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TMI Blog2019 (10) TMI 910X X X X Extracts X X X X X X X X Extracts X X X X ..... e : Sh. N. K. Bansal, Sr. DR ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: The present appeal has been filed by the revenue against the order of the ld. CIT(A)-43, New Delhi dated 30.05.2016. Issue of Payment for transponder charges. 2. All the grounds taken up by the revenue deal with the issue whether the payment made by the assessee amounts to royalty and liable to the provisions of TDS or not, and interpretation of provisions pertaining to Indo-US DTAA. 3. The Assessing Officer held that the assessee has failed to comply the provisions of TDS on the payment made to M/s Intelsat Corporation USA on account of payment of transponder charges for the satellite facility provided. The Assessing Officer held that fee for use of transponder and uplinking facility on the satellite was covered under the definition of the royalty as per the provisions of the Income Tax Act. This issue has been dealt straight away by the Hon ble Delhi High Court in ITA 473/2012 in DIT Vs New Skies Satellite BV. The relevant question framed by the Hon ble Court is as under: (1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith a view to avoiding double-taxation of cross-border transactions would be frustrated. 51. Pertinently, this Court in Director of Income Tax v Nokia Networks specifically dealt with the question of the effect of amendments to domestic law and the manner of their operation on parallel treaties. The Court delivered its judgment in the context of the very amendments that are in question today; the Explanations to Section 9(1)(vi) vis a vis the interpretation of a Double Tax Avoidance Agreement. This Court rejected that any amendment could change the situation and render the service or activity taxable, in the following observations: He, thus submitted that the question of copyrighted article or actual copyright does not arise in the context of software both in the DTAA and in the Income Tax Act since the right to use simpliciter of a software program itself is a part of the copyright in the software irrespective of whether or not a further right to make copies is granted. The decision of the Delhi Bench of the ITAT has dealt with this aspect in its judgment in Gracemac Co. Vs. ADIT 134 TTJ (Delhi) 257 pointing out that even software bought o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Moreover, a treaty of this nature is a carefully negotiated economic bargain between two States. No one party to the treaty can ascribe to itself the power to unilaterally change the terms of the treaty and annul this economic bargain. It may decide to not follow the treaty, it may chose to renege from its obligations under it and exit it, but it cannot amend the treaty, especially by employing domestic law. The principle is reciprocal. Every treaty entered into be the Indian State, unless self-executory, becomes operative within the State once Parliament passes a law to such effect, which governs the relationship between the treaty terms and the other laws of the State. It then becomes part of the general conspectus of domestic law. Now, if an amendment were to be effected to the terms of such treaty, unless the existing operationalizing domestic law states that such amendments are to become automatically applicable, Parliament will have to by either a separate law, or through an amendment to the original law, make the amendment effective. Similarly, amendments to domestic law cannot be read into treaty provisions without amending the treaty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s supplied) Article 12(4), Indo Netherlands Double Tax Avoidance Agreement 4. The term royalties as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. (emphasis supplied) Section 9(1)(vi), Explanation 2, Income Tax Act, 1961 (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (emphasis supplied) 55. The slight but apparently vital difference between the definitions under the DTAA and the domestic definition is the presence of a comma following the word process in the former. In the initial determinations before various ITATs across the country, much discussion took place on the implications of the presence or absence of the comma . A lot has been said about the relevance or otherwise of punctuation in the context of statutory ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated or not would be to see what the consequence would be had the section been punctuated otherwise. Would there be any substantial difference in the import of the section if it were not punctuated the way it actually is? While this may not be conclusive evidence of a carefully punctuated provision, the repercussions go a long way to signify intent. If the inclusion or lack of a comma or a period gives rise to diametrically opposite consequences or large variations in taxing powers, as is in the present case, then the assumption must be that it was punctuated with a particular end in mind. The test therefore is not to see if it makes grammatical sense but to see if it takes on any legal consequences . 58. Nevertheless, whether or not punctuation plays an important part in statute interpretation, the construction Parliament gives to such punctuation, or in this case, the irrelevancy that it imputes to it, cannot be carried over to an international instrument where such comma may or may not have been evidence of a del iberate inclusion to influence the reading of the section. There is sufficient evidence for us to conclude that the process ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or scientific (ICS) equipment in the definition of royalties, the characterization of the payment will depend to a large extent on the relevant contractual arrangements. Whilst the relevant contracts often refer to the lease of a transponder, in most cases the customer does not acquire the physical possession of the transponder but simply its transmission capacity: the satellite is operated by the lessor and the lessee has no access to the transponder that has been assigned to it. In such cases, the payments made by the customers would therefore be in the nature of payments for services, to which Article 7 applies, rather than payments for the use, or right to use, ICS equipment. A different, but much less frequent, transaction would be where the owner of the satellite leases it to another party so that the latter may operate it and either use it for its own purposes or offer its data transmission capacity to third parties. In such a case, the payment made by the satellite operator to the satellite owner could well be considered as a payment for the leasing of industrial, commercial or scientific equipment. Similar considerations apply to payments made to lease or purchase the cap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ahmedabad Manufacturing and Calico Printing Co., [139 ITR 806 (Guj.)] at Pages 820-822. (b) Commissioner of Income Tax Vs. Vishakhapatnam Port Trust [(1983) 144 ITR 146 (AP)] at pages 156-157. (c) N.V. Philips Vs. Commissioner of Income Tax [172 ITR 521] at pages 527 538-539. 