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2015 (9) TMI 793 - ITAT MUMBAI

2015 (9) TMI 793 - ITAT MUMBAI - TMI - Estimation of net profit from advertisement revenue - Held that:- So far as the issue relating to addition on account of ‘advertisement revenue’ and ‘distribution revenue’ the same stands decided in favour of the assessee by the Tribunal, which has been affirmed by the Hon’ble High Court in AY 1999-2000 and also in subsequent years. - Decided in favour of assessee

Treatment to distribution receipt as ‘Royalty Income - Held that:- As regards this .....

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he decision of DIT vs NGC Network Asia LLC, (2009 (1) TMI 174 - BOMBAY HIGH COURT).- Decided in favour of assessee

Non-grant of TDS credit - Held that:- DRP has given direction to the Assessing Officer, however in the final assessment order Assessing Officer has not done so. Accordingly, we direct the Assessing Officer to give credit of TDS after verification of records. - Decided in favour of assessee - ITA No. : 2870/Mum/2010, CO No. : 13/Mum/2011, ITA No. : 2523/Mum/2010 - Dated:- .....

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t year 2006-07. Since issues involved are common in both the years arising out of the identical set of facts, therefore, same were heard together and are being disposed off by way of this consolidated order for the sake brevity. 2. We will first take up revenue s appeal being ITA 2870/Mum/2010 for the assessment year 2005-06, vide which, following grounds have been raised :- 1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that the Assessi .....

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the case and in law, the Ld. CIT(A) erred in holding that penalty u/s 271B is not leviable ignoring the fact that no penalty was levied as per the assessment order and that the same is an independent proceedings . 3. At the outset, Ld. Senior Counsel, Shri Percy Pardiwalla, submitted before us that all the issues raised by the revenue are squarely covered by the decision of the Tribunal in the assessee s own case for the earlier years, which have also been confirmed by the High Court also. 4. As .....

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f the assessee. 5. After hearing the parties and on perusal of the impugned order, we find that the Ld. CIT(A) has relied upon the decision of the Hon ble Bombay High Court in the case of the assessee which is now reported in 307 ITR 205. The assessee is a Singapore based company and also the tax resident of Singapore. It has entered into an agreement with M/s Multi Screen Media Private Limited (MSM) for canvassing of ad airtime for SET and SET MAX. The assessee had also entered into distributio .....

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garding distribution revenue, raised vide ground no. 2 the same plea was taken. However, the Assessing Officer treated the MSM as PE of the assessee in India for marketing ad air time and assessed 10% of gross ad revenues amounting to ₹ 377,148,134/- in India. Regarding distribution activity, the Assessing Officer taxed it as royalty income under Article 12 and accordingly, same was taxed on a gross basis @ 15%. 6. The Ld. CIT(A), after discussing the entire issue at length and also relyin .....

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llowed the decision of the Supreme Court in the case of Morgan Stanley. The Supreme Court in Morgan Stanley s case at para 33 of the ruling has held as follow: As regards attribution of further profits to the PE of MASCO where the transaction between the two are held to be at arm s length we hold that the ruling is correct in principle provided that an associated enterprise (that also constitutes a PE) is remunerated on arm s length basis taking into account all the risk taking functions of the .....

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lysis appropriately reflects the functions and risks assumed by the enterprise. In this regard, the Assessing Officer in his remand report has stated that the dependant agent (DA) has a very limited role to play in the sale of advertisement time slot. Its activity is similar to an agent. It does not issue invoices to the customers, it has no control over the sale proceeds & receives a fixed percentage as commission on account of its activities, which may be a certain percentage of the total .....

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as an agent to market the advertisement airtime slots of the Appellant s TV channels in India. The payments from advertisers are collected by MSM and remitted to the Appellant after deduction of its service fee and appropriate taxes. All business risks pertaining to the advertisement receipts are taken by and borne by the Appellant. MSM, as an agent carries out of the functions of canvassing sale of airtime and collection and remittance of advertisement revenues to the Appellant. It is submitted .....

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s length remuneration has been paid by the Appellant to MSM in respect of its international transactions. I have considered the submissions of the Appellant. In my view the ratio laid down by the Supreme Court in Morgan Stanley s case which has been followed by the High Court in the Appellant s case for AY 1999-00 is squarely applicable in the present appeal before me for AY 2005-06. In the present case, the contentions of the Assessing Officer are not acceptable that MSM as a dependent agent d .....

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y the learned TPO in the case of both the Appellant as Payer and of MSM as the Receiver of the fees. Further, the orders of the Transfer Pricing Officers have been accepted by the AO as well. Thus, it is an undisputed fact that the Appellant has remunerated MSM on an arm s length basis for the marketing activities carried on by MSM on behalf of the Appellant. Accordingly, since the facts for AY 2005-06 in respect of the marketing of ad airtime by MSM on behalf of the Appellant are no different f .....

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rm s length. Accordingly, I hold that the facts and the issue in the present case is squarely covered by the decision of the Bombay High Court in case of the Appellant for AY 1999-2000 and accordingly the Appellant is not taxable in India in respect of advertisement revenues. As regards the other grounds raised in point 2.1 to 2.7 to Ground 2, by the Appellant in respect of taxability of ad revenues from its own channel, since it has already been held that based on the Supreme Court decision of .....

