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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 ..... nds are on applicability of TDS provisions u/s. 195 and consequently issue of disallowance u/s. 40(a)(i) of the Act. As we have held that there is no PE, the question of a claim being made and disallowing such a claim for expenditure u/s. 40(a)(i) does not arise. In any event as we have heard the matter at length we consider the issue on merits and dispose of the issues. 5. Ground No. 3 is disallowance made u/s. 40(a)(i) on payment for hiring charges for transponder, paid to PanAmSat Limited on the ground that no tax has been deducted at source by the assessee, u/s. 195 of the Act. 6. The Assessing Officer discussed this issue at paragraph 5.6.2 of his order. He held that the payments made were for hire of transponder and hence is in the nature of 'Royalty' and hence income received by "PanAmSat Limited" and "Advanced Satellite" is taxable in India as per DTAA between India and the country of residence of PanAmSat Limited and Advanced Satellite i.e. U.S.A. and U.K. respectively. 7. On appeal, the first appellate authority observed that in the case of PanAmSat Limited, Indo-US tax treaty is applicable. He negatived the contentions of the assessee. 8. Learned counsel for the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -existence of a PE, is not relevant. He contended that in the decision of ITAT in "PanAmSat Limited", it was held that the term "royalty" in Article 12 of Indo-US DTAA, there was a 'comma' after the world "secret formula or process" and it was only "secret process" which would qualify as royalty and not what was provided by the assessee and therefore payment made to "PanAmSat Limited" will not be held as royalty as there is no "secrete process". 12. He pointed out that Special Bench in the case of "New Sky Satellite" (121 ITD 1)(SB), reversed this proposition and it was held that, provision of a transponder through which telecasting companies are able to uplink the desired images/data and de-link the same in the desired areas is a "process". To constitute 'royalty' it is not necessary that the 'process' be a "secrete process". Hence he submits that the fact that there is a coma after the words "secrete formula or process" in the DTAA does not mean that different interpretation has to be given to the DTAA, as compared to the Act. Thus he contends that the payment for use of process is assessable as royalty both under the Act and DTAA. He submitted that the AR is making fresh argume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Skycell Communications Ltd. v. Deputy Commissioner of Income-tax (251 ITR 53) for the proposition that the payment is not in consideration for making available technical services. Reliance was placed on the following case laws :- * Raymond Ltd. v. Deputy Commissioner of Income-tax (86 ITD 791)(Mum). * Dy.CIT Vs. Boston Consulting Group Pte Ltd.(94 ITD 31)(Mum) 14. Rival contentions heard. On careful consideration of the facts and circumstances of the case and the papers on record and case law cited, we hold as follows :- The issue stands covered in favour of the assessee and against the revenue by the decision of Hon'ble Delhi High Court in the case of Asia Satellite Communication Co. Ltd. Vs. DIT (332 ITR 340), where it is held as follows:- "Held,_ (i) that under the agreement with television channels, the role attributed to the assessee was as follows : (i) programmes were uplinked by the television channels (admittedly not from India) ; (ii) after receipt of the programmes at the satellite (at locations not situated in Indian airspace), these were amplified through complicated process ; and (iii) the programmes so amplified were relayed in the footprint area includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts of the satellite. Consequently, it is entirely wrong to assume that a transponder is a self-contained operating unit, the control and constructive possession of which is or can be handed over by the satellite operator to its customers. The terms "lease of transponder capacity", "lessor", "lessee" and "rental" used in the agreement would not be the determinative factors. There was no use of "process" by the television channels. Moreover, no such purported use had taken place in India. The telecast companies/customers were situated outside India and so was the assessee. The agreements under which the services were provided by the assessee to its customers were executed abroad. The transponder was in orbit. Merely because it had its footprint on various continents that would not mean that the process had taken place in India. ISRO Satellite Centre [ISAC], In re [2008] 307 ITR 59 (AAR), Ishikawajima-Harima Heavy Industries Ltd. v. DIT [2007] 288 ITR 408 (SC) and Lakshmi Audio Visual Inc. v. Asst. CCT [2001] 124 STC 426 (Karn) applied. (iii) That the money received from the cable operators by the telecast operators was treated as income by these telecast operators which had accrue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the facility of being able to communicate with others, he does not contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. The fact that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber, does not on that score, make it provision of a technical service to the subscriber. The subs- criber is not concerned with the complexity of the equipment installed in the exchange, or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed telephone service. Neither service can be regarded as "technical ser- vice" for the purpose of section 194J of the Act". 16. Moreover a mere rendering of service cannot be considered as making available FTS. Recently Hon'ble Karnataka High Court in the case of CIT Vs. DE BEERS India Minerals Pvt. Ltd., upheld the proposition laid down by the Mumbai Bench of the Tribunal in the case of R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view taken in Central Bank of India (supra), wherein it is held as follows:- "The dispute was regarding disallowance of deduction claimed by the assessee on account of payments made to Master Card and VISA cards. The said payments were made by it for the services rendered by the foreign non- residents and disallowance had been made under section 40(a)(i) on the ground that no tax had been deducted at source. The assessee's case was that the said payments were not taxable in the hands of the payees-nonresidents as they did not have any permanent establishment in India. Alternatively, it was argued that even if the amounts were taxable in the name of the non-residents, the deduction claimed on account of payments could not be disallowed in case of the assessee in view