Bombay High Court
Viacom 18 Media Pvt Ltd vs Dy. Commissioner Of Income Tax … on 8 May, 2025
Author: M.S. Sonak
Bench: M.S. Sonak
SAYYED Digitally signed
by SAYYED
SAEED
2025:BHC-OS:7774-DB
SAEED ALI
ALI AHMED ALI
ITXA.1378.18 AND ORS.DOCX
AHMED Date:
2025.05.08
ALI 14:55:08 +0530
Revati
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
INCOME TAX APPEAL NO.1378 OF 2018
WITH
INCOME TAX APPEAL NO.725 OF 2015
WITH
INCOME TAX APPEAL NO.763 OF 2015
WITH
INCOME TAX APPEAL NO.797 OF 2015
WITH
INCOME TAX APPEAL NO.800 OF 2015
WITH
INCOME TAX APPEAL NO.1661 OF 2014
WITH
INCOME TAX APPEAL NO.1662 OF 2014
WITH
INCOME TAX APPEAL NO.1658 OF 2014
VIACOM 18 MEDIA PVT LTD ... Appellant
Zion Bizworld, Subhash Road,
A, Near Garware Office,
Vile Parle (East) Mumbai-400057.
Versus
Deputy Commissioner of Income Tax ... Respondent
International Taxation-4(3)(1)
Air India Building, Nariman Point,
Mumbai-400021.
______________________________________________________
Mr Madhur Agrawal, Mr Atul Jasani, Mr Ketan Dave and
Mr Pratik Shah i/b. Atul K Jasani for the Appellant.
Mr Subir Kumar a/w Ms Niyanta Trivedi, Ms. Akshata
Chhabra and Mr. Darshil Desai for the Respondent.
______________________________________________________
CORAM : M.S. Sonak &
Jitendra Jain, JJ.
RESERVED ON: 6 May 2025
PRONOUNCED ON : 8 May 2025
Judgment (Per Jitendra Jain, J.):-
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1. This group concerns different assessment years with
respect to the same Appellant-Assesssee. Since it raises
common substantial questions of law, it is disposed of by a
common order with the parties’ consent. Furthermore, by
consent, Income Tax Appeal No.1378 of 2018 for the
Assessment Year (AY) 2013-14 is taken as the lead matter.
2. The details of the appeals and the corresponding
assessment years are as under: –
Sr. nos. ITXA A.Y.
1. 1378/2018 2013-2014
2. 725/2015 2011-2012
3. 763/2015 2012-2013
4. 797/2015 2012-2013
5. 800/2015 2013-2014
6. 1661/2014 2009-2010
7. 1662/2014 2010-2011
8. 1658/2014 2011-2012
3. On 29 January 2025, this Court admitted ITXA appeal
No.1378 of 2018 on the following substantial questions of
law:
i. Whether on the facts and in the circumstances of the
case and in law, the consideration paid for transponder
services is assessable as “royalty” under Section 9(1)(vi)
of the Act and/or Article 12 of the India-USA DTAA?
ii. Whether on facts and in the circumstances of the case
and in law, the retrospective amendment in the Act byPage 2 of 24
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ITXA.1378.18 AND ORS.DOCXway of Explanations5/6 to Section 9(1)(vi) of the Act
can be read into the DTAA?
iii. Whether on the facts and in the circumstances of the
case and in law, the Appellant (payer) is required to
deduct TDS under Section 195 of the Act from payment
of transponder fees made to Intelsat Corp. even though
the said payment is held to be not taxable in the hands
of the payee (Intelsat Corp)?
Brief facts:
4. On 25 July 2012, the Appellant-Assesssee filed an
application under Section 195 of the Income-tax Act 1961
(the Act) for AY 2013-14 seeking NIL deduction of tax at
source on payments to be made to Intelsat Corporation of
USA Corporation. The claim was made on the ground that the
payment made under the agreement with Intelsat for
transponder services does not constitute ‘royalty’ under
Article 12 of the India-USA tax Treaty (the Treaty).
