Income Tax Appellate Tribunal - Delhi
Intelsat Global Sales And Marketing ... vs Dcit Circle 1(2), Chennai on 16 October, 2023
Author: G.S. Pannu
Bench: G.S. Pannu
INCOME TAX APPELLATE TRIBUNAL
CHENNAI BENCHES "D": CHENNAI
BEFORE
SHRI G.S. PANNU, HON'BLE PRESIDENT
AND
MS. ASTHA CHANDRA, JUDICIAL MEMBER
IT(TP)A No. 39/Chny/2018
Asstt. Year: 2002-03
IT(TP)A No. 40/Chny/2018
Asstt. Year: 2003-04
IT(TP)A No. 41/Chny/2018
Asstt. Year: 2004-05
IT(TP)A No. 42/Chny/2018
Asstt. Year: 2005-06
IT(TP)A No. 43/Chny/2018
Asstt. Year: 2006-07
IT(TP)A No. 44/Chny/2018
Asstt. Year: 2007-08
IT(TP)A No. 45/Chny/2018
Asstt. Year: 2008-09
IT(TP)A No. 46/Chny/2018
Asstt. Year: 2009-10
IT(TP)A No. 47/Chny/2018
Asstt. Year: 2010-11
IT(TP)A No. 48/Chny/2018
Asstt. Year: 2011-12
IT(TP)A No. 49/Chny/2018
Asstt. Year: 2012-13
Intelsat Global Sales and Marketing Limited vs DCIT
Intelsat Global Sales and Vs. DCIT,
Marketing Limited, Circle 1(2),
C/o Pricewater house Chennai.
Coopers Pvt. Ltd.
8th Floor,
Prestige Palladium Bayan,
129-140, Greams Road,
Chennai-600 006
(Appellant) (Respondent)
Assessee by: Sh. Vishal Kalra, Advocate
Ms. Sumisha Murgai, CA
Shri Kashish Gupta, Advocate
Department by: Shri Vizay B. Vasanta, CIT-DR
Date of Hearing: 18.07.2023
Date of 16.10.2023
pronouncement:
ORDER
PER ASTHA CHANDRA, JM
The captioned eleven appeals filed by the assessee are directed against the separate order(s) of the Ld. Commissioner of Income Tax, (Appeals) - 16, Chennai ("CIT(A)") dated 5th July, 2018 pertaining to Assessment Years ("AYs") 2002-03 to 2012-13. Since the issues involved in all the captioned appeals are common, these were heard together and are disposed of by this common order.
2. The assessee has taken the following grounds of appeal in AY 2002-03 which is common in all the appeals under consideration (except the amounts):-
"1. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in upholding the assessment order issued by the Ld. AO, wherein income of the appellant has been assessed at INR 10411 67342|-
2. That on the facts and circumstances of the case and in law, the Ld. CIT(A), while passing his order, has conveniently ignored the fact that adequate opportunity was not given to the appellant during the course of the assessment proceedings which is against the principles of 2 Intelsat Global Sales and Marketing Limited vs DCIT natural justice and therefore the assessment order for the subject year is bad in law and deserves to be quashed.
3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) and the Ld. AO have grossly erred in overlooking the customer confirmations and statements made on oath, of independent third party customers, wherein the customers have confirmed that no equipment of appellant is present in India and that appellant has no role in uplinking and downlinking of signals.
4. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has grossly erred in upholding the action of the Ld. AO, wherein, the Ld. AO has artificially bifurcated the satellite transmission services contract and its consideration into process royalty, equipment royalty, Fees for Technical Services (FTS) and income as per the provision of Article 7(3) of the DTAA between India and UK 4.1. While doing so, the Ld. CIT(A) and the Ld. AO have grossly erred in putting the appellant in a worse of position vis a vis the original assessment order.
5. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has grossly erred in upholding the decision of the Ld. AO that payments received by the appellant from satellite transmission services are in the nature of equipment royalty as defined under section 9(1)(vi) of the Act and Article 13(3) of the Double Tax Avoidance Agreement ("DTAA") between India and UK.
6. That on the facts and circumstances of the case and in law, the Ld. CIT(A) bas erred in upholding the decision of the Ld. AO that the payments received by the appellant from satellite transmission services are in the nature of process royalty as defined under section 9(1)(vi) of the Act and Article 13(3) of the DTAA between India and UK.
7. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in upholding that the payments received by the appellant are in the nature of Fees For Technical Services ("FTS") as defined under section 9(1)(vii) of the Act and Article 13(4) of the India-UK DTAA, as they do not make available any technical knowledge, experience, skill know-how etc. to its customers.
8. That on the facts and circumstances of the case and in law, Ld. CIT(A) has grossly erred in upholding that the appellant has a business connection in India as per the provisions of Section 9(1)(i) of the Act.
9. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has grossly erred in upholding the action of the Ld. AO, wherein, the business receipts of the appellant has been taxed at 40%, without even holding that the appellant has a Permanent Establishment ("PE") in India as per Article 5 of the India-UK DTAA.
10. That on the facts and the circumstances of the case and in law, Ld. CIT(A) has grossly erred in upholding the application of force of attraction rule under the India-UK DTAA, without even holding that the appellant has a PE in India as per Article 5 of the India-UK DTAA.
11. That on the facts and circumstances of the case and in law, the Ld. CIT(A) has grossly erred in upholding the levy of interest under Section 234B of the Act.
