9911796707
TMI Blog2009 (10) TMI 69X X X X Extracts X X X X X X X X Extracts X X X X ..... dance with provisions of the Income-tax Act read with relevant provisions of Tax treaties with respective countries." 2. In the application it was submitted that reference to Special Bench is sought because there are conflicting decisions of ITAT in the case of Asia Satellite Telecommunications Co. Ltd. v. Dy. CIT [2003] 85 ITD 478 (Delhi) (for short "Asia Sat") and in the case of Dy. CIT v. Pan AmSat International Systems Inc. [2006] 9 SOT 100 (Delhi) (for short "Pan AmSat"). It was further submitted in the application that the decision of the Tribunal in their two cases are inherently inconsistent and contrary to each other and the transactions involve huge revenue implications. The issue being of all India importance affecting all the satellite and telecommunication cases, Special Bench should be constituted to decide the substantial question of law involved. Hon'ble President on the said application of the revenue has passed order dated 18th December, 2006, according to which the matter was to be placed before the regular Bench to consider the various contentions raised in the said application filed by the revenue. The Bench was asked to hear elaborate arguments of both th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a separate order dated 12-10-2009 has been passed and it has been held that there is no need for remodulation of questions as sought for by the revenue. 5. Before proceeding further, it will be relevant to mention the common facts involving in these appeals. The assessees are non-residents and are earning income from telecasting companies for providing them transponder capacity. These assessees are engaged in operating telecommunication satellites which are called geostationary satellites and are placed at the distance of around 36000 Kms. from the equator. Each satellite rotates in the same direction as earth at a velocity that matches the earth's rotation. Under these conditions the satellite appears to be stationary directly above a place on the equator. The special orbit which exists as a circular line around the earth is called geostationary. Satellite has the solar panels which contains solar cells to convert sunlight into electrical power, a battery system to store energy and power in the satellite during periods when sunlight is blocked by the earth or moon, gyros to stabilize satellite to keep the stabilization system keeping the satellite oriented and the foot-prin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted under the laws of Netherlands and the said company is a tax resident of the Netherlands. It provides transponder's capacity (segment capacity) from the satellite operated by it in the orbit, to enable its customers for transmission of voice/data and programmes to the customers around the world under various contracts. According to this company, all the equipments, i.e., satellites as well as the operating facilities (to control, monitor and operate the satellites) are owned and maintained and controlled by it from outside India. For assessment years 2000-01, 2001-02 and 2002-03, the Assessing Officer has taxed such receipts in India by taking a view that the receipts of the assessee are in the nature or royalty under section 9(1)(vi) of the Income-tax Act as well as under Article 12.4 of DTAA with Netherlands for the reason that there is a "process" involved in the satellite which has been used by the customers of the assessee. The Ld. CIT(A) by way of consolidated order in respect of three years has upheld the contention of the Assessing Officer. It is the case of the assessee that these receipts cannot be assessed either under Income-tax Act or under Article 12.4 of DTAA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rates satellites through which transponder's capacity is provided to the telecasting companies. Consideration received in lieu of providing such transponder's capacity has been taxed as income from royalty as in assessee's own case for earlier years similar consideration has been held taxable. This company has joined as intervener to argue that such consideration could not be taxed as 'royalty' under the provisions of Income-tax Act, 1961. 9. All the parties have submitted before us their arguments in detail. They have also submitted synopsis of arguments advanced by them during the course of hearing. Arguments of Shri M.S. Syali, Senior Advocate Representing New Skies Satellites N.V. 10. Referring to the three questions proposed to be answered by this Bench, it was submitted by the ld. Counsel that the question No. 1 pre-supposes that "services" have been rendered and similarly it was pointed out that question No. 3 pre-supposes that use of satellites were provided. It was submitted that both these issues are under dispute either by the Department or by the assessee, hence, in fairness the suppositions are required to be discarded. 11. Reference has been mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the activity of the assessee is only an activity of providing service. The viewers pay to the cable operator who provide them with the programmes. Telecasting companies receive revenue from the cable operators in the shape of subscription charges. They also receive payments from the advertisers and these telecasting companies pay to foreign satellite operators outside India. Describing this chain it was submitted that the role of the assessee is limited to receive the signals and to relay those signals in the footprint area. In the entire transmission chain, the telecasting companies who are the customers of the assessee are interested in merely transmitting their signals in a wider geographical area. The customers are neither interested in knowing the technology used by the assessee nor do they intend to do the processes, if any, involved in relaying such signals. To enable the customer to use the standard service, there is an agreed "Transmission Plan" (TP). TP is a set of data that provides sufficient information to activate service and include information about satellite and transponder capacity used for service, transponder setting, antenna location and parameters, carri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry Small Aperture Terminal; SNG=Satellite New Gathering). The telecasting company will usually have several TV cameras deployed on stadium which would be connected to the small transportable studio where TV signal is selected and transmitted by SNG station via satellite to the TV Broad-caster HUB station or large studio. According to satellite configuration and transmit beam coverage more than one broadcaster can receive this signal. Thus firstly, in a live event, the use of satellite first could be to pick the live feed and to send the same to the HUB station or studio through the satellite. - Step 2 - In the studio signal could be modified (if necessary or required) i.e., transformed to other video format - Standard, High Definition Television; accompanied by more sound channels with several language comments, Encrypted etc. - Step 3 - Then modified TV signals are broadcasted via standard distribution channels/network, i.e., either through satellite, fibre optic cable other TV broadcasters, cable operators etc. 20. Referring to the above process it was submitted by the ld. Sr. Counsel that role of the assessee in the entire transmission chain is limited to receive the signal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice order shall also include a description of the technical characteristics of the Service, which shall be set forth in an attachment to the Service Order, to be provided by NSS. Appellant's Submissions - The term lease has been used merely to show that certain transponder capacity has been contracted for with the customer. The Agreement is its entirety shows that it is for rendition of services. Third Party Providers (Pg 97, Cl.3) Customer acknowledges that NSS may contract with one or more third parties for the provision of certain services to be provided as part of the Service under individual lease pursuant to this Appendix B: APPELLANT Standard Terms and Conditions for Satellite Services Service Order (Pg 100, cl.1) By executing an NSS service order, NSS agrees to provide, and Customer agrees to accept, Service in accordance with the terms and conditions set forth below... Use Restrictions (Pg 100, cI 2) . ..The service may be used by Customer solely for transmission of its own multi- carrier digital telecommunication services, including the (emphasis supplied) Service Fee (Pg 100, cI 3) Customer shall make each and every Service Fee payment in ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns, but Customer elects to continue to use (and pay for it) such Services, as degraded, NSS may interrupt Customer's use as necessary to perform testing or take any other action that may be appropriate to attempt to restore the affected Transponder to the Service Specification. Appellant's Submissions - complete control over the Satellites and its related equipment! processes remain with the Appellant at all times. Any testing etc is performed by the Appellant. Transponder is used by appellant to provide services to its customers. Appendix E : Definitions Replacement Satellite (Pg 107) Shall mean any satellite, other than a follow on satellite, which NSS places in the same orbital location (or to the extent NSS receives authorization to do so, any orbital location within 5 degree of such orbital location) as the satellite used to provide such Service. Service Transponder (pg 107) Shall mean the specific transponder utilized to provide the Service, as such transponder may be changed from time to time by NSS in its sole discretion. Suspend Service (Pg 107) Shall mean to deny Customer access to the Service Suspension (Pg 107) Shall refer to a denial of access ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ized that the granter is not required to play any part himself in the application of the formulae granted to the licensee and that he does not guarantee the result thereof. However, in case of contract for services one of the parties undertakes to use the customary skills of his calling to execute work himself for the other party. 26. It was submitted that as per Article 12.4 the dominant intention has to be seen. If the dominant intention is to receive services, then consideration paid is not for "use" or "right to use" a property to receive services. Reliance was placed on the following decisions:- (i) Bharat Sanchar Nigam Ltd. v. Union of India [2006] 282 ITR 273 (SC). (ii) Dell International Services India (P.) Ltd., In re [2009] 308 ITR 37 (AAR - New Delhi), observations at pages 56-57. (iii) OECD Tag Report paras 32 to 35. 27. It was submitted that causa causans of the consideration is the use or right to use which will make it fall within the purview of 'Royalty'. 28. Reference was made to the decision in the case of Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53 (Mad.) (Skycell) to contend that the services provided by the assessee are in no way d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or right to use the process, it was submitted that the assessee is a tax resident of Netherlands, therefore, entitled to invoke the provisions of DTAA to the extent they are beneficial to the assessee. Referring to Article 12.4 of Indo-Netherlands DTAA which defines "royalty", it was submitted that the consideration should be towards use of or right to use of any of the rights mentioned therein. It was submitted that the definition requires IPR's to be in the nature of exclusive rights vested in the granter and be privy to the person who owns it and not general or publicly available. Referring to the decision of Asia Sat's case in para 6.17, it was submitted that it was held that the plain construction of the word "use" refers to deriving advantage out of it by employing for said purpose. There should be a physical contact of the signals of the TV channels with the process in the transponder provided by the assessee. It is only when those signals come in contact with the process in the transponder that the desired results are produced. It is not necessary that process must be used by the customers and the only requirement is that process must be used. It was submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see whether there was any intention to transfer the right to use or not. It was submitted that in the case of the assessee the customer do not have any control or physical possession over the equipment and the satellite/network facilities are owned, maintained and controlled by the assessee. The customers of the assessee merely avails a service and are neither interested in the fact that how the services are rendered nor intent to use the assessee's infrastructure or the processes involved therein. Reference was made to the decision of Advance Ruling Authority (AAR) in the case of Dell International Services India (P.) Ltd. It was submitted that the issue before AAR was whether the amounts payable by Dell International to B.T. America under the terms of 'B.T. private line connect service schedule' is in the nature of royalty or fee for technical services (FTS) within the provisions of the Act and DTAA. Under the agreement, B.T. America was responsible for providing connectivity services to Dell International i.e., two way transmission of voice and data through telecom bandwidth. The matter was concluded in favour of the assessee by the AAR and it was held that connectiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in connection with the various subjects of licences). Neither extreme comes under Article 12, all that does is the central category, viz. 