THE DDIT (IT) 2(1), MUMBAI V. M/S. RELIANCE INFOCOMM LTD, MUMBAI

ITA 5374/MUM/2007

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 100905 (ITAT-MUMBAI)
• Duration Of Justice: 8 year(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 09-03-2015
• Assessment Year: misc
• Appeal Filed On: 09-08-2007
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PARAG VYAS
• Assessee Lawyers: J D MISTRY
• Keywords: Business income; Depreciation; Double taxation relief; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment
• Section: 234B

Judgement Text

M/S RELIANCE INFOCOMM LTD ITA NO. 5374 /MUM/20 07 ITA 6093/MUM/200 8 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L , MUMBAI BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI GOPAL KEDIA , ACCOUNTANT MEMBER ITA NO. : 5374 /MUM/20 07 DDIT(IT) - 2(1), ROOM NO. 120, 1 ST FLOOR, S CINDIA HOUSE, BALLARD ESTATE, N M ROAD, MUMBAI - 400 020 VS M/S RELIANCE INFOCOMM LTD , MAKER CHAMBERS IV, 3 RD FLOOR, 222, NARIMAN POINT, MUMBAI - 400 021 .: PAN: AAACR 7832 C (APPELLANT) (RESPONDENT) ITA NO. : 6093 /MUM /20 0 8 DDIT(IT) - 2(1), ROOM NO. 120, 1 ST FLOOR, SCINDIA HOUSE, BALLARD ESTATE, N M ROAD, MUMBAI - 400 020 VS M/S RELIANCE INFOCOMM LTD (NOW MERGED WITH M/S RELIANCE COMMUNICATIONS LTD.) , MAKER CHAMBERS IV, 3 RD FLOOR, 222, NARIMAN POINT, MUMBAI - 400 021 .: PAN: AA C CR 7832 C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PARAG VYAS RESPONDENT BY : SHRI J D MISTRY /DATE OF HEARING : 25 - 0 8 - 201 5 / DAT E OF PRONOUNCEMENT : 07 - 09 - 201 5 ORDER , . . : PER AMIT SHUKLA, AM : THE A FORESAID APPEALS HA VE BEEN FILED BY THE REVENUE AGAINST SEPARATE IMPUGNED ORDER DATED 18.05.2007 AND 18.07.2008 PASSED BY CIT(A) - XXXI, MUMBAI IN R ELATION TO THE ORDER PASSE D U/S 195(2) FOR DEDUCTING TAX AT SOURCE ON THE PAYMENTS MADE TO A NETHERLAND ENTITY, M/S NEW SKIES SATELLITES N.V. SINCE ISSUES INVOLVED IN BOTH THE APPEAL S ARE COMMON AND ARE ARISING OUT OF SAME SET OF FACTS, THEREFORE, SAME WER E HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. M/S RELIANCE INFOCOMM LTD ITA NO. 5374 /MUM/20 07 ITA 6093/MUM/200 8 2 2. TO UNDERSTAND THE IMPLICATION OF THE ISS UES INVOLVED, WE ARE TAKING - UP THE A PPEAL IN ITA NO. 5374/MUM/2007 , VIDE WHICH FOLLOWING GROUNDS HAVE BEEN RAISED BY THE DEPARTMENT : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN THE CASE IN DIRECTING TO DEDUCT TAX AT SOURCE U/S 195 OF THE IT ACT. 2. ON THE FACTS AND IN THE CIRCUMSTAN CES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT NO INCOME ACCRUES TO M/S NEW SKIES SATELLITES N.V. ROOSEVELTPLANSTOEN 4, 2517 KR, THE HAGUE, THE NETHERLANDS IN INDIA AGAINST THE PAYMENT OF US$ 17,00,000/ - PER ANNUM FOR THE SUPPLY OF SATELL ITE BANDWIDTH FOR USE IN THE RELIANCE TELECOM NETWORK. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE PAYMENT FOR OBTAINING COMPUTER SOFTWARE IS IN THE NATURE OF ROYALTY WHICH IS LIABLE FOR T AXATION IN INDIA. 3 . THE FACTS IN BRIEF ARE THAT, THE ASSESSEE COMPANY HAD ENTERED INTO AN AGREEMENT WITH M/S NEW SKIES SATELLITES NV (WHICH IS A COMPANY INCORPORATED IN ROOSEVELTPLANSTOEN 4, 2517 KR, THE HAGUE, THE NETHERLANDS ) FOR PURCHASE/SUPPLY OF SA TELLITE BANDWIDTH CAPACITY AS PER AGREEMENT DATED 12.12.2002, ( SUBSEQUENTLY A MENDED ON 18.12.2002 ) . THE ASSES SE E HAD MADE AN APPLICATION U/S 195(2) DATED 03.11.2003 BEFORE THE ASSESSING OFFICER FOR MAKING THE PAYMENT OF CHARGES OF US$ 17,00,000/ - PER AN N UM WITHOUT DEDUCTION OF TAX AT SOURCE TO M/S NEW SKIES SATELLITES . 4 . THE ASSESSING OFFICER NOTED THE FOLLOWING S A L I ENT FEATURES OF THE AGREEMENT : - M/S RELIANCE INFOCOMM LTD ITA NO. 5374 /MUM/20 07 ITA 6093/MUM/200 8 3 A . NSS IS PROVIDING TO THE APPELLANT SATELLITE BANDWIDTH CAPACITY ON ITS SATELLITE, NAMED, NSS - 703 B . AS PER CLA USE NO. 12 OF APPENDIX B TO THE AGREEMENT, THE APPLICANT SHALL HAVE THE ABOVE SATELLITE BANDWIDTH CAPACITY AVAILABLE FOR THEIR PURCHASES AND, AT THEIR SOLE DISCRETION, THEY CAN RESELL THE SAME OR PERMIT THIRD PARTIES TO AVAIL OF THE ENTIRE CAPACITY OF ANY PORTION OF THE CAPACITY. C . IN EVENT OF NSS PROCESS TO REMOVE NSS - 703 SATELLITE FROM COMMERCIAL OPERATION, IT CAN PROVIDE THE ABOVE BANDWIDTH VIA REPLACEMENT SATELLITE WITH SPECIFICATIONS IDENTICAL TO THE NSS - 703 SATELLITE. D . THE ABOVE AGREEMENT IS FOR A PER IOD OF THREE YEARS FROM 6 TH JANUARY, 2003 TO 5 TH JANUARY, 2006, WHICH TERM THE APPLICANT CAN EXTEND FOR AN ADDITIONAL PERIOD OF TWO YEARS BY SIMPLY GIVING WRITTEN NOTICE TO NSS. ACCORDING TO THE ASSESSEE, THE SATELLITE BANDWIDTH CAPACITY SOLD BY M/S NEW SKIES SATELLITES CONSTITUTE SALE OF PRODUCT TO THE ASSESSEE AND T HE SAID CAPACITY PURCHASE D BY THE ASSESSEE CO U LD EITHER BE USED BY IT FOR PROVIDING TELECOMMUNICATION SERVICES TO ITS CUSTOMERS OR COULD BE SOLD TO THE THIRD PARTIES AS PER THE REQUIREMENTS OF ITS BUSINESS. THEREFORE, THE PAYMENT MADE TO M/S NEW SKIES SATELLITES CONSTITUTES BUSINESS PROFIT IN THE HANDS OF THE SAID COMPANY AND SINCE IT IS A TAX RESIDENT OF NETHERLANDS AND DOES NOT HAVE A PE IN INDIA THEREFORE, THE SAID AMOUNT IS NOT TAXABLE I N INDIA IN TERMS OF ARTICLE 7 OF THE DTAA. FURTHER , THE PAYMENT MADE IS ALSO NEITHER ROYALT Y NOR EVEN FEES T ECHNICAL S ERVICES AS DEFINED IN ARTICLE 12 OF INDIA NETHERLANDS DTAA. IN SUPPORT OF THIS CONTENTION, RELIANCE WAS PLACED ON THE DECISION OF MADR AS HIGH COURT IN SKYCELL COMMUNICATIONS LTD. (251 ITR 53). M/S RELIANCE INFOCOMM LTD ITA NO. 5374 /MUM/20 07 ITA 6093/MUM/200 8 4 4 . HOWEVER, THE LD. ASSESSING OFFICER HELD THAT SUCH A PAYMENT CONSTITUTES A ROYALTY AS DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VI). WHILE COMING TO THIS CONCLUSION, THE ASSESSING OFFICER HAD R ELIED HEAVILY UPON THE DECISION OF ITAT DELHI BENCH IN THE CASE OF ASIA SATELLITE TELE - COMMUNICATIONS CO. LTD. VS DCIT, REPORTED IN 85 ITD 478. ACCORDINGLY, ASSESSING OFFICER HELD THAT THE PAYMENT MADE BY THE ASSESSEE WAS IN THE NATURE OF ROYALTY AND HENCE WAS LIABLE TO DEDUCT TDS ON SUCH A PAYMENT. 5 . BEFORE THE CIT(A) THE ASSESSEE, FIRST OF ALL, GAVE THE DETAILS OF PAYMENTS MADE AND TDS DEDUCTED IN PURSUANCE OF THE ORDER OF THE ASSESSING OFFICER. THEREAFTER, IT WAS REITERATED THAT SAID PAYMENT IS NOT IN THE NATURE OF ROYALTY , AS DEFINED UNDER ARTICLE 12 OF DTAA ALBEIT IT CONSTITUTES BUSINESS INCOME IN THE HANDS OF THE M/S NEW SKIES SATELLITES , WHICH IS GOVERNED BY ARTICLE 7 . S INCE THE SAID COMPANY DOES NOT HAVE A PE IN INDIA AND, THEREFORE, THE SAME C AN NOT BE TAXABLE IN INDIA. THE LD CIT(A) AFTER CONSIDERING THE ENTIRE ISSUE IN DETAIL AND VARIOUS DECISIONS OF THE TRIBUNAL, CAME TO THE CONCLUSION THAT THE SAID PAYMENT MADE BY THE ASSESSEE DOES NOT CONSTITUTE ROYALTY AND IS ONLY A BUSINESS PROFIT OF M/S NEW SKIES SATELLITES NV, WHICH IS NOT TAXABLE IN INDIA AS IT DOES NOT HAVE A PE IN INDIA. THE DETAILED FINDING OF THE CIT(A) HAS BEEN ELABORATED FROM PAGES 4 TO 8 OF THE APPELLATE ORDER. 