No income is deemed to accrue in India from use of satellite outside India to beam TV signals into India even if bulk of revenue arises due to viewers in India
The assessee, a Hong Kong company, had two satellites called AsiaSat-1 & AsiaSat-2 which were launched into space and placed in geostationary orbit. The satellites did not use Indian orbital slots nor were they positioned over Indian airspace. The footprints of the satellites extended over several countries including India. The assessee entered into agreements with TV channels & others who desired to utilize the transponder capacity available on the satellites to relay their signals. The customers had their own relaying facilities which were not situated in India. From these facilities, the signals were beamed in space where they are received by a transponder located in the assessee’s satellite. After amplification, the signals were beamed to the footprint area of the satellites. The assessee claimed as no operations were carried out in India, no part of the income generated by it from the customers to whom the aforesaid services are provided was chargeable to tax in India. However, the AO took the view that the assessee had a “business connection” u/s 9(1)(i) in India and estimated 80% of the revenue to be attributable to India on the ground that most of the channels were India specific and the advertisement revenue was from India. On appeal, the CIT (A) reversed the AO on the point of s. 9(1)(i) though he held that the income was taxable as “royalty” u/s 9(1)(vi) on the ground that it was use of a “secret process” put in place in the transponder on the satellite. On cross-appeals, the Tribunal (85 ITD 478) held that though there was a “business connection”, no part of the income was chargeable to tax in India as no operations to earn the income were carried on in India. It was, however, also held that the payment made was for use of a “process” and assessable as “royalty” u/s 9(1)(vi). On cross-appeals to the High Court, HELD deciding in favour of the assessee:
(i) Re “business connection” u/s 9(1)(i): In order for income to be taxable u/s 9(1)(i), the carrying on of operations in India is a sine qua non. The assessee had no presence in India. The signals were uploaded and downloaded outside India. Merely because the footprint area included India and programmes were watched by Indian viewers did not mean that the assessee was carrying out business operations in India;
(ii) Re “royalty” u/s 9(1)(vi): The finding of the Tribunal that the assessee had derived income from “lease of transponder capacity” of the satellites which is taxable u/s 9(1)(vi)(iv) is not acceptable because (though the agreement used the word “lease”) the assessee was the operator of the satellites and continued to be in control of the satellite and had not “leased” the satellite to its customers. The satellite was used by the assessee for providing services to its customers. There is a well known distinction between “lease of equipment” and “use of equipment”. ISRO Satellite Centre vs. DIT 307 ITR 59 (AAR) followed. The argument that there is use of a “process” by the TV channels is also not correct moreover when no such purported use has taken place in India as the assessee and its customers are situated outside India. The agreements were executed abroad. The transponder was in orbit and merely because its footprint was on India did not mean that the process had taken place in India. Ishikawaima-Harima Heavy Industries 288 ITR 408 (SC) followed;
(iii) The finding that as the end consumers i.e. persons watching TV in India are paying the cable operators who in turn are paying the TV channels, the flow of fund is traced to India is far-fetched and ignores the fact that the income which is generated in India has been subjected to tax in India in the hands of the telecast operators. The payment by the telecast operators outside India to the assessee cannot be taxed on the basis that the end consumers are in India;
(iv) The OECD commentary as well as the commentary by Klaus Vogel in the context of the Model Double Taxation Avoidance Agreement that the use of a satellite is a service and not a rental and that there is a distinction between “letting an asset” and “use of the asset for providing services” cannot be discarded because the technical terms in the DTAA are the same as that in s. 9(1)(vi). For better understanding, the OECD commentary can always be relied upon. Well-settled internationally accepted meaning and interpretation placed on identical or similar terms employed in various DTAAs should be followed by the Courts in India when it comes to construing similar terms occurring in the Act (UOI vs. Azadi Bachao Andolan 263 ITR 706 (SC) followed);
(v) Re “fees for technical services” u/s 9(1)(vii): As no arguments were advanced by the revenue, it is presumed that the case is not sought to be covered u/s 9(1)(vii) by the revenue.