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2017 (11) TMI 2017 - AT - Income TaxIncome deemed to accrue or arise in India - Taxability of income in India - business connection in India - whether it had any PE in India ? - HELD THAT:- From the perusal of the agreements it becomes clear that the assessee was carrying out its operation from USA and not from India, that both the activities i.e. sale of advertisement inventory and distribution of AXN and ANIMAX channels were not carried out in India, that it did not have any office premises or a fixed place of business in India at its disposal, that none of its employees were based in India through whom it could render the services in India. Thus, it can safely be held there was neither fixed base PE nor service PE in India, of the assessee, for the year under appeal.Though the FAA has endorsed the view of the AO that the assessee had Agency PE,but nothing has been brought on record to prove that the agreements between the assessee and Set India was not on Principal to Principal basis. Set India had no authority to conclude any contract on behalf of the assessee in India.On the other hand,while selling the airtime inventory distributing AXN and ANIMAX channels in India,Set India would act on its own right and not on behalf of the assessee. It was not dependent on the assessee economically or legally.It is also a fact that Set India also carried out significant marketing and estimation activities for other channels namely Set, Set Max and HBO (till 31/12/2004). Therefore, set India has to be treated as an independent entity which carried out its own business employing its own capital and bearing connected risks. It cannot be treated an agent, a dependent agent,of the assessee. We find that the revenue earned by Set India was not on behalf of the assessee,that it was making payment to the assessee for the purchases made by it,that it was not subject to any control of the assessee as far as conducting of business in India was concerned,that the activities of Set India were not devoted wholly or almost wholly for the assessee.We have also taken note of the facts that the revenue of the assessee was not entirely dependent on the earning of set India,that the employees of set India would work only for Set India and not for any other entity of the group,that the departmental authorities have not alleged that the transaction between the assessee and Set India were not at arm’s length,that in the TP orders the TPO.s(AY.s.2005-06,2006-07,2007-08,2008-09 and 2010-11)have held that no TP adjustments were required to be made to the income of the assessee on account of advertisement revenue or distribution revenue. Regarding applicability of the provisions of section 40(a)(ia) of the Act,we want to state that we have already held that assessee did not have any PE in India and that it had no business income arising India. It is also a fact that it has not claimed any deduction for expenses incurred in India. FAA was not justified in holding that provisions of section 40 (a) were applicable in the case under consideration. As the assessee did not have business connection India as well as Agency PE/Base BE and Set India was not agent of the assessee,so,we hold that the AO had wrongly invoked the provisions of Rule 10 of the Rules. Thus Assessee did not have a PE in India, that it was not carrying out any business activities in India and therefore no part of its revenue was attributable to India,that SIPL was an independent agent under Article 5(6)of the tax treaty between India and Holland, that the activities of the agent were carried out in its ordinary course of business, that the agent was not wholly and exclusively devoted to the assessee, that payments made to SIPL were at arm’s length,that provisions of Circular 742 were applicable for determining the tax liability of the assessee.In short,the assessee was not liable to pay tax in India in any of the AY.s. mentioned above.Effective ground of appeal is decided in favour of the assessee.
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