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TMI Blog2012 (5) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... dent outside India on the basis of contract executed outside India, section 195 will not apply to such cases as held by in the case of Vodafone International Holdings B.V.(2012 (1) TMI 52 (SC)). Further, as prior to the insertion of Section 40(a)(i) in AY 2004-05, payments to a resident did not require TDS. Under the non-discrimination clause in the DTAA, the dis-allowance u/s 40(a)(i) in the case of non-residents cannot be made. See Herbalife International (2006 (2) TMI 220 (Tri)). Aforesaid view squarely apply in respect of payments made to Advanced Satellite( UK based company) for equipment and technical fees. As there is no change in the DTAA between India and UK, we have to hold that no dis-allowance can be made u/s 40(a)(i). No dis-allowance can be made in view of the nondiscrimination clause also. Dis-allowance u/s 40(a)(i) in respect of payments made to LMB(Mauritius) Ltd. for purchase of programmes - revenue contending the same to be payment for grant of broadcasting right - Held that:- Following proposition laid down in case of CIT vs B. Suresh (2009 (3) TMI 4 (SC)) and others it is held that that there is a sale of programmes, section 195 cannot be invoked in case of pur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd. Vs. DCIT (85 ITD 478) and that this decision has been reversed by Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co. Ltd. (332 ITR 340) and hence learned CIT(A)'s order has to be reversed. 9. The other contentions of the learned counsel can be summarised as follows:- (a) The payment by the assessee to PanAmSat Limited was in respect of facility which is provided to anyone willing to pay and not in respect of any technology which is "made available" and thus do not fall under Article 12 of the India USA/UK DTAA. (b) Since PanAmSat Limited does not have a PE in India, the above payments are covered under Article-7 of the DTAA and hence cannot be taxed in India. (c) The payment has been made by a non-resident to another nonresident, outside India and hence not taxable in India. Reliance was placed on Vodafone International Holdings B.V. [341 ITR 1(SC)] (d) He relied on 'non-discrimination' article in Indo-US DTAA and submitted that no disallowance can be made in the case of the non-resident assessee u/s. 40(a)(i), as under similar circumstances 40(a)(i) cannot be invoked in the case where similar payment are made to a resident of India. He rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng in DHV Consultants B.V. in RE 227 ITR 97 (AAR) and argued that the expression "borne by" means "deductable" or "liable to be deducted" Alternatively he submitted that the payment to PanAmSat Limited is taxable as "Fee for technical services". On discrimination clause, he submitted that the provisions of the Act have to be considered and implemented. 13. In reply learned counsel for the assessee submits that the proposed amendment to the Finance Bill, 2012 will have no bearing on the case as there is no change in the relevant DTAA and the beneficial provisions of DTAA will be applicable in terms of section 90(2) of the Act. On the argument that under provisions of Income tax Act, source rule is attracted, it was submitted that "PanAmSat Limited" is resident of USA and application of source rule is to be examined under the DTAA between India and USA and that clause (a) and clause (b) of Article 12.7 of the said DTAA is mutually exclusive. He submitted that if income arise in USA in accordance with clause (a), then in respect of such income, clause (b) is irrelevant and it is not permissible to look into it. He argued that the payment received by PanAmSat Limited from a non-reside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o steps were not carried out in India. Merely because the footprint area included India and the programmers by ultimate consumers/viewers watched the programmes in India, even when they were uplinked and relayed outside India, that would not mean that the assessee was carrying out its business operations in India. The expressions "operations" and "carried out in India" occurring in Explanation 1(a) to section 9(1)(i) signify that it was necessary to establish that any part of the assessee's operations were carried out in India. No machinery or computer was installed by the assessee in India through which the programmes reached India. The process of amplifying and relaying the programmes was performed in the satellite which was not situated in Indian airspace. Even the tracking, telemetry and control operations were performed outside India in Hong Kong. There was no contract or agreement between the assessee either with the cable operators or viewers for reception of signals in India. Thus, section 9(1)(i) was not attracted. (ii) That the process of transmission of television programmes started with television channels (customers of the assessee) uplinking the signals containing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India. The payment made by the telecast operators situated abroad to the assessee which was also a non-resident did not represent income by way of royalty as defined in Explanation 2 to section 9(1)(vi) of the Act. Article 12 of the model double taxation avoidance agreement framed by the Organisation of Economic Co-operation and Development contains a definition of "royalty" which is in all material respects virtually the same as the definition of "royalty" contained in clause (iii) of Explanation 2 to section 9(1)(vi) of the Act. The commentary issued by the OECD can be relied upon. (iv) That the Tribunal rightly admitted the additional ground on the question of applicability of section 9(1)(vii) on the ground that it was purely legal and did not require consideration of any fresh facts, as all necessary facts for adjudication whether the amount received was chargeable to tax under section 9(1)(vii) were available on record. However, no arguments having been advanced by the Department on this ground, it had to be presumed that the case was not sought to be covered under this provision." 15. Coming to argument of learned Departmental Representative that this is a process Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld that to make available technical knowledge, mere provisions of service is not enough and payer must be enabled to perform services himself. Thus, the issue in question is covered in favour of the assessee by the above decisions. 