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2016 (11) TMI 65 - ITAT DELHI

2016 (11) TMI 65 - ITAT DELHI - [2016] 51 ITR (Trib) 372 - Claim of exception to provisions of section 9(1)(vii) (b) - whether BCCI is an Indian concern and its global income is chargeable to tax in India ? - PE in India - satisfaction of ‘make available‘ test - Indo UK DTAA - whether the whole contract is ‘effectively connected‘ with the permanent establishment or part of the services are ‘effectively connected‘ with the permanent establishment? - Held that:- The activities mentioned in th .....

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ved in the contract should be considered as effectively connected with the permanent establishment of the appellant. In transfer pricing study report, based on FAR analysis such attribution of the profit is considered to be at arm‘s length by the assessee and as well as by the transfer pricing officer, it cannot be said that the balance sum of ₹ 90 crores cannot be taxed in India as the whole contract was ‘effectively connected‘ with the permanent establishment created by the petitioner of .....

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ivities of the permanent establishment are not covered by article 7 or 15 of the Double Taxation Avoidance Agreement between India and United Kingdom and same shall remain as fees for technical services under article 13 only. Therefore natural corollary that follows is that whatever is income excluded by the applicability of article 13 (6) and goes back to article 7 is the same amount. - We are of the view that activities carried on by the foreign office of the assessee are not at all arisin .....

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. - Therefore we reject the contention of the assessee that out of 33 crores ₹ 9 crores are effectively connected with the permanent establishment of the appellant, the balance 22 crores cannot be taxed in India under article 13 as fees for technical services. Our one more reasons for holding such a view is that according to us there is no distinction between the two phrases used into two different articles of the Double Taxation Avoidance Agreement. These two phrases are (1) “attribut .....

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7; 237750181/- shall be chargeable as fees for technical services under article 13 of the DTAA. - In the present case according to us the BCCI is enabled to absorb and apply the information and the advice provided by the appellant to it for conducting such sporting events. According to us when all this documentation and material is provided to the BCCI it is able to use such know-how and documentation generated from provision of the services of the appellant independent of the services of th .....

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ees for technical services as it does not satisfy ‘make available‘ condition provided in article 13(4) (9c ) of the DTAA. - To fall within the exception the assessee must be carrying out business outside India and such services must be utilized in that business by a person who is a resident in India and who pays income by way of fees for technical services to a non-resident. It is an established fact that BCCI is carrying on business in India and not outside India. Further the source of inco .....

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dia UK DTAA as fees for technical services. - ITA No.1613/Del/2015, ITA No.1646/Del/2015 - Dated:- 4-10-2016 - SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER For The Assessee : Sh. Ravi Sharma, Adv Sh. Mudit Sharma, CA For The Respondent : Sh. Anuj Arora, CIT DR ORDER PER PRASHANT MAHARISHI, A. M. 1. These are the cross appeals filed against the order of ACIT, [ hereinafter referred to as the AO ] Circle-2(1) (1), New Delhi dated 28.01.2015 for the Assessment Year .....

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come Tax Act (the Act) assessing the income of the appellant at ₹ 117350220/- instead of return income of ₹ 32804655/- is bad in law. 2. That in facts and circumstances of the case and in law the Hon ble Dispute Resolution Panel (DRP) erred in not appreciating that once it is held that the receipts from service outside India amounting to ₹ 237750181/- are to be taxed as business income then the same is to be taxed to the extent the receipts are attributable to Permanent Establi .....

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ontributed to the PE. 4. That even otherwise the Hon ble DRP ought to have held the receipts for the activities carried outside India cannot be attributable to India PE as per the sound cannons of tax jurisprudence. 5. That in the facts and circumstances of the case and in law, the Hon ble DRP ought to have appreciated that the income offered by the appellant in India is on the basis of a transfer pricing report capturing the function assets and risk analysis and is in accordance with the intern .....

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stances of the case and in law, the ld AO/ Honble DRP erred in not appreciating that the case of the appellant is covered by the exclusion clause provided in section 9(i) (vii) (b) of the Act and accordingly the receipts cannot be taxed in India. 8. That in facts and circumstances of the case and in law, the ld AO/ Hon ble DRP grossly erred in not appreciating that the source of income of Board of Control for Cricket in India (BCCI) from India Premier League 2009 even is outside India (in South .....

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ied the make available principle and is to be taxed FTS under the provisions of India UK DTAA. 10. That in the facts and circumstances of the case and in law, the ld AQO/ Hon ble DRP erred in observing that in the process of providing the services, the appellant has transferred the technical knowledge, experience, skill know how or process and the same would remain with BCCI even after the event of rendition of service is complete. 3. The revenue has raised the following grounds of appeal:- 1. W .....

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as 'FTS' on protective basis and not on substantive basis? 4. The brief facts are that International Management Group UK Ltd. is a tax resident of United Kingdom in terms of Article 4 of Indo-UK Double Taxation Avoidance Agreement. It is engaged in the business of event management and talent representation activities in sports events such as golf, tennis, football etc. It primarily and its main activities are event creation, client representation and consultation. The Board of Control f .....

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e/ appellant also entered into several separate agreements wherein the terms and conditions with respect to subsequent IPL events was considered. Appellant was to provide services in relation to IPL 2009 which was scheduled to be held in India in April - May 2009, however, as the event clashed with the multi phased 2009 General Elections in India, this IPL 2009 was decided to hold outside India which was hosted in South Africa from April to May 2009. The appellant deputed its employees as well a .....

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ird parties connected with that event on behalf of appellant in India. On the announcement that the event would be hosted in South Africa such third parties and employees moved out of India to South Africa but as the length of the stay of such staff etc. exceeded 90 days in a 12 months period, according to the assessee, it created a service permanent establishment of appellant in India in terms of Article 5 (2) (k) of the Indo-UK Double taxation Avoidance Agreement [hereinafter referred to as th .....

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come declared by the assessee in its return of income was with respect to expenditure incurred in India of ₹ 65159856/- and adding mark up thereto of 25% making it to ₹ 81449819/- and further adding thereto a sum of ₹ 10800000/- attributable to the permanent establishment on account of commission of the Citibank N.A. on account of sponsorship. Therefore from the gross receipt attributable to the PE of ₹ 92249819/-, deduction of expenses of ₹ 65159856/-was claimed an .....

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tion 44 DA of the Income Tax Act 1961. 6. During the course of assessment proceedings the Ld. AO asked the assessee about the taxability of remaining receipt of ₹ 23,77,50,181/- (being ₹ 33,00,00,000/- ₹ 9,22,49,819/- ) stating that such balance amount is Fees for Technical Services [ hereinafter referred to as FTS ] considering the fact that the whole of the receipt is taxable in India as services are rendered in India. Before the Ld. assessing officer assessee submitted that .....

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r submitted that receipt does not qualify as fees for technical services under article 13(4) ( c) of the Indo UK DTAA as there is no make available of any technical knowledge, experience or skill or know-how or process by the appellant to BCCI. It was further submitted that for the IPL 2009 event, the services have been rendered in United Kingdom, South Africa and India and the income is required to be attributed based on the functions performed in the respective jurisdictions. It was further st .....

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geable to tax as business profits under article 7 of the DTAA. Therefore, accordingly it is offered for taxation. It was further stated that the Ld. TPO has also held that the profits as are attributable to the permanent establishment are rightly attributed to it, as there is no adjustment proposed. Therefore it was submitted that the balance amount of ₹ 237750181/- is not chargeable to tax neither as Fees for Technical Services nor the Business profits as per DTAA. 7. Ld. Assessing Office .....

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make available has not been defined and further the benefit of protocol relied upon by the appellant is also misplaced . He further relied on ruling of the advance authority in case of Shell India Markets Private Limited and submitted that the BCCI would be able to equip itself to carry on the IPL events subsequently and therefore in fact the appellant has made available the procedures, the protocols ,the agreements etc for organizing the Indian Premier league. He further stated that merely beca .....

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also and hence it is chargeable to tax as FTS. He further held that that though some of the services are rendered outside India even though those were utilized in the business of BCCI in India. He further submitted that these receipts cannot be said to be effectively connected to the PE in India as per functions performed by appellant outside India and therefore they remain taxable in the India as they qualify as fees for technical services as per the definition given in the Income Tax Act and D .....

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ion of ₹ 237750181/- , being balance receipt as fees for technical services and charged it at the rate of ₹ 10.5575 % on gross basis. Thereby the assessed income of the assessee was determined at ₹ 270554841/- against the returned income of ₹ 32804660/-in the draft assessment order dated 24th of March 2014. 8. Against this draft order of the Ld. AO , appellant preferred its objection before the Hon ble Dispute Resolution Panel who vide its direction dated 11th Nov. 2014 h .....

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7/01/2015 was framed and computed the total income of the assessee by making an addition of ₹ 84545561/- being profits on the proportionate basis chargeable to tax over and above the returned income of the appellant of ₹ 32804655/-. Consequently, the total income was assessed at ₹ 117350216/- on substantive basis. The Ld. assessing officer further computed the income of the appellant alternatively treating the nature of the receipt of ₹ 237750181/- as fees for technical s .....

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section 143 (3) assessee has filed an appeal against the addition of ₹ 84545561 being the profit on the above mentioned gross receipt of ₹ 237750181/- as further profits attributed to the permanent establishment of the appellant and also against the protective assessment of sum of ₹ 237750181/- as fees for technical services. Revenue has also filed an appeal against the order of the Ld. DRP challenging that that such income of ₹ 237750181/-is chargeable to tax under arti .....

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ecific arguments have been advanced before us, and therefore we dismiss the ground No. 1. 11. Ground No. 2, 3, 4 and 5 of the appeal of the assessee are against charging of ₹ 237750181/- as business income. The ground No. 3 of the appeal is against the further attribution of income to the permanent establishment of the assessee even though the attribution has been verified by the Ld. Transfer pricing officer and accepted at arm s length. Therefore nothing more should be attributed to the p .....

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Taxation Avoidance Agreement it is provided that the service permanent establishment will be constituted only for those services which are not having the receipt as fees for technical services or royalty and therefore according to him once the service permanent establishment is constituted of the appellant in India there cannot be any further attribution or for the chargeability with respect to the fees for technical services as both are mutually exclusive. He further submitted that it is undisp .....

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reated a permanent establishment in India in the current year for IPL 2009 even then for the future events in the subsequent year. Further as per article 7 of the DTAA income as is attributable to the PE can only be taxed in India. He further stated that out of the total receipt of ₹ 33 crores the receipt of ₹ 9.22 crores is attributed to the permanent establishment under article 7 of the DTAA applying the Transactional net marginal method (TNMM) based on FAR analysis and activities .....

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not be taxed in the hands of the assessee as fees for technical services. For this he relied upon the decision of the Mumbai tribunal in case of Nippon Kaiji Kyokoi (2011 - TII - 115 - ITAT - MUM - INTL ). He further submitted that the above legal position was also accepted by the Ld. AO in the assessment year for the immediately preceding assessment year and the receipts for work done outside India was not taxed as fees for technical services by the Ld. AO. Therefore, it was submitted that the .....

