Director of Income Tax vs TV Today Network Ltd.

This appeal by the Revenue arises out of initial order of the Assessing Officer dated 26th June, 2007 u/s 195 of the income tax Act, 1961. This

order was affirmed by the first appellate authority but reversed by the Income Tax Appellate Tribunal in their impugned order dated 30th

September, 2011. By order dated 16th October, 2012, the following substantial question of law was framed:--

Whether the Tribunal in the impugned order is in error of law to hold that the amount paid by the assessee to Panamsat International was liable for

deduction of tax by virtue of Section 195 read with Section 9(1)(vi) of the I.T. Act, 1961.

The reasoning given by the Tribunal in paragraph 5 of the impugned order for deciding the issue in favour of the respondent-assessee reads as

under:--

We have heard both the sides. We would like to state that the details of the payments made to PANAMSAT/Intel Corporation during the

relevant period have been filed in the paper book at page 6 and from this, it is clear that the TDS had been deducted and same has been

deposited, therefore, the learned DR''s objection that conditions of Section 248 are not fulfilled is unsustainable. Secondly, in the case relied upon

by the learned AR in the case of New Skies Satellite N.V. v. Asstt. DIT, Circle 2(1), International Taxation, New Delhi [2011] 46 SOT 81

(URO)/12 taxmann.com 9 (Delhi), it has been held that (receipts earned from providing data transmission services through provision of space

segment capacity on satellites did not constitute royalty within the meaning of Section 9(1)(vi) and this fact has been also confirmed by the Delhi

High Court by holding that providing transmission services to its customers, the control of the satellite or the transponder always remained with the

satellite operator and the customers were merely given access to the transponder capacity and since the customer did not utilise the process or

equipment involved in its operation the charges paid to the satellite operators were not covered within the meaning of royalty and it was held that

service charges received by the assessee from various TV Channels were not liable to be taxed as royalty in India. Facts being similar, the amount

remitted to PANAMSAT which is not having a permanent establishment in India were not liable to be TDS at the time of payment by the assessee.

In view of these facts, we allow the assessee''s appeal.

It is noticeable from the aforesaid reasoning beginning with the word ''secondly'' relics upon decision of the Delhi High Court in Asia Satellite

telecommunications Company Ltd vs. DCIT . Reference has been made to then Section 9(1)(vi) and the view taken by the Delhi High Court that

the payments made for providing data transmission services through provision of space segment capacity or satellites did not constitute royalty

within the meaning of the said Section.

Section 9(1)(vi) was subsequently amended and Explanations 5 and 6 were inserted by Finance Act, 2012 with retrospective effect from 1st

June, 1976. The said Explanations read:--

Explanation 5.--For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any

right, property or information, whether or not--

(a) the possession or control of such right, property or information is with the payer;

(b) such right, property or information is used directly by the payer;

(c) the location of such right, property or information is in India.

Explanation 6.--For the removal of doubts, it is hereby clarified that the expression ""process"" includes and shall be deemed to have always

included transmission by satellite (including up-linking, amplification, conversion for down linking of any signal, cable, optic fibre or by any other

similar technology, whether or not such process is secret;

(vii) income by way of fees for technical services payable by?

(a) the Government; or

(b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such

person outside India or for the purposes of making or earning any income from any source outside India; or

(c) a person who is a non-resident, where the fees are payable in respect of services utilised in 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:

Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an

agreement made before the 1st day of April, 1976, and approved by the Central Government.

In an appeal u/s 260A of the Act, we are not required to consider the constitutional validity and vires of the said amendments but have to apply

the amended provision. In view of the said statutory amendments, the reasoning given by the Tribunal cannot be sustained and has to be reversed.

Learned counsel for the respondent-assessee has, however, rightly drawn our attention to the assessment order in which the assessee had also

pleaded and submitted that the payments made cannot be Considered as royalty or fee for included services as defined in Double Taxation

Avoidance Agreement (DTAA) between India and United States of America (USA). It is submitted that the payments were business profit and

accordingly not taxable or chargeable to tax under the Act. This fact was also noticed in paragraph 2 of the impugned order passed by the

Tribunal. The Tribunal in the impugned order has not referred to and examined the effect of the DTAA between India and USA and whether the

assessee is entitled to benefit or advantage under the said agreement and, therefore, payments made were not taxable in India in the hands of the

recipient. Accordingly, while answering the question of law in favour of the Revenue, we pass an order of remit and ask the Tribunal to decide the

other contention raised by the respondent-assessee; whether the payments made, nevertheless remain untaxable in view of the provisions of the

DTAA. In order to cut short delay, the parties are directed to appear before the Tribunal on 9th December, 2013, when a date of hearing in the

matter will be fixed.

The appeal is disposed of. No order as to costs.