New Skies Satellites B.V., New Delhi V. ADIT, New Delhi

ITA 4176/DEL/2011

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 53208 (ITAT-DELHI)
• Duration Of Justice: 2 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-11-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Next Hearing Date: 16-11-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 16-09-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHWANI MAHAJAN
• Assessee Lawyers: PAWAN KUMAR ARVIND RAJAN; SIDDARTH SETIA C AS
• Keywords: Double taxation relief; Permanent establishment
• Section: 244A; 234B; 147

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH E DELHI) BEFORE SHRI A.D. JAIN AND SHRI SHAMIM YAHYA ITA NOS. 4176 & 4177(DEL)2011 ASSESSMENT YEARS: 2006-07 & 2008-09 M/S.NEW SKIES SATELLITES B.V. ASSTT.COM MISSIONER OF INCOME TAX, ROOSEVELT PLANTSOEN-4, 2157 KR, V. CIRCLE 2(1), INTERNATIONAL TAXATION, THE HAGUE, NETHERLANDS. NEW DE LHI. (APPELLANT) (RESPONDENT) APPELLANT BY: S/SHRI PAWAN KUMAR, ARVIND RAJAN & SIDDARTH SETIA, C AS. RESPONDENT BY : SHRI ASHWANI MAHAJAN, CIT/DR ORDER PER A.D. JAIN, J.M . THESE ARE ASSESSEES APPEALS FOR ASSESSMENT YEARS 2 006-07 & 2008-9. ITA NO. 4176 (DEL)2011: 2. THE GROUNDS TAKEN BY THE ASSESSEE IN ITA NO. 417 6(DEL)2011 ARE AS UNDER:- 1. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE AND IN LAW, THE DISPUTE RESOLUTION PANEL (THE PANEL) ERR ED IN NOT CONCLUDING THAT THE PROCEEDINGS UNDER SECTION 147 O F THE ACT IS BAD IN LAW WHEN THERE WAS NO RELEVANT MATERIAL ON RECORD G IVING RISE TO ANY VALID REASONS TO BELIEVE THAT INCOME OF THE APPELLA NT HAD ESCAPED ASSESSMENT. ITA NOS. 4176&4177(DEL)11 2 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE PANEL ERRED IN NOT DIRECTING THE LEARNED A SSESSING OFFICER (LD. AO) TO FOLLOW THE ORDER PASSED BY THE HONBLE DELHI HIGH COURT (IN ITA 1167/2009) AND THE HONBLE INCOME TAX APPELLATE TRIBUNAL, NEW DELHI (THE TRIBUNAL) (IN ITA NOS. 5385 TO 5387(DEL )2004, 2623 TO 2624(DEL)2008, 735, 736, 5160(DEL)2010) IN APPELLAN TS OWN CASE HOLDING THAT THE APPELLANT IS NOT LIABLE TO BE ASSE SSED TO TAX IN INDIA, WHEN THERE WAS NO CHANGE OF FACTS RECORDED BY THE L D. AO FROM THE ABOVE YEARS. 3. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN HOLDING THAT THE PAYMENTS RECEIVED BY T HE APPELLANT AS A CONSIDERATION FOR DATA TRANSMISSION SERVICES ARE IN THE NATURE OF ROYALTY AS DEFINED UNDER SECTION 9(1)(VI) OF THE INCOME TAX ACT,1961(THE ACT) AND ARTICLE 12(4) OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND NETHERLANDS ( THE DTAA). 4. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. AO ERRED IN NOT HOLDING THAT THE PAYME NTS RECEIVED BY THE APPELLANT FROM PROVIDING DATA TRANSMISSION SERVICES VIA SPACE SEGMENT CAPACITY ARE NOT ASSESSABLE AS BUSINESS PRO FITS AND IN THE ABSENCE OF A PERMANENT ESTABLISHMENT UNDER ARTICLE 5 OF THE INDIA NETHERLANDS DTAA, THE RECEIPTS EARNED BY THE APPELL ANT ARE NOT TAXABLE IN INDIA. 5. THAT THE LD. AO ERRED IN HOLDING THAT INCOME REC EIVED BY THE APPELLANT FROM THE NON-RESIDENT COMPANIES IS TAXABL E IN INDIA UNDER ARTICLE 12(4) READ WITH ARTICLE 12(2) AND 12(8) OF INDIA NETHERLANDS DTAA. 6. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE AND IN LAW, THE LD. AO ERRED IN NOT DISCHARGING THE BURDEN OF PROVING THAT - I) THE APPELLANTS NON-RESIDENT CUSTOMERS HAD A PERMAN ENT ESTABLISHMENT IN INDIA IN CONNECTION WITHWHICH THE ALLEGED ROYALTY WAS PAID; AND II) THE ALLEGED ROYALTY PAYMENTS WERE BORNE BY SUCH PERMANENT ESTABLISHMENT OF THE NON-RESIDENT CUSTOME RS. ITA NOS. 4176&4177(DEL)11 3 7. THAT THE LD. AO ERRED IN HOLDING THAT THE PAYMEN TS RECEIVED BY THE ASSESSEE WOULD QUALIFY AS FEE FOR TECHNICAL SE RVICES AS DEFINED UNDER SECTION 9(1)(VII) OF THE ACT AS WELL AS WITHI N THE MEANING OF ARTICLE 12(5) OF THE INDIA NETHERLANDS DTAA. 8. THAT WITHOUT PREJUDICE TO THE ABOVE, ON FACTS AN D CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO HAS ERRED IN ARB ITRARILY ATTRIBUTING THE ENTIRE RECEIPTS FROM THE CUSTOMERS FALLING ON T HE BEAM COVERING INDIA EITHER FULLY OR PARTIALLY AND NOT APPORTIONIN G RECEIPTS WHICH WERE INDIA SPECIFIC. 9. THAT THE LD. AO ERRED IN LEVY OF INTEREST UNDER SECTION 234B OF THE ACT WHILE COMPUTING THE TOTAL DEMAND PAYABLE BY THE APPELLANT FOR THE CAPTIONED ASSESSMENT ORDER. 10. THAT THE LD. AO ERRED IN LEVY OF INTEREST UNDER SECTION 234D OF THE ACT WHILE COMPUTING THE TOTAL DEMAND PAYABLE BY THE APPELLANT FOR THE CAPTIONED ASSESSMENT YEAR. 11. THAT THE LD. AO ERRED IN WITHDRAWING THE INTERE ST UNDER SECTION 244A OF THE ACT WHILE COMPUTING THE TOTAL DEMAND PA YABLE BY THE APPELLANT FOR THE CAPTIONED ASSESSMENT YEAR. 3. AT THE OUTSET, THE LEARNED COUNSEL FOR THE ASSES SEE HAS SUBMITTED THAT GROUND NO.1 IS NOT PRESSED. REJECTED AS NOT PRESS ED. 4. APROPOS GROUND NOS. 3&7, IT HAS BEEN CONTENDED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ASIA SATELLITE TELECOMMUNICAT IONS CO. LTD. V. DCIT, 332 ITR 340(DEL), WHEREIN IT HAS BEEN HELD THAT THE RECEIPTS EARNED FROM PROVIDING DATA TRANSMISSION SERVICES CANNOT BE TER MED AS ROYALTY UNDER THE PROVISIONS OF SECTION 9(1)(VI) OF THE I.T. ACT; THAT FOLLOWING ASIA ITA NOS. 4176&4177(DEL)11 4 SATELLITE TELECOMMUNICATIONS CO. LTD.(SUPRA), THE HONBLE HIGH COURT, VIDE ORDER DATED 17.2.2011, HAS SET ASIDE THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL TO DECIDE THE CASE AFRESH IN THE LIGHT OF THE JUDGMENT IN ASIA SATELLITE TELECOMMUNICATIONS CO. LTD.(SUPRA); THAT THEREAFTER, VIDE ORDER DATED 11.3.2011, IN THE ASSESSEES CASE FOR ASSESSM ENT YEARS 2000-01 TO 2005-06 AND 2007-08, THE TRIBUNAL HAS HELD THAT THE REVENUES EARNED FROM SATELLITE TRANSMISSION SERVICES ARE NOT LIABLE TO T AX IN INDIA; THAT FURTHER, THE APPEAL FILED BY THE DEPARTMENT BEFORE THE HONBLE H IGH COURT AGAINST THE SAID ORDER OF THE TRIBUNAL HAS BEEN DISMISSED VIDE ORDER DATED 30.9.2011. COPIES OF THE AFORESAID ORDERS HAVE BEEN PLACED ON RECORD BEFORE US. 5. THE LD. DR, ON THE OTHER HAND, HAS STRONGLY RELI ED ON THE IMPUGNED ORDER, CONTENDING THAT THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO. L TD.(SUPRA), STANDS CHALLENGED BY THE DEPARTMENT BEFORE THE HONBLE SUP REME COURT. 6. WE HAVE HEARD THE PARTIES ON THIS ISSUE. WE FIN D THE CONTENTION ON BEHALF OF THE ASSESSEE TO BE CORRECT. A COPY OF THE TRIBUNAL ORDER IN THE ASSESSEES CASE FOR ASSESSMENT YEARS 2000-01 TO 20 05-06 AND 2007-08, PASSED ON 11.3.2011, SUBSEQUENT TO THE HIGH COURT O RDER DATED 17.2.2011, HAS BEEN PLACED BEFORE US AT APB 1 TO 12. THE REL EVANT PORTION READS AS FOLLOWS:- ITA NOS. 4176&4177(DEL)11 5 THE HONBLE HIGH COURT OF DELHI IN THE ABOVE REFER RED CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. IN ITA NOS. 131 TO 134/2003, HAS HELD THAT RECEIPTS EARNED FROM PROVIDING DATA T