TMI Blog2011 (9) TMI 807X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, under the DTAA also, the character of income arising to assessee from operation and maintenance of the services rendered in respect of production and generation of live television signal was in the nature of fee for technical services Whether assessee has a Permanent Establishment in India? - Held that:- Assessee had no fixed place or service PE in India on grounds that firstly, contract was signed by the assessee at Singapore and all the activities relating to this contract were carried out from Singapore. Secondly, affairs of the assessee company were wholly carried out at Singapore. Thirdly, assessee has led some sufficient evidence to establish the fact that the TV crew did not stay for more than 10 days in each year. Residence of two non-residents directors in India will not make the company a resident in India as held in the case of Radha Rani Holdings (P) Ltd. Estimate of days made by the AO is not made based on the record or information but on the basis of certain news items and e-mails which, do not give an objective picture of the actual days of the stay of the employees. Thus uphold the assessee's contention that it had no PE in India during these years. Rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. 4. The ld. CIT(A) has erred on facts and in law in upholding that the assessee had a permanent establishment in India. 5. The ld. CIT(A) has erred on facts and in law by upholding the action of the AO in treating the gross receipts of ₹ 5,26,26,383/- from Prasar Bharti, as fee for technical services and imposing the tax of 20% (Rs.1,05,25,276/-) on such receipts. AY Gross Receipts Tax 2003-04 7,64,27,368/- 1,52,85,474/- 2004-05 7,01,68,520/- 1,40,68,520/- 6. The ld. CIT(A) has erred on facts and in law in not treating the receipts from Prasar Bharti as business income being purely commercial receipts, not liable to tax in India in the absence of any PE. 7. The ld. CIT(A) erred on facts and in law in confirming the estimate of income of ₹ 80,32,331/- in respect of amount received by the assessee in Singapore from Indian parties towards services rendered outside India and applying the rate of tax at 48% thereon. AY Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... meeting PB's specifications and which were of a quality acceptable to international broadcasters for coverage of international cricket events. The list of services provided by the company has been furnished in detail in its agreement with Prasar Bharti. 5. Assessee company claims that it was incorporated in Singapore and was resident in Singapore for tax purposes and was wholly managed and controlled from Singapore and did not have any PE in India within the meaning of Article-5 of India-Singapore Tax Treaty, it filed its returns of income for A.Ys. 2002-03 and 2003-04 on 21.11.2003 in Mumbai with Dy. Director of Income-tax (International Taxation)-2(2), Mumbai, which the Company honestly believed had jurisdiction over the assessee company, and which jurisdiction was accepted by the AO as per order u/s 197 of the Income-tax Act, 1961 dated 11.02.2002 regarding tax deduction at source, passed by the Asst. Director of Income-tax (International Taxation)-2(2), Mumbai. The return of income for A.Y. 2004-05 was filed on 28.10.2004 also with the Dy. Director of Income-tax (International Taxation)-2(1), Mumbai declaring nil income. 6. The AO did not agree with the submissions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 470/PB ) ( vii ) Agreement dated 11.02.2002 with PB signed by NSI at Singapore-The Chairman, Mr. Seamus O'Brien and the witness, his Secretary, at Singapore. ( viii ) Bank Guarantee dated 05-04-02 signed by Mr. Seamus O'Brien at UK (pp.78-81/PB) ( ix ) Assembly of technicians from different countries and their total stay in India in hotels at different places of cricket matches, in each of the three years under consideration was of less than 90 days in each year as per the following details:- AY Period of stay No. of days. 2002-03 16-02-02 to 21-03- 02 34 days 2003-04 03-10-02 to 27-11-02 56 days 2004-05 3-10-03 to 21-11-03 29 days Total :- 119 days ( x ) Details of the cricket matches played in India:- Dates Tournaments Venue Tests ODI Match days Feb/Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany. With regard to step No 4, some assistance is attributable to by Shri Digvijay Singh CEO and Seamus O Brian. 