R.S. Syal, A.M. - (1.) THESE two appeals--one by the assessee and the other by the Revenue emanate from the order passed by the CIT(A) on 4th Dec., 2000, in relation to asst. yr. 1997-98. As both the appeals are emerging out of the same order, we are, therefore, proceeding to dispose of both these appeals by a consolidated order for the sake of convenience.
(2.) Factual Matrix Briefly stated the facts of the case, as collected from the orders of the authorities below, statement of facts and other material before us, are that the assessee-company, incorporated in and a resident of Hongkong was deriving lease income from lease of transponder capacity. It was engaged in operating telecommunication satellites located in US stationary orbit of 36,000 kms above equator in accordance with the regulatory requirements of the International Telecommunication Union under the United Nations. In the year under consideration it operated two satellites available at its disposal, namely, Asiasat-I, taken by the assessee on lease located at 105.5 degree east and Asiasat-II, owned by it located at 100.5 degree east, It is an admitted position that the satellites are used for telecommunications and broadcasting services throughout the region. The company leased out its transponder capacity to various customers listed at pp. 481 to 483 of the paper book for broadcasting and telecommunication so that their signals could be delinked to various locations. One of such agreements, copy placed at pp. 9 to 261 of the paper book, was entered into on 21st Feb., 1995, with Satellite Television Asian Region Ltd. owning TV channels like Star Plus, Star News, etc. to make available transponder capacity for a period of 12 years with the rental income from the lease of such transponder capacity starting from US dollars 27,50,000 in the utilisation period of 1995 onwards. The AO found that the geographical area within which the signals can be received (called as footprint) included India amongst other countries. It was observed that the Revenue of the TV channel companies was mainly from advertisements which originated from India. In most of the cases programmes were shot in India, recorded in India and the viewers were in India i.e., the territory of commercial exploitation was in India and, therefore, for the broadcasting/downlinking these programmes the TV channel companies approached the assessee for the lease of transponders capacity with the help of which the programmes were viewed in India. The AO also discussed as to how the programmes are shown on TV and what is the role of satellite companies in this regard by observing that the waves of the customers carrying voice and/or image are uplinked to the satellite and then these are downlinked to its footprint over India where the cable operators with the help of dish antennas receive the signals and distribute it to viewers. It was further noted that the assessee-company facilitated the transmission and broadcasting of various programmes by the channel operators to India. On being called upon to explain as to why the provisions of Section 9(1)(i) be not applied, it was submitted on behalf of the assessee that it was taxed in Hongkong and was not liable to pay any tax in India for the reason that no agreement was entered into with any company resident in India for leasing of transponder capacities on its satellites and the satellites of the assessee were also not located in the orbital slot allotted to India. It was also submitted that the lease rentals were recovered from the companies who were not resident in India and further no income was actually received in India. It was also explained that the assessee did not exercise any control over the signals of its customers uplinked by them and had no rights in the signals and as such had no business connection in India. It was further explained that in any event, the assessee did not carry out any business operations in India and hence no income could be said to have been deemed to accrue or arise in India. Not satisfied with the explanation given by the assessee, the learned AO held that the ultimate territory of commercial exploitation was in India and hence the assessee was liable to tax under Section 9(1)(i) and accordingly worked out the total taxable income of the assessee at Rs. 1,60,28,03,316 which resulted into total demand of about Rs. 200 crores. The assessee filed appeal against this order, which was attended both by the assessee and the AO. An additional argument was raised by the AO before the first appellate authority to the effect that the assessee's case was also covered under Section 9(1)(vi) and the payments received by it were in the nature of "Royalty". The learned CIT(A) accepted the assessee's contention and held that the provisions of Section 9(1)(i) were not applicable to the facts of the case. However, the AO was directed to compute the income in the light of the provisions of Section 9(1)(vi), as in the opinion of the CIT(A), it was the latter section which was rightly applicable to the facts of the case. Validity of assessment At the outset the learned counsel for the assessee did not press the validity of notice issued under Section 142(1) by the AO and the consequential assessment. Accordingly ground Nos. 2 and 3 of the assessee's appeal on this issue stand dismissed as not pressed.
(3.) OVERALL legal position Before proceeding to deal with the merits of the case vis-a-vis the legal position, it is pertinent to mention that in the year under consideration there was no tax treaty in existence governing the avoidance of double taxation between Hongkong and India. As such the issue will be decided only on the basis of the provisions of the IT Act, 1961. It is not in dispute that the assessee is not a company resident in India. Section 5(2) dealing with the scope of total income of non-residents provides that subject to the provisions of the Act, the total income of non-residents includes income from whatever source which is received or deemed to be received in India or accrues or arises or is deemed to accrue or arise to him in India. Section 9 is a deeming section which lists certain incomes which are deemed to accrue or arise in India. It is not the claim of the Department that any income was actually received or deemed to be received by the assessee in India in the present year. Nor it is the case that any income actually accrued or arose to the assessee in India. The Revenue is contemplating that the income falls under the latter part of Section 5(2)(b) namely "income deemed to accrue or arise in India". Hence we shall restrict ourselves to the applicability of Section 9(1) to the facts of the case, as is contested in the two appeals before us.;