Asia Satellite Telecommunication Co. Ltd., Gurgaon V. Assistant Director of Incomet Tax, New Delhi

ITA 5004/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3921 (ITAT-DELHI)
• Duration Of Justice: 6 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 24-05-2011
• Assessment Year: 2006-2007
• Appeal Filed On: 12-11-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHWANI MAHAJAN
• Assessee Lawyers: SIDDHARTH SETIA
• Keywords: Double taxation relief; Question of law; Initiation of penalty proceedings
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.D. RANJAN ITA NOS. 5004 & 5005/DEL/10 ASSTT. YRS: 2006-07 & 2007-08 ASIA SATELLITE TELECOMMUNICATION VS. ADIT, CIRCLE 1(1), CO. LTD. C/0 PRICE WATER HOUSE INTERNATIONAL TA XATION, COOPERS (P) LTD. BUILDING NO. 10, NEW DELHI. TOWER-C, 18 TH FLOOR, DLF CYBER CITY, GURGAON. PAN/GIR NO. AADCA7848N (APPELLANT ) ( RESPONDENT ) APPELLANT BY : S/SHRI RAJIV ANAND, SANDEEP PURI , ARVIND RAJAN & SIDDHARTH SETIA RESPONDENT BY : SHRI ASHWANI MAHAJAN CIT (DR ) O R D E R PER R.P. TOLANI, J.M : THESE ARE ASSESSEES APPEALS RELATING TO A.Y. 2006- 07 & 2007-08. SINCE COMMON ISSUES ARE INVOLVED IN BOTH THE APPEAL S, THE SAME ARE BEING DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CO NVENIENCE. 2. VARIOUS COMMON GROUNDS ARE RAISED IN THESE APPEA LS, THE SAME ARE BEING SUMMARIZED AS UNDER: 2.1. GROUND NOS. 1, 1.1, 1.2 & 1.3 RAISED IN BOTH THE YEARS UNDER CONSIDERATION, ARE GENERAL IN NATURE ON THE ISSUE ABOUT ASSESSEES CLAIM TO BE NOT LIABLE TO BE TAXED IN INDIA. THESE GROUNDS ARE INFRUCTUOUS AND NEED NO COMMENTS. 2.2. GROUND NOS. 2, 2.1 AND 2.2 IN BOTH THE APPEALS RAISE THE FOLLOWING EFFECTIVE GROUND: ITA 5004 & 5005/DEL/10 ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. 2 A. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. AO ERRED IN NOT APPRECIATING THAT THE RECEIPTS EARNED BY THE APPELLANT OUTSIDE INDIA NEITHER ACCRUES NOR ARISES IN INDIA NOR CAN BE DEEMED TO BE SO UNDER THE PROVISIONS OF THE ACT. 2.3. GROUND NOS. 3, 3.1, 3.2, 3.3, 3.4, 3.5, 3.6 & 3.7, RAISED IN BOTH THE APPEALS RAISE FOLLOWING EFFECTIVE GROUND: B. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. AO ERRED IN COMING TO THE CONCLUSION THAT RECEI PTS IN THE HANDS OF THE APPELLANT WOULD BE COVERED WITHIN THE MEANING OF THE TERM ROYALTY AS DEFINED IN CLAUSE (III) OF EX PLANATION 2 TO SECTION 9(1)(VI) OF THE ACT. 2.4. GROUND NOS. 4 & 4.1, RAISED IN BOTH THE APPEAL S RAISE FOLLOWING EFFECTIVE GROUND: C. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. AO ERRED IN HOLDING THAT THE RECEIPTS EARNED BY THE APPELLANT ARE ALTERNATIVELY IN THE NATURE OF ROYALT Y AS DEFINED IN CLAUSE (IV-A) OF EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT REPRESENTING CONSIDERATION FOR THE RIGHT TO USE AN INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT. 2.5. GROUND NOS. 5, 5.1, 5.2; 6, 6.1 AND 6.2; 7, 7. 