TMI Blog2019 (2) TMI 34X X X X Extracts X X X X X X X X Extracts X X X X ..... dian Territory. The compensation part clearly shows that the commission would be paid @10% of net billed advertisement actually collected by it or received by ESS Mauritius for the advertisement solicited by the Indian entity. From the perusal of the transfer pricing order, in the case of ESPN India, it is seen that it carried various functions of other entities for the ESPN group like, distribution of ESPN Star Sports Channel in India for which it collects ‘subscription fees’ from the cable distributors. This activity of function is not carried out for the assessee but for different group entity. Only function carried out by the Indian entity is that it is doing solicitation and collection of advertisement revenue and remitting the same to the assessee. Qua this function, the remuneration paid by the assessee to the Indian entity which is subjected to tax in India is @10% which has been accepted to be at arm’s length. No other functions are carried out or there are any other transaction by the Indian entity vis-à-vis the assessee and all other functions of the ESPN India relate to distribution of the channel of other entities for which it is paid ‘subscription fee’. If one goes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia in terms of Section 9(1 )(i) of the Act. 3. That on the facts and circumstances of the case and in law, Ld. CIT(A) grossly erred in upholding the order of the Ld. AO that appellant has a fixed based permanent establishment ( PE ) in India under Article 5(l)/5(2) of the India Mauritius Double Taxation Avoidance Agreement ( DTAA ). 4.1 That on the facts and circumstances of the case and in law, Ld. CIT(A) grossly erred in upholding the order of the Ld. AO that ESPN India is a dependent agent PE of the appellant in India under Article 5(4) of the DTAA. 4.2 That on the facts and circumstances of the case and in law, the Ld. CIT(A) grossly erred in upholding the action of the Ld. AO in treating ESPN India as not an agent of independent status in terms of the provisions of Article 5(5) of the DTAA. 5.1 That on the facts and circumstances of the case, Ld. CIT(A) grossly erred in holding that ESPN India has and is habitually exercising authority to conclude advertisement contracts for the appellant within the meaning of Article 5(4) of the DTAA and such contracts are binding upon the appellant. That without prejudice to the above ground nos. 4 to 4.3, the Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omputation, it was stated that revenue from the advertisements, being in the nature of business profits, are not subject to tax in India in accordance with Article 7 of the India-Mauritius DTAA, because assessee does not have any PE in India under Article 5. 3. Learned Assessing Officer required the assessee to justify as to why the Indian entity which is wholly owned subsidiary of ESPN (Mauritius) Ltd. should not be treated as dependent agent PE (DAPE) within the meaning of Article 5(4) of the DTAA. In response, the assessee submitted that the Indian entity cannot be a DAPE, because, firstly, it is an agent of independent status and is economically independent as the agent s business can stand on its own and is not dependent upon the Principal for its economic viability; secondly, the agent bears risk of loss from its own activities; and lastly, the agent is not dependent wholly and exclusively on one Principal but for various other AEs also. For instance, the ESPN India is also carrying on the activities of distribution of ESPN/Star Sports television programming services in India as a Principal in terms of its agreement with ESS distribution (Mauritius) SNC ET Compagnie and ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ian PE and thereby attributed the income of ₹ 8,60,66,552/-. 4. Before the CIT (A), the assessee submitted that the profit embedded in the transaction between the assessee and the Indian entity had already subjected to tax in the hands of the Indian entity and there should not be another assessment in the hands of the assessee to tax the very same profit. Further, Indian entity besides carrying out collection of ad revenues for the assessee was also engaged in the distribution of channel services in terms of its agreement with other entities and also sale and hire purchase of decoders for the third party customer. The final authority to accept such advertisement or to reject the same lies with the assessee. The ESPN India is an agent of independent status under Article 5(5) and is acting in the ordinary course of its business while dealing with the assessee. The assessee further challenged the observation of the learned Assessing Officer that the assessee has a fixed place PE without assigning any reason, because the assessee does not have any office or branch in India; and even the attribution of 70% of the profit was not correct on the facts and circumstances of the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on management and a controlling stake, ESPN India acts as a fixed place PE of the assessee. 