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done outside India should be taxed as business income in the hands of the PE, which is not envisaged by the Double Taxation Avoidance Agreement. He further relied on the decision of the Special bench in case of Clifford chance wherein it has been held that the work performed outside India cannot be attributed to the permanent establishment in India. 14. The ground No. 6, 9 and 10 of the appeal of the assessee is against the taxability of the sum of ₹ 237750181/- as fees for technical serv .....

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ent. He further submitted that though the mere concept make available has not been defined in the Double Taxation Avoidance Agreement however the term has been explained by way of example in the protocol to the India US Double Taxation Avoidance Agreement wherein it is stated that the technology will be considered made available only when the person acquiring the same is enable to apply the technology. Further the fact that the provisions of the service may require technical input by the person .....

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need to award the contract to the appellant for such a long substantial period. He submitted that the services provided by the appellant are of highly specialized nature and do not make available technical know-how, skill etc to the BCCI. He relied on the decision of coordinate bench in case of NQA quality systems registrar Ltd versus Deputy Commissioner of Income Tax (2005) 2 SOT 249 (Delhi). He further referred to the several decisions on make available concept. He further relied on the decisi .....

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by the Hon ble jurisdictional High Court and is no longer sustainable in law. 15. On the issue that the proceeds of ₹ 237750181/- will not fall under the exception provided in section 9(1) (vii) (b) of the Income Tax Act the Ld. authorized representative submitted that for applicability of this clause service should have been utilized in India whereas in the present case the service have been utilized by the BCCI in South Africa and accordingly the source of income for BCCI is outside Ind .....

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ll back into the definition of the fees for technical services. He submitted that the full amount of ₹ 33 crore is arising out of contract of the assessee from the BCCI which is fees for technical services and out of that only 9 crores are stated that they are related to the permanent establishment of the assessee and thus covered by article 7 of the Double Taxation Avoidance Agreement then balance 23 crores still remains as fees for technical services. He submitted that there is no provis .....

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7. The if there is a difference between the amount considered under article 13 then what is chargeable to tax under article 7 then the balance amounts is still chargeable to tax under article 13 of the DTAA. According to him the balance of ₹ 23 crores shall be chargeable to tax as fees for technical services since assessee himself says that the amount of ₹ 33 crores is fees for technical services out of which ₹ 9 crores is falling within the provisions of article 13(6) of the .....

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for technical services, the moment it is found to be Effectively connected to the Permanent Establishment, article 13 (6) of DTAA triggers, even if the small amount is charged to tax under article 7 of the DTAA , the balance amount is not to be taxed. 17. He further referred to the audited accounts of the company referring to page No. 47 of the paper book which is the profit and loss account for the year ended 31st of March 2010 where in this amount is stated to be fees for technical services. .....

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ntation and sourcing official partnership deals with the sponsors were undertaken in India by the assignees of appellant pursuant to which appellant is deemed to have a permanent establishment India in terms of the provisions of the Double taxation Avoidance agreement. Further, it has been mentioned that it has apportioned fees for technical services amounting to ₹ 92249819/- to the permanent establishment based on professional expert advice benchmarked on the basis of TNMM. Therefore, his .....

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m outside India using IMGs international expertise and resources. It is further mentioned in para 4.1 of that agreement that based on research and advise by the BCCI the appellant shall continue to advise and assist the BCCI in connection with structure of the league, league rules and regulations, franchisee agreements , any necessary franchisee regulation, legal implementation budget and media rights agreements. Further, as per para No. 4.2, the appellant shall provide ongoing preparation and n .....

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provision of legal handbooks, advise and assist in connection with the player contracts, management of the annual player trading window and assist in the creation or development of new intellectual properties relating to league and all such properties created will be the sole property of the Board of control for Cricket in India. Appellant shall also provide by bringing in global best practices in building and evaluating sporting properties and related aspects. He further referred to the clause .....

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t the recipient has to be enabled and it is not necessary that he should use it all this documents, which makes the BCCI able to host the subsequent IPL events without even the help of the appellant. He referred to the clauses of the services and submitted that all these documents etc can definitely help the recipient of the service to hold such kind of sporting events in future. In view of this, he submitted that the make available concept is satisfied and therefore the full receipt of ₹ .....

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th the permanent establishment of the appellant in India. In view of this he submitted that whatever is attributed to the permanent establishment in India is the business income of the assessee and the balance amount which constitute the significant activities which are being carried out by the appellant from outside India and services are also performed from outside India to the appellant which are consumed in India constitute over and above what is attributed to the person permanent establishm .....

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nued to advise and assist the BCCI in conducting research in respect of and making recommendation to BCCI and the appropriate structure for all aspects of the IPL, preparation of television production specifications, formulating policies procedure and work plan relating to running of the event in India including setting out the logistics, manpower etc requirements along with IMG India PE. He further submitted that except the services stated at para No. 4, 5, 6, 10, 13, 14 all other services are .....

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lant himself to the permanent establishment of the appellant in India. Therefore he assailed that the argument of the appellant that if the amount is attributed to the PE there is no further attribution which is required to be done in case of the appellant. He submitted that for all the services other than those mentioned above which are specifically listed at page No. 5 of the assessment order only 5 to 6 activities are required to be carried out with the assistance of the permanent establishme .....

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s to be rejected. He submitted that there is no consideration, which has been offered by the assessee for those services, which is being charged to BCCI performed by the appellant from UK, which falls in to the definition of FTS as per Income Tax Act and also DTAA. 20. He further referred to the para No. 8 of the assessment order and stated that balance gross receipt has been charged to tax over and above what is being offered by the appellant as business income proportionately amounting in all .....

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He further referred to para No. 10 of the assessment order at page No. 23 to support his contention. In a way, he supported the order of the Ld. assessing officer stating that the balance sum of ₹ 237750181/- is fees for technical services only. 21. He further submitted that beyond ₹ 9 crores offered by the appellant as gross receipt out of which the profit is offered for the taxation the explanation to section 9 of the Income Tax Act applies and therefore it is chargeable to tax un .....

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he Ld. Transfer Pricing Officer. He therefore submitted that the argument of the appellant that as the Ld. TPO has considered the international transaction at arm s length does not have any relevance with respect to taxability of the balance sum over and above ₹ 9 crores. 23. He further submitted that there cannot be an overemphasis on MOU between India and the USA Double Taxation Avoidance Agreement. He further referred to para No. 5.2 to 5.4 of the order of the Ld. DRP wherein it has bee .....

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esides in India and merely because the event has been held outside India in South Africa the sources of receipt is irrelevant. He stated that the source of such income is BCCI who is hosting an IPL event and is residing in India. 24. He further referred to the para No. 7.5 of the agreement of the appellant with BCCI which speaks that BCCI has appointed appellant on an exclusive basis to provide the host broadcaster television production services in respect of the league and each match for a peri .....

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has failed to produce such agreement before all the authorities. 25. He further referred to the page No. 76 to 79 of the paper book, which is part of the transfer pricing study report prepared by the assessee for the financial year 2009 - 2010 with respect to the appellant s Indian permanent establishment. He submitted that the functions performed by the Permanent establishment stated at para No. 4.4 wherein in para No. 1 shows functions performed by the appellant from its UK office and further .....

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the appellant s head office in United Kingdom. In view of the above he submitted that the order of the Ld. AO charging the balance sum as fees for technical service is correct interpretation based on the agreement entered into by the appellant with BCCI. 26. He further relied up on decision of the Hon ble Delhi High Court in case of CIT vs. Jansampark advertising and marketing private limited [ 56 Taxmann.com 286] to support his contention that it is also the obligation of the 1st appellate auth .....

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d by the permanent establishment of the assessee and services which are rendered by the head office of the assessee which are directly provided to the appellant and how they are effectively connected with the PE of the assesse, whether the issue of ₹ 23.77 crores was available before the Ld. transfer pricing officer while framing the order on the aspect of arms length price, further evidences were sought regarding details of services rendered by United Kingdom company to examine make avail .....

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er s Treatise on double taxation convention, that provisions of article 13 (1) and (2) are not applicable if the beneficial owner of the royalty, fees for technical services is a permanent establishment in another country and right property or contract in respect of which royalties or fees for technical services are paid is effectively connected with the permanent establishment. In such situation the provisions of article 7 shall apply. Applying the above conditions it was submitted that the sou .....

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n account of the alleged fees for technical services even if it is to be taxed can be taxed only as business income and not otherwise. Further as per the attribution of income to permanent establishment is concerned that had already been accepted by the revenue. With respect to the fact about the receipt of ₹ 23.77 crore whether it was available before the Ld. TPO he submitted that total receipt from BCCI for the IPL 2009 event amounting to ₹ 33 crore was available before him and he .....

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performed does not result in to fees for technical services in view of the restrictive definition provided under article 13 (4) (C) of the Double Taxation Avoidance Agreement. He further referred to the various services and explained that they do not constitute the fees for technical services as the make available concept fails. He further submitted that had the technical know-how skill etc were made available to the BCCI it would not have given any contract to the assessee for 9 subsequent IPL .....

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s for technical services. He further added that these issues are pending with the various authorities. 29. In the rejoinder to the submission dated 30/06/2016 of the appellant, Ld. Departmental Representative submitted that admittedly the Ld. TPO has held that no further income is required to be attributed to the PE and Ld. assessing officer has accepted by not attributing any further income to the permanent establishment of the appellant. However he has taken such balance portion as fees for te .....

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at least some of the services provided were not effectively connected with the permanent establishment but would still be chargeable to tax in view of expiration under section 9 (2). He further submitted that it is not the duty of the Ld. Transfer pricing officer to tax the fees for technical services but it is the duty of the Ld. AO to frame the assessment which Ld. assessing officer has done by taxing the balance amount as fees for technical services. He further submitted that with respect to .....

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nctionaries is also given to BCCI. In view of this he submitted that it is a clear indication of make available of all the services performed by the IMG UK to the BCCI. With respect to the argument of the Ld. that authorized representative that if the services have been made available to the BCCI then why such agreement has been extended for further 9 years for subsequent events, he submitted that it is because of the marketing skills of the IMG and it has nothing to do with the change in the IP .....

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attributable to a permanent establishment and chargeable to tax under article 7 will get the benefit of deduction of expenses whereas in case of the article 13 it is chargeable to tax on grass basis. In view of above he vehemently supported the order of the ld AO. 30. We have carefully considered the rival contentions and perused the relevant material placed before us. We have also considered various judicial pronouncements cited by the parties before us. The short controversy involved in the p .....

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ess income of ₹ 32804660/- after deducting expenses there from. However the dispute between the appellant and revenue is that whether the sum of the balance receipt from that contract amounting to ₹ 2 3775 0181/- shall be chargeable to tax in India at all. If the same is chargeable to tax it would be considered as the business income of the appellant and subsequently whether the proportionate expenditure would be allowable from that or not. The further controversy thereto is that whe .....

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tablishment therefore by virtue of the provisions of the article 13 (6) the income, which is effectively connected with the permanent establishment, shall be governed by article 7 i.e. Business profits of the Double Taxation Avoidance Agreement. According to assessee gross receipt of ₹ 9 224 9819/- is income attributable to the permanent establishment in India and therefore shall be governed by the provisions of article 7 of the Double Taxation Avoidance Agreement and expenses there from w .....

