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2015 (4) TMI 670 - ITAT DELHI

2015 (4) TMI 670 - ITAT DELHI - TMI - Taxability of advertisement revenue & subscription revenue - Tax Treaty between India and USA - Article 27 of Treaty relating to Mutual Agreement Procedure (‘MAP') - rate of tax @10% or 20% - Interest u/s 234B where entire income is subject to TDS u/s 195 - Held that:- The issue has been decided in favour of the assessee by the CIT(A) for AY 2004-05 wherein it was observed that, the Appellant has a PE in India, both Advertisement and Subscription revenue .....

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tself to be treated as taxable income of the assessee in India. - Decided against the revenue.

Interest u/s 234B - Following the decision of Jurisdictional High Court of Delhi in the case of Jacabs Civil Incorporated [2010 (8) TMI 37 - DELHI HIGH COURT] and the decision of ITAT “C” Bench Delhi in the case of G.E. Energy Parts Inc. [2014 (7) TMI 683 - ITAT DELHI], we are inclined to hold that the CIT(A) was right in holding that the interest u/s 234B of the Act is not leviable in the c .....

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ri Chandra Mohan Garg JJ. For the Appellant : Smt. A. Misra, CIT DR For the Respondent : Shri Kapil Goel, Adv. ORDER Per Chandra Mohan Garg, JUDICIAL MEMBER The above captioned appeals of the revenue and cross objections of the assessee have been filed against the order of the CIT(A)-XI, New Delhi both dated 19.6.2012 in Appeal No. 57 and 58/10-11 for AY 2004-05 and 2006-07 respectively. The assessee has raised the similarly worded grounds in both the appeals which read as under:- 1. On the fact .....

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n holding that interest u/s 234B is not chargeable in the assessee's case, by relying upon the decision of Hon'ble High Court of Delhi in the case of Jacob Civil Incorporated, without appreciating that the levy of interest 234B is mandatory as held in the case of CIT Vs Anjum M.H. Ghaswala & Others 252 ITR 1 (SC). 2. Briefly stated the facts giving rise to these appeals are that the assessee had filed its return of income for AY 2004-05 on 31.4.2004 declaring at nil income and assess .....

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ncluding India. Discovery Communications India (DCIN) is a company incorporated in India, under the provisions of the Companies Act, 1956 with whom the assessee company had entered into an Advertising Sales Representation Agreement appointing the DCIN as its exclusive advertising sales representative in India for the purpose of marketing the channel. The consideration for the services rendered under the aforesaid agreement, the assessee paid DCIN commission @15% of the ad sales revenue. By way o .....

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by applying the ratio of the Circular No. 742 issued by the CBDT which required a foreign telecasting company (FTC) not having Permanent Establishment (PE) in India (within the meaning of the relevant Treaty) to compute its income based on the method prescribed therein. Accordingly, since the assessee being an FTC neither had a PE nor it maintained country-wise accounts of its operations in India. Therefore, the aforesaid Circular No. 742 was applicable to the assessee as per contentions of the .....

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e submitted from time to time. Finally, the AO completed assessment for AY 2004-05 at the total income of ₹ 6,00,31,583. In the similar line, the AO finalised the assessment for AY 2006-07 on 19.12.2008 determining the total income of assessee company at ₹ 7,05,80,097. The AO in both the years made additions to the returned income inter alia on the following grounds:- * DCIN forms a dependent agent PE of the applicant In India (under treaty). • The appellant is not entitled to t .....

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₹ 39,50,424/-. 4. Being aggrieved by the above assessment orders, the asessee preferred appeals before the CIT(A) which were partly allowed on both the grounds as reproduced hereinabove. Ground No.1 5. Apropos ground no. 1, ld. DR submitted that the CIT(A) has erred in holding that only 10% of Subscription Revenues are taxable as business income against the entire such revenues taxed by the AO as Royalty, without considering that every assessment year is an independent year and further, M .....

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clause (v) of Explanation 2 to section 9(1)(vi) of the Act and rightly taxed the same at 20% of gross basis as per provisions of the Act. Ld. AR also contended that the consideration paid by the assessee company is also covered by the royalty as given in Article 12(3) of the tax Treaty between India and USA. Therefore, action of the AO was quite justified and was based on cogent reasons. 7. Ld. DR further contended that the CIT(A) while dealing with ground no. 3 and 4 of the assessee wrongly co .....

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nsel for assessee firstly has drawn our attention towards para no. 2.2.1 and 2.2.2 of the statement of facts submitted before the CIT(A) during the first appellate proceedings and submitted that as per licence agreement between assessee and DCIN after collecting subscription revenue from the cable operator as a right to retain the same and in turn, the DCIN would incur necessary costs for the promotion of the channel and specially when the entire subscription revenues were duly offered to tax by .....

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less and until there is substantial change in the facts and circumstances or law position in the subsequent years in taking a different or deviated stand. Ld. Counsel of the assessee further placed copies of the assessment order for AY 2008-09 dated 5.10.2011 assessment order for AY 2009-10 dated 27.11.2011 and assessment order for AY 2010-11 dated 26.2.2014 and submitted that the advertisement and distribution revenues have been consistently taxed by the department @10%, therefore, for the asse .....

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sia Inc.), one of the appellant's group company had earlier invoked the provisions of Article 27 of Treaty relating to Mutual Agreement Procedure ( MAP') for AY 2000-01 and AY 2001-02. A MAP resolution dated January 02, 2006 was thereafter issued for AYs 2000-01 and AY 2001-02. Under the aforesaid MAP resolution, the competent authorities of both India and US had agreed that 10 percent of distribution and advertisement revenues earned by DALLC or DAI from India should be taxable in India .....

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08 was as per the order of the DRP dated 30/09/2010 whereby it was held that:- "Before DRP the assessee has filed a letter dated August 20,2010, wherein it is explained that in the case of a group entity, Discovery Asia Inc, USA ('OAI'). The Competent Authorities of India and US agreed that OAI has a dependent agent PE in India in the form of DCIN. It was resolved that the income of dAI from Advertisement revenues and Subscription revenues be taxed under Article 7 of the Treaty i.e .....

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ubscription revenues were treated as business income and 10% of Gross Advertisement and Subscription revenues were treated as taxable income in India. Now as we have already concurred with the AO's conclusion that DCIN constitutes the assessee's PE in India for both Advertisement and Subscription revenue, in line with the above MAP order, we hold that both advertisement and subscription revenues constitute assessee's business income and that 10% of the gross advertisement and subscri .....

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f DAI MAP resolution (concluded between the two Competent Authorities) and the order of the DRP wherein Advertisement and Subscription revenues were treated as business income and 10'10 of Advertisement and Subscription revenues were treated as taxable income in India. On the basis of the above position, on examination of the documents placed on record by the appellant, and to ensure consistency of assessment over the years, by following the basis of taxability of the Advertisement and Subsc .....

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he consistency of assessment over the years, by following the basis of taxability of the advertisement and subscription revenue constitute business income of the assessee in India and 10% of the advertisement and subscription revenue itself to be treated as taxable income of the assessee in India. We also note that the DRP in the order dated 30.9.2010 for AY 2007-08 for the subsequent assessment year has also adjudicated the issue on the same line which has been followed by the CIT(A) in the imp .....

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34B is not chargeable in the assessee's case, by relying upon the decision of Hon'ble High Court of Delhi in the case of Jacob Civil Incorporated, without appreciating that the levy of interest 234B is mandatory as held in the case of CIT Vs Anjum M.H. Ghaswala & Others (supra). 12. Replying to the above, ld. Counsel of the assessee placing reliance on the decision of ITAT C Bench dated 16.7.2013 in ITA No.6049/Del/2010 and other appeals in the case of ADIT vs G.E. Energy Parts Inc. .....

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question in favour of the assessee by holding that the Tribunal has rightly held that the assessee was not liable to pay any interest u/s 234B of the Act for the failure to pay dividend as per provisions of section 208 and 209 of the Act. 13. On careful consideration of above rival submissions, we note that the CIT(A) has decided the issue in favour of the assessee with following conclusion:- Regarding u/s 234B of the Act, the appellant has submitted that the appellant is a non-resident and tax .....

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