6 . BEFORE US, THE LD. SPL. COUNSEL FOR THE REVENUE , SHRI PARAG VYAS, SUBMITTED THAT NOW IN THE WAKE OF AMENDMENT BROUGHT IN SECTION 9(1)(VI) BY FINANCE ACT OF 2012 WITH RETROSPECTIVE EFFECT, SUCH A PAYMENT FOR PURCHASE OF SATELLITE BANDWIDTH HAS TO BE EXAMINED FROM THE ANGLE OF NEWLY AMENDED SECTION. THE NATURE OF PAY MENT HERE IN TH IS CASE IS FOR THE PROCESS WHICH FALLS WITHIN THE AMBIT AND SCOPE OF ROYALTY AS DEFINED IN EXPLANATION 5 AND 6 OF SECTION 9(1)(VI). SINCE TREATY DOES NOT DEFINE THE PH R ASE PROCESS , THEREFORE , THE MEANING GIVEN IN THE DOMESTIC LAW I.E. INDIAN INCOME - TAX ACT SHOULD BE FOLLOWED AND APPLIED . IN SUPPORT OF HIS M/S RELIANCE INFOCOMM LTD ITA NO. 5374 /MUM/20 07 ITA 6093/MUM/200 8 5 CONTE NTION HE STRONGLY RELIED UPON THE DECISION OF THE MADRAS HIGH COURT IN VERIZON COMMUNICATIONS SINGAPORE PTE. LTD. VS I TO (INT. TAXATION) REPORTED IN [ 2012 ] 361 ITR 575. THIS DECIS ION OF THE MADRAS HIGH COURT HAS BEEN FOLLOWED BY ITAT MUMBAI BENCH IN THE CASE OF VIACOM 18 MEDIA PVT LTD, REPORTED IN [2014] 162 TTJ (MUM) 336. THUS, HE FINALLY CONTENDED THAT THE SAID PAYMENT CONSTITUTES A ROYALTY IN VIEW OF THE RETROSPECTIVE AMENDMEN T BROUGHT BY THE FINANCE ACT, 2012 THEREFORE, THE ASSESSEE WAS LIABLE TO DEDUCT TAXES AT SOURCES BECAUSE HERE IT CANNOT BE DOUBTED THAT IT FALLS WITHIN THE AMBIT AND MEANING OF PROCESS . 7 . ON THE OTHER HAND LD. SENIOR COUNSEL, SHRI J D MISTRY, SUBMITTE D THAT HERE IN THIS CASE, FIRST OF ALL, NOW THERE I S NO REQUIREMENT TO GO INTO THE MERITS OF THE ISSUE , WHETHER SUCH A PAYMENT CONSTITUTES A ROYALTY OR NOT, BECAUSE THE PAYMENT MADE TO NEW S K Y SATELLITE HAS BEEN HELD TO BE NOT TAXABLE EITHER AS A ROYALT Y OR AS A BUSINESS PROFIT IN THE CASE OF THE SAID FOREIGN ENTITY BY THE TRIBUNAL ITSELF, WHICH FINDING AND CONCLUSION NOW STANDS UPHELD BY THE DELHI HIGH COURT. THUS, WHEN THE PAYMENT MADE BY THE ASSESSEE TO THE PAYEE ITSELF HAS BEEN HELD TO BE NOT TAXA BLE , THEN UNDER THE LAW THERE IS NO REQUIREMENT OR OBLIGATION OF DEDUCTING TDS U/S 195, BECAUSE THE SAID SECTION POSTULATES THAT SUCH A SUM SHOULD BE CHARGEABLE TO TAX UNDER THE PROVISIONS OF THIS ACT. ONCE IT HAS BEEN HELD THAT IT IS NOT THE INCOME OF THE PAYEE, THEN IN THE CASE OF THE PAYER THE QUESTION OF INCOME OF PAYEE CANNOT BE DECIDED. GIVING THE BACKGROUND OF THE ISSUE INVOLVED MR. J D MISTRY SUBMITTED THAT, IN THE CASE OF M/S NEW SKIES SATELLITES , EARLIER THE SP ECIAL BENCH, ITAT, DELHI [2009] 121 I TD 1, HAD HELD THAT THE PAYMENT RECEIVED BY M/S NEW SKIES SATELLITES FROM THEIR CUSTOMERS, THAT IS , TELECASTING/TELECOMMUNICATION COMPANIES (INCLUDING ASSESSEE) AMOUNTED TO ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VI). LATER ON, THIS DECISION OF THE SP ECIA L BENCH DATED 16 TH OCTOBER, 2009 WAS SET ASIDE BY THE HONBLE DELHI HIGH COURT TO THE ITAT FOR M/S RELIANCE INFOCOMM LTD ITA NO. 5374 /MUM/20 07 ITA 6093/MUM/200 8 6 DECIDING THE ISSUE AFRESH , VIDE ORDER DATED 17 TH FEBRUARY, 2011. IN PURSUANCE THEREOF, THE TRIBUNAL IN ITA NOS. 5385 TO 5387 / DEL / 2004 AND OTHER APPEALS IN T HE CASE OF M/S NEW SKIES SATELLITES , DECIDED THE ISSUE IN FAVOUR OF M/S NEW SKIES SATELLITES NV VIDE ORDER DATED 09.11.2011 , WHEREIN IT WAS HELD THAT THE PAYMENT RECEIVED BY THE M/S NEW SKIES SATELLITES NV FROM VARIOUS CUSTOMER S ON ACCOUNT OF PROVIDING FAC ILITY OF BROADCASTING AND SATELLITE BANDWIDTH CAPACITY CANNOT BE TAXED AS ROYALTY. WHILE COMING TO THIS CONCLUSION, THE ITAT DELHI BENCH, RELIED UPON THE DECISION OF DELHI HIGH COURT IN THE CASE OF ASIA SATELLITE TELE - COMMUNICATION CO. LTD. VS DIT [2011] 197 TAXMAN 263. THE RELEVANT OBSERVATION AND FINDING OF TRIBUNAL READS AS UNDER : - 