'letting' ** Industrial, commercial, or scientific equipment: The use of a satellite is a service, not a rental (thus correctly, Rabe, A., 38 RIW 135 (1992), on Germany's DTC with Luxembourg); this would not be the case only in the event that the entire direction and control over the satellite, such as its piloting or steering, etc., were transferred to the user." 37. Referring to the above commentary it was submitted that if the activity of the assessee is seen in the light of the agreement entered into by it with the telecommunication companies, then the consideration received by it cannot be termed to be as royalty. It was submitted that the assessee did not provide any right to use to its customer, therefore, the receipts cannot be termed of being in the nature of royalty under the provisions of DTAA. 38. Reference was made to the decision in the case of Diamond Services International (P.) Ltd. v. Union of India [2008] 304 ITR 201 (Bom.). It was submitted that Gemological Institute of America (GIA) was grading the diamon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he customer and downlinks the same without any change in the form and content of the signal. It was submitted that there is no process involved in the use of satellite or transponder as is required in Article 12.4 of DTAA. 41. Reference was made to the rule of construction known as noscitur a sociis to contend that associated words take their colour from one another and they should be construed in the like manner. It was submitted that the philosophy of such doctrine is that the meaning of a doubtful word may be ascertained by reference to the meaning of words associated with it; such a broader doctrine is broader than the maxim Ejusdem Generis. Reference was made to the following decisions where such doctrine has been elaborated:- (i) State of Bombay v. Hospital Mazdoor Sabha AIR 1960 SC 610 (ii) Oswal Agro Mills v. Collector of Central Excise 1993 Suppl. (3) SCC 716 (iii) Asstt. Collector of Central Excise v. Ramdev Tobacco Co. [1991] 2 SCC 119 (iv) Kavalappara Kottarathi Kochuni v. State of Madras & Kerala AIR 1960 SC 1080 (v) Amar Chandra Chakraborty v. Collector of Excise AIR 1972 SC 1863 (vi) Siddeshwari Colton Mills (P.)Ltd. v. Union of India AIR 1989 SC 1019 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... secret formula or process" under Article 12(4). (ii) Definition of royalty under Indo-US DTAA in Pan AmSat's case is identical to the definition in Indolands treaty. (iii) This interpretation stands accepted in Dell International Services India (P.) Ltd.'s case pg 62-63, para 56 of ITR citation (iv) Where a statute is carefully punctuated "comma" does play an important role in interpretation. References Sama Alana Abdulla v. State of Gujarat AIR 1996 SC 569 at pg 571, paras 7 and 8 and Mohd. Shabbir v. State of Maharashtra AIR 1979 SC 564 at pg 565, para 4. (v) Punctuations do carry weight provided they do not give an absurd result. (vi) Reference may be made to Indo-Sweden DTAA were in "secret formulae and process" are used interchangeably. Reference Indo-Sweden DTAA dated 23-1-1959 and Indo-Sweden DTAA dated 17-12-1997. (vii) Indo-Syria DTAA "comma" is used between words "secret formulae" and "process" 45. Lastly, it was submitted by Ld. Sr. Counsel that the consideration received by the assessee also does not fall within the category of "equipment royalty". It was submitted that equipment royalty is not included in the definition of royalty applicable to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... saved from Indian tax by virtue of the agreement for the avoidance of Double Taxation Agreement between India and Thailand (DTAA). 49. It was submitted that according to the Assessing Officer, the amount received by the assessee is for providing telecasting facilities is an income deemed to accrue or arise in India as the same fell within the scope of section 9(1)(vi) of the Act. For holding so, definition of royalty provided in clause (iii) of Explanation 2 to section 9(1)(vi) of Income-tax Act has been referred. It was submitted that the Assessing Officer also took the view that amount received by the assessee fell within the Article 12.3 of the DTAA as the payment received by the assessee was a payment for the use of a "secret process" and for holding so reliance has been placed by the Assessing Officer on the decision of Asia Sat's case. Ld. CIT(A) has agreed with the reasoning of the Assessing Officer so as it relates to receipts from residents are concerned. However, Ld. CIT(A) reversed the order of Assessing Officer insofar as it relates to assessee's receipt from non-resident T.V. channels. Ld. AR has referred to Article 12.3 of DTAA and section 9(1)(vi) of Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty is directed." 51. Referring to Oxford Dictionary, Thesaurus and Wordpower Guide, the definition of word "for" is as under:- "FOR: having as a purpose or function; having as a reason or cause." 52. Ld. AR referred to the decision of Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. It was submitted that while considering the question that whether SIM cards provided by cellular service providers through subscribers would attract sales-tax, it was observed by their Lordships that the question depends entirely upon the intention of the parties and if the SIM card was intended by the parties to be a separate object of sale, then, sales-tax would be leviable thereon. It was found that such SIM card was merely a part of services rendered by the cellular service providers and the same was held not to be charged separately for sales-tax. 53. Further reference was made to Special Bench decision in the case of Motorola Inc. v. Dy. CIT [2005] 95 ITD 269 (Delhi). It was submitted that the assessee in that case was supplying telecommunication equipment to Indian companies who were setting up cellular telephone networks in India. The equipment so supplied consisted of two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd it was held by the Tribunal that payment was merely "for" availing of communication facility for transmitting data and was not "for" rendering technical services and, hence, not covered by section 194J of the Act. 57. Further reference was made to Delhi ITAT decision in the case of Dy. CIT v. Escotel Mobile Communications Ltd. [IT Appeal Nos. 2154 to 2156 (Delhi) of 2005, dated 31-8-2007], copy of which is filed at Item (k), in the Paper Book filed by him. Referring to the decision it was pointed out that the issue considered by the Tribunal was whether inter-connection and port/access charges paid by the assessee (here a cellular service provider) to BSNL by providing inter-connection and access facilities constitute fee for technical services so as to attract section 194J of the Act and following the decision of the Hon'ble Madras High Court in the case of Skycell it was held that payment was not for technical services. 58. Reference was also made to decision of Delhi Tribunal in the case of Dy. CIT v. Estel Communications (P) Ltd. [IT Appeal No. 3375 (Delhi) of 2007, dated 10-3-2008], copy of which is filed at item (j) of the paper book filed for case laws. In that case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It was submitted that the payment must be made by the payer for using of right, property or information or process and since there is no use of process by the payer, the payment cannot be considered or said to be made for "royalty." 62. In the alternative and without prejudice to above submissions, it was submitted that if the payment is held to be made for use of a process, then also, such payment cannot fall within the definition of royalty as such payment should be for exploitation of an Intellectual Property Right (IPR). It was submitted that the word "process" in clause (iii) of Explanation 2 to section 9(1)(vi) of the Act J1lust necessarily refer to a proprietary process on the principle of ejusdem generis and noscitur a sociis because the word "process" appears along with the words "patent, invention, model, design, secret formula and trade mark" all of which are indisputably IPRs. Further, laying stress on the words "similar property", it was submitted that it clearly indicates that all the items referred in the said clause must be IPRs. It was submitted that transmission process in the satellite is not an IPR at all and, hence, does not fall within the ambit of said claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made for transmission of images or sounds by satellite or for the transmission of TV broadcast by satellite. It was submitted that if such payments are to be considered as royalty within the simple meaning of the existing clause, then, there was no need to bring a specific provision in the above mentioned treaties to bring such payments to fall within the ambit of definition of "royalty". 66. Without prejudice, it was submitted to treat such consideration as royalty, it is necessary that services should be rendered in India. To substantiate, reference was made to the decision of Hon'ble Supreme Court in the case of Ishikawajma-Harima Heavy Industries Ltd. v. DIT [2007] 288 ITR 408. In that case the assessee entered into a composite, indivisible turnkey project for setting up of a gas terminal in Gujarat. The contract consisted of both offshore and onshore services. It was not disputed that the assessee had a business connection in India under the Act and that it had a permanent establishment in India under the provisions of the relevant treaty and there was also no dispute regarding the taxability of the onshore supplies and the onshore services. The dispute relates only with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; and (ii) These services should be rendered in India. 69. It was submitted that specific reference to Explanation to section 9 was made and despite that it was held that for taxing the income earned from services, the service must be utilized in India and they should be rendered in India. Thus, it was pleaded that even on application of Explanation to section 9, such income should not be taxed in the hands of the assessee. 70. It was further submitted that having shown that income of the assessee could not be taxed under domestic law, it is also pleaded that consideration received by the assessee cannot also be taxed under the provisions of DTAA. Reference was made to Article 12 and it was submitted that the use of word "for" in Article 12.3, represents the "use" or "right to use" any secret process because the dominant purpose of the payment and intention of the parties in making payment is the performance by the assessee of the task of provision of a facility by way of telecasting the customer's programmes. He submitted that in other words, the payments received by the assessee are not for the use of any process as such. It was submitted that the word "secret" attached t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... earth. The customers of the assessee own, operate and manage the uplinked and downlinked earth's stations and other equipments necessary to transmit the signals to and receive signals from satellites. The customers may either contract with system integrator to build its own uplinked/downlinked facility or it may contract with suitable teleport to uplink/downlink the signals and his client docs not play any role in uplinking/ downlinking activity. The customer provides transmission plan in writing to Asia Sat which ensures that one customer's use of services does not interfere with other customers' use of the similar services and as a part of agreement the customers are provided with the parameters which would be required to be complied with for availing the data transmission services. The assessee operates and maintains the satellite through the tracking, telemetry and control subsystem which is located in Hong Kong. No portion of the control of the satellite, control centre or any other infrastructural facility used by the assessee for providing the service lies with the customer. It was submitted that if there is an unauthorized signal which the satellite receives, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atellites or the satellite and in any event shall fail to rectify such defaults within twenty-eight (28) days of the receipt by it of notice from AsiaSat requiring rectification of the same. 11.6 In the event of any termination of this agreement pursuant to clause 11.3 and provided that the Customer has paid to Asia Sat the Default Payment due, AsiaSat shall use all commercially reasonable efforts to market the Transponder Capacity and in the event AsiaSat subsequently reaches an Agreement to provide service to a third party via the Transponder Capacity during the period the Transponder Capacity otherwise would have been provided to the Customer, AsiaSat shall remit to the Customer as a refund of the Default Payment any utilization fees (other than refundable amounts, including but not limited to deposits) it receives and is entitled to retain such third party with respect to such Transponder Capacity, applicable to such period, less all reasonable expenses and costs incurred by Asia Sat in obtaining Agreement with such third party, upto the amount of the Default Payment paid by the Customer for such Transponder. 12. LIMITATION ASIASAT'S LIABILITY OF 12.1 The customer ackno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mplete for the service to be activated. These actions are not AsiaSat's direct responsibility." Annexure 4 Page 97 of the Agreement 2.0 NETWORK DESIGN/TRANSMISSION PLAN SUBMISSION ... after service has been established customers may wish to add new earth stations, expand their service change capacity or otherwise modify their service. In any of these event, an updated transmission plan to reflect the existing and new service requirements should be submitted for review and approval." Annexure 4 Page 98 of the Agreement TRANSMIT EARTH STATION OF QUALIFICATION Approval of the transmission plan does not authorize a customer to begin transmission. Upon test plan approval the customer will be requested to perform earth station antenna and/or electronics qualifications tests for earth stations which are not type-approved. AsiaSat will coordinate the schedule for conducting qualification tests on participating earth stations. To provide the highest quality of service, AsiaSat coordinates and controls the transmission of all carriers. It is the policy of AsiaSat to fully assist customers in the performance of earth stations tests designed to demonstrate compliance to the AsiaSa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve the customer at least ninety (90) days notice of such retirement. 12. LIMITATION OF ASIASAT'S LIABILITY 12.1 The customer acknowledges the inherent risks in launching, operating and providing satellite services and agrees that the customer's sole relief or remedy, hereunder, whether the event of the inability of AsiaSat to provide the Transponder or Transponder Capacity or the failure of the Transponder or Transponder Capacity to operate as a Successfully Operating Transponder or otherwise howsoever unless arising out of AsiaSat's fraud or other willful terms hereof and the customer's obligation to pay the Utilisation Fee as provided herein and as appropriate, the right to a refund o any advance payments where expressly provided for in this Agreement 15. REPRESENTATIONS AND WARRANTIES AND COVENANTS 15.3 AsiaSat hereby further represents to an warrants with the customer that : (a) It is the operator of the satellite and has the right to make available the Transponder Capacity to the customer as provided in this Agreement. 