TMI Blog2019 (5) TMI 1974X X X X Extracts X X X X X X X X Extracts X X X X ..... e to M/s PanAM Sat International System Inc. towards transponder charges for failure to deduct tax at source - HELD THAT:- As relying on assessee s own case for A.Y. 2006-07 [ 2016 (12) TMI 1291 - ITAT MUMBAI] we direct the Assessing Officer to delete the addition made for disallowance of programming cost, transponder charges and up-linking charges under section 40(a)(i). Decided in favour of assessee. - ITA No. 1313/Mum/2018 And ITA No. 1501/Mum/2018 - - - Dated:- 22-5-2019 - Shri G.S. Pannu, Vice-President And Shri Pawan Singh, Judicial Member For the Appellant : Shri Madhur Agarwal (AR). For the Respondent : Shri Nishant Somaiya (Sr. DR). ORDER UNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. These cross appeal by assessee and by revenue under section 253 of the Income-tax Act ( the Act ) are directed against the order of ld. CIT(A)-55, Mumbai dated 14.12.2017 for Assessment Year 2011-12. 2. Brief facts of the case are that the assessee-company is a tax residents of Mauritius and engaged in the business of Telecasting of TV Channel (TEN Sports), filed its return of income on 28.11.2011 declaring total income of Rs. Ni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3.2011. Thus, the assessee has a PE in India and as such the subscription revenue is taxable on net basis as business income. It was also held that 87.75 % revenue of from advertisement and subscription of the assessee comes through viewership which is linked with the permanent establishment (PE) i.e. Taj India. The Assessing Officer also disallowed programming cost of USD 25901514 under section 40(a)(i). The Assessing Officer further treated the uplinking and transponder fees as royalty as per section 9(1)(vi) as well as under Article 12 of India-USA DTAA. The assessee has not deducted tax at source on payment made for transponder fees and up-linking charges, therefore, entire payment attributable to Indian operation was disallowed under section 40(a)(i). 3. On appeal before the ld. CIT(A), it was held that the finding of Assessing Officer that assessee is having PE in India and income attributable to its activity is assessable in India, thereby upheld the action of Assessing Officer. However, on the disallowing of programming cost, transponder charges and up-linking charges disallowed under section 40(a)(i) by following the decision of assessee s own case that disallowance cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cision in Morgan Stanley [292 ITR 4161, the case of the assessee is distinguishable from the case of Morgan Stanley (supra) 4. On the facts and circumstance of the case and in law, the Ld CIT(A) erred in not considering that the ratio of Morgan Stanley (supra) shall be applicable when arm's length price has been determined for all the functions and risks, whereas in the case of the assessee, only the marketing function of the PE for generating advertising revenue had been benchmarked 5. On the facts and circumstance of the case and in law, the Ld CIT(A) erred in not considering that the consideration paid by the assessee to Taj India was only for carrying out marketing services related to advertising, and not for the profit accruing to the assessee from core activities of the assessee in India carried on by Taj India as the assessee's dependent agent, and therefore the TPO, by accepting the ALP of advertising revenue, had only benchmarked the marketing functions and not other functions carried out by Taj India as assessee's agency PE 6. On the facts and circumstance of the case and in law, the Ld CIT(A) erred in not considering that the TPO, by accepting the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2006- 07 in ITA No.9079/Mum/2010, after considering the ratio laid down by the Hon'ble Supreme Court in the case of DIT vs Morgan Stanley Co other cases reported in (2007) 292 ITR 416 (SC) held that since Taj India is being remunerated at arm's length price, no further income or profit can be said to be attributable to the assesse in India from its PE. The relevant portion of the order is extracted below:- 9. As regards the AO's conclusion and finding that Distribution income earned by the assessee for the period 01.04,2002 to 12.07.2002, that is, for the period of little over 3 months, the distribution income earned by the assessee is be treated as 'royalty' income within the meaning of section (l)(vi), because prior to 13.07.2002, assessee was not Resident of Mauritius and therefore, the benefit of DTAA will not be applicable and accordingly the income shall be taxable as per the Domestic Law, that is, Indian Income-tax Act; Ld, CIT(A) held that post 12.07.2002, the AO himself has held that distribution income is not 'royalty' albeit is a business income and will not fall within the meaning of royalty as defined under Article 12 of the India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same reasons, we direct the AO to delete addition made towards computation of income attributable to the assessee in India. 7. Considering the consistent view in assessee s own case, wherein no material change in the fact is brought to our notice. We respectfully following the decision of co-ordinate bench held that the Taj India does not constitute agency PE in terms of India-Mauritius DTAA. Therefore, no income/profit can be said to be attributable to the assessee in India from its PE, as Taj India is remunerated at Arm s Length Price (ALP). Hence, we direct the Assessing Officer to delete the addition towards computation of income attributable to assessee in India. 8. In the result, appeal of the assessee is allowed. ITA No. 1051/Mum/2018 by revenue 9. The ld. AR of the assessee submits that ground no.1 in revenue appeal and the ground of appeal raised by assessee in assessee s appeal are common, which relates to agency PE. Ground No.2 to 6 relates to distribution of revenue and Ground no.7 relates to Transfer Pricing Adjustment. The ld. AR further submits that in case the issue/grounds of appeal relates with agency PE is held in favour of assessee, the Ground ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uipment, therefore, it did not amount to 'Royalty'. The Hon ble Tribunal also held that fees paid for Transponder facility does not amount to 'Royalty* as it is not for a secret process; or 'Fees for Included Services' as it does not make available technical knowledge as per Article -12 of India-US DTAA. The Id. CIT(A) also held that the payment of 'transponder fees' was not borne by the PE in India, hence, even if payment is held to be 'Royalty', it is still not taxable as it is not borne by PE of US company in India therefore, there was no obligation to deduct tax at source in view of Article J2(7). In respect of allowance of payment of US $ 305,347, to PanAmSat and various other non-residents as Up charges which has been disallowed under section by the AO, the Id, CIT(A) held that Up linking charges paid by the assessee company are in connection with the events taking place outside India for sending the signal from the venue of the event to the Satellite. The payment is made for rendering services by PanAmSat to uplink the signal from the venue of the event to the Satellite therefore, it is not in the nature of 'Royalty' or Tees for in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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