Mr. S. Ganesh, Sr. Advocate With Ms. Anuradha Dutt, Ms. Vijayalakshim Menon, Ms. Ekta Kapil, Mr. Anish Kapur, Mr. Kuber Dewan And Ms. Vrinda Tulshan, Advocates v. Director Of Income Tax

REPORTABLE * IN THE HIGH COURT OF DELHI AT NEW DELHI + ITA No.131 of 2003 with ITA No.134 of 2003 % Reserved On: July 07, 2010 Pronounced On: JANUARY 31, 2011 1)ITA No.131 of 2003 & CM No.2865/2009 ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. . . . Appellant through : Mr. S. Ganesh, Sr. Advocate with Ms. Anuradha Dutt, Ms. Vijayalakshim Menon, Ms. Ekta Kapil, Mr. Anish Kapur, Mr. Kuber Dewan and Ms. Vrinda Tulshan, Advocates VERSUS DIRECTOR OF INCOME TAX . . .Respondent through: Mr. Sanjeev Sabharwal, Advocate 2)ITA No.134 of 2003 DIRECTOR OF INCOME TAX . . .Respondent through: Mr. Sanjeev Sabharwal, Advocate VERSUS ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. . . . Appellant through : Mr. S. Ganesh, Sr. Advocate with Ms. Anuradha Dutta, Ms. Vijayalakshim Menon, Ms. Ekta Kapil, Mr. Anish Kapur, Mr. Kuber Dewan and Ms. Vrinda Tulshan, Advocates CORAM :- HON’BLE MR. JUSTICE A.K. SIKRI HON’BLE MS. JUSTICE REVA KHETRAPAL 1. Whether Reporters of Local newspapers may be allowed to see the Judgment? 2. To be referred to the Reporter or not? 3. Whether the Judgment should be reported in the Digest? A.K. SIKRI, J. 1.Both these appeals, one preferred by the Revenue and other by the assessee, arise out of same judgment of the Income Tax Appellate Tribunal (hereinafter referred to as ‗the Tribunal‘). In fact, as noted hereafter at the appropriate stage, some of the issues are decided by the Tribunal in favour of the assessee and some other issues against the assessee and in favour of the Revenue. It is for this reason that both feel aggrieved by some of the findings of the Tribunal and have approached this Court in the form of these appeals preferred under Section 260A of the Income Tax Act (hereinafter referred to as ‗the Act‘). ITA No.131 of 2003 filed by the assessee was admitted on the following substantial questions of law: ―(i) 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? 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? (ii) 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? case Tribunal was right in holding that the Appellant had a business connection in India through or from which it earned income? (iii) Whether on the facts and in the circumstances of the case the Tribunal was justified in holding that the amount paid to the Appellant by its customers represented income by way of royalty as the said expression is defined in Explanation 2 to Section 9(1) (vi) of the Income Tax Act? case the Tribunal was justified in holding that the amount paid to the Appellant by its customers represented income by way of royalty as the said expression is defined in Explanation 2 to Section 9(1) (vi) of the Income Tax Act? (iv) 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 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? (iv) 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 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? (v) Whether on the facts and in the circumstances of the case the Tribunal was justified in admitting the additional ground raised by the revenue seeking to assess the amounts received by the Appellant as fees for technical services in terms of Section 9(1)(vii)? case the Tribunal was justified in admitting the additional ground raised by the revenue seeking to assess the amounts received by the Appellant as fees for technical services in terms of Section 9(1)(vii)? (vi) Whether on the facts and in the circumstances of the case the Tribunal was justified in directing the Assessing Officer to allow the expenditure relatable to India only whilst computing the income chargeable to tax in India? case the Tribunal was justified in directing the Assessing Officer to allow the expenditure relatable to India only whilst computing the income chargeable to tax in India? (vii) Whether on the facts and in the circumstances of the case the Tribunal erred in holding that depreciation was admissible to the appellant only on a proportionate basis?‖ case the Tribunal erred in holding that depreciation was admissible to the appellant only on a proportionate basis?‖ 2.Likewise, in ITA 134 of 2003, the following substantial questions of law were framed for determination: ―(i) Whether the ITAT is right in law in holding that the interest under Section 234B of the Income Tax Act, 1961 should be calculated by giving benefit to the assessee of tax deductible under Section 195 by the payer though no such deduction in fact was made? interest under Section 234B of the Income Tax Act, 1961 should be calculated by giving benefit to the assessee of tax deductible under Section 195 by the payer though no such deduction in fact was made? (ii) Whether Ld. ITAT is right in law in holding that sec.9(1)(i) of the Income Tax Act, 1961 is not applicable in the case of the assessee? sec.9(1)(i) of the Income Tax Act, 1961 is not applicable in the case of the assessee? (iii) Whether the Ld. ITAT has erred in not deciding the issue whether income of the assessee is taxable u/s 9(1)(vii) of the Income Tax Act, 1961? issue whether income of the assessee is taxable u/s 9(1)(vii) of the Income Tax Act, 1961? (iv) Whether ITAT is right in holding that transponders cannot be regarded as equipment under Explanation 2 clause (iva) to section 9(1)(vi) of the Income Tax Act, 1961?‖ cannot be regarded as equipment under Explanation 2 clause (iva) to section 9(1)(vi) of the Income Tax Act, 1961?