74. It was-submitted that perusal of the above terms and conditions of the agreement will reveal that the essence of agreement is to prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her assets, etc. The possession and control of the satellites (including the transponders in the satellites) are at all times with Asia Sat only. The possession/control never pass to the customer. It is clearly provided in the agreement that- (a) the telemetry, tracking and control in relation to the satellite remains with Asia Sat (page 16 of the agreement). (b) Asia Sat has the power to pre-empt the customer from using its satellite so as to protect the functioning and overall health of the satellite. (c) Asia Sat has the right at any time, to move the customer to a new transponder or to different frequency ranges within the transponder or on another transponder on the Satellite. This implies that Asia Sat has complete control of the operation and use of the satellite including the transponders. (d) The agreement can be terminated in case the satellite is retired from its operations. This aspect also clearly suggests that the satellite is always under the Company's control. It is for Asia Sat to decide about the useful life of the satellite. (e) In the event the customer does not comply with the norms laid down under the agreement, Asia Sat is empowered to suspend t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r/assignee. It was submitted that such right of the customer cannot change the basic purpose of the agreement which is to provide the transmission services to the customer or his assignee. 78. It was submitted that it has been the case of the Department that secret information relating to setting up of earth station is being provided by the assessee to its customer and, thus, the contract entered into by the assessee with its customer is one for the right to use the process. In this regard it may be submitted that the assessee provides transmission services using its own satellite and in order to avail such services it is necessary that the customer must have adequate ground based facilities/earth stations which are owned by the customers. To ascertain that standard services are availed and provided, it has to be ensured that ground based facilities must be of specific standard/type. It was submitted that merely because assessee provides the necessary configuration and related information to enable its customer to set up his ground facility, the contract does not cease to be a service contract between parties. It was submitted that providing the necessary configuration details is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits which are not chargeable in India. It was submitted that it is an admitted position that none of the business operations of the assessee are carried out in India and, therefore, no part of its receipts/income can be taxed in India. It was submitted that to accomplish the task of providing telecommunication services, the infrastructure including satellites are under the control of the assessee through its employees who are not based in India. The assessee maintains staff of technically qualified employees to monitor its satellites and other operations outside India and work with its customers to assure that its contractual obligations can be performed. The services of the assessee can be availed by anyone who will have to pay the requisite fee. No knowledge or technology or training is transferred or imparted by the assessee in the course of providing the transmission services. The satellite is a mere conduit through which programme is transmitted from one location to other. Reference was made to the decision of Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. It was submitted that income should be treated as one earned from rendition of services and not for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... text of electronic commerce related issues and following tests were laid down to make a transaction to be treated as royalty for use of equipment:- (a) The customer is in physical possession of the property. (b) The customer controls the property. (c) The customer has a significant economic or possessory interest in the property. (d) The provider does not bear any risk of substantially diminished receipts or substantially increased expenditures if there is non-performance under the contract. (e) The provider does not use the property concurrently to provide significant services to entities unrelated to the service recipient. (f) The total payment does not substantially exceed the rental value of the equipment for the contract period. 82. It was submitted that in order to constitute use of equipment, the customer should have actual domain or control over the equipment, in other words; equipments should be at the disposal of the customer. It was contended that in the case of assessee no such control has been provided to the customer as the control disposition and possession of the satellite/infrastructure used by the assessee to provide services were not at all controlle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to these decisions it was submitted that since the Income-tax Act and OECD model tax treaties deals with the same subject, viz., the levy of income-tax, the report of TAG of the OECD on interpretation of OECD model tax treaties and commentaries of international authors should be relied upon to interpret similar provisions contained in the Act and the treaties on the basis of doctrine of pari materia. 86. To contend that there was no "use" or "right to use" involved in the provision of telecommunication services, ld. Counsel relied the decision in the case of Bharat Sanchar Nigam Ltd. 87. It was submitted that the customers of assessee who are availing transmission services have neither intended to nor has obtained any rights to use the underlying infrastructure (including the satellite) maintained and used by Asia Sat for providing the requisite services. The customers do not intend to nor use any portion of wiring, cable, the satellite or technology, etc. maintained/owned by Asia Sat. All these are used by Asia Sat to provide the necessary telecommunication services to its customers and to raise such contentions reliance was placed on the following decisions:- (1) Aggarwal B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvolved and, thus, the transaction cannot be called to be in the nature of royalty. 88. Reference was made to the decision in the case of S.P. Gupta v. President of India AIR 1982 SC 149 to contend that what is binding is the ratio of the decision and the principle underlying the same and not the conclusion. Reference is also made to raise similar contention to the decision of Hon'ble Supreme Court in the case of Dalbir Singh v. State of Punjab AIR 1979 SC 1384. 89. Relying on the decision in the case of Skycell, it was contended that there is a distinction between payment made for use of a thing and utilization of a process or equipment to render services. It was submitted that though the said decision is rendered in the context of fee for technical services under section 9(1)(vii), but the ratio therein is applicable to the facts of the case. 90. Support was drawn from the decision of the Tribunal in the case of Pan AmSat to contend that receipt of the assessee from its customer do not involve a "right to use" the process, etc., being granted in favour of service recipient and, thus, such receipts could not be taxed as royalty. It was submitted that the said decision of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Act. It was held by AAR that the emphasis in the agreement was laid on "Services" and not in respect of use of equipment. A distinction was drawn between rendering of service of a person using his own equipment vis-a-vis the grant of right to use the equipment to the recipient of service. It was observed by AAR that word "use" in relation to equipment under Explanation 2(iva) to section 9(1)(vi) of the Act cannot be equated with the availing the benefit of an equipment. It was held that provision of "telecom band-width facility" by means of dedicated circuits and other network installed and maintained by BTA does not amount to a lease of an equipment under clause (iva) of section 9(1) of the Act and article 12 of the Treaty. 95. Reference was made to two examples contained in the protocol signed between Government of India and Government of USA which forms part of DTAA between India and USA which explains the meaning of the term "fee for included services" contained in Article 12 of DTAA to contend that even intangible assets like process can be imparted by the owner to the payee/lessee and that it is in only those cases that consideration earned from imparting the process can b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that unless the consideration received by the assessee fell within the meaning of sub-clauses i.e., clauses (i) to (iv), (iva) and (v), the consideration cannot be treated as royalty under sub-clause (vi). Sub-clause (vi) read as under:- "(vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v)." 98. It was submitted that the phrase used in sub-clause (vi) "in connection with" has been considered by Hon'ble Karnataka High Court in the case of Stumpp, Schuele & Somappa Ltd. v. CIT [1991] 190 ITR 152. Similar words are used in section 37(iii) of the Act and it was observed as under:- 'Section 37(3) of the Income-tax Act, 1961, lays down that expenditure incurred in connection with travelling by an employee or any other person shall be allowed only to the extent and subject to any conditions as may be prescribed. The expression "in connection with" in section 37(3) includes matters occurring prior to as well as subsequent to or consequent upon, so long as they are related to the principal thing. In other words, whatever has nexus to the travel undertaken in connection with the work outside the headqua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to a secret process to qualify the same as royalty. Emphasizing on the words "similar property" appearing in sub-clause (iii) of Explanation 2 to section 9(1)(vi) of the Act, it was submitted that the use must be for IPR. It was submitted that as per decision of Hon'ble High Court in the case of Neyveli Lignite Corpn. Ltd. the royalty to be in the nature of payment to a person for allowing others to use that thing by virtue of him having an exclusive right over that thing. It was submitted that the word "process" has to be interpreted not according to any dictionary, but according to the context and on the basis of rule of ejusdem generis and noscitur a sociis and the process must be secret so that the consideration, if any, paid can be assessed as "royalty". It was submitted that satellite technology is available as public literature and no secrecy is involved. 102. Reference was made to the decision of Hon'ble Gujarat High Court in the case of Ahmedabad Mfg. & Calico Printing Co. wherein their Lordships have considered the meaning of the term "royalty" as defined in the dictionaries. 103. In that case, in the absence of definition of word "royalty" under Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TR 99 (AAR - New Delhi) and decision of ITAT in the case of Wipro Ltd. v. ITO [2003] 80 TTJ (Bom.) 191 are of the same effect. It was submitted that the word "process" in the definition of royalty should be interpreted in restricted sense rather than a wider or general sense. Reference was made to the rule of interpretation ejusdem generis and noscitur a sociis. For this purpose reliance was placed on the following decisions:- (i) RBI v. Peerless General Finance & Investment Co. Ltd. [1987] 1 SCC 424. (ii) S. Mohanlal v. Kondiah AIR 1979 SC 1132. (iii) IPCA Laboratory Ltd. v. Dy. CIT [2004] 266 ITR 521 (SC). (iv) Jamshedpur Motor Accessories Stores v. Union of India [1991] 189 ITR 70 (Pat.) - affirmed by Supreme Court in Allied Motors v. CIT [1997] 224 ITR 677. 107. It was submitted that in the recent decision Hon'ble jurisdictional High Court in the case of Bharti Cellular Ltd. has invoked rule of noscitur a sociis to interpret the meaning of the word "technical" used in the definition of "fee for technical services" under section 9(1)(vii) of the Act and it was pleaded that the term "process" when used in the context of royalty should be used for a technique, formula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct on the words used in the statute. The true intent of the statute should be derived at from the meaning of the words forming part of the statute and not based on the punctuation marks. It was submitted that while defining the term "royalty" the same may be construe to be in respect of Intellectual Property Right and, therefore, the non-use of comma after the words "secret formula or process" in clause (iii) of Explanation 2 to section 9(1)(vi) should not be regarded as controlling element for determining whether the payment made for the use of process is regarded as royalty or not. 112. It was submitted that language used in clause (iii) of Explanation 2 is in pari materia to the definition of royalty under both OECD and UN Model Conventions and it was submitted that the only difference between the definition in these models and definition under the Act is that comma has been used after the word 'process' in the model conventions, but comma is not used in the definition given in clause (iii) of Explanation 2 to section 9(1)(vi). It was submitted that as per accepted principles the commentaries and technical reports issued by OECD and UN in relation to international tax t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the course of providing transmission services. It was submitted that reliance by the Division Bench in the case of p. No. 30 of 1999, In re [1999] 238 ITR 296 (AAR - New Delhi) was wrongly placed as the said case was distinguishable on facts. It was submitted that in that case charges were for the use of Central Processing Unit (CPU) and Consolidated Data Network (CDN). The Indian company was interested in the software. The CPU and CDN merely enable the Indian company to gain access to that software and, thus, it was held that the payment was made for the use of software, and, it was a payment for "royalty". It was submitted that in the present case it has been demonstrated beyond doubt that customers have made payments for availing transmission services and not for use of any asset. It was submitted that the Tribunal in the case of Kotak Mahindra Primus Ltd. v. Dy. DIT [2007] 11 SOT 578 (Mum.) has held that the decision in P. No. 30 of 1999's case does not lay correct law. It was submitted that ITAT has invoked clause (vi) of Explanation 2 to section 9(1)(vi) to hold that revenue derived by Asia Sat would also fall in clause (vi) of the said Explanation 2. It was submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of the Act and tax treaty. It was submitted that from a plain reading of definition of royalty defined under section 9(1)(vi), it can safely be inferred that for the payments to be characterized as "royalty", such payments have to be necessarily for the use of any property mentioned in clause (iii) of Explanation 2 to section 9(1)(vi) of the Act and the "process" being one of the constituent items occurring in the said definition, it can further be safely assumed that consideration for use of a process would result in the payment being made to be referred as "royalty". 