1, 7.2, 7.3, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9, 7.10, 7.11; 8, 8.1, 8.2 & 8.3 RAISE D IN BOTH THE APPEALS ARE IN RESPECT OF NON-QUANTIFICATION OF INCOME AND NON-COM PLIANCE OF CERTAIN HIGH COURTS DIRECTIONS 2.6. GROUND NO. 9 RAISED IN BOTH THE APPEALS IS IN RESPECT OF INITIATION OF PENALTY PROCEEDINGS, WHICH IS NOT APPEALABLE, HENCE DISMISSED. ITA 5004 & 5005/DEL/10 ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. 3 2.7. GROUND NOS. 10 & 10.1 RAISED IN BOTH THE APPE ALS, RAISE FOLLOWING EFFECTIVE GROUND: D. THAT THE LD. AO ERRED IN LEVYING INTEREST UNDER SEC TION 234B OF THE ACT IGNORING THE FACT THAT THE JURISDICTION TRI BUNAL HAS IN THE APPELLANTS OWN CASE HELD THAT WHERE THE ENTIRE INC OME IS TAX DEDUCTIBLE AT SOURCE, NO INTEREST UNDER THIS SECTIO N CAN BE CHARGEABLE. 3. LEARNED COUNSEL FOR THE ASSESSEE AT THE OUT SET CONTENDS THAT THE ISSUE IN QUESTION HAS BEEN DECIDED BY HONBLE DELHI HIGH COURT IN ASSESSEES OWN CASE FOR A.Y. 1997-98 IN ITA NO. 131 OF 2003 AND CM NO. 2865/2009 DATED 31-1-2011, HOLDING THAT NO ACTIVITIES WERE CARRIED OUT BY THE ASSESSEE IN INDIA AND PROVISIONS OF SECTION 9(1)(I) WERE NOT A TTRACTED IN ASSESSEES CASE. THE RELEVANT OBSERVATIONS OF HONBLE HIGH COURT ARE AS UNDER: 32. AFTER CONSIDERING THE RESPECTIVE SUBMISSIONS, WE ARE OF THE VIEW THAT THE FINDINGS OF THE LEARNED TRIBUNAL ON THE NON- APPLICABILITY OF SECTION 9(1)(I) OF THE ACT ARE PRO PER, JUSTIFIED AND LEGALLY SUSTAINABLE. WE HAVE ALREADY TAKEN NOTE OF THE EXPLANATION (A) TO THIS SUB-CLAUSE, WHICH LAYS DOWN THAT IN THE CASE OF WHICH ALL THE OPERATIONS ARE NOT CARRIED OU T IN INDIA, THE INCOME OF THE BUSINESS DEEMED UNDER THIS CLAUSE TO ACCRUE OR ARISE IN INDIA SHALL BE ONLY SUCH PART OF THE INCOM E AS IS REASONABLY ATTRIBUTABLE TO THE OPERATIONS CARRIED O UT IN INDIA. IT, THUS, CLEARLY FOLLOWS THAT CARRYING OUT THE OPERATI ONS IN INDIA, WHOLLY OR AT LEAST PARTLY, IS SINE QUA NON OF THE A PPLICATION OF CLAUSE (I) OF SUB-SECTION (1) OF SECTION 9 OF THE A CT. CAN IT BE SAID THAT THE APPELLANT, UNDER THE GIVEN CIRCUMSTAN CES, IS DOING SOME BUSINESS IN INDIA, I.E., IS THERE ANY BUSINESS ACT OF THE APPELLANT WHICH COULD BE ATTRIBUTED TO THE INDIA TE RRITORY? UNDER THE AGREEMENT WITH TV CHANNELS, ROLE ATTRIBUTED TO THE APPELLANT CAN BE PARAPHRASED IN THE FOLLOWING STEPS: (I) PROGAMMES ARE UPLINKED BY THE TV CHANNELS (ADMITTED LY NOT FROM INDIA). ITA 5004 & 5005/DEL/10 ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. 4 (II) AFTER RECEIPT OF THE PROGRAMMES AT THE SATELLITE (A T THE LOCATIONS NOT SITUATED IN INDIA AIRSPACE), THESE AR E AMPLIFIED THROUGH COMPLICATED PROCESS. (III) THE PROGRAMMES SO AMPLIFIED ARE RELAYED IN THE FOOT PRINT AREA INCLUDING INDIA WHERE THE CABLE OPERATORS CATC H THE WAVES AND PASS THEM OVER TO THE INDIAN POPULATION. 