‖ 3.Though both the parties have preferred appeals and are therefore, they are appellants in their respective appeal. For the sake of convenience, M/s. Asia Satellite would be referred to as the appellant and the Director, Income Tax is referred to as the Revenue, hereinafter. 4.A glimpse of questions of law enumerated above gives a fair idea of the contours and the nature of dispute involved. However, it would still be necessary to highlight the factual premises under which the dispute has arisen. This job can be accomplished by taking stock of the factual matrix of ITA No.131 of 2003, as the similar scenario prevails in the other appeal as well. Re: Statement of Facts: 5. 3.Though both the parties have preferred appeals and are therefore, they are appellants in their respective appeal. For the sake of convenience, M/s. Asia Satellite would be referred to as the appellant and the Director, Income Tax is referred to as the Revenue, hereinafter. 4.A glimpse of questions of law enumerated above gives a fair idea of the contours and the nature of dispute involved. However, it would still be necessary to highlight the factual premises under which the dispute has arisen. This job can be accomplished by taking stock of the factual matrix of ITA No.131 of 2003, as the similar scenario prevails in the other appeal as well. Re: Statement of Facts: 5. The appellant/assessee, viz., Asia Satellite Telecommunications Co. Ltd., 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. Appeal pertains to the assessment year 1997-98 and it is also claimed that during the relevant previous assessment year, i.e., 1996-97, the assessee had no customers, who are residents of India. During the previous year, relevant to the assessment year under appeal, the appellant was the lessee of a satellite called AsiaSat 1 which was launched in April 1990 and was the owner of a satellite called AsiaSat 2 which was launched in November 1995. These satellites were launched by the appellant and were placed in a geostationary orbit in orbital slots, which initially were allotted by the International Telecommunication Union to UK, and subsequently handed over the China. These satellites neither use Indian orbital slots nor are they positioned over Indian airspace. The footprints of AsiaSat 1 and AsiaSat 2 extend over four continents, viz., Asia, Australia, Eastern Europe and Northern Africa. The footprint is that area of the earth‘s surface over which a signal relayed from the appellant‘s satellite can be received. AsiaSat 1 comprises of a South Beam and a North Beam and AsiaSat 2 comprises of the C Band and the Ku Band. The territory of India falls within the footprint of the South Beam of AsiaSat 1 and the C Band of AsiaSat 2. 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. From these facilities, the signals are beamed in space where they are received by a transponder located in the appellant‘s satellite. The transponder receives the signals and on account of the distance the signals have travelled, they are required to be amplified. The amplification is a simple electrical operation. Thereafter, the frequency on which the signals are to be downlinked is changed only in order to facilitate the transmission of signals so that there is no distortion between the signals that are being received and the signals that are being relayed from the transponder. The transponder operations are commonly known, which are carried out not only in satellite transmission but also in the case of terrestrial transmission. There is no change in the content of the signals whatsoever that is carried out by the appellant in the transponder. Thereafter, the signals leave the transponder and are relayed over the entire footprint area where they can be received by the facilities of the appellant‘s customers or their customers. 7. 9. 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. 7. 9. 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. For this reason, it is claimed by the appellant that no part of the income generated by it from the customers to whom the aforesaid services are provided was chargeable to tax in India and for this reason no return income was filed in India. However, Deputy Commissioner of Income Tax (Non-resident Circle), New Delhi as Assessing Officer issued a letter notice dated20.10.1999 under Section 142(1) stating that the assessee had entered into agreements with various companies for lease of transponders for downlinking programmes to various countries including India and therefore, income of the assessee was chargeable in India. The appellant was accordingly called upon to file its return. The assessee responded by questioning the authority of the AO and explaining as to why its income was not chargeable to tax in India. It also sought some time to file its return of income. Ultimately, the return was filed on 30.12.1999, reiterating that no income earned by the appellant was chargeable to tax in India. The AO, however, went ahead with the assessment proceedings. The assessment order dated 29.03.2000 was passed assessing the income of the assessee at `160,28,03,316. According to the AO, the appellant had a business connection in India and, therefore, was chargeable to tax in India. He rejected the appellant’s contention that its revenues ought to be apportioned having regard to the number of countries covered by the footprint. According to him, the revenues would have to be apportioned on the basis of countries targeted by the T.V. Channels who were the appellant’s customers. On this basis, he estimated that ninety percent of the appellant’s revenue was attributable to India. After arriving at the income of the appellant, he held that eighty per cent thereof was apportioned to India as most of the channels were India specific and their advertisement revenue was from India. Order of the CIT(A) Being aggrieved by the order of the AO, the appellant preferred an appeal to the CIT (A). Various grounds were urged challenging the liability to pay tax in India as well as the manner in which the AO had computed the appellant’s income chargeable to tax. The CIT (A) disposed of the appeal by an order dated 04.12.2000. He noted that there was no dispute that the appellant had not received any income in India. The only dispute, according to the CITA (A), was as to whether any income could be deemed to have accrued to the appellant in India within the meaning of Section 9 of the Act. He held that although it could be said that there was some kind of territorial nexus of the beam which was downlinked from the appellant’s satellite with India, the proprietary rights in the nature of copyright, etc. in the down linked beam did not belong to the appellant but belonged to the T.V. channels. He The CIT (A) disposed of the appeal by an order dated 04.12.2000. He noted that there was no dispute that the appellant had not received any income in India. The only dispute, according to the CITA (A), was as to whether any income could be deemed to have accrued to the appellant in India within the meaning of Section 9 of the Act. He held that although it could be said that there was some kind of territorial nexus of the beam which was downlinked from the appellant’s satellite with India, the proprietary rights in the nature of copyright, etc. in the down linked beam did not belong to the appellant but belonged to the T.V. channels. He held that there was no evidence on record to hold that the appellant had any India specific beaming facility. He found that on the basis of the facts brought on record it could not be said that the down linked beam could be restricted to any particular region or country. According to the CIT (A), it was the responsibility of the appellant to keep the equipment in good shape and to ensure the quality of the down linked beam in the footprint area in respect of a beam uplinked by the customer. He found that the telemetry, tracking and control operations were carried out from Hong Kong and that no beam was uplinked from India. His finding was that the agreements were signed outside India and the payments were also received outside India. Only the signals could be received in India but as a matter of fact these were not received in India either by the appellant or its agent but by cable TV operators who had agreements for reception of signals with the TV channels to whom the property in the signal belonged. He accordingly held that as the performance of the contract was not in India it could not be said that any income accrued to the appellant in India. He found that the circular, being Circular No.742 dated 2[nd] May, 1996, issued by the Central Board of Direct Taxes in connection with the taxation of foreign telecasting companies would have no application to the appellant’s case. He rejected the argument of the AO that the waves generated by the appellant on which the programmes were mounted penetrating Indian space to reach the footprint area. According to him, the substance of the agreement was the hiring of transponder time and it was not an agreement for carrying programmes of the customers. He further held that having regard to the judgment of the Supreme Court in the case of 20[th] Century Finance Corporation and Anr. Vs. State of Maharashtra [119 STC 182], the taxable event would have to be decided on the basis of the execution of the contract and as admittedly the contracts were entered into outside India the accrual of income would also take place outside India. Thereafter, the CIT (A) dealt with the issue as to whether the appellant would have a business connection in India. After referring to certain decisions of the Supreme Court, he concluded that the appellant did not have any agreement with any Indian company and was not rendering any service to any Indian company and, therefore, it could not be said that the appellant had a business connection in India. He also held that the appellant was not carrying out any operations in India as the only operations that were carried out by the appellant were in the satellite which was located outside India. The mere fact that the appellant had put in place a satellite in a manner that downlinked signals could be received in Indian territory also did not result in an inference that any part of the appellant‘s business operations were carried out in India. As per him, the position may have been different if it had been shown that the satellite company, the TV channels and the cable operators were interconnected or that the transactions among them were not carried out at arms length. But as there was no evidence or mention of any of these factors, he held that no income could be said to be deemed to accrue or arise in India in terms of Section 9(1)(i). 