5. In the said application, the Appellant also, without
prejudice, submitted that the payment cannot be regarded as
‘royalty’, even under the Act as amended by the Finance Act,
2012. The Appellant also submitted that Intelsat does not
have a PE in India, and the payment made is in the nature of
business profits, which would not be taxable in India, and
therefore, there is no liability to withhold tax under Section
195 of the Act. The Appellant also submitted that payment
does not constitute ‘fees for technical services’ as definedPage 3 of 24
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ITXA.1378.18 AND ORS.DOCXunder Section 9(1)(vii) of the Act. The Appellant, however,
submitted that in the earlier years, i.e. AYS 2009-10, 2010-11,
2011-12 and 2012-13, such an application for NIL deduction
certificate was rejected and an order was passed to withhold
tax at the rate of 10%.
6. On 11 December 2012, an order under Section 195(2)
of the Act came to be passed disposing of the aforesaid
application. The ADIT rejected the application on the ground
that the payment made to Intelsat constitutes ‘royalty’ under
the Act by relying upon the Explanation inserted by the
Finance Act, 2012. The ADIT also further stated that in Article
12 of the India USA tax Treaty, the term ‘process’ is not
defined and therefore, the meaning of the term ‘process’ as
explained in the Act needs to be imported for interpreting
Article 12 and therefore, even under the Tax Treaty, the
payment would constitute ‘royalty’. The ADIT further stated
that the reliance placed by the Appellant on the decision of
the Delhi High Court in the case of Asia Satellite
Telecommunications Co. Ltd. Vs Director of Income-tax1 has
not been accepted by the department, and the SLP has been
preferred in that case.
7. On 4 April 2013, the Appellant filed an appeal under
Section 248 of the Act, challenging the aforesaid order on the
grounds that the payment did not constitute ‘royalty’ under
the Act as well as under the Treaty.
1
[2011] 197 Taxman 263 (Delhi)
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8. On 27 February 2015, the Commissioner of Income Tax
(Appeal) disposed of the aforesaid appeal by upholding the
order passed under Section 195(2) of the Act. The
Commissioner (Appeal) followed the order of the Tribunal in
the Appellant’s own case for AY 2009-10.
9. Being aggrieved by the order described above, the
Appellant preferred an appeal to the Income Tax Appellate
Tribunal on 18 June 2015. The said appeal was numbered as
ITA 3776/M/2015. On 7 August 2017, the Tribunal dismissed
the Appellant’s appeal by relying upon its own order for
earlier years and the decision of the Madras High Court in the
case of Verizon Communications Singapore Pte Ltd. Vs
Income Tax Officer, International Taxation-I 2. The Tribunal
followed the decision of the Madras High Court and not the
Delhi High Court in the case of Director of Income-tax Vs
New Skies Satellite BV3.
10. It was against the above backdrop that the present
appeal was instituted by the appellant, and it was admitted
on 29 January 2025 on the substantial questions of law
referred to above.
Submissions of the Appellant-Assessee:
11. Mr. Agrawal, learned counsel for the Appellant
submitted that as per Section 90(2) of the Act, the provision
which is more beneficial, when compared between the Act
and the Treaty, should be adopted in cases where India has
2
(2013) 39 taxmann.com 70 (Madras)
3
(2016) 68 taxmann.com 8 (Delhi)
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entered into Double Taxation Avoidance Agreement (DTAA)
with the foreign country. He, therefore, submitted that the
reliance placed by the Authorities on the Explanations under
the Act is erroneous. He submitted that the definition of
‘royalty’ under the Treaty should be applied to the transaction
under consideration and if so applied, the payments made
does not constitute royalty. He submitted that the amendment
in the Act was made in 2012 and India has subsequent to
2012 entered into various Double Taxation Avoidance
Agreement (DTAA) with various countries and wherever such
type of transactions were to be roped in the definition of
‘royalty’ same formed part of the definition of ‘royalty’. He
further submitted that post 2012 India has entered into
agreements with other countries where such type of
transactions are not included in the definition of ‘royalty’. He,
therefore, submitted that this shows the intention of the
legislature that the payments under consideration cannot
constitute ‘royalty’ under the India-USA Treaty. He further
submitted that Article 3(2) of the India-USA Treaty cannot be
pressed into service since ‘royalty’ is specifically defined in the
India-USA Treaty.
