TMI Blog2023 (1) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... f the agreement, the revenue earned from distribution of channels has to be shared between the assessee and ESPN India in certain ratio. The materials on record demonstrate that ESPN India is carrying on its distribution activity as well as other activities, such as, acquisition and allotment of air time for advertisement and sale/leasing of decoders. No material has been brought on record by the Revenue to suggest that the assessee has any kind of control over the business of ESPN India or the premises of ESPN India have been given at the disposal of the assessee or the assessee carries on any kind of business through the premises of ESPN India. It is ESPN India who has entered into contracts with cable operators for distribution of the channels in India and responsible for breach of contract with cable operators. The transaction between the assessee and ESPN India is limited to conferring of right to distribute the channels of ESPN Star Sports in India through cable operators. How, ESPN India does such distribution activity is not the concern of the assessee. Assessee is only concerned with share in distribution revenue depending on the total amount received by ESPN India from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rect the Assessing Officer to factually verify assesee s claim with reference to From 26AS and TDS certificate and thereafter allow credit for TDS in accordance with law. - ITA No.3412/Del/2010 And ITA No.3413/Del/2010 And ITA No.4426/Del/2016 And ITA No.4543/Del/2016 And ITA No.1220/Del/2017 And ITA No.6705/Del/2017 And ITA No.5084/Del/2018 And ITA No.3387/Del/2010 - - - Dated:- 21-11-2022 - ITA No.3388/Del/2010 And ITA No.1201/Del/2017 And ITA No.6706/Del/2017 And ITA No.6578/Del/2016 And ITA No.5303/Del/2018 And ITA No.6579/Del/2016 Shri G.S. Pannu, Hon ble President And Shri Saktijit Dey, Judicial Member For the Assessee : Sh. Porus Kaka, Sr. Advocate, Sh. Manish Kant, Advocate And Sh. Divesh Chawla, Advocate For the Department : Ms. Anupama Anand, CIT(DR) And Sh. Sanjay Kumar, Sr. DR ORDER PER SAKTIJIT DEY, JM: Captioned appeals by the assessee and Revenue arise out of separate orders of learned First Appellate Authority pertaining to assessment years 2003-04, 2004-05, 2009-10, 2011-12, 2012-13 and 2014-15. Since, the issues raised in all these appeals are more or less common and overlapping, they have been clubbed together and disposed off i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by any taxes that are withheld in the Area. Before the Assessing Officer, the assessee pleaded that the transaction between the assessee and ESPN India is on a principal to principal basis without any agency relationship. It was submitted by the assessee that ESPN India bears the costs and expenses in connection with the distribution activities. Whereas, the assessee does not have any privity of contract or any other type of relationship with cable operators through whom ESPN India distributes Star Sports and ESPN Channels. The Assessing Officer, however, was not convinced with the submissions of the assessee. After analyzing the contract between the assessee and ESPN Star Sports, Singapore, which is the owner of sports channels Star Sports and ESPN, the Assessing Officer observed that the assessee bears commercial risk as it has to pay certain minimum guaranteed amount to ESPN Star Sports, Singapore. The same risk continues with the assessee, even, in relation to the agreement between the assessee and ESPN India. Referring to certain specific clauses in the agreement, the Assessing Officer observed that ESPN India works only for the assessee. The revenue earned by ESPN India ari ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pyright of literary, artistic or scientific work, including, cinematograph films, and films or tapes for radio or television broadcasting has to be considered as royalty. Further, referring to section 13 of Copyrights Act, 1957 he observed that copyright subsists in respect of cinematograph films. Proceeding further and extensively referring to the provisions contained under the Copyrights Act, he observed that as per section 14(d)(iii), in case of cinematograph films, copyright also includes communicating the film to the public. Referring to the definition of cinematograph film under section 2(f) of the Copyright Act, he observed that it includes any work of visual recording on any medium produced through a process from which a moving image may be produced by any means and includes a sound recording accompanying such visual recording and cinematograph shall be construed as including any work produced by any process analogous to cinematography, including video films. Referring to section 2(ff) of the Copyright Act, he observed, communication to public means making any work available for being seen or heard or otherwise enjoyed by the public directly or by any means of display or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee s claim that the transaction with ESPN India is on principal to principal basis and the alternative contention that ESPN India is an agent of independent status, learned Commissioner (Appeals) concluded that since, the assessee exercises control over ESPN India, it will constitute a dependent upon agent PE of the assessee. Further, he held that ESPN India can also be considered to be fixed place PE of the assessee in terms of Article 5(2)(a) of the Tax Treaty. Having held so, he modified the attribution of royalty income to PE made on estimate basis by holding that the entire royalty income is attributable to the PE. However, it will be chargeable to tax on net basis. 