116. It was submitted that so far as it relates to findings given by the Tribunal in Asia Sat's case, there is no dispute that they have attained finality. It was submitted that while reading Pan AmSat's case, it will be clear that there is no dispute whatsoever while considering the taxability of these transactions under the definition of royalty, so far as it relates to domestic provisions. It was submitted that the dispute, if any, is with regard to the taxability of these transactions while construing the provisions of various tax treaties. It was submitted that the only difference which persuaded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e arguments advanced on behalf of New Skies submitted that the consideration to qualify as royalty payment must be received for the use of the products mentioned in section 9(1)(vi) and which products in all cases without exception should be some kind of intellectual property. (h) Apart from the above, the learned counsel for the Shin Satellite also contended that since the payments do not accrue or arise in India, and the services are not rendered in India, the payment so received are not exigible to tax in India. 118. It was further submitted that almost similar arguments were submitted on behalf of the Ld. Counsel appearing for Shin Satellite and also the ld. Counsel appearing for intervener, namely, Asia Sat. 119. Ld. Special Counsel referred to the definition of "royalty" as appearing in Explanation 2 of section 9(1)(vi). Highlighting the word "process" used in the definition, it was submitted that the process takes place in the satellite/transponder order. Ld. Special Counsel has submitted before us a diagram of basic satellite system. According to the said diagram, the satellite contains a solar panel, satellite repeater, receiving antenna and transmitting antenna. First ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies them for retransmission to earth. www.telesat.ca/support/terminology-e.asp (e) A device that relays electrical signals not necessarily in the same form or on the same frequency as received. Frozone.itsc.uah.edu:8080/LEAD Glossary/Complete/tcomplete.jsp (f) The electronic equipment on a satellite that receives signals from an uplink, converts signals to a new frequency, amplifies the signal, and sends www.tamu.edu/ode/glossary.html (g) Transponder according to Webster Dictionary-A radio or radar set that upon receiving a designated signal emits a radio signal of its own and that is used especially for the detection, identification and location of objects. (h) Transponder-Word Net (r) 2.1 (2005): Transponder NI: electrical device designed to receive a specific signal and automatically transmit a specific reply. (i) Transponder-The electronic equipment on a satellite that receives signals from an uplink, converts signals to a new frequency, amplifies the signal, and sends it back to earth. Satellites are usually equipped with 12 to 14 transponders. Technology Glossary Terms taken from www.timbercon.com. 122. Referring to above definitions, it was submitted that vari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who have obtained transponders capacity from satellite companies or it was a mere facility, was considered in the case of Asia Sat. In this regard, reference was made to the paras 6.19 to 6.23. It was submitted that while holding in para 6.23 that what the TV channels in the entire cycle of relaying their programmes in India are doing is that they are using "process provided by the assessee" have referred to the book written by Stephen C Pascal and David J Withers. From page 176 of the book, it was noted that while describing the functions of satellite in the transmission chain, there is a "process" involved. 126. Ld. Special Counsel also referred to the paras 6.24 to 6.25 of the said decision to contend that the Tribunal while holding that the payments received by satellite companies was in the nature of royalty, the decision of Hon'ble Madras High Court in the case of Skycell was also considered. It was submitted that even in the case of Pan Amsat in para 19 it has been held that the process was involved in the activity carried on by the assessee. Thus, it was submitted that if a conjoint reading is given to the decisions of the Tribunal in the case of Asia Sat and Pan Amsat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. Attention was drawn on the following extract taken from that policy:- "3.9 SATCOM Policy- The SATCOM Policy shall provide for users to avail of transponder capacity from both domestic/foreign satellites. However, the same has to be in consultation with the Department of Space." Under the existing ISP policy, international long distance communication for data has been opened up. The gateways for this purpose shall be allowed to use SATCOM. It has also been decided that Ku frequency band shall be allowed to be used for communication purposes." 130. Further reference was made to para 6.17 of Asia Sat's case decision to contend that the word "use" should not be restricted only to physical use. It should be construed in the context in what it is used. While considering the definition of the word "use" in ordinary sense, it was held that it would really be unfair to restrict the meaning of the word "use" only to physical use. The plain construction of the word "use" refers to the deriving advantage out of it by employing for a set purpose. It was held therein that there was a physical contract of the signals of the TV channels with the process in the transponder provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices were provided by the satellite companies. It was submitted that services referred to in preamble do not mean the services as generally understood. It was submitted that the Mumbai Bench of the Tribunal in the case of Asstt. CIT v. Sanskar Info T.V.P. Ltd. [2008J 24 SOT 87 while considering the digital broadcast service agreement of that assessee with M/s. Shin Satellite Public Co. Ltd. (one of the assessee in the present proceedings) and has held that the transponder fee paid by the payer to Shin Satellite was covered by the definition of royalty and was chargeable to tax under provisions of section 9(1)(vi) of the Act and the payer should have deducted the tax. It was submitted that the said decision is dated 10-6-2008 which is a date after the decision in the case of Pan AmSat. It was submitted that the Bench had also considered the taxability of the transaction even under the provisions of DTAA between Government of India and Government of the Kingdom of Thailand and, thus, it was submitted that as it relates to the case of Shin Satellite, the taxability of consideration has already been upheld by the Tribunal Mumbai Bench and the said decision requires the approval of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payable by the customer, in quarterly instalment, for the use of transponder capacity". Thus, it was contended that the definition has sanction of the agreement itself describes that consideration termed as "utilization fee" is for using the transponder capacity and other services provided by Asia Sat and this very definition demolishes the case of the assessee that no right to use the transponder was given. Making reference to clause 2(1) of the agreement which is under the head "utilization" it was submitted that the said clause read as "Asia Sat hereby agrees to make available the transponder capacity to the customer during the utilization term and the customer hereby agrees to use the transponder capacity, in accordance with the terms of the agreement. The customer acknowledges that Asia Sat may pre-empt or interrupt the customers use of the transponder capacity to protect the overall health and performance of the satellite in unusual, abnormal or other emergency situation." It was contended that this clause clearly depicts that the agreement is for use of the transponder's capacity by the customer. Then, reference was made to clause 2.4 which read as under: "the customer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted to the customer or telecaster and in consideration of the same the customer or the telecaster is obliged to make payments to the assessee which, by their very characterization, as utilization fees bear out the claim of the revenue on all grounds. 137. It was submitted that clause 5 of the agreement under the head "Ground facilities" further belies the claim of the assessee of the alleged service being a standardized facility by a fair appreciation of the sub-clauses contained in that clause. It was contended that clause 5.1 of the agreement provided that "the provision of transponder capacity under this agreement does not include any ground based uplink, downlink or terrestrial transmission facilities. It was submitted that in the same clause it is further categorically stated that Asia Sat shall have no obligation whatsoever with regard to obtaining of any authorities, licenses or permits (Governmental or otherwise) required in relation to or to provide any uplink services, downlink services or terrestrial transmission services. It was contended that the said clause establishes the claim of the revenue that the ground based facilities required to establish connection and use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rly demonstrate that a substantial share of the control over the process of satellite has been vested in the domain of customer or the telecaster and the satellite company has only consigned itself with a limited role of maintenance in the operation of the said system. He submitted that since the factum of control of the process in the satellite cannot be said to be privy to the said provider, the payment for the same under the agreement have to be necessarily considered only as royalty and even terms of authoritative exposition rendered by Klaus Vogel who regards and holds similar payments to be only royalty and nothing else. Referring to clause 5.2 to sub-clause A, it was submitted that customer was put under an obligation to ensure that the design and operation of the customer's satellite ground stations and customers utilization of transponder capacity conformed to the agreement and technical specifications for such designs and operations have been provided by Asia Sat to the customer under the same agreement. Thus, it was submitted that the customer or telecaster, if alone is responsible under the said agreement to ensure the proper working and functioning of the equipment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the fact that the assessee by no means can claim to be using the process as the assessee is by means of this clause guarding its own interest in the event of misuse of the process, should the same occur or be occasioned. 140. It was contended that clause 7 of the agreement speaks of protection to the transponder or its degradation. It was submitted that if customers is not involved in the process and no interest has been provided to him in the process or no part of its usages falls in customer's hand, then one fails to understand the incorporation of such clause in the agreement especially in the light of the fact that the case of the assessee is that it is a standard facility provided to everyone or anyone who is willing to pay and process is privy to the assessee. It was submitted that in the commercial world everything and anything is available for a price and any one willing to pay can use or buy that thing but that does not mean that everything in the world is a standard facility. To raise similar contention, reference was made to clauses 7.4 and 7.6. It was contended that clause 8 speaks of volumes of right to the customer in the process which the assessee wrongly c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in fact the customer who uses the process of the satellite contrary to what has been contended by the assessee. 142. Further reference was made to clause 16 which deals with confidentiality. It was contended that if it is only a standard facility available to anyone, then there was no need for the clause of confidentiality. It was submitted that Annexure I to the agreement provides the details regarding transmit earth station mandatory requirements. The said document primarily outline the technical specifications which are secret, confidential and necessary in order to make the system of satellite communication through the use of processes used therein workable and functional. It was submitted that the process of transponders has been vested in the control of customer which has been provided with complete technical specifications (which are secret and confidential in nature) to enable him to interact, access, use and control the process of the satellite. It was submitted that such technical resource or specifications under the contract are not options available to customer, but are conditions precedent to claim the rights of the contract. 143. Referring to Annexure 4 which deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or ability to obtain or make use of" and also "ability of means to participate in work in or gain insight." It was submitted that definition of word "access", thus, clearly indicates that customer or telecaster has been granted all rights which enables it to an unbridled freedom to obtain or to make use of transponder in the satellite. It was submitted that all the above referred clauses of the agreement and the advertisement read together will leave no room to doubt that it is the customer who is using the process and not the assessee and the contention of the assessee that it is using its own process is misconceived and is liable to be rejected. 