RANSMISSION SERVICES THROUGH PROVISION OF SPACE SEGMENT CAPACIT Y ON SATELLITES DOES NOT CONSTITUTE ROYALTY WITHIN THE MEANING OF S ECTION 9(1)(VI) OF THE ACT. IN DOING SO, THE HONBLE HIGH COURT HAS C ONCLUSIVELY HELD THAT WHILE PROVIDING TRANSMISSION SERVICES TO ITS C USTOMERS, THE CONTROL OF THE SATELLITE OR THE TRANSPONDER ALWAYS REMAINS WITH THE SATELLITE OPERATOR AND THE CUSTOMERS ARE MERELY GIV EN ACCESS TO THE TRANSPONDER CAPACITY. ACCORDINGLY, SINCE THE CUST OMER DOES NOT UTILIZE THE PROCESS OR EQUIPMENT INVOLVED IN ITS OP ERATIONS, THE CHARGES PAID TO THE SATELLITE OPERATORS ARE NOT COV ERED WITHIN THE MEANING OF ROYALTY AS PROVIDED UNDER EXPLANATION 2 TO SECTION 9(1)(VI) AND, THEREFORE, THE SAME CANNOT BE TREATED AS ROYALTY. IN THIS CASE, THE REVENUE ALSO RAISED THE QUESTION REGARDIN G APPLICABILITY OF SECTION 9(1)(VII) FOR THE FIRST TIME BEFORE THE TRI BUNAL. ALTHOUGH, THIS GROUND WAS ADMITTED, IT WAS NOT DECIDED AS THE RECE IPT WAS HELD TO BE ASSESSABLE UNDER SEC.9(1)(VI) OF THE ACT BY THE TRI BUNAL. NO ARGUMENT WAS ADVANCED BY THE LEARNED COUNSEL FOR THE REVENU E BEFORE THE HONBLE HIGH COURT IN THIS MANNER. THEREFORE, THE SUBMISSION OF THE REVENUE REGARDING APPLICABILITY OF SECTION 9(1)(VI) WAS NOT ACCEPTED. THE RESULT OF THE DECISION OF THE HONBLE HIGH COUR T IS THAT THE RECEIPT RECEIVED BY THE ASSESSEE IS NOT TAXABLE EITHER UNDE R SEC. 9(1)(VI) OR SEC.9(1)(VII) OF THE ACT. AS A RESULT, THE APPEAL PREFERRED BY THE ASSESSEE B EFORE THE HONBLE HIGH COURT WAS ALLOWED AND THE JUDGMENT OF THE TRIB UNAL WAS SET ASIDE. 7. THE FURTHER ASSERTION ON BEHALF OF THE DEPARTMEN T THAT THE DEPARTMENTS APPEAL AGAINST THE AFORESAID TRIBUNAL ORDER IN THE ASSESSEES CASE STANDS DISMISSED BY THE HONBLE HIGH COURT VID E ORDER DATED 30.9.2011 HAS ALSO NOT BEEN REBUTTED BY THE DEPARTMENT. ITA NOS. 4176&4177(DEL)11 6 8. IN VIEW OF THE ABOVE, THE GRIEVANCE OF THE ASSES SEE QUA THIS ISSUE IS FOUND TO BE JUSTIFIED AND IS ACCEPTED AS SUCH. T HEREFORE, GROUND NOS. 3&7 ARE ACCEPTED. 9. AS A CONSEQUENCE OF THE ABOVE DISCUSSION, REGARD ING GROUND NOS.3&7, GROUND NOS. 5,6&8 NO LONGER SURVIVE AND AR E REJECTED AS INFRUCTUOUS. 9 (A). GROUND NOS. 2 & 4 ARE GENERAL. 10. GROUND NOS. 9,10 AND 11 ARE CONSEQUENTIAL. 11. FOR THE ABOVE DISCUSSION, THE APPEAL OF THE ASS ESSEE FOR ASSESSMENT YEAR 2006-07, IN ITA NO. 4176(DEL)2011 IS ALLOWED AS INDICATED. ITA NO. 4177(DEL)2011: 12. THE SUBJECT MATTER OF THIS APPEAL IS IDENTICAL AS THAT IN ITA NO. 4176(DEL)2011 FOR ASSESSMENT YEAR 2006-07(SUPRA) BU T FOR THE EXCEPTION THAT IN THAT CASE, THE ISSUE OF REOPENING OF THE AS SESSEES ASSESSMENT, U/S 147 OF THE I.T. ACT, WAS INVOLVED. THE GROUNDS IN THA T REGARD, BEING GROUND NO.1 WAS, HOWEVER, AS NOTED, NOT PRESSED. IN THE PRESENT CASE, HOWEVER, THERE IS NO SUCH GROUND TAKEN. 13. AS SUCH, THE FACTS BEING IDENTICAL FOR ASSESSME NT YEAR 2008-09 ALSO, OUR OBSERVATIONS IN ITA NO. 4176(DEL)2011 (SUPRA) ARE CLEARLY APPLICABLE. ITA NOS. 4176&4177(DEL)11 7 14. FOR THE REASONS RECORDED IN ITA NO. 4176(DEL)2 011 (SUPRA), THIS APPEAL IS ALSO ALLOWED. 15. IN THE RESULT, BOTH THE APPEALS FILED BY THE AS SESSEE ARE ALLOWED, AS INDICATED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.11.2011. SD/- SD/- (SHAMIM YAHYA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 16.11.2011. *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY BY ORDER ASSISTANT REGISTRAR