33. ACCEPTED POSITION IS THAT THE FIRST TWO STEPS A RE NOT CARRIED OUT IN INDIA AND THE ENTIRE THRUST OF THE R EVENUE IS LIMITED TO THE THIRD STEP AND THE ARGUMENT IS THAT THE RELAYING OF THE PROGRAMMES OF IN INDIA AMOUNTED TO THE OPERATIO NS CARRIED OUT IN INDIA. WHETHER THIS ARGUMENT IS SUSTAINABLE? ANSWER IS EMPHATIC NOT. MERELY BECAUSE THE FOOTPRINT AREA INC LUDES INDIA AND THE PROGRAMMERS BY ULTIMATE CONSUMERS/ VIEWERS ARE WATCHING THE PROGRAMMES IN INDIA, EVEN WHEN THEY AR E UPLINKED AND RELAYED OUTSIDE INDIA, WOULD NOT MEAN THAT THE APPELLANT IS CARRYING OUT ITS BUSINESS OPERATIONS IN INDIA. THE TRIBUNAL HAS RIGHTLY EMPHASIZED THE EXPRESSIONS OPERATIONS AND CARRIED OUT IN INDIA OCCURRING IN EXPLANATION (A) TO HOLD THAT THESE EXPRESSION SIGNIFY THAT IT WAS NECESSARY TO ESTABLI SH THAT ANY PART OF THE APPELLANTS OPERATIONS WERE CARRIED OUT IN INDIA. NO MACHINERY OR COMPUTER, ETC. IS INSTALLED BY THE APP ELLANT IN INDIA THROUGH WHICH THE PROGRAMMES ARE REACHING IND IA. THE PROCESS OF AMPLIFYING AND RELAYING THE PROGRAMMES I S PERFORMED IN THE SATELLITE WHICH IS NOT SITUATED IN THE INDIAN AIRSPACE. EVEN THE TRACKING, TELEMETERING AND CONTR OL (TTC) OPERATIONS ARE ALSO PERFORMED OUTSIDE INDIAN IN HON G KONG. NO MAN, MATERIAL OR MACHINERY OR ANY COMBINATION THERE OF IS USED BY THE APPELLANT IN THE INDIAN TERRITORY. THERE IS NO CONTRACT OR AGREEMENT BETWEEN THE APPELLANT EITHER WITH CABLE O PERATORS OR VIEWERS FOR RECEPTION OF SIGNALS IN INDIA. 34. WE, THUS, HOLD THAT SECTION 9(1)(I) IS NOT ATTR ACTED IN THE PRESENT CASE. 3.1. LEARNED COUNSEL FURTHER CONTENDS THAT THE ISSU E OF QUANTIFICATION HAS TO BE LEFT OPEN INASMUCH AS THE ASSESSEE IS NOT LIA BLE FOR TAX IN INDIA U/S ITA 5004 & 5005/DEL/10 ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. 5 9(1)(I) AND IN CASE THE HONBLE HIGH COURT JUDGMENT GETS REVERSED BY HONBLE SUPREME COURT IN THAT CASE THE QUESTION OF QUANTIFICATION MAY ARISE. IN THIS BEHALF ALSO THE HONBLE DELHI HIGH COURT VI DE ORDER DATED 10-2-2011 GAVE THE LIBERTY TO ASSESSEE FOR REVIVAL OF APPEAL IN SUCH EVENTUALITY, BY OBSERVING AS UNDER: ITA 470/2009 & CM APPL. 5461/2009 LEARNED COUNSEL FOR THE APPELLANT STATES THAT IN VI EW OF THIS COURT JUDGMENT IN THE CASE OF ASIA SATELLITE COMMUN ICATIONS VS. DIRECTOR OF INCOME TAX, [ITA 131/2003 DECIDED O N 31 ST JANUARY, 2011.] WHEREIN APPELLANT HAS BEEN GRANTED RELIEF, THIS APPEAL HAS BECOME INFRUCTUOUS. HE, THUS, SEEKS PERM ISSION TO WITHDRAW THIS APPEAL WITH THE LIBERTY TO SEEK REVIV AL OF THE APPEAL IN CASE THE AFORESAID JUDGMENT OF THIS COURT IS UPSET BY THE APEX COURT. LIBERTY GRANTED. THE APPEAL IS DISMISSED AS WITHDRA WN. 3.1.1. ON MERITS, THE HONBLE DELHI HIGH COURT HAS FOLLOWED ITS JUDGMENT IN A.Y. 1997-98 IN SUBSEQUENT ASSESSMENT YEARS I. E. 1998-99 TO 2005-06 VIDE AN ORDER DATED 10-3-2011. THE REVENUE IN THIS CASE RAISED THE ISSUE OF ROYALTY WHICH ALSO WAS ANSWERED IN FAVOUR OF THE AS SESSEE AND AGAINST THE REVENUE BY FOLLOWING ORDER: ITA2028/2010 ITA2029/2010 ITA2030/2010 ITA2031/2010 ITA2040/2010 ITA2041/2010 ITA2042/2010 ITA2043/2010 (COMMON ORDERS) ADMIT ON THE FOLLOWING SUBSTANTIAL QUESTION OF LAW: - ITA 5004 & 5005/DEL/10 ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. 