145. Thereafter, Ld. Special Counsel referred to the decision of the Tribunal in the case of Pan AmSat to contend that Tribunal was wrong to hold that the consideration received by the assessee does not represent consideration for use of any process. It was submitted that while holding so, the decision of Hon'ble Madras High Court in the case of Skycell has been wrongly understood by the Division Bench whereas the same was correctly appreciated in the case of Asia Sat. It was submitted that ITAT in the case of Pan AmSat has differed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... too the treaty makers have used wider words after the narrower words to intentionally give wider meaning with the sole idea of expanding the tax net. The intention of the Legislature for using the wider word is writ large with a definite purpose. Therefore, the rule of nosciis socii under the facts and circumstances of the present case cannot be pressed into service and has no application to the facts of these cases. It was submitted that rule of noscitur a sociis or ejusdem generis cannot be applied to each and every case, but their application is determined by the nature of words in the context which is under consideration and where wider words have been used deliberately in order to make the scope of the corresponding word 'wider', the rule of noscitur a sociis shall not be applicable. 148. Referring to the arguments of the other side that the assessee itself is using the process for rendering the service and the customer does not have any access to that process, it was submitted that this contention of the assessee should not be accepted as in the present case there is complete participation by the customer in the process through which the telecasting takes place so mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "it must be remembered that India had no DTAA with Hong Kong and hence the view taken by the Tribunal with regard to the clause (iii) of Explanation 2 below section 9(1)(vi), would apply if we were to also interpret the same provision" and further held that "we do agree with the arguments of the Special Counsel for the Department, on the strength of the several authorities cited by him, that normally punctuation by itself cannot control the interpretation of statutory provisions and in fact the ld. counsel for the assessee did not seriously dispute the proposition". It is stated that after holding, so, the Hon'ble Tribunal has gravely erred and fallen in error in paying undue tribute to the punctuation mark 'comma', surprisingly while even accepting that punctuation marks do not playa governing role in interpreting a statute. (b) That the Ld. Tribunal has in its decision nowhere spelt out the compelling difference in the form, content and layout of the definitions of royalty in the domestic statute as opposed to the same in the treaty, which would have warranted such a drastic departure. (c) That the Ld. Tribunal has gravely erred and fallen in the highest error in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ret, the word 'secret' therefore cannot be said to be affixed to process as the same in light of the realities of commerce and business is practically impossible, since in the world of commerce and business it is but only necessary that the processes to which one claims proprietary are disclosed to the other party in order to lure users or buyers, which transaction when extrapolated statistically to the laws of supply and demand, do in-turn yield the fixing of the price/consideration of the said transaction. It is further submitted that the same would not be possible if the 'process' which is the subject-matter of transaction remains a dark unknown or a deep secret. (f) That it was also alternatively argued before the Ld. Tribunal in Pan AmSat, that even if secret is assumed to be affixed before the word 'process' as occurring in the definition of royalty under the treaty, the same would still not exonerate the assessee from its liability to pay tax as 'secret process' in that context would have to be read to mean, the means and mechanisms (encryption/secure access - through passwords, digital codes/signatures etc.) which secure or protect an unche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lectual property indicates the intention of the Legislature that it wanted to broaden the tax base and wanted to bring all those things which are capable of exploitation to bring within the definition of royalty and for this and this reason alone the Legislature has jointly brought the intellectual properties and other products which it realized was capable of exploitation which exploitation could generate revenue to the owner and intentionally to bring that generated revenue to tax net these, products were brought together with the intellectual property. This very submission was not only made before the earlier Bench but were also made before this Hon'ble Bench at the time of oral hearing, but for the reasons best known to them, have not rebutted the same. (i) That the revenue had in support of contentions raised had cited several judgments on the issue, which while stated by the Ld. Tribunal in its decision to be having an undisputed application have however not been given effect to and resultantly has caused the said decision to be infested with errors of the highest magnitude. Like in Pan AmSat where the counsel appearing for the assessee has conceded that punctuation mar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies' signals only. The particular frequency and transponder is given for use to the customers. The transponder cannot be changed by the assessee on its own. Thus, the customer is making payment as consideration for the use, or the right to use the designated bandwidth on the transponder. A big customer can hire the entire transponder capacity on a satellite or even the full capacity on the satellite can be hired. Since the bandwidth is provided by the satellite systems, the third party's right to use the bandwidth shall be viewed as the right to use the satellite system. Thus, it was submitted that the payments so received by the assessee is a consideration for the use of or the right to use industrial, commercial or scientific equipments within the meaning of royalty as provided in clause (iva) of Explanation 2 to section 9(1)(vi). 155. Ld. Special Counsel of the revenue submitted that in the case of Pan AmSat while examining the taxability of such consideration in the country of China it was held that the payments are taxable as royalty. He referred to the facts and ratio of the decision in the said case which is as follows:- "Pan AmSat International Systems, Inc. (Pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nstrated of the plaintiff. Hence, the so called season-based service fees and equipment fees that the third party paid to the plaintiff should be classified as a royalty under the China-US Tax Treaty. (c) Thirdly, the whole or part of the specific transponder of the plaintiff's satellites had been exclusively used by the third party, which conformed to the relevant provisions of Chinese tax law on easing property to a lessee located in China and met the requirements of a lease agreement that called for the transfer of the right to use the property. Therefore, the plaintiff's income was rental income. Court held that:- Article 19(1) of the Income-tax Law of the People's Republic of China for Enterprises with Foreign Investment and Foreign Enterprises provides that or foreign enterprises having no establishments or places in China but receiving from China the income of profits, interest, rental, royalties and other income, or foreign enterprise having establishment or places in China but having the above said income not effectively connected with the establishment or places, the said income shall be taxed at 20 per cent. Article 11(3) of the China-US Tax Treaty defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." 156. Referring to the above decision it was submitted that facts of the Chinese case are almost similar to the facts of the cases of the assessee and the reasoning of Chinese Court squarely applies to the present case and on that analogy the payments cannot escape the exigibility of tax as royalty. 157. Coming to the arguments of the other side that even if it is held that payment is made for use of a process, the same cannot be taxed as the said use has not been rendered in India and the payment source is also not situated in India, it was submitted by Ld. Special Counsel that the provisions of section 9(1)(vi) of the Act does not require that the services should be rendered in India. It was submitted that source rule is based on the status of the payer referred in clauses (a), (b), (c) of section 9(1)(vi) of the Act. Had the services, as claimed, were rendered in India, the same are taxable as per the provisions of section 5(2) of the Act, on the basis of accrual of or arising in India and there was no need to refer to section 9, which deals with income deemed to accrue or arise in India. It was submitted that due to specific insertion of Explanation below section 9 of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that the said case related to the issue regarding deduction of tax under section 194J with regard to the telephone facility provided by the company to the customers and it was held by Hon'ble High Court that the payment so made could not be considered as fee for technical services within the meaning of Explanation 2 to section 9(1)(vi). It was submitted that the said judgment is to be understood in the context in which it was delivered and the issue involved in that decision was the issue that whether a subscriber of a telephone facility is using the technical services or not. It was submitted that a bare comparison of two definitions (one under Income-tax Act and other under DTAA) reveals that both these definitions caters to different situation while one brings to tax net rendering of any managerial, technical or consultancy services while other brings to the tax net payments for exploitation of IPRs as well as other products which are clubbed with IPRs and the payments for exploitation of which the Department treats as royalty. It was submitted that the area of the two situation being different, the definition being different, the judgment in the case of Skycell will have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s' takes colour from the expressions 'managerial services' and 'consultancy services' which necessarily involve a human element or what is now-a-days fashionably called, human interface, in the facts of the present appeals, the services rendered qua interconnection/port access do not involve any human interface and, therefore, the same cannot be regarded as technical services as contemplated under section 194J of the said Act." 162. Thus, it was submitted that the issue before the Hon'ble Madras High Court in the case of Skycell and before the Hon'ble Delhi High Court in the case of Bharti Cellular Ltd. pertained to a different regimes of tax and the issue whether those payments qualify for being taxed as "royalty" was never examined and, therefore, these decisions could not be relied upon to draw any support by the assessee in the present case. 163. With regard to the Special Bench decision in the case of Motorola Inc., it was submitted that reference was made by the other side on para 173 of the report which relates to the question that whether the payment was "for the software as such". 164. It was submitted that payment in that case was made for h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd flow, it was submitted that the chart shows dotted line and continuous line. Dotted line gives the monthly charges for viewing and how the payment is made. Before explaining the diagram since programme is India-specific and the assessee has footprint in India, the programme is meant for consumption of Indian viewers and diagram indicates that Indian viewers are paying monthly charges to cable operators. In turn, the cable operators pay charges to telecasting company and similarly, advertisers also pay charges to telecasting company for telecasting India-specific advertisement of products which aspire to market in India. It was submitted that diagram further indicates that the telecasting company makes payment to the satellite operator. Thus, the source of consideration received by the assessee is two-fold. One is the viewers who pay through the cable operators and second channel is advertiser who pay for the air time of their advertisement to the telecaster. Both these payments in turn are made by the telecaster and cable operators which finally reaches the assesses in the present case. Thus, it was submitted that the position itself demolishes the case of the assessee that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a and on the decisions in the case of S. Mohan Lal. 170. Referring to the Dell's decision of AAR, it was submitted that the facts revolves around the question framed at para 6, page 44 of the report which pertained to technical services and, thus, adjudication on that issue has no relevance to the present proceedings. So as it relates to applicability of Article 12.3 or Indo-US Treaty and AAR, it was submitted that AAR fell in the same error as is committed by Pan AmSat decision and the said issue is being decided by Special Bench. It was submitted that in view of the re-adjudication of the issue in Pan AmSat's case the observations pertaining to royalty made in the case of Dell has lost its persuasive value. 