of the article 26(3) of the Indo- US Double Taxation Avoidance Agreement. On perusal of said article, it became apparent that the said article protects the interests of the non-residents vis-a-vis residents. The article provides that payments made to the non-resident would be deductible under the same conditions as the payments were made to a resident. The exceptions provided in the article 26(3) were not appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services provided by Advanced Satellite then in such a case, amendment will not have any bearing on the payments to Advanced Satellite. He referred to the Agreement and submitted that conceptually nature of services is the same in both the cases. He pointed out that the Agreement for the use of facilities which are standard facilities i.e. reception and transmission of signals wherein programme is delivered by the assessee to the Advanced Satellite on video tape for transmission via a circuit. It was submitted that technical staff and equipments used to provide technical services are belonging to or hired by or under the control of Advanced Satellite. It was submitted that the application of source rule is to be examined under Indo-UK DTAA Article 13.7. 23. On the other issues similar arguments were advanced by learned AR as in the case of payments made to PanAmSat Limited. Referring to Article 13.7 of Indo-UK DTAA, he submitted that the payment has been made by the appellant who is a non-resident to another non-resident and accordingly royalty did not arise in India, in terms of the said Article. He reiterated his contention that the burden of the payment is not borne by PE in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... crue in India as it is not incurred in relation to PE in India and such royalty is not required to be borne by PE in India. He pointed out that Mauritius Company does not have PE in India. Reliance was placed on the decision of Sat Satellite (Singapore) Pte Ltd (132 TTJ 459). 27. Learned Departmental Representative on the other hand contended that this is not a case of outright purchase of programmes, but a payment for use of broadcasting rights. He contended that Hon'ble Supreme Court Judgement in the case of B. Suresh (supra) pertains to provisions of section 80HHC and hence cannot be relied upon. He argued that Mauritius Company has not produced tax residency certificate and hence the benefit of treaty cannot be given. 28. In the reply learned counsel for the assessee submitted that tax residency certificate is filed as additional evidence and is at page 175 of assessee's paper book-2. It was stated that tax residency certificate was not available earlier and it was subsequently obtained and hence it should be admitted as additional evidence. It was reiterated that this is a case of purchase of films. 29. After hearing rival contentions, we find that the issue as to whether i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd does not include Programmes what are likely to be produced in the near future). b. The Seller shall also deliver free of charge such available publicity material such as promos, photo sets, posters, trailers, extracts etc and other materials in respect of the said Programmes. c. The Seller shall, deliver on loan to the Buyer specified play out center good Digi-Betacam copies of all Programmes at least 48 hours in advance of the scheduled broadcast of the Programme. 4. BUYER'S OBLIGATIONS The Buyer agree and covenant with the Seller that:- b. In consideration of the License granted hereunder by the Seller, the Buyer shall pay to the Seller the Programming Charges as set out in Paragraph 5.1 and payment shall be made in accordance to the terms and conditions provided in Paragraph 6. 10. The Buyer shall have the right to take all necessary steps (including registration of copyright where the Buyer shall deem necessary) to have the copyright in the Programme and the Delivery Material and the rights granted to the Buyer under this agreement protected throughout the Territory." 30. Hon'ble Supreme Court in the case of B. Suresh (supra) has considered a case where the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India nor business connection, profit from sale of films cannot be taxed in India. Thus he argues that section 40(a)(i) cannot be invoked. It is argued that alternatively if the payment is considered as for royalty, then it is related to business of broadcasting carried outside India and hence not covered by section 9(1)(vi). Reliance was also placed on the decision of Supreme Court in the case of Vodafone International Holdings B.V. and argued that the payment of a non-resident to another non-resident does not attract T.D.S. provisions. 33. Learned Departmental Representative argued that the payments made for Cinematographic films is covered by clause (v) of Explanation 2 to section 9(1)(vi). He referred to the Agreement between the assessee and LMB Isle of Man which is at page 238 to 246 of the assessee's paper book and submitted that it was a case of obtaining broadcasting right of films on B4U Movies on the territory of Indian sub-continent and other Asian countries and hence not sale of films. 34. Learned counsel for the assessee replied that the assessee is carrying on its broadcasting business outside India and this is a case of purchase of Cinematographic films for LMB Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extracts etc and other materials in respect of the said Programmes. f. The Seller shall, deliver on loan to the Buyer specified play out center good Digi-Betacam copies of all Programmes at least 48 hours in advance of the scheduled broadcast of the Programme. 4. BUYER'S OBLIGATIONS The Buyer agree and covenant with the Seller that: b. In consideration of the License granted hereunder by the Seller, the Buyer shall pay to the Seller the Programming Charges as set out in Paragraph 5.1 and payment shall be made in accordance to the terms and conditions provided in Paragraph 6. 10. The Buyer shall have the right to take all necessary steps (including registration of copyright where the Buyer shall deem necessary) to have the copyright in the Programme and the Delivery Material and the rights granted to the Buyer under this agreement protected throughout the Territory." 36. As the conditions are same as in the case of purchase of programmes from LMB Mauritius in our opinion propositions followed by us applies to this issue also. Thus the amount in question is not liable to tax in India and consequently the question of deduction of tax u/s. 195 does not arise. Thus there is no lia ..... X X X X Extracts X X X X X X X X Extracts X X X X
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