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TMI Blog2013 (9) TMI 187X X X X Extracts X X X X X X X X Extracts X X X X ..... nder on the satellite, uplinked programmes are transmitted from the space taken on the transponder to the entire footprint of satellite. The assessee, it is submitted, had taken space on the transponder on Asiaset/satellite through assessee's subsidiary M/s. Expand Fast Holding Ltd. to enable the transmission of the uplinked programmes. The AO noted that that assessee had not deducted tax on the payment of transmission fees to M/s. Expand Fast Holding Ltd., the non-resident company. The assessee explained that it had leased space on the transponder and it was neither in the control nor was able to operate satellite or transponder by itself. The transponder was receiving uplinked programmes and broadcasting it to the larger footprint of the satellite and there was no processing done by the satellite nor was any operation done by the assessee. The assessee had only used facility/space and there was no use of any equipment nor were any technical services provided. The payment was therefore, neither royalty nor fee for technical services provided. Thus, no tax was required to be deducted. 2.1 The assessee placed reliance on the judgment of AAR in the case of ISRO Satellite Center (AAR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the fee was also of the nature of royalty as the instruments and engineering personnel had special knowledge obtained through years of applied research and technical up-gradation. The payment was thus a combined payment towards cumulative knowledge for operation of equipments and towards use of apparatus and the personnel manning these apparatus. Payment had thus the nature of royalty as well as fee for technical services. The AO also referred to the decision of the Tribunal in the case of Asstt. CIT v. Sanskar Info TV (P.) Ltd. [2008] 24 SOT 87 (Mum.) in which it was held that the transponder fee paid by the assessee to the foreign company was covered by the definition of royalty chargeable to tax under provisions of section 9(i)(vi). The AO therefore held that the assessee was liable to deduct tax at source which was not done and, therefore he disallowed the claim under section 40(a) of the Act. 2.3 In appeal, the CIT(A)referred to the decision of the Special Bench in case of New Skies Satellites BV v. Asstt. DIT (IT) [2009] 121 ITD 1 (Delhi) (SB) in which it was held that receipts on account of use of transponder were taxable in the hands of the foreign company. CIT(A) als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on Ltd. v. Dy. CIT [2001] 119 Taxman 496 in which it was held that mere collection of fee for use of standard facility could not be considered as fee for technical services. It was thus held that payment was neither royalty nor fees for technical services. The Tribunal had also referred to the non discrimination clause in the treaty as per which the non-resident companies could not be discriminated viz-a-viz domestic company and since there was no provision for deducting tax in case of domestic companies, it was held that the assessee could not be liable to deduct tax in relation to payment made to foreign companies. It was thus submitted that the issue was fully covered in favour of the assessee and, therefore, the claim should be allowed. 3.1 The ld. DR on the other hand submitted that the judgments cited by the ld. AR related to pre-amendment period. Since the amendment to section 91(vi) had retrospective application, it has to be considered as legal position since inception and therefore would apply in case of the assessee. As regards the incorporation of the amendment in the treaty, it was submitted that the assessee had not claimed the benefits of the treaty and it was not k ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. Ltd. (supra), in which it has been held that the transponder fee was neither royalty nor fee for technical services and, therefore, no tax was required to be deducted by the assessee. The Hon'ble High Court held that the payment was not for lease of any equipment but only for giving access to broadband width on the transponder. The assessee had no right in the property. It had only access to the transponder capacity and the transponder remained under the control of the satellite operator. The assessee had only used standard facility of the transponder on the satellite. The payment was thus held not of the nature of royalty. Before the High Court, the department had not raised any arguments that the payment was of the nature of fees for technical services though it had raised additional ground before the Tribunal who had admitted the same. The ld. AR for the assessee, therefore, argued that the issue was covered in favour of the assessee by the judgment of Hon'ble High Court of Delhi in case of Asia Satellite Telecommunication Co. Ltd. (supra). It has also been pointed out that though there has been amendment in section 9(1)(vi) by the Finance Act, 2012 with retrospective effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmanent establishment (PE) through its holding company i.e. the assessee. Obviously, therefore, the income arising in case of M/s. EFHL on account of payment made by the assessee may be taxable as business income. It was a contractual payment by the assessee in connection with the business which is chargeable to tax in India and, therefore, the provisions of section 40(a) are apparently attracted. Further in respect of such payments in case of the domestic companies also, tax is deductible under section 40(a)(ia). Therefore assessee will not get protection of non-discrimination clause as per the treaty. These aspects have not been examined by the authorities below who applied the provisions of Section 40(a) only on the limited ground of royalty/fees for technical services. Though, the assessee, as is clear from the assessment order, had filed copies of separate agreements between Zee Telefilms and M/s. EFHL as well as between M/s. EFHL and Asiasat but these have not been examined. The authorities below have disallowed the claim on the ground of non deduction of tax at source under section 40(a) treating the payment as royalty. Since the dispute before the Tribunal is regarding disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not accept the contention raised. It was observed by him that the expenditure incurred was in relation to expansion and extension of business conducted by the assessee in the field of television and setting of new regional channels. He also observed that there was a clear provision in section 35D(2)(c)(iv) as per which expenses incurred in connection with issue of shares or debentures were covered for amortization. The AO also referred to the decision of the Special Bench of the Tribunal at Ahmedabad in the case of Ashima Syntex Ltd. v. Asstt. CIT [2006] 100 ITD 247 in which it was held that expenses incurred in connection with the issue of debenture have been held to be covered by the provisions of section 35D. The AO, therefore, allowed only 1/5th of the said expenditure during the year. 5.1 The assessee disputed the decision of AO and submitted before CIT(A) that AO had placed reliance on the decision of the Tribunal in the case of Ashima Syntex Ltd. (supra), which related to issue of fully convertible debentures whereas in case of the assessee the debentures were optionally convertible. It was also submitted that, by the issue of FCCB the assessee had only raised unsecure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5.3 The ld. DR on the other hand strongly supported the orders of authorities below. It was argued that section 35D was a special provision for amortization of certain expenses incurred in connection with the expansion and extension of business and, therefore, it will have precedence over general provisions of section 37. For the said proposition, he placed reliance on the judgment of Hon'ble High Court of Madhya Pradesh in case of Shree Synthetics Ltd. v. CIT [2008] 303 ITR 451 which related to the case of partly convertible debentures and the Hon'ble Court held that even non-convertible debentures were covered by the provision of section 35D (2)(c)(iv). The Hon'ble High Court also observed that Section 35D being special provision prevailed over the general provisions and therefore expenditure incurred for issue of debentures convertible or inconvertible had to be amortized under section 35D. It was accordingly urged that the order of CIT(A) should be upheld. 5.4 In reply, the ld. AR submitted that Circular No.56 dated 19.3.71 of CBDT had specifically clarified that the provisions of amortization were not intended to supersede any other provisions of the Act as per which expens ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t any expenditure incurred which is allowable as deduction in view of the judgment of Hon'ble Supreme Court in case of India Cements Ltd. (supra) will not be covered by the provisions of section 35D. The Hon'ble Supreme Court in the said case have held that expenditure incurred in connection with borrowing of capital for the purpose of existing business is required to be allowed as business expenditure. There are also judgments of several High Courts as mentioned in para 5.2 earlier in which it has been held that expenditure incurred in connection with issue of debentures even if it is fully convertible is allowable as revenue expenditure and is not required to be amortised under section 35D. However, there is also a contrary judgment of Hon'ble High Court of Madhya Pradesh in the case of Shree Synthetics Ltd. (supra), in which it has been held that Section 35D being a special provision will prevail over general provisions of the Act and that, in view of specific provision of section 35D(2)(c)(iv), expenditure incurred even on non convertible debentures is required to be amortised. The ld. AR has argued that there being conflicting judgments, the interpretation which is favourable ..... X X X X Extracts X X X X X X X X Extracts X X X X
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