TMI Blog2021 (1) TMI 125X X X X Extracts X X X X X X X X Extracts X X X X ..... onsidering the fact that SIPL had been remunerated at arm s length price by the assessee, no further profit could be attributed in the hands of the assessee. In fact, similar view has also been expressed by the Hon ble Apex Court in the case of ADIT vs. E-Funds IT Solutions Inc. [ 2017 (10) TMI 1011 - SUPREME COURT] even if such agent is treated as a dependent agent PE. DR was not able to provide any contrary evidences to prove that the fact of SIPL s commission from assessee was less than 1% of total income is incorrect. Hence, we hold that there is no need for this issue to go back to the file of the ld. AO and accordingly, the argument of the ld. DR in this regard is hereby rejected considering the fact that the issue involved is more than 20 years old as of now and hence the matter is not remanded back to the file of ld AO. Thus we hold that assessee has paid arm s length commission to SIPL @15% which has been accepted to be at arm s length also by the lower authorities by not disputing the same and also by the ld. TPO for subsequent assessment years i.e. A.Yrs. 2002-03, 2003-04, 2004-05 in the orders passed u/s.92CA(3) of the Act and also considering the fact that the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... NGC Network Asia LLC [ 2009 (1) TMI 174 - BOMBAY HIGH COURT] wherein held that when the duty is cast on the payer to deduct and pay the tax at source and on payer s failure to do so, interest u/s.234B of the Act cannot be imposed on the payee assessee. Moreover, we also find that the proviso to Section 209(1) of the Act, which has been heavily relied upon by the ld. DR at the time of hearing was inserted in the statute only w.e.f. A.Y.2013-14 onwards and the same is not applicable for the year under consideration. Accordingly, we hold that no interest u/s.234B of the Act could be charged in the hands of the assessee as the entire income is subject to deduction of tax at source. Accordingly, the ground No.4 raised by the assessee is allowed. - ITA No.8671/Mum/2004, ITA No.3834/Mum/2007, ITA No.3835/Mum/2007, ITA No.3836/Mum/2007 And ITA No.1662/Mum/2008 - - - Dated:- 30-12-2020 - Shri M. Balaganesh, AM And Shri Ram Lal Negi, JM For the Assessee : Shri Porus Kaka For the Revenue : Shri Shreenivasaraghava Iyengar ORDER PER BENCH: ITA No.8671/Mum/2004 A.Y.2000-01 (Assessee Appeal) This appeal in ITA No.8671/Mum/2004 for A.Y.2000-01 arises out ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld. Asst. Director of Income Tax (International Taxation)-3(2), Mumbai (hereinafter referred to as ld. AO). 1.1. At the outset, we would like to mention that all these files are reconstructed files in view of the original files not becoming traceable by the Registry. Pursuant to the order sheet noting in ITA No.8671/Mum/2004 dated 24/06/2020 wherein the Registry is directed by the Bench to comply with appeal papers in all respects pursuant to reconstruction and similarly for other A.Yrs. 2001-02, 2002-03, 2003-04 and 2004-05, these appeals are taken up for hearing based on the reconstructed appeal papers. Let us take up Appeal in ITA No.8671/Mum/2004 (A.Y.2000-01) 2. The ground Nos. 1 to 3 raised by the assessee are with regard to taxability of advertisement revenue as business income. 3. We have heard the rival submissions and perused the materials available on record. We find that the assessee is a non-resident company, incorporated in the US. As per Article 4 of the India-US Double Taxation Avoidance Agreement ('India-US DTAA'), it is eligible for the benefits of the India-US Tax Treaty by virtue of being a resident of USA. It is primarily engaged in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cting State merely because it carries on business in that other State through a broker, general commission agent, or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise and the transactions between the agent and the enterprise are not made under arm's length conditions, he shall not be considered an agent of independent status within the meaning of this paragraph 3.1. We find that SIPL had been remunerated by way of 15% commission from the assessee for the activities performed by it. It was submitted that the said commission of 15 percent is at arm's length as it is based on the industry standards for foreign telecasting companies. Circular No. 742 dated 2nd May 1996 issued by the CBDT which provides for computation of taxation of advertisement revenues by foreign telecasting companies, has also recognised the same. The Circular provides 15 percent advertising agency commission and 15 percent Indian agent's commission, which is in line with industry standards for media commission agents. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... et Satellite (Singapore) PTE Limited vs. DDIT reported in 307 ITR 205 (Bom), wherein the Hon ble High Court had observed that if the correct arm s length price is applied and paid, then nothing further would left to be taxed in the hands of foreign enterprises. The Hon ble High Court was dealing with a foreign telecasting company, similarly to the assessee herein for the A.Y. 1999-2000 (i.e prior to the applicability of transfer pricing provisions as in the case of the assessee herein), wherein the Hon ble High Court had relied on CBDT Circular No.742 to conclude that the commission paid to Indian agent is fair and reasonable for examining the arm s length basis. The relevant extract of the said decision is reproduced hereunder:- 10. ..From the order of the CIT, which has been accepted it is clear that the Appellant herein has paid to its PE on arm's length principle. It recorded a finding of fact that the Appellant had paid service fees at the rate of 15 per cent of gross ad revenue to its agent, SET India, for procuring advertisements during the period April 1998 to October, 1998. The fact that 15 per cent service fee is an arm's length remuneration is supported by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered by the Hon'ble High Court. Facts of the case were that the Assessee, a resident of Singapore, was having business activities in India, that through its dependent agent, namely SET India (P.)Limited, it carried on marketing activities in India for advertisement slots by canvassing advertisements in India, that it claimed that it did not have any tax liability in India as it did not have a PE in india, that it was also argued that its dependent agent was remunerated on an arm' s length basis, that income from various activities had been assessed to tax in the hands of SET India, that there could not be further assessment of income in the hands of the Assessee on account of the said activities. Reliance was placed on Circular No. 23, dated 23/07/1969, issued by the CBDT. While filing revised return on 05/03/2001,it computed its taxable income as per the formula prescribed in the Circular No. 742 without prejudice to its contention that, it did not have any income which was taxable in India. The AO assessed the income of the Assessee which included income from marketing fees as also advertisement collected from India and further the subscription fees received from cable op ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the alternative argument advanced by the ld. AR that even assuming that SIPL constitutes a PE of the assessee in India under Article 5(5) of India-USA DTAA, considering the fact that SIPL had been remunerated at arm s length price by the assessee, no further profit could be attributed in the hands of the assessee. In fact, similar view has also been expressed by the Hon ble Apex Court in the case of ADIT vs. E-Funds IT Solutions Inc. reported in 399 ITR 34(SC) even if such agent is treated as a dependent agent PE. The relevant extract of the said judgment of Hon ble Apex Court is reproduced hereunder:- 22. . Shri Ganesh is correct in stating that as the arm's length principle has been satisfied in the present case, no further profits would be attributable even if there exists a PE in India. This was specifically held in Morgan Stanley (supra) as follows: . 36. Under the impugned ruling delivered by AAR, remuneration to MSAS was justified by a transfer pricing analysis and, therefore, no further income could be attributed to the PE (MSAS). In other words, the said ruling equates an arm's length analysis (ALA) with attribution of pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nder Art 5(4) giving rise to deemed PE. As regards the attribution of income to PE, there is no TP audit as far as AY 2000-01 and AY 2001-02 are concerned. If the CBDT circular is relied upon by the assessee, it cannot be relied upon partially for treating the commission paid as arms length, ignoring the taxability of net advertisement income @ 10% prescribed by the same Circular. For AY 2002-03, as regards reopening of assessment, assessee never asked for the reasons for reopening, as elaborated in Para 7 of the CIT(A) order. The Ld AR has not pressed this ground. The case laws relied upon by the assessee were considered in the order of ITAT in AY 2007-08 and AY 2008-09. The decisions cited have proceeded on their own specific facts and such facts are distinguishable. i) Set Satellite Singapore Bom HC Here the DTAA involved is with Singapore. CIT(A) had given some reliefs based on CBDT circular where as revenue was aggrieved only in respect of advertisement revenue income of one particular channel AXN. The HC noted that the findings of CIT(A) were not disputed by the revenue. ii) E Funds IT Solution Inc SC This was a case of an Indian Sub provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly to such income (refer Article 7(6) of the DTAA). The case laws relied upon by the assessee are distinguishable on facts. i) MSM Satellite (Singapore) Pte Ltd. Bom HC This case proceeds on the facts that subscription revenues received from a large number of customers- ultimately received by the Singapore Assessee was taxed as Royalty by the revenue. Here it is the license fees paid by Indian Sub to the US assessee which has been held as royalty. The country and DTAA is different. ii) SET India Pvt. Ltd Bom HC Here the HC states that the matter is settled by its decision in the case of Set Satellite (Singapore) Pte Ltd. 307 ITR 205. However in the decision referred to, discussed earlier in respect of advertisement income, the matter pertained to taxability of advertisement revenue and the attribution of income to PE and the CBDT Circulars and not the issue of royalty. iii) Sony Pictures Network India ITAT Mumbai Here the issue was TP adjustments related to royalty. On page 14 of this order it is stated that the Ld DR did not controvert that distribution fees is not royalty. This is strongly contested here with facts and the explanation of the DTAA wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dingly justified the action of the lower authorities in