New Skies Satellites B V New Delhi v. Dcit Circle 2 2 2 Intl Taxation New Delhi

In The Income Tax Appellate Tribunal Delhi Bench E New Delhi Before Sh Amit Shukla Judicial M Ember And Sh O P Kant Accountant Member Ita No 5585 De L 2017 Assessment Year 2014 15 M S New Skies Satellites B V C O Srbc Associates Llp Golf View Corporation Tower Tower B Sector 42 Gurgaon Haryana Vs Dcit Circle 2 2 2 International Taxation New Delhi Pan Aaccn 1866 C Appellant Respondent And S A No 644 Del 2017 In Ita No 5585 Del 2017 Assessment Year 2014 15 M S New Skies Satellites B V C O Srbc Associates Llp Golf View Corporation Tower Tower B Sector 42 Gurgaon Haryana Vs Dcit Circle 2 2 2 International Taxation New Delhi Pan Aaccn 1866 C Appellant Respondent Assessee By Sh Salil Kapoor Adv Sh Divesh Dhawan Ca Sh Abhinav Vijh Ca Sh Arvind Ranjan Ca Department By Sh G K Dhall Cit Dr Date Of Hearing 30 11 2017 Date Of Pronouncement 14 12 2017 2 Ita No 5585 Del 2017 S A No 644 Del 2017 Order Per O P Kant A M This Appeal By The Assessee Is Directed Against Order Date D 28 07 2017 Passed By The Ld Deputy Commissioner Of Income T Ax C Ircle 2 2 2 International T Axation New Delhi Hereinafter Referred To As The Assessing Officer Pursuant To The Direction Of The Ld Dispute Resolution Panel Drp The As Sessee Raised Following Grounds 1 That On The Facts And In The Circumstances Of The Case And In Law The Ld Dispute Resolution Panel The Panel Erred In N Ot Directing The Learned Assessing Officer Ld Ao To Pass Appropriate Orders Holding That The Appellant Is Not Liable To Be Assessed To Tax In India 1 1 That On The Facts And Circumstances Of The Case And In Law The Panel And The Ld Ao Erred In Not Following The Orders Passed By The Hon Ble High Court Of Delhi For The Assessment Years 2000 01 To 2008 09 In The Appellant S Own Case Since There Was No Chan Ge In Facts Recorded For The Present Year 1 2 That On The Facts And In The Circumstances Of The Case And In Law The Ld Ao Erred In Not Holding That The Payments Received By The Appellant From Providing Data Transmission Services Via Space Segment Capac Ity Are Assessable As Business Profits In India And In The Absence Of A Permanent Establishment Under Article 5 Of The India Netherlands Double Taxation Avoidance Agreement Between India And Netherlands The Dtaa The Receipts Earned By The Appellant Ar E Not Taxable In India 2 That On The Facts And Circumstances Of The Case And In Law The Ld Ao Erred In Holding That The Payments Received By The Appellant As 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 Dtaa 3 Ita No 5585 Del 2017 S A No 644 Del 2017 2 1 That Without Prejudice To The Above On Facts And Circumstances Of The Case And In Law The Panel And The Ld Ao Erred In Reading Into The Expanded Meaning Of Ro Yalty Contained In Section 9 1 Vi Of The Act As Retrospectively Amended By Finance Act 2012 For The Purpose Of Interpreting The Definition Of Royalty As Provided Under Article 12 4 Of The India Netherlands Dtaa When It Is A Settled Position In La W That Amendment In The Act Cannot Have Any Effect In Interpretation Of Dtaa As Also Held By The Hon Ble High Court Of Delhi In The Appellant S Own Case In 2016 382 Itr 114 Delhi For Ay 2006 07 And Ay 2008 09 2 2 Without Prejudice To Ground 2 Above The Ld Ao And The Panel Erred In Not Taking Cognizance Of The Fact That Use Of A Secret Process Is A Sine Qua Non For The Payments To Qualify As Royalty Under The India Netherlands Dtaa 3 That The Ld Ao Erred In Holding That The Payments Received By The Appellant As Consideration For Data Transmission Services Would Also Qualify As Fee For Technical Services As Defined Under Section 9 1 Vii Of The Act As Well As Within The Meaning Of Article 12 5 Of The India Netherlands Dtaa 4 The Ld Ao Erred In Initiating Penalty Proceedings Under Section 271 1 C Of The Act The Above Grounds Are Without Prejudice To Each Other That The Appellant Reserves Its Right To Add Alter Amend Or Withdraw Any Ground Of Appeal Either Before Or At The Time Of Hearing Of This Appeal 2 B Riefly Stated Facts Of The Case Are That The Assessee Is A Company Incorporated Under The Laws Of Netherlands And Was Deriving Income During The Year Under Consideration From Lease Of Transponders Of The Satellite The Assessee Company Operates Satellite A Nd The Signals Transmitted From The Satellite Are Used By Various