6 WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE AMOUNT PAID TO THE APPELLANT BY ITS CUSTOMERS REPRESENTED INCOME BY WAY OF ROYALTY AS THE SAID EXPRESSION IS DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VI) OF THE INCOME TAX ACT? WITH THE CONSENT OF THE LEARNED COUNSEL FOR THE PAR TIES, THESE APPEALS ARE TAKEN UP FOR FINAL DISPOSAL AT THIS STA GE. THIS VERY QUESTION HAD CROPPED UP FOR CONSIDERATION IN THE CASE OF THE APPELLANT/ ASSESSEE ITSELF TITLED ASIA SATEL LITE TELECOMMUNICATIONS CO. LTD. VS. DIRECTOR OF INCOME TAX, [ITA 131/2003 & ITA 134/2003] AND HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE VIDE JUDGMENT DATED 31 ST JANUARY, 2011 WHEREIN IT IS SPECIFICALLY HELD THAT THE AMOUNT PAI D TO THE APPELLANT BY ITS CUSTOMERS WOULD NOT AMOUNT TO THE ROYALTY AS DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VI) OF THE INCOME TAX ACT. WE MAY NOTE THAT LEARNED COUNSEL FOR THE REVENUE HA D ARGUED THAT THERE WAS AN AMENDMENT TO SECTION 9 OF THE ACT BY FINANCE ACT, 2001 W.E.F. 1 ST APRIL, 2002 VIDE WHICH CLAUSE (IVA) HAS BEEN ADDED TO EXPLANATION 2 OF THE ACT WHICH READS AS UNDER:- THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44BB. PREDICATED ON THAT, SUBMISSION OF MR. SANJEEV SABHA RWAL, LEARNED COUNSEL FOR THE REVENUE IS THAT IN SO FAR A S THESE APPEALS RELATING TO THE ASSESSMENT YEARS 2002-03 ONWARDS AR E CONCERNED, EVEN MERE USE OF ANY INDUSTRIAL, COMMERC IAL OR SCIENTIFIC EQUIPMENT WOULD BE COVERED BY THE TERM ROYALTY. MR. SALVE, LEARNED SR. COUNSEL APPEARING FOR THE AP PELLANT HAS POINTED OUT THAT THE AO DID NOT BASE HIS CONCLUSION APPLYING THE AFORESAID PROVISION IN THE ASSESSMENT ORDER PAS SED AND THIS ISSUE WAS NEVER RAISED TILL THE INCOME TAX APPELLAT E TRIBUNAL AND BECAUSE OF THIS REASON, THERE IS NO DISCUSSION ON THIS ASPECT. ITA 5004 & 5005/DEL/10 ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. 7 HE THUS ARGUED THAT IN THIS COURT, FOR THE FIRST TI ME, THE REVENUE CANNOT RAISE THIS ARGUMENT THAT THE DEDUCTION COULD HAVE BEEN LEVIED UPON THE ASSESSEE ON THE BASIS OF THE AFORES AID CLAUSE. THAT APART, IT IS ARGUED THAT EVEN THIS ASPECT IS C OVERED BY THE AFORESAID JUDGMENT DATED 31 ST JANUARY, 2011 IN THE CASE OF THE ASSESSEE ITSELF. HE HAS DRAWN OUR ATTENTION TO THE DETAILED DISCUSSION CONTAINED IN THE AID JUDGMENT WHEREIN IT IS SPECIFICALLY HELD THAT T HE ASSESSEE HAD NOT ALLOWE D ITS CUSTOMERS TO USE OR GIVE RIGHT TO USE THE SATELLITE OR THE PROCESS IN THE SATELLITE. WE FIND SUFFICIENT FORCE IN THE A RGUMENT OF MR. SALVE ON BOTH THE COUNTS. FOLLOWING THE AFORESAID JUDGMENT, THIS ISSUE IS ANS WERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ACC ORDINGLY ORDERS OF THE TRIBUNAL IN RESPECT OF THESE ASSESSME NT YEARS ARE SET ASIDE AND THESE APPEALS ARE ALLOWED. 