Can further income be taxed in the hands of foreign enterprise when the correct arm's length price is applied and paid - Held No
If admittedly Taj India is being remunerated at arm's length, then, no further income/profit can be said to be attributable to the assessee in India from PE. It is an undisputed fact that the TPO has accepted the transaction between the assessee and Taj India at an arm‟s length price. If the arm's length price of the transaction has been accepted, between the assessee and Taj India, then nothing further should be attributable to the assessee which is to be taxed in India
1. Grounds of Appeal
Ground -1 : On the facts and in circumstances of the case, the Additional Director of Income Tax (International Taxation) Range-2 [hereinafter referred to as learned ADIT] has erred in law and in facts in concluding that Taz TV Ltd. („Taz‟) has income chargeable to tax in India on the ground that it has Permanent Establishment in India and other relevant aspects specified in the assessment order.” Without prejudice to above, on the facts and in circumstances of the case, the ADIT has erred in law and in facts in concluding that Taz TV Ltd. („Taz‟) has the income chargeable to tax in India without rebutting the fact that it has remunerated its agent in India at the arms length consideration.”
Ground -2 : On the facts and in the circumstances of the case, the learned ADIT has erred in law and in facts in holding that the payments by Taz to various non-residents, towards programming fees of US $ 1,46,31,363 for acquiring telecasting rights, are royalty in nature as defined under Explanation 2 to section 9 (1) (vi) of the Act and as such income deemed to accrue or arise in India. Accordingly, the learned ADIT erred in disallowing said expenses under section 40 (a) (i) of the Act on account of non-deduction of tax under section 195 of the Act.
Ground -3 : On the facts and in the circumstances of the case, the learned ADIT has erred in law and in facts in holding that the payments made by Tax to various non-residents towards transponder fees of US $ 219,913 and Uplinking charges US $ 595.073 are in the nature of royalty as defined under Explanation 2 to section 9(1) (vi) of the Act and such income deemed to accrue or arise in India. Accordingly, the learned ADIT erred in disallowing said expenses under section 40(a) (i) of the Act on account of non-deduction of tax under section 195 of the Act. Each of the grounds of Appeal is independent and without prejudice to each other. Your appellants crave to leave, add, alter or modify any of the above grounds of appeal before or at the time of hearing in the matter.”
2. Assessee company, that is, Taj T V Limited‟ was registered under the laws of Mauritius and is a tax resident of Mauritius since 12th July, 2002. Prior to that, it was registered as a company in British Virgin Islands in the year 2000
3. It is engaged in the business of broadcasting of sports channel namely, „Ten Sports‟ all across the globe including India
4. Since it did not had any branch or business premises in India, therefore, it had formed a subsidiary, „Taj Television India Private Limited‟ (Taj India) as its advertising sales agent to sell commercial advertisement slot to prospective advertisers and other parties in India, in connection with the business of programming and telecasting sports events and programs on Ten Sports Channel
5. The “Advertising Sales Agency Agreement” between the assessee and Taj TV (India) was entered into on 04-05-2002, and it was also appointed as exclusive distributor of the TV Channel “Ten Sports”, vide agreement dated 20-10-2005 for distributing it to the cable operators and other permitted systems. It has been stated that the said agreements have been entered into on „principal to principal basis‟. For acting as a distributor Taj India is entitled to 25% share of the total distribution revenue collected by it. Taj India entered into sub-distribution agreement independently with other parties in India under which it shares the distribution revenue with such sub-distributors. For the assessment year 2006-07, the assessee filed its return of income declaring „NIL‟ income on the ground that advertisement and distribution revenue earned by it, is not taxable in India. Without prejudice to the said claim, it was stated that the assessee company had prepared books of account pertaining to its Indian Operation and got them audited u/s 44AB. As per the profit & loss account, there was a profit of US $ 6529102
6. During the course of assessment proceedings, the AO rejected the assessee‟s claim and assessed the income for the year under consideration at Rs.48,22,36,506/- which has been done after detailed reasoning, the sum and substance of his reasoning are summarized as under:-
(i) In relation to advertising income, he held that Taj India is a Dependent Agent of the assessee, therefore, the assessee has a PE in India within the meaning of Article -5(4) of India – Mauritius DTAA.
