The Hindu Business Line : Payments to PanAmSat not royalty: Tribunal

Definition clarity
The ITAT order in the PanAmSat case would be a "significant precedent" for broadcasting companies, as most other double taxation avoidance agreements (DTAAs) that India has entered into contain language similar to the Indo-US DTAA with regard to definition of royalty.

New Delhi , Aug 21

The Delhi Bench of the Income-Tax Appellate Tribunal (ITAT) has held that payments received from various TV channels by PanAmSat International Systems, a US-based satellite transmission service provider, do not constitute `royalty' or `fees for included services' under the Indo-US double taxation treaty and are not liable to tax in India.

This ITAT order would come as a relief to many channels such as Doordarshan, BBC (non-Indian and non-US), and Turner (US) that have been facing huge demands from the Revenue Department for default in tax deduction at source on what was considered to be royalty payments, said Mr O.P. Vaish, counsel for PanAmSat International Systems.

The Income-Tax Department had made assessments that the payments made by the channels to PanAmSat for relaying programmes in a broad geographical region (called the footprint of the satellite), which included India, resulted in payment of royalty.

Mr Vaish also said that the ITAT order in the PanAmSat case would be a "significant precedent" for broadcasting companies, as most other double taxation avoidance agreements (DTAAs) that India has entered into contain language similar to the Indo-US DTAA with regard to definition of royalty.

As the PanAmSat order related to the assessment year 1997-98 and demand of about Rs 30 crore, Mr Vaish said that this demand coupled with interest and penalties would have resulted in outgo of about Rs 200 crore as on date.

He also said that PanAmSat has taken this issue to the competent authority of the US under the mutual agreement procedure (MAP) of the Indo-US DTAA.

He added that PanAmSat, on account of the ITAT order, would also get relief on the bank guarantees furnished to the Tax Department from 1997-98 till date.

The Tribunal also dealt with the issue as to whether such income arises in India.

Applying the source rule, the ITAT held that as far as the US TV channels are concerned, the payments made by them to PanAmSat have arisen in the US and not in India and for that reason too, the payments made by US TV Channels to PanAmSat could not be brought to tax in India. As regards payments made by foreign TV channels that are residents of neither India nor the US, the Tribunal said that the payments did not arise in India because in terms of the provision of the treaty the services are to be performed in India if the payment can be said to have been sourced in India.

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