13. There was absolutely no evidence that steps 1 to 4 were performed in India. The assessee was found to be the lowest tenderer through international competitive bidding, the contract was, therefore, awarded to it. Except for some routine post tendering exchange of information and clarifications to PB, Mr. Venu Nair, Director of the company did not render any service. It has been loosely mentioned as 'negotiations' in one of the communications by PB on which assessee has no control. All the pre and post tendering activities were performed from Singapore. The action of Mr Venu Nair is clearly to be excluded from the scope of PE under Article 5(8) (a) of the DTAA as all pre-tendering and post-tendering activities were performed from Singapore. Shri Nair had no authority of the company to sign the contract nor was he regularly acting on behalf of the assessee. In any case, the agreement was entered into on 12-02-2002 which in any case involves less than 90 days of furnishing of services in the fiscal year 2002-03; No PE could be attributed on this reasoning ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... performed and by the two Indian directors of the company. 18. To summarize, all the activities were organized and controlled from Singapore as under :- ( i ) Pre qualification bid submitted from Singapore against worldwide tender enquiry of PB. ( ii ) Agreement with Prasar Bharati was signed by the Chairman of the assessee company in Singapore Seamus O'Brien. ( iii ) Prasar Bharati made all correspondence at Singapore. ( iv ) Declaration cum Indemnity furnished from London. ( v ) Copy of Income Tax Return filed shows Singapore address on the PAN CARD. ( vi ) The Assessee Company has been managed and controlled from Singapore. ( vii ) Detailed working of No. of days stay of directors and crew members in India. ( viii ) All correspondence is at Singapore Address. So much so, PB promised to send its agreement with BCCI by courier to Singapore. (page 453 of PB's latter dated 07.02.2002 to Mr. David Mallinson, Group Counsel at Singapore) ( ix ) The equipment, cameras etc mentioned in para 7.3.3 of CIT(A)'s order is standard equipment and does not involve making available of any technology nor is it a relevant consideration for determining the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se fixed places were at the disposal of the Co-Chairman and Director of assessee company. The two directors also resided in India. Assessee's explanation ( i ) There was no fixed place of business at Mumbai from where the assessee carried out its business activities. Looking to the nature of the assessee's business no such place was required. Services for producing the desired TV feed were rendered from the cricket ground and not any other premises including Mr. Thawani and Mr. Nair. The pre-contract bidding document was prepared and submitted from Singapore, signing of contract also took place from Singapore and only a postal address in India cannot constitute existence of PE. ( ii ) All important decisions to negotiate and conclude the agreement with Prasar Bharti were taken by the Board of Directors of assessee at Singapore. The management and control was vested in the Board of Directors, except for one meeting, all the Board meetings, during the period 2002-04 were held outside India. Details of all the Board meetings for the A.Ys. 2002-03 to 2004-05 have already been furnished at p.212/PB. III. Residence of the Directors and the domestic law - Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not make the company a resident of India. In that case also the company was registered in Singapore and one of the two directors was a permanent resident of India. It is the situs of the Board of Directors which exercises control and perform management functions that is the relevant consideration. IV. Observations- Service PE- the duration test. 25. According to CIT(A), the technical services were rendered by various persons like Co-Chairman, technical crew, TV crew, programmer and engineers of PB and other supporting staff which started with initial Step-1- ascertaining the technical requirements i.e. October, 2001 whereas assessee had erroneously determined 90 days duration test by taking into account the stay period of TV crew only and had not taken into account the stay of Chairman, director of assessee company, programmers and engineers of PB and other technical manpower. Taking support from certain observations from the Commentary on PE by Mr. Arvind A Skaar in the context of Construction PE, (para 7-3.12), lower authorities worked out the total duration and since it comes to more that 90 days in each of the three years, it has been held that the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of Board of Directors whose meetings were held outside India except one on 02.04.2002 at Mumbai. The details of the Board meetings are given on pg. 212/PB. The Ld. CIT(A) has taken into consideration the stay of programmers and engineers of Prasar Bharti in determining the PE which is totally incorrect. These persons are not employees of the assessee company and under the contract; their services were not at all to be provided by the assessee Company. They may have been present during the days of matches to supervise the production of live television signals. By no stretch of imagination their stay in India can be included for determining the PE of the assessee Company. The names of technical personnel were furnished to the Ld. CIT(A) and their names and period of stay were duly furnished before the AO and have been reproduced in the assessment order for A.Y. 2002-03. (pp. 5-6) They were also furnished to the Ld. CIT(A) and are available at pp. 111-112/PB for A.Y. 2002-03 and on pp. 131-132/PB for A.Y. 2003-04. The stay of the TV crew and other technical personnel including Mr. Seamus O'Brien Chairman and Mr. Digvijay Singh, CFO sent to India for the production of TV feed and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rival and departure of the crew and other technical personnel required for furnishing the services under the contract. The relevant dates have been produced in the order of the CIT(A) itself on page 34 of his order. As against the duration of the matches for the three years of 57 days, [15 + 32 + 10] the period of stay of the crew is 119 days [34 + 56+ 29] (ii) Addition of 20 days for stay of technical crew- due to their alleged advance visit. 30. On the basis of a newspaper report as appeared in the daily newspaper, The Telegraph , Calcutta on 18.10.2002 the CIT(A) concluded that in order to produce and generate a live television signal, the assessee company had sent its technical personnel, Mr. Joe Lopez 20 days in advance from the date of the match to inspect the stadium, to identify the location of the installation of the equipment, to study pitch condition and for other technical discussions with Bihar Cricket Association. He has therefore increased the duration span by 20 days in all the three years and added them to the stay of the crew to make additional stay of 54, 78 and 69 days in the AYs 2002-03. 2003-04 and 2004-05 respectively. Assessee's explanatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sit of O, Seamus Brien synchronized with the visit of the crew and holding of matches. In any case, wherever applicable, they have been taken into consideration as per calculations on pp. 212A to 212C/PB. No further addition in the number of days is called for. (iv) Counting of 365 days for each of the three years of the programmers and engineers of the PB for cricket matches held for a few days: 34. The above addition in the number of days made by the Ld CIT(A) is also without any basis. All technical details, including final placement plan of cameras (p. 454/PB) were finalized before 07.02.2002 when a revised agreement was signed (pp. 453-469/PB). There is no such requirement under the contract with Prasar Bharti to provide any of the programmers or engineers. At worst, even if we presume that some persons were from PB, their services to NSI would only be for the duration of the matches and not before and after. No separate addition to the number of days of rendering services is called for on this score. (v) Addition by the CIT(A) of 365 days to the number on account of the stay in India of each of the two directors. 35. As regards the stay of two directors in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re has to be a link between the place of business and a specific geographical point. It is immaterial how long an enterprise of a Contracting State operates in the other Contracting State if it does not do so at a distinct place. 6. Since the place of business must be fixed, it also follows that a permanent establishment can be deemed to exist only if the place of business has a certain degree of permanency, i.e., if it is not of a purely temporary nature .. Whilst the practices followed by member countries have been consistent in so far as time requirements are concerned, experience has shown that permanent establishments normally have not been considered to exist in situations where a business had been carried on in a country through a place of business that was maintained for less than six months (conversely, practice shows that there were many cases where a permanent establishment has been considered to exist where the place of business was maintained for a period longer than six months). 40. From the above extracts of commentaries, it may be noted that there should be a place of business which should be fixed or permanent in nature to constitute a permanent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endering of service commences. 