3.2. IN VIEW OF THE FORE-GOINGS, LEARNED COUNSEL CO NTENDS THAT THE ASSESSEE IS NOT TAXABLE IN VIEW OF THE THESE JUDGMENTS AS TH ERE ARE NO ACTIVITIES IN INDIA SO AS TO HOLD ASSESSEES BUSINESS PRESENCE OR BUSINESS ACTIVITIES IN INDIA U/S 9(1)(I) IN ASSESSEES OWN CASE. THESE JUD GMENTS HAVE BEEN FOLLOWED BY THE ITAT DELHI BENCH C IN THE CASE OF M/S INTELSAT CORPORATION FOR A.Y. 2007-08 IN ITA NO. 5443/DEL/20 10 DATED 4-3-2011 BY FOLLOWING OBSERVATIONS: 4. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SU BMISSIONS MADE BEFORE US. WE HAVE ALREADY MENTIONED THAT THER E IS A DISTINGUISHABLE FEATURE NAMELY THAT THE ASSESSEE HA S RECEIVED PAYMENTS FROM PERSONS RESIDENTS IN INDIA. HOWEVER, THE RECEIPTS HAVE BEEN TAXED U/S 9(1)(VII), EXPLANATION 2, CLAUSE (VI) THERE UNDER. THE DECISION IN THE CASE OF ASIA SATEL LITE TELECOMMUNICATIONS COMPANY LIMITED IS TO BE CONTRAR Y AND IN FAVOUR OF THE ASSESSEE. IT IS ALSO A MATTER OF FACT ON RECORD THAT THE ASSESSEE IS A TAX RESIDENT OF USA AND, THEREFOR E, THE PROVISIONS CONTAINED IN THE DTAA ARE APPLICABLE. HO WEVER, WE ARE OF THE VIEW THAT WE NEED NOT GO INTO THE PROVIS IONS OF THE ITA 5004 & 5005/DEL/10 ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. 8 DTAA BECAUSE OF THE PROVISION CONTAINED IN SECTION 90(2) OF THE ACT. THIS PROVISION PROVIDES THAT WHERE THE CEN TRAL GOVERNMENT AHS ENTERED INTO AN AGREEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA UNDER SUB-S ECTION (1) FOR GRANTING RELIEF OF TAX, OR AS THE CASE MAY BE, AVOIDANCE OF DOUBLE TAXATION, THEN, IN RELATION TO THE ASSESSEE TO WHOM SUCH AGREEMENT APPLIES, THE PROVISIONS OF THIS ACT SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THE ASSESSEE. TH E ASSESSEE IS FOUND TO HAVE INCURRED NO LIABILITY TO TAX UNDER TH E ACT. THEREFORE, EVEN IF THE PROVISIONS OF THE TREATY GO AGAINST THE ASSESSEE, IT HAS TO BE GRANTED THE BENEFIT OF THE A CT UNDER WHICH NO LIABILITY TO TAX CAN BE FASTENED ON THE ASSESSEE . ACCORDINGLY, GROUND NOS. 1 TO 5 ARE ALLOWED. 3.3. LEARNED COUNSEL CONTENDS THAT IN VIEW THEREOF THE ASSESSEES APPEAL SHOULD BE ALLOWED IN TERMS OF HONBLE DELHI HIGH CO URT JUDGMENT IN ASSESSEES OWN CASE. 4. LEARNED DR IS HEARD. 5. WE HAVE HEARD RIVAL CONTENTIONS AND HAVE GONE TH ROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. RESPECTFULLY FOLLOWIN G HONBLE DELHI HIGH COURT JUDGMENT IN ASSESSEES OWN CASE, WE HOLD THAT THE ASSESSEES ACTIVITIES DID NOT FALL IN THE SCOPE OF PROVISIONS OF SEC. 9(1 )(I) OF THE I.T. ACT, THEREFORE, SUCH RECEIPTS OF AGREEMENT ARE NON-TAXAB LE. REGARDING REMAINING ISSUES IN RESPECT OF QUANTIFICATION ALSO, THE EXIGE NCIES SHALL BE DEALT AS DIRECTED BY HONBLE DELHI HIGH COURT. IN VIEW THERE OF, ASSESSEES APPEALS FOR A.Y. 2006-07 AND 2007-08 ARE ALLOWED. ITA 5004 & 5005/DEL/10 ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. 9 6. IN THE RESULT, BOTH THE APPEALS FILED BY THE ASS ESSEE ARE ALLOWED IN TERMS AS INDICATED ABOVE. ORDER PRONOUNCED IN OPEN COURT ON 24-05-2011. SD/- SD/- ( K.D. RANJAN ) ( R.P. TOLANI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 24-05-2011. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR