TMI Blog2010 (7) TMI 1050X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia, no income can be attributed to the PE in India, even if BWIPL is taken to be the PE of the assessee in India. Therefore, it has been argued that the question of existence or otherwise of the assessee s PE in India is only of academic interest. In order to support that the income attributed to the aforesaid PE in India is nil, reliance has been placed on the decision of the Tribunal in the case of the assessee in ITA No. 1188(Del)/2006 for assessment year 2000-01 dated 15.01.2010, a copy of which has been placed in the paper book at page numbers 129 to 157. It may further be mentioned that the ld. counsel was appraised that if there is no PE in India, the question of attributing any income to it would not arise and, therefore, it is the implicit inference of the aforesaid decision that there is the PE in India, it has been submitted that the question is nonetheless of academic interest only. When the ld. counsel was questioned as to whether grounds in this behalf may be treated as not pressed, it has been submitted that that is not the case. Therefore, we are faced with a piquant situation in which some grounds exist on record but the ld. counsel does not want the grounds to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anagement and control and was managed and controlled by subsidiary of the appellant; (b) Appellant had provided financial support to BWIPL by advancing it huge loan; BWIPL was working wholly and exclusively for promoting business of appellant in India; (c) BWIPL was habitually exercising in India an authority to negotiate and conclude advertisement contract with Indian advertiser on behalf of appellant; (d) BWIPL habitually secured under wholly and exclusively for the appellant; and (e) the source of advertisement revenue was located in India which was in form of Indian advertiser and viewership of BBC World Channel. 2.3 The ld. CIT(Appeals) was of the view that the facts are identical in this year. Therefore, on the basis of aforesaid facts and findings given in assessment year 2000-01, it was held that the assessee has business connection in India . 2.4 In assessment year 2000-01, a finding was also given that BWIPL is financially and functionally dependent upon the assessee through which the assessee has performed its business activities in India on a regular basis. Therefore, it was held that in absence of any distinction in facts, the assessee has a depende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o be received directly by the assessee. This was to be through EEFC account or on specific RBI permission. For the services provided by BWIPL, it was to receive consideration of 15% marketing commission of the advertisement revenues received by the assessee from Indian advertisers. On 1.2.1999, the assessee and BWIPL executed another airtime sales agreement. This was for rupee denominated deals concerning soliciting orders for Channel airtime sales, as was the case under the aforementioned earlier agreement. This second agreement was executed so as to enable BWIPL to collect payment from Indian advertisers for sale of airtime on behalf of the assessee and to remit the same to the assessee. BWIPL was to be paid, again, commission @ 15%. 11. In the return of income filed for the year under consideration, the assessee showed income at rupees nil. It was claimed that the assessee would not be taxable in India on its income concerning airtime sales. The basis for such claim was that the airtime income sales was business profits of the assessee, since the assessee did not have a permanent establishment in India. Later on, the return was revised, disclosing an income of ₹ 81,86,7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide order dated 27.1.2006, i.e., the impugned order, the ld. CIT(A) confirmed the assessment order. Placing reliance on CBDT Circular No. 742 datead 2.5.1996, the ld. CIT(A) further estimated the assessee s profits at the rate of 10% of the total advertisement revenues allocable to India. 14. Before us, however, the issue of business connection or permanent establishment was not addressed. The learned counsel for the assessee has, rather, stressed and dilated upon the assessee s stand that BWIPL has been remunerated on the basis of a fair transfer price, due to which, nothing further remains to be taxed in India. It has been argued that having examined the two aforementioned airtime sales agreements, the department has itself accepted that commission of 15% paid to BWIPL is a fair Transfer Price. Reference concerning this has been made to the Transfer Pricing Order for assessment year 2002-03 in the case of BWIPL. A copy thereof has been placed on record. In that order, the TPO accepted that the transaction was at arms length price. It was held that the CUP method selected by BWIPL for determining the arms length price of the commission income earned by it, was acceptable; tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y retain 15% of the advertisement revenues of the service charges; that therefore, the said Circular also supported the stand that the payment of 15% service fee was payment at arms length; that the said amount of 15% had been reduced to 12.5% of the net advertisement revenue by virtue of a revised agreement entered into between the parties; and that simultaneously SET Singapore had also, vide an agreement, entitled SET India to enter into agreements to collect and retain all subscription revenue. 