TS-365-ITAT-2016 (CHNY) Intelsat Global Sales and Marketing Ltd A.Ys.: 2002-03 to 2012-13, Date of order: 1 July, 2016

Facts
The Taxpayer, a company incorporated in UK, was providing satellite capacity and related services to telecasting/telecom companies in India (“Indian customers”). Indian customers uplinked data/signals to satellite of the Taxpayer. These were processed through the transponder in the satellite and retransmitted to earth stations, which were owned by Indian customers. A group company of the Taxpayer in India had installed testing and monitoring equipment in India to ascertain quality of the signals received in India.

According to the taxpayer, the function of equipment was only to monitor the signals and since the earth stations were owned by the Indian customers, it had not rendered any service or carried on any business in India. Further, as per Article 5 of India-UK DTAA , it did not have a Permanent Establishment (PE) in India. It also contended that tax authority could tax only such portion of income which could be attributable to operations carried out in India. Also, the fact that a UK company controls a group company in India would not, by itself, constitute PE of the UK Company in India. The Taxpayer relied on various decisions to contend that the payments received by it were not royalties and since the services provided were standard services, they were also not Fee for Technical Service (FTS).

Held
If Taxpayer was maintaining a satellite in orbit and Indian customers were uploading data/signals, which were retransmitted to India to earth stations owned by Indian customers, the Taxpayer may not be rendering any service in India.

However, the Taxpayer was also maintaining testing equipment in India because the Taxpayer was under obligation to maintain the quality of the signals.

Even though the equipment was maintained by group company of the Taxpayer, it was for testing the signal transmitted by the Taxpayer. Hence, the Taxpayer should be construed as rendering services in India.

As the Taxpayer claims to have dismantled the equipment, and since it was under obligation to maintain quality of signals, it should be examined how taxpayer tested and maintained quality of signals after dismantling the equipment and also certain other technical aspects. Therefore, the assessment was set aside and matter remanded to AO.