12. That on the facts and circumstances of the case, the Ld. AO erred in initiating penalty proceedings under section 271(1)(c) of the Act."3
Intelsat Global Sales and Marketing Limited vs DCIT
3. The additional grounds along with the additional evidence filed by the assessee are not pressed.
4. Briefly stated, Intelsat Global Sales and Marketing Limited ("assessee" or "Appellant" or "IGSML") is a company registered under the laws of UK and is a tax resident of UK for the purpose of the Double Taxation Avoidance Agreement between India and UK ("India-UK DTAA") and hence eligible to be governed by the provisions of the India-UK DTAA being more beneficial to it. The assesee is engaged in the business of providing 'satellite transmission services' to customers around the world, including India. The mechanism of satellite transmission services as explained by the assessee is tabulated below:
Mechanism of rendering satellite Responsibility of transmission services Step 1: Encryption: The customers (such Customer as Telecommunication companies, TV channels broadcaster etc.) of the assessee encrypt the signals. Encryption details are not provided to the assessee. The encrypted signals are sent to the earth stations owned and operated by the customers. These earth stations are located anywhere in the area, wherein, footprints of the satellite falls.
Step 2: Uplink of signals: Through these Customer earth stations, the customers uplink the encrypted signals to the satellite. It is the responsibility of the customers to uplink the signals in the required frequency so as to ensure that there is no disruption in transmission of signals.
Step 3:
- Amplification: Since the signals travel a IGSML long distance on their way to the satellite, they become weak and cannot be downlinked. Therefore, these signals are 4 Intelsat Global Sales and Marketing Limited vs DCIT amplified in the transponders present at the satellite (an automated process) by the assessee.
- Frequency translation: The amplified signals are converted into the required frequency.
- Re-transmission: The signals are retransmitted to the downlink earth stations. The signals remain encrypted all through the process.
Step 4: Downlink of signals: The amplified Customer or its authorized signals are downlinked onto the footprint representatives (i.e. area of coverage) of the satellite. These are received by earth stations of customers or by their authorized representatives. It is pertinent to note that it is the responsibility of the customers to own, operate and maintain the earth station.
Step 5: Decryption of signals: The signals Customer or its authorized are decrypted by the customers or by their representatives authorized representatives. The assessee has no role to play in such decryption.
Step 6: Onward transmission: The Customer or its authorized customer or its authorized representatives representatives transmit the signals to end customers.
IGSML has no role to play at this stage.
5. This is the second round of appeal before the Tribunal. In the first round of appeal the Ld. AO analysed the activities of the assessee from the perspective of business connection, fees for technical services ("FTS") and royalty and concluded the matter by characterising the receipts of the assessee as royalty under India-UK DTAA. The Ld. CIT(A)/DRP upheld the assessment order and held that the payment should be treated as royalty. On appeal before the Chennai Tribunal, the Tribunal remanded the matter back to the file of the Ld. AO to decide the issue afresh with its directions 5 Intelsat Global Sales and Marketing Limited vs DCIT contained in para 16 of its order. The relevant extract of the directions given by the Tribunal is as under:
"The question arises for consideration is whether the Earth Station said to be maintained by VSNL and other companies could receive signal/data without any intervention by the assessee-company in India. This fact was not examined by both the authorities below. Further, how the signals were received in India without intervention of the assessee-company needs to be examined. This Tribunal is of the considered opinion that the technical experts from VSNL or very any other companies which entered into agreement with assessee- company needs to be examined about the mode of receipt of signal/data which was retransmitted by the assessee company in India. Since the Assessing Officer has not examined the technical experts, this Tribunal is of the considered opinion that to appreciate the real services rendered by the assessee, the matter needs to be re-examined by the Assessing Officer."
5.1 Pursuant to the above direction of the Chennai Tribunal, the Ld. AO examined the technical experts and recorded their statement on oath. The Ld. AO however went beyond the scope of the direction of the Chennai Tribunal and taxed the receipt of the assessee by artificially bifurcating them as under:-
25% of receipts taxed as equipment royalty;
25% of receipts taxed as process royalty;
25% of receipts taxed as FTS;
25% of receipts taxed as business income by holding a business
connection in India
5.2 The Ld. CIT(A) upheld the order(s) of the Ld. AO. This has brought the
assessee in the second round of proceedings before us and all the common grounds of appeal in AYs 2002-03 to 2012-13 relate thereto.
6. At the outset, the Ld. AR submitted that the matter is covered by the decision(s) of the Delhi Tribunal in the case of Intelsat Corporation, a group company of the assessee. The Hon'ble Delhi High Court has upheld the decision(s) of the Delhi Tribunal in Intelsat Corporation's case against which the Revenue is in appeal before the Hon'ble Supreme Court. The Delhi High Court affirming the decision(s) of the Delhi Tribunal in the case of Intelsat 6 Intelsat Global Sales and Marketing Limited vs DCIT Corporation has held that the payment for satellite transmission services is not in the nature of equipment and process royalty.
6.1 The Ld. AR further submitted that the impugned issue is also covered by the decisions of the various Benches of the Tribunal in the case of customers of the assessee. Apart from this, he also placed reliance on various decisions of different forums wherein in case of similar industry players it has been held that receipts for satellite transmission services do not qualify as royalty/ FTS.