5. In so far as the issue of attribution of profit is concerned, assessee submitted that even if it is assumed that PE of assessee is constituted in India, then only the profits attributable to the PE in terms of Article 7 can alone be taxed and once the profits attributable to the activity of the PE are determined according to the Arms Length principle in its dealing with enterprises of which it constitutes a PE, then no further hypothetical profits can be attributable to such PE. Thus, in view of Arm s Length principle nothing could have been attributed. The assessee s detailed submission in this regard have been incorporated by the ld. CIT(A) from pages 23 to 30 including the various judgments relied upon by the assessee specifically the judgment of Hon'ble Supreme Court in the case of DIT vs. Morgan Stanley Co., reported in (2009) 292 ITR 416 (SC); and the judgments of Hon'ble Bombay High Court in the case of Set Satellite (Singapore) Pte. Ltd., (307 ITR 205 (Bom) and Delhi High Court in Gallilio International, 371 CTR 251 (Del.) and catena of other decisions. 6. Howev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A). Once the transaction and the remuneration arising thereof have been accepted to be at arm s length, then there could not be any further attribution of any profit. The Indian entity had filed its entire transaction in Form 3CEB and no TPO adjustment order has been passed and the margin of 10% of the commission paid to the Indian entity has been accepted to be at arm s length price. Similarly, in the Assessment Year 2004-05, he submitted that the reference was made to the TPO but no TP adjustment has been proposed and the remuneration of 10% has been accepted at arm s length price. In the case of the Indian company for the Assessment Year 2003-04, transfer pricing order has been passed vide order dated 09.03.2006, wherein in so far as receipt of advertisement commission is concerned, same has to be accepted at arm s length. Whence, in the case of the Indian entity the entire transaction with the assessee has to be found at the arm s length, then no further attribution can be made. In support of his contention that when the transaction has been found to be at ALP then no further attribution is required to be made, he relied upon the following judgment:- Set Sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presentative for ad soliciting activities and for collection of advertisement revenue from the Indian advertisers/ agencies. The ESPN India collects advertisement charges from various Indian companies and remits the same to the assessee after deducting the tax on the commission payable to it as per the agreement. However, before coming to the issue whether there is a PE of assessee in India either in the form of DAPE or fixed place, we would like to deal first, whether the remuneration paid by the assessee to the Indian entity is at arm s length price or not, because, if the transaction between the assessee and the Indian entity are at arm s length then there would not be any further attribution of profit and consequently the issue of PE will become purely academic. The ld. CIT(A) has rejected the assessee s contention that the remuneration paid by the assessee to the Indian entity has been found to be at arm s length price on the ground that the TPO has not analyzed the entire functions and risk carried out by the Indian entity for the assessee company. For example, he has held that apart from soliciting the advertisement and collection of advertisement revenue, the Indian entity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ius reserves the right to accept or reject the aforesaid requisition at its sole discretion, For purposes of avoidance of doubt, any failure by ESS Mauritius to indicate its approval within thirty (30) days of receipt of a requisition from Representative shall be deemed to be a rejection of such requisition. ESS Mauritius shall not be obligated to accept any particular advertising order or orders. ESS Mauritius shall be free to accept or reject any such order as it may determine in its discretion, in light of the terms ESS Mauritius may set from time to time, which may include the quality or nature of the advertising content or the credit standing of an advertiser or proposed advertiser and it shall not be under any obligation or liability whatever to the Representative, the advertiser or proposed advertiser, or anyone else with respect to any such order which it might reject. No later than three weeks before telecast of any advertisement solicited by the Representative, the Representative shall provide ESS Mauritius or a person designated by it with ready to broadcast advertising material to be included in the program in a manner which meets the technical specificati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. Remittance of subscription fee TNMM 1,088,854,893 2. Receipt of Advertisement Commission TNMM 42,816,391 The receipt of advertisement commission only has been received from the assessee. Thus, if the Indian entity has been remunerated at arm s length price, then no further attribution of profit can be made. This proposition is well settled and upheld by the Hon'ble Supreme Court in the case of DIT vs. Morgan Stanley (supra) which has been reiterated and reaffirmed by the Hon'ble Supreme Court in the case of ADIT vs. E-funds IT Solution, (2017) 399 ITR 34 (SC). Apart from that Hon'ble Delhi High Court in the case of Galelio Nederland BV vs. ADIT, (2014) 367 ITR 319 (Del.). Moreover in the judgment cited and relied upon by the learned Senior Counsel, we found that in all these cases it has been held that if the assessee has remunerated the agent at arm s length, then no further profit of the assessee could be taxed in India other than the profit earned by the agent. All these judgments are based on the principle laid down by the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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