12. Mr. Agrawal distinguished the decision of the Madras
High Court in the case of Verizon Communications Singapore
Pte Ltd. (supra) on various grounds. Mr. Agrawal submitted
that the transaction for which payment is made is neither for
the use of equipment, nor does it constitute payment for
secret process or process. Mr. Agrawal relied upon the
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following judicial pronouncements in support of his above
submissions:
I. Engineering Analysis Centre of Excellence (P.) Ltd. Vs
Commissioner of Income-tax4
II. Commissioner of Income-tax International Taxation Vs
Telstra Singapore Pte Ltd.5
III. Union of India Vs Azadi bachao Andolan6
IV. PCIT Vs NEO Sports Broadcast (P.) Ltd.7
V. Director of Income-tax Vs New Skies Satellite BV
(Supra)
VI. CIT Vs Reliance Industries ltd.8
13. Mr. Agrawal, learned counsel for the Appellant in
rejoinder submitted that for AY 2008-09, 2009-10 and 2010-
11, there was ‘Transponder Service Agreement’ and based on
such agreement and a copy of the order which is placed with
the appeal memo, the application under Section 195 was
processed. He, however, fairly admits that ‘Transponder
Service Agreement’ is not annexed to the appeal memo. He,
however, contended that nobody has disputed the nature of
services and therefore there is no question of any remand to
give the Revenue a second inning to improvise the impugned
order.
14. Mr Agarwal, in the rejoinder, further submitted that
even assuming the provisions of the Domestic Tax Law
4
(2021) 125 taxmann.com 42 (SC)
5
[2024] 165 taxmann.com 85 (Delhi)
6
(2003) 132 Taxman 373 (SC)
7
(2019) 107 taxmann.com 17 (Bombay)
8
ITXA 1655 OF 2018, 576 OF 2017, 591 OF 2017 AND 2129 OF 2011
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applies, then by virtue of Section 90(2), since Explanation 6
cannot be made applicable in cases of withholding tax
retrospectively, the Appellant-Assessee cannot be made liable
for withholding tax. He further in rejoinder, relied upon the
decisions cited above and strongly objected to the submission
of the Respondent- Revenue on the matter being remanded
for giving a factual finding on the nature of service and its
applicability to the Treaty provision.
15. Mr. Agrawal also submitted that the Tribunal, in the
case of Intelsat Corporation, held that they are not liable to
be taxed in India, and, therefore, he submitted that there
cannot be any withholding tax obligation on the Appellant-
Assessee.
Submissions of the Respondent:
16. Mr. Subir Kumar, Learned Counsel appearing for the
Respondent defended the orders passed by the ADIT and the
appellate authorities.
17. Mr. Subir Kumar learned counsel submitted that Article
3(2) would be applicable since the definition of ‘royalty’
under the treaty does not explain the term ‘process’ or ‘secret
process’ and to understand the said meaning recourse is taken
to Explanation 6 to Section 9(1)(vi) of the Act. He referred to
the ambulatory approach to be adopted for understanding the
meaning of the term ‘process’ under the treaty. He submitted
that agreement of 2011 entered into, was given a
retrospective effect from 2008 and this agreement therefore
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was not in existence for AY 2008-09, 2009-10 and 2010-11.
He referred to various clauses of the agreements executed in
2011 and submitted that the services rendered would
constitute ‘secret process’ under the treaty. He, however, fairly
admitted that none of the authorities have examined the
nature of the services rendered by Intelsat corporation to the
Appellant-Assessee by referring to various clauses of the
agreement. He submitted that on the examination of the
agreement of 2011, it cannot be said that the payment made
was not for ‘secret process’.