6.2 The Ld. AR also submitted that the assessee did not have any equipment in India and that it had no role in uplinking and downlinking of signals. The Ld. AO/ CIT(A) did not consider the documents / submissions filed by the assessee which comprised of confirmation letters received from customers of the assessee. The oath statements of the customers of the assessee recorded by the Ld. AO were also not considered by him in his assessment order while deciding the impugned issue. He also brought to our notice that there was an inadvertent mention regarding the presence of equipment of the assesee in India in the first round of appeal which fact has not been disputed by the Ld. AO in the second round of appeal. The ld. AR further submitted that both Ld. AO / CIT (A) exceeded their jurisdiction by not following the specific directions of the Chennai Tribunal.
6.3 The Ld. AR placed before us the detailed written submissions with respect to his above averments which are reproduced below:
"Ground 1 to 9 Appellant's matter is squarely covered by the decision of Delhi High Court and Delhi ITAT in case of Intelsat Corporation (a group company of Appellant) 3.1 Same business and services: The satellite transmission services rendered by the Appellant are same as the services rendered by Intelsat Corporation.
3.2 The above is evidenced by the fact that in a group reorganization undertaken in 2018, the contracts of Intelsat Corporation were assigned to the Appellant supported by the following documents:7
Intelsat Global Sales and Marketing Limited vs DCIT Assignment and assumption agreement between Intelsat Corporation and the Appellant effective from July 2, 2018 to assign the existing contracts of Intelsat Corporation to the Appellant for rendering satellite transmission services (attached as Annexure 2). Letter by Intelsat Corporation to its customers stating the assignment of the agreement by Intelsat Corporation to the Appellant.
Master Service Agreement (MSA) dated September 28, 2016 between Intelsat stating the assignment of the Corporation and Zee Media Corporation Limited Service Order between Intelsat Corporation and Zee Media Corporation Limited pursuant to the above MSA.
Service Order between the Appellant and Zee Media Corporation Limited wherein reference is made to the above MSA of Intelsat Corporation.
3.3 The Delhi High Court and Delhi Benches of the Tribunal have held in case of intelsat Corporation that the payment for satellite transmission services is not in the nature of equipment and process royalty. The decisions are as under:
DIT vs Intelsat Corporation ITA No. 977/2011 (Delhi HC) - refer case law PB pg 70 to 72 DIT vs Intelsat Corporation ITA Nos. 530/2012 and 545/2012 (Delhi HC) - refer case law PB pg 73 to 74 CIT(IT) 2 vs Intelsat Corporation (ITA No. 938, 939, 963/2018) (Delhi HC) - refer case law PB pg 75 to 77 CIT(IT) 2 vs Intelsat Corporation (ITA No. 900/2019) (Delhi HC) - refer case law PB pg 78 to 79 CIT(IT) 2 vs Intelsat Corporation (ITA No. 934/2019) (Delhi HC) refer case law PB pg 80 to 81 Intelsat Corporation vs ADIT ITA Nos. 2234/Del/2009, 6041/Del/2012, 451 and 6312/Del/2014 (Delhi ITAT) - refer case law PB pg 82 to 97 Intelsat Corporation vs ACIT ITA No 4946/Del/2017 (Delhi ITAT) - order pronounced on December 13, 2021.
Appellant's matter is squarely covered by the ITAT decisions in case of customers of the Appellant and/or Intelsat Corporation 3.4 Following decisions state that the customers of the Appellant and / or intelsat Corporation are not required to withhold tax on the payments to Appellant and/ or Intelsat Corporation for obtaining satellite transmission services:
United Home Entertainment Private Limited (United Home) vs ADIT(IT) 2(2) ITA Nos. 2841 to 2856/ Mum/2012 (Mumbai ITAT) - refer case law PB pg 98 to 119 United Home vs DCIT(IT) 4(3)(1) in ITA Nos, 1289 to 1308/ Mum/ 2016, 7303 to 7306/ Mum/ 2016 and ITA Nos 262 to 273/ Mum/2017 (Mumbai ITAT) -refer case law PB pg 120 to 132 United Home vs ADIT (IT)2(2) in ITA Nos. $171 to 5181/ Mum / 2013 (Mumbai ITAT) - refer case law PB pg 133 to 151 8 Intelsat Global Sales and Marketing Limited vs DCIT Independent News Services (P.) Ltd vs ITO (2018) 90 taxmann.com 163 (Delhi ITAT) refer case law PB pg 152 to 160 New Delhi Television Ltd vs ACIT (2020) 117 taxmann.com 212 (Delhi ITAT) -refer case law PB pg 161 to 195 Zee Entertainment Enterprises Ltd. vs ITO (ITA NO. 4652/ Mum: / 2016) (Mumbai ITAT) - refer case law PB pg 196 to 206 Viacom 18 Media Pvt Ltd vs ADIT (ITA No. 599 to 614 / Mum / 2016) (Mumbai ITAT) refer case law PB pg 207 to 215 ACIT vs Viacom 18 Media Pvt Ltd (ITA No. 1067/Mum/2021, 1087 to 1138/ Mum / 2021, 1151 to 1162/ Mum / 2021) (Mumbai ITAT) - order pronounced on February 24, 2022.
Appellant's matter is squarely covered by judicial precedents in case of similar industry players wherein it is held that receipts for satellite transmission services. does not qualify as royalty and/or FTS 3.5 Asia Satellite Telecommunications Company Limited [2011] 197 Taxman 263 (Delhi HC) wherein HC held that receipts do not constitute equipment or process royalty. refer case law PB pg 1 to 40.
