Delhi High Court: No income deemed to accrue or arise in India from foreign operated satellites

Asia Satellite Communications Co. Ltd v. Director of Income Tax, on 31^st January, 2011

ITA No.131 of 2003 with ITA No.134 of 2003

Assessment Year: 1997-98

Question/s before the Hon’ble Court The questions before the court, inter alia, were:

“Whether on the facts and in the circumstances of the case, the Tribunal was right in law in holding that the amounts received by the Appellant (a non-resident) from its non-resident customers for availing transponder capacity was chargeable to tax in India where the satellite was not stationed over Indian airspace and in directing how much income is to be determined?

Whether on the facts and in the circumstances of the case Tribunal was right in holding that the Appellant had a business connection in India through or from which it earned income?

Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the customers of the Appellant were either carrying on business in India or had a source of income in India and, hence, the amount received by the Appellant from its customers were chargeable to tax in India?”

Relevant facts: The assessee is a company incorporated in Hong Kong and carries on business of private satellite communications and broadcasting facilities. This company was formed in 1988 and it claims that it had no office in India. It enters into an agreement with TV channels, communication companies or other companies who desire to utilize the transponder capacity available on the appellant‘s satellite to relay their signals. The customers have their own relaying facilities, which are not situated in India.

It is the case of the assessee that it has no role whatsoever to play either in the uplinking activity or in the receiving activity. Its role is confined in space where the transponder which it makes available to its customers performs a function which it is designed to perform. The only activity that is performed by the appellant on earth is the telemetry, tracking and control of the satellite. This is carried out from a control centre at Hong Kong.

Upholding the appeal of the assessee, the Hon’ble Court that:

Para 32, 33, 34: “It, thus, clearly follows that carrying out the operations in India, wholly or at least partly, is sine qua non of the application of Clause (i) of sub-section (1) of Section 9 of the Act…The process of amplifying and relaying the programmes is performed in the satellite which is not situated in the Indian airspace. Even the Tracking, Telemetering and Control (TTC) operations are also performed outside Indian in Hong Kong. No man, material or machinery or any combination thereof is used by the appellant in the Indian territory. There is no contract or agreement between the appellant either with cable operators or viewers for reception of signals in India… We, thus, hold that Section 9(1)(i) is not attracted in the present case.”

Para 72, 73, 79: “Thus, the income which is generated in India has been duly subjected to tax in India. It is the payment which is made by the telecast operators who are situated abroad to the appellant which is also a non-resident, i.e., sought to be brought within the tax net…For the aforesaid reasons, it is difficult to accept such far-fetched reasoning with no causal connection… For the aforesaid reasons, we are unable to subscribe to the view taken by the Tribunal in the impugned judgment on the interpretation of Section 9(1) (vi) of the Act.”

The decision is available here.