New Skies Satellites N.V. v. Asstt. Director of Incometax (International Taxation)

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The Tax Publishers2009 TaxPub(DT) 2085 (Del-Trib) : (2009) 319 ITR 0269 : (2009) 126 TTJ 0001 : (2009) 030 DTR 0289 New Skies Satellites N.V. v. Asstt. Director of IT (International Taxation) INCOME TAX ACT, 1961 --Income deemed to accrue or arise--Under section 9(1)(vi) Royalty--Consideration paid for uplinking/downlinking signals/data transmission through use of transponders in the satellites by telecasting companies to satellite companies for 'use' and 'right to use' the process involved in the transponder, is royalty and it is not necessary that payment of such consideration should be only for 'secret process' as per article 12 of DTAA between India and Netherlands, the same was, therefore, deemed to accrue or arise in India under Explanation 2 to section 9(1)(vi), and also under clause (vi) of Explanation 2 to section 9(1)(vi). Income Tax Act, 1961 Section 9(1)(vi), Explanation 1 Double Taxation Avoidance Agreement between India and Netherlands Article 12 DTAA between India and Thailand Article 12 New Skies Satellites N.V. v. Asstt. Director of Income Tax (International Taxation) In the ITAT, Delhi Special Bench Vimal Gandhi, President; LP. Bansal, J.M. & R.C. Sharma, AM. ITA Nos. 5385 to 5387/Del/2004 and 2623 & 2624/Del/2008 A.Y 2000-01 to 2004-05 Decided on 16th October, 2009 Double Taxation Avoidance Agreement between India and Netherlands, art. 12; Double Taxation Avoidance Agreement between India and Thailand, art. 12; Income Tax Act, 1961, sections 9(1)(vi) & 9, Explanation.;In favour of: revenue *Counsel :* M.S. Syali & F.V. Irani with Tarandeep Singh & Sandeep Puri, for the Assessees Y.K. Kapoor & KananKapoor, for the revenue : S. GanesKfor the Intervener ORDER *LP. Bansal, J.M.* This Special Bench has been constituted on the request of the revenue. The revenue vide its application dated 1st Nov., 2006 made a request for constitution of Special Bench to consider the following question : 'Whether on the facts and circumstances of the above mentioned cases the income from bandwidth/transmission charges for uplinking/downlinking signals/data transmission through the use of transponders in the satellite is taxable in the hands of above mentioned foreign companies in accordance with provisions of the Income Tax Act read with relevant provisions of tax treaties with respective countries.' 2. In the application it was submitted that reference to Special Bench is sought because there are conflicting decisions of Tribunal in the case of Asia Satellite Telecommunications Co. Ltd. v. Dy. CIT (2003) 78 TTJ (Del) 489 : (2003) 85 ITD 478 (Del) (for short 'AsiaSat') and in the case of Dy. CIT v. PanAmSat International Systems Inc. (2006) 9 SOT 100 (Del) (hereinafter referres to as 'PanAmSat). It was further submitted in the application that the decisions of the Tribunal in these two cases are inherently inconsistent and contrary to each other and the transactions involve huge revenue implications. The issue being of all India importance affecting all the satellite and telecommunication cases, Special Bench should be constituted to decide the substantial question of law involved. Honble President on the said application of the revenue has passed order dated 18th Dec, 2006, according to which the matter was to be placed before the regular Bench to consider the various contentions raised in the said application filed by the revenue. The Bench was asked to hear elaborate arguments of both the sides and then recommend to the President, Tribunal that whether or not a Special Bench be constituted. In view of these directions of Honble President, the Division Bench after considering the detailed arguments of the parties involved has passed order dated 14-3-2008, in which following three questions were recommended to be referred to the Special Bench : SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2009 TaxPub(DT) 2085 (Del-Trib) : (2009) 319 ITR 0269 : (2009) 126 TTJ 0001 : (2009) 030 DTR 0289

New Skies Satellites N.V. v. Asstt. Director of IT (International Taxation)

INCOME TAX ACT, 1961

--Income deemed to accrue or arise--Under section 9(1)(vi) Royalty--Consideration paid for uplinking/downlinking signals/data transmission through use of transponders in the satellites by telecasting companies to satellite companies for 'use' and 'right to use' the process involved in the transponder, is royalty and it is not necessary that payment of such consideration should be only for 'secret process' as per article 12 of DTAA between India and Netherlands, the same was, therefore, deemed to accrue or arise in India under Explanation 2 to section 9(1)(vi), and also under clause (vi) of Explanation 2 to section 9(1)(vi).

Income Tax Act, 1961 Section 9(1)(vi), Explanation 1

Double Taxation Avoidance Agreement between India and Netherlands Article 12

DTAA between India and Thailand Article 12

New Skies Satellites N.V. v. Asstt. Director of Income Tax (International Taxation)

In the ITAT, Delhi Special Bench Vimal Gandhi, President; LP. Bansal, J.M. & R.C. Sharma, AM.

ITA Nos. 5385 to 5387/Del/2004 and 2623 & 2624/Del/2008 A.Y 2000-01 to 2004-05

Decided on 16th October, 2009

Double Taxation Avoidance Agreement between India and Netherlands, art. 12; Double Taxation Avoidance Agreement between India and Thailand, art. 12; Income Tax Act, 1961, sections 9(1)(vi) & 9, Explanation.;In favour of: revenue

Counsel : M.S. Syali & F.V. Irani with Tarandeep Singh & Sandeep Puri, for the Assessees Y.K. Kapoor & KananKapoor, for the revenue : S. GanesKfor the Intervener

ORDER

LP. Bansal, J.M.

This Special Bench has been constituted on the request of the revenue. The revenue vide its application dated 1st Nov., 2006 made a request for constitution of Special Bench to consider the following question :

'Whether on the facts and circumstances of the above mentioned cases the income from bandwidth/transmission charges for uplinking/downlinking signals/data transmission through the use of transponders in the satellite is taxable in the hands of above mentioned foreign companies in accordance with provisions of the Income Tax Act read with relevant provisions of tax treaties with respective countries.'

2. In the application it was submitted that reference to Special Bench is sought because there are conflicting decisions of Tribunal in the case of Asia Satellite Telecommunications Co. Ltd. v. Dy. CIT (2003) 78 TTJ (Del) 489 : (2003) 85 ITD 478 (Del) (for short 'AsiaSat') and in the case of Dy. CIT v. PanAmSat International Systems Inc. (2006) 9 SOT 100 (Del) (hereinafter referres to as 'PanAmSat). It was further submitted in the application that the decisions of the Tribunal in these two cases are inherently inconsistent and contrary to each other and the transactions involve huge revenue implications. The issue being of all India importance affecting all the satellite and telecommunication cases, Special Bench should be constituted to decide the substantial question of law involved. Honble President on the said application of the revenue has passed order dated 18th Dec, 2006, according to which the matter was to be placed before the regular Bench to consider the various contentions raised in the said application filed by the revenue. The Bench was asked to hear elaborate arguments of both the sides and then recommend to the President, Tribunal that whether or not a Special Bench be constituted. In view of these directions of Honble President, the Division Bench after considering the detailed arguments of the parties involved has passed order dated 14-3-2008, in which following three questions were recommended to be referred to the Special Bench :