171. Referring to the decision in the case of ISRO rendered by AAR, it was submitted that the question considered was that whether the payment for leasing the transponder is royalty or not which is not an issue in the present case. With regard to issue No. 2 considered therein, it was submitted that the issue was that whether business to lease out navigational transponder is not liable to tax in India in respect of leased amount and, hence, not liable to TDS under se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wise there is no need for parting with the information. It was submitted that there was a complete sharing of the process as well a share of information. The process is coded to avoid unauthorized or unlicensed use. It was submitted that during the course of hearing an example of Mother Dairy and ATM were exchanged to bring home the point that unless the process is opened so the method known in the case of Mother Dairy by insertion of its specific coin which is purchased from its sales counter and in the case of ATM by making use of the code provided, the process cannot be put to use, though the right to use is there on the payment. Thus, it was submitted by Special Counsel that these processes including that of satellite are relatively protected/coded and not secret. It was submitted that similar is the example of legal softwares which are licensed through a code assigned to the person who is licensed to use the software and it is again a case of protected process or the protected copyright, but by coding a process or by granting an authorized user through a licence it cannot be said that someone is using a secret process. It was submitted that there is nothing known in the commer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for uplinking and downlinking the data/images to be transmitted. The satellites are controlled by satellite companies from ground station maintained by them from where they maintain the health of satellite by keeping them on right track and position. The capacity of the transponder as a whole or part thereof is provided to the person/entities (popularly known as telecasting companies) to enable them to uplink and downlink desired data/images. Such provision of transponder's capacity is also known as 'segment capacity', which is provided for a consideration mutually agreed between parties. 179. To maintain the health of satellite, its position and its distance from the earth is a highly scientific job which can be performed by a very few institutions all over the world. The scientific technology of placing the satellite in the orbit at a desired distance and to take the required benefit therefrom even today is in the rare hands all over the world. The operation of geostationary satellite which is also commonly known as "communication satellite" is a high profile scientific activity. Whenever such satellite is launched in the orbit, its specifications are publicized to r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed or is deemed to be received in India in such year by or on behalf of such person; (2) accrues or arises or is deemed to accrue or arise to him in India during such year. 182. Section 9 describes the income deemed to accrue or arise in India. Section 9(1)(i) inter alia provides that all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India or through or from any asset or source of income in India or through the transfer of a capital asset situated in India. The other part of section 9, which is relevant, is clause (vi) to section 9(1). It describes that income received by way of royalty shall be the income deemed to accrue or arise in India if it is payable by: (a) the Government; (b) by a person who is resident with some exceptions provided therein; (c) by a person who is non-resident, where the royalty is payable in respect of any right, property or information used or services utilized for the purpose of a business carried on by such person in India or for the purposes of making or earning any income from any source in India. Explanation 2 defines the "royalty" which read as under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the necessary infrastructures to deliver the desired results. In other words, the real role is thus played by the "transponders" in the transmission activity of uplinking and downlinking the programme to be telecasted. The word 'process' has not been defined either under the Income-tax Act or under the provisions of DTAA and if a word is not defined in the relevant statute, then, according to well-established principles of interpretation, the natural or prevalent meaning of that word should be adopted while interpreting the said word. It may be pointed out that it was not even denied by any of the ld. Representatives of the respective assessee that no process is involved in the transponder. The word "process" as defined in Oxford Concise English Dictionary is a "series of actions or steps towards achieving a particular end." In Black's Law Dictionary, it means "a series of actions, motions, or occurrences; progressive act or transaction; continuous operation; method, mode or operation, whereby a result or effect is produced." Thus, the act of transmission of voice, data and programmes belonging to the customers is a process used in the transponders. Thus, the activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess. Thus, it was held in Pan AmSat's case that the consideration received by Pan AmSat's case (satellite company) was not 'royalty' within the meaning of Article 12 of DTAA as the consideration was not for use of 'secret process'. It is, therefore, the first two questions referred to this Special Bench have been framed. To appreciate the controversy, it will be relevant, if the provisions of domestic law as interpreted in the case of Asia Sat and provisions of DTAA as interpreted in the case of Pan AmSat are reproduced:- Provisions' of domestic law as interpreted in Asia Sat's case. "Section 9(1)(vi). Explanation 2-For the purposes of this clause, 'royalty' means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head 'Capital gains') for- (i) and (ii) ** (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property;" Provisions as interpreted in the case of Pan AmSat Article 12.3(a)- "The term 'royalties' as used in this article means:- (a) payments of any kind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If we look into the activities and functions performed by the transponder of the like nature as in our case, it can be said that it is a sophisticated scientific equipment, which, if installed on geostationary satellite, is designed to act in a predefined manner to receive uplinked signals on a particular frequency and to provide required strength to those signals in a manner so that the received signals can be downlinked at a particular frequency in viewable form in the footprint area of the satellite. It has already been mentioned that it is nobody's case that there is no process involved in the transponder. But it is the case of satellite companies that they are using the said process and the process is not provided to their customers. This argument has been raised to contend that the required "user" as envisaged in clause (iii) of the Explanation 2 to section 9(1)(vi) cannot be inferred unless the process itself is used by the customers. 189. It has been the case of the revenue that from all practical angles the "user" can be found to have been done by the customers. To substantiate reference is made to the definition of "user" and to various clauses of the agreements ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity cannot be allotted/ given to other customers unless and otherwise provided in the contract. No doubt, the assessees through their control stations can instruct the transponders to act in a particular manner to give a desired result but that does not mean that they can interfere with the uplinked data to change the same in any manner. They also do not have any control over the data to be uplinked or downlinked except to stop the uplinking or down linking of the data of the telecasting companies. So, if the practical aspect of the working of the transponder is seen, it has two main elements. One is to instruct the transponder to act in a particular and predefined manner to receive the uplinked data at a particular frequency and providing a particular strength to the uplinked signals and then to downlink the same at a particular frequency in the footprint area of the satellite. The other is the "process" in the transponder, which is predetermined and preguided, In other words satellite companies with the help of ground control stations are able to predetermine and preguide the "transponders" installed on their satellites to give a particular result within permissible limits accord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable for "user" to the customers who pay a consideration for the same. Such process is used by the telecasting companies according to their need. 193. Here, it may be mentioned that according to one of the well-established rules of interpretation the words should be understood in their ordinary or natural meaning in relation to the subject-matter, any legislation relating to a particular trade, business, profession, and or science, words having a special meaning in that context are understood in that sense. Such a special meaning is called the "technical meaning" to distinguish it from the more common meaning that the word may have. This rule of interpretation has been discussed at page 101 of Principles of Statutory Interpretation by Justice G.P. Singh (Tenth Edition 2006) and Lord Jowitt, L.C. has stated the rule in the following words:- "It is, I think, legitimate in construing a statute relating to a particular industry to give to the words used a special technical meaning if it can be established that at the date of the passing of the statute such special meaning was well-understood and accepted by those conversant with the industry." Further, Lord Esher M.R. stated this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including video, audio and data services. In column 7, utilization fee has been prescribed. Under the clause 'definitions' at page 4 of the agreement, utilization fee has been defined as under:- "'Utilisation Fee' means the fee payable by the Customer, in quarterly instalments, for the use of the Transponder Capacity and other services provided by Asia Sat pursuant to this Agreement and includes any other payments described as utilization fees herein;" Utilisation term has been defined as under:- "'Utilisation Term' means the time period set forth in box 5 of the Summary, commencing on the Commencement Date, during which the Transponder Capacity is to be provided to the Customer hereunder, unless earlier terminated in accordance with the terms herein: In clause 2 under the head utilization, the terms are set out as under:- "2.1 Asia Sat hereby agrees to make available the Transponder Capacity to the Customer during the Utilisation Term and the Customer hereby agrees to use the Transponder Capacity in accordance with the terms of this Agreement. The Customer acknowledges that Asia Sat may preempt or interrupt the Customer's use of the Transponder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his Agreement the Customer agrees to pay the Utilisation Fee at the rates specified in box 7 of the Summary payable in accordance with Clause 4.3." Clause 5.1(b) which relates to ground facilities prescribe as under:- "(b) Asia Sat shall, however, maintain telemetry, tracking and control in relation to the Satellite in order to enable it to comply with its obligations under this Agreement." Clause 5.2(b) read as under:- "(b) The Customer likewise agrees to qualify the Customer's satellite ground station for access to and use of the Satellite and/or Transponder Capacity by, inter alia, supplying to Asia Sat the design and other information reasonably required by Asia Sat relating to the Customer's ground station required for such purpose and by conducting pre-operational qualification tests and by conducting pre-operational access procedures all according to the requirements laid out in relevant Annex and other reasonable written requirements made by Asia Sat and of which the Customer has been given reasonable prior notice." 196. Clause 6 describes the contingencies of interruption of services and in clause 6.1 it has been mentioned that interruptions which are not at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ub-utilisation agreement in certain circumstances. Clause 9.2 read as under:- "9.2 The customer shall, upon written request from Asia Sat, promptly cease and desist from any use of the Transponder Capacity or Transponder which in the reasonable and bona fide opinion of Asia Sat is unlawful under Applicable Laws, including, but not limited to, any use of the Transponder Capacity or Transponder which in any way breaches Applicable Laws, including without limitation laws relating to defamatory, obscene or pornographic materials, or Third Party Rights or any other matter which may result in or put Asia Sat at risk of the termination, revocation, suspension or curtailment of Asia Sat's right to operate the Satellite or which may result in Asia Sat or any of its assets, officers or employees becoming subject to criminal, civil or similar proceedings." Clause 11.3(c) read as under:- "(a) and (b) ** (c) fails to maintain its ground station facilities in accordance with the requirement of Clause 5 such that in the reasonable opinion of Asia Sat such failure may interfere with or cause damage to the services provided by Asia Sat to other customers of, or users of any of, AsiaSat& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sponder capacity is provided under the agreement, but a provision has been made under clause 7 of the agreement to provide the customer with an alternative facility of redundant units of transponders in a case when particular capacity of transponder provided to the customer fails to work. Under clause 8, the customer has also been given power to enter into a sub-utilisation agreement and also a power to assign that user in certain specified conditions. Under clause 9.2 a provision has been made where upon written request of satellite company the customer shall promptly cease and desist from any use of the transponder capacity or transponder in certain specified circumstances and if the "use" is not provided to the customer, then, there was no need for that clause as satellite company at its own can stop transponder to telecast the uplinked data. If the customer is not making continuous uninterrupted use, such clause had no meaning. Thus, it can be said that while applying the word "user" in the agreement, the class or section of people involved in the activity of providing and obtaining segment capacity understand the meaning as user by the person who is obtaining segment capacity. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich means the third party solely owns the right to use the designated part of the bandwidth. Since the bandwidth is provided by the satellite system, the third party's right to use the bandwidth shall be viewed as the right to use the satellite system." 201. Thus, even the Chinese court has held that there is existence of right to use with the telecasting company for the bandwidth provided by the satellite company and it was used by the telecasting company for signal transmitting. Therefore, also user of the process in the transponder by the telecasting companies cannot be denied. 