10 March 2022 5:00 PM GMT
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) consisting of Sandeep Sigh Karhail (Judicial Member) and Prashant Maharishi (Accountant Member) ruled that the payment made to a foreign company for the utilisation of a transponder centred on a satellite was not in the nature of "royalty" in terms of the Double Taxation Avoidance Agreement (DTAA).The assessee/respondent in...
The Mumbai Bench of the Income Tax Appellate Tribunal (ITAT) consisting of Sandeep Sigh Karhail (Judicial Member) and Prashant Maharishi (Accountant Member) ruled that the payment made to a foreign company for the utilisation of a transponder centred on a satellite was not in the nature of "royalty" in terms of the Double Taxation Avoidance Agreement (DTAA).
The assessee/respondent in the business of marketing advertisement time for different television channels, and distribution of these channels made payment for transponder service fees to three entities in the USA, UK, and Malaysia.
The assessee applied for an order under section 195 (2) of the Income Tax Act for nil withholding tax certificates for payment of transponder service fees payable to the service providers.
The assessing officer rejected the application on the grounds that the payments were chargeable to tax as "royalty".
The assessee filed the appeal before the CIT (A). The CIT(A) considered Article 12 of India US DTAA, Article 13 of India United Kingdom DTAA and Article 12 of India Malaysia DTAA considering the payment of "royalties" and held that the definition of "royalty" in all the three treaties is similar.
As per DTAAs, the term "royalty" means payments of any kind received as consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematography films or works on films, tape, or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial, or scientific experience; and payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic.
The issue raised was whether the tax is required to be deducted under section 195 of the Income Tax Act on payments made for transponder charges constituting royalty under section 9 (1) (vi) of the Income Tax Act or under the DTAA.
The CIT (A) held that the payment of transponder charges paid by the assessee to the 3 entities, namely the USA, UK, and Malaysia, was not taxable in India and therefore the assessee could not be asked to withhold tax on these payments.
The ITAT observed that the definition of royalty in all three DTAAs is similar.
The ITAT relied on the case of Asia satellite communication Co Ltd in which the assessee was a non-resident, who was engaged in safe/We communication, having control of satellites. The assesses provided use of transponder facility on satellite to the television companies outside India, which in turn would be routed to the operators in India, who would pass them on to the customers. The Delhi High Court the payments were not in the nature of royalty charges. The Court made a distinction between transfer of rights in respect of property and transfer of rights in the property.
The tribunal upheld the findings of the CIT (A) and dismissed all 65 appeals filed by the AO.
Case Title: The Asst. Commissioner of Income Tax (Intl. Taxation) Versus M/s Viacom 18 Media Pvt. ltd.
Counsel For Appellant: Authorised Representative Nimesh Vora
Counsel For Respondent: Departmental Representative Milind S. Chavan
Click Here To Read/Download Order