7. Before us, learned counsel appearing for the assessee drew our attention to the agreement between the assessee and ESPN India and submitted that the terms of the agreement make it clear that the appointment of ESPN India is limited to the extent of making ESPN services available in the specified area through sub-distributors in accordance with terms and conditions of the agreement. He submitted, as per the condition of the agreement, on termination of the agreement all arrangements with sub-distributor w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... N India towards distribution right granted to the ESPN India is in the nature of royalty coming within the ambit of Article 12(3) of India-Mauritius Tax Treaty. Thus, he submitted, in absence of PE in India, the amount received towards distribution/subscription revenue, being in the nature of business income is not taxable in India. In support of such contention, learned counsel relied upon the following decisions: 1. Turner Broadcasting System Asia Pacific Inc. Vs. DDIT [2020] 120 taxmann.com 155 (Delhi-Trib.). 2. NGC Network Asia LLC Vs. Dy. Director of Income Tax (International Taxation), ITA No.8671/Mum/2004 and Others (Mumbai Trib.) 3. NGC Network Asia LLC Vs. Joint Director of Income Tax (International Taxation), ITA No. 7994/Mum/2011 (Mumbai Trib.). 3. NGC Network Asia LLC Vs. DCIT (IT), ITA No.1178/Mum/2015, ITA No. 6677 6678/Mum/2018 and Others. 4. DDIT (IT)-2(1) Vs. M/s. SET Indian Pvt. Ltd., ITA No.4372/Mum/2004, dated 25th April, 2012 (Mumbai- Trib.)] 5. The Commissioner of Income Tax (International Taxation)-II Vs. SET India Pvt. Ltd., ITA No. 1347 of 2013 (Bombay High Court) 6. Commissioner of Income-tax (IT)-3 Vs. MSM Satellite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to royalty as defined under Article 12 of Indian Mauritius Tax Treaty. Undisputedly, the assessee is a tax resident of Mauritius and holding a valid Tax Residency Certificate (TRC). Therefore, the assessee is entitled to avail the benefit of India Mauritius Tax Treaty. Before we proceed to deal with the issue, it is necessary to briefly describe the factual backdrop relating to the arrangement between the assessee and ESPN Star Sports, Singapore on one hand and between the assessee and ESPN India on the other. It is an admitted factual position that ESPN Star Sports, Singapore is the owner of ESPN and Star Sports channels. The ESPN Star Sports, Singapore has entered into an agreement with the assessee to appoint the assessee as a distributor to distribute and make available for sub-distribution ESPN network programming services in India, Pakistan, Bangladesh, Sri lanka and Nepal via cable television system, satellite master antenna television systems and direct to home via satellite. The agreement between ESPN Star Sports, Singapore and assessee makes it clear that the assessee has not been conferred with any rights whatsoever with regard to copyright, title or any other propri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion, deletion or any other variation whatsoever. 11. As discussed earlier, in assessment year 2003-04 the Assessing Officer held the distribution revenue received by the assessee as business receipts. However, in subsequent assessment years, the Assessing Officer treated it as royalty. While upholding the decision of the Assessing Officer in subsequent years and to bring the distribution revenue received by the assessee in the ambit of royalty, learned Commissioner (Appeals) has not only referred to Explanation 2(v) to section 9(1)(vi) of the Income Tax Act, but, has extensively referred to certain provisions of the Copyright Act. In this context, learned Commissioner (Appeals) has referred to definition of cinematograph film under section 2(f) of the Copyright Act, definition of broadcast under section 2(dd) of the Act, the meaning of copyright as provided under section 14 of the Copyright Act and section 13 of the Copyright Act, wherein, cinematograph films has been enlisted as a form of work in which copyright subsists. Referring to all these provisions of the Copyright Act, learned Commissioner (Appeals), in sum and substance, has wanted to convey that by granting the distr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct of the work; (v) to make any translation of the work; (vi) to make any 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 (i) to (vi); (b) in the case of a computer programme: (i) to do any of the acts specified in clause (a); 2 [(ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programmer: Provided that such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental.] (c) in the case of an artistic work,-- 3 [(i) to reproduce the work in any material form including-- (A) the storing of it in any medium by electronic or other means; or (B) depiction in three-dimensions of a two-dimensional work; or (C) depiction in two-dimensions of a three-dimensional work;] (d) in the case of a cinematograph film,-- 4 [(i) to make a copy of the film, including-- (A) a photograph of any image forming part thereof; or (B) storing of it in any medium by electronic or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Bench, while dealing with aforesaid aspect, has held as under: 16. Having heard both the sides, we observe that Id CIT(A) while examining the issue has stated that 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 broadcast 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 observe that Id 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 Copy Right Act and not under section 14 thereof. We observe that Id 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 construed to be a grant of any license or transfer of any right in any copyright. Ld CIT(A) has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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. 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 following acts specified in the said provision in respect of a work or any substantial part thereof. Term work is defined under Section 2(y) of the Copyright Act, 1957, as to mean any of the works namely a literary, dramatic, musical or artistic work or a cinematograph film and a sound recording. Sub-section (1) of Section 14 of the Copyright Act, 1957 lists several Acts in respect of a work in relation to which exclusive right would be termed as copyright. In the present case, the assessee had not created any literary, dramatic, musical or artistic work or cinematograph film and/or a sound recording. 11. Infact, Section 37 of Copyright Act, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of Section 9(l) 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 b5ing made. 14. We may also notice that India Singapore Double Taxation Avoidance Agreement contains Article 12 pertaining to royalty and fees for technical service. Paragraph (3) of Article 12 defines the term Royalty as under- 'The term royalties as used in this Article means payments of any kind received as a consideration for the use of, or the right to use: (a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information; (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in Paragraph 4(b) or 4 (c of Article 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and agent. Further, they have held that ESPN India cannot be considered to be an agent of independent status as it is totally dependent upon the assessee and another sister concern in Mauritius for earning its revenue. They have also held that ESPN India signs contracts on behalf of the assessee, hence, constitutes a DAPE. 19. Rebutting the aforesaid reasoning of the departmental authorities, learned counsel appearing for the assessee submitted before us that ESPN India enters into contract with cable operators to distribute the channels on its own account and not on behalf of the assessee. He submitted, ESPN India earns income from cable operators on its own account and establishes legal relationship on its own account. It has no authority to conclude contract on behalf of the assessee. In the same way, the assessee does not have any privity of contract with the cable operators/intermediaries in India. Therefore, the relationship between ESPN India and assessee is on principal to principal basis. He submitted, besides carrying out the activities of distribution of channel services for the assessee, ESPN India was also engaged in acquisition and allotment of air time for adver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITR 205) (Bombay HC) (page no. 338-354 of Legal Paper book) 4) DIT vs. B4U International Holdings limited (2015) (374 ITR 453) (Bombay HC) (page no. 355-364 of Legal Paper book) 5) ESS Advertising (Mauritius) S.N.0 et Compagnie [2019] 101 taxmann.com 312 (Delhi - Trib.) (page no. 365-383 of Legal Paper book) 6) ESS Advertising (Mauritius) S.N.0 et Compagnie [2021] 186 ITD 546 (Delhi - Trib.) (page no. 384-400 of Legal Paper book) 7) ESPN Star Sports Mauritius SNC et Compagnie [Now known as ESS Advertising (Mauritius) SNC et Compagnie] vs. The Dy. C.I.T Circle 1(2)(2) [Intl. Taxation New Delhi [2021] ITA No. 1219/DEL/2017 (Delhi - Trib.) dt. 20 October 2021 (page no. 450471 of Legal Paper book) 21. Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned Commissioner (Appeals). 22. We have considered rival submissions and perused the materials on record. At the outset, we need to examine, whether, the assessee has a fixed place PE in India. The distribution agreement between the assessee and ESPN Indian clearly stated that the transaction is on principal to principal basis. The agreement further al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the foreign enterprises must provide services to customers who are in India, which is not Revenue s case as all their customers exist only outside India. Further, according to the learned counsel, the entire personnel engaged in the Indian operations are employed only by the Indian company and the fact that the US companies may indirectly control such employees is only for purposes of protecting their own interest. Ultimately, there are four businesses that the assessees are engaged in, namely, ATM Management