2011 (9) TMI 807 - AT - Income Tax

India Singapore DTAA - assessee company tax resident of Singapore entered into an agreement with Prasar Bharti PB for the telecasting production of cricket events held during stipulated period - whether receipts from Prasar Bharti amount to business income or FTS - rate of tax applicable to such receipts - Held 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 paragraph 4 of Article 12 of DTAA. Thus 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 of tax applicable to India - 20% or 10% - Held that - As per paragraph 2 of Article 12 of the DTAA 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%. Thus merit in the argument of assessee that the situation is to be governed by the DTAA and not by domestic law. Reversal of the orders of lower authorities applying the rate of 20% by recoursing to Section 44D read with Section 115A of the IT Act. Advertisement revenues - received by the assessee in Singapore for matches played abroad - Held that - 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. Thus the advertisement revenue has no attribution to India and in the absence of any PE this revenue cannot be taxed in India. See Lufthansa Cargo India (P) Ltd. v. Dy. CIT 2004 (6) TMI 273 - ITAT DELHI-B . Chargeability of interest u/s 234B & C - Held that - Since receipts of the assessee were liable to TDS u/s 195 the same will not be liable for advance tax and the interest was not liable by them as per provisions of Section 209 - Decided partly in favor of assessee.

Summary

Issues Involved:
1. Permanent Establishment (PE) in India.
2. Nature of receipts from Prasar Bharti as business income or fee for technical services.
3. Tax rate applicable to the receipts from Prasar Bharti.
4. Taxation of advertisement revenue received in Singapore from Indian parties.
5. Levy of interest under Sections 234A, 234B, and 234C.

Issue-wise Detailed Analysis:

I. Permanent Establishment (PE) in India:
The primary issue was whether the assessee had a PE in India during the assessment years 2002-03 to 2004-05. The assessee argued that it did not have a PE in India as the activities conducted were less than 90 days in each fiscal year, as required under Article 5(6) of the India-Singapore DTAA. The CIT(A) contended that the assessee had a fixed place of business in Mumbai and that certain activities were conducted from the office of Nimbus Communication Ltd. (NCL). However, the Tribunal found that there was no evidence to support that significant activities were performed in India. The Tribunal concluded that the assessee did not have a PE in India as the stay of its personnel was less than 90 days in each year.

II. Nature of Receipts from Prasar Bharti:
The next issue was whether the receipts from Prasar Bharti were business income or fees for technical services. The CIT(A) treated the receipts as fees for technical services under Section 9(1)(vii) of the Income-tax Act and Article 12(4) of the India-Singapore DTAA. The Tribunal upheld this view, stating that the services provided by the assessee involved technical knowledge, experience, skill, and processes, which were made available to Prasar Bharti. Therefore, the receipts were considered fees for technical services.

III. Tax Rate Applicable to Receipts from Prasar Bharti:
The Tribunal examined whether the tax rate should be 10% as per the DTAA or 20% as per Section 44D read with Section 115A of the Income-tax Act. The Tribunal concluded that the DTAA provisions should prevail, and thus, the tax rate applicable to the receipts from Prasar Bharti was 10%.

IV. Taxation of Advertisement Revenue Received in Singapore from Indian Parties:
The AO had taxed the advertisement revenue received in Singapore from Indian parties at 48%, attributing 50% of the net profit to the PE in India. The Tribunal held that since the assessee did not have a PE in India, the advertisement revenue received for matches played abroad could not be taxed in India. The Tribunal supported its view with several judgments, including Lufthansa Cargo India (P) Ltd. and Set Satellite (Singapore) Pte Ltd.

V. Levy of Interest under Sections 234A, 234B, and 234C:
The Tribunal agreed with the assessee's argument that the receipts were subject to TDS under Section 195, and therefore, the assessee was not liable to pay advance tax. Consequently, the interest under Sections 234A, 234B, and 234C was not chargeable.

Conclusion:
The Tribunal concluded that the assessee's receipts from Prasar Bharti were fees for technical services, taxable at 10% under the DTAA. The assessee did not have a PE in India, and the advertisement revenue received in Singapore for matches played abroad was not taxable in India. Interest under Sections 234A, 234B, and 234C was not applicable. The appeals were partly allowed.