18. Mr. Subir Kumar further submitted that even under the
common parlance meaning of the phrase ‘secret process’, the
services received by the Appellant-Assessee would fall within
the meaning of the term ‘royalty’ under Article 12(3). He
submitted that even in the case of Engineering Analysis
Centre of Excellence Pvt. Ltd. (supra) the Supreme Court took
the assistance of the local copyright law for interpreting the
treaty. Mr. Subir Kumar distinguished the decisions relied
upon by the Appellant and in support of his submissions
relied upon the decision of the Madras High Court in the case
of CIT versus Neyveli Lignite Corporation9, Calcutta High
Court in the case of N.V.Philips Vs CIT10, Poompuhar Shipping
Corporation Ltd. Vs ITO11.
19. Mr. Subir Kumar relied upon the written submissions in
support of his arguments and submitted that the payments
9
(2000) 243 ITR 459 (Mad.)
10
(1988) 172 ITR 521(Cal.)
11
(2014) 360 ITR 257
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would constitute ‘royalty’ under the domestic law as well as
under the treaty. In any case, in the alternative, he submitted
that the matter be remanded back for factual determination
of the nature of services rendered under the agreement which
were prevailing for each of these years and its applicability to
the meaning of the term ‘royalty’, since there is no factual
determination by any of the authorities or the analysis of the
agreement prevailing in the relevant assessment of by any of
the authorities.
Analysis & Conclusion:-
20. We have heard learned counsel for the Appellant and
the Respondent and with their assistance have perused the
documents brought to our notice.
21. Mr. Agrawal relying upon the Tribunal’s order in the
Appellant-Assessee’s own case for AY 2015-2016 which is a
subject matter of ITXA No.1415 of 2019 submitted that since
the Tribunal for that year has concluded that Intelsat
Corporation was not liable to pay tax, there is no question of
the Appellant-Assessee being fastened with withholding tax
liability. Mr. Agrawal fairly stated that this was not the
reasoning given by the Tribunal in the present appeals. He
attempted to tender the orders passed in the case of Intelsat
Corporation for the years under consideration after the
Respondent-Revenue had started their arguments. This Court
refused to take the same on record since it would not be
proper for this Court to verify this factual position, whether in
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the years before this Court, there is a final determination in
the case of Intelsat Corporation that they are not liable to pay
tax. This would require verification before the lower
authorities. However, in the interest of justice if the orders
passed in the case of Intelsat Corporation holds that they are
not liable for tax in India for the years which are subject
matter of the present appeals and the payments made by the
Appellant-Assessee has been considered before giving such a
finding, then there cannot be any withholding tax liability on
the Appellant-Assessee. However, such an order in the case of
Intelsat Corporation should have attained finality.
22. Therefore, we remand the matter back to the CIT (A)
file for verifying this aspect. If the Appellant-Assessee is able
to show that in the case of Intelsat Corporation for the years
for which the present appeals are filed, there is a final
determination by the tax authorities that the Intelsat
Corporation is not liable to pay tax and such a determination
is given after considering the payments made by the
Appellant-Assessee to Intelsat Corporation, then there cannot
be any withholding tax liability on the Appellant-Assessee. If
the Appellant-Assessee succeeds in showing the same, then
whether such payments constitute ‘royalty’ under the DTAA or
under the domestic law would not arise and would be an
academic exercise. Therefore, the CIT(A) should first verify
this aspect and only if the Appellant-Assessee fails to show
that there is no tax liability in the case of Intelsat Corporation
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then the issue whether such payment constitutes ‘royalty’
under the Domestic Tax Law or DTAA would arise.
23. Assuming the Appellant-Assessee fails on the above, the
issue would arise whether the subject payment can be
constituted a ‘royalty’ under the Treaty’s domestic law.
24. The relevant provisions of the Act and the India-USA
Treaty, which are relevant, are reproduced hereunder:
Section 90. Agreement with foreign countries or specified territories.
(1) …….
(2) Where the Central Government has entered into an agreement with
the Government of any country outside India or specified territory
outside India, as the case may be, under sub-section (1) for granting
relief of tax, or as the case may be, avoidance of double taxation, then,
in relation to the Assessee to whom such agreement applies, the
provisions of this Act shall apply to the extent they are more beneficial
to that Assessee.
Section 9. Income deemed to accrue or arise in India.
(1) The following incomes shall be ………..