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this issue was decided in favour of the assessee. The relevant observation and finding of the CIT(A) is as under :- I find considerable merit in the arguments put forth by the Appellant that subscription income is in the nature of business income and not royalty . Further, I have also noted that in the past, for AY 1999-00, AY 2000-01, AY 2002-03, the AO while completing the assessment had held distribution income to be in the nature of royalty . On appeal, it is seen that for the above mention .....

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ion revenues differently for AY 2005-06. In view of the above, I am of the opinion that distribution revenues are not in the nature of royalty income under the Act or the Treaty. Accordingly, as has been held in the earlier assessments and appellate proceedings in the case of the Appellant, distribution revenues earned by the Appellant are taxable as business income in the hands of the Appellant. As per Article 7 of the Treaty, distribution revenues being in the nature of business income would b .....

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ntical facts pertaining to the distribution business of the Appellant, it has been held that the Appellant has a PE in India in the form of MSM, for the distribution business as well. Accordingly, in view of the fact that the fundamental aspect relating to the distribution business carried out between the Appellant and MSM in India has not changed over earlier years. I find no merit in the contention of the AO that for distribution activity, the Appellant has no PE in India. Thus, in view of the .....

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MSM extinguishes the tax liability of the Appellant in India. Accordingly, it has been submitted that distribution revenues earned by the Appellant for AY 2005-06 should not be liable to tax in India. As discussed in my order at par 3.3 in relation to the taxability of advertisement revenue, in view of para 33 of the Supreme Court decision in the case of Morgan Stanley, it is also important to determine whether the transfer pricing analysis appropriately reflects the functions and risks assumed .....

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this context the Appellant has submitted in respect of its distribution activity, the Appellant is engaged in the business of acquisition of audiovisual programmes including films, formation and operation of cable and satellite television channels and the marketing and distribution of such channels. The up linking operations of the Appellant are carried out from Singapore. In order to earn distribution revenues, the Appellant has appointed MSM as the sole distributor of its Channels in India fo .....

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has been followed by the High Court in the Appellant s case for AY 1999-00 is squarely applicable in the present appeal before me for AY 2005-06. In the present case, the contentions of the Assessing Officer are not acceptable as it is seen that other then the functions carried on by the agent, i.e., MSM in India, no other functions of the Appellant are carried on in India. Further, it has already been established before the Transfer Pricing Officers that the Appellant has paid an arm s length f .....

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that my predecessor, in the appeal filed by the Appellant for AY 2004- 05, has held that based on the order of the High Court in the Appellant s own case for AY 1999-00, since MSM has already offered its share of distribution revenues to tax in India, nothing further remains to be taxed in India in the hands of the Appellant in respect of the distribution revenues . 8. Before us, the Ld. Senior Counsel, Shri Pardiwalla, submitted that both the issues are covered not only by the decision of Hon .....

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finding have been given in the earlier years by any of the authorities. Further, now the issue of royalty has to be examined afresh. 10. In the rejoinder, the Ld. Senior Counsel submitted that in the earlier years this issue was not only decided in favour of the assessee but in the appeal filed before the High Court, the revenue has not challenged this issue. Hence, the issue of treating their distribution receipts as royalty income stands decided in favour of the assessee, which has attained fi .....

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e issue relating to addition on account of advertisement revenue and distribution revenue the same stands decided in favour of the assessee by the Tribunal, which has been affirmed by the Hon ble High Court in AY 1999-2000 and also in subsequent years. As regards the issue of distribution receipts treated as royalty income , we find that this has been treated as business income and such a finding or conclusion now have attained finality, as pointed out by the Ld. Senior Counsel. Thus, finding of .....

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(Bom). Accordingly, ground no. 3 raised by the revenue stands dismissed. 13. Regarding ground no. 4, it has been agreed by both the parties that this ground is purely academic, accordingly the same is dismissed as such. ITA No. : 2523/Mum/2010, Assessee s appeal : AY 2005-06 14. In this appeal, the assessee has raised following grounds:- Taxability of Distribution Revenues 1. erred in enhancing the assessment by holding that the Appellant has a Dependant Agent PE in India in the form of Multi S .....

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ion revenues without appreciating that, after analyzing the facts of the case, the learned DDIT had held that the Appellant does not have a Dependent Agent FE in India in respect of the distribution revenues. 3. without prejudice to above, even assuming that interest received is taxable for the year under consideration, erred in confirming taxation of interest received under Section 244pt the Act under Article 11(4) of the India-Singapore Treaty (the "Treaty"), on the basis that the in .....

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nnected with the alleged FE. 5. without prejudice to above, even assuming that the interest received under Section 244A is effectively connected with the Appellant's PE in India, then so much of the interest that is attributable to the alleged Dependent Agent PE should only be taxed under Article 11(4) and balance interest should be taxed under Article 11(2) of the Treaty. The Appellant craves to consider each of the above grounds of appeal without prejudice to each other and craves leave to .....

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been paid at Arm s length price, therefore, this ground becomes purely academic. 16. As regards the issue relating to taxability of interest received u/s 244A, it is admitted that, so far as taxability of interest u/s 244 is concerned, under Article 11(4) of India Singapore Treaty, the same is now covered by the decision of the Hon ble Special Bench in the case of ACIT vs Clough Engineering Ltd, reported in [2011] 09 ITR (Trib) 618 (Delhi)(SB). Accordingly, we hold that so far as the issue of ta .....

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