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TMI Blog2011 (9) TMI 548X X X X Extracts X X X X X X X X Extracts X X X X ..... ite to take note of some relevant facts. The assessee is a non-resident. It is a company incorporated under the laws of England and Wales and is a part of BBC Group. This BBC group has a company incorporated in India as well, known as M/s. BBC Worldwide India Pvt. Ltd. (hereafter referred to as the BWIPL'). 3. During the year under consideration, BWIPL was operating as international consumer media company in the areas of television, publishing and programme (for short the channel'), which is a standard international channel aired in the English language, operated by the assessee through a separate division, i.e., BBC World Division. The assessee appointed BWIPL as its authorized agent in India under an airtime sales agreement dated 19.9.2000, effective from 13.11.1998, for dollar denominated deals, to solicit orders for the sale of advertising airtime on the channel at the rates and on the terms and conditions provide by the and to pass on such orders to the assessee for acceptance and confirmation. The payments form the Indian advertisers for airtime sales and sponsorship was to be received directly by the assessee under this agreement, through EEFC account or specific RBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the advertisement revenues collected from India were remitted to the assessee company. The AO, therefore, held that the income of the assessee company from the advertisement revenues accrued or arose in India under Section 9(1) of the Income Tax Act (hereinafter referred to as the Act'). It was held that BWIPL constituted a business connection of the assessee as well as a permanent establishment under Article 5(4)(a) and Article 5(4)(c) of the Double Taxation Avoidance Agreement (DTAA' for brevity) between India and U.K. The profits of the assessee were estimated at an ad hoc rate of 20% of the total advertisement revenue attributed to India. 6. The CIT (A) agreed with the findings of the AO and affirmed the same while dismissing the appeal of the assessee. 7. In further appeal before the Income Tax Appellate Tribunal (the Tribunal' for brevity), the assessee though still maintained that it had no business connection or permanent establishment in India, without prejudice to this contention, the assessee came out with an alternative plea that in any case, the assessee's Indian agent, i.e., BWIPL was remunerated on an Arm's Length business and, therefore, nothing rema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der, the TPO accepted that the transaction was at arm's length price. It was held that the CUP method selected by BWIPL for determining the arm's length price of the commission income earned by it, was acceptable; that this was due to the fact that BWIPL with that charged by an uncontrolled party for similar services; that even otherwise, it was found that the rate of commission in the assessee's trade was fairly uniform and almost everyone was charging the same rate fairly uniform and almost everyone was charging the same rate of commission in the sale of airtime on TV Channels and FM Channels; and that it was therefore, that the arm's length price determined by BWIPL was not being disturbed. 9. Apart from taking support from the judgment of SET Satellite (Singapore) Pvt. Ltd. (supra) and the judgment of this Court in Galileo International Incorporation (supra), the Tribunal also discussed two CBDT's Circulars, on the subject, and interpreted the same in the following manner: 17. CBDT Circular No.23 of 1969 (supra) is eloquently clear, providing that if the value of the profit attributable to the services rendered by the agent is fully represented by the commission ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... permanent establishment or did not maintain country wise accounts of its operations. The Circular would not apply in the event of any of the said conditions being not satisfied. All the conditions are not to be cumulatively satisfied so as to apply the Circular. In the assessee's case, the assessee had filed before the AO its country accounts for India, wherein the total revenues and expenses of the assessee were allocated to its India activity. A copy thereof has been placed before us. Before the CIT (A), the assessee also filed its audited accounts containing allocation of revenues and expenses to it India activity. A copy thereof has also been furnished before us. The learned CIT (A) remanded these to the AO. Therefore, evidently, CBDT Circular No.742 (supra) does not apply. 10. Impugning the aforesaid order of the Tribunal in the instant appeal, arguments raised by the Department, predicated on the proposed issue is that the Tribunal was not justified in relying upon the order of the TPO in the case of BWIPL when no such exercise was done in the case of the assessee. It was argued that as per the provisions of Section 92C of the Act, it was mandatory to undertake FAR an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e FAR Analysis of the Permanent Establishment for it, when it has not been done by the AO or TPO; D. Article 7 of the Indo-UK DTAAA also provides that the FAR Analysis is to be conducted for determining the assessable income of the non-resident; E. No FAR Analysis has been done by the AO at any point in time for any assessment year in the case of the assessee herein; F. CBDT Circular No.742 dated 02-05-1996 is applicable to the facts of the instant case, as the assessee is not maintaining any country wise accounts; G. Ratio of the decision in the case of Morgan Stanley (supra) has been done in the case of the assessee herein; H. When no FAR Analysis has been done in the case of the assessee, then to reach the conclusion that nothing more is attributable to the assessee is absolutely baseless and illegal; I. The FAR Analysis in the case of BWIPL has resulted in the additional income of Rs. 3.60 Crores; and J. If the FAR Analysis is done in the case of the assessee, then it would reveal its real character as to its ALP. 13. Learned counsel for the respondent/assessee refuted the aforesaid submissions. He submitted that reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r of the Tribunal. Following pertinent aspects which emboldened stand out and stare at the face of the Department and shut its case completely: (i) The provisions of transfer pricing was introduced for Finance Act, 2002 from the Assessment Year 2002-03 and therefore, in respect of two appeal for the Assessment Years 2000-01 and 2001-02, no such FAR Analysis was even required. (ii) For the Assessment Year 2002-03, FAR Analysis was prepared and submitted by the assessee's agent BWIPL. BWIPL had submitted that it had received commission @ 15% on the gross sale from the assessee for selling marketing advertisement and sponsorship and as per BWIPL, it was a reasonable commission paid on arm's length basis. Matter was referred to TPO under Section 92CA (3) of the Act, who clearly opined that the aforesaid commission paid to BWIPL was ALP. Once it is treated as ALP at the hands of recipient, we fail to understand how a different view can be taken in the case of assessee who had paid the same commission to its agent. Therefore, we fail to appreciate the contention of the Department that the FAR Analysis by the TPO in the case of BWIPL was not relevant. (iii) Moreover, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adverse inference is drawn in respect of arm's length price of the above mentioned transaction in the hands of assessee company. (v) We do not find any merit in the plea of the Department that country-wise accounts have not been made by the assessee and therefore, the deemed rate of taxation at 10% of advertisement revenue as per Circular No.742 dated 02.5.1996 issued by the CBDT, should be applied to tax the revenue of the Permanent Establishment of the assessee. In this regard, we note that in the course of assessment proceedings, the assessee had prepared its country accounts for India, allocating total revenues and expenses of the assessee to India activity and filed the same before the AO. This fact has been recorded by the Tribunal in its order in Assessment Year 2000-01. In the light of this observation, Circular No.742 is not applicable in the instant appeal. 16. When the aforesaid factual position is kept in mind, the judgment of the Bombay High Court in Set Satellite (Singapore) Pvt. Ltd. (supra) is clearly attracted. In that case the High Court has held that if correct ALP is applied and paid, nothing further rwould be left to be taxed in the hands of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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