TMI Blog2021 (7) TMI 1399X X X X Extracts X X X X X X X X Extracts X X X X ..... ibution revenues earned by the assessee falls within the meaning of Royalty under Article 12 of India - USA DTAA is taxable in India - HELD THAT:- The distribution rights granted by the assessee is only a Broad Casting right and cannot be brought under the purview of Copy right. We fallow the judicial precedence [ 2021 (1) TMI 125 - ITAT MUMBAI] and direct the assesseing officer to delete the addition as per the ratio of the decision discussed in the above paragraphs and allow the grounds of appeal in favour of the assessee. Short of TDS credit - HELD THAT:- We are of the opinion that the assessee should not be deprived of its legitimate right for TDS credits and direct the A.O. to verify the claim and grant the TDS credit. We find the assessee has claimed additional TDS credit (only in the A.Y.2010-11) in the DRP proceedings and the directions were issued to the Assessing officer (A.O).The asseesse has submitted the supporting claim of evidences before the A.O. Accordingly, the assessing officer is directed to verify and examine the documents filed in support of TDS claim. - ITA No.1178/Mum/2015, ITA Nos 6677 & 6678/Mum/2018, ITA No. 7142/Mum/2019 - - - Dated:- 12-7-20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t required to maintain India specific books of account. Ground No. 10 Erred in initiating penalty proceedings u/s 271B without appreciating the fact that the appellant is a non resident and is not required to get its accounts audited. 2. The brief facts of the case are that the assessee is a non resident and a foreign company. The assessee is engaged in the business of media industry and is a tax resident of USA, and its business constitute broadcasting of its channels in various countries including over Indian subcontinent. During the previous year relevant to A.Y 2010-11 the assessee has two streams of revenue from India (i) revenues from advertisement business and (ii) revenues from distribution business.The assessee has appointed NGC Network (India) Private Limited as its exclusive agent for distribution and to solicit advertising for the National Geographic Channel (NGC) and also appointed other TV Channels. The assessee has filed the return of income for the A.Y 2010-11 on 30.09.2010 with a total income of Rs. Nil. Subsequently the revised return of income was filed. Further, the assessee has filed the information that the receipt of revenue/income to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k (India) Pvt Ltd. is a permanent establishment (PE) of the Assessee. The Ld. AR submitted that as per the Article 5(5) India-USA Double Taxation Avoidance Agreement (DTAA),where an agent is remunerated on an Arms Length Price (ALP) basis, no dependant agency i.e. permanent establishment (PE) can be created. Further the ALP attribution extinguishes any further income assessable in the hands of the non -resident principal and supported his arguments with judicial decisions, ITAT decision in assessee own case and chart filed in the course of hearing. Contra the LD.DR relied on the orders of lower authorities. The Ld. AR also relied on the fallowing judicial decisions as under; 1. Honda Motor Co. Ltd. Vs. ACIT (2018) 255 Taxmann 72 (SC). 2. DIT Vs Morgan Stanley [2007] 294 ITR 416 (SC) 3. ADIT Vs. E-Funds IT Solutions Inc, 399 ITR 34 (SC). 4. Set Satellite (Singapore) Pte Ltd. Vs. DDIT [2008] 307 ITR 205, Bom HC. 5. DIT Vs. B4U International Holdings Ltd [2015] 374 ITR 453, Bom HC 6. DIT Vs. Delmas France [2015] 53 Taxmann.com 294 Bom HC 7. DIT Vs BBC Worldwide Ltd, 203 Taxman 554, 2011, Del HC 8. ADIT Vs Asia Today Ltd [2021] in ITA No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt for remittance abroad or the income returned by such companies, whichever is higher and subject the same to tax at the prescribed rate. We find that the ld. DR vehemently placed reliance on this portion of the said Circular No.742 and accordingly 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 di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. Once a particular submission was made and the same is not disputed by the lower authorities by bringing any contrary fact with evidences thereon, then the same needs to be accepted as such. On the contrary, we find that the ld. 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. c. The ld. DR vehemently argued that assessee had full control over the activity of SIPL and hence is a SIPL dependent agent PE of assessee in India. The ld. DR argued that control over the activities of the agent is a crucial point for the purpose of determining the independence of the agent under Article 5(5) of India-USA DTAA. This was duly rebutted by the ld. AR by placing reliance on the decision of this Tribunal in the case of Varian India (P) Ltd., vs. ADIT reported in 14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (Singapore) Pte Limited and other cases reproduced supra are considered and distinguished by this Tribunal in assessee‟s own case for A.Y.2007-08 and 2008-09 and hence High Court decisions relied upon need not be gone into. We find that the order passed by this Tribunal for A.Y.2007-08 and 2008-09 in assessee‟s own case has been recalled by this Tribunal in its entirety pursuant to the order of the Hon‟ble High Court. It is trite law that once the order is recalled in its entirety, it is no order in the eyes of law. Hence, all the observations made in the said recalled order has got no relevance for the purpose of adjudication. At the most, it may only persuasive value and not any binding precedent. Hence, the argument made by the ld. DR in this regard is rejected. 3.7. In view of the aforesaid observations and respectfully following the judicial precedents relied upon hereinabove, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . We find the Honble tribunal in assesses own case for the A.Ys 2000-01 to 2004-05 in ITA.no 8671/M/2004, ITA.no3834 /3835 3836/M/2007and ITA.no1662/M/2008 dated 30-12-2020 has dealt on this disputed issue and decided in favour of the assessee has observed at page 23 Para 7.1 to 7.23 of the order read as under: 7.1. We have heard rival submissions and perused the materials available on record. We find that assessee vide agreement dated 21/02/2001 had granted rights to distribute the channels in India to NGC Network (India) Pvt. Ltd., (NGC India). The assessee does not have any control over the activities undertaken by NGC India upon grant of distribution rights, nor does 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 wher ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India inturn is allowed to independently enter into a contract with the media intermediaries / subscribers (i.e. cable operators) for distribution of channel in India. The fact that there are no copyrights in the channel or content that is transferred is clearly spelt out by para 2.3(b) of the agreement which provides that NGC India shall not and shall ensure that the intermediates do not modify or replace any copyrights trademarks, trade names, logos, names or likewise or any contents. Further it provides that NGC India or Intermediaries cannot modify or alter or delete anything in the content of the channel and that it has to ensure that the channel is transmitted in its entirety. 