(i) to (v) …………….
(vi) income by way of royalty payable …………..
Explanation 2- For the purpose of this clause, ‘royalty’ means
consideration (including any lump sum consideration but excluding any
consideration which would be the income of the recipient chargeable
under the head ‘capital gain’) for-
i. the transfer of all or any rights (including the granting of a
licence) in respect of a patent, invention, model, design, secret
formula or process or trade mark or similar property ;
ii. the imparting of any information concerning the working of, or
the use of, a patent, invention, model, design, secret formula or
process or trade mark or similar property;
iii. the use of any patent, invention, model, design, secret formula or
process or trade mark or similar property;
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iv. the imparting of any information concerning technical, industrial,
commercial or scientific knowledge, experience or skill;
v. the transfer of all or any rights (including the granting of a
licence) in respect of any copyright, literary, artistic or scientific
work including films or video tapes for use in connection with
television or tapes for use in connection with radio broadcasting;
vi. the rendering of any services in connection with the activities
referred to in sub-clauses (i) to (v).
Explanation 3- For the purposes of this clause, “computer soft-ware”
means any computer programme recorded on any disc, tape, perforated
media or other information storage device and includes any such
programme or any customized electronic data.
Explanation 4- For the removal of doubts, it is hereby clarified that the
transfer of all or any rights in respect of any right, property or
information includes and has always included transfer of all or any right
for use or right to use a computer software (including granting of a
licence) irrespective of the medium through which such right is
transferred.
Explanation 5- For the removal of doubts, it is hereby clarified that the
royalty includes and has always included consideration in respect of any
right, property or information, whether or not-
(a) the possession or control of such right, property or information is
with the payer;
(b) such right, property or information is used directly by the payer;
(c) the location of such right, property or information is in India.
Explanation 6- For the removal of doubts, it is hereby clarified that the
expression “process” includes and shall be deemed to have always
included transmission by satellite (including up-linking, amplification,
conversion for down-linking of any signal), cable, optic fibre or by any
other similar technology, whether or not such process is secret;
INDIA-USA Treaty ARTICLE 12
1. Royalties and fees for included services ………..
……………
(3). The term ‘royalties’ as used in this Article means :
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(a) payments of any kind received as a consideration for the use of,
or the right to use, any copyright of a literary, artistic, or
scientific work, including cinematograph films or work on film,
tape or other means of reproduction for use in connection with
radio or television broadcasting, any patent, trade mark, design
or model, plan, secret formula or process, or for information
concerning industrial, commercial, or scientific experience,
including gains derived from the alienation of any such right or
property which are contingent on the productivity, use or
disposition thereof; and
(b)payments of any kind received as consideration for the use of, or
the right to use, any industrial, commercial, or scientific
equipment, other than payments derived by an enterprise
described in paragraph 1 of Article 8 (Shipping and Air
Transport) from activities described in paragraph 2(c) or 3 of
Article 8.
25. For the assessment year under consideration, AY 2013-
14, the Appellant-Assessee entered into an agreement on 19
August 2011 with Intelsat Corporation. The agreement
provides for the provision of 24 hour fixed-term preemptible
satellite signal reception and re-transmission service by
Intelsat to the Appellant-Assessee. This service was to be
supplied from one transponder located at 68.5° East
longitude.
26. Clause 1 of the agreement refers to the nature of the
technical service as per specification in Clause 1.1 read with
Appendix A. As per Clause 1.2, the service provided by
Intelsat by a particular transponder shall be in the beams
identified in Appendix A and Intelsat would enter into
agreement with respect to such transponder on the same
beam as the service transponder so that a majority of the
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transponders on these beams will be used primarily for
television service. As per Clause 1.3(c), Appellant-Assessee
would remain responsible to Intelsat for the use of the
transponder service. Similarly, Clause 1.4 deals with
obligation of Intelsat for coordination with other satellites
and Clause 1.5 deals with transmission plans. Clause 3 deals
with monthly fees to be paid by the Appellant to Intelsat and
the manner of such payment and the consequences of late
payment. Clause 3.5 provides that the Appellant-Assessee
would be solely responsible for any taxes levied under the
local laws. Clause 4 deals with the obligations of the
Appellant-Assessee. Clause 5 deals with confirmed outage of a
service transponder if service on such transponder fails to
meet the service specification. Clause 6 deals with pre-
emptive rights in abnormal circumstances for Intelsat to pre-
empt or interrupt service to the Appellant-Assessee in order to
protect the overall health and performance of the satellite.