bringing to tax 10% of the gross receipts. We find that the second part of the Circular is the view of the CBDT. The same has been over ruled by various decisions of the Hon ble High Courts and the Tribunal as stated supra. b. We find that the ld. AR had argued that SIPL s commission income from assessee was less than 1% of its total commission income. The ld AR submitted that SIPL is not restricted from carrying on other business, including the business of being a representative to solicit advertisements for other television channels. During the year under consideration, SIPL was not only acting as an advertisement agent for the assessee but also acting as an advertisement agent for Satellite Television Asian Region Ltd., and ESPN Asia(s) Pvt. Ltd. Further SIPL is also engaged in other business such as producing / procuring of the content and supplying programmes and distribution rights of channels to cable operators in India. It was argued by the ld. AR that commission income from SIPL constitute less than 1% of the total commission income received by SIPL from other media companies, which fact is also noted by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7,16.473 21.00% Varian Chrompak International Netherlands 41% 41% 3.49.91,933 64.44% 8,53,46,178 46.28% Varian A G, Switzerland 15% 15% 53,70,674 9.89% 3,58,04,493 19.42% Total 5,42,99,616 100% 18,44,06,472 100% From the above, it is evident that the percentage of commission income and sales from the three VGCs are quite normal and with regard to Varian Inc. USA, the activities of the Assessee are between 5 to 7%. Hence, it cannot be said that the Assessee is devoted wholly or almost wholly on behalf of any one VGC. We find that the ld. DR had argued that the above fact that SIPL commission income from assessee was less than 1% of total commission income derived by it, was not verified by the lower authorities and the same needs to be sent back to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined whether it satisfies the condition of independent agent laid down in para 5 of Article 5. He submitted that an agent is considered of having independent status if the activities are not devoted wholly or almost wholly on behalf of foreign enterprises and the transactions between the agent and such enterprises are made at arm s length then it shall be regarded as an agent of independent status. We hold that agent who satisfies the condition will be independent and would not constitute the PE in India even if he satisfies the conditions laid down in para 4. Accordingly, if SIPL is an agent of independent status and fulfils the conditions laid down in para 5, it will not constitute a PE for assessee in India. In this regard reliance was rightly placed on the Co-ordinate Bench decision of this Tribunal by the ld. AR in the case of Delmas France vs. ADIT reported in 49 SOT 719 (Mum) which affirm the above proposition. We find that this ruling was rendered in the context of Article 5(6) of India France DTAA. Similar language exists in Article 5(5) of India USA DTAA and hence, said ruling would be made applicable to the facts of the assessee herein. We also find that the said ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the Appellant has a PE in India, the learned CIT(A) erred in holding that entire advertisement revenues collected by the alleged PE are taxable in India disregarding the fact that several key operations like content procurement up-linking and amplification in satellite are admittedly carried outside India and therefore, income attributable to those operations can not be taxed in India as per clear mandate of clause (a) of Explanation 1 to section (c) assuming without admitting that the Appellant has a PE in India and income attributable to operations carried out by the PE in India is taxable, the learned CIT(A) erred in holding that income of the PE, in excess of marketing and collection commission paid to Indian agent on the basis of Arm's Length Pricing ( ALP ) is further taxable in India. 2. On the facts and circumstances of the case and in law, the learned CIT(A) erred in: (a) holding that distribution revenues earned by the Appellant outside India are taxable in India. (b) holding that distribution revenues earned by the Appellant outside India are taxable as royalty both under ITA and Article 12 of DTAA between India USA. (c) not holding t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes it undertake any activity in India as regards the distribution rights granted. In this regard, the relevant extracts of the distribution agreement that are pertinent are reproduced hereunder for the sake of convenience:- 2. RIGHTS GRANTED 2.1 NGC ASIA hereby grants NGC INDIA and NGC INDIA hereby accepts upon the terms and conditions set out in this Agreement, the right to, during the Contractual Period, distribute the channel (s) through any means to Intermediaries, in the Territory except where the channel (s) may be transmitted on a Ku-band frequency. 