In a recent ruling, the Bombay High Court remanded a group of income tax appeals filed by Viacom 18 Media Pvt. Ltd. to the Commissioner of Income Tax (Appeals) [CIT(A)] for a fresh factual determination on whether payments made by the company to Intelsat Corporation for transponder services qualify as “royalty” under Section 9(1)(vi) of the Income Tax Act, 1961, and Article 12 of the India-US Double Taxation Avoidance Agreement (DTAA).
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The case involved multiple assessment years from 2009-10 to 2013-14, during which Viacom 18 had entered into agreements with Intelsat, a US-based satellite service provider, to obtain transponder capacity for television signal transmission. The company had sought a NIL tax deduction certificate under Section 195 of the Act, arguing that the payments did not constitute royalty either under domestic tax law or the DTAA, and that Intelsat had no permanent establishment (PE) in India.
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The income tax authorities had consistently treated the payments as taxable royalty based on Explanation 6 to Section 9(1)(vi), inserted retrospectively by the Finance Act, 2012, which clarified that satellite transmission constitutes a “process” and therefore falls within the scope of royalty.
The authorities also invoked the definition of “process” from domestic law into the DTAA, citing the absence of a specific definition in the treaty itself. The tribunal upheld this view by relying on the Madras High Court’s decision in Verizon Communications, rather than the contrary Delhi High Court ruling in New Skies Satellite.
The company challenged these findings, claiming that the authorities failed to conduct any independent examination of the service agreements or analyse how the transponder services fit within the definitions of royalty. The company’s counsel argued that DTAA provisions should prevail under Section 90(2) of the Act and that retrospective amendments could not impose a TDS obligation for payments made before 2012.
The revenue counsel countered that the services involved a “secret process” and therefore qualified as royalty. They urged the court to adopt a broader interpretation aligned with Explanation 6 and also sought a remand for factual verification, admitting that earlier authorities had not closely analysed the terms of the agreement.
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A division bench comprising Justices M.S. Sonak and Jitendra Jain agreed that the lower authorities had passed non-speaking orders without examining the technical nature of services rendered or the clauses of the transponder agreement. The court held that it could not undertake this factual analysis under Section 260A of the Act and therefore remanded the matter to the CIT(A) with detailed directions.
The court directed the CIT(A) to first verify whether there had been a final determination in Intelsat’s own assessment that it was not liable to tax in India for the same payments. If such a finding exists and covers Viacom 18’s payments, no withholding tax obligation would arise. If not, the CIT(A) must examine the agreement in detail to determine whether the services constitute a “process” or “secret process” and if they fall under the definitions of royalty in domestic law or the DTAA.
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The court further held that for payments made before the insertion of Explanation 6 by the Finance Act, 2012, no TDS liability could be imposed retrospectively, relying on the Bombay High Court’s ruling in Reliance Industries. For payments made after 2012, the CIT(A) must carry out a year-wise assessment of the service agreements to determine the taxability of the payments.
The High Court clarified that both parties are free to raise all legal and factual contentions before the CIT(A), who was directed to dispose of the matter by December 31, 2025. The appeals were disposed of accordingly.
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