9. THE ASSESSING OFFICER, HOWEVER, WENT AHEAD WITH THE ASSESSMENT PROCEEDINGS. THE ASSESSMENT ORDER DATED MARCH 29, 2000 WAS PASSED ASSESSING THE INCOME OF THE ASSESSEE A T RS. 160,28,03,316. ACCORDING TO THE ASSESSING OFFICER, THE APPELLANT HAD A BUSINESS CONNECTION IN INDIA AND, THEREFORE, WAS CHARGEABLE TO TAX IN INDIA. HE REJECTED THE APPELLANT'S CONTENTION THAT ITS REVENUES OUGHT TO BE APPORTIONED HAVING REGARD TO THE NUMBER OF COUNTRIES COVERED BY THE FOOTPRINT. ACCORDING TO HIM, THE REVENUES WOULD HAVE TO BE APPORTIONED ON THE BASIS OF COUNTRIES TARGETED BY THE TELEVISION CHANNELS WHO WERE THE APPELLANT'S CUSTOMERS. ON THIS BASIS, HE ESTIMATED THAT NINETY PER CENT. OF THE APPELLANT'S REVENUE WAS ATTRIBUTABLE TO INDIA. AFTER ARRIVING AT THE INCOME OF THE APPELLANT, HE HELD THAT EIGHTY PER CENT. THEREOF WAS APPORTIONED TO INDIA AS MOST OF THE CHANNELS WERE INDIA SPECIFIC AND THEIR ADVERTISEMENT REVENUE WAS FROM INDIA. OR DER OF THE COMMISSIONER OF INCOME - TAX (APPEALS) 10. BEING AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE APPELLANT PREFERRED AN APPEAL TO THE COMMISSIONER OF INCOME - TAX (APPEALS). VARIOUS GROUNDS WERE URGED CHALLENGING THE M/S RELIANCE INFOCOMM LTD ITA NO. 5374 /MUM/20 07 ITA 6093/MUM/200 8 7 LIABILITY TO PAY TAX IN IND IA AS WELL AS THE MANNER IN WHICH THE ASSESSING OFFICER HAD COMPUTED THE APPELLANT'S INCOME CHARGEABLE TO TAX. 11. THE COMMISSIONER OF INCOME - TAX (APPEALS) DISPOSED OF THE APPEAL BY AN ORDER DATED DECEMBER 4, 2000. HE NOTED THAT THERE WAS NO DISPUTE THAT THE APPELLANT HAD NOT RECEIVED ANY INCOME IN INDIA. THE ONLY DISPUTE, ACCORDING TO THE COMMISSIONER OF INCOME - TAX (APPEALS), WAS AS TO WHETHER ANY INCOME COULD BE DEEMED TO HAVE ACCRUED TO THE APPELLANT IN INDIA WITHIN THE MEANING OF SECTION 9 OF THE ACT. HE HELD THAT ALTHOUGH IT COULD BE SAID THAT THERE WAS SOME KIND OF TERRITORIAL NEXUS OF THE BEAM WHICH WAS DOWNLINKED FROM THE APPELLANT'S SATELLITE WITH INDIA, THE PROPRIETARY RIGHTS IN THE NATURE OF COPYRIGHT, ETC. IN THE DOWNLINKED BEAM DID NOT BELONG T O THE APPELLANT BUT BELONGED TO THE TELEVISION CHANNELS. HE HELD THAT THERE WAS NO EVIDENCE ON RECORD TO HOLD THAT THE APPELLANT HAD ANY INDIA SPECIFIC BEAMING FACILITY. HE FOUND THAT ON THE BASIS OF THE FACTS BROUGHT ON RECORD IT COULD NOT BE SAID THAT TH E DOWN LINKED BEAM COULD BE RESTRICTED TO ANY PARTICULAR REGION OR COUNTRY. ACCORDING TO THE COMMISSIONER OF INCOME - TAX (APPEALS), IT WAS THE RESPONSIBILITY OF THE APPELLANT TO KEEP THE EQUIPMENT IN GOOD SHAPE AND TO ENSURE THE QUALITY OF THE DOWNLINKED BE AM IN THE FOOTPRINT AREA IN RESPECT OF A BEAM UPLINKED BY THE CUSTOMER. HE FOUND THAT THE TELEMETRY, TRACKING AND CONTROL OPERATIONS WERE CARRIED OUT FROM HONG KONG AND THAT NO BEAM WAS UPLINKED FROM INDIA. HIS FINDING WAS THAT THE AGREEMENTS WERE SIGNED O UTSIDE INDIA AND THE PAYMENTS WERE ALSO RECEIVED OUTSIDE INDIA. ONLY THE SIGNALS COULD BE RECEIVED IN INDIA BUT AS A MATTER OF FACT THESE WERE NOT RECEIVED IN INDIA EITHER BY THE APPELLANT OR ITS AGENT BUT BY CABLE TELEVISION OPERATORS WHO HAD AGREEMENTS F OR RECEPTION OF SIGNALS WITH THE TELEVISION CHANNELS TO WHOM THE PROPERTY IN THE SIGNAL M/S RELIANCE INFOCOMM LTD ITA NO. 5374 /MUM/20 07 ITA 6093/MUM/200 8 8 BELONGED. HE ACCORDINGLY HELD THAT AS THE PERFORMANCE OF THE CONTRACT WAS NOT IN INDIA IT COULD NOT BE SAID THAT ANY INCOME ACCRUED TO THE APPELLANT IN INDIA . HE FOUND THAT THE CIRCULAR, BEING CIRCULAR NO. 742 DATED MAY 2, 1996 [1996] 219 ITR (ST.) 49, ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES IN CONNECTION WITH THE TAXATION OF FOREIGN TELECASTING COMPANIES WOULD HAVE NO APPLICATION TO THE APPELLANT'S CASE. HE REJECTED THE ARGUMENT OF THE ASSESSING OFFICER THAT THE WAVES GENERATED BY THE APPELLANT ON WHICH THE PROGRAMMES WERE MOUNTED PENETRATING INDIAN SPACE TO REACH THE FOOTPRINT AREA. ACCORDING TO HIM, THE SUBSTANCE OF THE AGREEMENT WAS THE HIRING OF TRANSPONDER TIME AND IT WAS NOT AN AGREEMENT FOR CARRYING PROGRAMMES OF THE CUSTOMERS. HE FURTHER HELD THAT HAVING REGARD TO THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF 20TH CENTURY FINANCE CORPORATION LTD. V. STATE OF MAHARASHTRA [2000] 119 STC 182, THE TAXABLE EVENT WOULD HAVE TO BE DECIDED ON THE BASIS OF THE EXECUTION OF THE CONTRACT AND AS ADMITTEDLY THE CONTRACTS WERE ENTERED INTO OUTSIDE INDIA THE ACCRUAL OF INCOME WOULD ALSO TAKE PLACE OUTSIDE INDIA. 12. THEREAFTER, THE COMMISSIONER OF INCOME - TAX (APPEALS) DEALT WITH THE ISSUE AS TO WHETHER THE APPELLANT WOULD HAVE A BUSINESS CONNECTION IN INDIA. AFTER REFERRING TO CERTAIN DECISIONS OF THE SUPREME COURT, HE CONCLUDED THAT THE APPELLANT DID NOT HAVE ANY AGREEMENT WITH ANY INDIAN COMPANY AND WAS NOT RENDERING ANY SERVICE TO ANY INDIAN COMPANY AND, THEREFORE, IT COULD NOT BE SAID THAT THE APPELLANT HAD A BUSINESS CONNECTION IN INDIA. HE ALSO HELD THAT THE APPELLANT WAS NOT CARRYING OUT ANY OPERATIONS IN INDIA AS THE ONLY OPERATIONS THAT WERE CARRIE D OUT BY THE APPELLANT WERE IN THE SATELLITE WHICH WAS LOCATED OUTSIDE INDIA. THE MERE FACT THAT THE APPELLANT HAD PUT IN PLACE A SATELLITE IN A MANNER THAT M/S RELIANCE INFOCOMM LTD ITA NO. 5374 /MUM/20 07 ITA 6093/MUM/200 8 9 DOWNLINKED SIGNALS COULD BE RECEIVED IN INDIAN TERRITORY ALSO DID NOT RESULT IN AN INFERENCE THAT ANY PART OF THE APPELLANT'S BUSINESS OPERATIONS WERE CARRIED OUT IN INDIA. AS PER HIM, THE POSITION MAY HAVE BEEN DIFFERENT IF IT HAD BEEN SHOWN THAT THE SATELLITE COMPANY, THE TELEVISION CHANNELS AND THE CABLE OPERATORS WERE INTERCONNECTED OR THAT THE TRA NSACTIONS AMONG THEM WERE NOT CARRIED OUT AT ARM'S LENGTH. BUT AS THERE WAS NO EVIDENCE OR MENTION OF ANY OF THESE FACTORS, HE HELD THAT NO INCOME COULD BE SAID TO BE DEEMED TO ACCRUE OR ARISE IN INDIA IN TERMS OF SECTION 9(1)(I). 13. THE COMMISSIONER OF INCOME - TAX (APPEALS) THEREAFTER PROCEEDED TO DEAL WITH THE ISSUE AS TO WHETHER THE AMOUNTS RECEIVED BY THE APPELLANT WERE LIABLE TO BE TAXED IN INDIA IN TERMS OF SECTION 9(1)(VI) OF THE ACT. THE ARGUMENT OF THE REVENUE IN THIS BEHALF WAS THAT THE APPELLANT RECEIVED PAYMENTS FROM SOME COMPANIES LOCATED OUTSIDE INDIA WHICH COMPANIES IN TURN RECEIVED PAYMENTS FROM INDIAN COMPANIES OR COMPANIES OPERATING IN INDIA IN RESPECT OF SIGNALS RECEIVED IN INDIA AND, THEREFORE, THE PROVISIONS OF SECTION 9(1)(VI) WOULD BE ATTRACTED. ACCORDING TO THE ASSESSING OFFICER, THE APPELLANT WOULD FALL WITHIN THE DEFINITION OF ROYALTY AS THE SAID TERM WAS DEFINED IN EXPLANATION 2 BELOW SECTION 9(1)(VI), AS IT WAS A PAYMENT FOR USE OF 'SIMILAR PROPERTY'. THE COMMISSIONER OF INCOME - TA X (APPEALS) HELD THAT THE ISSUE TO BE DECIDED WAS WHETHER THE CUSTOMERS WERE MERELY USING A PHYSICAL ASSET OR WERE THEY USING THE PROCESS INSTALLED IN THE TRANSPONDER. ACCORDING TO HIM, THE SIGNALS WERE UPLINKED BY THE CUSTOMERS AND WERE RECEIVED IN THE TR ANSPONDER. THE COMPLICATED DEVICES IN THE TRANSPONDER SEGREGATED THE PROGRAMME FROM THE BEAM, AMPLIFIED THEM, MOUNTED THEM ON NEW BEAMS OF WAVELENGTHS DIFFERENT FROM THE ORIGINAL WAVELENGTH OF THE CUSTOMERS