59. On a final note, India s change in position to the OECD Commentary cannot be a fact that influences the interpretation of the words defining royalty as they stand today. The only manner in which such change in position can be relevant is if such change is incorporated into the agreement itself and not otherwise. A change in executive position cannot bring about a unilateral legislative amendment into a treaty concluded between two sovereign states. It is fallacious to assume that any change made to domestic law to rectify a situation of mistaken interpretation can spontaneously further their case in an international treaty. Therefore, mere amendment to Section 9(1)(vi) cannot result in a change. It is imperative that such amendment is brought about in the agreement as well. Any attempt short of this, even if it is evidence of the State s discomfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; and also under Article 12(3)(b) of Indo-US-DTAA. Similarly, the up linking charges paid for up linking the channels to PanAmSat Satellite for delay in transmission and for up linking signals for live events from the venue of the events to the satellite have been treated to be 'royalty'. Since, the assessee had not deducted TDS under section 195, disallowance under section 40(a)(i) has been made. The assessee's case before us is that, firstly, PanAmSat is a USA based company, therefore, Indo-US IDTAA is applicable and since it does not have any PE or business connection in India, therefore, the payment made to a non-resident outside India for availing service of equipment placed outside India cannot be taxed in India. In support of such a contention decision of Hon'ble Bombay High Court in the case of DIT vs. Set Satellite (supra) has been relied upon. In any case, it has been submitted that, even otherwise also the definition of royalty under Article 12(3) of Indo-US-DTAA is also not applicable, because transponder charges is only use of facility and it is not an equipment and does not amount to use of any copyright effecting work, secret formula, process etc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to be considered or seen or any amendment made in such definition whether retrospective or prospective which can be read in a manner so as to extend any operation to the terms as defined or understood in the Treaty. The Legislature or Parliament while carrying out amendment to interpret or define a given provision under the Domestic Law of the country cannot supersede or control the meaning of the word which has been expressly defined in a Treaty negotiated between executives of two sovereign nations. The payment of transponder charges to PanAmSat and up linking charges cannot be treated as a consideration for 'use' or 'right to use' any copyright of various terms used in para 3(a) like copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting or in any manner relates to any patent or trademark, design, secret formula or process. It is also not use or right to use any industrial, commercial, or scientific equipment. There is no such kind of right to use which is given by Pan Am Sat to assessee. Thus, the said payment does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plication of the amendments to the DTAA. While TV Today, supra note 22 recognizes that the question will have to be decided and the submission argued, Verizon, supra note 23 cites no reason for the extension of the amendments to the DTAA. enlarged by Finance Act, 2012 with retrospective effect will not have any affect in Article 12 of DTAA. 20. Otherwise also, now it is quite trite position that, at the time of making the payment when there is no amendment in the statute, then assessee cannot be expected to withhold the tax, especially when under the old provision or by virtue of any judicial precedent such payment does not fall or has been held to be not falling within the ambit and scope of 'royalty'. In these kinds of cases there were various decisions including that of the Hon'ble Bombay High Court in the case of CIT vs. Set Satellite that payment made to the non-resident outside India for rendering the services of equipment outside India is not taxable in India. Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications vs. DIT, reported in (2011) 332 ITR 340 later on reiterated that there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onstitute 'royalty'. 22. So far as the reliance placed by the Ld. DR on the decision of ITAT Mumbai Bench in the case of NGC Network (supra), we find that in that case the issue of distribution income was set aside to the file of the AO to examine whether it falls within the ambit of 'royalty' as defined under the Income-tax Act or not. Here in this case, as pointed out by the Ld. Sr. Counsel, the AO himself has treated the income from distribution activity as business income for the period of 9 months and in the subsequent years. The same income cannot have two treatments, one as royalty and other as business income. Thus, the said decision will not apply on facts of the present case. In view of the findings given above, we hold that no disallowance u/s 40 (a) (i) can be made on account of programming cost paid to various non-residents and also payments made to PanAmSat and other non-residents. Thus, ground No.2 and 3 are also treated as allowed. 6. Since, the issue has been squarely covered by the order of the Co-ordinate Bench of ITAT, Mumbai in the case of Taj TV Ltd. in ITA No.9079/Mum./2010 dated 23.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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