Nov. 6, 2009 (The Hindu Business Line) --
Men judge by the complexion of the sky the state and inclination of the day, reads a line in the Bard’s King Richard II. And in As You Like It, he offers another nugget of wisdom — that ‘men are April when they woo, December when they wed: maids are May when they are maids, but the sky changes when they are wives.’
While the genders may eternally dispute such poetic assertions, a different dispute may rage in space with the skies having changed for satellite companies, post a recent Tribunal decision on the taxability of transponder lease payments.
Sky that hangs above our heads, describes Shakespeare’s King John. “So foul a sky clears not without a storm,” he says, elsewhere in the play. And that could apply to transponders, too, as they get carried by satellites orbiting in space.
For starters, the transponder is what facilitates the transmission of a signal (for example, a television signal) from a single point on the earth (the earth station) to a wide area (the footprint) so that it can be accessed and distributed to individual viewers.
It amplifies the signal received from an earth station and retransmits it over a wide area, which is referred to as the footprint of the satellite, explains Amod Khare, a Partner in BMR Advisors, leading the Media and Entertainment practice in the firm.
Typically, a broadcaster leases capacity on a transponder under a long-term lease, and the broadcaster does not have control over either the satellite or the transponder, continues Amod, during the course of an email interaction with Business Line.
“Indian and foreign companies have been making payments to satellite companies for use of transponders in connection with their broadcasting businesses, and there has been considerable debate on the taxability of transponder lease payments.” He traces how, over the last few years, a few judgments have been issued on the taxability of such payments (Raj TV, Asiasat and Panamsat).
For instance, the Delhi Income-tax Appellate Tribunal judgment in the Asiasat case was that payments for lease of a transponder were taxable under the Indian tax law as royalties.
In the Panamsat case, the Delhi Tribunal held that such payments were not taxable under the double taxation avoidance agreement (or tax treaty) as royalties and also alluded to the fact that such payments may not be taxable under the Indian tax law.
To resolve the taxability issue of transponder lease payments, a Special Bench of the Delhi Tribunal was constituted to decide the taxability of New Skies Satellite, a Dutch company. The decision of the Special Bench, which binds all the Division Benches in India, impacts satellite companies by bringing their income to tax in India, Amod observes.
“Also, the telecasting and other companies which make payment for bandwidth charges could be now fastened with obligation of withholding tax at source.