AND TRANSMITTED THE PROGRAMMES ON THE NEW BEAM M/S RELIANCE INFOCOMM LTD ITA NO. 5374 /MUM/20 07 ITA 6093/MUM/200 8 10 I N THE FOOTPRINT AREA OF THE BEAM. THE PAYMENTS THAT ARE MADE BY THE CUSTOMERS WERE FOR THIS PURPOSE AND NOT FOR THE USE OF THE PHYSICAL ASSET SIMPLICITER. THE DETAILS OF THE OPERATIONS CARRIED IN THE TRANSPONDER WERE NOT KNOWN TO THE CUSTOMER, THE CUSTOMER MADE THE PAYMENT BECAUSE THEY WERE AWARE OF THE FACT THAT THE UPLINKED BEAM WOULD BE PROCESSED IN THE SATELLITE AND WOULD BE DOWNLINKED IN THE MANNER THAT IT COULD BE RECEIVED BY THE CUSTOMERS VIZ., THE TELEVISION CHANNELS, COMMUNICATION COMPANIES OR THEI R AGENTS. THE COMMISSIONER OF INCOME - TAX (APPEALS) HELD THAT THE CUSTOMERS WERE, THEREFORE, USING THE SECRET PROCESS PUT IN PLACE IN THE TRANSPONDER ON THE SATELLITE AND THE PAYMENTS WERE MADE FOR THIS PURPOSE AND NOT FOR MERELY THE USE OF A PHYSICAL ASSET . HE, THEREFORE, CAME TO THE CONCLUSION THAT THE AMOUNT PAID TO THE APPELLANT BY ITS CUSTOMERS REPRESENTED ROYALTY AS THE SAID EXPRESSION WAS DEFINED IN EXPLANATION 2 BELOW SECTION 9(1)(VI). HE FURTHER HELD THAT IN VIEW OF THE JUDGMENT OF THE SUPREME COURT IN THE CASE OF PERFORMING RIGHT SOCIETY LTD. V. CIT [1977] 106 ITR 11 , IT WOULD BE APPARENT THAT THE TELEVISION CHANNELS WOULD BE MAKING THE PAYMENT BY WAY OF ROYALTY IN RESPECT OF A RIGHT OR INFORMATION USED OR SERVICES UTILIZED FOR THE PURPOSE OF A BUSINESS CARRIED ON BY THEM IN INDIA. THE TELEVISION CHANNELS WHICH MADE PROGRAMMES PREDOMINANTLY MEANT FOR INDIAN PERSONS WERE UTILIZING THE PROCESSING FACILITIES OF THE APPELLANT FOR THE BUSINESS CARRIED ON BY THEM IN INDIA AND HENCE THE APPELLANT WAS CHARGEABLE TO TAX IN INDIA. 14. HAVING REGARD TO THE VIEW THAT HE TOOK, VIZ., THAT THE INCOME WAS CHARGEABLE TO TAX IN TERMS OF SECTION 9(1)(VI), HE FELT THAT IT WAS NOT NECESSARY TO CONSIDER THE QUESTION OF DEDUCTIBILITY OF T HE EXPENSES. NEVERTHELESS, HE THOUGHT IT FIT TO DISPOSE OF ALL THE GROUNDS THAT WERE RAISED AND WERE FILED M/S RELIANCE INFOCOMM LTD ITA NO. 5374 /MUM/20 07 ITA 6093/MUM/200 8 11 BEFORE HIM. IN SO FAR AS THE CLAIM FOR LEASE RENTALS IS CONCERNED, HE HELD THAT 50 PER CENT. OF THE LEASE RENTALS PAYABLE FOR ASIASAT 1 OUGHT TO BE ALLOWED AS A DEDUCTION. SIMILARLY, THE EXPENDITURE ON MAINTENANCE AND SATELLITE OPERATIONS WAS ALSO ALLOWED TO THE EXTENT OF 50 PER CENT. IN SO FAR AS ASIASAT 1 WAS CONCERNED AND 75 PER CENT. IN SO FAR AS ASIASAT 2 WAS CONCERNED. AS REGARDS THE CLAIM FOR D EPRECIATION, HE ACCEPTED THE CONTENTION OF THE APPELLANT THAT DEPRECIATION WOULD HAVE TO BE ALLOWED ON THE ACTUAL COST OF THE SATELLITE AND NOT ON A NOTIONAL WRITTEN DOWN VALUE WHICH WAS COMPUTED AS IF DEPRECIATION HAD BEEN ALLOWED IN THE EARLIER YEARS. HO WEVER, HE REJECTED THE CONTENTION OF THE APPELLANT THAT IT WAS ENTITLED TO A DEDUCTION BY WAY OF DEPRECIATION ON THE ENTIRE COST OF THE ASSET BY RELYING ON SECTION 38 OF THE ACT. HE HELD THAT THE C BAND OF ASIASAT 2 GENERATED ONLY 75 PER CENT. OF THE TOTAL REVENUES OF ASIASAT 2, AND THEREFORE, 75 PER CENT. OF THE DEPRECIATION THAT WAS CALCULATED ON THE ACTUAL COST OUGHT TO BE ALLOWED AS A DEDUCTION. HE CONSIDERED THE QUESTION AS TO WHAT PORTION OF THE INCOME SO ARRIVED AT WAS TO BE CONSIDERED CHARGEABLE TO TAX IN INDIA. HE NOTED THAT THE ASSESSING OFFICER HAD NOT GIVEN ANY REASON AS TO WHY 80 PER CENT. OF THE REVENUES SHOULD BE ATTRIBUTED TO INDIA. HE ALSO NOTED THAT THE APPELLANT WAS LOCATED IN HONG KONG AND, THEREFORE, A SUBSTANTIAL PART OF ITS BUSINESS WA S LIKELY TO