3.6 New Skies Satellite BV [2016] 68 taxmann.com 8 (Delhi HC) wherein HC held that receipts do not constitute process and equipment royalty refer case law PB pg 41 to 69. HC has also held that the amendment in section 9(1)(vi) of the Act vide Finance Act 2012 (ie insertion of Explanation 6) cannot be read into the tax treaty 3.7 ISRO Satellite Centre (ISAC) [2008] 175 Taxman 97 (AAR) wherein AAR held that receipts do not constitute royalty and FTS - refer case law PB pg 235 to 247. SLP filed by Department dismissed by Hon'ble SC - refer case law PB pg 248.
3.8 M/s Taj TV Ltd vs ADIT (2017) 77 taxmann.com 355 (Mumbai 1TAT) wherein ITAT held that receipts do not constitute royalty - refer PB pg 216 to 234, The operating framework of the above industry players is similar to that of the Appellant.
The Ld AO and CIT(A) did not consider the documents/submission filed by the Appellant and exceeded its jurisdiction by not following the directions of the Hon'ble Chennai ITAT 3.9 During the proceedings before the Ld. AO and CIT(A), the Appellant submitted the following documents to substantiate that the Appellant did not have any equipment in India and had no role in uplinking and downlinking of signals o Confirmation letters received from the customers of the Appellant confirming that no equipment of the Appellant is present in India and there is no intervention of the Appellant in downlinking of the signals-refer PB pg 200 to 205, 282 and 283. o It is undisputed that the Appellant did not have any equipment in India for monitoring signal strength. The monitoring equipment at Chennai placed in the premises of VSNL belonged to a group company and the same is evident from the 9 Intelsat Global Sales and Marketing Limited vs DCIT letter for termination of Computer System Monitor Equipment ('CSM equipment') dated October 20, 2004- refer PB pg 231. Further, as submitted, the ITAT in the first round had inadvertently mentioned regarding a monitoring equipment at Chandigarh which was factually not correct and not disputed by the Ld, AO in the second round of assessment order - refer para 6, page 10 of the Assessment Order. o Shipment documents of CSM equipment removed from India - refer PB pg 232 to 240; and o List of permitted teleports in India as on December 29, 2011 and March 20, 2013 from the website of Ministry of Information and broadcasting (MIB) which evidences the fact that the teleports / earth stations listed with MIB pertains to the customers of the Appellant - refer PB pg 322 to 326 and 331 to 340.
3.10 The oath statements of the customers recorded by the Ld. AO also clearly evidenced the following (refer PB pg 393 to 416):
o The Appellant does not own any equipment, teleport, earth station or offices in India. All the operating facilities are situated outside India and maintained by the Appellant from outside India..
o The Appellant does not provide any assistance/intervene in uplinking and downlinking of signals and this is the responsibility of the customer. o The Appellant neither has any equipment in India for the purpose of monitoring signal strength in India nor has any monitoring station in India 3.11 During the course of the CIT(A) proceedings, the Appellant also placed reliance on the decisions of Delhi HC in case of New Skies Satellite B.V., Asia Satellite Telecommunication Co.
Limited vs DIT and DIT vs Intelsat Corporation (supra).
3.12 However, both the Ld AO and CIT(A) did not consider the aforesaid documents and submissions and arbitrarily passed the order without any supporting evidence. The Ld. AO exceeded his jurisdiction by not following the specific directions of the Hon'ble ITAT and artificially bifurcated the receipts as discussed in para 2.5 above. The CIT(A) also did not deal with or distinguish the aforesaid rulings which are squarely applicable to the Appellant.
Receipts not taxable as equipment royalty 3.13 The CSM equipment was owned by Intelsat Global Service Corporation, a group company of the Appellant. The CSM equipment was removed and shipped outside India in 2004.
3.14 The CSM equipment was not required to render the services of the Appellant. The Appellant continued to render services even after the equipment was shipped back outside India.
3.15 The Appellant does not own any equipment, teleport or earth station in India. All the equipments as well as the operating facilities are situated outside India and maintained by the Appellant from outside India.
3.16 The customers uses its own earth stations, software and third parties facilities to uplink and downlink signals.
10Intelsat Global Sales and Marketing Limited vs DCIT 3.17 The Antenna Control Unit ('ACU') is manufactured by companies like Vertex and NFC (being third parties) and Appellant is not the owner of the ACU. Refer to the customer's oath statements as under:
o Mr. Radjan Loganthan (VSNL): Q14, Pg 396, Q28, Pg 399 of paperbook o . Mr. A.V. Shankar (Mavis Satcom Limited): Q14 Pg 412 of paperbook 3.18 The receipts cannot be taxed in India in absence of any services rendered in India as held by the Hon'ble Chennai ITAT in its judgement dated July 1, 2016. The relevant extract of the order is reproduced below:
If the assessee is maintaining satellite in the orbit and Indian companies are uploading the signal/ data which was received by the satellite and transmitted to India then the assessee may not be rendering any service in India' Therefore, this Tribunal is of the considered opinion that so long as the assessee is maintaining an equipment in India, it has to be construed that the assessee is rendering services in India' - refer PB pg 222 Receipts not taxable as process royalty 3.19 No 'secret process' involved since the mechanism of providing satellite transmission services is available in the public domain.
3.20 Intelsat Earth Station Standards ('IESS'), 11 parameters, data pointing calculator are available in public domain and therefore, do not constitute secret information or process.
3.21 Amendment in section 9(1)(vi) of the Act vide Finance Act 2012 cannot be read into the India-
UK DTAA.
3.22 No confidential information provided by the Appellant to its customers:
Receipts not taxable as FTS 3.23 Customers contact the NOC team in US in case of any problems due to weather, satellite malfunctioning, interference due to various factors in space.