Services, Electronic Payment Management, Decision Support and Risk Management and Global Outsourcing and Professional Services. Since all these businesses are carried on outside India and the property through which these businesses are carried out, namely ATM networks, software solutions and other hardware networks and information technology infrastructure were all located outside India, the activities of e- Funds India are independent business activities on which, as has been noticed by the High Court, independent profits are made and income assessed to tax under the Income Tax Act. According to the learned counsel, agency PE was never argued before the assessing officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country, or investigation of cases of such evasion or avoidance, or (d) for recovery of income-tax under this Act and under the corresponding law in force in that country, and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement. (2) Where the Central Government has entered into an agreement with the Government of any country outside India under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. 7 xxxx 8 xxxx 9 xxxx 10 xxxx 11 xxxx 12. Thus, it is clear that there must exist a fixed place of business in India, which is at the disposal of the US companies, through which they carry on their own business. There is, in fact, no specific finding in the assessment order or the appellate orders that applying the aforesaid tests, any fixed place of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsactions is not a test which can be applied to determine, whether fixed place PE exists. 13. It further went on to hold that the ITAT s finding that the assessees were a joint venture or sort of partnership with the Indian subsidiary was wholly incorrect. Also, none of these arguments have been invoked by the Revenue and such a finding would, therefore, be perverse. After citing Klaus Vogel on Double Taxation Conventions, Arvid A. Skaar in Permanent Establishment: Erosion of a Tax Treaty Principle and Bollinger vs. Commissioner, 108 S.Ct. 1173, the High Court found against the Revenue, holding that there is no fixed place PE on the facts of the present case. We agree with the findings of the High Court in this regard. 14. Reliance placed by the Revenue on the United States Securities and Exchange Commission Form 10K Report, as has been correctly pointed out by the High Court, is also misplaced. It is clear that the report speaks of the e-Funds group of companies worldwide as a whole, which is evident not only from going through the said report, but also from the consolidated financial statements appended to the report, which show the assets of the group worldwide. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sting Systems Asia Pacific Inc (supra) squarely apply to the facts of the present appeal. Therefore, following them, we hold that the assessee does not either had a fixed place PE or dependant agent PE in India under Article 5 of the India- Mauritius Tax Treaty. In any case of the matter, it is an undisputed factual position that ESPN India has been remunerated at arm s length and there are no adjustments suggested by the TPO in any of the assessment years under dispute. That being the case, no further attribution of profit can be made to the PE. In this regard, we rely upon the decisions cited by learned counsel for the assessee. Thus, we hold that the distribution revenue received by the assessee is not taxable in India. 25. In view of our decision above, the fourth issue regarding the mode and manner of attribution of profit to the alleged PE has become redundant, hence, not required to be adjudicated. 25. In assessment year 2004-05, there is one more issue relating to non-disposal of assessee s ground pertaining to withdrawal of interest entitlement under section 244A, by learned Commissioner (Appeals). 26. We have heard the parties and perused the materials on record. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on between the assessee and the AE in India, which allegedly constitutes the PE of the assessee, are at arm s length, no further attribution of profit can be made to the PE. In view of our decision hereinabove, the grounds raised by the Revenue on the issue of taxability of royalty income on net basis and attribution of profit to the PE at a certain percentage have become infructuous. Hence, grounds raised on such issues are dismissed. 30. The only other issue raised by the Revenue in some of its appeals relates to chargeability of interest under section 234B of the Act. Having considered rival submissions, we are of the view that the issue is squarely covered by the decision of the Hon ble Supreme Court in case DIT Vs. Mitshubishi Corporation [2021] 130 taxmann.com 276 (SC). Therefore, we do not find any reason to interfere with the decision of learned Commissioner (Appeals) on the issue. 31. Besides the above appeals, there is one more appeal by the Revenue, being ITA No. 6706/Del/2017. This appeal of the Revenue culminates out of the order of the Assessing Officer while giving effect to the order of learned Commissioner (Appeals). The ground raised by the Revenue in this a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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