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 intermedia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films; or (vi) the rendering of any services in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v). 7.6. The ld. AR submitted that the payments received by NGC India are not towards the transfer of any rights in respect of the copy right in respect of literary, artistic or scientific work. The term 'copyright' is not defined under the Act. Accordingly, the definition of copyright provided under the Copyright Act, 1957 needs to be considered. The ld. AR submitted that Section 14 of the Copyright Act clearly defines copyright as under:- 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot grant NGC India any right in respect of any work, telecasting of the channel. The ld. AR also argued that there is no doubt that NGC India does obtain distribution right from the assessee, but such a right is not in the nature of a copyright. In fact, Section 37 of the Copyright Act separately deals with 'Broadcast Reproduction Right' of a broadcasting organization. Section 37 of the Copyright Act provides as under: 'any person who without the license of the owner of the right does any of the following acts of the broadcaster, namely: re-broadcasts the broadcast; or causes the broadcast to be heard or seen by the public on payment of any charges; or makes any sound recording or visual 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c films or films or tapes used for radio or television broadcasting, is erroneous. The provision is applicable only in case of channel owner who acquires rights for any cinematographic films or tapes that used for the radio or broadcasting. However, in the present case, the assessee has granted distribution rights of 'Channel' to NGC India and not the rights of any 'cinematographic films' or 'tapes'. As mentioned earlier, NGC India cannot copy any of the programmes included on the channel for the purpose of re-transmitting it later or it cannot modify or delete or cut or edit or otherwise, anything in the course of the distribution to the cable operators. In fact, it has to ensure that the channel is transmitted in its 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 retransmitting 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ciety ltd., was relating to the existence of business connection of the nonresident in India, whereas in the present case, the issue before us is whether the distribution rights could be taxed as Royalty or not. The issue in dispute is not related to the aspect of examining the existence of business connection or source of income of the assessee in India. 7.15. We find that the ld. AR had placed reliance on the decision of the Hon ble Jurisdictional High Court in the case of MSM Satellite (Singapore) Pte Ltd., in ITA No.103/2017 with ITA No. 207/2017 dated 23/04/2019 wherein it has been held that the distribution rights granted by the Assessee to SET India Private Limited (an Indian group company) are not in the nature of '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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aph film or films or tape used for radio or television broadcasting etc. would come within the fold of royalty for the purpose of Section 9(1) of the Act. We do not see how the payment in the present case could be covered within the said expressions. As noted, this is not a case where payment of any copyright in literary, artistic or scientific work was being made. (emphasis applied) 7.16. We find that the ld. DR also argued that the facts in the case of MSM Satellite (Singapore) Pte Ltd., referred to supra relied upon by the assessee are different from that of the facts of the assessee as in the case before us, the non-resident company received distribution revenue from various cable operators. We find the facts of the case of the 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 dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said decision is reproduced hereunder:- 6. Having heard both the sides, we observed that ld CIT(A) while examining the issue has stated the Non-resident company has granted non-exclusive distribution rights of the channels to the Assessee and has not given any right to use or exploit any copyright. The Assessee is no way concerned whether the programs broadcasted by the Non-resident company are copyrighted or not. The said distribution is purely a commercial right, which is distinct from the right to use copyright. We observed that ld CIT(A) has considered the provisions of Section 14 and Section 37 of the Copyright Act, 1957. It is observed that Section 37 of the Copyright Act deals with Broadcast Reproduction Rights (BRR) and same is covered 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 As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyalty only if, they are for the use or right to use of any copy right of a literary, artistic or scientific work. We had already held that no right in respect of any copy right is given to NGC India and infact this is specifically set out in Clause 2.3 (a),(b),(c),(d),(e) and (g) of the agreement. We also find that the term copy right is not defined in the treaty. That is why we had to resort to the definition of copy right given under the Copy Right Act, 1957. 7.22. We also find the alternative argument advanced by the ld. AR to be fair and reasonable that even if it is contended that the channel has copy right, what NGC India is paying for is a right to use the copy righted article (i.e. if the channel could be considered to be so) by virtue of 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 adjudi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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