CIT vs. Reliance Infocomm Ltd (Bombay High Court)

DATE: February 5, 2019 (Date of pronouncement)
DATE: June 8, 2019 (Date of publication)
AY: -
FILE: Click here to download the file in pdf format
S. 9(1)(vi) 'Royalty': The insertions of Explanations 5 & 6 to s. 9(1)(vi) by the Finance Act 2015 w.r.e.f. 01.04.1976, even if declaratory and clarificatory of the law, will not apply to the DTAAs. The DTAAs are a bilateral agreement between two Countries and cannot be overridden by a unilateral legislative amendment by one Country (New Skies Satellite BV 382 ITR 114 (Del) & Siemens AG 310 ITR 320 (Bom) followed)


The Commissioner of Income Tax(IT)4
.. Appellant.
M/s. Reliance Infocomm Ltd., .. Respondent.

Mr. Tejveer Singh, for the Appellant.

Mr. J. D. Mistri, Sr. Advocate with Mr. B. G. Yewale i/b. Rajesh Shah &
Co., for the Respondents.


DATE : 5th FEBRUARY, 2019.

Revenue is in Appeal against the Judgment of the Income
Tax Appellate Tribunal (in short “the Tribunal”), raising the following
questions for our consideration:“(

a) Whether on facts and circumstances of the case and in
law, the Tribunal erred in holding that the amount payable by
payee was not taxable as royalty in the hands of the payee,
under the DTAA between India and Netherlands and hence not
liable for tax withholding u/s. 195?

(b) Whether on facts and circumstances of the case and in
law, the Tribunal erred in relying upon the decision of Hon’ble
Delhi High Court in case of payee i.e. New Skies Satellites NV,
Netherlands to hold that the amount was not taxable under the
treaty in hands of payee without appreciating that the
provisions of section 9(1)(vi) are parimateria
with the Royalty provisions under the DTAA as also held by Madras High Court in
case of Poompuhar Shipping 360 ITR 257 and Verizon
Communication Singapore Pte ITR 575 (Mad.)?

(c) Whether on facts and circumstances of the case and in
law, the Tribunal erred in relying upon the decision of Hon’ble
Delhi High Court in case of payee i.e. New Skies Satellites NV,
Netherlands to hold that the amount was not taxable under the
treaty in hands of payee, without appreciating that the said
decision of Delhi High Court had not considered the principles of
updating construction, as enunciated by apex court in case of
Podar cements 226 ITR 625 (SC)?”.

2 Though three separate questions are framed by the Revenue,
issue is single namely Whether
the RespondentAssessee
while making
payment on royalty to the payee Company failed to deduct tax at source,
though required in law?

3 Before the Tribunal as well as before us, the Revenue has
principally relied on the amendment to Section 9(1)(vi) of the Income
Tax Act, 1961 (for short “the Act”), wherein explanations 5 and 6 were
inserted by Finance Act, 2015 w.e.f. 1st April, 1976. Both these
explanations commence with the expression ” for the removal of doubts, it
is hereby declared that …. …. …. ….”. According to the Revenue, these
explanations are in the nature of declatory explanations and merely
clarified the position in law and, therefore, the income of the foreign
based payee was taxable in India and the Assessee, therefore, had liability
to deduct tax at source while making such payments.

4 The entire issue was examined in detail by the Delhi High
Court in case of Director of Income Tax v/s. New Skies Satellite BV
reported in 382 ITR 114. The High Court while dismissing the Revenue’s
appeal, in the context of the nature of amendments noted above, held and
observed as under:

“The circumstances in this case could very well go to show
that the amendment was no more than an exercise in undoing an
interpretation of the court which removed income from data
transmission services from taxability under Section 9(1)(vi). It
would also be difficult, if not impossible to argue, that inclusion
of a certain specific category of services or payments within the
ambit of a definition alludes not to an attempt to illuminate or
clarify a perceived ambiguity or obscurity as to interpretation of
the definition itself, but towards enlarging its scope. Predicated
upon this, the retrospectivity of the amendment could well be a
contentious issue. Be that as it may, this Court is disinclined to
conclusively determine or record a finding as to whether the
amendment to 9(1)(vi) is indeed merely clarificatory as the
Revenue suggests it is, or prospective, given what its nature may
truly be. The issue of taxability of the income of the assesses in
this case may be resolved without redressal of the above question
purely because the assessee has not pressed this line of arguments
before the court and has instead stated that even if it were to be
assumed that the contention of the Revenue is correct, the
ultimate taxability of this income shall rest on the interpretation
of the terms of the DTAAs. Learned Counsel for the assessee has
therefore contended that even if the first question is answered in
favour of the Revenue, the income shall nevertheless escape the
Act by reason of the DTAA. The court therefore proceeds with the
assumption that the amendment is retrospective and the income
is taxable under the Act.”

5 The Court further observed that mere amendments in the Act
would not override
the provisions of Double Tax Avoidance Agreement
(for short “DTAA”). It was held that: “on a final note, India’s change in
position to the OECD Commentary cannot 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 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 revenue slip by, will be
insufficient to persuade this Court to hold that such amendments are
applicable to the DTAAs. In the said decision, Delhi High Court had also
referred and relied upon the decision of this Court in the case of CIT v/s.
Siemens Aktiongesellschaft reported in 310 ITR 320, in which it was
held that, mere amendment of the Act, would not override
the provisions
of DTAA treaties”.

6 In view of such detailed consideration by the Delhi High
Court in the case of New Skies Satellite BV (supra), which is the foreign
based company to whom the assessee has made payment in question,
where identical issue came up for consideration, we do not find any
reason to interfere this Appeal.

7 In the result, Appeal dismissed.

One comment on “CIT vs. Reliance Infocomm Ltd (Bombay High Court)
  1. vswami says:


    DTAA- Treaty override, is a fndamental and well settled proposition; that the govt., is relentlessly pursuing such or simlar other issues, at the cost to the “EXCHEQUER’ is so serious a matter that the CAG will do well to take a conscious note of, to the end of calling off the únwise sport of ‘wide goose chase’ beng indulged in, with no halt !

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