Article 6A provides for replacement of satellite. Clause 7 deals
with termination and there are other clauses which usually
find place in any commercial contract like termination,
confidentiality etc.
27. We may observe that the Appellant-Assessee had
entered into an agreement with Intelsat Corporation. The
agreement provides for the scope of services to be rendered
by Intelsat to the Appellant. We have stated some of the
clauses of the agreement in the earlier paragraphs. On a
perusal of the orders passed by the authorities i.e. original
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authority and the appellate authorities, we observe that none
of the authorities have examined and analysed various
clauses of the agreement to ascertain what exactly does the
Intelsat Corporation render the services to the Appellant-
Assessee and how the definition of ‘royalty’ under the Act or
under Article 12(3) of the Treaty can be made applicable to
such services. We do not find any analysis or discussion on
the nature of services specified in the agreement and its
applicability to the definition of ‘royalty’ under the Act and
Article 12(3) of the Treaty.
28. In our view, the present appeal is under Section 260A of
the Act on substantial questions of law. It was incumbent
upon the three authorities, i.e. the original authority and the
appellate authorities, to have examined and analysed the
nature of services as agreed upon by the parties in the
agreement. It was also incumbent upon these authorities to
thereafter give a finding of fact on this issue and then apply
the definition of ‘royalty’ under the Act or under Article 12(3)
of the Treaty. How these services are covered by the Act or the
Article 12(3) is not discussed. There is an absence of
foundational facts in the orders of all the three authorities on
this issue. The orders are non-speaking orders.
29. This Court under Section 260A of the Act cannot take
upon itself the factual determination of the nature of service.
Any exercise by this Court on the factual determination, in
the absence of the said exercise being carried out by three
authorities below, would set a wrong precedent and would be
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contrary to the provisions of Section 260A of the Act. This
fact was specifically brought to the notice of the learned
counsel for the Appellant-Assessee and he was unable to
controvert the same.
30. The questions raised by the Appellant-Assessee and
admitted by this Court cannot be answered without there
being the findings of the lower authorities on the nature of
the services rendered under the agreement by Intelsat
Corporation to the Appellant-Assessee and the analysis of the
phrase ‘secret process/process’ used in the Act and the Treaty.
31. We do not agree with the submission of the learned
counsel for the Appellant- Assessee that since much time has
lapsed this Court should examine the issue on facts as well as
this Court should allow the appeal since the authorities have
not based their decisions on Article 12(3) but has only relied
upon the Domestic Tax Law. The authorities have held the
payment to constitute ‘royalty’ under the domestic law as well
as under the Treaty, but by holding the said payment is
towards ‘royalty’ under the Treaty, the revenue has relied
upon the definition of ‘process’ under the domestic law.
Therefore, to say that the revenue has only held against the
Assessee on the ground of domestic law and not the Treaty is
not correct.
32. The authorities should have independently analysed
and examined how the services rendered under the
agreement would fall within the phrase ‘process’ or ‘secret
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process’ as per the Act or Article 12(3). The authorities have
not analysed what is ‘process’ or ‘secret process’ and how it
applies to the services rendered under the agreement.
33. The present proceedings arise out of an application
made by the Appellant-Assessee to the ADIT under Section
195(2) of the Act. Such an application is in the nature of an
advance ruling or a decision-in-invitum by an Assessee for
ascertaining its liability to withhold tax. These proceedings
are different from the regular assessment proceedings. The
Appellant-Assessee having made an application to invite a
decision on the basis that the payments under the agreement
does not constitute ‘royalty’ as per the Act or the Treaty
cannot now be heard to say that since the revenue’s decision
was based on Domestic Tax Law and same being contrary to
various decisions, consequently it should be held that the
payment does not constitute ‘royalty’ under the Treaty.
