No tax liability for downlinking services

In what would come as major relief to foreign satellite companies, the Delhi Bench of the Income-Tax Appellate Tribunal has ruled that there would be no tax liability for downlinking services of satellite companies based in countries that have a Double Taxation Avoidance Agreement (DTAA) with India.

While it is expected to make downlinking of channels to India more attractive, broadcasters too would be spared the legal tangle of having to deduct tax at source on this account.

"The ruling has come in the case of US-based PanAmSat International Systems Inc, which provides downlinking of channels in India for broadcasters like Doordarshan, BBC, Sony, Turner, ESPN, Ten Sports, CNN and Discovery among others," said O M Vaish, counsel for PanAmSat International Systems.

India currently has DTAAs with over 60 countries. Satellite companies based in these countries would benefit from this tax exemption in India thereby luring them to take on downlinking of more channels in the country, stated a industry expert.

The issue had been under litigation since 1997-98 when it involved a sum of Rs 30 crore. "Over the last 10 years, bank guarantees worth roughly Rs 200 crore have been given by PanAmSat to the government. While setting a precedent where all foreign satellite companies would benefit, channels would be spared a substantial legal hassle," said Vaish.

The tribunal has held that fees for downlinking of television signals into India paid to Pan Am Sat, which is a tax resident of the US, would not be taxable in India, in the absence of its permanent establishment in India as per Article 7 of the Indo-US DTAA. These fees could not be taxed either as royalties or as fees for included services under Article 12 of the DTAA, the Tribunal noted.

The same had not been applied in the case of Asia Satellite Television Ltd, a tax resident of Hong Kong whose subscription fees were deemed taxable in India as royalties, as India does not have a DTAA with Hong Kong.