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red to be offered by the appellant for taxation thereby saying that the balance amount of ₹ 23775 0181/- is not chargeable to tax. Further it is also the contention of the assessee that according to article 13 of the Double Taxation Avoidance Agreement which provides for the make available clause for taxation of fees for technical services which in the present case according to the appellant is not satisfied the balance amount shall not be chargeable to tax in India as fees for technical s .....

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ent. 31. The basic edifice of the controversy is based on 2 documents entered into between the board of control for Cricket in India as well as the appellant. The 1st is the memorandum of understanding between the 2 parties dated 13/09/2007 and service agreement dated 24/09/2009. According to the memorandum of understanding it has been agreed between the parties that appellant shall provide services by conducting research in respect of the appropriate structure for the IPL and make cut recommend .....

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cument, the franchisee agreement and any necessary franchisee regulations and IPL implementation budget. In addition to that the appellant was also required to develop right management process in respect of commercial rights and assets of any kind arising out of the IPL which are owned by the BCCI, it was in respect of those rights, repression and execution of marketing strategies, the management of the franchisee tender process, the management of the sale process in respect of those rights and .....

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o on 24th of September 2009. The terms and conditions agreed upon as per memorandum of understanding were as under:- IMG Services IMG has been appointed on a sole and exclusive basis to provide the following services in connection with the IPL (the "Services"). 1.1 IMG shall conduct research in respect of the appropriate structure' for the IPL und make recommendations to BCCI accordingly (it being acknowledged that the final, decisions in respect thereof are BCCI'"s). 1.2 .....

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r advice from IMG, 3MG shall conduct research into and prepare the following IPL foundation documentation in connection with it including: (a) the constitution of the IPL; (b) the authority of the Governing Council of the IPL (c) the structure of the tournament; (d) the IPL tournament rules and regulations (e) the franchise tender document (f) the franchise agreement and any necessary franchise regulations (g) the IPL implementation budget 1.4 In addition to the matters referred to in paragraph .....

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n of the Rights between BCC1 and the Franchisees; (c) the preparation and execution of marketing strategies for: the Franchise tender the media Rights the sponsorship Rights the official supplier Rights the licensing Rights any other Rights (d) the management of the Franchise tender process; (e) the management of the sales processes in respect of the rights; (f) the preparation and negotiation of the contracts with the successful Franchisees sponsors the media all other entities which acquire or .....

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ment of best practice match day media guidelines and supervision in respect of their execution (k) advice and assistance in connection with the development of any relevant stadia and.' the finance which may be necessary in connection with therewith 33. Firstly, we examine various clauses of the agreement entered into by the assessee with the BCCI. The BCCI entered into an agreement on 24/09/2009 with the appellant which is a company incorporated in England and having its registered office th .....

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nd authority to assist BCCI in exploiting the rights during the representation period including without limitation making arrangements for agreements in respect of the rights provided that IMG does not have the power to bind or commit BCCI to any agreement or arrangement relating to those rights. The obligation of the IMG was to provide the services set out in clause No. 4.1 and 4.2 of the service agreement and it is acknowledged between the parties that a significant portion of the services con .....

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aving carried out research and advised the BCCI in connection with the with the formation and governance of the League and IPL, IMG shall continue to advise and assist BCCI in connection with, the following: (a) the structure of the League; (b) the League rules and regulations; (c) the Franchise agreements and any necessary franchise regulations: (d) the League implementation budget; and (c) the Media Rights agreements. i 4.2 the addition to the matters referred to in Clause 4.1 above, IMG shall .....

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(b) the preparation and execution of marketing strategies for and advice in connection with: : (i) any ongoing tender process in respect of Franchise Rights; (ii) the Media Rights; and (iii) the commercial Rights; (c) advice and assistance in the management of any future Franchise tender .process; (d) advice and assistance in the management ,of the sales processes in respect of the Rights; , (e) the ongoing preparation and negotiation, subject to the final decision of the BCCI, of (i) contracts .....

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nd supervision in respect of their execution; (j) advice and assistance in connection with the development of any relevant stadia and the finance which may be necessary in connection therewith and, jf requested, the introduction to the BCCI of third parties who are involved In the redevelopment of stadia; (k) advice and assistance in connection with the rules and regulations relating to the registration, trading and auction of flayers; (1) the creation of and advice and assistance with the " .....

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ment of the annual Player trading window; (r) provision of the requisite manpower that is required to carry Out such activities as are within IMG's control in connection with the successful naming of the League and Matches including the provision of a CUIH staffed, office to do the same, at the sole cost of MG; (s) the hiring of whatever resources are required to fully perform IMGs obligations under this Agreement at the sole cost of IMG; (t) advice and assistance in connection with Anti Dop .....

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ing and evaluating sporting properties and related aspects; (y) delivering a post event report at the end of each season and be subject to review on the performance and delivery of services rendered to BCCI. 34. The obligations set out in above paragraph has been further assigned between the UK office of the appellant and the Indian permanent establishment as set out in the transfer pricing study report produced by the assessee before the revenue as under:- 4.4. Functions performed 4.4.1. Functi .....

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related intangibles for the purpose of executing the BCCI contract. Further, the execution of the entire contract is the responsibility of IMG UK. IMG UK's team is involved in all of the activities/ responsibilities entrusted upon IMG UK under the contract and were responsible for performing/ managing the contract on an end to end basis. IMG UK was responsible for conceptualization, strategy formulation, development of framework for IPL event, etc from UK. To this end, the activities undert .....