202. Further, reference also can be made to "Satcom Policy" referred to by Ld. Special Counsel of the Revenue. In the said policy it has been stated clearly that Satcom Policy shall be provided for users to avail of transponder capacity from both domestic/foreign satellites. This also shows that the user is by the communication company of the transponder capacity. Thus, the conclusion is inevitable that the "process" in the transponder is used by telecasting companies and not by the satellite companies. Whether absence of comma after the words secret formula or process in the Income-tax Act and exi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... may have its uses in some cases, but it cannot certainly be regarded as a controlling element and cannot be allowed to control the plain meaning of a text." Similarly, Lord Hobhouse stated: "It is an error to rely on punctuation in construing Acts of the Legislature." 206. In the case of Pope Alliance Corpn. it was held that it will be antecedently very improbable that it was meant really to alter the liability by displacement of a 'comma'. 207. A careful perusal of above decisions will reveal that if the statute in question is found to be carefully punctuated, in that case punctuation, though a minor element may be resorted to for the purpose of construction. If it is so, it has to be shown that the comma in DTAA has been placed carefully to give the phrase a different meaning. The format of Article 12 is based either on OECD model or on UN model and a universal approach has been adopted while drafting the DTAA. No material has been placed on record by the learned representatives of the satellite companies to show that the relevant provision in Article 12 of DTAA are carefully punctuated so as to alter the meaning of royalty as given in DTAA as compared to the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng given to the terms of the treaty in their context and in the light of its object and purpose". 11. Elaborating upon the principles governing interpretation of tax treaties, Lord Denning, in Bulmer Ltd. v. S.A. Bollinger [1972] 2 AER 1226, said: '...The treaty...is quite unlike any of the enactments we have been accustomed...It lays down general principles. It expresses aims and purposes...what are English Courts to do when they are faced with a problem of interpretation? They must follow the European pattern. No longer must they examine the words in meticulous detail. No longer must they argue about the precise grammatical sense. They must look to the purpose or intent...' 12. Echoing these views and justifying his departure from the plain meaning of the words used in the treaty, Goulding J. in IRC v. Exxon Corporation [1982] STC 356 at page 359, observed: 'In coming to the conclusion, I bear in mind that the words of the Convention are not those of a regular Parliamentary draftsman but a text agreed on by negotiations between the two contracting Governments. Although I am thus constrained to do violence to the language of the Convention, I see no reasons to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the relevant articles. That position rather supports the view that such receipts are in the nature of royalty. It has been also discussed elsewhere in this order that the word "royalty" has a wide meaning and a particular receipt, which otherwise fall within the ambit of royalty, cannot be excluded from its scope unless it is shown that it has been specifically excluded to be considered as royalty. There being no material on record to show such exclusion, the contention that such receipts do not fall within the ambit of royalty cannot be accepted particularly in the position when consideration for use of process is included within the ambit of royalty both under the domestic law as well as under the relevant DTAAs. 209. Here it will be relevant to mention that so far as it relates to existence of the 'process' in the transponder neither there is any difference between the two decisions of this Tribunal (AsiaSat's case and Pan AmSat's case), nor the existence of such process is denied by the ld. representatives of the assessees. This position is also clarified by the questions posed to this Special Bench. The questions proposed to this Bench are limited to the prop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be for the use of intellectual property only. It may be either for intellectual property or anything else which falls under the definition of royalty. If cumulative reading is given to the explanatory notes and above decision of Hon'ble Madras High Court, it will become clear that definition of royalties is wide enough to cover both industrial royalties as well as copyright royalties. It has already been pointed out that to fall within the ambit of royalty the "process" is not required to be secret one. The process can be any process which also include scientific process. The consideration for use of "process" has been treated to be as royalty under the provisions of domestic law as well as under DTAA. Therefore, in view of above position of law, the consideration paid for the user of process in transponder will fall within the ambit of royalty irrespective of the fact that the said process is secret or not. Application of principles of interpretation known as "ejusdem generis" and "noscitur a sociis" 213. The other arguments of the representatives of the assessees are that the process should be considered to be a right protected as intellectual property right. For this pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Bank of India v. Vijay Transport AIR 1988 SC 151. 216. It has been the contention of Ld. representatives of the assessees that the words mentioned in clause (iii) of Explanation 2 to section 9(1)(vi) are indicating to a class and category which are in the nature of intellectual property right. It was pointed out that the words patent, invention, model, design, secret formula or process or trade mark indicates that all these are in the nature of protected rights and the user of words "similar property" indicate that the class and category of protected intellectual right has not been exhausted by the enumeration and, therefore, general term has followed the enumeration and there being no different legislative intent, the word "process" should be understood in the nature of intellectual property right and, therefore, the process involved in transponder cannot be interpreted in the manner so as to make the consideration received by the assessee in the nature of royalty. 217. No doubt, clause (iii) of Explanation 2 to section 9(1)(vi) describe a class or category as the words mentioned therein enumerates the things which may fall in the category of intellectual property. However, it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ombay High Court in the case of Diamond Services International (P.) Ltd. In the said case, the petitioner was a company incorporated in Singapore and was a tax resident of Singapore. It provided value added services which supported the development of free, fair and competitive global diamond markets. The Petitioner charged Indian customers for grading and certification of diamond and giving reports in that regard. According to section 195, if any person responsible for paying to a non-resident any sum chargeable under the provisions of Income-tax Act, then, he is required to deduct income-tax thereon at the prescribed rates. Under sub-section (3) of section 195, such person can apply to income-tax officer for grant of a certificate for receipt of income without deduction of tax. It was the claim of the assessee therein that according to DTAA between India and Singapore such income was not taxable; therefore, certificate under section 195 was to be granted. It is for that purpose Article 12 relating to royalty and fee for technical services was examined by the Hon'ble Bombay High Court along with the provisions of Explanation 2 to section 9(1)(vi). It is in that context the defi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r operation, whereby a result or effect is produced." The picture which one views in T.V. is produced through a process starting with TV cameras uplinking the images which is very important part of this process which is started by the telecasting companies. The process involved in transponder is to receive uplinked data at a particular frequency as transmitted by the earth station of the telecasting company and to provide a requisite strength to uplinked data and then to transmit it back to the footprint area of the satellite at a particular frequency, so that the same can be viewed by the persons who are authorized to receive that data. If we go by the simple definition assigned to the word "process", then the process involved in transponder fulfil all the criteria. It is a series of actions, motions or occurrences and it is a continuous operation whereby a result or effect is produced. Picture which one views in TV is produced through a process starting with TV cameras uplinking the images which is very important part of this process which is started by the telecasting companies. Thus, a process is involved in the transponder which is utilised by the telecasting company to uplink ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . It will be important to mention here that development in technology has to be taken into account. The control over the process or equipment has to be seen in the context of a particular situation. For that purpose it has to be determined that who owns and control the process. No material has been brought on record by the satellite companies to show that they have better control on the process in the transponder as compared to the telecasting companies. Both the satellite companies as well as telecasting companies control their processes through the equipments installed at their respective ground station and earth stations. Even the satellite companies cannot have the physical control over the satellite as the same has to be accessed through the equipments installed on their ground stations. Similarly, the user of the transponder capacity is affected by the telecasting company through the equipments installed at their earth stations. Therefore, the control and management has to be seen in the context of satellite. Though the control of satellite is vested with the satellite companies, but after providing the required capacity of transponder by the satellite company to the telecast ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of any kind received as consideration for use of or the right to use any industrial, commercial or scientific equipment as covered under article 12(3)(b)." The questions posed in that case were as under:- (i) Whether payment due to the applicant under the transaction mentioned in Annexure B is liable to tax in India? (ii) If the answer to the question No. 1 is in the affirmative, whether the payment due to the applicant under the transaction mentioned in Annexure B is covered under article 12(3)(a) or article 12(3)(b) of the Double Taxation Avoidance Agreement between India and USA? The provisions of DTAA considered therein were as under:- "(3) The term 'royalties' as used in this article means: (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means or reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... para 14 to contend that direct object of the consideration is the use of the process and not merely where process is used to facilitate service for which consideration is paid. We may state here that we have gone through para 14. It is under the head "Business profits and payments for use of or right to use, a copyright." A tag is a report submitted by the Technical Advisory Group on the treaty characterization of electronic commerce payments. This report deals with the issues arising from e-commerce. Para 14 deals with the transactions which permit the customer to electronically download computer programmes or other digital contents which may give rise to give copyright by the customer because a right to make one or more digital content is granted under the contract. Therefore, report submitted by Technical Advisory Group on treaty characterisation of electronic commerce payments is not relevant at all for deciding the issue that whether or not consideration paid for granting space segment in transponder attracts the definition of royalty as given under the DTAA provisions. 226. It was submitted that whenever the word "use" or right to use is provided, then: (ii) there is compl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontract or a lease." 228. A perusal of para 28 reveal that these tests have been laid down only in respect of computer equipment (hardware). It cannot be made applicable to the transponder capacity for which it is difficult to assume a situation that the customer will be in the physical possession of the property. Moreover, the clause which has been considered by the tag is in respect of use or right to use of an industrial, commercial or scientific equipment whereas in the present case it is not with respect to use or right to use of, industrial, commercial or scientific equipment. This tag report to that extent is not relevant for the purpose of deciding the present issue. 229. The reliance has been placed on the following concurring observations of Hon'ble Justice Dr. A.R. Lakshmanan from the decision in the case of Bharat Sanchar Nigam Ltd.: "Dr. AR. Lakshmanan, J.-I had the privilege of perusing the judgment proposed by my learned sister Hon'ble Mrs. Justice Ruma Pal. While respectfully concurring with the conclusion arrived by the learned Judge, I would like to add the following few paragraphs: The principal issue that arises in this batch of cases relate to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rat Sanchar Nigam Ltd. was entitled to carry the activity of operating telegraph limited to the scope of telecommunication facilities. It was observed that entire infrastructure/instrument/appliances and exchange are in the physical control and possession of the Petitioner (BSNL) at all times and there is neither any physical transfer of such goods nor any transfer of right to use such equipment or apparatus. It was observed that to constitute a transaction for the transfer of the right to use the goods, the transaction must have some attributes described as above. Firstly, there should be "goods" available for delivery; there must be a consensus ad idem as to the identity of goods; the transferee should have a legal right to use the goods - consequently, all legal consequences of such use including any permission or licenses required thereof should be available to the transferee; for the period during which the transferee has such legal right, has to be the exclusion of the transferor and it was observed that this is necessary concomitant of the plain language of the statute viz., a "transfer of the right to use and not merely a licence to use the goods"; having transferred the ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o sale clement apart from the obvious one relating to the handset, if any. This judgment, in our view, does not have much of bearing on the issue that arises in the present application. However, it is worthy of note that the conclusion was reached on the application of the well-known test of dominant intention of the parties and the essence of the transaction." 