By Geeta Jani, Dhishat B. Mehta, Chartered Accountants
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Part C — International Tax Decisions
5 ISRO Satellite Centre, In re
(2008) 220 CTR 13 (AAR)
S. 9(1)(vi), S. 90 of IT Act;
Article 13 of India-UK DTAA
Dated : 22-10-2008
Issue :
Income of a foreign company towards satellite navigation and
transponder capacity lease is not royalty for equipment hire.
Facts :
ISRO, the applicant, a part of the Department of Space,
Government of India, jointly with Airport Authority of India, was implementing
GAGAN Project (a satellite-based augmentation system) to provide seamless
navigation and tracking facility for civil aviation in India. For this purpose,
it entered into a contract with M/s. Inmarsat Global Ltd., UK (‘IGL’) for
availing of ‘Navigation Transponder Capacity’ for its GAGAN project.
As per the contract, the applicant had taken on lease the
space segment capacity which was utilised through data commands sent from the
ground station set-up by the applicant in India. The transponders for navigation
purposes were meant to dispatch satellite-based augmentation system signals in
space on specified frequencies which were accessed for GAGAN project. The
corrected or augmented data sent from the land station, and transmitted by the
said transponder over the footprint area of the satellite was to be used for
better tracking of planes. The applicant paid a fixed annual charge to IGL,
regardless of the actual use of the transponder capacity.
The issue before the AAR was whether the payment by ISRO to
IGL was royalty having regard to the provisions of the IT Act and the India-UK
DTAA, so as to be subject to tax withholding obligation u/s.195 of the IT Act.
The applicant submitted that the access to navigation
transponder did not amount to use of equipment as the applicant was not able to
operate or control the satellite or transponder. The applicant contended that
even if it was assumed that there was use of equipment, such use was not within
the Indian territory, but it was in space. The amount represented business
income and as there was no permanent establishment of IGL in India, the payment
was not exigible to tax in India.
The Revenue authorities contended that the exclusive capacity
of specific transponder was kept entirely at the applicant’s disposal. The
Revenue also contended that the transponder was under control of the applicant
and can be regarded as operated by applicant, as the transponder was responding
to the directions sent through the ground station of the applicant. Such
directions were held to be akin to operation of TV by remote control. The amount
was therefore claimed to be chargeable as royalty income.
Held :
The AAR accepted the applicant’s claim that the payment was
not royalty for equipment user. It held :
(i) Mere earmarking a space segment capacity of the
transponder for use by the applicant did not enable the applicant to get
possession (actual or constructive) or control of the equipment of IGL.
(ii) The applicant did not use or operate any equipment of
IGL.
(iii) The expression ‘use of space segment’ of transponder
had no reference to any operations performed by the applicant by means of the
transponder capacity.
(iv) The substance of the contract was the ‘facility’
provided to the applicant for the utilisation of space segment capacity of the
transponder for transmitting the augmented data by availing use of
bandwidth/connectivity capacity provided by IGL by using equipment. Such
facility was provided by IGL to the applicant and other customers also.
(v) The analogy of TV operations by means of a remote
control was inappropriate, since the ground station was an independent unit
and not an accessory to the satellite.
(vi) The recent ruling of the AAR in the case of Dell
International Services (P) Ltd., (2008) 218 ITR 209 was relied upon to support
that there was availment of standard service provided by the service provider.
(vii) Even though IGL was alleged to have its regional
office in India, no part of the receipts from the applicant could be said to
be attributable to any PE in India and hence, they were not exigible to tax in
India.