13.CIT (A) thereafter proceeded to deal with the issue as to whether the amounts received by the appellant were liable to be taxed in India in terms of Section 9(1)(vi) of the Act. Argument of the Revenue in this behalf was that the appellant received payments from some companies located outside India which companies in turn received payments from Indian companies or companies operating in India in respect of signals received in India and, therefore, the provisions of Section 9(1)(vi) would be attracted. According to the AO, the appellant would fall within the definition of royalty as the said term was defined in Explanation 2 below Section 9(1)(vi), as it was a payment for use of ―similar property‖. The CIT(A) held that the issue to be decided was whether the customers were merely using a physical asset or were they using the process installed in the transponder. According to him, the signals were uplinked by the customers and were received in the transponder. The complicated devices in the transponder segregated the programme from the beam, amplified them, mounted them on new beams of wavelengths different from the original wavelength of the customers and transmitted the programmes on the new beam in the footprint area of the beam. The payments that are made by the customers were for this purpose and not for the use of the physical asset simpliciter. The details of the operations carried in the transponder were not known to the customer, the customer made the payment because they were aware of the fact that the uplinked beam would be processed in the satellite and would be downlinked in the manner that it could be received by the customers viz., the TV channels, communication companies or their agents. The CIT (A) held that the customers were, therefore, using the secret process put in place in the transponder on the satellite and the payments were made for this purpose and not for merely the use of a physical asset. He, therefore, came to the conclusion that the amount paid to the appellant by its customers represented royalty as the said expression was defined in Explanation 2 below Section 9(1)(vi). He further held that in view of the judgment of the Supreme Court in the case of Performing Rights Society Vs. Commissioner of Income Tax [106 ITR 11), it would be apparent that the TV channels would be making the payment by way of royalty in respect of a right or information used or services utilized for the purpose of a business carried on by them in India. The TV channels which made programmes predominantly meant for Indian persons were utilizing the processing facilities of the appellant for the business carried on by them in India and hence the appellant was chargeable to tax in India. Having regard to the view that he took, viz., that the income was chargeable to tax in terms of Section 9 (1) (vi), he felt that it was not necessary to consider the question of deductibility of the expenses. Nevertheless, he thought it fit to dispose of all the grounds that were raised and were filed before him. Insofar as the claim for lease rentals is concerned, he held that 50% of the lease rentals payable for AsiaSat 1 ought to be allowed as a deduction. Similarly, the expenditure on maintenance and satellite operations was also allowed to the extent of 50% insofar as AsiaSat 1 was concerned and 75% insofar as AsisSat 2 was concerned. As Having regard to the view that he took, viz., that the income was chargeable to tax in terms of Section 9 (1) (vi), he felt that it was not necessary to consider the question of deductibility of the expenses. Nevertheless, he thought it fit to dispose of all the grounds that were raised and were filed before him. Insofar as the claim for lease rentals is concerned, he held that 50% of the lease rentals payable for AsiaSat 1 ought to be allowed as a deduction. Similarly, the expenditure on maintenance and satellite operations was also allowed to the extent of 50% insofar as AsiaSat 1 was concerned and 75% insofar as AsisSat 2 was concerned. As regards the claim for depreciation, he accepted the contention of the appellant that depreciation would have to be allowed on the actual cost of the satellite and not on a notional written down value which was computed as if depreciation had been allowed in the earlier years. However, he rejected the contention of the appellant that it was entitled to a deduction by way of depreciation on the entire cost of the asset by relying on Section 38 of the Act. He held that the C Band of AsiaSat 2 generated only 75% of the total revenues of AsiaSat 2, and therefore, 75% of the depreciation that was calculated on the actual cost ought to be allowed as a deduction. He considered the question as to what portion of the income so arrived at was to be considered chargeable to tax in India. He noted that the AO had not given any reason as to why 80% of the revenues should be attributed to India. He also noted that the appellant was located in Hong Kong and, therefore, a substantial part of its business was likely to come from clients of Chinese and Japanese origin. He rejected the appellant‘s contention that the test to be applied whilst pro-rating the income would be either the number of countries which are covered by the footprint or the Gross National Product (GDP) per capita of the countries covered by the footprint. He held that appropriate ratio to be applied would be the area of the country to the total area of the footprint with areas of large water bodies like inland lakes, seas and oceans being ignored. He also cancelled the levy of interest under Section 234B of the Act, but upheld the levy of interest under Section 234A of the Act. The Order of the Income Tax Appellate Tribunal: The Impugned Order 