COME FROM CLIENTS OF CHINESE AND JAPANESE ORIGIN. HE REJECTED THE APPELLANT'S CONTENTION THAT THE TEST TO BE APPLIED WHILST PRO - RATING THE INCOME WOULD BE EITHER THE NUMBER OF COUNTRIES WHICH ARE COVERED BY THE FOOTPRINT OR THE GROSS NATIONAL P RODUCT (GDP) PER CAPITA OF THE COUNTRIES COVERED BY THE FOOTPRINT. HE HELD THAT THE APPROPRIATE RATIO TO BE APPLIED WOULD BE THE AREA OF THE COUNTRY TO THE TOTAL AREA OF THE FOOTPRINT WITH THE AREAS OF LARGE WATER BODIES LIKE INLAND LAKES, SEAS AND OCEANS BEING M/S RELIANCE INFOCOMM LTD ITA NO. 5374 /MUM/20 07 ITA 6093/MUM/200 8 12 IGNORED. HE ALSO CANCELLED THE LEVY OF INTEREST UNDER SECTION 234B OF THE ACT, BUT UPHELD THE LEVY OF INTEREST UNDER SECTION 234A OF THE ACT . 8 . MR. MISTRY, FURTHER SUBMITTED THAT THIS DECISION OF THE TRIBUNAL WAS CHALLENGED BEFORE THE DELH I HIGH COURT, BY THE REVENUE, WHEREIN THE HONBLE HIGH COURT ( IN THE CASE OF THE PAYEE ) UPHELD THE AFORESAID DECISION OF THE TRIBUNAL AND ENDORSED THE VIEWS THAT SUCH A PAYMENT MADE BY THE ASSESSEE CANNOT BE TAXED AS ROYALTY AND ACCORDINGLY , THERE IS NO LIABILITY TO DEDUCT TDS. MR. MISTRY ALSO POINTED OUT THAT IN ASSESSMENT YEAR 2006 - 07 & 2008 - 09, THE TRIBUNAL AGAIN IN THE CASE OF M/S NEW SKIES SATELLITES HAS DECIDED THIS ISSUE IN FAVOUR OF THE SAID ASSESSEE THAT THE RECEIPTS EARNED BY THEM CANNOT BE TAXE D AS ROYALTY. THUS, THIS MATTER AS OF NOW HAS ATTAINED FINALITY AND NO CONTRARY VIEW CAN BE TAKEN. 9 . REGARDING THE ISSUE ON MERITS, HE SUBMITTED THAT, FIRST OF ALL, THE ASSESSEE HAS RELIED UPON THE DTAA WHEREIN NO SUCH AMENDMENT HAS BEEN BROUGHT. THER EFORE, THE AMENDMENT MADE IN THE DOMESTIC LAW I.E. IN THE INDIAN INCOME TAX ACT WILL NOT HAVE ANY RELEVANCE OR BEARING OR INTERPRETING THE SCOPE OF ROYALTY AS DEFINED IN THE TREATY. I N SUPPORT, HE STRONGLY RELIED UPON THE DECISION OF HONBLE BOMBAY HIGH CO URT IN THE CASE OF CIT VS SIEMENS (ATKONGESELLS) SHAFT, REPORTED IN 310 ITR 320 AND ALSO DECISION OF ITAT MUMBAI BENCH IN THE CASE OF CHANNEL GUIDE INDIA LTD VS ACIT [2012] 139 ITD 49. 1 0 . WE HAVE HEARD THE RIVAL SUBMISSIONS AND ALSO PERUSED THE MATER IAL REFERRED TO BEFORE US. HERE THE MAIN ISSUE PERTAINS TO , WHETHER THE PAYMENT MADE BY THE ASSESSEE TO M/S NEW SKIES SATELLITES NV FOR THE PURCHASE OF SATELLITE BANDWIDTH CAPACITY IN TERMS OF AGREEMENT DATED 12. /18.12.2012 SHOULD BE M AD E WITHOUT DEDUCTION OF TAX AT SOURCE OR NOT. THE ASSESSING OFFICER IN THE APPLICATION FILED BY ASSESSEE U/S 195(2), HAS HELD THAT SUCH A M/S RELIANCE INFOCOMM LTD ITA NO. 5374 /MUM/20 07 ITA 6093/MUM/200 8 13 PAYMENT AMOUNTS TO ROYALTY IN THE HANDS OF M/S NEW SKIES SATELLITES NV, THEREFORE, ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE. IT HAS BE EN NOW BROUGHT ON RECORD BY THE LD. SENIOR COUNSEL THAT IN THE CASE OF PAYEE ITSELF , THAT IS , M/S NEW SKIES SATELLITES NV, IT HAS BEEN DECIDED CATEGORICALLY BY THE TRIBUNAL THAT SUCH A PAYMENT MADE BY THE ASSESSEE TO M/S NEW SKIES SATELLITES NV DOES NOT AM OUNT TO ROYALTY AS PER THE DETAIL FINDING INCORPORATED IN THE FOREGOING PARAS . SUCH AN ORDER OF THE TRIBUNAL DATED 11.03.2011 HAS NOW BEEN APPROVED AND AFFIRMED BY THE HONBLE DELHI HIGH COURT VIDE ORDER DATED 30.09.2011. NOT ONLY THAT , IN SUBSEQUENT YEA RS ALSO IN THE CASE OF THE PAYEE, IT HAS BEEN CONSISTENTLY HELD THAT SUCH A PAYMENT DOES NOT CONSTITUTE PAYMENT FOR ROYALTY. IN VIEW OF THIS CONCLUSION OF FACT AND LAW IN CASE OF PAYEE, WE CANNOT RECKON THE PAYMENT AS ROYALTY IN THE HANDS OF PAYEE. FURTHER IT IS ALSO AN ADMITTED FACT