3.24 The Appellant does not 'make available' technical knowledge, information etc to its customers during the course of providing satellite transmission services.
Receipts not taxable as business income in absence of any business connection in India 3.25 The Indian entity [ie Intelsat India Private Limited ('IIPL')] does not undertake any activities of the Appellant in India.
3.26 IIPL has no authority or involvement in execution of customer contracts which are concluded by the Appellant. The customer contracts clearly provide for contact person details and the process involved in case of requirement of technical assistance - it nowhere involves IIPL or its employees 11 Intelsat Global Sales and Marketing Limited vs DCIT 3.27 IPL has no role in management / facilitation of satellite transmission services provided by the Appellant to customers in India. The customers facing technical issues in day-to-day transmission services directly contact Appellant's team in the USA. It may be pertinent to mention here that the Assessing Officer also enquired the same from the employees of IIPL (the Indian subsidiary of the group company doing marketing services on an arm's length basis). The employee namely, Mr Gaurav Kharod confirmed telephonically on the roles and responsibility of the employees of 1IPL, and also that IIPL or its employees were not involved in any other activity, beyond marketing for the Appellant (refer para 38, page 41 of the Assessment Order). Also, Ld. AO has incorrectly appreciated that IIPL has not been remunerated. In fact, IIPL has been remunerated at an arm's length price and the same has been accepted by the Revenue Authorities. Thus, undisputedly IPL does not constitute a business connection of the Appellant in India.
3.28 The Ld. AO has applied force of attraction rule under India-UK DTAA, The Ld. AO has: ignored the principles of Article 5 and Article 7 of the India-UK DTAA which mandates that it is imperative to first evaluate whether the Appellant has a permanent establishment ('PE') in India to attribute income to operations in India. Since the Ld. AO has not disputed that the Appellant has a PE, the force of attraction rule cannot apply to attribute any income to India."
7. The Ld. DR strongly supported the orders of the Ld. AO/ CIT(A).
8. We have heard the Ld. Representative of the parties and perused the records. We carefully considered the submissions of the parties along with various judicial precedents relied upon.
8.1 Ground no. 2 to 9 in all the AYs under consideration relate to taxability of receipts from satellite transmission services as "royalty" in the hands of the assessee company in India. The Ld. AR has submitted that the impugned issue now stands settled by the decision(s) of the Delhi High Court and Delhi Tribunal in the case of a group company of the assessee, namely Intelsat Corporation USA. We have pursued the decision of the Delhi High Court in DIT vs. Intelsat Corporation in ITA No. 977/2011 (page 70 to 72 of the Case Law Paper Book) wherein the Delhi High Court dismissed the appeal of the Revenue relying on its decision in the case of Asia Satellite Telecommunications Co. Ltd. vs. DIT (2011) 197 Taxman 263 wherein it has been held that the payment for satellite transmission services is not in the nature of equipment and process royalty. The relevant extract of the 12 Intelsat Global Sales and Marketing Limited vs DCIT decision of the Delhi High Court in the case of Intelsat Corporation is reproduced below:
"ITA 977/2011The respondent assessee is a tax resident company of the United States of America with its registered office located in Washington D.C. The assessee owns and operates global network of telecommunication satellites in outer space. It is engaged in the business of transmitting telecommunication signals to and fro from the earth station(s). Its customers are various TV Channels, NICNET and Internet Service providers. For this purpose, the assessee enters into contracts with various parties around the world. The assessee leased its transponder capacity and bandwidth to various customers in India and outside India, who used the transponders for their business in India.
According to the assessee, for the aforesaid activities no income accrued or attributed to India and therefore, the assessee was not liable to be taxed in India. For this reason, in respect of assessment year in question, i.e., Assessment Year 2007-08 it filed 'Nil' income return. The A.O., however, going by the past history of the assessments in the case of assessee in the years 1996-97 to 2004-05 held that certain percentage of the income of the assessee was exigible to tax in India as it was attributed to the receipts from the customers in India. The matter was referred to the Disputes Resolution Panel (DRP). Objections preferred by the assessee were dismissed by the DRP and the DRP directed the A.O. to compute the income as per the draft order prepared by it. In arriving at the conclusion that revenue receipts on account of providing transmission services to its identified customers was in the nature of royalty to be taxed @ 10% of the total revenues, as per Article 12(7)(b) of the DTAA between India and the USA and the provisions of Section 9(1)(vi) of the Income-Tax Act, reliance was placed on the judgment dated 16.10.2009 of the Special Bench of the ITAT, Delhi in the case of New Skies Satellite NV v. ADIT, International Taxation, Circle-2(1), New Delhi. Pursuant to the directions given by the DRP the Assessing Officer passed assessment orders and taxed the income pertaining to satellite transmission service/telecasting companies as royalty income. This order of the Assessing Officer was challenged before the ITAT. The ITAT has allowed the appeal of the assessee. Perusal of the order of the Tribunal would reveal that it is relied upon the judgment of this Court in the case of Asia Satellite Communication Company Ltd. v. DIT and Vice Versa in I.T.A. Nos.131 and 134/2003 decided on 31.01.2001. Operative portion of the order of the Tribunal stating the manner in which the judgment of this Court in Asia Satellite's case (supra) was relied upon, reads as under:-
3.2 Thereafter he drew our attention towards paragraph Nos.72 to 81 of the judgment. In paragraph No.72, it is mentioned that the Tribunal has made an attempt to trace the fund flow and observed that since the end customers being persons watching televisions in India are paying the amounts to cable operators who in turn are paying the same to TV Channels, the flow of fund is traced to India.