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decisions relating to the event (like how many cities to be involved, no of matches), etc. 3. Preparation of the IPL foundation documents, including: rules and regulations, franchisee tender documents, franchisee agreements, franchisee regulations, IPL implementation budget, drafting tender documents relating to media and sponsorship rights, etc. 4. Assistance in respect of development of and advise relating to commercial rights management process with respect to franchise rights, media rights, .....

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to management of the sales process in respect of the various aforementioned rights in India 9. Preparation of and offshore assistance in negotiation of contracts with sponsors, media, successful franchisees etc. 10. Preparation of television production specifications 11. Formulating policies/ procedures and work plan relating to running of the event in India, including setting out the logistics, manpower etc. Requirements along with IMG India PE 12. Development of best practice match day guideli .....

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k for BCCI and managing brand IPL along with the BCCI team 17. Creation of the look and feel elements in relation to the BCCI Marks generally and, in particular, at any relevant Stadia 18. Creation of the League handbook along with IMG India PE 19. Advice and assistance in connection with the Player contracts 20. Establishment and maintenance of the Player registration system 21. Creation of the IPL match schedule along with IMG India PE 22. Advice and assistance in connection with Anti-Doping a .....

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acks and appropriate presentation documentation for meetings/ events conducted in this regard Accordingly, the conceptualization, strategy formulation, core process and know-how development, creation of framework for IPL, etc was done by IMG UK from the UK. Further, it must be noted that all the contractual risks and obligations relating to the contract vest with IMG UK, which assumed the entrepreneur role and responsibilities pertaining to the contract. The team in IMG UK working for the IPL co .....

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. Accordingly, some of the discussions/ negotiation processes between BCCI and various other parties (like franchises, sponsors, media partners, etc.) happened in India since the 2009 event was scheduled to take place in India. For this purpose, IMG UK employees came to India from time to time for short term visits. Further, few freelancers were appointed/ engaged by IMG UK for undertaking the on-ground implementation and related supervision activities in India. However, for reasons explained ea .....

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son/ co-ordination support in dealing with the client/ BCCI, media partners, sponsors, franchisees etc. in India; 3) Functional Analysis 4) Along with BCCI, attending meetings with sponsors for execution of marketing strategies (developed by IMG UK) relating to sponsorship rights, official supplier rights, licensing rights, etc.; 5) Assistance in negotiation of contracts with sponsors, media, successful franchisees etc., by way of presence in joint meetings along with BCCI; 6) Implementation and .....

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In relation to the BCCI Marks generally and, in particular, at any relevant Stadia, etc. based on approvals from IMG UK; 9) Along with IMG UK, development/ customization of the League Handbook and discussions with BCCI thereafter for finalizing the same; 10) Along with IMG UK, development of the IPL match schedule and discussions with BCCI thereafter for finalizing the same; 11) Assistance in connection with ensuring compliance by BCCI with Anti-Doping and WADA Compliance Regulations; 12) Carry .....

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anch include: liaison/ co-ordination support in dealing with the client/ BCCI, media partners, sponsors, franchisees, player auction process, etc. in India; organizing the implementation of the event in India viz. coordinating with various third parties in India to ensure that facilities/ arrangements at the match locations are in line with the desired IMG UK guidelines; providing/ managing logistics, manpower support in India relating to running of the event and undertaking related administrati .....

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ndia Branch. IMG India PE was involved in/ responsible for overseeing and managing the liaisoning and implementation support activities undertaken by IMC India Branch. All these aforesaid activities were undertaken by IMG India PE under the framework, guidelines and policies prepared by IMG UK (from outside India). Any significant divergence or variation from the framework required specific approval from the Project leader, who was based in UK. Further, it must be noted that all the activities w .....

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for undertaking event implementation and related activities in South Africa were involved in undertaking on-ground implementation and related supervision activities in connection with the event held in South Africa. Accordingly, for the 2009 event, the following activities were undertaken in South Africa. 1. Assistance in respect of development of and advise relating on the commercial rights management process relating to media rights, sponsorship rights, licensing and merchandising rights, sta .....

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I, media partners, sponsors, franchisees etc. in South Africa; 6. Organizing the implementation of the event i.e., coordinating with the various third parties in South Africa to ensure that facilities/ arrangements at the match locations are in line with the desired IMG UK guidelines; 7. Managing logistics and manpower support relating to the running of the event; 8. Supervising whether the match day guidelines for franchisees and match day media guidelines prepared by IMG UK/ BCCI are being fol .....

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13. Dealing with the Stadia authorities and vendors/ suppliers, etc for management and implementation of an accreditation system relating to entry/ exit of players, franchisees etc into the stadia, etc; and 14. Assistance in preparation of hospitality guidelines in relation to the league and implementation of hospitality. 35. Based on the above FAR analysis of the Indian permanent establishment of the assessee, the Ld. TPO passed order under section 92CA (3) on 31/12/2013 wherein he has examine .....

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prior year order, article 13 of the India UK Treaty read with article 7 of the treaty states that if assessee constitutes a service PE, the profits are attributable to the PE are to be taxed in the other contracting states that is in India. This implies that profits of the PE are rightly attributable to it should be taxed in India. He further held that after going through the facts and information submitted by the assessee during the course of the assessment proceedings, it is noted that the fac .....

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to be attributed to the permanent establishment of the assessee. However these attribution of the profit is undisputedly based on the functions performed by the permanent establishment of the assessee, assets employed by the permanent establishment in performing those functions and risk assumed by it while performing those functions. However it is to be noted that over and above those functions performed by the permanent establishment of the appellant in India there are certain functions which h .....

