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Re: Statement of Facts:

5. The appellant/assessee, viz., Asia Satellite Telecommunications Co. Ltd., is a company incorporated in Hong Kong and carries on business of private satellite communications and broadcasting facilities. This company was formed in 1988 and it claims that it had no office in India. Appeal pertains to the assessment year 1997-98 and it is also claimed that during the relevant previous assessment year, i.e., 1996-97, the assessee had no customers, who are residents of India. During the previous year, relevant to the assessment year under appeal, the appellant was the lessee of a satellite called AsiaSat 1 which was launched in April 1990 and was the owner of a satellite called AsiaSat 2 which was launched in November 1995. These satellites were launched by the appellant and were placed in a geostationary orbit in orbital slots, which initially were allotted by the International Telecommunication Union to UK, and subsequently handed over the China. These satellites neither use Indian orbital slots nor are they positioned over Indian airspace. The footprints of AsiaSat 1 and AsiaSat 2 extend over four continents, viz., Asia, Australia, Eastern Europe and Northern Africa. The footprint is that area of the earth's surface over which a signal relayed from the appellant's satellite can be received. AsiaSat 1 comprises of a South Beam and a North Beam and AsiaSat 2 comprises of the C Band and the Ku Band. The territory of India falls within the footprint of the South Beam of AsiaSat 1 and the C Band of AsiaSat 2.

Order of the CIT(A)

10. Being aggrieved by the order of the AO, the appellant preferred an appeal to the CIT (A). Various grounds were urged challenging the liability to pay tax in India as well as the manner in which the AO had computed the appellant's income chargeable to tax.

11. The CIT (A) disposed of the appeal by an order dated 04.12.2000.

He noted that there was no dispute that the appellant had not received any income in India. The only dispute, according to the CITA (A), was as to whether any income could be deemed to have accrued to the appellant in India within the meaning of Section 9 of the Act. He held that although it could be said that there was some kind of territorial nexus of the beam which was downlinked from the appellant's satellite with India, the proprietary rights in the nature of copyright, etc. in the down linked beam did not belong to the appellant but belonged to the T.V. channels. He held that there was no evidence on record to hold that the appellant had any India specific beaming facility. He found that on the basis of the facts brought on record it could not be said that the down linked beam could be restricted to any particular region or country. According to the CIT (A), it was the responsibility of the appellant to keep the equipment in good shape and to ensure the quality of the down linked beam in the footprint area in respect of a beam uplinked by the customer. He found that the telemetry, tracking and control operations were carried out from Hong Kong and that no beam was uplinked from India. His finding was that the agreements were signed outside India and the payments were also received outside India. Only the signals could be received in India but as a matter of fact these were not received in India either by the appellant or its agent but by cable TV operators who had agreements for reception of signals with the TV channels to whom the property in the signal belonged. He accordingly held that as the performance of the contract was not in India it could not be said that any income accrued to the appellant in India. He found that the circular, being Circular No.742 dated 2nd May, 1996, issued by the Central Board of Direct Taxes in connection with the taxation of foreign telecasting companies would have no application to the appellant's case. He rejected the argument of the AO that the waves generated by the appellant on which the programmes were mounted penetrating Indian space to reach the footprint area. According to him, the substance of the agreement was the hiring of transponder time and it was not an agreement for carrying programmes of the customers. He further held that having regard to the judgment of the Supreme Court in the case of 20th Century Finance Corporation and Anr. Vs. State of Maharashtra [119 STC 182], the taxable event would have to be decided on the basis of the execution of the contract and as admittedly the contracts were entered into outside India the accrual of income would also take place outside India.

14. Having regard to the view that he took, viz., that the income was chargeable to tax in terms of Section 9 (1) (vi), he felt that it was not necessary to consider the question of deductibility of the expenses. Nevertheless, he thought it fit to dispose of all the grounds that were raised and were filed before him. Insofar as the claim for lease rentals is concerned, he held that 50% of the lease rentals payable for AsiaSat 1 ought to be allowed as a deduction. Similarly, the expenditure on maintenance and satellite operations was also allowed to the extent of 50% insofar as AsiaSat 1 was concerned and 75% insofar as AsisSat 2 was concerned. As regards the claim for depreciation, he accepted the contention of the appellant that depreciation would have to be allowed on the actual cost of the satellite and not on a notional written down value which was computed as if depreciation had been allowed in the earlier years. However, he rejected the contention of the appellant that it was entitled to a deduction by way of depreciation on the entire cost of the asset by relying on Section 38 of the Act. He held that the C Band of AsiaSat 2 generated only 75% of the total revenues of AsiaSat 2, and therefore, 75% of the depreciation that was calculated on the actual cost ought to be allowed as a deduction. He considered the question as to what portion of the income so arrived at was to be considered chargeable to tax in India. He noted that the AO had not given any reason as to why 80% of the revenues should be attributed to India. He also noted that the appellant was located in Hong Kong and, therefore, a substantial part of its business was likely to come from clients of Chinese and Japanese origin. He rejected the appellant's contention that the test to be applied whilst pro-rating the income would be either the number of countries which are covered by the footprint or the Gross National Product (GDP) per capita of the countries covered by the footprint. He held that appropriate ratio to be applied would be the area of the country to the total area of the footprint with areas of large water bodies like inland lakes, seas and oceans being ignored. He also cancelled the levy of interest under Section 234B of the Act, but upheld the levy of interest under Section 234A of the Act.

18. According to the Tribunal, considering the role of the appellant in the light of the meaning of the term ―process‖, it became evident that the ―particular end‖ viz. viewership by public at large was achieved only through a series of steps taken by receiving the uplinked signals, amplifying them and relaying them after changing the frequency in the footprint area which would include India. As per its findings, the TV channels were not merely using the facility but were using a process as a result of which the signals after being received in the appellant's satellite were converted to a different frequency and after amplification were relayed to the area covered by the footprint. The Tribunal held that judgment of the Madras High Court in Skycell Communications Ltd. Vs. DCIT [251 ITR 53) relied upon by the appellant was distinguishable on facts and would not apply. The Tribunal thereafter considered the applicability of the decision of the Madras Bench in the case of Raj Television Network Ltd. It held that the said decision need not be followed inasmuch as the Madras Bench did not have the advantage of considering various arguments regarding process and other aspects of royalty as were urged before it. The Tribunal found that the transponder was not ―equipment‖ and hence the payment made by the TV channels to the appellant could not be regarded as one for use of equipment. The Tribunal held that the appellant had not leased out any equipment but had only made available the process that was carried out in the transponder to its customers.