Tv Channels And Internet Service Providers For The Purpose Of Telecommunication Broadcasting Transfer Of Data Image Or Voice Etc The Assessee Company Filed Return On 26 09 2014 Declaring Nil Income The Case Was 4 Ita No 5585 Del 2017 S A No 644 Del 2017 Selected For Scrutiny And Noti Ce Under Section 143 2 Of The Income Tax Act 1961 In Short The Act Was Issued And Complied With According To The Assessee Its Receipt Income Was Not Liable To Tax In India However According To The Assessing Officer Payment Received As Consideration For The Use Of Or The Right To Use Any Process Transmission By Satellite Including Uplinking Amplification Conversion Or Down Linking Of Any Signal Falls Within The Definition Of The Royalty As Per The Domestic Law As Well As India Netherland Double Tax Avoidance Agreement Dtaa The Assessing Officer Also Alternatively Held That Receipt In The Hand Of The Assessee Qualify As Fee For Technical Servic Es Fts Within The Meaning Of Article 12 Of The Dtaa Between India A Nd Netherlands And Section 9 1 Vii Of The Act 2 1 Accordingly The Assessing Officer Proposed Additions In The Draft Assessment Order In The Draft Assessment Order The Ld Assessing O Fficer Specifically Mentioned Finding Of Th E Hon Ble Delhi High Court In The Case Of The Assessee For Assessment Year S 2008 09 2006 07 And Mention Ed That Addition Was Made Since The Issue Was Contested By The Department Before The Hon Ble Supreme Court The Relevant Para 9 9 Of The Impugned Order Is Reproduced As Under 9 9 Further During The Course Of Assessment Proceedings The Assessee Submitted That The Hon Ble Delhi High Court In The Assessee S Own Case In Dit Vs New Skies Satellite B V Vide An Order Dated 08 02 2016 In Ita 473 474 2012 Decided The Issue Of Taxability Of Data Transmission Services As In Favour Of The Assessee The Assessee Submitted That In The Said Decision The Hon Ble High Court Has Comprehensively Dealt With The Retrospective Amendment Made Vide Finance Act 2012 And H Eld That Unless The Said Dtaas Are Amended Jointly By Both Parties To Incorporate Income From Data Transmission Services As Partaking Of The Nature Of Royalty The Provision Of Data Transmissions Services Would Not Amount To Royalties Under The Dtaa Howev Er The Revenue Department Has 5 Ita No 5585 Del 2017 S A No 644 Del 2017 Not Accepted The Decision Of The Hon Ble High Court Of Delhi And Has Filed An Appeal Before The Hon Ble Supreme Court Against The Said Order Which Has Been Admitted By The Hon Ble Supreme Court 2 2 Further The Assessing Officer Also Noted That Facts In The Current Assessment Year Are Identical To The Facts For Earlier Assessment Year 2013 14 The Relevant Finding Of The Assessing Officer Is Reproduced As Under 10 4 It Is Pertinent Here To Mention That The Assessee Has Submitted That There Was No Change In Business Process Model Of The Assessee In Current Year Under Consideration Vis A Vis The Last Year The Submissions Made During The Current Assessment Proceeding Are Identical To Those Submitted During The Earlier Ass Essment Proceedings The Ld Drp Through Their Order Direction U S 144 C 5 Dated 08 09 2016 Has Also Confirmed All The Views Taken By The Ao In The Draft Assessment Order For The Ay 2013 14 And Confirmed The Proposed Additions Fully Thereby Rejecting All The Grounds Of Objection Raised By The Assessee Considering That The Facts Of The Year Under Consideration Are Similar To Earlier Assessment Years In Consonance With The Method Of Computation Of Income Adopted In The Earlier Assessment Years Which Has B Een Confirmed By Learned Cit A As Well As Drp In Past Years Rejecting The Assessees Contention The Same Are Being Followed 2 3 A Ggrieved With The Draft Assessment Order The Assessee File D Objections Before The Ld Drp Who Confirmed The Ad Dition P Roposed In Draft Assessment Order Of The Assessing Officer According To The Ld Drp It Is An Extension Of The Assessment Proc Ess And To Keep The Matter Alive Before The Hon Ble Apex C Ourt The Addition Was Upheld The Relevant Finding Of The Ld Dr P Is R Eproduced As Under 3 That On The Facts And In The Circumstances Of The Case And In Law The Ld Ao Erred In Holding That The Payments Received By The Assessee Would Also Qualify As Fee For Technical Services As 6 Ita No 5585 Del 2017 S A No 644 Del 2017 Defined Under Section 9 1 Vii Of The Act As Well As Within The Meaning Of Article 12 5 Of The India Netherlands Dtaa Drp Directions All These Grounds Revolve Around The Issue Of Amended Definition Of Royalty In The Income Tax Act And The Definition Taken In The Dtaa When It Was Signed The Assessee Operates Satellites And Derives Income By Leasing Out Its Transponders For Telecasts By Various Tv Channels And Internet Service Providers Clients The Clients Enter Agreements With The Assessee Directly Or Indirectly To Avail Of The Servic Es The Services Are Beamed In Specific Footprints Of The Satellite Catchment Area The Services Availed By Indian Channels And Payments Made By Such Channels Have Been Assessed By The Ao As Royalty In View Of The Amended Definition Of Royalty Per Sectio N 9 1 Vi Read With Explanations Expl 2 In Particular The Assessee Has Challenged This Contention By Referring To The Definition Of Royalty In The Relevant Dtaa The Assessee Has Also Submitted The Judgment By Hon Ble Delhi High Court In Its Own Case On Similar Issues Where Relief Has Been Granted To The Assessee Basis The Definition Of Royalty In The Dtaa The Matter Was Referred To The Ao Cit For Comments It Has Been Replied That The Department Is In Appeal Before Hon Ble Supreme Court Against The Judgment Of Hon Ble Delhi High Court In Case Of The Assessee Which Has Been Admitted It Has To Be Borne In Mind That The Panel Is An Extension Of The Assessment Process And The Ao Is Now Bound By The Directions Of Drp Accordingly The Matter Needs To Be Kept Alive In View Of Its Pendency Before The Apex Court The Panel Accordingly Upholds Addition By The Ao In This Matter 2 4 Aggrieved The Assessee Is In Appeal Before The Tribunal Raising The Grounds As Reproduced Above 3 Before Us The Learned Coun Sel Pressed Only Ground Nos 2 And 3 Of The Appeal Thus Rest Of The Grounds Are Dismissed As Infructuous 7 Ita No 5585 Del 2017 S A No 644 Del 2017 4 In Support Of The Ground S No 2 And 3 The Ld Counsel Submitted That The Only Issue Involved Is Whether The Payment Received By The Assessee As C Onsideration For Data Transmission Services Are In The Nature Of The Royalty Or Fee For Technical Services Under The Income Tax Act Or Under The Indian Netherland Dtaa 4 1 The Learned Counsel Submitted That Issue In Dispute Is Covered In Favour Of The Assessee By The Order Of The Tribunal In Assessee S Own Case For Assessment Year S 2009 10 To 2013 14 Accordingly Submitted That Addition Upheld By The Ld Drp Cannot Be Sustained 4 2 On The Contrary The Ld Cit Dr Relied On The Order Of The Lo Wer Authorities 4 3 We Have Heard The Rival Submission And Perused The Relevant Material On Record We Find That The Tribunal In Assessee S Own Case In Ita No S 5616 Del 2012 1061 Del 2014 680 Del 2015 281 Del 2016 5840 Del 2016 For Assessment Year S 2 009 10 2010 11 2011 12 2012 13 2013 14 Respectively Has Decided The Issue In Favour Of The Assessee Following The Decision Of The Hon Ble Delhi High Court In The Case Of The Assessee Itself The Relevant Finding On The Issue Of Royalty Is Reproduced As Under 5 2 We Have Heard The Rival Submissions And Perused The Relevant Material On Record We Find That Hon Ble Delhi High Court In The Case Of Assessee In Ita No 473 2012 And 474 2012 For Assessment Year 2006 07 And 2008 09 Which Is Reported In 382 Itr 114 Framed The Question Of Law As Under 1 Whether The Receipts Of The Assessee Earned From Providing Dat A Transmission Services Fall Within The Terms Royalty Under The Income Tax Act 1961 And 2 If The Answer To The First Is In The Affirmative Whether The Assessee Would Be Eligible For Benefit Under The Relevant Double Tax Avoidance Agreements 8 Ita No 5585 Del 2017 S A No 644 Del 2017 5 3 The Hon Ble Delhi High Court Answered To The Question Of Law Against The Revenue With Following Finding 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 Satellite 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 20 12 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 T Hat 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 61 For The Above Reasons It Is Held That The Interpretation Advanced By The Revenue Cannot Be Accepted The Question Of Law Framed Is Accordingly Answered Against The Revenue The Appeals Fail And Are Dismissed Without Any Order As To Cost S 5 4 In View Of Binding Precedent Respectfully Following The Decision Of The Hon Ble Delhi High Court We Hold That