2.2 2.3 NGC INDIA shall not and shall ensure that the Intermediaries do not: (a) in the transmission of the channel (s), effect or permit and any delay or modification thereof and/ or deletion therefrom. NGC INDIA shall also ensure that the Channel(s) are transmitted in their entirety; (b) use, modify or replace any copyright, trade marks, trade names, logos, names and/ or likeness, or any part of them, included in any of the channel (s) or any of the contents thereof, or which NGC INDIA uses for marketing purposes, provided that this restriction on use shall not apply to NGC INDIA in so far ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y. In fact, it is an obligation for NGC India to distribute the channel on an 'as is' basis, without making any amendment to channel. Further, it provides that NGC India or intermediaries cannot cut, edit, dub, voice-over, subtitle or otherwise change or alter any of the channel(s) or any of the content thereof, as required by any applicable law, without informing the assessee of all the details regarding the mandated changes or alterations. It also provides explicitly that NGC India or intermediaries cannot copy any of the programmes included on the channel for the purpose of re-transmitting them later or for any other reason. Therefore, it is clear that no copyrights are granted nor any rights to copy any programme not only to NGC India but also to any further intermediaries. 7.3. We find that the assessee had granted NGC India the limited right to use the trade name, trademarks, service marks and logos ('the Channel marks') solely to enable it to market and distribute the channel in accordance with the distribution agreement. NGC India does not have the rights to exploit these service marks, in any manner. 7.4. We find that the ld. AO had held in his assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... :- copyright means the exclusive right to do or authorise the doing of the following acts in respect of a work or any substantial part thereof, namely: (a) in the case of a literary, dramatic or musical work, not being a computer programme, (i) to reproduce the work in any material form including the storing of it in any medium by electronic means; (ii) to issue copies of the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound recording in respect of the work; (v) to make any translation of the work; (vi) to make an adaptation of the work; (vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-clauses (1) to (vi); (b) in the case of a computer programme, (i) to do any of the acts specified in clause (a); (ii) to sell or give on hire, or offer for sale or hire any copy of the computer programme, regardless of whether such copy has been sold or given on hire on earlier occasions; Provided that such commercial rental does not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sual recording of the broadcast; or makes any reproduction of such sound recording or visual recording where suchinitial recording was done without license or where it was licensed, for any purpose not envisaged by such license; or * sells or hires to the public, or offers for such sale or hire any such sound recording or visual recording referred to in clause (c) or clause (d), shall, subject to the provisions of Section 39, be deemed to have infringed broadcast reproduction right.' 7.8. Section 2(dd) of the Copyright Act defines 'Broadcast' to mean - 'communication to the public by means of wireless diffusion, whether in any one or more signals, sounds or visual images or by wire and includes re-broadcast'. 7.9. Section 39A of the Copyright Act provides that only certain specific sections of the Copyright Act such as Section 18, 19, 30, 53, 58, 64, 65 and 66 will apply to the Broadcast Re-production Rights and not other provisions that apply to copyright. Hence, based on the combined reading of Section 37 and 39A with Section 2(dd) of the copy right Act, it could be safely concluded that the consideration paid by NGC India for Br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entirety. 7.13. We find lot of force in the rebuttal offered by the ld. AR as admittedly NGC India is not entitled as per the agreement to copy any of the programmes included in the channel for the purpose of re-transmitting the same at a later point of time by making any alterations thereon. Thus, we hold that the reliance placed by the ld. DR on the above technical explanation is misplaced and is hereby rejected. Moreover, we also find that the above technical explanation was issued by the tax authorities of United States of America and the same is not the official protocol or clarification which has been mutually agreed upon between the two countries. Hence, in any case, the said technical explanation would not bind this Tribunal. 7.14. We find that the ld. DR placed reliance on the decision of the Hon ble Supreme Court in the case of Pilcom vs. CIT reported in 116 taxmann.com 394 dated 29/04/2020. The said Hon ble Supreme Court decision referred to the decision of yet another Hon ble Supreme Court decision in the case of Performing Rights Society ltd., vs CIT reported in 106 ITR 11. The ld. DR argued that since the broadcast of the channel is conducted in India, the re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;Royalty' under the Act and the India- Singapore Tax Treaty (similar to the India- USA Tax Treaty). It is submitted that the facts of this case are similar to that of the assessee, wherein, the assessee has also granted distribution rights to the Indian company (NGC India). The Court held, the payments were not copyrights but were broadcast reproduction rights that cannot be royalty under the Act or treaty. The relevant operative portion of the said decision of the Hon ble Jurisdictional High Court is reproduced hereunder:- 10. In our opinion, the Tribunal has not committed any error. As noted, the Assessee would receive a part of subscription charges paid