15. Aggrieved by the said order, both the appellant as well as the AO field appeals before the Tribunal, which appeals were consolidated and heard together and have been dispose of the appeals by a common order dated 01.11.2002. The Tribunal first addressed the issue as to whether income of the appellant was chargeable to tax in terms of Section 9(1)(i). It held that no income accrued to the appellant from any property in India or from an asset or source in India or through the transfer of a capital asset situated in India. It, however, held that the appellant could be said to have a business connection in India because according to the Tribunal, in order to constitute a business connection, the test to be applied was that there must be an activity of the non-resident in India having an intimate relationship of a business character with the business of the non-resident which contributes to the earning of the profit by the non-resident in his business. According to the Tribunal, the activity of the appellant was to amplify and relay the signals over the footprint once the signals were uplinked to the satellite by the TV channels. The Tribunal concluded that the obligation of the appellant was to make available programmes of the TV channels in India through the transponder on its satellite. The appellant could acquire the right to receive its income only if the programmes were made available in India, and therefore, the Tribunal held that the appellant would have a business connection in India. 16.The Tribunal further held that no part of the appellant‘s income was chargeable to tax in India in terms of Section 9 (1) (i) as no 16.The Tribunal further held that no part of the appellant‘s income was chargeable to tax in India in terms of Section 9 (1) (i) as no operations to earn the income were carried on in India. The Tribunal held that in order to establish that the business operations were carried out in India, it was necessary to point out that some part of the appellant‘s operations were carried out in the territory of India. The Tribunal found that the appellant had no office or agent or subsidiary in India which acted between it and the cable operators in facilitating the receipt of the signals. No machinery was installed by the appellant in India through which the programmes were reaching India. The Tribunal further found that the Department had not brought to its notice any operation which was done by the appellant in India and hence it held that the provisions of Section 9(1)(i) would have no application. The Tribunal next dealt with the question as to whether the provisions of Section 9(1)(vi) would be attracted. The Tribunal noted that the only operation conducted by the appellant was confined to receiving the signals, amplifying them and after changing the frequency, relaying them back to earth. However, the Tribunal held that the word ―used‖ in clause (iii) of Explanation 2 to Section 9(1)(vi) must be given the meaning which it has in common parlance. According to the Tribunal it was not necessary that there must be a physical connection with the item to the used. It is held that as long as the user derived advantage out of the property by amplifying the signals, it would tantamount to ―use‖ within the meaning of clause (iii). It further held that there was a physical contact of the signal of the TV channels with the process in the transponder provided by the appellant. It was only when the signals came into contact with the process in the transponder that the desired results were produced. Therefore, the Tribunal concluded that the TV channels were using transponder capacity so as to enable the cable operators to receive the programmes. The Tribunal further held that ―process‖ referred to in clause (iii) need not necessarily be a secret process as the word ―secret‖ only qualified ―formula‖. The Tribunal thereafter referred to several dictionary meanings of the word ―process‖ as well as the published material filed by the appellant and concluded that the TV channels were using the process made available by the appellant through its transponder. The function of the satellite in the transmission channel was to receive the modulated carrier that the earth station emits, to amplify it and thereafter relay it for reception at the destination earth station. According to the Tribunal, considering the role of the appellant in the light of the meaning of the term ―process‖, it became evident that the ―particular end‖ viz. viewership by public at large was achieved only through a series of steps taken by receiving the uplinked signals, amplifying them and relaying them after changing the frequency in the footprint area which would include India. As per its findings, the TV channels were not merely using the facility but were using a process as a result of which the signals after being received in the appellant‘s satellite were converted to a different frequency and after amplification were relayed to the area covered by the footprint. The Tribunal held that judgment of the Madras High Court in Skycell Communications Ltd. Vs. DCIT [251 ITR 53) relied upon by the appellant was distinguishable on facts and would not apply. The 19. 