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TMI Blog2020 (10) TMI 1019X X X X Extracts X X X X X X X X Extracts X X X X ..... s its liability to be "assessed" under the Income-tax Act, 1961 ('the Act') and the assessment order made under section 143(3) of the Act is bad in law. 2. That on the facts and circumstances of the case and in law, Ld. CIT(A) erred in upholding the order of the Learned Assessing Officer ('Ld. AO') that the appellant has a business connection in the form of ESPN Software India (P) Ltd. ('ESPN India') (now known as Star Sports India Private Limited) (now merged with Star India Private Limited) and that the appellant is carrying on its business in India and earning its income from sources in India in terms of Section 9(1 )(i) of the Act. 3. That on the facts and circumstances of the case and in law, Ld. CIT(A) grossly erred in upholding the order of the Ld. AO that appellant has a Permanent Establishment ('PE') in the form of ESPN India under India Mauritius Double Taxation Avoidance Agreement ('DTAA'). 4. That on the facts and circumstances of the case and in law, Ld. CIT(A) grossly erred in upholding the order of the Ld. AO that the appellant has a dependent agent PE in the form of ESPN India under Article 5(4) and 5(5) of the DTAA without appreciating the fact that ESPN Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia and assessee also receives the sale consideration outside India. The assessee does not have any office in India nor does it have any agency or operation in India. For the year under consideration, the assessee filed return of income declaring nil income. The assessee claimed that revenue earned by it was in the nature of business profits, which were not subjected to tax in India in view of Article -7 of the India Mauritius Double Tax Avoidance Agreement (in short 'DTAA'). The case of the assessee was picked up for scrutiny. During the course of assessment proceeding, the assessee was asked to show cause as to why the assessment for the current year be not concluded on the same basis as that for Assessment Year 2007-08 wherein it had been held that the assessee has a dependent agent PE in the form of ESPN India as per article 5(4) and 5(5) of the DTAA and also that the income of the assessee is deemed to accrue or arise in India. The Assessing Officer also attributed 30% of gross revenue to the deemed PE which were held to be taxable in India. 6. The assessee in reply submitted that ESPN India cannot be considered as a dependent agent of the assessee as the conditions laid down ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessment order. The same are referred but not being reproduced for the sake of brevity. 8. The Ld. CIT(A) relied upon the reasoning of the appellate orders for Assessment Years 2003-04 and 2004-05 and held that there was existence of business connection of assessee in India on identical facts. Then the ld. CIT(A) decided the next issue of dependent agent permanent establishment (in short 'DAPE') in view of Article 5(4)/5(5) of the India Mauritius Double Tax Avoidance Agreement. The Ld. CIT(A), after noting the arguments of the assessee vide para-6.8 of the appellate order, further noted that the issue relating to existence of DAPE in the form of ESPN India had been examined in assessee own case by the CIT(A) in order dated 31.03.2010 and relying on said reasoning dismissed the appeal of the assessee. Further, plea of the assessee was that once the profits attributable to activities of PE are determined in accordance with arm's length principle in its dealings with the enterprise of which it constitutes a PE, then no further hypothetical profits can be attributed to such PE. Reliance was placed by the assessee on various Circulars issued by CBDT and the decision of the Hon'bl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it changed the agreements and made Indian company as principal which purchased air time and sold it to different customers. This fact of Principal to Principal arrangement was argued before the Assessing Officer and it was pointed out that agency concept will not apply. In view of article 5(5) of the DTAA between India and Maritius, there were no DAPE. However, the Assessing Officer and the CIT(A) rejected this arguments and treated the transaction to be same as in Assessment Year 2003-04, though the terms of the agreement had changed and the roles of the parties had also changed. The Ld. AR for the assessee took us through the various paras of the assessment order and the appellate order and stressed that firstly, the assessee was not dependent agent PE; it was an independent agent as per article 5(5) of the DTAA. Another point raised by the Ld. AR for the assessee was that Revenue Department had taxed @17% of PLI which was higher than normal rate of agency commission of 10%. The Ld. AR for the assessee further pointed out that the TPO of Indian entity accepted the transaction to be at arm's length. Where the tax departments had gone through FAR analysis and find the same to be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee is covered by the decision of the Hon'ble Supreme Court. He stressed that conclusion of contract or authority to conclude the contract, is there in the agreement between the parties. He also submitted that in earlier years this was disputed based on the various decisions. 12. We have heard the rival contentions and perused the record. The assessee is a partnership firm established under the laws of Mauritius on March 29, 2002. The assessee is engaged in the business of acquiring and allotting advertisement time ('Airtime') and programme sponsorship in connection with programming via non-standard television from Mauritius on ESPN, Star Sports and Star Cricket Programming services. The assessee had entered into agreement with ESPN Software India (P) Ltd., incorporated under the laws of India which was engaged in the business of acquiring the airtime from assessee and allotting it to various Indian advertisers and advertising agencies. The sale of airtime by the assessee to ESPN India is outside India. Further, the assessee has no office in India and/or any operations in India. The plea of the assessee before the lower authorities was that ESPN India purchased airtime fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it has been held that once arm's length principle has been satisfied, there can be no further profit attributable to a person even if it has a permanent establishment in India. 4. Since, the impugned notice for the reassessment is based only on the allegation that the appellant(s) has permanent establishment in India, the notice cannot be sustained once arm's length price procedure has been followed. 5. Accordingly, the impugned order(s) is set aside and the appeals are allowed." 14. Similar proposition has been laid down by the Hon'ble Apex Court in Asstt. DIT vs E-funds IT Solutions Inc. [2017] 86 taxmann.com 240/251 Taxman 280/399 ITR 34 (SC) as in Honda Motors Co. Ltd. vs ADIT (Supra). The Hon'ble Supreme Court in DIT vs Morgan Stanley and Co. (supra) have also held as under "33. To conclude, we hold that the AAR was right in ruling that MSAS would be a Service PE in India under Article 5(2)(1), though only on account of the services to be performed by the deputationists deployed by MSCo and not on account of stewardship activities. As regards income attributable to the PE (MSAS) we hold that the Transactional Net Margin Method was the appropriate method for determinatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esaid factual position is kept in mind, the judgment of the Bombay High Court in Set Satellite (Singapore) Pte. Ltd's. case (supra) is clearly attracted. In that case the High Court has held that if correct ALP is applied and paid, nothing further would be left to be taxed in the hands of the foreign enterprise. In the said case, Morgan Stanley & Co. Inc.'s case (supra) as well as Circular NO.23 issued by the CBDTwas taken into consideration. The Court was also pleased to record that the commission paid to the agent was 15% services performed by the Assessee's agent in India was in line with the existing industry standards in India at the prevalent time. Reliance was also placed on Para 3 of Circular NO.742 dated 02.5.1996 issued by the CBDT, which referred to the fact that the agent's commission from foreign telecasting companies is 15% or so of the gross sum, to contend that the CBDT itself had considered 15% as the normally accepted commission rate payable to agents of the telecasting companies." (emphasis applied) 16. In applying the aforesaid proposition to the issue raised before us and without deciding the issue of whether ESPN India constitutes PE of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X
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