by a large number of customers through different agencies. The said subscription charges would enable the customers to view channels operated by such Assessee. The Assessee was thus not parting with any of the copyrights for which payment can be considered as royalty payment. Term copyright has been defined in Section 14 of the copy right Act, 1957. A glance at the said provision would show that the copyright means exclusive right, subject to the provisions of this Act, to do or authorise the doing of any of the follo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee before us and the facts of the case before the Hon ble Bombay High Court are identical as distribution receipts in the said case are collected by the Indian subsidiary Set India Private Limited through layers of cable operators which fact is mentioned in para 8 of the said decision and Set India Pvt. Ltd., paid distribution fees to MSM Satellite (Singapore) Pte Ltd.,, which is similar to the present case before us, wherein such distribution receipts are collected by Indian subsidiary NGC India through various cable operators. NGC India makes onward payments for assessee for grant of distribution rights by the assessee. 7.17. We also find that the Co-ordinate Bench of this Tribunal in the case of Sony Pictures Network India Pvt. Ltd. vs. DCIT in ITA No. 971/M/2016 had also held that distribution fees for the channel cannot be termed as Royalty . The relevant observations of the said decision is reproduced hereunder:- 22. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities. The first issue for our consideration is whether the 'distribution fee' is in the nature of 'Royalty' or not. Befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under Section 37 of the Copyright Act and not under Section 14 thereof. We observe that ld CIT(A) has also considered Clause 6.3 of the distribution agreement entered into between assessee company and Non-resident company, which states that the right granted to the Assessee under the agreement is not and shall not be constructed to be a grant of any license or transfer of any right in any copyright. Ld CIT(A) has started that the Assessee submitted to it by a broadcaster without any editing, delays, interruptions, deletions, or additions and, therefore the payment made by the Assessee to the Non-resident company is not for use of any copyright and consequently cannot be characterized as Royalty. Ld CIT(A) has held that Broadcasting Reproduction Right is not covered under the definition of Royalty under section 9(1)(vi) of the Income tax Act as well as Article 12 of the Treaty. Accordingly, the payment is not in the nature of Royalty but in the nature of business income 7.19. Further the Hon ble Bombay High Court in the case of Set Satellite (Singapore) PTE Limited vs. DDIT reported in 307 ITR 205 had noted that the distribution rights are in the nature of commercia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being permitted to distribute the channel. Accordingly, since NGC India does not acquire any right in the underlying copy right (i.e. right to modify / reproduce channel / content). Hence any contention that NGC India is making a payment for copy right would be erroneous. 7.23. In view of the aforesaid observations and respectfully following the various judicial precedents relied upon hereinabove that are relevant for adjudication of the issue in dispute before us, we hold that the distribution rights granted by the assessee to NGC India is only a commercial right / Broad Cast reproduction right and not copyright and consequently consideration received by the assessee for the same cannot be treated as royalty or fees for included services under Article 12 of India-USA DTAA. Accordingly, the ground Nos. 2 3 raised by the assessee for A.Y.2001-02 are allowed. 8. The ground No.4 raised by the assessee is with regard to charging of interest u/s.234B of the Act. We find that assessee is a non-resident whose entire income is subject to deduction of tax at source u/s.195 of the Act. Accordingly, the assessee had pleaded that it is not liable to pay advance tax and consequently not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee which is also confirmed and accepted by the ld. TPO, no further profits could be attributed in the hands of the foreign principal. Accordingly, ground No.2 raised by the assessee is allowed. 13. The ground Nos. 3 4 raised by the assessee for A.Y. 2002-03 are similar to ground Nos. 2-3 raised by the assessee for A.Y.2001-02 and the decision rendered thereon would apply with equal force for this assessment year also except with variance in figures. 14. In the result, appeal of the assessee for A.Y.2002-03 in ITA No.3835/Mum/2007 is partly allowed. ITA No.3836/Mum/2007 (A.Y.2003-04) Assessee Appeal 15. The ground No.1 raised by the assessee is exactly identical to ground No.2 raised by the assessee for A.Y.2002-03 and the decision rendered by us thereon would apply with equal force for A.Y.2003-04 also except with variance in figures. 16. Ground Nos.2 3 raised by the assessee for A.Y.2003-04 are exactly identical to ground Nos.3 4 raised by the assessee for A.Y.2002-03 and the decision rendered thereon would apply with equal force for this assessment year also except with variance in figures. 17. The ground No.4 raised by the assessee is identical to gro ..... X X X X Extracts X X X X X X X X Extracts X X X X
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