Bhatat BT Internet Ltd., V. DCIT, Int. Central Circle-191),

TDS 240/DEL/2003

• Counselvise Citation: [2011] 122 COUNSELVISE.COM (IT) 4188 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 7 month(s) 20 day(s)
• Appeal Type: TDS Appeal
• Pronouncement Date: 12-08-2011
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Next Hearing Date: 12-08-2011
• Assessment Year: 2002-2003
• Appeal Filed On: 22-12-2003
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: N K CHAND
• Keywords: Double taxation relief; Question of law

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI R.P. TOLANI AND SHRI K.D. RANJAN ITA NO.240/DEL/03 ASSTT. YR: 2002-03 M/S BHARTI BT INTERNATIONAL LTD. VS. DCIT INTERNA TIONAL TAXATION, D-189, OKHLA INDUSTRIAL AREA, CIR. 1(1), NEW DEL HI. PHASE-I, NEW DELHI. PAN/GIR NO. ( APPELLANT ) ( RESPONDENT ) APPELLANT BY : SHRI ANIL BHALLA CA RESPONDENT BY: SHRI N.K. CHAND DR O R D E R PER R.P. TOLANI, J.M : THIS IS ASSESSEES APPEAL AGAINST CIT(A)S ORDER DA TED 27-10-2003 RELATING TO A.Y. 2002-03. SOLE GROUND RAISED IS AS UNDER: THE LEARNED DY. DIRECTOR OF INCOME TAX HAD ERRED B OTH ON FACTS AND IN LAW IN HOLDING THAT THE PAYMENT MADE TO SINGAPORE TELECOMMUNICATIONS LTD. AMOUNTING TO USD 536,761.67 TO BE IN THE NATURE OF ROYALTY WITHOUT REFERRING TO THE R ELEVANT APPLICABLE CLAUSE OF THE INDIA SINGAPORE DTA AND FU RTHER ERRED IN HOLDING THAT THE APPELLANT WAS LIABLE TO DEDUCT TAX U/S 195 OF THE INCOME TAX ACT, HOLDING THE APPELLANT TO BE IN DEFAULT FOR A SUM OF RS. 3,866,294/-. THE CIT(APPEALS) XXIX HAS F URTHER ERRED IN CONFIRMING THE ACTION OF THE AO AND IN HOL DING THAT THE PAYMENTS MADE TO SINGAPORE TELECOMMUNICATIONS LIMIT ED FOR PROVIDING SATELLITE CONNECTIVITY FOR THE PURPOSES O F TRANSMISSION OF ITS DATA TO THE INTEREST WORLD WERE COVERED BY T HE ROYALTY CLAUSE IN THE INDIA-SINGAPORE DTA. 2 2. LEARNED COUNSEL FOR THE ASSESSEE AT THE OUT SET DREW OUR ATTENTION TO THE HONBLE DELHI HIGH COURT JUDGMENT DATED 31-1-2011 IN THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO . LTD. VS. DIRECTOR OF INCOME TAX (ITA NO. 131 OF 2003 WITH IT A NO. 134 OF 2003), IN WHICH HONBLE HIGH COURT FRAMED A SUBSTAN TIAL QUESTION OF LAW IN THIS BEHALF AS UNDER: WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE AMOUNT P AID TO THE APPELLANT BY ITS CUSTOMERS REPRESENTED INCOME BY WA Y OF ROYALTY AS THE SAID EXPRESSION IS DEFINED IN EXPLAN ATION 2 OF SECTION 9(1)(VI) OF THE INCOME TAX ACT? 2.1. THE HONBLE HIGH COURT WHILE DEALING WITH THE CASE OF ASIA SATELLITE TELECOMMUNICATIONS CO. LTD., HELD AS UNDER: 64. ON THE AFORESAID POSER, THE AAR DISCUSSED THE ISSUE AND HELD THAT THE TRANSPONDER AND THE PROCESS THEREIN A RE ACTUALLY UTILIZED FOR THE SATELLITE USER FOR RENDERING THE S ERVICES TO THE CUSTOMER AND FURTHER THAT IT CANNOT BE SAID THAT TH E TRANSPONDER OR PROCESS EMPLOYED THEREIN ARE USED BY THE CUSTOME R. 65. IT NEEDS TO BE EMPHASIZED THAT A SATELLITE IS N OT A MERE CARRIER, NOR IS THE TRANSPONDER SOMETHING WHICH IS DISTINCT AND SEPARARABLE FROM THE SATELLITE AS SUCH. IT WAS EXPL AINED THAT THE TRANSPONDER IS IN FACT AN INSEVERABLE PART OF THE S ATELLITE AND CANNOT FUNCTION WITHOUT THE CONTINUOUS SUPPORT OF V ARIOUS SYSTEMS AND COMPONENTS OF THE SATELLITE, INCLUDING IN PARTICULAR: (A) ELECTRICAL POWER GENERATION BY SOLAR ARRAYS AND STO RAGE BATTERY OF THE SATELLITE, WHICH IS COMMON TO AND SU PPORTS MULTIPLE TRANSPONDERS ON BOARD THE SATELLITE. (B) COMMON INPUT ANTENNA FOR RECEIVING SIGNALS FROM THE CUSTOMERS GROUND STATIONS, WHICH ARE SHARED BY MUL TIPLE TRANSPONDERS. 3 (C) COMMON OUTPUT ANTENNA FOR RETRANSMITTING SIGNALS BA CK TO THE FOOTPRINT AREA ON EARTH, WHICH ARE SHARED BY MULTIPLE TRANSPONDERS. (D) SATELLITE POSITIONING SYSTEM, INCLUDING POSITION AD JUSTING THRUSTERS AND THE FUEL STORAGE AND SUP-PLY SYSTEM THEREFORE IN THE SATELLITE. IT IS THIS POSITIONING SYSTEM WHICH ENSURES THAT THE LOCATION AND THE ANGLE OF TH E SATELLITE IS SUCH THAT IT RECEIVES INPUT SIGNALS PR OPERLY AND RETRANSMITS THE SAME TO THE EXACT DESIRED FOOTPRINT AREA. (E) TEMPERATURE CONTROL SYSTEM IN THE SATELLITE, I.E. H EATERS TO ENSURE THAT THE ELECTRONIC COMPONENTS DO NOT CEASE TO OPERATE IN CONDITIONS OF EXTREME COLD, WHEN THE SAT ELLITE IS IN THE SHADOW. (F) TELEMETRY, TRACKING AND CONTROL SYSTEM FOR THE PURP OSE OF ENSURING THAT ALL THE ABOVE MENTIONED SYSTEMS ARE MONITORED AND THEIR OPERATIONS DULY CONTROLLED AND APPROPRIATE ADJUSTMENTS MADE, AS AND WHEN REQUIRED. 66. IT WAS ALSO NOT DISPUTED THAT EACH TRANSPONDER REQUIRES CONTINUOUS AND SUSTAINED SUPPORT OF EACH OF THE ABO VE- MENTIONED SYSTEM OF THE SATELLITE WITHOUT WHICH IT SIMPLY CANNOT FUNCTION. CONSEQUENTLY, IT IS ENTIRELY WRONG TO ASSUME THAT A TRANSPONDER IS A SELF-CONTAINED OPERATING UN IT, THE CONTROL AND CONSTRUCTIVE POSSESSION OF WHICH IS OR CAN BE H ANDED OVER BY THE SATELLITE OPERATOR TO ITS CUSTOMERS. ON THE CONTRARY, THE TRANSPONDER IS INCAPABLE OF FUNCTIONING ON ITS OWN. IN FACT, THE TRIBUNAL HAS ITSELF DEMONSTRATED SO IN THE ORDER AS IS CLEAR FROM THE FOLLOWING: A BARE PERUSAL OF THIS MEANING REVEALS THAT EQUIPMENT IS AN INSTRUMENT OR TOOL WHICH IS CAPABLE OF DOING SOME JOB INDEPENDENTLY OR WITH THE HELP OF OTHER TOOLS. A PART OF A EQUIPMENT INCAPABLE OF PERFORMING ANY ACTIVITY IN ITSELF CANNOT BE TERMED AS AN EQUIPMENT. WE TAKE AN EXAMPLE OF SCISSORS WHICH HAS TWO BLADES. THIS SCISSOR IS AN EQUIPMENT BUT WHEN ONE BLADE IS 4 SEPARATE ED FROM THE OTHER BLADE, IT CEASES TO BE A N EQUIPMENT. IN OTHER WORDS, THE BLADE IN ISOLATION CANNOT BE TERMED AS AN EQUIPMENT. REVERTING TO THE FACTS OF THE PRESENT CASE, WE FIND THAT THE TRANSPONDER IS NOT AN EQUIPMENT IN ITSELF. ON OTHER WORDS, IT IS NOT CAPABLE OF PERFORMING ANY ACTIVITY WHEN DIVORCED FROM THE SATELLITE. IT WAS FAIRLY CONCEDED BY THE LD. AR THAT THE TRANSPONDER IN ITSELF WITHOUT OTHER PARTS OF SATELLITE IS NOT CAPA BLE OF PERFORMING ANY FUNCTION. RIGHTLY SO BECAUSE SATELLITE IS NOT PLOTTED AT A FIXED PLACE. IT ROTAT ES IN THE SAME DIRECTION AND SPEED AS THE EARTH. IF IT HA D BEEN FIXED AT A PARTICULAR PLACE OR THE SPEED OR DIRECTION HAD BEEN DIFFERENT FROM THAT OF EARTH, IT COULD NOT HAVE PRODUCED THE DESIRED RESULTS. TRANSPONDER IS PART OF SATELLITE, WHICH IS FIXED IN THE SATELLITE AND IS NEITHER MOVING IN ITSELF NOR ASSISTING THE SATELLITE TO AND THE TRANSPONDER, NAMELY, A PART OF IT, PLAYING HOWSOEVER IMPORTANT ROLE, CANNOT BE TERMED AS EQUIPMENT. 67. EVEN AFTER STATING SO, THE TRIBUNAL DID NOT TAK E THE AFORESAID VIEW TO ITS LOGICAL CONCLUSION VIZ., THE PROCESS CARRIED ON IN THE TRANSPONDER IN RECEIVING SIGNALS AND RETR ANSMITTING THE SAME, IS AN INSEPARABLE PART OF THE PROCESS OF THE SATELLITE AND THE PROCESS IS UTILIZED ONLY BY THE APPELLANT WHO I S IN CONTROL THEREOF. WHETHER IT IS DONE WITH OR WITHOUT AMPLIFI CATION OF THE SIGNAL WOULD NOT MAKE ANY DIFFERENCE, IN SUCH A SCE NARIO. 2.2. AFTER CONSIDERING THE FACTS, HONBLE HIGH COUR T ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE AS UNDER: 79. FOR THE AFORESAID REASONS, WE ARE UNABLE TO SU BSCRIBE TO THE VIEW TAKEN BY THE TRIBUNAL IN THE IMPUGNED JUDG MENT ON THE INTERPRETATION OF SECTION 9(1)(VI) OF THE ACT. WE, THUS, ANSWER QUESTION NO. (3) IN FAVOUR OF THE ASSESSEE A ND AGAINST THE REVENUE AND SET ASIDE THE ORDER OF THE TRIBUNAL ON THIS ASPECT. 5 2.3. THUS IT WAS HELD THAT AMOUNT PAID TO ASSESSEE BY ITS CUSTOMERS BE NOT READ INCOME BY WAY OF ROYALTY AS PER SEC. 9(1)(VI). 3. LEARNED DR CONCEDES THAT FACTS OF THE ASSESSEES CASE ARE SIMILAR TO THAT OF ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. (SUPRA). 4. WE HAVE HEARD RIVAL CONTENTIONS AND GONE THROUGH THE ENTIRE MATERIAL AVAILABLE ON RECORD. THE FACTS AND CIRCUMSTANCES OF ASSESSEES CASE BEING SIMILAR TO THE FACTS AND CIRCUMSTANCES IN THE CASE ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. (SUPRA), RESPECTFULLY F OLLOWING THE DECISION OF HONBLE DELHI HIGH COURT, WE HOLD THAT THE PAYMENTS MADE TO SINGAPORE TELECOMMUNICATIONS LTD. FOR PROVIDING SATELLITE CON NECTIVITY WAS NOT IN THE NATURE OF ROYALTY AS PER INDIA-SINGAPORE DTAA. IN VIEW THEREOF WE ALLOW THE GROUND OF ASSESSEE. 5. IN THE RESULT, ASSESSEES APPEAL IS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON 12-08-2011. SD/- SD/- ( K.D. RANJAN ) ( R.P. TOLANI ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 12-08-2011. MP COPY TO : 1. ASSESSEE 2. AO 3. CIT 4. CIT(A) 5. DR 6