Payment Received By The Assessee During The Year Under Consideration As Consideration For Data Transmission Service Cannot Be Held As Royalty In Terms Of Article 12 4 Of The Dtaa Between India And Netherlands Accordingly The Ground No 3 Of The Appeal Is Allowed 4 4 Similarly On The Issue Of Fee For Technical S Ervices Fts The Tribunal Decided The Issue In Favour Of The Assessee As Under 6 3 We Have Heard The Rival Submission On The Issue In Dispute We Find That The Assessing Officer In The Impugned Assessment Order Alternatively Held That The Payment Received Was Fee For Technical Services Fts The Tribunal In The Case Of The Assessee In Ita No 4176 And 4177 Del 2011 For Assessment Year 2006 07 And 2008 09 Respectively Has Decided The Ground Related To Characterization Of The Payment Received By The Assessee As Royalty Or Fee For Technical Services Fts As Under 9 Ita No 5585 Del 2017 S A No 644 Del 2017 5 The Id Dr On The Other Hand Has Strongly Relied On The Impugned Order Contending That The Decision Of The Hon Ble Delhi High Court In The Case Of Asia Satellite Telecommunications Co Ltd Supra Stands Challenged By The Department Before The Ho N Ble Supreme Court 6 We Have Heard The Parties On This Issue We Find The Contention On Behalf Of The Assessee To Be Correct A Copy Of The Tribunal Order In The Assessee S Case For Assessment Years 2000 01 To 2005 06 And 2007 08 Passed On 11 3 2011 S Ubsequent To The High Court Order Dated 17 2 2011 Has Been Placed Before Us At Apb 1 To 12 The Relevant Portion Reads As Follows The Hon Ble High Court Of Delhi In The Above Referred Case Of Asia Satellite Telecommunications Co Ltd In Ita Nos 13 1 To 134 2003 Has Held That Receipts Earned From Providing Data Transmission Services Through Provision Of Space Segment Capacity On Satellites Does Not Constitute Royalty Within The Meaning Of Section 9 1 Vi Of The Act In Doing So The Hon Ble High C Ourt Has Conclusively Held That While Providing Transmission Services To Its Customers The Control Of The Satellite Or The Transponder Always Remains With The Satellite Operator And The Customers Are Merely Given Access To The Transponder Capacity Accord Ingly Since The Customer Does Not Utilize The Process Or Equipment Involved In Its Operations The Charges Paid To The Satellite Operators Are Not Covered Within The Meaning Of Royalty As Provided Under Explanation 2 To Section 9 I Vi And Therefore The Same Cannot Be Treated As Royalty In This Case The Revenue Also Raised The Question Regarding Applicability Of Section 9 L Vii For The First Time Before The Tribunal Although This Ground Was Admitted It Was Not Decided As The Receipt Was Held To Be Assessable Under Sec 9 L Vi Of The Act By The Tribunal No Argument Was Advanced By The Learned Counsel For The Revenue Before The Honble High Court In This Manner Therefore The Submission Of The Revenue Regarding Applicability Of Section 9 L Vi Was Not Accepted The Result Of The Decision Of The Honble High Court Is That The Receipt Received By The Assessee Is Not Taxable Either Under Sec 9 L Vi Or Sec 9 L Vii Of The Act As A Result The Appeal Preferred By The Assessee Before The Honb Le High Court Was Allowed And The Judgment Of The Tribunal Was Set Aside 6 4 Since The Issue In Dispute Has Already Been Decided In Favour Of The Assessee By The Tribunal Supra And The Issue Has Not Been Raised Further In The Appeal File By The Reve Nue Respectfully Following The Decision Of The Tribunal We Allow The Ground No 7 Of The Appeal Of The Assessee 4 5 S Ince The Issues In Consideration In The Present Appeal Are Identical To The Issues Raised In The Case Of The Assessee In Earlier Yea Rs Decided By The Tribunal Supra Respectfully Following The Decision Of The 10 Ita No 5585 Del 2017 S A No 644 Del 2017 Tribunal Supra We Allow The Ground Nos 2 And 3 Of The Appeal In Favour Of The Assessee 5 In The Result A Ppeal Of The Assessee Is Allowed Partly 6 Since The Appeal Of The Assessee Has Been Decided And Allowed Partly The Stay Application Bearing S A No 644 Del 2017 Has Become Infructuous Accordingly The Same Is Dismissed As Infructuous The Decision Is Pronoun Ced In The Open Court On 14 Th Dec 2 01 7 Sd Sd Amit Shukla O P Kant Judicial Member Accountant Member Dated 14 Th December 201 7 Rk D T D Copy Forwarded To 1 Appellant 2 Respondent 3 Cit 4 Cit A 5 Dr Asst Registrar Itat New Delhi