This is a far-fetched ground to rope in payment received by the appellant in the taxation net. The Tribunal has glossed over an important fact that the money, which is received from the cable operators by the telecast operators, is treated as income by the telecast operators, which has accrued in India, and they have offered and paid tax. Thus, the income, which is generated in India, has been subjected to tax. It is the payment, which is made by the telecast operators who are situated abroad to the appellant, which is also a non-resident, i.e., sought to be brought within the tax net. It is concluded that it is difficult to accept such far-fetched reasoning with no causal connection. It may be mentioned here that the assessee has received revenues from Indian residents also, as can be seen from the table mentioned in the assessment order and reproduced by us while summarizing the order.
3.3 Thereafter he drew our attention towards paragraph No.79 of the judgment, in which it has been held that the Court is unable to subscribe to the view taken by the Tribunal in the impugned 13 Intelsat Global Sales and Marketing Limited vs DCIT judgment on the interpretation of section 9(1)(vi) of the Act. Thus question No.3 was answered in favour of the assessee which is whether, on the facts and in the circumstances of the case, the Tribunal was justified in holding that the amount paid to the appellant by its customers represented income by way of royalty as defined in Explanation 2 to Section 9(1)(vi) of the Act? In arriving at this decision, the Hon'ble Court inter alia referred to OECD convention, commentary thereon, commentary written by Klaus Vogel, decision in the case of Union of India and Another Vs. Azadi Bachao Aandolan and Another, (2003) ITR 706, CIT Vs. Ahamdabad Manufacturing and Calico Printing Company 139 ITR 806 (Gujarat), and CIT Vs. Vishakhapatnam Port Trust, (1983) 144 TTR 146 (AP).
3.4 The revenue had also raised the question regarding applicability of section 9(1)(vii) for the first time before the Tribunal. Although this ground was admitted, it was not decided as the income was held to be assessable u/s 9(1)(VI). No argument was advanced by the learned counsel for the revenue before the Hon'ble Court in this matter. Therefore, the submission in the ground regarding applicability of section 9(1)(vii) was not accepted. The result of the decision is that the revenues received by the assessee is not taxable either u/s 9(1)(vi) or section 9(1)(vii) of the Act.?
Learned Counsel for the Revenue could not dispute the position that issues raised in this appeal are directly covered by the judgment of this Court in the case of Asia Satellite Telecommunications Ltd. Vs. Commissioner of Income Tax (ITA 131/2003 decided on 31.01.2011). In that judgment, a categorical view is taken that the income from the activities undertaken by the respondent/assessee would not be exigible to tax in India. Following that judgment, this appeal is dismissed."
9. We find that the satellite transmission services rendered by the assessee are same as the services rendered by Intelsat Corporation. The contracts of Intelsat Corporation were assigned to the assessee in a group reorganization undertaken in 2018 which fact is not disputed by the Revenue. The assessee has placed various documents on record including the assignment and assumption agreement between Intelsat Corporation and the assessee effective from July 2, 2018 whereby the existing contracts of Intelsat Corporation has been assigned to the assessee for rendering satellite transmission services. Therefore, the decision (supra) of the Delhi High Court in the case of group company of the assessee i.e. Intelsat Corporation should squarely apply to the assessee in the present case. We have also considered various decisions of High Courts and Tribunals on the similar issue in the case of customers and other industry players relied upon by the assessee (referred to in the written submissions reproduced above) wherein the authorities have categorically held that receipts for provision of satellite transmission services are not in the nature of royalty/ FTS chargeable to tax in India and the customer (i.e. payer) is therefore not 14 Intelsat Global Sales and Marketing Limited vs DCIT required to withhold taxes on payment made to the service provider of such services.
10. In Asia Satellite Telecommunications Co. Ltd. (supra) the Hon'ble Delhi High Court by referring to the case of ISRO Satellite Centre 175 Taxman 97 (AAR) held that transponder and the process therein are actually utilized by Asia Satellite for rendering the services to the customer and not used by the customers. Hence, the payments do not constitute equipment or process royalty under the Act. In addition it was also held that:
- equipment is an instrument or tool which is capable of doing some job independently or with the help of other tools. A part of an equipment incapable of performing any activity in itself cannot be termed as an equipment. For instance, take an example of scissors which has two blades. This scissor is an equipment but when one blade is separated from the other blade it ceases to be an equipment. In other words, the blade in isolation cannot be termed as an equipment.
- the transponder is not an equipment in itself. In other words, it is not capable of performing any activity when divorced from the satellite. Transponder is part of satellite, which is fixed in the satellite and is neither moving in itself nor assisting the satellite to move. Therefore, the transponder being only a part of it, playing howsoever important role, cannot be termed as equipment. Hence, the leasing out of transponders to various customers in a satellite cannot be equated with the leasing out of any equipment.
In the instant case, the Antenna Control Unit ("ACU") and the myintelsat portal are not capable of performing any activity without the satellite and hence, cannot be equated to equipment for payments to qualify as 'equipment royalty'.
11. The Ld. AO has undoubtedly exceeded his jurisdiction while passing the impugned assessment order as he has clearly gone beyond the scope of specific directions given by the Chennai Tribunal in the first round of 15 Intelsat Global Sales and Marketing Limited vs DCIT appeal. Perusal of the order of the Chennai Tribunal clearly shows that the Tribunal remanded the matter to the Ld. AO to decide the issue afresh with the following specific directions:
Whether Appellant is maintaining any equipment in India after examination of technical experts from VSNL or any other customers of the Appellant?
