The Income Tax Appellate Tribunal (ITAT), Delhi bench, held that receipts from providing satellite telecommunication services to Indian customers are not Royalty under India-Netherlands Double Taxation Avoidance Agreements (DTAA).
The assessee, Inmarsat Solutions BV is a company incorporated and registered under the laws of the Netherlands And derived income from transmitting of satellite signals from ship to the customers and vice versa. Equipment is located on a ship which captures the satellite signals. For provision of such services assessee purchased airtime on the satellite from Inmarsat Global Ltd., which is the group concern of the assessee and owns the satellite and is based in the UK.
The assessee is a tax resident of Netherland and is eligible to claim treaty benefit as per Indo Netherland DTAA.
During the assessment proceedings the assessee claimed income from providing satellite telecommunication services to Indian customers are business income and claimed that in the absence of a permanent establishment in India the income is not chargeable to tax in India.
The Assessing Officer did not accept the contentions of the assessee and proposed to assess Rs.38,05,85,665/- as royalty under section 9(1)(vi)(c) of the Income Tax Act and Article 12(8) of the tax treaty
Aggrieved by the order, the assessee filed an objection before the DRP, who dismissed the appeal of the assessee. Thereafter, the assessee filed an appeal against the DRP order before the tribunal.
During the appeal proceedings Counsel for assesee submitted that Since Inmarsat does not have a PE in India, the above receipts from TCL were not offered to tax in India as per Article 7 read with Article 5 of the DTAA.
Waseem Arshad, Counsel for Revenue, argued that receipts of assessee from Indian customers are ‘royalty’ under Explanation 2 to Section 9(1)(vi) of the Income Tax Act.
After reviewing the facts and records, the two-member bench of G. S. Pannu, (President ) and Challa Nagendra Prasad (Judicial Member) held that amounts received by the assessee for the use of transponder of tele-communication service charges are not royalty under section 9(1)(vi) of the Income Tax Act and also under Article 12(8) of Indo Netherland DTAA.
Therefore the bench allowed the Appeal.
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