The Income Tax Appellate Tribunal ( ITAT) , Mumbai Bench, has recently, while granting relief to Viacom 18, held that transport charges are not royalty as Indo- US treaty and hence that there is no TDS .
The aforesaid observation was made by the Mumbai ITAT, when appeals were filed before it by the Revenue as against the separate orders of even date, passed by the Commissioner of Income-tax (Appeals), Mumbai [CIT(A)] ,for the assessment years 2015-16, 2016-17 & 2020-21, arising from the order passed by the Assessing Officer under section 195(2) of the Income-tax Act, 1961, directing the assessee to withhold tax on payments to non -resident Companies.
The underlying question involved in these appeals being as to whether on the facts and circumstances of the case and in law, the CIT (A) has erred in holding that the assessee was not liable to deduct tax at source u/s 195 of the Income Tax Act, on payments made to Intelsat Corporation, USA/IGSM, UK/MEASAT, Malaysia for transponder charges, on the ground that payment did not constitute royalty u/s 9(l)(vi) of the Act or under the relevant DTAA, the brief facts of the case pertaining to the issue were that the assessee was a company incorporated in India , who during the relevant period was engaged in broadcasting television channels from India which included marketing of advertising airtime on different channels and distribution of chose channels.
The assessee had availed satellite signal reception and transmission facility (i.e. transponder facility) and paid service fee to following three entities, namely,
1. Intelsat Corporation USA (Intelsat)
2. Intelsat Global Sales and Marketing, UK (IGSM)
3. MEAST Satellite System, Malaysia.
And at the time of the payment, the assessee had approached, in terms of section 195(2) of the Income Tax Act, before Assessing Officer, for determining the portion of sum towards service fee as not taxable in India, hence not liable for deduction of tax at source.
Subsequently, the assessing officer, in all the relevant orders held the payments made to those parties in India as “royalty” as per the Double Taxation Avoidance Agreement (DTAA between India and the respective country) and accordingly, held the assessee as liable for withholding the tax at source. This was because, according to the Assessing Officer, the definition of the “royalty” as per India USA DTAA includes, the payment made for any process. And as the term “process” is not defined in the DTAA, he imported the term from the Act.
He observed that as per new Explanation 6 (inserted by the Finance Act , 2012) to section 9(1)(vi) of the Income Tax Act, the term “process” includes transmission of satellite (including uplinking, amplification, conversion for downlinking of any signal), and further that the identical issue of withholding of tax on transponder facility services has been allowed in favor of the assessee in the case of Asia Satellite Telecommunication Co Ltd .
However, due to the pendency of the special leave petition filed by the department before the Supreme Court , the A.O did not follow the decision, thereby holding that the payment for transponder service fee made to various parties as listed above are “royalty” in terms of DTAA as well as under Explanation to section 9(1)(vi) of the Income Tax Act, based on the orders passed by the Ld.CIT(A) in earlier years.
On appeal by the assessee before the CIT(A), the assessee was allowed for not withholding the tax on payment of said sum, and it is being aggrieved by the finding of the CIT(A) on the issue in dispute in orders under reference, that the Revenue has preferred the instant appeals before the Mumbai ITAT .
Hearing the opposing contentions of either sides as submitted by Shri S.N. Kabra for the Revenue and Shri Nimish Vora for the assessee, and perusing the materials available on record, the ITAT Bench consisting of Pavan Kumar Gadale, the Judicial Member , and Om Prakash Kant, the Accountant Member observed :
“In view of binding precedent of the Tribunal and Hon’ble High Court followed by the Ld.CIT(A) in respective impugned orders, we do not find any error or infirmity in the impugned orders passed by the Ld.CIT(A) on the issue in dispute relevant to the orders of Assessing Officer u/s 195(2) of the Act.”
“ Accordingly, we uphold the finding of the Ld. CIT(A) in impugned orders, and the grounds raised by the Revenue in these appeals are accordingly dismissed”, the Mumbai ITAT held.
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