Background :-Conflicting decisions of the Income-tax Appellate Tribunal (the Tribunal) concerning similar payments in the case of Asia Satellite Telecommunications Co. Ltd. v. DCIT [2003] 85 ITD 478 (Delhi ITAT) and DCIT v. Pan AmSat International Systems Inc. [2006] 9 SOT 100 (Delhi ITAT) led to the constitution of the Special Bench of the Delhi Tribunal. It was held that payments made by telecasting companies to satellite companies for telecommunication or broadcasting constitutes royalty under provisions of the Income-tax Act, 1961 (‘the Act’) as well as various tax treaties.
Issues before the Special Bench
- Whether the services rendered by the taxpayers through their satellites for telecommunication or broadcasting amount to ‘process’?
- Whether the term ‘secret’ appearing in the phrase ‘secret formula or process’ in Explanation 2 to Section 9(1)(vi) and in the relevant article of the tax treaties qualify the word ‘process’ also?
- If the term ‘secret’ qualifies the word ‘process’ also, whether the services rendered through secret process only will be covered within the meaning of royalty?
- Whether the payment received by the taxpayers amounts to ‘royalty’ and if so, whether the same is liable to tax under Section 9(1)(vi) of the Act read with relevant provisions of tax treaty as applicable?
Taxpayer’s Contentions :- Detailed submissions were filed by all 3 taxpayers, summary of which are provided below:
New Skies Satellites