232. Therefore also, it has to be held that the decision of Hon'ble Supreme Court in the case of Bharat Sanchar Nigam Ltd. has no application on the issue that arises in the present appeals. No doubt, the transaction has to be examined by applying the well known test of dominant intention of the parties and the essence of the transaction. The relevant terms of agreement entered into between the parties have elaborately been discussed in the earlier part of this order and it has been found that the dominant intention of the parties and essence of the transaction is that telecasting companies are making payment of consideration for use of the process in the transponder to enable themselves to carryon their business of telecasting the programmes through which they are earning profit. Without using the process in the transp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce of double taxation and the prevention of fiscal evasion with respect to taxes on income and capital gains (hereinafter referred to as 'treaty') and section 9(1)(vi) of Income-tax Act, 1961. 6.1 The relevant portion of Article 13 is extracted below:- 'Article 13: Royalties and fees for technical services.- (1) Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. (2) However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that State but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed (a) in the case of royalties within para 3(a) of this articles, and fees for technical Services within para 4(a) and (c) of this article,-....... (b) in the case of royalties within para 3(b) of this article and fees for technical services defined in para 4( b) of this article, 10 per cent of the gross amount of such royalties and fees for technical services. (3) For the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid by the applicant-ISRO under the terms of the agreement is in the nature of consideration paid for the 'use of' or 'right to use' the scientific equipment within the meaning of clause (b) of Article 13(3) of the treaty. 7.1 The crucial question that needs to be addressed, therefore, is whether the payment made to IGL under the aforementioned contract constitutes consideration for the use of or right to use equipment of IGL. To answer this question we have to discern the substance and essence of the contract as revealed from the terms of the contract document, the technical report and other facts furnished by the applicant. The first Article in the contract makes it clear that the payment is for the 'lease of navigation transponder segment capacity'. From the designated transponders (L1 and L5) of Inmarsat satellite. This capacity at a particular frequency is made available to the applicant through INLUS (Navigation Land Uplink Station) which is set up and operated by the applicant. The capacity is meant to be used for the purpose of providing an augmentation to global satellite navigation system. The capacity will be utilized through data commands issue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vations:- "7.4 It is contended by the revenue that in substance, there is use of equipment i.e. transponder by the applicant. The exclusive capacity of specific transponder is kept entirely at the disposal of the applicant. The use of transponder is ensured when it responds to the directions sent through the ground station. Such directions, it is stated, are akin to the operation of TV by remote control apparatus. We find it difficult to accept this contention. The fact that the transponder automatically responds to the data commands sent from the ground station network and retransmits the same data over a wider footprint area covered by Inmarsat satellite does not mean that the control and operation of transponder is with the applicant. Undoubtedly, the applicant does not operate the transponder: it gets access to the navigation transponder through the applicant's on network apparatus. The data sent by the applicant does not undergo any change or improvements through the media of transponder. In essence, it amounts to the provision of a communication navigational link through a facility owned by IGL and exclusively operated/controlled by it. The operation and regulation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of payments, namely,- (i) payments for supply of know how; and (ii) payments for provision of services. 241. Some criteria have been prescribed to make distinction in these two types of payments which are described as follows:- - Contracts for the supply of know-how concern information of the kind described in paragraph 11 that already exists or concern the supply of that type of information after its development or creation and include specific provisions concerning the confidentiality of that information. - In the case of contracts for the provision of services, the supplier undertakes to perform services which may require the use, by that supplier, of special knowledge, skill and expertise but not the transfer of such special knowledge, skill or expertise to the other party. - In most cases involving the supply of know-how, there would generally be very little more which needs to be done by the supplier under the contract other than to supply existing information or reproduce existing material. On the other hand, a contract for the performance of services would, in the majority of cases, involve a very much greater level of expenditure by the supplier in order to perf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of the Income-tax Act, it would be unnecessary to refer to the terms addressed in OECD or in any of the decisions of foreign jurisdiction or in any other agreements." 244. It was vehemently submitted by Mr. F.V. Irani that payment received by the assessee is not for the use of process. He insisted on the word "for" used in the statute to bring home the issue that the payments not being for use of process should not be considered as royalty. According to him, the telecasting companies were only interested, in telecasting their programme and not in using the process. They are unconcerned with the process. We do not find any force in such argument of Ld. Counsel as, according to the needs of the business, telecasting companies know that without using the process involved in the transponder, they will not be able to telecast their programmes in the desired area at a particular point of time. Thus, the payment of consideration is for the purpose of business which is being carried on by the telecasting companies in India. Without availing the said process, it is not possible for telecasting companies to telecast their programmes in India. It has been discussed above that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly be meant to cover such things taken as are capable of being provided by way of service for a fee. It was observed that popular meaning associated with "technical" is involving or concerning applied on the industrial signs. "Technical Service" referred to in section 9(1) contemplates rendering of "service" to the payer of the fee. Mere collection of a fee for use of a standard facility provided to all those willing to pay for it does not amount to fee having been received for technical services. Thus, it can be seen that what was interpreted was in the context of "fee for technical services" vis-a-vis deduction of tax for such fee. Whereas in the present case the issue is entirely different. We are concerned with the provisions defining the royalty which includes in its ambit many other aspects also. However, as discussed earlier, context is much important. The context before Hon'ble Madras High Court in that case was much different than the context involved in the present appeals. Therefore, decision in the case of Skycell cannot be applied to the present case. It can be seen that similar view has been taken by AAR in the case of Dell. The decision in the case of Skycell was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out earlier, the assessee entered into a composite indivisible turnkey project for setting up of a gas terminal in Gujarat. The contract consisted of both offshore and onshore services. It was not disputed by the parties that the assessee had a business connection in India and it had a permanent establishment in India. There was no dispute so as it relates to taxability of onshore supplies and onshore services. The dispute related only to the taxability of offshore supply and offshore services component. According to the revenue, offshore component was taxable under section 9(1)(vi)(C) of the Act as they were payments made by non-resident in respect of services utilised by a business or profession carried on by such non-resident in India or for the purpose of making or earning any income from any source in India and for considering such question that is regarding taxability of offshore supply and offshore service component under the provisions of section 9(1)(vi)(c) it was observed that to attract the tax liability the services should be utilised in India and they should also be rendered in India. Thus, the question before their Lordships were regarding taxability of the global re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rpose of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India. Here, in the present case telecasting companies are payer of consideration to satellite companies and the telecasting companies, are utilising these services for the purposes of either carrying on business or profession in India or for the purpose of making or earning any income from any source in India i.e., the amount received by them either from the persons who seek to advertise their products or from the cable operators who receive the transmitted signals by way of television programmes. Unless the beam through which the signals are retransmitted by the transponder cover the area in India, no effective business can be carried out either by satellite company or by telecasting company in the territory of India. The purpose of establishing geostationary satellite in the orbit which inter alia covers the footprint in India by the satellite company is only for the purpose of carrying on business. Similarly, obtaining transponder capacity to telecast desired programmes in India by the telecasting companies is also a business activity for e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as satisfied, it was ruled that the income relating to services rendered out of India could not be taxed under DTAA. Reference was made to section 9(1)(vii)(c) and it was held that the income which has been earned by the assessee from services rendered out of India could not be taxed. Here, in the present case, the consideration which is considered as royalty is not in respect of any services rendered out of India. Consideration is paid by the telecasting company in respect of transmission of signals to the Indian viewers. Therefore, the said decision of Hon'ble Bombay High Court also cannot be applied to the facts of the present case. Applicability of clause (vi) of Explanation 2 to section 9(1)(vi) 250. It has been held that process is involved in the transponder. The telecasting companies are using that process to uplink and downlink the data/images by obtaining segment capacity from satellite companies for which purpose the consideration is being paid by telecasting companies to satellite companies. Satellite companies and telecasting companies both of them are carrying on these activities to earn income. The source of income of satellite companies originate from India as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respective DTAA's. Insertion of 'comma' after the words "secret formula or process" in the respective DTAA's does not give different interpretation to the provisions of DTAA as compared to the provisions of domestic law. The process, even if it is construed to be intellectual property, for falling within the ambit of royalty, it is not necessary that the process should be protected one. The simple process, even if it is intellectual property, will fall within the ambit of royalty. For holding that consideration is in respect of royalty, it is not necessary that the instruments through which the process is carried on should be in the control or possession of the person who is receiving the payment. The context and factual situation has to be kept in mind while finding out that whether a process was actually used by the payer. In the case of satellites physical control and possession of the process can neither be with the satellite companies nor with the telecasting companies. The control of the process, by either of them will be through sophisticated instruments either installed at the ground stations owned by the satellite companies or through the instruments inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amounts to 'royalty' and if so, whether the same is liable to tax under section 9(1)(vi) of the Income-tax Act, 1961 read with relevant provisions of DTAA? Answer The payments received by assessee from their customers is on account of use of process involved in the transponder and it amounts to royalty within the meaning of section 9(1)(vi) of Income-tax Act, 1961. It also amounts to royalty within the meaning of respective Articles of DTAA. 254. Before parting, it may be mentioned that all the learned representatives of the respective assessees and revenue have argued their cases extensively. We have tried our best to incorporate their submissions in this order. While deciding the questions proposed to be answered by this Special Bench, we have kept in consideration all those submissions, arguments and case law. However, for the sake of brevity and for avoiding re-petition some of the authorities may not find place in the conclusion arrived at by us, but that does not mean that the same have not been given due consideration. We put our appreciation on record for the detailed and elaborate arguments advanced by the learned representatives of the assessees and revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X
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