(ii) Regarding distribution income, the A O held that distribution agreement involves full/partial transfer of distribution rights and granting of license in respect of trademark, copyright, secret formula or process etc. including films and video tapes. The said agreement involves the use of /right to use the copyright, trademark, etc. owned by the company. The assessee is providing service through Taj India and Taj India could not have rendered any service to the subscribers/cable operators without the trademark, copyright etc. transferred to it by the assessee.
(iii) The AO disallowed the Programming cost paid to various cricket boards and other sports association for acquiring live telecast rights in respect of events taking place outside India under section 40(a) (i) of the Act as no tax was deducted at source as according to him, such payments are in the nature of „Royalty‟ in respect of such events.
(iv) The AO also disallowed the Transponder fees of $ 2,19,913 paid to PanAmSat International System Inc. for rendering services through Satellite located outside India, in telecasting the sports channel namely „Ten Sports‟ to various countries under section 40(a) (i) of the Act as no tax was deducted at source from such payment as according to him, it is in the nature of „Royalty‟ and falls under clause (iva) of Explanation -2 to Section 9(1) (vi) of the Act.
(v) The A O also disallowed the Up-linking charges of $ 5,95,973 paid to PanAmSat and various other non-residents for rendering services in the form of up linking the signal in respect of live events, taking place outside India, from the venue of the event to the satellite under section 40(a) (i) of the Act as no tax was deducted at source from such payment as according to him, it is in the nature of „Royalty‟ and falls under clause (iva) of Explanation -2 to Section 9(1) (vi).
7. The DRP, by and large updated the order of the A O and restricted 75% of the assessable profits arising from Indian operation to be attributable for the functions performed by the „independent agent PE‟ in India which has been held liable for taxable in India.
8. Honb. Tribunal decided in Assessee's Favour
Learned Sr. Counsel, Shri Percy Pardiwala submitted that in assessee‟s own case for the assessment years 2003-04 to 2005-06, the Tribunal held that so far as the income from „distribution activities, is concerned, Taj India does not constitute assessee‟s PE in India. However, he submitted that even if, it is presumed that Taj India is a PE of the assessee in India, then also, no income can be said to be attributable to India, because the assessee has remunerated its so-called agent (Taj India) in India at „arm‟s length‟ consideration. After referring to the transfer pricing order of the TPO for the current assessment year to whom international transaction between the assessee and Taj India was referred to included advertisement and distribution income, which has been found to be at arm‟s length. The copy of the TPO‟s order in the case of the assessee as well as Taj India has been filed before us in support. Once, the payment to Taj India has been accepted to be at arm‟s length, therefore, there cannot be any question of distribution of any further income at the hands of the assessee on account of the alleged/presumed PE in India.
Learned CITDR, on the issue of no further attribution of income in the hands of the assessee because the transaction between the assessee and the PE has been found to be at arm‟s length, he relied upon the decision of NGC Network Asia Alc. Vs JCIT  175 TTJ 403. He has also strongly relied upon the relevant findings of the AO and the directions given by the DRP
We have considered the rival submissions, perused the relevant findings in the impugned order, specifically in the context of arguments placed before us. From a perusal of the Tribunal order for the earlier years (supra), we find that so far as the issue relating to PE regarding “distribution revenue/income is concerned, “which was raked up in Revenue‟s appeal, it has been held that Taz India does not constitute “agency PE” in terms of India Mauritius DTAA. However, on the issue of “advertisement revenue/income” the finding was left open, because that issue was in assessee‟s appeal and the assessee‟s appeal was dismissed on the ground of limitation. Before us, only limited point which has been argued before us is that, even if for the argument sake, it is presumed that Taj India constitutes a PE of the assessee in India, then no further income can be attributed in the hands of the assessee, because the transaction between the assessee and Taj India has been found to be at arm‟s length and in support the TPO‟s order u/s 92CA (3) dated 30-09-2009 has been filed in the case of Taj TV India Pvt. Ltd. as well as Taj TV Ltd. (India Operation).
Thus, if admittedly Taj India is being remunerated at arm‟s length, then, no further income/profit can be said to be attributable to the assessee in India from PE. It is an undisputed fact that the TPO has accepted the transaction between the assessee and Taj India at an arm‟s length price. Hence, respectfully following the law laid down by the Hon‟ble Apex Court and followed by the Hon‟ble jurisdictional High Court, we also hold that if the arm‟s length price of the transaction has been accepted, between the assessee and Taj India, then nothing further should be attributable to the assessee which is to be taxed in India. Thus, on this reasoning we allow the assessee‟s ground No.1.
Cases Referred to
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