Facts of the Case

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

The core issue revolved around payments received by Intelsat Corporation, USA, from Indian customers for providing satellite transponder services. The ITAT had held that such receipts were not taxable as royalty under the provisions of the Income Tax Act, 1961, as well as under the India–USA Double Taxation Avoidance Agreement (DTAA).

The Revenue challenged this finding, arguing that such payments should be treated as royalty income.

Issues Involved

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

Petitioner’s (Revenue’s) Arguments

  • The Revenue contended that the ITAT erred in holding that transponder charges are not taxable as royalty.
  • It was argued that:
    • Payments received by Intelsat represent income by way of royalty as defined under Explanation 2 and Explanation 5 & 6 to Section 9(1)(vi).
    • The activity of transmitting signals through satellite involves the use of a “process”, thereby falling within the scope of royalty.
    • The provisions of Article 12(3) of the DTAA also support taxation as royalty.

Respondent’s (Assessee’s) Arguments

  • The Respondent relied on earlier judicial precedents, particularly its own case for previous assessment years.
  • It was contended that:
    • The assessee merely provides a facility/service, and does not grant control or possession of equipment or process.
    • Hence, the payments cannot be categorized as royalty either under the Act or the DTAA.

Court’s Findings / Order

  • The Delhi High Court held that the issue is no longer res integra and is covered by earlier judgments in the assessee’s own case.
  • The Court relied on precedents including:
    • Asia Satellite Telecommunications Co. Ltd. vs DIT (2011) 332 ITR 340 (Del)
    • Director of International Taxation vs New Skies Satellite BV (2016) 382 ITR 114 (Del)
  • The Court further noted:
    • Though SLPs against these decisions are pending before the Supreme Court, no stay has been granted.
    • As per settled law, judgments continue to be binding in absence of stay.
  • Relying on:
    • Kunhayammed vs State of Kerala (2000) 6 SCC 359
    • Shree Chamundi Mopeds Ltd. vs Church of South India Trust Association (1992) 3 SCC 1

The Court concluded that no substantial question of law arises.

Result: Appeals dismissed.

Important Clarifications

  • Mere use of satellite transmission facility does not amount to use of equipment or process.
  • Control and possession are key elements to determine royalty.
  • Pending SLP without stay does not dilute the binding nature of High Court judgments.
  • DTAA provisions prevail where beneficial to the assessee.

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 the 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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