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Tax Publishers Inmarsat Global Ltd. v. Dy. CIT [ITA No. 7025/Mum/2018, dt. 23-10-2020] : 2020 TaxPub(DT) 4440 (Mum.-Trib.) Satellite transponder -- Whether royalty under Indo-UK DTAA -- Land Earth Station (LES) whether a place PE -- Static vs. Ambulatory approach of reading DTAA provisions whether empower reading of IT Act amendments into DTAA unilaterally *Facts:* Assessee was a UK entity which was into leasing of space capacity navigational transponder for beaming telecommunication signals. Arising out of an agreement with Tata Communications Ltd. (TCL) (then VSNL) they had leased out their services to TCL for which payments were received by the assessee. They had a Liaison Office (LO) in India as well. As against the NIL return filed by the assessee in the scrutiny assessment the assessing officer held that the Land Earth Station (LES) which was in the control of TCL constituted a place PE for the assessee thus 30% of the receipt were attributable as income in India to the tune of Rs. 1.76 crores. On the contrary the said payments also constituted royalty under Indo-UK DTAA Article 13 thus taxable @ 10%. This was upheld by the DRP. Aggrieved the assessee went in higher appeal claiming -- 1. The liaison office/the LES did not constitute a PE in India. 2. There can be no income attributable in India in the absence of a PE. 3. Transponder fees received was not royalty either under the Indo-UK DTAA Article 13 as the treaty definition was much narrower in scope relatively to the Income Tax. 4. The rates of tax imposed by the assessing officer was inclusive of surcharge/Education cess, etc. which cannot be read into DTAA. Held in favour of the assessee that -- 1. The LO/LES did not constitute a PE. 2. No income is attributable in India. 3. Transponder fees is not royalty the IT Act definition amended definition cannot be read into DTAA unilaterally. 4. The rates of tax in the DTAA are all inclusive rates no further surcharge/cess can be topped on it. *Editorial Note:* The decision deals with a fine aspect as to whether static vs. ambulatory reading of the DTAA provisions would mean definitions of IT Act can be read into DTAA. In CIT v. Siemens Aktiongeswellschaft (2009) 310 ITR 320 (Bom) : 2009 TaxPub(DT) 1060 (Bom-HC) the high court did concur with the ambulatory reading of a DTAA that the winds of change in taxation cannot be exclusive to IT Act alone but may need to be read into DTAA which was in the realm of definitions or items which did not exist in the DTAA per se. The ambulatory reading still does not confer the right to a state to impose tax by unilaterally amending its domestic tax provisions vis-a-vis liberal DTAA provisions which cannot tax a certain subject. This fine point was also dealt in New Skies Satellite (2016) 382 ITR 114 (Del) : 2016 TaxPub(DT) 1115 (Del-HC). The existence of the LES alone cannot create a PE. It has to be borne in mind that the territory of India extends to 12 nautical miles in the Indian ocean as well. Such reading may not be possible in the aerospace domain it would only call for hair splitting exercise of what portion of the fee attributed to the strength of the signal which fell in the Indian aerospace and outside otherwise leading to unnecessary litigation. Like ships - space crafts or their owners are normally taxed in their country of residence. Then they being positioned in a tax favourable jurisdiction or the ship being in a tax neutral or zero tax country is a separate aspect of locational advantage existing across the world. Domestic tax laws cannot try to extend its taxing arm ambit beyond a certain point. A correct approach to it would be to amend DTAA or bring in anti-abuse provisions like GAAR into DTAA in some other form.

Tax Publishers

Inmarsat Global Ltd. v. Dy. CIT [ITA No. 7025/Mum/2018, dt. 23-10-2020] : 2020 TaxPub(DT) 4440 (Mum.-Trib.)

Satellite transponder -- Whether royalty under Indo-UK DTAA -- Land Earth Station (LES) whether a place PE -- Static vs. Ambulatory approach of reading DTAA provisions whether empower reading of IT Act amendments into DTAA unilaterally

Facts:

Assessee was a UK entity which was into leasing of space capacity navigational transponder for beaming telecommunication signals. Arising out of an agreement with Tata Communications Ltd. (TCL) (then VSNL) they had leased out their services to TCL for which payments were received by the assessee. They had a Liaison Office (LO) in India as well. As against the NIL return filed by the assessee in the scrutiny assessment the assessing officer held that the Land Earth Station (LES) which was in the control of TCL constituted a place PE for the assessee thus 30% of the receipt were attributable as income in India to the tune of Rs. 1.76 crores. On the contrary the said payments also constituted royalty under Indo-UK DTAA Article 13 thus taxable @ 10%. This was upheld by the DRP. Aggrieved the assessee went in higher appeal claiming --

1. The liaison office/the LES did not constitute a PE in India.

2. There can be no income attributable in India in the absence of a PE.

3. Transponder fees received was not royalty either under the Indo-UK DTAA Article 13 as the treaty definition was much narrower in scope relatively to the Income Tax.

4. The rates of tax imposed by the assessing officer was inclusive of surcharge/Education cess, etc. which cannot be read into DTAA.

Held in favour of the assessee that --

1. The LO/LES did not constitute a PE.

2. No income is attributable in India.

3. Transponder fees is not royalty the IT Act definition amended definition cannot be read into DTAA unilaterally.

4. The rates of tax in the DTAA are all inclusive rates no further surcharge/cess can be topped on it.

Editorial Note: The decision deals with a fine aspect as to whether static vs. ambulatory reading of the DTAA provisions would mean definitions of IT Act can be read into DTAA.

In CIT v. Siemens Aktiongeswellschaft (2009) 310 ITR 320 (Bom) : 2009 TaxPub(DT) 1060 (Bom-HC) the high court did concur with the ambulatory reading of a DTAA that the winds of change in taxation cannot be exclusive to IT Act alone but may need to be read into DTAA which was in the realm of definitions or items which did not exist in the DTAA per se. The ambulatory reading still does not confer the right to a state to impose tax by unilaterally amending its domestic tax provisions vis-a-vis liberal DTAA provisions which cannot tax a certain subject. This fine point was also dealt in New Skies Satellite (2016) 382 ITR 114 (Del) : 2016 TaxPub(DT) 1115 (Del-HC).

The existence of the LES alone cannot create a PE. It has to be borne in mind that the territory of India extends to 12 nautical miles in the Indian ocean as well. Such reading may not be possible in the aerospace domain it would only call for hair splitting exercise of what portion of the fee attributed to the strength of the signal which fell in the Indian aerospace and outside otherwise leading to unnecessary litigation. Like ships - space crafts or their owners are normally taxed in their country of residence. Then they being positioned in a tax favourable jurisdiction or the ship being in a tax neutral or zero tax country is a separate aspect of locational advantage existing across the world. Domestic tax laws cannot try to extend its taxing arm ambit beyond a certain point. A correct approach to it would be to amend DTAA or bring in anti-abuse provisions like GAAR into DTAA in some other form.