In the absence of any equipment, how is the Appellant assuring / maintaining the quality of signals in India?
Whether customers can receive the signals in India without intervention of the Appellant company?
12. The crux of the matter is whether equipment of the assessee was present in India and whether earth stations are owned by the assessee. The answer to both these questions is negative. The Ld. AO/ CIT(A) did not consider the documents / submissions filed by the assessee which comprised of confirmation letters received from customers of the assessee i.e. Times of India group, Disney India etc. (at pages 200 to 205, 282, 283 of PB) confirming that no equipment of the assessee was placed at their premises in India during the relevant period under consideration and that the assessee had no role in unlinking and downlinking of signals. The customers have merely availed the transponder services and IGSML does not support or provide them with any assistance in relation to the downlinking of the signals. It is undisputed that the assessee did not have any equipment in India for monitoring signal strength. The monitoring equipment ("CSM equipment") at Chennai placed in the premises of VSNL belonged to Intelsat Global Service Corporation which is a group company of the assessee. The CSM equipment was removed and shipped outside India in 2004. The CSM equipment was not required to render the services of the assessee and it continued to render services even after the equipment was shipped back outside India. The assessee does not own any equipment, teleport or earth station in India. All the equipments as well as the operating facilities are situated outside India and maintained by the assessee from 16 Intelsat Global Sales and Marketing Limited vs DCIT outside India. The customer uses its own earth station, software and third parties facilities to uplink and downlink signals. The ACU is not owned by the assessee. The oath statements of the customers of the assessee viz. technical personnel of VSNL recorded by the Ld. AO (at pages 393 to 416 of the Paper Book) also makes it clearly evident that the assessee does not own any equipment, teleport, earth station or offices in India. All the operating facilities are situated outside India and maintained by the assessee from outside India. However, the Ld. AO chose to brush it off while deciding the impugned issue.
13. The Ld. AO has taxed the receipts of the assessee from provision of satellite transmission services by artificially bifurcating them as - i) 25% as equipment royalty; ii) 25% as process royalty; iii) 25% as FTS and iv) 25% as business income.
14. For the sake of completeness, we shall now deal with the taxability of each of the above-mentioned bifurcated receipts by the Ld. AO in the hands of the assessee in India.
15. So far as the taxability of receipts as equipment royalty is concerned, it is amply clear from the above discussion that the ownership of the CSM equipment is not with the assessee and the equipment plays no role in rendering services to customers in India. Thus, in our opinion, the receipts of the assessee from provision of satellite transmission services cannot be taxed as equipment royalty both under the Act as well as India-UK DTAA.
16. As regards the taxability of receipts of process royalty, the Ld. AR argued that no secret process is involved in provision of services by the assessee since the mechanism of providing satellite transmission services is available in the public domain. The assessee owns satellite which include transponders and provide satellite transponder services to its customers as per eleven parameters to be adhered or provided to the customers of the assessee i.e. VSNL etc. The assessee is not involved in carrying out this process. Intelsat Earth Station Standards, eleven parameters, data pointing 17 Intelsat Global Sales and Marketing Limited vs DCIT calculator are available in public domain and therefore do not constitute secret information or process. No confidential information is provided by the assessee to its customers to tax the receipts as process royalty. The assessee has placed the unredacted version of the customer contract (at pages 101 to 105 of the additional evidence) which clearly establishes that the redacted information i.e. allocated transponder, allocated bandwidth are merely commercial information. The amendment in section 9(i)(vi) of the Act vide Finance Act, 2012 cannot be read into the India-UK DTAA. The impugned issue is also covered by the decisions (supra) of the Delhi High Court in the case of Intelsat Corporation and Asia Satellite Telecommunication Co. Ltd. The case of the assessee also finds support by the decision of the Delhi High Court in New Skies Satellite BV (2016) 68 taxmann.com 8 (Delhi HC). The Ld. DR has not brought on record any material to controvert the above submissions of the Ld. AR. In the light of the above factual matrix of the case and legal position set out above, we are of the considered view that the impugned receipts cannot be taxed as process royalty.
17. Regarding the treatment of the receipts as FTS, the Ld. AR explained that the customers contact the NOC team in US in case of any problems due to weather, satellite malfunctioning, interference due to various factors in space. This fact has been confirmed by the customers of the assessee (pages 398, 403, 404, 407 and 408 of the Paper Book referred). The assessee does not make available any technical knowledge/information etc. to its customers during the course of providing satellite transmission services. The log in to myintelsat portal is a platform access given to all customers to view invoices, service tickets etc. and is thus merely a facility and not a service. Considering the above factual matrix, in our view, the receipts cannot be taxed as FTS under the India-UK DTAA as the 'make available' condition is not satisfied. There are umpteen decisions wherein the meaning of the phrase 'make available' has been analysed by the judicial authorities and courts wherein it has been held that merely enabling the use of services or products into which technical inputs have gone does not amount to 'making available' technical knowledge, skills etc. The recipient of service must be 18 Intelsat Global Sales and Marketing Limited vs DCIT able to absorb and to apply the technology on its own in its future activities. In B4U International Holdings Ltd. vs. DCIT (2012) 18 ITR (T) 62 Mumbai Tribunal has held that the payments made to PanAmSat Ltd. (now known as Intelsat Corporation) does not qualify as FTS since it does not satisfy the condition of 'make available' under India-US Treaty.