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90 days has exceeded and therefore it constitutes a service permanent establishment in India according to the Indo UK Double Taxation Avoidance Agreement. Based on this premises which has been accepted by the revenue has resulted into the exercise of attribution of profit to the permanent establishment and taxation of income of the appellant to that extent on net basis after deduction of the expenses. It is interesting to note that in the present case there is only a service PE which has come i .....

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e appellant has given an answer stating that the contract is in all circumstances is effectively connected with the permanent establishment and therefore the conclusion that the instant case only article 7 will apply. The Ld. appellant further stated that the effective connection has to be read in relation to the contract and not in relation to the services rendered and during the year assessee has only one contract entered into by the appellant with the BCCI for IPL 2009 event and due to that c .....

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would be taxed as business income under article 7 of the Tax treaty. Admittedly appellant is a UK resident and without any doubt the provisions of the Income Tax Act or the provisions of the Double Taxation Avoidance Agreement whichever is more beneficial to the assessee shall be applied for determining the tax liability of the assessee in India. In view of this undoubtedly the appellant is entitled to the benefit of Indo UK Double Taxation Avoidance Agreement. Therefore To examine this argument .....

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if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed : (a) in the case of royalties within paragraph 3(a) of this Articles, and fees for technical services within paragraphs 4(a) and (c) of this Article,- (i) during the first five years for which this Convention has effect ; (aa) 15 per cent of the gross amount of such royalties or fees for technical services when the payer of the royalties or fe .....

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10 per cent of the gross amount of such royalties and fees for technical services. 3. For the purposes of this Article, the term "royalties" means : (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, .....

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or technical services" means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received ; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment descr .....

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h 3(a) of this Article; (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships, or aircraft in international traffic; (c) for teaching in or by educational institutions ; (d) for services for the private use of the individual or individuals making the payment ; or (e) to an employee of the person making the payments or to any individual or partnership for professional services as defined in .....

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d therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 (Business profits) or Article 15 (Independent personal services) of this Convention, as the case may be, shall apply. 7. Royalties and fees for technical services shall be deemed to arise in a Contracting State where the payer is that State itself, a political su .....

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g State in which the permanent establishment or fixed base is situated. 8. Where, owing to a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for technical services paid exceeds for whatever reason the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that case, the excess part of the payments shall .....

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ve article of the Double Taxation Avoidance Agreement it is apparent that if the fees for technical services are effectively connected with the permanent establishment of the appellant in India then provisions of article 13 (6) shall be applicable to the assessee. In that case provisions of article 7 of the Double Taxation Avoidance Agreement shall apply to that income. 37. Provision of article 7 of the DTAA provides as under :- ARTICLE 7 BUSINESS PROFITS 1. The profits of an enterprise of a Con .....

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ermanent establishment situated therein, the profits which that permanent establishment might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment shall be treated for the purposes of paragraph 1 of this Article as being the profits directly attributable to that permanent establishment. 3. Where a permanent estab .....

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rectly attributable to that permanent establishment. 4. Insofar as it has been customary in a Contracting State according to its law to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraphs 1and 2 of this Article shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be necessary; the method of apportionment adop .....

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elsewhere, which are allowed under the provisions of and subject to the limitations of the domestic law of the Contracting State in which the permanent establishment is situated. 6. Where the law of the Contracting State in which the permanent establishment is situated imposes a restriction on the amount of the executive and general administrative expenses which may be allowed, and the restriction it relaxed or overridden by any Convention between that Contracting State and a third State which .....

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ty of the other Contracting State so requests, the provisions of this Convention shall be amended by protocol to reflect such terms. 7. Paragraph 5 of this Article shall not apply to amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, to by way of commission, for specific .....

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ts or other rights, or any way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on monies lent to be head office of the enterprise or any of its other offices. 8. No profits shall be attributed to permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise. 9. Where profits include items of income which are dealt with separately in other Articl .....

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nt establishment of the appellant in India and para number 4.4.1 shows what are the functions performed by the IMG UK. It is further mentioned in the transfer pricing study report that certain routine services relating to on ground implementation and running of the event was subcontracted to the IMC India branch. The IMG India PE was involved in/responsible for overseeing and managing the liasonsing and implementation support activities undertake taken by the IMC India branch. It is also importa .....

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o the article 7 of the Double Taxation Avoidance Agreement. Therefore according to us the above agreements and memorandum of understanding has two limb one with respect to the performance of the activities performed by the permanent establishment in India and another limb deals with respect to the performance of the services by the IMG UK directly for which the India PE has nothing to do. Admittedly the issue is concerned with respect to the fees for technical services. It is also admitted posit .....

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ctual rendering of such services, or (2) it should arise as a result of the activities of the PE, or (3) The PE should, at least, facilitate, assist or aid in performance of such services irrespective of the other activities PE performs. Therefore according to article 7, for attribution of the profits to the permanent establishment the activity carried out by the permanent establishment is important and to that extent only the profits can be attributed to that particular permanent establishment. .....

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cerned with the functioning of the permanent establishment therefore in our view only the activities which are performed by the permanent establishment are effectively connected with the permanent establishment and activities which are not carried on by the permanent establishment but are carried out by the head office of the appellant are not effectively connected with the permanent establishment. We are also of the view that the term effectively connected should not be understood to mean the o .....

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e appointed for undertaking the own ground implementation related supervision activities in India. Therefore according to us there are minimum activities performed by the PE of appellant in India. Hence just performing such minimum activities it cannot be said that whole of the revenue of ₹ 33 crores involved in the contract is effectively connected with the activities of the permanent establishment in India. Hence we reject the contention of the assessee that the whole of the revenue invo .....

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India. On the basis of the minimum activities performed by that particular staff which is deputed in India 10% of the gross receipt say 10 crores is attributed to permanent establishment and after claiming deduction of expenses there from of say 60% of the income attributed , assessee offered balance amount as profit of the permanent establishment for taxation. In transfer pricing study report, based on FAR analysis such attribution of the profit is considered to be at arm s length by the asses .....

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7 and article 13 of the Double Taxation Avoidance Agreement gives an insight that first there has to be an existence of the permanent establishment through which the business is carried out and further existence of effective connection between such PE and the rights properties and contracts in respect of which the fees for technical services are paid. That would mean that only such fees for technical services are excluded from the scope of article 13 (6) as are attributable to the permanent est .....

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activities carried out by the appellant which are not at all connected with the activities of the permanent establishment are not covered by article 7 or 15 of the Double Taxation Avoidance Agreement between India and United Kingdom and same shall remain as fees for technical services under article 13 only. Therefore natural corollary that follows is that whatever is income excluded by the applicability of article 13 (6) and goes back to article 7 is the same amount. 40. Our this view is also s .....

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m a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 (Business profits) or Article 15 (Independent personal services) of this Convention, as the case may be, shall apply. [Underline supplied by us] 41. on reading of the above article it is apparent that the provisions of paragraph 1 and 2 of t .....

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article 7 related to business profit shall apply. Therefore the above article provides for twin conditions , (1) that the royalty or fees for technical services should arise through a permanent establishment situated in the other State and (2) the right property or contract in respect of the royalty or fees for technical services are paid is effectively connected with the such permanent establishment or fixed base. In the present case the benches raised a specific query that how the activities .....

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hrough the permanent establishment has not been responded to. Despite this we have pursued the relevant activities performed by the foreign office of the appellant as well as the permanent establishment of the appellant. We are of the view that activities carried on by the foreign office of the assessee are not at all arising through the permanent establishment of the appellant in India. Therefore one of the condition of the about twin conditions also failed in case of the appellant. Once again .....

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ot be taxed in India under article 13 as fees for technical services. Our one more reasons for holding such a view is that according to us there is no distinction between the two phrases used into two different articles of the Double Taxation Avoidance Agreement. These two phrases are (1) attributable to in article 7 of the Double Taxation Avoidance Agreement, and (2) effectively connected with in article 13 (6) the Double Taxation Avoidance Agreement, because Indo US DTAA uses the same term att .....

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fixed base situated therein, and the royalties or fees for included services are attributable to such permanent establishment or fixed base. In such case the provisions of Article 7 (Business Profits) or Article 15 (Independent Personal Services), as the case may be shall apply. [underline supplied by us] Therefore, in the present case, according to us, out of the total receipt of ₹ 33 crores the receipt of ₹ 92249819/- which is attributable to the permanent establishment in India an .....

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hnical knowledge, experience, skill know-how or processes, or consist of development and transfer of a technical plan technical design. According to the assessee as clause C of article 13 (4) is not satisfied the balance cannot be charged to tax as fees for technical services. In the present case the services are already described in the previous paragraphs and there cannot be two opinion about that that mere provision of services or technical services is not sufficient, it is essential that ser .....

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hnology contained therein. If the services do not have any technical knowledge the fees paid for it do not fall within the meaning of fees for technical services as per the article 13 of the India UK DTAA.. The services receiver is able to make use of the technical knowledge etc by himself in his business or for his own benefit and without recourse to the service provider in future and for this purpose the transmission of the technical knowledge, experience, skill, etc from the service provider .....

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de the Constitution of the IPL, the authority of the governing Council , the structure of IPL, tournament rules and regulation ,the franchisee tender document ,the franchisee agreement, necessary franchisee regulation and the IPL implementation budget. According to the para No. 9 of the agreement that intellectual property rights remains with the board of control for Cricket in India. Even before us Ld. authorized representative could not point out that why make available test has not been satis .....

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se such know-how and documentation generated from provision of the services of the appellant independent of the services of the appellant in future. It is too naïve to say that in absence of IMG services BCCI on its own IPL tournament cannot hold. Merely because the BCCI has entered into a contract for conducting further 9 events does not lead to the conclusion that the information documentation, agreements, contracts etc cannot be said to be made available to the appellant. In fact accordi .....

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ry. 45. Appellant has further relied upon the decision of the Nippon kaiji Koyokoi V ITO ( supra) of coordinate bench. We have perused that decision and we found that in that particular case the permanent establishment of the appellant was providing some services with respect to the earning of the head office and therefore facts of that case are different. In the present case the services of the head office which are directly provided from the United Kingdom are no way related to the services of .....

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eal of the appellant saying that receipt of ₹ 237750181/-fall under the exception provided under section 9(1) (vii) (b) of the Income tax act as the services have been rendered outside India and the income is generated in the hands of the BCCI outside India. The provisions of section 9 (1) ( vii) are as under :- . (vii) income by way of fees for technical services55 payable by- (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services .....

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for technical services payable by a person who is resident to a non-resident shall be deemed to accrue or arise in India and shall be chargeable to tax u/s 5 of the Income Tax Act in the hands of a non-resident. The claim of the appellant is that receipt of ₹ 237750181/- falls within the exception provided under clause (b) of the above section which says that where the fees for technical services are payable in respect of services utilized in a business or profession carried on by such per .....

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axed in India. We have carefully considered the rival contentions and reject the contention of the appellant for the reason that to fall within the exception the assessee must be carrying out business outside India and such services must be utilized in that business by a person who is a resident in India and who pays income by way of fees for technical services to a non-resident. It is an established fact that BCCI is carrying on business in India and not outside India. Further the source of inc .....

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