19. Tribunal thereafter considered the applicability of the decision of the Madras Bench in the case of Raj Television Network Ltd. It held that the said decision need not be followed inasmuch as the Madras Bench did not have the advantage of considering various arguments regarding process and other aspects of royalty as were urged before it. The Tribunal found that the transponder was not ―equipment‖ and hence the payment made by the TV channels to the appellant could not be regarded as one for use of equipment. The Tribunal held that the appellant had not leased out any equipment but had only made available the process that was carried out in the transponder to its customers. As regards the contention that even if the payment was to be regarded as one falling within the definition of royalty, nevertheless, as the TV channels were non residents, the income could not be brought to tax by virtue of sub-clause (c) of Section 9(1)(vi), the Tribunal held that the TV channels were using the services of the appellant for the purpose of their business, which business was being carried on in India. The Tribunal took the view that business is carried on at a place where some activity capable of producing income is carried on. The source of income of the TV channels were the Indian advertisers who made payment for advertising their products during the course of the relay of the programmes in India. The other source of revenue was the cable operators who caught the signals and distributed them to the public. According to the Tribunal, therefore, the essential activity was to make available the programmes of the TV channels in India and, therefore, they found that the TV channels would be carrying on business in India. The Tribunal also held that in any event, the source of the income of the TV channels would certainly be in India. It accepted the appellant‘s contention that the source did not refer to the persons who made the payment but referred to the activity which gave rise to the income. According to the Tribunal, it was the ultimate viewership of the programmes transmitted by the TV channels which actually produced the income and, hence, the source of income of the TV channels must be regarded to be in India. The Tribunal held that the TV channels could earn income in many forms such as receipts from advertisers or from cable operators. The possibility of a channel not earning income from any source in India also could not be ruled out and in such an eventuality, the lease rentals earned by the appellant from such TV channels could not be assessed to tax in India under Section 9 (1)(vi). On this premise, the AO was been directed to determine the income chargeable to tax after giving an adequate opportunity of being heard to the appellant. The Tribunal, thereafter, considered whether it would be open to the Revenue to raise an additional ground to urge that the amount received would be chargeable to tax under Section 9(1)(vii) as a fee for technical service. The Tribunal held that it would be open to either party viz., an assessee or the revenue to raise a legal ground before the Tribunal for the first time and if the ground is only a legal ground which does not require consideration of any fresh facts, it was not only the right of the parties but the duty of the Tribunal to admit the ground. According to the Tribunal, all the facts necessary for adjudication of the issues as to whether the amount received was chargeable to tax under Section 9(1)(vii) were available on record and hence they considered it appropriate to admit the additional ground. However, having admitted the additional ground, the Tribunal felt that it was not necessary to deal with the same inasmuch as it had already upheld the contention that the amount was chargeable to tax in terms of Section 9 (1)(vi). the amount received was chargeable to tax under Section 9(1)(vii) were available on record and hence they considered it appropriate to admit the additional ground. However, having admitted the additional ground, the Tribunal felt that it was not necessary to deal with the same inasmuch as it had already upheld the contention that the amount was chargeable to tax in terms of Section 9 (1)(vi). The Tribunal, thereafter, proceeded to consider the manner of computation of the income. The Tribunal held that the provisions of Section 44D would be inapplicable and hence the appellant would be entitled to a deduction of the expenditure incurred by it. The Tribunal held that the income received by the appellant would be chargeable to tax under the head ―Profits and gains of business or profession‖. Therefore, the Tribunal held that the computation would have to be made in accordance with Chapter IV D. The Tribunal stated that if the starting point of the computation of the total income was only the revenue relatable to India, then, only the proportionate expenses relating to India should have been deducted rather than deducting the expenses in total from the net revenue relatable to India and thereafter apportioning the net income of the South Beam and C Band to India. The Tribunal, therefore, set aside the computation and directed that it would be done de novo by the AO. The computation to be done would involve two steps. First, the AO would have to calculate the gross receipts relatable to India and thereafter deduct therefrom the expenses in relation to income attributable to India. 