|
|
Total Number of Subscribers: 467 |
|
|
|
||
|
|
||
|
Date:24Th December 2008 |
Compiled by Mr. M. Sathya Kumar |
|
|
|
Tax signals from a transponder
case Despite television becoming one of the main mediums for
communication and entertainment, India is still largely dependant on foreign
satellites and space technology for telecast services. It depends on
transponders which are nothing but transmitter-receivers, which receive
signals from a ground station at one frequency and retransmit the same to
another ground station at another frequency. Fixed charges India’s ISRO Satellite Centre
(ISAC) has an agreement with UK’s Immarsat
Global Ltd for leasing navigation transponder capacity for use in its
technology demonstration system. The Immersat Satellite is located at 64{+o} east and orbits
around the earth at an altitude of 36,000 km . ISRO has set up a ground
station for utilising the capacity through data commands. The data is used
for better navigational accuracy. ISRO pays a fixed annual charge regardless of the actual use of
the transponder’s capacity. The corrected
augmented data is transmitted over the entire coverage of the satellite. The question arose whether the fixed annual charge for leasing
of the transponder can be considered royalty under the Indian Income-Tax Act
and the Double Taxation Avoidance Agreement (DTAA) between India and the UK. ISRO submitted that access to the navigation transponder will
not amount to use of any equipment because ISRO will not be able to operate
the satellite or transponder by itself. Equipment belonging to IGL is not
used and, therefore, no royalty income was derived by IGL. Assuming that there was use of the equipment, it was submitted,
such use is not in Indian territory but in space. Therefore, there was no
territorial nexus for levying income-tax. Even if it is considered as
business income, tax is not leviable because IGL did not have a Permanent
Establishment (PE) in India. AAR view The Revenue contended that the exclusive capacity of the
specific transponder is kept entirely at the disposal of ISRO. The transponder
responds to the directions sent through the ground station. This is akin to
the operation of TV by remote control apparatus. The Authority for Advance Ruling (AAR) was not impressed by the
Revenue’s comparison with TV remote control device. It pointed out that
remote is an accessory to the TV and a person operates it himself. In ISRO’s case, the ground station
cannot be used to operate the transponder or satellite. The ground station is
an independent unit and not an accessory to the satellite. Only a communication/navigational link was provided through a
facility owned by IGL which was exclusively operated/controlled by it. The
operation and regulation of the transponder are always with IGL. It is a
passive transponder and ISRO does not use the equipment as such. The satellite itself is not a customised one. ISRO happened to
be one of the customers deriving the benefit of navigational transponder
capacity. IGL made available a facility out of the satellite infrastructure
it possessed. This cannot be considered as payment made for use of IGL’s equipment. Using a facility The customer merely makes use of the facility though not making
use of the equipment himself. The AAR examined the contract between ISRO and
IGL and held that no income was received by IGL answering the definition of
royalty either under the Income-Tax Act, 1961 or under the DTAA. Nor did it
represent fees for technical services. Uninterrupted access to the space segment capacity of IGL did
not amount to making available any technical knowledge, skill, experience,
knowhow or process. Once the project-related contract is over, the technical inputs
or specification furnished to ISRO by IGL will be of no use. Merely enabling
the use of services or products into which technical inputs have gone in will
not amount to ‘making available’ technical
knowledge or skills. Territorial nexus The recipient of the service must be able to absorb and apply
the technology on its own in its future activities. Unless this criterion is
satisfied, there can be no question of levying tax [307 ITR 59]. The AAR did not consider it necessary to go into the question of
territorial nexus with “India” as defined in Section
2(25A) of the Act. The decision was rendered in favour of the taxpayer on the
point of user or right to use the equipment. The AAR also ruled that no part of the business profits flowing
from the contract was attributable to a PE in India and no question of tax
deduction at source can arise. (The
author is a former Chief Commissioner of Income-Tax) |
|
|
|
|
|
|
|
|
|
|
|
||
|
|
|
|
|
|
Rewards waiting for feedback at |
|
|
|
|
|
|
|
||
|
|
|
|
|
|
Disclaimer: We believe that the information contained in this e-zine is true. If you do not wish to receive Smart Trainee please click here. |
|
|
|
||
|
|
|
|
|
|
Click here to contact us, if you are unable to view the content properly |
|
|
|
|
|