34. It was the claim of the Appellant-Assessee that they do
not fall within the definition of ‘royalty’ under the Treaty, and
in the absence of any permanent establishment of Intelsat in
India, there is no liability to withhold tax. In our view, this
issue is required to be answered by the authorities since the
claim of the Appellant-Assessee is based on this submission,
which has not been done by any of the authorities by
analysing the agreement and ascertaining its applicability to
the definition of ‘royalty’ under the Act or the Treaty. There is
no finding by the authorities that Intelsat does not have a P. E.
in India.
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35. Therefore, in our view, it would be in the interest of
justice, the issue whether the payments made for services
rendered by Intelsat to the Appellant-Assessee under the
agreement constitutes ‘royalty’ under the Act or the Treaty is
remanded back to the CIT(A) to give finding on whether the
services are in the nature of that specified in the Act or Article
12(3) and whether Intelsat has a permanent establishment in
India. The appellate authority is directed to examine the
agreement and the definition under the Act and Article 12(3)
of the Treaty to conclude in this regard.
36. It is well settled that where the Central Government has
entered into an agreement with a foreign country for granting
relief of tax or for avoidance of double taxation, then in
relation to the Assessee to whom such agreement applies, the
provisions of the Act shall apply to the extent they are more
beneficial to that Assessee. Meaning thereby, that between the
Act and the tax Treaty, whichever is more beneficial to the
Assessee to whom such Treaty applies, same would be
applicable. This proposition is now no more res integra and
well settled and is concluded by the decision of the Supreme
Court in the case of Azadi Bachao Andolan (supra) and
Engineering Analysis Centre of Excellence Pvt. Ltd. (supra)
37. Mr. Agrawal, with respect to Income Tax Appeal Nos.
725, 763, 797 of 2015 and 1661, 1162 and 1658 of 2014 are
concerned, submitted that assuming Explanation 6 to Section
9(1)(vi) is applicable, since the payments in these appeals
have been made prior to the insertion of the Explanation by
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the Finance Act 2012, the Appellant-Assessee cannot be
fastened with the liability of withholding the tax and for this
submission, he relied upon the decision in the case of
Reliance Industries (supra), Commissioner of Income Tax vs.
NGC Network India Limited in ITXA No.397 of 2015 decided
on 29 January 2018 and Sedco Forex International Drilling
Inc. As Agent vs. Department of Income Tax12.
38. We may observe that the appeals before us are for
various assessment years, the issue of which revolves around
payments made under the agreement with Intelsat
Corporation USA. Income Tax Appeal Nos.1661, 1662 and
1658 of 2014 and 725 of 2015 are for assessment years 2009-
2010, 2010-2011 and 2011-2012 relevant to previous year
2008-2009, 2009-2010 and 2010-2011. In the appeal memo
filed before this Court in all these appeals, the Appellant-
Assessee has annexed an agreement dated 19 August 2011
with Intelsat Corporation. The said agreement would be
relevant for the appeals for AY 2012-2013 which are
numbered as 763 and 797 of 2015 and AY 2013-2014 ITXA
No.800 of 2015. We failed to understand as to how for the
assessment years 2009-2010, 2010-2011 and 2011-2012, the
agreement dated 19 August 2011 would be relevant since
same cannot be said to be in existence during the previous
years 2008-2009, 2009-2010, and 2010-2011. However, Mr
Agrawal attempted to justify the retrospective operation of
2011 agreement.
12
2005 149 taxman 352
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39. Mr. Agrawal in response to the above issue submitted
that for the years prior to 2012-2013, there was a
transponder service agreement and the customers order
which is annexed to the appeal for the years prior to A.Y.
2012-2013 and which was the basis for making application
under Section 195(2) of the Act. He, however, fairly admits
that the transponder service agreement for the assessment
years prior to 2012-2013 is not annexed to the appeal memo.
In our view, if the case of the Appellant-Assessee is that the
payments made under such transponder service agreement is
not a ‘royalty’, then it would be necessary that such an
agreement ought to have been annexed to the appeal memo.
