Facts of the Case

The present appeals were filed by the Revenue challenging the orders passed by the Income Tax Appellate Tribunal (ITAT) for Assessment Years 2014–15 and 2015–16.

The dispute pertains to whether payments received by Intelsat Corporation, USA for providing satellite transponder facilities are taxable in India as “royalty” under Section 9(1)(vi) of the Income Tax Act, 1961, read with Article 12(3) of the India–USA Double Taxation Avoidance Agreement (DTAA).

The ITAT had ruled in favour of the assessee, holding that such receipts are not taxable as royalty.

Issues Involved

  1. Whether payments received for leasing satellite transponder capacity constitute “royalty” under Section 9(1)(vi) of the Income Tax Act, 1961.
  2. Whether such receipts fall within the definition of royalty under Article 12(3) of the India–USA DTAA.
  3. Whether transmission of signals through satellite amounts to use of a “process” under the Act.

Petitioner’s Arguments (Revenue)

  • The ITAT erred in holding that transponder lease charges are not taxable as royalty.
  • The payments qualify as royalty under Explanation 2 and Explanation 5 & 6 to Section 9(1)(vi) of the Act.
  • The transmission of data/signals through satellite transponders involves the use of a “process,” which is covered under the definition of royalty.
  • Article 12(3) of the DTAA also supports taxation of such income as royalty.

Respondent’s Arguments (Assessee – Intelsat Corporation)

  • The issue is already settled in favour of the assessee by earlier decisions of the Delhi High Court.
  • The assessee does not grant control or possession of equipment or process to customers.
  • The transponder service is merely a standard facility and does not amount to use of equipment or process by the customer.
  • Hence, the receipts cannot be characterized as royalty under domestic law or DTAA.

Court’s Findings / Order

  • The Delhi High Court observed that the issue is already covered by earlier judgments in the assessee’s own case for previous assessment years.
  • The Court relied on precedents including:
    • Asia Satellite Telecommunications Co. Ltd. v. DIT
    • Director of International Taxation v. New Skies Satellite BV
  • It was noted that although SLPs are pending before the Supreme Court, there is no stay on these judgments.
  • Applying the doctrine laid down in Kunhayammed and Shree Chamundi Mopeds cases, the Court held that existing binding precedents continue to apply.

Final Order

  • No substantial question of law arises.
  • The appeals filed by the Revenue were dismissed.

Important Clarification

  • Mere provision of satellite transponder services does not amount to “use of equipment” or “process” by the customer.
  • Payments for such services are not taxable as royalty under Section 9(1)(vi) or Article 12 of the DTAA.
  • Binding precedents remain applicable unless stayed or overturned by a higher court.

Sections Involved

  • Section 9(1)(vi) of the Income Tax Act, 1961
  • Explanation 2, Explanation 5 & 6 to Section 9(1)(vi)
  • Article 12(3) of India–USA DTAA 

Link to download the order -https://delhihighcourt.nic.in/app/case_number_pdf/2022:DHC:3803DB/MMH21092022ITA3462022_190033.pdf

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