15. Galileo International Incorporation , 114 TTJ 289 of the Delhi Bench of the Tribunal has also been relied on behalf of the assessee. Therein, the Indian company made booking on a computerized reservation system for the foreign assessee. This generated income for the foreign company. It was held that the Indian company was a dependent agent permanent establishment of the foreign company. Concerning attribution of profits for the permanent establishment, it was observed that only 15% of the revenue generated from the bookings made within India was taxable in India and it was this proportion which was to be adopted for computing profit attributable to the permanent establishment. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided that an associated enterprise, which also constituted a permanent establishment, was remunerated on arm s length basis, taking into account all the risks taking functions of multinational enterprises and that in such a case, nothing further would be left to attribute to the permanent establishment. 18. As contended , for the year under consideration, Transfer Pricing guide lines were not applicable. That being so, reliance on behalf of the assessee on SET Satellite (supra) cannot at all be said to be misplaced. Therein also, the assessment year being 1999-2000, the Transfer Pricing guide lines were not applicable, as they became applicable from the next year. Pertinently, the Hon ble Bombay High Court, in the case of SET Satellite (supra), has held that if the correct arms length price is applied and paid, nothing further would be left to be taxed in the hands of the foreign enterprice. Morgan Stanley (supra) as well as CBDT Circular No. 23 (supra) were taken into consideration. The facts in the present case are found to be at parity with those present in SET Satellite (supra), to the extent noticed above. Both the cases concern years before the onset of the Transfe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was charging the same rate of commission on the sale of airtime on TV Channels or FM Channels. 23. Further, the department has not been able to establish its assertion that the stand that BWIPL was merely soliciting orders for the assessee, was a mere facade. It has rather been shown to be otherwise, as discussed hereinabove. 24. SET Satellite (supra) and Morgan Stanley (supra), as deliberated upon in the preceding paragraphs are directly applicable in favour of the assessee and the department has not been able to successfully canvass as to why they should not be followed. 25. In view of the above, the case made out by the assessee is found to be justified. Its grievance is thus accepted. 3.1 In reply, the ld. CIT, DR referred to the logic and the decision of the Tribunal that payment at arm s length to the BWIPL exhausted the profits of the PE. It has been submitted that no transfer pricing study has been conducted in this year. Such a study had also not been conducted for assessment year 2002-03. The facts of other cases, relied upon by the Tribunal, to uphold the aforesaid logic, are not known and have not been brought on record. Therefore, it has been argued t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Thus, the ground in this behalf is allowed. 6. Interest under section 234B has to be levied on the assessed income and not on the basis of returned income as mentioned in the grounds. In this connection, it is submitted that the whole of the income of the assessee is subject to tax deduction at source u/s 195 of the Act. Therefore, the advance-tax payable on the estimated income after considering the tax deductible at source amounts to nil. Although no argument was raised by any of the parties in this behalf, we are of the view that the ground is based upon sound logic when we consider the relevant provision for computing the liability of the assessee to pay advance-tax. Thus, the ground in this behalf is also allowed. It may however be mentioned that this decision does not absolve the payment from liability of interest, arising on account of failure to deduct tax or to deposit the same in treasury as per rules. 7. The appeal in ITA No. 2459(Del)/08 involves determination of only three questions as there is no ground regarding chargeability or otherwise of interest u/s 234B. The submissions of both the parties are the same as in ITA No. 2458(Del)/2008 in respect of question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an amount of ₹ 1,45,68,882/- on account of difference between arm s length price of international transaction of sale of airtime and market support distribution services. It is further clarified that the additional income is in addition to sum of ₹ 2,48,22,238/- already adjusted by BWIPL. 8.2 In the light of aforesaid facts, it has been submitted that the transactions of the assessee with BWIPL are not at arm s length. Therefore, the rationale adopted by the Tribunal in the case of the assessee for assessment year 2002-03 is not applicable to the facts of this year. 8.3 The submissions of the ld. counsel are that the transfer pricing study was made in the case of the assessee also, which has been placed in the paper book at page numbers 131 and 132, in which no adverse inference has been drawn in respect of arm s length price both in respect of market support services and interest receivable on ECB. It is submitted that the report in the case of BWIPL is in the nature of a third party report. It has further been submitted that no case has been made out by lower authorities on the basis of that report and, therefore, the same cannot be considered now. In this co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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