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TMI Blog2011 (9) TMI 807X X X X Extracts X X X X X X X X Extracts X X X X ..... ee had a "permanent establishment" in India. 5. The ld. CIT(A) has erred on facts and in law by upholding the action of the AO in treating the gross receipts of Rs. 5,26,26,383/- from Prasar Bharti, as "fee for technical services" and imposing the tax of 20% (Rs.1,05,25,276/-) on such receipts. AY Gross Receipts Tax 2003-04 7,64,27,368/- 1,52,85,474/- 2004-05 7,01,68,520/- 1,40,68,520/- 6. The ld. CIT(A) has erred on facts and in law in not treating the receipts from Prasar Bharti as business income being purely commercial receipts, not liable to tax in India in the absence of any PE. 7. The ld. CIT(A) erred on facts and in law in confirming the estimate of income of Rs. 80,32,331/- in respect of amount received by the assessee in Singapore from Indian parties towards services rendered outside India and applying the rate of tax at 48% thereon. AY Income 2003-04 11,73,262/- 2004-05 2,07,607/- 8. The interest levied u/s 234A, 234B and 234C is against the law and facts and deserves to be deleted." 2. At the time of hearing, the assessee has not pressed ground Nos.1, 2 & 3 in respect of the grounds relating to jurisdiction and issue of notice u/s 143(2). Thus, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have any PE in India within the meaning of Article-5 of India-Singapore Tax Treaty, it filed its returns of income for A.Ys. 2002-03 and 2003-04 on 21.11.2003 in Mumbai with Dy. Director of Income-tax (International Taxation)-2(2), Mumbai, which the Company honestly believed had jurisdiction over the assessee company, and which jurisdiction was accepted by the AO as per order u/s 197 of the Income-tax Act, 1961 dated 11.02.2002 regarding tax deduction at source, passed by the Asst. Director of Income-tax (International Taxation)-2(2), Mumbai. The return of income for A.Y. 2004-05 was filed on 28.10.2004 also with the Dy. Director of Income-tax (International Taxation)-2(1), Mumbai declaring nil income. 6. The AO did not agree with the submissions of the assessee and held that the assessee had a PE in India. Alternatively, he held that the income of the assessee was in the nature of 'fees for technical services'. He taxed the gross receipts @ 20% u/s 44D read with section 115A of the Act ignoring the plea of the assessee that income was in the nature of business profits and was not taxable in India under the India- Singapore DTAA in the absence of a PE. CIT(A) upheld his o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year as per the following details:- AY Period of stay No. of days. 2002-03 16-02-02 to 21-03- 02 34 days 2003-04 03-10-02 to 27-11-02 56 days 2004-05 3-10-03 to 21-11-03 29 days Total :- 119 days (x) Details of the cricket matches played in India:- Dates Tournaments Venue Tests ODI Match days Feb/March 2002 Zim v. India India 2 5 15 Oct/Nov. 2002 WI v. India India 3 7 22 Oct. 2003 NZ v. India India 2 - 10 Oct/Nov. 2004 NZ v. India v. Aus. India - 10 10 Total 7 22 57 10. The assessee claimed exemption from income tax on the ground that its income was from business and there was no Permanent Establishment, as the stay for carrying on the business in India was less than 90 days in each of the three fiscal years, as required for service PE vide Article 5(6) of the DTAA. I. Observations - Shareholders and their office used for rendering services. 11. According to CIT(A), Nimbus Communication Ltd. (NCL), share holder of the assessee company, had an office in Mumbai, which was used for the purposes of rendering a part of technical services. Shri Harish Thawani, Co-Chairman and Sh. Venu Nair, Director of assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India. 14. The Ld CIT(A) has failed to appreciate the importance of the fact that clarifications as may be required are sought and furnished through correspondence or other wise over the phone or by e-mail or by other means of communications from Singapore without the need for personal interaction. 15. Assessee is a separate entity from Nimbus Communications Ltd (NCL in short), Mumbai whose media reporting is adversely referred by the CIT(A). It is a company of Nimbus Communication Worldwide Ltd (NCWL) - a company incorporated under the laws of Mauritius, and is a joint venture partner in the assessee company along M/s World Sports Group Ltd. (WSG) - a company incorporated under the laws of British Virgin Islands. There were 4 directors in NCWL namely, Dr. Akash Khurana, Mr. Ashraf Ramtoola, Mrs. Rukhsana Shahabally and Mr. Harish Thavani. Thus, only Mr. Thawani is a common on the Board of Directors of the assessee company. 16. NCWL is the wholly owned subsidiary of NCL which is itself an established media and entertainment company since 1987 in India. As per the joint venture terms, NCL and WSG had the right to appoint two nominee directors on the Board of the assessee company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of services for producing the TV feed, enumerated in para 9 above, would show that there was no constant consultation after the award of the contract. Even the position of the cameras in the cricket field was settled then and communicated by PB to assessee. The selection of a producer does not require any constant consultation as it involves approving a person from a few well known persons in this area. (xi) No technical services as enumerated in para 7.3.5 (page 38) were rendered per se. They are all standard services and may be required or incidental to production of a commercial product, namely, TV feed which has been the subject matter of the contract. II. Observations- Pre-sales mapping and advertisement in PB matches in India 19. The CIT(A) has, noted from the interview of Shri Harish Thawani India TV as extracted in para 7.3.6 (d)(pp 40-43) that he carried out following important and core activities relating to business of advertisement of assessee company in India. (a) carried out pre-sales mapping (b) identified the nine categories of target from which assessee company could earn revenue (c) negotiated agreement with advertisers in India Assessee's explana ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent in India only if "during that year the control and management of its affairs is situated wholly in India" Even if a slight control and management is exercised outside India, it would be treated as a non-resident company. Following facts demonstrate that the assessee company's control and management was located wholly outside India: (i) Registered office of the Company is at Singapore. The certificate of incorporation dated 21.03. 200 is also from Singapore. (p 1/PB) (ii) Tax Residency Certificate is issued by the Singapore tax authorities. (p 213/PB) (iii) Seamus O'Brien Co-chairman of the Company and directors, other than Mr. Thawani and Mr. Venu Nair, were permanent residents out side India including Singapore (iv) Except one, all Board meetings were held at Singapore or in other foreign countries (p 212) (v) Statutory auditors of the Company were appointed at Singapore and also belong to Singapore. (vi) Maintenance of statutory books of account including record of minutes were maintained and kept at Singapore. (vii) The management of the company including its day to day affairs was conducted from Singapore. (viii) The annual general meeting of the sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 days 365 days Mr. Venu Nair 365 days 365 days 365 days Mr. Harish Thawani 365 days 365 days 365 days Technical personnal 54 days 78 days 69 days Mr. Digvijay Singh - 34 days 39 days Assessee's explanation 26. The stay of none of the above persons, except the actual period of stay of the technical personnel, is relevant in determining the period for "furnishing services" in connection with the performance of the contract. In response to the tender enquiry No. 2/42/2001 from PB in October 2001, the assessee company sent from Singapore the pre-qualification bid offer vide letter dtd. 12.12.2001 (p.57/PB). The bid document was prepared at Singapore and was sent from there to the PB. The media reports, relied upon by the CIT(A) - even if were to be regarded as correct, do not show that Mr. Harish Thawani rendered any services in this regard. The newspaper report show some knowledge of Mr. Harish Thawani about the contract which is natural considering that he was Co-Chairman of the assessee company. Shri Venu Nair, Director, did appear before the Negotiating Committee on 16.1.2001 as per letter dated 25.01.2002 (p. 60/PB) of Prasar Bharti. The acceptance of the b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the activity later leads to the performance of a core business activity. A practical starting point for the time limit is the day when the first employee of the contractor arrives at the building site". In the present case the issue is whether there was a Service PE or not with in the meaning of Art. 5(6) of the DTAA under which one has to see for how long the foreign enterprise "furnishes services" in the Contracting State. The word " furnishes services" is narrower in scope than the expression "carries on supervisory services" But even then the Ld author has taken the starting point as the date of arrival of the first employee of the contractor for performing the services required under the contract but NOT the period of stay of the persons not required to perform any activities under the contract or visiting India for other purposes ( e.g. visit of Mr. Digvijay Singh CEO) or making presumptive calculations or prime-facie incorrect computations as will be explained below:- V. Addition of 2 days for the stay of crew members on an adhoc basis. 29. The Ld CIT(A) has added two days for the duration of the crew members stay on account of their alleged advance visit vide para 7.3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eedings before drawing this unwarranted inference. (iii) Addition on account of O'Brian and Digvijay Singh's stay. 32. Shri Digvijay Singh, CEO of the assessee company (w.e.f. 26.07.2002) and Mr. Seamus O'Brien, Co-Chairman had also visited India in years under consideration to finalize technical plan and to attend co-ordination meeting for production and generation of TV signals. Assessee's explanation 33. Shri Digvijay Singh was in India for 8 days out of 34 days as per details given on page 212B of PB and 31 days in F.Y. 2003-04 as per details given on p.212C. These details were duly furnished before the Ld. CIT(A) and are available at pp. 111-112/PB for A.Ys. 2003-04 and 2004-05. Mr. K. Digvijay Singh was also a director of Thomas Cook in India for whose Board meetings; he used to be in India, as is specifically mentioned against the dates of his visit to India. Mr. Digvijay Singh has been permanently staying at Singapore at 61, Grange Road, #04-04, Beverly Hills, Singapore-249570 ever since he had been the Chief Executive Officer of the assessee company from 26.08.2002. His visit also included home leave for 21 days and meetings with Thomas Cook where he wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aid there have to be independently satisfied. Klaus Vogel in his Commentary has defined the expression 'fixed place' as under:- "The fixed place of business must be more than merely temporarily at the enterprise's disposal. A fixed place of business owned by an enterprise but placed at the disposal of a third party for the latter's own purpose (and hence not for the enterprise's) would not be a permanent establishment of the enterprise ......................" 38. Further as per the Commentary of the author Klaus Vogel:- "The enterprise must carry on its business activities in the other State through a fixed place. The term 'fixed' implies that a certain length of time is required for such business activities. The place of business must have been designed to serve the enterprise with a certain degree of permanence rather than merely temporarily ................. On the other hand of the place where the business is exercised is often changed, even a long period of activity in a contracting state does not lead to the existence of a permanent establishment". 39. Paras 5 & 6 of OECD Commentary on Article -5 of Model Tax Convention state:- "5. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the period February, 2002 to October, 2004. For rendering production services, the assessee company's production crew was present in India for a period of 34 days during F.Y. 2001-02, 56 days during F.Y. 2002-03 and 29 days during F.Y. 2003-04. The time spent in negotiating and signing the contract is not to be taken into consideration to determine the period of stay in India. Reliance is placed on Klaus Vogel's commentary which states that:- "A permanent establishment begins to exist when the enterprise commences to carry on its business through a fixed place of business". 43. Further, in relation to a building project which also requires completion of a minimum period of stay, Klaus Vogel commentary states that:- "The minimum period begins when the enterprise starts to perform business activities on the spot in connection with a building site or construction or assembly project .......... Actual work on the building project is required for the minimum time period to begin. Thus, legal acts such as the signing of a contract or registration are not part of the project and are not included in calculating the time". 44. Applying the same analogy in case of a service c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und Nos. 5 & 6 - Receipts are of business nature and not 'Fee for technical services' 46. The Assessing Officer has treated the payments received from Prasar Bharti as fee for technical services. He has given the following reasons in the assessment order for A.Y. 2002-03:- "The assessee was engaged in making available to Prasar Bharti technical knowledge for production of TV Signal for cricket series in India. These activities involve use of skill and expertise since it is a highly specialized job done with the help of supporting sophisticated equipment which not everybody can handle......... In the entire process skilled and technical services are made available to Prasar Bharti enabling it to earn revenue there from. In view of the above discussion, it is evident that the nature of services provided by the assessee falls within the purview of Clause 4 of Article 12 of the DTAA and is hence chargeable to tax." (Pg.5 of the assessment order) 47. The Ld. CIT(A) has upheld the view taken by the AO. He has held that the amounts received from Prasar Bharti are fee for technical services within the meaning of section 9(1)(vii) of the Income-tax Act, 1961 as well as under p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stated that "the authority does not express any opinion about the net profit of the applicant company and leaves the question open to by agitated by the applicant and appropriate proceedings." In assessee's case, the AO has made regular Assessment and the ratio of AAR in the above cited case is not applicable even remotely. iii. The Mumbai ITAT 'C' Bench recently had occasion in passing judgement in the case of Dy. CIT v. Boston Consulting Group Pte. Ltd. [2005] 94 ITD 31 wherein the respondent company was also governed by DTAA with Singapore and it was held that "The law is trite that in a case where India has entered into a Double Taxation Avoidance Agreement with any other country, so far as the assessees which are covered by such an agreement are concerned, the provisions of that Act will apply only to the extent to which the provisions of the Act are more beneficial to the Assessee. It is a settled legal position that whenever there is a conflict between the provisions of the tax treaty and the domestic law, the provisions & of the tax treaty will prevail. These tax treaties have a significant place in the scheme of the Indian income tax legislation, in as much ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so states that generally technology will be considered to be "made available" when the person acquiring the services is enabled to apply the technology. The fact that the provision of services may require technical inputs by person providing the service does not per se mean that technical skills, etc. are made available to the person purchasing the service. 54. In the present case, the services rendered by the assessee of producing the TV signal are technical in nature. However, by no means could it be regarded as 'making available' technical knowledge to Prasar Bharti. The agreement entered into between the assessee and the Prasar Bharti was to produce the feed that could be broadcasted on television channels. As per the said agreement, the primary services to be rendered by the assessee were of production of the feed. Any other service proposed to be rendered- training was ancillary to the primary service. The payments made by Prasar Bharti to the assessee were only with respect to the production of feed, as per the specifications provided by the Prasar Bharti and not for training. 55. During the course of hearing before the Ld. CIT(A), a reference was made to the certi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill, etc. must remain with the person utilising the services even after the rendering of the services has come to an end. A transmission of the technical knowledge, experience, skills, etc. from the person rendering the services to the person utilising the same is contemplated by the article. Some sort of durability or permanency of the result of the "rendering of services" is envisaged which will remain at the disposal of the person utilising the services. The fruits of the services should remain available to the person utilising the services in some concrete shape such as technical knowledge, experience, skills, etc.............. ....... The addition of the words in the Singapore DTAA merely make it explicit what is embedded in the words 'make available' appearing in DTAA with UK and USA." 59. In the case of NQA Quality Systems Registrar Ltd. v. Dy. CIT [2005] 92 TTJ 946/2 SOT 249 (Delhi) wherein, in the context of India - UK tax treaty, the Delhi ITAT observed as under: "......Generally speaking, technology wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e analysis of the entire case law and the examples on 'making available' given in Indo-US Tax Treaty, it was held that the person acquiring the service must be made available and he should be able to use the technology without the assistance of the provider of the service. 63. In addition to the above, the assessee company also relies upon the following decisions:- (I) Payment not fee for technical services even under Explanation-II to section 9(1)(vii) of the Act (i) Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53/119 Taxman 496 (Mad) (pp. 583-588/PB-III) - Fee for rendering standard facility is not fee for technical services (ii) CIT v. Sundwiger EMFG & Co. [2003] 62 ITR 110/129 Taxman 776 (AP) (pp. 589-591/PB-III) - Services rendered by experts for delivery and installation of a product are not fee for technical services (iii) CIT v. Estel Communications (P) Ltd. [2008] 318 ITR 185 (Delhi) (pp. 592-593/PB-III) - Payment for use of internet facility, though requiring use of sophisticated equipment, is not fee for technical services (iv) Intertek Testing Services India (P) Ltd., In re [2008] 307 ITR 418/175 Taxman 375 (AAR - New Delhi) (pp.594-607/PB-II ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e following rulings of AAR and High Courts:- (i) Ericsson Telephone Corporation India AB case (supra) (ii) No. P/6 of 1995, In re [1998] 234 ITR 371 (AAR) (iii) Timken India Ltd; In re [2005] 273 ITR 67/143 Taxman 257 (AAR - New Delhi) (iv) DHV Consultants BV, In re [2005] 77 ITR 97/147 Taxman 521 (AAR - New Delhi) (v) International Operating Services Ltd. v. CIT [1997] 228 ITR 599/[1998] 96 Taxman 215 (Kar.). 67. The reliance placed by the Ld. CIT(A) on the above rulings of AAR and High Court of Karnataka is totally misplaced as the facts of the assessee company's case are different from the facts/issues involved in these cases. First of all, none of the above case relates to the DTAA between India and Singapore. Secondly, the payments received from Prasar Bharti are in the nature of business receipts and not fee for technical services as they were to produce a TV feed of cricket matches. The assessee company's case is governed by Article-7 of DTAA between India and Singapore, which deals with taxability of business profit and hence only net income/loss is to be considered for taxation. Even for the sake of argument, and, without prejudice and in any way agreein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upheld the action of the A O vide discussion in paras 9 to 11 on pp 68-79 of his order. He has observed that various companies in India namely, Coca-Cola, Pepsico Food, LG Electronics etc signed contracts with the assessee company for advertising their products and since the assessee company provided advertisement to various companies located in India through live telecast which was viewed by customers in India, income arising from advertisement is taxable in India. He also held in para 9.3.1 on page 70 that the advertisement income is taxable u/s 9(1) of the Income-tax Act, 1961 as the source of income is in India. He has further held in para 9.3.2 that it is also taxable under Article-7(1) of DTAA between India and Singapore because the "assessee had carried out the core activities of advertisement business through fixed place PE in India". He confirmed the estimation of profit from advertisement by observing that the same is correct as per rule-10 of the income-tax Rules, 1962. The Ld. CIT(A) has relied upon the following judgements to confirm the quantum of the additions made by the AO:- (i) CIT v. ONGC as Representative assessee of Rolls Royce (P.) Ltd. [2008] 170 Taxman 56 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1 (Mum.) (Mag.) (pp.732-733/PB-III) (No activity in India- no source of income in India with in the meaning of section 9(1)(i) of the Act). (iv) Speciality Magazines (P.) Ltd, In re [2005] 274 ITR-310/144 Taxman 153 (AAR - New Delhi) Advertisements collected in India for publication abroad are not taxable in India. (v) Board's Circular No. 23 dated 23-07-1969 (applicable to the three years under consideration)- Para 5- No profit attributed to purchase of goods in India (in parity with purchase of advertisements in India to be telecast from Sri Lanka) 73. Alternatively, it is contended that the estimate made by lower authorities is highly excessive and arbitrary. 74. Learned DR supported the order of the learned CIT(A). 75. We have heard the rival contentions and perused the relevant material on record. The nature of assessee's work as contracted with Prasad Bharti has been narrated above. The first question which is to be determined by us is whether the assessee's activity constituted business income or fees for technical services as the determination of this important aspect will decide the taxability of the assessee having a PE or otherwise. 76. The relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of services of technical or other personnel) which make available technical knowledge, experience, skill, know-how or processes which enables the person acquiring the services to apply the technology. The clause (c) of above paragraph is also relevant. As per this clause, the term 'fee for technical services' means the payment to any kind to any person in consideration of rendering of any technical services which consist of development and transfer of a technical plan or technical design. 80. The list of activities are listed by CIT(A) in his order from pages 22 to 25. In view of these activities, it is evident 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 technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pectfully follow on this issue. Therefore, in view of these facts, we have no hesitation to hold that the affairs of the assessee company were carried out in India. 83. Coming to the observations about the number of days on the issue of service PE or fixed place PE, in our view, the assessee has led some sufficient evidence to establish the fact that the TV crew, Mr. Seamus O'Brien, programmer and engineers, Mr. Venu Nair, Mr. Harish Thawani, technical personnel and Mr. Digvijay Singh did not stay for more than 10 days in each year. The number of days projected by the AO and the CIT(A) is on presumptions and ignoring the fact that the assessee is a part of a worldwide group and the reports of e-mail or Mr. Thawani's interview was in respect of the overall activities of the group. In our view, the 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, in our view, do not give an objective picture of the actual days of the stay of the employees. In view of these facts, we find merit in the contentions of the assessee that the number of stay of his representatives is less than 90 days cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the issue is that the assessee does not have a PE in India, the matches were not played in India, the telecast of the matches was not in India and the indirect benefit which might have been derived by some of the Indian viewers cannot be held to be incremental for Indian companies on assumption. 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. In our view, the advertisement revenue has no attribution to India and in the absence of any PE, we have to hold that this revenue cannot be taxed in India. Our view is supported by the following judgments :- (i) Lufthansa Cargo India (P) Ltd. (supra). (ii) Set Satellite (Singapore) Pte Ltd. (supra). (iii) DHL Operations B.V. (supra). (iv) Speciality Magazines P. Ltd. (supra). (v) Board's Circular No.23 dated 23.7.1969 (supra). 88. Apropos the chargeability of interest under Section 234B & C, we find merit in the argument of the learned counsel for the assessee that the receipts of the assessee were liable to TDS under Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X
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