THAT THE M/S NEW SKIES SATELLITES NV DOES NOT HAVE ANY PE IN INDIA AND, THEREFORE, EVEN IF IT CONSTITUTES A BUSINESS INCOME IN ITS HAND, THE SAME IS NOT TAXABLE IN INDIA UNDER ARTICLE 7 OF DTAA. NOW THAT WHEN THIS ISSUE AS OF N OW H AS BEEN SETTLED IN THE CASE OF THE PAYEE FROM THE STAGE OF THE HIGH COURT THAT IT DOES NOT CONSTITUTE INCOME IN THE HANDS OF THE PAYEE , WE ACCORDINGLY, HOLD THAT ASSESSEE IS NOT IN DEFAULT AND WAS NOT LIABLE TO DEDUCT TDS ON SUCH A PAYMENT U/S 195 AND THEREFORE , THERE IS NO LIABILITY OF THE ASSESSEE TO DEDUCT TDS O N THE PAYMENT MADE ON ACCOUNT OF PURCHASE OF SATELLITE BANDWIDTH CAPACITY. 11. SO FAR AS ARGUMENT S RAISED BY THE SP ECIA L COUNSEL OF THE REVENUE ON THE ISSUE THAT SUBSEQUENT AMENDMENT BROUGHT IN STATUTE WITH RETROSPECTIVE EFFECT SHOULD BE CONSIDERED FOR DECIDING THE ISSUE THAT SUCH A PAYMENT NOW AMOUNTS TO ROYALTY AND SAME IS TO BE VIEWED AFRESH DESPITE THE FINALITY OF TH E ISSUE IN THE CASE OF THE PAYEE FROM THE STAGE OF THE HIGH COURT, WE A RE OF THE CONSIDERED OPINION THAT, IT WILL BE PURELY AN ACADEMIC EXERCISE ONLY. THE REASON BEING THAT , THE ASSESSEE HAS LIABILITY TO DEDUCT M/S RELIANCE INFOCOMM LTD ITA NO. 5374 /MUM/20 07 ITA 6093/MUM/200 8 14 TDS U/S 195 , ONLY WHEN THE PAYMENT OF THE SUM IN THE HANDS OF THE NON - RESIDENT IS CHARGEABLE TO TAX UNDER THE RELEVA NT PROVISIONS OF THE INCOME TAX ACT. HERE IN THIS CASE, IT HAS ALREADY BEEN UP HELD THAT SUCH A SUM IS NOT CHARGEABLE TO TAX IN INDIA IN THE HANDS OF THE NON - RESIDENT , THAT IS , M/S NEW SKIES SATELLITES NV BY THE HIGH COURT , THEREFORE, IT WHOLLY UNDESIRABLE FOR US, TO DECIDE THAT PAYMENT MADE BY THE ASSESSEE CONSTITUTES INCOME IN THE HANDS OF THE PAYEE. ACCORDINGLY, THE ORDER OF THE CIT(A) THAT ASSESSEE IS NOT REQUIRED TO DEDUCT TDS ON PAYMENT MADE TO M/S NEW SKIES SATELLITES NV I S UPHELD AND CONSEQUENTLY G RO UND S RAISED BY THE REVENUE ARE DISMISSED. 12. ITA 6093/MUM/2007 : IN THE IMPUGNED APPEAL, F OLLOWING GROUND S HAS BEEN RAISED BY THE REVENUE : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE PAYM ENT OF CERTAIN TELECOMMUNICATION SATELLITE BAND WIDTH CAPACITY(SOFTWARE) AMOUNTS TO BUSINESS RECEIPTS AND IN THE ABSENCE OF ANY PERMANENT ESTABLISHMENT IN INDIA, THE BUSINESS PROFIT ARISING IN THE TRANSACTION IS NOT TAXABLE IN INDIA. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE PAYMENT FOR THE PURCHASE OF SOFTWARE IS IN THE NATURE OF ROYALTY WHICH IS LIABLE FOR TAXATION IN INDIA. 13. SINCE SIMILAR ISSUE IS INVOLVED IN THIS APPEAL HAS DELI BERATED AND DECIDED ABOVE IN THE DEPARTMENTAL APPEAL ( ITA NO. 5374 OF 2007 ), T HEREFORE, THE AFORESAID FINDING WILL APPLY MUTATIS MUTANDIS HERE IN THIS APPEAL ALSO. ACCORDINGLY, WE HOLD THAT ASSESSEE IS NOT LIABLE TO DEDUCT TDS ON PAYMENT S MADE TO M/S NEW S KIES SATELLITES AS IT NEITHER AMOUNTS TO ROYALTY IN THE HANDS OF THE SAID PAYEE COMPANY NOR IT IS TAXABLE AS BUSINESS PROFIT IN INDIA IN ABSENCE OF ANY PE. THUS , GROUND S RAISED BY THE REVENUE IN THE APPEAL ALSO ARE DISMISSED. M/S RELIANCE INFOCOMM LTD ITA NO. 5374 /MUM/20 07 ITA 6093/MUM/200 8 15 14. IN THE RESULT, BOTH THE APPEALS FILED BY THE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 7 TH SEPTEMBER , 2015. SD/ - SD/ - ( GOPAL KEDIA ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 7 TH SEPTEMBER , 2015 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3) THE CIT (A) - / CONCERNED ____ , MUMBAI. 4 ) THE CIT 8 , CONCERNED ____ MUMBAI. 5 ) , , / THE D.R. L BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS