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Director of Income Tax (IT) – II, Mumbai Versus M/s. B4U International Holdings Limited,

2015 (5) TMI 277 - BOMBAY HIGH COURT

Permanent establishment - business of telecasting of TV channels such as B4U Music, MCM etc - Dependent agent of assessee - AO observed that affiliated entities of the assessee are basically an extension in India and constitute a permanent establishment of the assessee within the meaning of Article 5 of the Double Taxation Avoidance Agreement (DTAA). - TDS liability u/s 195 - transponder charges - Held that:- The Tribunal concluded that after referring to the clauses in the agreement between the .....

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reading of the agreement. Thereafter Indo-Mauritius DTAA has been referred to and particularly paragraphs 5.4 and 5.5. and the Tribunal concludes that the requirement that the first enterprise in the first mentioned State has and habitually exercised in that State an authority to conclude contracts in the name of the enterprise unless his activities are limited to the purchase of goods or merchandise for the enterprise is a condition which is not satisfied. Therefore, this is not a case of B4U .....

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isions relating to avoidance of tax by substituting section 92 to 92F by the Finance Act of 2001 with effect from 1st April, 2002. Therefore, such compliance has to be made with effect from assessment years 2002-03 relevant to which is the previous year commencing from 1st April, 2002. In any event, we find that the Tribunal has rightly dealt with the alternate argument by referring to the Revenue Circular 742. There, 15% is taken to be the basis for the arm's length price. Nothing contrary to t .....

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nclusions and which are consistent with the factual materials and the principles of law laid down above are neither perverse nor vitiated by any error of law apparent on the face of the record. - Decided in favour of the assessee. - INCOME TAX APPEAL NO. 1274, 1557, 1599, 1621 OF 2013 - Dated:- 29-4-2015 - S.C. DHARMADHIKARI AND A.K. MENON, JJ. For The Appellant : Mr. Tejveer Singh For The Respondent : Mr. J.D. Mistri, senior counsel with Mr. Atul K. Jasani JUDGMENT : [Per S.C. Dharmadhikari, J. .....

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rm's length no further profits is attributable despite agent being dependent ? (3) Whether on the facts and circumstances of the case and in law, the Hon'ble ITAT is correct in holding that assessee need not deduct tax u/s 195 and subsequently there can be no disallowance u/s 40(a)(i) despite the fact that the transponder charges being a consideration for "process" as clarified in terms of Explanation (6) to section 9 of the I.T. Act ? (4) Whether on the facts and circumstances .....

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pany. The Revenue proceeded against it on the footing that it is engaged in the business of telecasting of TV channels such as B4U Music, MCM etc. It is the case of the Revenue that the income of the assessee from India consisted of collections from time slots given to advertisers from India through its agents. The assessee claimed that it did not have any permanent establishment in India and has no tax liability in India. The Assessing Officer did not accept this contention of the assessee and .....

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as an independent agent of the assessee. Alternatively, and assuming that it could be treated as such if a dependent agent is paid remuneration at arm's length, further proceedings cannot be taxed in India. 4. The Revenue preferred an appeal to the Tribunal and essentially on this aspect. The Tribunal having dismissed the Revenue's appeals, the matter is carried before us. Our jurisdiction under section 260-A of the Income Tax Act 1961 (hereinafter referred to as the "IT Act") .....

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Company Inc. [2007] 292 ITR 416. Mr. Tejveer Singh would submit that the transfer pricing analysis was not submitted and mere reliance on a circular of the Revenue / Board would not suffice. If the transfer pricing analysis did not adequately reflect the functions performed and the risks assumed by the agent in India, then, there would be need to attribute profits of the permanent establishment for those functions/risks. That had not been considered. Mr. Tejveer Singh also submitted that the B4 .....

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ngible and could not be termed as goods and merchandise in respect of export of advertisement films. Such findings of the Assessing Officer could not have been disturbed by the Commissioner (Appeals) and by the Tribunal. Therefore, the Tribunal's orders raise the above questions and which are substantial question of law. 6. It is argued that even with regard to the Question (C), the assessee cannot be said to be relieved of the obligation of deducting tax under section 195 of the Income Tax .....

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on behalf of the assessee raised a preliminary objection and pointed out that though the appeals are for distinct assessment years, the Revenue has filed appeals, raising same questions of law. The Tribunal order may be common but the grounds for each assessment years and in the Memos of Appeal before the Tribunal are not necessarily common. Therefore, the grounds in the Memos of Appeal of the Revenue and the assessee being distinct and it being not indicated as to which part of the Tribunal ord .....

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all the appeals. On merits it is submitted by him that none of the findings and conclusions rendered by the Tribunal can be termed as perverse or vitiated by any error of law apparent on the face of the record. In that regard, he submits that the Tribunal has held that B4U cannot be treated as dependent agent of the assessee. Assuming that it can be so treated, it has been remunerated at arm's length. Therefore, no further profit is attributable. Mr. Mistri then points out that if the Tribu .....

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two facets. One being whether it is arm's length price or not and secondly whether when arm's length price is paid, whether the liability of the principal gets extinguished. It was pointed out that 15% is the norm for advertising agency and as determined by Circular No.742 dated 2nd May, 1996 which has been referred to in paragraph 19 of the Tribunal order dated 1st May, 2012 for assessment year 2001-02 in Income Tax Appeal No.880/Mum/2005 together with Cross Objection No.118/Mum/2010. I .....

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peals). As far as that order is concerned, it is subject matter of the Revenue's Income Tax Appeal No.1599 of 2013. There, the Revenue raised the ground that the assessee was having a dependent agent viz. B4U and that the Commissioner erred in holding that it cannot be treated as such. Further, even if the B4U is held to be a dependent agent, it is being paid remuneration at arm's length. Therefore, further profits cannot be taxed in India. Insofar as these grounds are concerned, the adm .....

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rtisement collecting agents of the assessee. The permissions were granted to M/s. B4U Multimedia International Limited and M/s. B4U Broadband Limited. In the computation of income filed along with the return, the assessee claimed that as it did not have a permanent establishment in India, it is not liable to tax in India under Article 7 of the DTAA between India and Mauritius. The argument further was that the agents of the assessee have marked the ad-time slots of the channels broadcasted by th .....

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y paragraph 5 of Article 5 indicates that an enterprise of a contracting State shall not be deemed to have a permanent establishment in the other contracting State merely because it carries on business in that State through a broker, general commission agent, or any other agent of independent status, where such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted exclusively or almost exclusively on behalf of that enterprise, he w .....

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ion of mind and hence B4U is not an dependent agent. Nearly 4.69% of the total income of B4U India is commission / service income received from the assessee company and, therefore, also it cannot be termed as an dependent agent. As far as the alternate contentions are concerned, the First Appellate Authority held that the assessee and B4U India were dealing with each other on arm's length basis. 15% fee is supported by Circular No.742. Thus it was held that no further profits should be taxed .....

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on could not have been drawn. Barring this agreement, there is no material or evidence with the Assessing Officer to disprove the claim of the assessee that the agent has no power to conclude the contract. This finding is rendered on a complete reading of the agreement. Thereafter Indo-Mauritius DTAA has been referred to and particularly paragraphs 5.4 and 5.5. and the Tribunal concludes that the requirement that the first enterprise in the first mentioned State has and habitually exercised in t .....

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mp; Co. (supra) can raise any substantial questions of law. 11. We are not agreement with Mr. Tejveer Singh when he submits that the Supreme Court judgment in the case of Morgan Stanley & Co. will not apply. In that regard he relies upon the conclusion rendered by the Hon'ble Supreme Court. That conclusion is that there being no need for attribution of further profits to the permanent establishment of the foreign company where the transaction between the two was held to be at arm's l .....

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d, therefore, no profits can be attributed to the assessee. Mr. Tejveer Singh would submit that the Tribunal failed to note that the situation would be different if the transfer price analysis did not adequately reflect the functions performed and the risks assumed by the enterprise. In such a case, there would be need to attribute profits to the permanent establishment for those functions / risks that had not been considered. Mr. Tejveer Singh's argument is that the assessee had not subject .....

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pliance has to be made with effect from assessment years 2002-03 relevant to which is the previous year commencing from 1st April, 2002. In any event, we find that the Tribunal has rightly dealt with the alternate argument by referring to the Revenue Circular 742. There, 15% is taken to be the basis for the arm's length price. Nothing contrary to the same having been brought on record by the Revenue before the Commissioner as also the Tribunal, it rightly concluded that the judgment of the H .....

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of law apparent on the face of the record. 13. Strictly speaking the answers on questions (1) and (2) and which are common for all the appeals disposes of all the appeals against the Revenue and in favour of the assessee. However, the argument of Mr. Tejveer Singh is that the Tribunal and equally the Commissioner has dealt with other two questions. They are being projected before us and in relation to the assessment years 2004-05. It is submitted that the assessee was obliged to deduct tax at s .....

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