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TAX
- The customers have their own relay facilities outside India for
uplinking the signal to the satellite;
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Asia Satellite Telecommunications Co. Ltd. v. DIT [2011-TII-05-HC-DEL-INTL]
(Judgement date: 31 January 2011)
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A transponder is a part of the satellite which receives signals from the earth stations
and re-transmits the same back to the earth with or without amplifying them.
3
Footprint is the area over the Earths surface over which a signal relayed from the
satellite can be received
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- The signal is received for down linking by cable operators, etc.
The taxpayer does not have any facility, assets or presence in India.
Further, the tracking, telemetering and control operations in respect
of the satellites were performed by the taxpayer from Hong Kong.
The Income-tax Appellate Tribunal (the Tribunal) had held that the
customers were using a process as a result of which the signals,
after being received in the taxpayers satellite were converted to a
different frequency and were relayed to the area covered by the
footprint, after amplification.
Amplification
Uplinking Downlinking
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Issues before the High Court
Applicability of Section 9(1)(i) of the Act to the payments received
by the taxpayer
Whether payment received by the taxpayer can be regarded as
royalty under section 9(1)(vi) of the Act
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presence in India, the provisions of Section 9(1)(i) of the Act are not
attracted.
Issue 2 - Whether payment received by the taxpayer can be regarded as
royalty under section 9(1)(vi) of the Act
Taxpayers contentions
The taxpayer argued that the service charges received from its
customers are not in relation to use of any equipment or process by
the customers. It was further argued that the taxpayer has complete
control over the operation of the satellites by way of its tracking,
telemetering and control operations in Hong Kong and the
customers have no control over them.
Tax departments contentions
The tax department, on the other hand, contended that control over
the satellite was not relevant since the word use in the definition
of royalty under the Act means only usage simpliciter and does
not require right to use of the equipment or process. It further
submitted that even if control is considered to be relevant, the same
was in the hands of the TV channels (i.e. the customers).
High Courts ruling
While refuting the Tribunals contention, the High Court held that
the fact that no amplification of the signals was involved was not
important because the decision of the AAR in case of ISRO (supra)
was not based on this consideration alone. The High Court further
held that it was the substance of the agreement that should be
considered to understand the underlying intention. It held that
various clauses of the agreement clearly indicate that the control
over the transponders was always with the taxpayer. It was observed
that the taxpayer had merely given access to a broadband/ capacity
available with the transponder to its customers.
4
ISRO Satellite Centre [ISAC], In re [2008] 307 ITR 59 (AAR)
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The High Court also held that the transponder is an in-severable part
of the satellite. It cannot function without the continuous support of
various systems and components of the satellite. Consequently, it is
wrong to assume that the control and constructive possession of the
transponder can be handed over by the satellite operator to its
customers.
Further, the High Court held that there was no use of the
transponder/ process in India. The following facts were found to be
relevant in this context:
5
Ishikawajima-Harima Heavy Industries Company Limited v. DIT [2007] 288 ITR 408
(SC)
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As per the Model Tax Convention on Income and on Capital issued on 22 July 2010,
OECD has observed that payments made by customers under transponder leasing
agreements will be considered for use of the transponder transmitting capacity. Further,
as per the OECD, the same will not constitute royalties since such payments are not
made in consideration for the use of, or right to use, property, or for information, etc.
7
Reliance placed on Supreme Courts decision in Ishikawajima (supra) and other High
Court decisions
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meaning and interpretations placed on identical or similar terms
employed in various bilateral tax treaties should be followed by the
Courts in India when it comes to construing similar terms occurring
in the Act.
Based on the above, the High Court held that the said payments do
not constitute royalty and are not taxable in India.
Our Comments
The High Court has addressed some crucial questions regarding the situs
of the operations carried out by the Satellite Operators as well as the
source of their income from overseas television broadcasting
companies.
The High Court has settled a long standing controversy and aligned
Indias position with various international forums such as OECD.
8
New Skies Satellites NV v. ADIT [2009] 126 TTJ 1 (Del)
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