18. Lastly, coming to taxability of receipts as business income owing to a business connection of the assessee in India, the Ld. AR submitted that the Indian entity i.e. Intelsat India Pvt. Ltd. ("IIPL") does not undertake any activities of the assessee in India. IIPL or its employees have no authority or involvement in execution of customer contracts which are concluded by the assessee. IIPL has no role in management/facilitation of satellite transmission services provided by the assessee to its customers in India. The customers facing technical issues in day-to-day transmission services directly contact assessee's team in USA. The employees of IIPL are not involved in any activity beyond marketing for the assessee. The Ld. AR submitted that the AO has listed out certain activities but these activities are to be analysed qua services alleged to be taxed in India. No relation has been established by the Ld. AO/CIT(A) between these activities which relate to marketing services viz.a.viz. services rendered by the assessee. Nothing has been brought on record by the Ld. AO/CIT(A) to establish relationship between marketing activities and the services provided by the assessee so as to establish a business connection or PE of the assessee in India. In the absence of any material brought on record by the Revenue, we are inclined to hold that the impugned receipts cannot be taxed as business income of the assessee in India as there is no business connection/PE of the assessee in India. Having held that the assessee does not have a PE in India the force of attraction rule cannot be applied to attribute any income of the assessee to India.
19. The next grievance of the assessee relates to levy of interest under section 234A of the Act which is consequential in nature.
19Intelsat Global Sales and Marketing Limited vs DCIT
20. The assessee has also challenged the levy of interest under section 234B of the Act. The Ld. AR submitted that the interest under section 234B of the Act cannot be levied on non-resident assessee. In support thereof he placed reliance on various decisions including the decision of the Delhi High Court in the case of DIT vs. Jacabs Civil Incorporated (2011) 330 ITR 578 (Delhi High Court). The relevant extract of the decision in the case of Jacabs Civil (supra) is reproduced below:-
"7. Section 2(1) of the Act defines "advance tax" to mean the advance tax payable in accordance with the provisions of Chapter XVII-C of the Act. These provisions are contained from section 207 onwards Section 209 falls under this Chapter. Sub-section (1) thereof deals with four situations under which the advance tax payable by the assessee is to be computed. Admittedly, these cases do not concern with clauses (a) to (e). Clause (d) of sub-section (1) of section 209, which is relevant reads as under:
"(d) The income-tax calculated under clause (a) or clause (b) or clause (c) shall, in each case, be reduced by the amount of income-tax which would be deductible or collectible at source during the said financial year under any provision of this Act from any income (as computed before allowing any deductions admissible under this Act) which has been taken into account in computing the current income or, as the case may be, the total income aforesaid; and the amount of income-tax as so reduced shall be the advance tax payable."
8. This clause categorically uses the expression "deductible or collectible at source" and it is this clause which is incorporated by the Uttaranchal High Court in the said judgment (supra) in the manner already pointed above. The scheme of the Act in respect of non-residents is clear. Section 195 of the Act puts an obligation on the payer, ie, any person responsible for paying to a non-resident, to deduct income-tax at source at the rates in force from such payments excluding those incomes which are chargeable under the head 'Salaries'. Therefore, the entire tax is to be deducted at source which is payable on such payments made by the payee to the non-resident. Section 201 of the Act lays down the consequences of failure to deduct or pay. These consequences include not only the liability to pay the amount which such a person was required to deduct at source from the payments made to a non-resident but also penalties, etc. Once it is found that the liability was that of the payer and the said payer has defaulted in deducting the tax at source, the Department is not remedy-less and, therefore, can take action against the payer under the provisions of section 201 of the Income-tax Act and compute the amount accordingly. No doubt, if the person (payer) who had to make payments to the non-resident had defaulted in deducting the tax at source from such payments, the non-resident is not absolved from payment of taxes thereupon. However, in such a case, the non- resident is liable to pay tax and the question of payment of advance tax would not arise. This would be clear from the reading of section 191 of the Act along with section 209(1)(d) of the Act. For this reason, it would not be permissible for the revenue to charge any interest under section 234B of the Act.
20Intelsat Global Sales and Marketing Limited vs DCIT
9. We thus, answer the aforesaid question in favour of the assessee as we are of the opinion that the Tribunal has rightly held that the assessee was not liable to pay any interest under section 234B of the Act following the judgments of the Uttaranchal and Bombay High Courts."
In light of the above, we hold that the levy of interest under section 234B of the Act is unwarranted and the Ld. AO is directed to cancel the said interest so levied.
21. The last ground relating to initiation of penalty proceedings under section 271(1)(c) of the Act is not adjudicated upon being premature.
22. In the result, all the appeals of the assessee for AYs. 2002-2003 to 2012-13 are allowed.
Order pronounced in the open court on 16th October, 2023.
sd/- sd/-
(G.S. PANNU) (ASTHA CHANDRA)
PRESIDENT JUDICIAL MEMBER
Dated: 16/10/2023
Veena
Copy forwarded to -
1. Applicant
2. Respondent
3. CIT
4. CIT (A)
5. DR:ITAT
ASSISTANT REGISTRAR
ITAT, New Delhi
Date of dictation
Date on which the typed draft is placed before the dictating Member Date on which the typed draft is placed before the Other Member Date on which the approved draft comes to the Sr. PS/PS Date on which the fair order is placed before the Dictating Member for pronouncement Date on which the fair order comes back to the Sr. PS/PS Date on which the final order is uploaded on the website of ITAT 21 Intelsat Global Sales and Marketing Limited vs DCIT Date on which the file goes to the Bench Clerk Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the Order 22