45. In addition to the above, the assessee company relies upon the following decisions:- ( i ) Radha Rani Holdings (P) Ltd. case ( supra ) - Residence of directors not relevant for PE. ( ii ) Extracts from Commentary by Klaus Vogel on Double Taxation Conventions, South Asian Reprint Edition - P.287, para-27 - Residence of General Partner not relevant for PE. ( iii ) K.T. Corpn., In re [2009] 181 Taxman 94 (AAR - New Delhi) - Liaison office not to secure orders - No PE. ( iv ) Union of India v. Azadi Bachao Andolan [2003] 263 ITR 706/132 Taxman 373 (SC) - DTAC takes precedence over domestic law and Board's circular accepting Residency Certificate issued by a foreign jurisdiction is valid. ( v ) CIT v. Visakhapatnam Port Trust [1983] 144 ITR 146/15 Taxman 72 (AP) - Services of a German engineer as in charge of supervision of assembly and installation operations did not give rise to PE. ( vi ) Kno Werx Education (India) (P) Ltd, In re [2008] 170 Taxman 98 (AAR - New Delhi) - No authority to conclude contracts ( vii ) Application No. P-11 of 1995, In re [1997] 228 ITR 55/94 Taxman 152 (AAR - New Delhi) - Contracts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DTAA between India and Singapore. He has observed that services of production and generation of live television signals were in the nature of technical services. The assessee company had made available to Prasar Bharti technical knowledge, experience, skill, know-how and processes which consisted of development and transfer of technical plan and design relating to production and generation of live television signals. Therefore the consideration received from Prasar Bharti for rendering such technical services are in the nature of fee for technical services within the meaning of clauses (b) and (c) and paragraph-4 of Article -12 of DTAA between India and Singapore. 48. The assessee company submits that both the lower authorities namely Assessing Officer as well as CIT(A) have arrived at wrong conclusion that the amounts received from Prasar Bharti are fee for technical services. Article 12(4)(b) of the DTAA provides that the technical services will be said to have been provided if the assessee company was to:- ( b ) 'Make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... much as these treaties lay down an alternate scheme of taxation, so far as the beneficiaries of the applicable tax treaty are concerned. These alternate paradigms are entirely optional to the assessee because it cannot be thrust upon an assessee and the provisions of the Act continue to be applicable to the extent these provisions are more favourable to the assessee. Once the assessee chooses to be covered by the provisions of an applicable tax treaty, it is not open to the revenue to thrust the provisions of the Act on the assessee. Further, the Apex Court in Azadi Bachao Andolan case ( supra ) and CIT v. PVAL Kulandagan Chettiar [2004] 267 ITR 654/137 Taxman 460 (SC), as also AAR in Sutron Corpn., In re [2004] 268 ITR 156/138 Taxman 87 (New Delhi) and Emirates Fertilizer Trading Co. Will, In re [2005] 142 Taxman 127 (AAR - New Delhi), have held that where there is conflict between provisions of the Act and the DTAA, the terms of DTAA would prevail over the provisions of the Act, and further, that the agreement being in the nature of a document providing for relief against taxation, beneficial reading of the terms of the DTAA was required. 52. In the protocol note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference was made to the certificate issued by the Director (Sports) in which, it was clearly mentioned that WSN produced live signals as per the production requirement stipulated under the Agreement. WSN acted as producer, which involved hiring professionals including professionals from Prasar Bharti to produce live television signals. However, it did not involve transfer of technology, know-how or develop/transfer any technical plan/design to Prasar Bharti under the Agreement . The Ld. CIT(A) has refused to take cognizance of this important peace of evidence by observing as under:- (a) It is matter of record that no reference was ever made to Director General of Doordarshan and the letter was not issued either to AO or any other Income Tax Authority. (b) Whether a service fall u/s 9(1)(vii) of the Act or 12(4) of DTAA is subject matter of interpretation by Income Tax Authorities and judicial authorities, an employee of Directorate General Doordarshan has no power to make such interpretation both under the Act and DTAA. (c) The content of letter is contrary to terms and conditions of the Agreement as stipulated under clause (xxvii) of para-5 of the Agreement . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under: Generally speaking, technology will be considered made available when the person acquiring the service is enabled to apply the technology. The fact that the provision of service may require technical input by the person providing the service does not per se means that the technical knowledge, skills, etc. are made available to the person purchasing the service, within the meaning of para 4(b) ( a ) Boston Consulting Group Pte. Ltd. case ( supra ) 60. The above case is directly on the interpretation of Article 12(4) (b) of India-Singapore Tax Treaty. The provisions of said article 12(4)(b) of India Singapore Tax Treaty are, to a limited extent, in pari materia with the definition of 'fees for included services' under article 12(4)(b) of Indo USA DTAA which is as follows: (b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. The scope of India-Singapore tax treaty is narrower in the sense that specifically provides the services should be such which enables the person acquiring the services to apply the technology contained ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Services India (P) Ltd., In re [2008] 307 ITR 418/175 Taxman 375 (AAR - New Delhi) (pp.594-607/PB-III) - Inspection charges for inspection by experts are not fee for technical services. (II) Under DTAA also, not fee for technical services ( i ) Annexure to Indo-US Tax Treaty vide Notification No. GSR 990(E) dated 20th December, 1990 (pp.608-619/PB-III) ( ii ) CIT v. Siemens Aktiongesellschaft [2009] 310 ITR 320/177 Taxman 81 (Bom.) (pp.620-641/PB-III) - Assistance for manufacture of X-ray tubes is not fee for technical services ( iii ) ABC Ltd, In re [2006) ] 84 ITR 1 (AAR) (pp.642- 644/PB-III) - Business information reports being publicly available are not technical services ( iv ) Dun Bradstreet Espana, S.A., In re [2005] 272 ITR 99/142 Taxman 284 (AAR - New Delhi) (pp. 645-648/PB-III) - Business information reports downloaded by Indian company constitute business income which is not royalty or fee for technical services ( v ) Tata Consultancy Services v. State of Andhra Pradesh [2004] 271 ITR 401/141 Taxman 132 (SC) (pp.694-709/PB-III) - Sale of intangible property is also sale of goods. ( vi ) Samsung Electronics Co. Ltd. v. ITO [2005 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as they were to produce a TV feed of cricket matches. The assessee company's case is governed by Article-7 of DTAA between India and Singapore, which deals with taxability of business profit and hence only net income/loss is to be considered for taxation. Even for the sake of argument, and, without prejudice and in any way agreeing to this, if it is presumed that the amounts received from Prasar Bharti are fee for technical services; the same are liable to be taxed at the rate of 10% and not 20% as held by the Ld. CIT(A). Para-2 of Article-12 of DTAA between India and Singapore reads as follows:- 2. However, such royalties and fees for technical services may also be taxed in the Contracting State, in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10%. Ground Nos. 7 - Advertisement amounts received outside India not liable to tax 68. In each of the three assessment years, the AO brought to tax certain amounts representing advertisements invoiced and received out side India, by the assessee from parties in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contracts with the assessee company for advertising their products and since the assessee company provided advertisement to various companies located in India through live telecast which was viewed by customers in India, income arising from advertisement is taxable in India. He also held in para 9.3.1 on page 70 that the advertisement income is taxable u/s 9(1) of the Income-tax Act, 1961 as the source of income is in India. He has further held in para 9.3.2 that it is also taxable under Article-7(1) of DTAA between India and Singapore because the assessee had carried out the core activities of advertisement business through fixed place PE in India . He confirmed the estimation of profit from advertisement by observing that the same is correct as per rule-10 of the income-tax Rules, 1962. The Ld. CIT(A) has relied upon the following judgements to confirm the quantum of the additions made by the AO:- ( i ) CIT v. ONGC as Representative assessee of Rolls Royce (P.) Ltd. [2008] 170 Taxman 563 (Uttarakhand) ( ii ) CST v. (H.M.) Esufali (H.M.) Abdulali [1973] 90 ITR 271 (SC) ( iii ) Kachwala Gem v. Jt. CIT [2007)] 288 ITR 10/158 Taxman 71 (SC) 70. The Ld. CIT(A) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Speciality Magazines (P.) Ltd, In re [2005] 274 ITR-310/144 Taxman 153 (AAR - New Delhi) Advertisements collected in India for publication abroad are not taxable in India. ( v ) Board's Circular No. 23 dated 23-07-1969 (applicable to the three years under consideration)- Para 5- No profit attributed to purchase of goods in India (in parity with purchase of advertisements in India to be telecast from Sri Lanka) 73. Alternatively, it is contended that the estimate made by lower authorities is highly excessive and arbitrary. 