Payment of Transponder Charges: Scope of definition of Royalty
- The Assessee had claimed that the income earned by it from providing transponder services to customers in India was not taxable in its hands. According to the Assessee, the income earned by it from providing transponder services was neither taxable as per provisions of the Act nor as per India-Thailand tax treaty.
- The Assessing Officer considered the Assessee to be in default and held that the transponder charges received by the Assessee were taxable as royalty in the hands of the Assessee under the provision of section 9(1)(vi) of the Act as well as corresponding provisions of the tax treaty between India and Thailand.
- Reliance was placed on the decision of Hon’ble Delhi High Court in the case of DIT vs M/s. Shin Satellite Public Co.Ltd., wherein it was concluded that, on a final note, India’s change in position to the OECD Commentary could not be a fact that influences the interpretation of the words defining royalty as they stand today. The only manner in which such change in position can be relevant is if such change is incorporated into the agreement itself and not otherwise. A change in executive position cannot bring about a unilateral legislative amendment into a treaty concluded between two sovereign states. It is fallacious to assume that any change made to domestic law to rectify a situation of mistaken interpretation can spontaneously further their case in an international treaty. Therefore, mere amendment to Section 9(1)(vi) cannot result in a change. It is imperative that such amendment is brought about in the agreement as well. Any attempt short of this, even if it is evidence of the State’s discomfort at letting data broadcast revenues slip by, will be insufficient to persuade the Court to hold that such amendments are applicable to the Double Tax Avoidance Agreements. Consequently, the Finance Act, 2012 will not affect Article 12 of the Double Tax Avoidance Agreements, it would follow that the first determinative interpretation given to the word “royalty” in Asia Satellites, when the definitions were in fact pari materia (in the absence of any contouring explanations), would continue to hold the field for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said Double Tax Avoidance Agreements are amended, jointly by both parties to incorporate income from data, transmission services as partaking of the nature of royalty, or amend the definition in a manner so that such income automatically becomes royalty. It was reiterated, that the Court had not returned, a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where no Double Tax Avoidance Agreement existed.
- After applying the said proposition to the facts of the case, it was surmised that the income received by the Assessee non-resident on account of transponder charges from the customers in India amounting to Rs. 4.18 crores (approx.) was not taxable as royalty in its hands. The same was also not taxable under the provisions of tax treaty between India and Thailand.