TMI Blog2016 (10) TMI 1372X X X X Extracts X X X X X X X X Extracts X X X X ..... ITAT MUMBAI ] we are of the view that the income of the assessee is not taxable in India and we direct the AO to delete the addition proposed on this account - Decided in favour of assessee. - ITA No. 1405/Mum/2014, C.O. No. 102/Mum/2015 Arising out of ITA No. 1405/Mum/2014 - - - Dated:- 27-10-2016 - SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER For the Appellant : Shri W Hasan For the Respondent : Shri Jasbir Chouhan ORDER PER AMIT SHUKLA, J.M.: The aforesaid appeal has been filed by the Department and Cross Objection by the assessee against Final Assessment Order dated 31.12.2013, passed under section 144C(13) r.w.s. 143(3) for the assessment year 2010-11 in pursuance of directions given by the DRP vide order dated 30.12.2013. In the grounds of appeal, the revenue has raised following grounds:- 1. Whether on the facts and in the circumstances of the case and in law, the Hon ble DRP was correct in holding that royalty received by the assessee from Warner Bros Picture India Ltd in pursuance to the agreement for distribution and exhibition of the films in India being business profit attributable to the PE of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other third parties. The assessee had entered into an agreement with Warner Bros Picture (India) Pvt. Ltd , an Indian entity, granting distribution rights for Cinematographic Films on payment of specified royalty . The assessee s contention was that though it is receiving royalty from the Indian company but same is on account of distribution of Cinematographic films. Since clause (v) of Explanation 2 to section 9(1)(vi) excludes consideration for the sale, distribution or exhibition of cinematographic films from the purview of royalty, therefore, such an income is not taxable under the Income-tax Act also. The Assessing Officer s case on the other hand was that, income of the assessee is directly accruing or arising in India from the distribution of the films in the cinema halls / TV Channels etc. in India, therefore, by virtue of section 5 the same is taxable in India in the hands of the assessee company. Otherwise also, the assessee has business connection in India within the scope of section 9(1)(i). Thus, as per the Department income from the sale of distribution of Cinema Films is to be treated as business profits which should be taxed in the hands of the assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and holding as under:- 3.3.1 We have gone through the order of the AO and submissions of the assessee. It is seen that the similar issue was before the predecessor DRP for the AY 2007-08 and 2008-09 and DRP has rejected the claim of the assessee. 3.3.2 We have also seen that in the AY 2006-07, the assessee had claimed that the royalty received by it from WBPIPL was not taxable in India either under the Income Tax Act or under India-USA DTAA. During the Assessment proceedings, the AO did not accept the claim of the assessee and assessed the royalty @ 15% under India-USA DTAA. Against the said order of the AO, the assessee filed appeal to CIT (A). The CIT (A) has held that the royalty received by the assessee from WBPIPL is not taxable either under the Income Tax Act or the DTAA. Against the said order of the CIT (A), the Department had filed appeal to the ITAT. The Hon ble ITAT, L Bench, Mumbai vide its order dated 30th December, 2011 in ITA No.3160/Mum/2010 has confirmed the order of the CIT(A) holding that the royalty received by the Assessee (WBPI) from WBPIPL is not taxable in India either under the Income Tax Act or India-USA DTAA. 3.3.3 In AY 2007-08 and 2008-09 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the activities attributed to permanent establishment. In this case, the assessee does not have any permanent establishment in India. Since the Indian company who obtained the rights is acting independently. Agency PE provisions are not applicable to the assessee company. The assessee relied on the decision of Ishikawajama Harima Heavy Industries Ltd vs. Director of Income Tax 2007 (158) TAXMAN 0259-SC that incomes arising to a Non- Resident cannot be taxed as business income in India, without a PE. As the assessee does not have any permanent establishment in India, the incomes arising outside Indian Territories cannot be brought to tax. Therefore, there is no need to differ from the findings of the CIT (A) and accordingly the Revenue Appeal is dismissed . The finding of the Hon ble L Bench has been followed in the subsequent two appeals viz. ITA No.8734/Mum/2010 for AY 2007-08 and ITA No.8627/Mum/2011 for AY 2008-09. 3.3.5 Thus, it is clear that the very issue of existence of PE in India has been considered by the Hon ble ITAT. The income of the assessee company does not qualify for the definition of Royalty in term of income tax Act 1961. The AO himself has accepted in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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