22.Having said so, the Tribunal then dealt with the question as to what was the depreciation that would be allowed to the appellant. The Tribunal held that there was a difference between income which was exempt from income-tax and income which was outside the scope of the charging provision. The Tribunal held that depreciation allowable to the appellant had to be apportioned. However, the Tribunal accepted the contention of the appellant that the depreciation would be allowable on the actual cost and not on the written down value calculated on the basis of a notional allowance of depreciation. The Tribunal also upheld the contention of the appellant that the provisions of Section 44C would not be attracted and hence the disallowing provisions thereof would be inapplicable. As regards the levy of interest under Sections 234A and 234B was concerned, the Tribunal held that the appellant would be liable to pay interest under Section 234A. However, with regard to levy of interest under Section 234B, the Tribunal held that if the receipt of income by the appellant was of such a nature on which tax was deductible, then, the appellant would not be obliged to pay advance tax and consequently there would be no liability to interest. It, therefore, directed the AO to examine whether the amount of tax deductible by the TV channels by virtue of the provisions of Section 195 was equal to or more than the tax payable by the appellant, and if so, then no liability to pay interest under Section 234B would arise. If however, the tax deductible was less than the tax payable by the appellant, the difference would be considered for the purpose of levy of interest under Section 234B. 24. Relevant Statutory Provisions: Chapter II of the Income Tax Act under the caption ―Basis of Charge‖ enumerates various provisions on the basis on which income of a person is exigible to tax in India. Section 4 is the charging Section. Section 5 delineates the ‗scope of total income‘. Sub-section (1) thereof deals with total income earned by a resident with which we are not concerned in the instant case, as the appellant is admittedly a non-resident. It is the sub-section (2), which is relevant for a non-resident, which reads as under: “Section 5(2) (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which – 24. Relevant Statutory Provisions: Chapter II of the Income Tax Act under the caption ―Basis of Charge‖ enumerates various provisions on the basis on which income of a person is exigible to tax in India. Section 4 is the charging Section. Section 5 delineates the ‗scope of total income‘. Sub-section (1) thereof deals with total income earned by a resident with which we are not concerned in the instant case, as the appellant is admittedly a non-resident. It is the sub-section (2), which is relevant for a non-resident, which reads as under: “Section 5(2) (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which – (a) Is received or is deemed to be received in India in such year by or on behalf of such person; or year by or on behalf of such person; or (b) Accrues or arises or is deemed to accrue or arise to him in India during such year. him in India during such year. Explanation 1 : Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2 : For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.‖ 25.It is clear from the reading of the aforesaid provision that a non- resident is liable to pay tax on the income derived by him, which is received or deemed to be received in India or which accrues or arises or is deemed to accrue or arise in India during the relevant year. Thus, a non-resident is under an obligation to pay tax in respect of income generated/earned by him in India. Section 9 of the Act lays down the various circumstances under which income would be deemed to accrue or arise in India. We are concerned herewith Clause (i), (vi) and (vii) therefore, we are extracting below only those portions of this provision and omitting other portions of this lengthy Section: “Section 9 (1) The following incomes shall be deemed to accrue or arise in India :- (i) All income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India; Explanation [1] : For the purposes of this clause - (a) In the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India; ……………. (vi) income by way of royaltypayable by— (a)the Government ; or (b)a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (vi) income by way of royaltypayable by— (a)the Government ; or (b)a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c)a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : Provided that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum consideration for the transfer outside India of, or the imparting of information outside India in respect of, any data, documentation, drawing or specification relating to any patent, invention, model, design, secret formula or process or trade mark or similar property, if such income is payable in pursuance of an agreement made before the 1st day of April, 1976, and the agreement is approved by the Central Government : Provided further that nothing contained in this clause shall apply in relation to so much of the income by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of a licence) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India. (iii) The use of any patent, invention, model, design, secret formula or process or trade mark or similar property; (vi) The rendering of any services in connection with the activities referred to in sub-clauses (i) to (v); (vii) Income by way of fees for technical services payable by - (a) The Government; or (b) A person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) A person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.‖ RE: Areas of Controversy: (b) A person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) A person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.‖ RE: Areas of Contr