17. Coming to the argument of learned Departmental Representative that the amendment to the Finance Act, 2012 changes the position, we find that there is no change in the DTAA between India and USA. Thus, the amendments have no affect on our decision. Even otherwise as the payment is made from one non-resident to another non-resident outside India on the basis of contract executed outside India, section 195 will not apply to such cases as held by Hon'ble Supreme Court in the case of Vodafone International Holdings B.V. (WP No. 1942 of 2007) 341 ITR 1 (SC). Thus on this ground also no disallowance can be made u/s. 40(a)(i) of the Act. Even under the non-discrimination clause the disallowance cannot be made. In the case of Herbelife International India (P) ltd., it is held as follows :- "Held : The provisions of s. 40(a)(i) as it existed prior to its amendment by Finance Act, 2003, w.e.f. 1st April, 2004 provided for disallowance of payment made to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionship between the assessee and the payee-concerns. As per the provisions of section 40(a)(i) applicable to the relevant year no disallowance could be made in respect of payments made to the residents on the ground of non-deduction of lax at source. Therefore, in view of the provisions of article 26(3), no disallowance could be made in case of payments to the non-residents also even if the amount was found taxable in India in their hands. Thus, the order of Commissioner (Appeals) confirming the disallowance could not be upheld. Accordingly, the order of the Commissioner (Appeals) was to be set aside and the claim of the assessee was to be allowed." The Delhi Bench of the Tribunal in Millennium Infocom Technologies Ltd. v/s ACIT, [2008] 21 SOT 152 (Del.), has also taken a similar view. The learned Departmental Representative could not bring on record any contrary decision. Under these circumstances, we follow the decisions of co-ordinate bench of the Tribunal and dismiss this ground of the Revenue. 18. Thus on this ground also, no disallowance can be made. Thus for all these reasons we allow this ground of the assessee and hold that the assessee need not deduct tax at source u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by two separate invoiced and hence there is no ambiguity. 24. After hearing rival contentions, we are of the considered opinion that the conclusion drawn by us in the case of PanAmSat Limited squarely cover the issue on hand. As there is no change in the DTAA between India and UK, we have to hold that no disallowance can be made u/s. 40(a)(i). No disallowance can be made in view of the nondiscrimination clause also. Thus for the very same reasons on which ground No. 3 has been allowed, we allow ground No. 4. 25. Ground No. 5 is on the disallowance u/s. 40(a)(i) on payments made to LMB(Mauritius) Ltd. which is a resident of Mauritius. The assessee submits that the payment in question is for outright purchase of programmes and hence it should be considered as business receipts of the foreign company. Referring to the Agreement, specific reference is made to clause 2(ii), 2(iv), 3&4. It is submitted that these clauses deal with the sale and delivery of programmes to the assessee, which are existing as on the date of the Agreement and also which are to be developed over a period of six years. The assessee, has right to sublicense to the third party, promote and amend programmes witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, is to be judged based on the Agreement between the parties which is at page 119 to 126 of the assessee's paper book. Perusal of this Agreement demonstrates that LMB (Mauritius) Ltd. is called the "seller" and B4U International is called the "buyer". At page 119 the Agreement reads as follows :- "(A) The Seller is the sole and exclusive owner of Indian Film and Music based "programming content" ("said Programmes") details of which are set out in Schedule A to this Agreement. (B) The Buyer is desirous of obtaining broadcasting rights of the said Programmes on B4U Music for the territory of the India Sub Continent and or other Asian countries, the Middle East wherever relevant (the "Territory") for the purpose of exploiting such rights through the broadcasting operations of its subsidiaries, associates operating in the Territory. (C) The Buyer has approached the Seller for the grant of such Buyer rights ("License") of the said Programmes, for the Territory. (D) This Agreement sets out the terms agreed by both parties for the grant of the License of the said Programme. 2.1 In consideration of the undertakings of the Buyer in this Agreement and subject to and conditional on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TV for five years and claimed for deduction u/s. 80HHC of the Income Tax Act, 1961. Hon'ble Supreme Court held that telecasting rights fell in the category of articles of trade and commerce and hence within category of "merchandise" and the transfer of the said rights by way of lease fell within the meaning of "sale" and attract 80HHC. Mumbai Bench of the Tribunal in the case of Far Video Films (P) Ltd Vs. ACIT Circle 1(6) (15 SOT 385) was considering a case where the assessee company was engaged in the business of producing TV commercials, as per specifications of clients located abroad. The assessee claimed deduction u/s. 80HHC on the basis that it was an exporter of films. The Assessing Officer disallowed the claim on the ground that the exhibition and telecast rights were intangible and could not be termed as goods and merchandise in respect of export of advertisement films. Commissioner (Appeals) held that the assessee was rendering only job work services and no goods were sold. On appeal, the Tribunal held that the transaction was that of 'sale'. Thus proposition laid down in these case laws, when applied to the facts of the case, we have to hold that there is a sale of prog ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 2 to section 9(1)(vi) defines the term "royalty". In subclause (v) reads as follows :- "The transfer of all or any rights (including the granting of a licence) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of Cinematographic films." Thus, consideration paid for sale distribution or exhibition of Cinematographic films, does not fall within term Royalty in view of Explanation 2 sub-clause (v) to section 9(1)(vi) of the Act. Perusal of the Agreement dated 1.9.2000 between LMB Holdings Isle of Man and the assessee, demonstrate that the assessee is a buyer and LMB Holdings is a seller. At paragraph 2.1, 3&4 & 10 reads as follows :- "2.1 In consideration of the undertakings of the Buyer in this Agreement and subject to and conditional on the full and timely warranties and undertakings in this Agreement the Seller grants to the Buyer: (v) The License to all commercial & non-commercial "Broadcasting Rights" of the said Programmes, either by Satellite, Cable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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