The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) in Thaicom Public Co. Ltd vs. DCIT, International Taxation held that the income for Digital Broadcast Services received by the assessee is not a royalty as per Article 12 of the DTAA between India and Thailand, therefore, the same is not chargeable to tax, despite the amendment in the Income Tax Act with retrospective effect by Finance Act, 2012.
The assessee provides digital broadcast services through its transponders to its clients in India as well as outside India via satellite. at the time of filing returns, it declared its total income as NIL. the assessee had received a total income of Rs.4.10 Crores. The Assessing Officer (A.O.) applied rates under section 115A and charged the income of Rs. 2.11 Crores received by the assessee as royalty income under section 9(1)(vi) of the Income Tax (I.T.) Act,1961 as well as under Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and Thailand. The Dispute Resolution Panel (DRP) confirmed the findings of the A.O and passed a final assessment order under Section 143(3) read with Section 144C (1) of the Income Tax Act,1961.
The Counsel for the assessee argued that the identical issue in the case of the assessee from Assessment Year 2005-06 to 2010-11 was already decided in favour of the assessee by the order of the Coordinate Bench. The Counsel for the Revenue reiterated the Assessing Order of the A.O.
The Income Tax Appellate Tribunal (ITAT) bench noted that the issue had already been decided in favour of the assessee in their own case by a Coordinate Bench which relied on the decision of the Delhi High Court in the case of DIT vs. New Skies Satellite BV & Ors.
The Court observed that a change in executive position cannot bring about a unilateral legislative amendment into a treaty concluded between two sovereign States. It further noted that it was fallacious to assume that any change made to the domestic law to rectify a situation of mistaken interpretation can spontaneously further their case in an international treaty. Therefore, the court held that a mere amendment to section 9(1)(vi) cannot result in a change.
The Delhi High Court observed “Consequently, since we have held that the Finance Act, 2012 will not affect article 12 of the double taxation avoidance agreement, 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, 2012 and in all cases which involve a double taxation avoidance agreement, unless the said double taxation avoidance agreement 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.”
Abiding by the decision of the High Court, the Coordinate Bench held that the receipt by the assessee is not “Royalty” under Article 12 of the Double Taxation Avoidance Agreement between India and Thailand, hence, same is not chargeable to tax in India despite the amendment in the Income Tax Act with retrospective effect by the Finance Act 2012.
Noting that the Revenue had failed to produce any decision contrary to the binding orders of the Coordinate Bench, the ITAT Bench comprising of Judicial Member M.S Sidhu & Accountant Member L.P. Sahu held that the income received by the assessee is not a royalty as per Article 12 of the DTAA between India and Thailand, therefore, the same is not chargeable to tax, despite the amendment in the Income Tax Act with retrospective effect by Finance Act, 2012.
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