74. Learned DR supported the order of the learned CIT(A). 75. We have heard the rival contentions and perused the relevant material on record. The nature of assessee's work as contracted with Prasad Bharti has been narrated above. The first question which is to be determined by us is whether the assessee's activity constituted business income or fees for technical services as the determination of this important aspect will decide the taxability of the assessee having a PE or otherwise. 76. The relevant provisions about fees for technical services are contained in Section 9(1) of the IT Act, which are reproduced as under:- 9(1) Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... skill, know-how or processes which enables the person acquiring the services to apply the technology. The clause (c) of above paragraph is also relevant. As per this clause, the term 'fee for technical services' means the payment to any kind to any person in consideration of rendering of any technical services which consist of development and transfer of a technical plan or technical design. 80. The list of activities are listed by CIT(A) in his order from pages 22 to 25. In view of these activities, it is evident that services of production and generation of live television signal rendered by the assessee in terms of agreement were in the nature of technical services. Assessee made available to PB the services which are based on technical knowledge, experience, skill, know-how and processes which also consisted of development and transfer to PB of technical plan and design relating to production and generation of live television signal as per clause (xxvii) of para 5 of the agreement. Therefore, the consideration received by the assessee for rendering such technical services was in the nature of fee for technical services within the meaning of clause (b) and (c) and pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to hold that the affairs of the assessee company were carried out in India. 83. Coming to the observations about the number of days on the issue of service PE or fixed place PE, in our view, the assessee has led some sufficient evidence to establish the fact that the TV crew, Mr. Seamus O'Brien, programmer and engineers, Mr. Venu Nair, Mr. Harish Thawani, technical personnel and Mr. Digvijay Singh did not stay for more than 10 days in each year. The number of days projected by the AO and the CIT(A) is on presumptions and ignoring the fact that the assessee is a part of a worldwide group and the reports of e-mail or Mr. Thawani's interview was in respect of the overall activities of the group. In our view, the estimate of days made by the AO is not made based on the record or information but on the basis of certain news items and e-mails which, in our view, do not give an objective picture of the actual days of the stay of the employees. In view of these facts, we find merit in the contentions of the assessee that the number of stay of his representatives is less than 90 days cannot be held to be a fixed place or service PE in India in the years in question. Conseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hes were not played in India, the telecast of the matches was not in India and the indirect benefit which might have been derived by some of the Indian viewers cannot be held to be incremental for Indian companies on assumption. The dominant object of the payment by the Indian companies to assessee's Singapore office was to advertise their products in foreign territory in foreign cricket matches and the dominant object emerges to be the advertisement in foreign territories. In our view, the advertisement revenue has no attribution to India and in the absence of any PE, we have to hold that this revenue cannot be taxed in India. Our view is supported by the following judgments :- ( i ) Lufthansa Cargo India (P) Ltd. ( supra ). ( ii ) Set Satellite (Singapore) Pte Ltd. ( supra ). ( iii ) DHL Operations B.V. ( supra ). ( iv ) Speciality Magazines P. Ltd. ( supra ). ( v ) Board's Circular No.23 dated 23.7.1969 ( supra ). 88. Apropos the chargeability of interest under Section 234B C, we find merit in the argument of the learned counsel for the assessee that the receipts of the assessee were liable to TDS under Section 195. The receipts being liable f ..... X X X X Extracts X X X X X X X X Extracts X X X X
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