TMI Blog2016 (11) TMI 65X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 some staff for performing some of the activities and crossing the threshold duration. We do not subscribe to such a view and we are also of the view that such is the case of the assessee before us. Article 13 (6) of the Double Taxation Avoidance Agreement shall apply only to the extent of the activities carried on by the appellant through its permanent establishment. In view of this we are of the view that 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 according to us it is. In view of this we reject the contention of the appellant that the sum of ₹ 237750181/-cannot be taxed as fees 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 income of the BCCI is in India and not outside India. Merely because the event is performed outside India it cannot be said that source of income of the BCCI is not in India. Therefore according to us the income of the appellant of ₹ 237055181/-is chargeable to tax as fees for technical services under section 9 (1) (vii) of the Income Tax Act as Fees for technical services. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts 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 international principles of attribution which has been rightly accepted by the revenue. 6. That in the facts and circumstances of the case and in law, the ld AO as well as Hon ble DRP grossly erred in observing that in the alternative/ on a protective basis the receipts amounting to ₹ 237750181/- would come within the purview of fees for technical services (FTS) as per the provisions of section 9(i)(vii) of the Act as well as Article 13(4) of the Tax Treaty. 7. That in the facts and circumstances 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 Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India in 2008 i.e. IPL 2008 was covered by this MOU. According to that MOU the appellant company was appointed to provide services for a period of 10 IPL events and subsequently, the assessee/ 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 as also appointed several other parties for undertaking the on-ground implementation and event management and supervisions activities in India. The appellant follows event based accounting for the IPL event wherein the revenue and expenditure related to that event are recognized in the year in which event takes place. At the time when the decision was taken to shift IPL 2009 to South Africa, the appellant has prepared for the event in India and therefore, there was presence of staff as well as third parti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India as services are rendered in India. Before the Ld. assessing officer assessee submitted that as source of income of BCCI from IPL 2009 event is the event held outside India and therefore it was submitted that the payment made by the BCCI to the assessee would fall under exceptions to clause (b) of section 9 (1) (vii) of the Income Tax Act as it pertains to the payments made by resident for income from a source outside India and such payments cannot be taxed as the fees for technical services under the provisions of the act as it does not deemed to accrue or arise in India. It was further 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 stated that the work done in the South Africa primarily pertains to the activities carried out in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ailable concept 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 DTAA both . Hence, balance amount shall be chargeable to tax on gross basis under section 115A of the Income Tax Act. The Ld. A O was of the view that since the income has not been characterized as business income it cannot go out of the tax net for the reason that they are effectively connected to the permanent establishment of the assessee. Based on the above reasoning the Ld. AO accepted the business income shown in return of income filed by the assessee at ₹ 32804660/- but made an addition 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t even though such receipts pertain to services rendered outside India and have no nexus with the permanent establishment. Further, the revenue is also challenging the directions given by the Ld. DRP holding that the receipts for work done outside India should be assessed as fees for technical services on substantive basis. 10. Firstly, we take up the appeal of the assessee. Ground No. 1 of appeal is general in nature, no specific 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 permanent establishment. Ground No. 5 of the appeal of the assessee is that when the Ld. TPO has held that income attributable to the permanent establishment is at arm s length and is proper which is based on the proper FAR analysis then that should have been accepte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i 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 instant year the tax department has changed its own stand and has sought to tax the remaining receipt for work done outside India as fees for technical services without any cogent reason. He further stated that that Ld. DRP has accepted that when there is permanent establishment in India of the appellant then the receipts can be taxed only as business income and not as fees for technical services. He further stated that the Ld. DRP has made a patent error by holding that the receipt for services 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted and on the decision of authority of advance ruling are misplaced for the reason that Hon ble Supreme Court considered the applicability of section 80 -O of the Income Tax Act and further the decision of the authority of advance ruling has been set aside 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 India and hence the exceptions provided under section 9(1)(vii) (b) of the income tax act shall apply and accordingly the income shall not be chargeable to tax in India under section 9 (1) of the Income Tax Act. 16. In response to this ld. Departmental representative submitted that the that assessee has received the sum of ₹ 33 crores out of which it says that only 9 crores is effectively connected to the permanent establishment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. He further referred to the note No. 3 attached to the annual accounts of the company wherein the above receipt has been classified as fees for technical services. It is mentioned in the note that appellant has entered into a contract for service for the establishment of commercialization of operation of the Indian Premier league 2009 initially scheduled to be held in India but eventually hosted in South Africa. As part of the execution of the same certain activities related to on- ground implementation 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 contention was that the serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant. By citing all these clauses of the agreement, he submitted that 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 ₹ 33 crores is fees for technical services based on the accounting records of the assessee as well as also by the agreement entered into by appellant with the BCCI. He further referred to the para No. 4 of the agreement, which says that significant portion of the services constitutes services provided to the BCCI from outside India using IMGs international expertise and resources. Thus, it shows that those significant activities have been performed outside India and they do not have any concern with the permanent establishment of the appellant in India. In view of this he submitted that whatever is attributed to the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e activities are required to be carried out by the appellant from outside India independently. He further stated that even in those 5 to 6 activities also the role of the permanent establishment is very minimal. Therefore his argument was that that the claim of the assessee that no further income is required to be assessed as fees for technical services in the hands of the appellant over and above whatever is attributed to the permanent establishment of the appellant deserves 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 to ₹ 84545561/- and alternatively on protective basis the full consideration of ₹ 237750181/- which has not been considered by the appellant as fees for technical services on protective basis. Therefore, he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pt 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 period of further 5 consecutive seasons commencing with 2010 season on the same terms and condition as set out in the television production agreements entered into by the BCCI with appellant in respect of the 2009 season. He submitted that no such agreement is produced by the assessee before the Ld. AO or before the TPO or before the Ld. DRP and not even before the tribunal. Therefore, the consideration for these services without looking at the agreement cannot be decided. He submitted that assessee 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 establish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith respect to the query that how the services rendered by UK company to BCCI were effectively connected with the PE in India with respect to the services rendered by PE and services rendered by the UK company directly on account of the service agreement, the appellant submitted relying upon the Philip Becker 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 source of the revenue for appellant is only one contract, which is the contract with the BCCI for IPL 2009 and subsequent IPL events. Therefore according to him the contract in all circumstances is effectively connected with the permanent establishment and therefore only article 7 is applicable and such situation is inescapable. He further submitted that this conclusion has been accepted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired 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 technical services therefore the contention of the of the appellant that once the transaction with the PE is held to be at arm s length no further income can be charged to tax on account of fees for technical services is devoid of any merit. He further referred to the clause No. 4.1 of the service agreement where significant services constituting advice provided to the BCCI from outside India using IMGs international expertise and resources. Therefore he submitted that this clearly indicates that 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns and activities carried out by its permanent establishment in India. Accordingly appellant offered resultant income as business 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 whether such sum is chargeable to tax as fees for technical services or not with respect to Indian tax laws as well as Double Taxation Avoidance Agreement entered into between India and UK. The stand of the assessee is that income arising from that contract is chargeable to tax as fees for technical services as per Indian tax laws as well as per the Double Taxation Avoidance Agreement as per article 13 of that agreement. Further as appellant is carrying on business in India through its permanent establishment therefore by virtue of the provisions of the article 13 (6) th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the IPL and make cut recommendations to BCCI. Further the appellant shall provide appropriate presentation documentation in the research on various presentations to be made based upon which the BCCI will decide upon the most appropriate structure for the IPL under advice from the appellant. The BCCI has required the appellant to prepare the documentation being the Constitution of the IPL, authority of the governing Council of the IPL, structure of the tournament, IPL tournament rules and regulations, the franchisee tender document, 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 preparation and negotiation of contracts with various parties. It was further required to prepare television production specifications and development of best practice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Rights which may be 100% owned centrally and the division 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 may be interested in any of the rights such contracts being for the purposes of this MOU, ' Rights' Agreements-' and all income of any kind generated therefrom being income (g) the implementation and management of the centrally controlled/ owned Rights on behalf of the relevant third parties sponsors etc (h) the preparation of a television production specification; (i) the development of best practice match day guides and supervision in respect of the execution; (j) the development of best practic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... budget; and (c) the Media Rights agreements. i 4.2 the addition to the matters referred to in Clause 4.1 above, IMG shall continue its work in carrying out or providing (as appropriate) the following; (a) the ongoing execution of the management in respect of the Rights of BCCI and advice in connection therewith including, without limitation:; (i) Franchise Rights; (ii) Media Rights; (iii) sponsorship rights; (iv) official suppliership rights; (v) licensing and merchandising rights; (vi) stadium signagc rights; and (vii) any other rights in relation to the League that may come-up for leverage by BCCI in the future (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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts in various areas of management and execution of the League (w) development of the strategic brand framework for BCCI and marriage brand IPL working with the BCCI team; (x) bringing-in global best practices in building 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. Functions performed by IMG UK The entire contract negotiation, pricing discussions, finalization of terms, etc., with BCCI were undertaken by IMG UK. As mentioned earlier, IMG UK was awarded the contract because of the vast knowledge and experience of IMG UK, which has been developed by the UK entity over the years as a result of working on similar assignments in the field of sports (including cricket) prior to this contract. IMG UK posse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g 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 guidelines for franchisees and for the IPL along with IMG India PE 13. Development of best practice match day media guidelines along with IMG India PE 14. Undertaking offshore market/ industry analysis and supervision of research activities undertaken in India for identification of prospective sponsors along with IMG India PE 15. Advice and assistance in connection with the rules and regulations relating to the registration, auction and trading of Players 16. Development of the strategic brand framework 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... event, IMG India PE was involved in performing the following activities: 1) Undertaking market/ industry research to assist IMG UK in identification of prospective franchisees and sponsors in India; 2) Providing liaison/ 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 management of work plan relating to running of the event, including arranging for and management of the logistics, manpower etc. requirements based on the policies/ procedures set out in the framework documents developed by IMG UK; 7) Based on the framework developed by IMG UK, development of best practice match day guidelines for franchisees media, etc; 8) Based on the overall framework developed by IMG UK, providing on-ground advise relating to the impl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icant 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 were undertaken in India purely as a sub contracted support service to IMG UK and India was not responsible for its services to the end client/ BCCI. Functional Analysis 4.4.3. Functions performed by deputed employees/ appointed freelancers in -South Africa Post the announcement of the fact that the 2009 IPL event would be hosted in South Africa, the UK employees and freelancers appointed/ engaged by IMG UK moved out to South Africa. Such employees and the freelancers appointed/ engaged by IMG UK 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, stadium signage right ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he transactional net margin method for determining the arm s length price and has held that as stated in the 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 facts and circumstances of the IPL 2009 event are different from IPL 2008 event since IPL 2009 took place in South Africa unlike the previous IPL event 2008 which was hosted in India during April to June 2008. On the basis of the above facts no adverse inference was drawn towards the amount of revenue of ₹ 92249819/- attributable to the Indian permanent establishment. Therefore, on reading the transfer-pricing officer s order it is apparent that according to him no further profit is required to be attributed to the permanent establishment of the assessee. However these attribution ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to that contract only the service PE is coming into existence and therefore the whole contract has been effectively connected with the permanent establishment. The appellant has further submitted that in case if the bench is of the view that the balance consideration is not attributable to the permanent establishment for the services rendered by the appellant and it is in the nature of the fees for technical services as per the provisions of article 13 (4) ( c) , then also because of the PE the receipts 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 of the Ld. appellant we would like to examine the provisions of article 13 of the Indo UK DTAA which are as under:- ARTICLE 13 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 described in paragraph 3(b) of this Article is received ; or (c) make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design. 5. The definition of fees for technical services in paragraph 4 of this Article shall not include amounts paid : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property, other than property described in paragraph 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9. The provisions of this Article shall not apply if it was the main purposes or one of the main purposes of any person concerned with the creation or assignment of the rights in respect of which the royalties or fees for technical services are paid to take advantage of this Article by means of that creation or assignment. [Underline supplied by us] 36. On perusing above 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 Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent, establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enter price may be taxed in the other State but only so muc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 is a member of the Organisation for Economic Cooperation and Development or a State in a comparable stage of development, and that Convention enters into force, after the date of entry into force of this Convention, the competent authority of that Contracting State shall notify the competent authority of the other Contracting State of the terms of the relevant paragraph in the Convention with that third state immediately after the entry into force of that Convention and, if the competent authority 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ground implementation and related supervision activities in India. As these functions performed, assessee has claimed that it has created a service PE in India and therefore the income should be chargeable to tax according to 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 position that while the effective connection of royalties with a permanent establishment has to be evaluated by applying the assets test , and for the purpose of fees for technical services the activity test or functional test should be applied as held in case of Nippon Kaiji Kyokoi V ITO 47 SOT 41 (Mum). Therefore to effectively connect the whole income with the PE, contending party i.e. assessee, should establish that PE is engaged in the performance of all those se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the activities of the permanent establishment in India. Hence we reject the contention of the assessee that the whole of the revenue involved in the contract should be considered as effectively connected with the permanent establishment of the appellant. We also give one more reason may be a hypothetical one which supports our view. Supposedly a contract of ₹ 100 crore is awarded to an overseas entity for rendering of the management services and if such overseas entity establishes a permanent establishment by just deputing its staff for more than 90 days, it creates a service permanent establishment of that for an entity in 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 assessee and as well as by the transfer pricing officer, it c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erforms in that other State independent personal services from 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 this article shall not apply if the beneficial owner of the royalty fees for technical service, being a resident of a contracting state, carries on business in other contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, and the right property or contract in respect of which the royalty fees for technical services are paid is effectively connected with that permanent establishment or fixed base. Then only the provisions of article 7 related to business profit shall apply. Therefore the above article provides for twin conditions , (1) that the royalty o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of effectively connected with in article 12(6) of that agreement as under:- 6. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for included services, being a resident of a Contracting State, carries on business in the other Contracting State, in which the royalties or fees for included services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a 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 and the balance sum of ₹ 237750181/- shall be chargeable as fees for technical services under article 13 of the DTAA. 43. Now the next contention raised by the appellant is that as there is no make av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urnament 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 satisfied in this even by providing all the rules and regulations of IPL, standard operating procedures of matches, copies of the franchisee agreement, various documentation/ contracts etc which shall remain with the BCCI. Therefore 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 the appellant in future. It is too na ve to say that in absence of IMG services BCCI on its own IPL tournament cannot hold. Merely because the BCCI has entered into a cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India56 or for the purposes of making or earning any income from any source in India : 48. According to provisions of section 9 (1) of the Income tax Act the income by way of fees 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 person outside India or for the purpose of making or earning any income from any source outside India, it shall not be considered as fees for technical services as income deemed to accrue or arise in India in terms of the provisions of section 9(1) (vii) (b) of the Income Tax Act. The main reason to say so by the appellant is that the IPL 2009 event has been held outside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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