IN THE HIGH COURT OF JUDICATURE AT BOMBAY
\nORDINARY ORIGINAL CIVIL JURISDICTION
\nINCOME TAX APPEAL NO. 1395 OF 2016<\/p>\n
The Commissioner of Income Tax(IT)4
\n.. Appellant.
\nv\/s.
\nM\/s. Reliance Infocomm Ltd., .. Respondent.<\/p>\n
Mr. Tejveer Singh, for the Appellant.<\/p>\n
Mr. J. D. Mistri, Sr. Advocate with Mr. B. G. Yewale i\/b. Rajesh Shah &
\nCo., for the Respondents.<\/p>\n
CORAM: AKIL KURESHI &
\nM.S.SANKLECHA, JJ.<\/p>\n
DATE : 5th FEBRUARY, 2019.<\/p>\n
P.C:The
\nRevenue is in Appeal against the Judgment of the Income
\nTax Appellate Tribunal (in short \u201cthe Tribunal\u201d), raising the following
\nquestions for our consideration:\u201c(<\/p>\n
a) Whether on facts and circumstances of the case and in
\nlaw, the Tribunal erred in holding that the amount payable by
\npayee was not taxable as royalty in the hands of the payee,
\nunder the DTAA between India and Netherlands and hence not
\nliable for tax withholding u\/s. 195?<\/p>\n
(b) Whether on facts and circumstances of the case and in
\nlaw, the Tribunal erred in relying upon the decision of Hon’ble
\nDelhi High Court in case of payee i.e. New Skies Satellites NV,
\nNetherlands to hold that the amount was not taxable under the
\ntreaty in hands of payee without appreciating that the
\nprovisions of section 9(1)(vi) are parimateria
\nwith the Royalty provisions under the DTAA as also held by Madras High Court in
\ncase of Poompuhar Shipping 360 ITR 257 and Verizon
\nCommunication Singapore Pte ITR 575 (Mad.)?<\/p>\n
(c) Whether on facts and circumstances of the case and in
\nlaw, the Tribunal erred in relying upon the decision of Hon’ble
\nDelhi High Court in case of payee i.e. New Skies Satellites NV,
\nNetherlands to hold that the amount was not taxable under the
\ntreaty in hands of payee, without appreciating that the said
\ndecision of Delhi High Court had not considered the principles of
\nupdating construction, as enunciated by apex court in case of
\nPodar cements 226 ITR 625 (SC)?\u201d.<\/p>\n
2 Though three separate questions are framed by the Revenue,
\nissue is single namely Whether
\nthe RespondentAssessee
\nwhile making
\npayment on royalty to the payee Company failed to deduct tax at source,
\nthough required in law?<\/p>\n
3 Before the Tribunal as well as before us, the Revenue has
\nprincipally relied on the amendment to Section 9(1)(vi) of the Income
\nTax Act, 1961 (for short “the Act”), wherein explanations 5 and 6 were
\ninserted by Finance Act, 2015 w.e.f. 1st April, 1976. Both these
\nexplanations commence with the expression ” for the removal of doubts, it
\nis hereby declared that …. …. …. ….”. According to the Revenue, these
\nexplanations are in the nature of declatory explanations and merely
\nclarified the position in law and, therefore, the income of the foreign
\nbased payee was taxable in India and the Assessee, therefore, had liability
\nto deduct tax at source while making such payments.<\/p>\n
4 The entire issue was examined in detail by the Delhi High
\nCourt in case of Director of Income Tax v\/s. New Skies Satellite BV
\nreported in 382 ITR 114. The High Court while dismissing the Revenue’s
\nappeal, in the context of the nature of amendments noted above, held and
\nobserved as under:<\/p>\n
\u201cThe circumstances in this case could very well go to show
\nthat the amendment was no more than an exercise in undoing an
\ninterpretation of the court which removed income from data
\ntransmission services from taxability under Section 9(1)(vi). It
\nwould also be difficult, if not impossible to argue, that inclusion
\nof a certain specific category of services or payments within the
\nambit of a definition alludes not to an attempt to illuminate or
\nclarify a perceived ambiguity or obscurity as to interpretation of
\nthe definition itself, but towards enlarging its scope. Predicated
\nupon this, the retrospectivity of the amendment could well be a
\ncontentious issue. Be that as it may, this Court is disinclined to
\nconclusively determine or record a finding as to whether the
\namendment to 9(1)(vi) is indeed merely clarificatory as the
\nRevenue suggests it is, or prospective, given what its nature may
\ntruly be. The issue of taxability of the income of the assesses in
\nthis case may be resolved without redressal of the above question
\npurely because the assessee has not pressed this line of arguments
\nbefore the court and has instead stated that even if it were to be
\nassumed that the contention of the Revenue is correct, the
\nultimate taxability of this income shall rest on the interpretation
\nof the terms of the DTAAs. Learned Counsel for the assessee has
\ntherefore contended that even if the first question is answered in
\nfavour of the Revenue, the income shall nevertheless escape the
\nAct by reason of the DTAA. The court therefore proceeds with the
\nassumption that the amendment is retrospective and the income
\nis taxable under the Act.\u201d<\/p>\n
5 The Court further observed that mere amendments in the Act
\nwould not override
\nthe provisions of Double Tax Avoidance Agreement
\n(for short “DTAA”). It was held that: \u201con a final note, India’s change in
\nposition to the OECD Commentary cannot be a fact that influences the
\ninterpretation of the words defining royalty as they stand today. The only
\nmanner in which such change in position can be relevant is if such change is
\nincorporated into the agreement itself and not otherwise. A change in
\nexecutive position cannot bring about a unilateral legislative amendment
\ninto treaty concluded between two sovereign states. It is fallacious to assume
\nthat any change made to domestic law to rectify a situation of mistaken
\ninterpretation can spontaneously further their case in an international
\ntreaty. Therefore, mere amendment to Section 9(1)(vi) cannot result in a
\nchange. It is imperative that such amendment is brought about in the
\nagreement as well. Any attempt short of this, even if it is evidence of the
\nState’s discomfort at letting data broadcast revenue slip by, will be
\ninsufficient to persuade this Court to hold that such amendments are
\napplicable to the DTAAs. In the said decision, Delhi High Court had also
\nreferred and relied upon the decision of this Court in the case of CIT v\/s.
\nSiemens Aktiongesellschaft reported in 310 ITR 320, in which it was
\nheld that, mere amendment of the Act, would not override
\nthe provisions
\nof DTAA treaties\u201d.<\/p>\n
6 In view of such detailed consideration by the Delhi High
\nCourt in the case of New Skies Satellite BV (supra), which is the foreign
\nbased company to whom the assessee has made payment in question,
\nwhere identical issue came up for consideration, we do not find any
\nreason to interfere this Appeal.<\/p>\n
7 In the result, Appeal dismissed.
\n(M.S.SANKLECHA,J.) (AKIL KURESHI,J.)<\/p>\n","protected":false},"excerpt":{"rendered":"
India\u2019s 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.<\/p>\n