ACIT, Circle-3(1)(1) Int. Taxation, New Delhi V. Thicom Public Company Ltd., New Delhi

ITA 7886/DEL/2019

AI Insights

The case involves Thicom Public Company Ltd, a Thailand-based company providing digital broadcast services in India through satellite transponders. The Assessing Officer classified the payments received from Indian customers as 'royalty' under section 9(1)(vi) of the Income Tax Act and the respective DTAA articles, subjecting them to a 10% tax. However, the CIT(A) reversed this decision, citing a similar case where the Delhi High Court ruled that such income does not qualify as royalty. The revenue appealed against this decision, arguing that the Finance Act 2012 did not alter the interpretation of 'royalty' in the DTAA, but the Tribunal found no merit in this argument and upheld the CIT(A)'s decision.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 302809 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 4 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-02-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: G
• Next Hearing Date: 19-01-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 26-09-2019
• Other Referred Cases: Director of Income Tax Vs. New Skies Satellite B.V.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief
• Section: 143(3); 144C; 115A

Judgement Text

INCOME TAX APPELLATE TRIBUNAL DELHI BENCH “H”: NEW DELHI Before Shri G.S. Pannu, Hon’ble President and Shri Anubhav Sharma, Judicial Member ITA No. 7886/Del/2019 (Assessment Year: 2016-17) ACIT, Central Circle-3(1)(1), International Taxation New Delhi Vs. Thicom Public Company Ltd, C/o. Mohinder Puri & Co, CAs, 1AD, Vandhana, 11, Tolstoy Marg, New Delhi (Appellant) (Respondent) PAN: AAGCS4481E Revenue by : Shri Parikshit Singh, CA Assessee by: Shri Jatinder Singh, CA Date of Hearing 20/01/2023 Date of pronouncement 21/02/2023 O R D E R PER ANUBHAV SHARMA, J. M.: 1. The appeal has been preferred by the revenue against the order dated 26.07.2019 of Ld. Commissioner of Income Tax (Appeals), New Delhi (hereinafter referred as Ld. First Appellate Authority or in short Ld. 'FAA') in appeal No. 10140/2018-19 arising out of an appeal before it against the order dated 18.12.2018 passed u/s 143(3) r.w.s 144C of the Income Tax Act, 1961 (hereinafter referred as 'the Act') by the Id Assessing Officer, Deputy Commissioner of Income Tax, Circle-3(1)(1), International Taxation, New Delhi (hereinafter referred as the Ld. AO). 2. Facts in brief are that the Assessee is a company incorporated under the laws of Thailand, and is engaged in the business of providing digital broadcast service through its transponders to its customers, both residents in India as well as non-residents. It renders these services to its customers through the satellite THAICOM-7, which has a footprint over a wide geographical region including India. It had disclosed receipts of Rs. 9,46,77,053/- from two customers in India while declaring Nil total income. The case was selected for complete scrutiny and statutory notices were issued. The Id AO observed that the payment received by the Assessee from the customers is on account of use of process involved in the transponders and its amounts to royalty within the meaning of section 9(l)(vi) of the Act and also amounts to royalty within the meaning of respective articles of DTAA. Accordingly, the receipts were held to be taxable @10% under 115A as royalty. Draft assessment order dated 13.11.2018 was passed u/s 144C(1)/143(3) of the Act and communicated to the Assessee. The Assessee had not filed its objections before DRP as it intended to file an appeal before the Id CIT(A). Accordingly, vide the assessment order dated 18.12.2018, the draft order was confirmed. In appeal the Id CIT(A) had taken into consideration the fact being similar to those of Assessment Year 2013-14 and following the judgment of Hon'ble Delhi High Court in Assessee's own case that the services rendered by the Assessee is not taxable in India allowed the grounds raised and now the revenue is in appeal raising following grounds:- "1) Whether the CIT(A) has erred in law in holding that the Finance Act 2012 will not affect Article 12 of the DTAA and the interpretation of the term 'Royalty' given by the Hon'ble Delhi High Court in the case of Asia Satellite will continue to hold the field in the absence of any amendment in DTAA and thereby in holding that receipts of the assessee earned from providing data transmission services do not fall within the term 'Royalty' under the relevant DTAA? 2) Whether, the CIT(A) has erred in law in holding that the income earned by the assessee from providing digital broadcasting services through its transponders to customers in India was not taxable in India under the relevant DTAA." 3. Heard and perused the records. 4. The issue with regard to functions performed by transponders could not be categorized as "process" stands settled. The Hon'ble Delhi High Court in the judgment dated 08.12.2016 in case of Director of Income Tax Vs. New Skies Satellite B.V. in ITA 473/2014 settled the controversy holding that all that the customers gets through the agreement with the Assessee is mere access to a broadband width available in the transponder. The control over the parts of the satellite and naturally transponder remains with the Assessee. At no point does the Assessee cede control over the satellite to the customers. Logically therefore, since the transponder is a part of satellite that cannot be severed from it, there can be no independent control of the transponders without control of the satellite itself. As with regard to the grounds specifically raised in the appeal in this judgment itself Hon'ble High Court has concluded in para 60 as below; "60. Consequently, since we have held that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word "royalty" in Asia Satellite59, when the definitions were in fact pari materia (in the absence of any contouring explanations), will continue to hold the field for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amended jointly by both parties to incorporate income from data transmission services as partaking of the nature of royalty, or amend the definition in a manner so that such income automatically becomes royalty. It is reiterated that the Court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no Double Tax Avoidance Agreement. 5. Ld CIT(A) has thus rightly relied aforesaid proposition of law and nothing was cited to differ from it. In the light of the aforesaid no interference is required in the findings arrived by the Id CIT(A) and the grounds raised are not sustainable. Appeal of the revenue is dismissed. Order pronounced in the open court on 21/02/2023. -Sd/- -Sd/- (G.S. Pannu) (Anubhav Sharma) Hon’ble President Judicial Member Dated: 21/02/2023 A K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi