of the CIT(A) based on the precedents set by the Hon’ble Delhi High Court and the Coordinate Bench of ITAT, Mumbai. The appeal was pronounced dismissed in the open court on 14/10/2019.
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