TMI Blog2023 (7) TMI 1152X X X X Extracts X X X X X X X X Extracts X X X X ..... la Co. [ 1964 (10) TMI 9 - SUPREME COURT] and GVK Industries Ltd. [ 1997 (5) TMI 43 - ANDHRA PRADESH HIGH COURT] is misplaced. Article 7(7) of the India-USA DTAA clearly defines business profit to mean income derived from any trade or business including income from furnishing of services which are other than specified services (Royalties and FIS). It is not the case of the Ld. AO that the services rendered by the assessee are in the nature of FIS/royalty etc. It cannot be said that the assessee was not engaged in business while rendering talent booking agency services to the Customer and hence the classification of the impugned receipts as Other Income which is a residuary head is erroneous. In our considered view the impugned receipts of the assessee from the Customer constitutes business profits and hence are not chargeable to tax in India in the absence of the PE of the assessee in India. Accordingly, ground decided in favour of the assessee. - ITA No. 1474/Del/2022 - - - Dated:- 25-7-2023 - Shri G.S. Pannu, Hon ble President And Ms. Astha Chandra, Judicial Member For the Assessee : Shri Vishal Kalra, Advocate, Ms. Snigdha Gautam, Advocate, Ms. Reema Grewa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nically and without recording any adequate satisfaction for such initiation. 3. Briefly stated, the assessee is a non-resident company incorporated under the laws of USA and is a tax resident of USA. The assessee is engaged in the business of branding and talent book agency services and inter alia acts as a mediator to and in coordination with several worldwide event management company for arranging live performances by renowned artistes from around the world. During the relevant AY the assessee entered into an agreement with Big Tree Entertainment Pvt. Ltd. ( Customer ) in India to make the services of Maroon 5 artiste available for a live musical performance at a private event held in India. In consideration thereof, the assessee received Rs. 4,15,02,000/- from the Customer after deduction of TDS of Rs. 45,32,019/- under section 195 of the Act. 3.1 For the AY 2019-20, the assessee filed its return on 27.11.2019 declaring NIL income and claimed refund of tax withheld by the Customer. The assessee s case was selected for scrutiny under CASS and statutory notices along with detailed questionnaire were issued to which the assessee responded by filing necessary information a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of degree of involvement in the activities by the non-resident taxpayer in a source country. In order to categorize certain income stream as business income in the hands of non-resident in a source country, the taxpayer need to exhibit that his/her involvement is substantial. In other words, the non-resident creates a taxable presence in a source country only when it establishes a significant/substantial economic connection. The PE threshold rules for taxation of business profits of non-resident in a source country is based on this criterion. Physical presence with certain degree of permanence of a non-resident or doing activities through a dependent person or employees are considered to .satisfy the substantial economic connection in a source country. As per the decision of the Apex court in the case of R D Agrawal (56 ITR 20,24), non-resident is said to have a business activity if there exists a real intimate relation between trading activity carried on outside the taxable territories and trading activity within the territories. The landmark judgment of the Andhra Pradesh High Court in the case of GVK Industries Ltd (228 ITR 564) held that to constitute a business act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as under: Taxation of consideration under Income-tax Act: Under the scope of source rule under section 5(2) of the Income-tax Act, the taxable income of the non-resident constitutes income that accrues or arises or is received in India and that income which is deemed to accrue or arise or received in India. The concept of accrual of income is based on crystallization of the right to receive the income. Apparently, in the instant case the right to receive income by the assessee company from Indian payer for their services for searching of talent has been established. Therefore, the said income is sourced in India in the hands of the assessee. Second, the Source Rule was further explained by the Apex court in GVK Industries case (332 ITR 130) where in the Apex Court has held that the income of the recipient to be charged or chargeable in the country where the source of payment is located, to clarify, where the payer is located. Even though the issue was in respect of fees paid for services rendered out-side India, the ratio on source rule is very much applicable to the instant case. Accordingly, the income of the assessee company has arisen in India as the payer Bigtree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come of a resident of a Contracting State not dealt with in the foregoing articles of this Convention and arising in the other Contracting State may also be taxed in that other State. Accordingly, as the income has arisen in India and the same is not dealt with any other articles of India-USA DTAA being not in the nature of dividend, interest, royalty or fees for inclusive services, capital gains or business profits, the income shall be taxable in India, 4. Aggrieved, the assessee is in appeal before the Tribunal challenging the order of the Ld. AO and all the grounds of appeal relate thereto. 5. The Ld. AR submitted that the Ld. AO failed to appreciate the fact that the assessee is engaged in the business of providing talent booking agency services to its clients globally. He submitted that during the course of assessment proceedings the assessee submitted an extract of copy of the tax residency certificate, global consolidated financial statement along with the income tax return of the group filed in US which establishes the fact that the group of companies of which the assessee is a part has earned revenue from business amounting to more than 11 billion USD (page ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Customer did not constitute business income of the assessee as the transaction between the assessee and the Customer purportedly does not satisfy the basic attributes of business i.e. regularity, continuity, frequency and volume. These attributes are to be considered to determine the presence of a business connection of a non-resident in India. The Ld. AO applied these attributes to interpret the meaning of business for the purposes of Article 7 of the India-USA DTAA which is clearly misplaced. He arrived at an erroneous conclusion that the impugned receipts from the services rendered by the assessee to the Customer is not business income but Other Income which is taxable in India under Article 23 of the India- USA DTAA. Considering the factual matrix of the present case, in our humble opinion, the reliance placed by the Ld. AO in the case of CIT vs. R.D. Aggarwala Co. (1965) 56 ITR 20 (SC) and GVK Industries Ltd. vs. ITO is misplaced. Another case relied upon by the Ld. AO i.e. CIT vs. Alpine Solvex Ltd. (2005) 276 ITR 92 (MP) is also distinguishable on facts. 7.2 The relevant extract of Article 7 of the India-USA DTAA is reproduced below:- Article 7 Business ..... X X X X Extracts X X X X X X X X Extracts X X X X
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