We also observe that the original authority and the appellate
authorities have not examined this transponder service
agreement to conclude that the payments constitute ‘royalty’
either under the domestic law or under the Treaty. Since we
are remanding the matter back as observed above, we direct
the authorities to examine this agreement and give a factual
finding on the nature of the agreement and whether it
constitutes ‘royalty’ under the Act and/or under Article 12(3)
of the Treaty.
40. The authorities should examine whether the payments
made under the agreements constitute ‘royalty’ under the
Domestic Tax Law and Treaty by examining the agreement
and the meaning of the term ‘process/secret process’. If
assuming that the revenue comes to a conclusion that it
constitutes ‘royalty’ under the domestic law then, for the
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payments made prior to the insertion of Explanation 6 by the
Finance Act, 2012 it cannot be subjected to withholding tax,
since at the time when the payments were made such an
explanation was not in existence. The Co-ordinate Bench of
this Court in Reliance Industries Limited (supra) has held that
retrospective amendment cannot fasten withholding tax
liability if payments were made prior to the amendment.
Therefore, for those assessment years where the payments
have been made prior to the insertion of Explanation 6 to
Section 9(1)(vi) of the Act same would not be exigible to
withholding tax liability. This aspect should be examined by
the CIT(A) and an appropriate relief be given after verifying
the facts for those assessment years prior to the enactment of
Finance Act. 2012.
41. The above direction is given as per Section 90(2) of the
Act, which states that between the Act and the DTAA, what is
beneficial is to be made applicable to the Assessee.
42. For the payments made post the Finance Act 2012, the
CIT(A) is directed to examine the agreements and give a
factual finding on the nature of services rendered under the
agreements and how the phrase ‘secret process’ is to be
interpreted to ascertain whether the payments constitute
‘royalty’ under Treaty. This exercise has not been done in the
instant case by the authorities. Therefore, we direct them to
do the same in the remand proceedings.
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43. The Appellant-Assessee and the Respondent-Revenue
have relied upon various judgments and commentaries
dealing with the issue on the merits and the interpretation to
be given to the definition of the term ‘royalty’. The
applicability or non-applicability of these decisions would
arise only after a factual determination of the nature of
service rendered which is a subject matter of present
proceedings. For this, we have remanded the matter back to
the file of the CIT(A). Both the parties would be entitled to
rely upon the case laws and any other material in support of
their submissions before the CIT(A). Since we are not
adjudicating the issue on merits, we refrain from dealing with
the precedents and the commentaries relied upon by both
parties.
44. The CIT(A) is requested to dispose of the appeals as
expeditiously as possible and in any case on or before 31
December 2025. We make it clear that we have not expressed
any opinion on the merits of the case and on the applicability
of Article 12(3) to the nature of services under consideration
is concerned. It would be open to the Appellant-Assessee and
the revenue to raise all the contentions on the taxability
under the Act and the Treaty. None of our observations in the
present order should be considered as our views or findings
on the adjudication under the Act or Article 12(3) of the
Treaty on merits.
45. In view of the above, we remand the appeals back to
the file of the CIT(A) with the following directions:-
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(i) If the Appellant-Assessee is able to show that there is a
final determination of no taxability in the hands of
Intelsat Corporation on payments made by the Appellant-
Assessee, then there would be no withholding tax
liability ;
(ii) If the payments are made prior to the Finance Act, 2012
then, then following decision of this Court in the case of
Reliance Industries Limited (supra), no withholding tax
liability can be imposed based on retrospective
amendment ;
(iii) For payments made after the enactment of Finance Act,
2012, the CIT(A) to examine the nature of agreements
for each assessment year and determine whether same
constitutes ‘royalty’ under the domestic law or the Treaty
and if same does not constitute ‘royalty’ then there would
be no withholding tax liability after considering
provisions of Section 90(2) of the Act.
46. Since we are remanding the matter back to the CIT(A)
‘s file, we do not propose to answer the question on merits
but keep it open for the CIT(A) to adjudicate.
47. The appeals of the Appellant-Assessee are disposed of in
the above terms. No costs.
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