While hearing the case of Disney Broadcasting (India) Limited, Mumbai bench of Income Tax Appellate Tribunal (ITAT) held that they are not obligated to deduct tax at source on payments for transponder services.
Assessee in the present case Disney Broadcasting (India) Limited is a company incorporated under the provisions of Companies Act 1956 and engaged in the business of entertainment, inasmuch as, it owns and manages the TV channel “Hungama”. During the year the Assessee Company entered into a Transponder Service Agreement another company which is situated in UK to avail transponder service.
During the course of assessment proceedings the Assessing Officer (AO) noticed that the payment made by the Assessee to the transponder service company was escaped from tax. Before the AO counsel for the Assessee advocate Madhur Agarwal and advocate Jeegar Modi submitted that the amount paid to the said company situated in UK will not be taxable in India.
However the AO observed that the payment made by the Assessee in terms of the service agreement was in the nature of ‘royalty’ as per the provisions of the Act as well as under the India-UK Double Taxation Avoidance Agreement (DTAA). Accordingly, the Assessing Officer held that the payment to Intelsat attracted tax at 10% plus applicable surcharge as it was in the nature of royalty.
On appeal CIT(A) confirmed the action of the AO and passed such an order against the Assessee. Aggrieved by the order passed by the authority Assessee was on approached the Tribunal on further appeal.
Before the bench counsel for the Assessee argued that the fee for transponder service paid by the assessee was not in the nature of royalty and that the same was not taxable in India, and thus the remittance did not warrant any deduction of tax at source.
After considering the rival submissions of both parties, the Tribunal bench comprising of Judicial Member Ravish Sood and Accountant Member G.S.Pannu observed that “payment made by the Assessee Company to the transponder service company would not be taxable in India under the provisions of Indo-UK DTAA, therefor the Assessee is not obliged to deduct TDS”.
The division bench further observed that “the aforementioned transponder company is a UK based company, therefore, Indo-UK DTAA is applicable and since it does not have any PE or business connection in India, therefore, the payment made to a non-resident outside India for availing service of equipment placed outside India cannot be taxed in India. In any case, it has been submitted that, even otherwise also the definition of “royalty” under Article 12(3) of Indo-US-DTAA is also not applicable, because transponder charges is only use of facility and it is not an equipment and does not amount to use of any copyright effecting work, secret formula, process etc”. Therefor Assessee in the present case would not obliged to deduct tax at source on payments made by transponder services.
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