TMI Blog2017 (7) TMI 1442X X X X Extracts X X X X X X X X Extracts X X X X ..... has categorically held that the WBPIPL is not the PE of the assessee company. Thus, respectfully following the decision of the Hon‟ble ITAT in the assessee‟s own case, 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 - Appeal of the Revenue is dismissed. - ITA No.7635/Mum/2016, ITA No.4877/Mum/2015 And CO No.103/Mum/2017 - - - Dated:- 26-7-2017 - SHRI R.C.SHARMA, AM AND SHRI RAVISH SOOD, JM For The Assessee : Shri W. Hassan For The Revenue : Shri Samuel Darse ORDER PER BENCH: ITA No.4877/Mum/2015 CO No.103/Mum/2017 Assessment Year 2012-13 This is an appeal filed by the Revenue and Cross Objection filed by the assessee against the order of AO u/s. 143(3) r.w.s. 144C (13) giving effect to the order passed by the DRP u/s. 144C(5). 2. Following grounds have been taken by the Revenue:- a) 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 distributio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stribution 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. The Assessing Officer after going through the various clauses of the agreement also came to the conclusion that, assessee even has a dependent agency PE in India in the form of Warner Bros Picture India Pvt. Ltd‟, accordingly, he determined the taxable income of the assessee @ 65% of the income received by the assessee from India. He had also rejected the assessee‟s contention that the royalty received by the assessee cannot be subje ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 30thDecember, 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 the AO had assessed the said royalty as business income u/s 143(3) r.w.s 144C(13). Against the said order of the AO the assessee had filed appeal to Hon‟ble ITAT, Mumbai. The Hon‟ble ITAT L Bench, Mumbai has allowed the appeal of the assessee for both the years holding that the royalty received by the assessee from WBPIPL is not taxable in India. 3.3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ama 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 the assessment order that the income of the assessee cannot be taxed as Royalty. Once the income of the assessee company does not qualify under the definition of Royalty, the income has to be held as business income. The business income cannot be taxed in the absence of PE in India. We have seen that the Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee. The same ground has been decided by the Tribunal in series of order as observed above. However, during the year under consideration, the DRP has dismissed the ground raised by the assessee by observing as under:- 6.1. The DRP has noted that all the above grounds or objection have been a matter of' dispute in the earlier years before the Honorable ITAT Mumbai. The Hon'ble ITAT Murnbai has given relief to the assessee company on these issues through various orders passed for Assessment Year 2006-07. Assessment Year 2007 -OS, Assessment Year 2008-09 and Assessment Year 2009-10. The l)RP has further noted that the revenue has filed an appeal against the order of the Hon'ble ITAT. Mumbai before the Honble Bombay High Court. The documents placed before the DRP reveals that for the Assessment Year 2006-07. the following substantial questions of law has been admitted by the Hon'ble Bombay High Court:- ( a) Whether, on the facts and ill the circumstances of the case and ill law the Tribunal is correct in holding that royalty received by the assessee from WBPIPL in pursuance to the agreement for distribution of Theatrical movies in India is not taxable in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the Indian company that has obtained the right is acting independently. 6.3 The above discussion makes it clear that all the issues are being contested by the revenue before the Hon'ble Bombay High Court. It is pertinent to note that the DRP is a continuation of the assessment proceedings as it is only the draft assessment order which is being challenged before it. The final assessment order is yet to be passed by the assessing officer. Hence, the DRP is not an appellate authority but is a continuation of the assessment proceedings. A similar view has been echoed by the Division Bench of the Hon'ble Bombay High Court while deciding the Writ Petition filed by Vodafone India Services Pvt. Ltd. vs Union of India and Others wherein the following observation with regards to DRI) has been made :- The proceeding before the DRP is not an appeal proceeding but a correcting mechanism in the nature of a second look at the proposed assessment order by high functionaries of the revenue keeping in mind the interest of the assessee. It is a continuation of the Assessment proceedings till such time a final order of assessment which is appealable is passed by the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
