TMI Blog2023 (11) TMI 1148X X X X Extracts X X X X X X X X Extracts X X X X ..... enue failed to discharge the burden cast on it to prove that the twin conditions as laid down in Article 5(4)(i) of the India Mauritius DTAA are satisfied in the facts of the present case. Thus the conclusion of the coordinate bench of the Tribunal in the preceding year (cited supra) is equally applicable with respect to the Advertisement revenue and Taj India cannot be held to be a DAPE of the assessee in India under Article 5(4)(i) of the India-Mauritius DTAA in respect of the same. Accordingly, the conclusion of the learned CIT(A) on this issue is set aside and the ground raised by the assessee is allowed. P.E. with respect to its Distribution function - As per the assessee, despite the grant of authority to the Taj India to enter into agreements with third parties on behalf of the assessee, no such agreement was entered, and therefore, the twin conditions as laid down in Article 5(4)(i) of the India-Mauritius DTAA are not satisfied in the present case - HELD THAT:- It is evident from the record that no material has been brought on record by the Revenue, in the present case, to show that Taj India has habitually exercised authority to conclude the contract on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Sant ORDER The present cross-appeals have been filed challenging the impugned order dated 09/12/2019, passed under section 250 of the Income Tax Act, 1961 ( the Act ) by the learned Commissioner of Income Tax (Appeals) 58, Mumbai, [ learned CIT(A) ], for the assessment year 2013 14. 2. In its appeal, the assessee has raised the following grounds: On the facts and in circumstances of the case and in law, the Hon'ble Commissioner of Income-tax (Appeal) erred in concluding that Appellant has a Permanent Establishment in India in respect of advertisement revenue. Without prejudice to above, even if the Appellant has a Permanent. Establishment in India, the Hon'ble Commissioner of Income-tax (Appeal) erred in concluding that income is attributable to the Permanent Establishment without rebutting the fact that it has remunerated its agent at the arm's length price in respect of advertising revenue. Your appellants crave to leave, add, amend, alter, change or cancel any of the above grounds of appeal before or at the time of hearing. 3. While the Revenue has raised the following grounds in its appeal: 1. On the facts and circumstance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ia as assessee's agency PE in earlier years. 6. On the facts and circumstance of the case and in law, the Ld CIT(A) erred in not considering that the TPO, by accepting the ALP of advertising revenue in earlier years, had only benchmarked the marketing functions and not other functions carried out by Taj India as assessee's agency PE, and therefore further profits needed to be attributed to the assessee's PE to correctly tax the total income of the assessee arising in India. 7. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that payment of programming fees in respect of live programmes does not constitute Royalty as provided under Article 12 of DTAA between India and Mauritius? 8. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the income received from the assessee by M/s. Intelsat being in the nature of transponder charges have arisen in India and accordingly tax should have been deducted at source on this payment? 9. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in law, Ld. CIT(A) has erred in not taking into account that the meaning of the term 'process' as provided in Explanation 6 to section 9(1)(vi) of the Act is the domestic law meaning of the that term from 1.6.1976 as clarified by the Finance Act, 2012 and hence the meaning for purposes of Article 12 of India-USA DTAA or other DTAAS as prescribed by Article 3(2) of India-USA DTAA and similar Article of other DTAAS? 16. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary. 4. In the present cross-appeals, both the assessee and Revenue are aggrieved against the findings of the learned CIT(A) regarding the issue of the existence of Permanent Establishment ( P.E. ). The assessee has challenged the conclusion of the learned CIT(A) that the assessee has a P.E. in India in respect of Advertisement revenue. While, the Revenue, inter-alia, has challenged the findings of the learned CIT(A) that the assessee does not have a P.E. in India in respect of Distribution revenue. 5. The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a foreign company, which is registered under th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee submitted that its income is not subject to tax in India. Further, the profit, if any, attributable to P.E. has already been taxed in India and therefore, no further profit is required to be attributed. 6. During the assessment proceedings, based on the past records/assessments, the assessee was asked to show cause as to why the Indian entity, i.e. Taj India, should not be treated as an independent P.E. of the assessee and income be computed accordingly. In respect of Advertisement revenue, the assessee submitted that all the advertisement sales contracts were entered into between the advertisers and the assessee, and Taj India does not have the authority to conclude contracts in the name of the assessee. It was further submitted that even after the addendum dated 27/04/2006, w.e.f. 01/04/2006, in line with the Advertising Code prescribed under the Cable Television Networks (Regulation) Act, 1995, whereby clause 5(a) of the agreement was entirely replaced, Taj India never exercised authority to conclude the contracts with the advertisers and the assessee continued to conclude the contracts. Further, with respect to the Distribution revenue, the assessee submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has a P.E. in India in respect of the Distribution revenue, and as such the same is taxable on a net basis in the hands of the assessee. Thus, the AO held that the assessee has a Dependent Agent Permanent Establishment ( DAPE ) in the form of Taj India, which has been authorised to enter into a contract for subscription as well as advertisements. The AO also disagreed with the alternative submission of the assessee that even if the assessee has a DAPE in India no further profit is to be attributed as the P.E. has been remunerated at arm s length. Accordingly, the AO attributed 75% of the assessable profits arising from Indian operations to the functions performed by the DAPE in India for the purpose of taxation, following the approach adopted in the earlier assessment years. 8. The learned CIT(A), following the order of its predecessor in assessee s own case for the assessment year 2012-13, wherein the decision of the coordinate bench of the Tribunal in assessee s own case was followed, held the assessee to not to have any P.E. with respect to its Distribution functions. Being aggrieved with the aforesaid findings, the Revenue is in appeal before us. While the assessee has chal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse Agreements with Permitted Systems for the Service consistent with the terms thereof. Taj India shall enter into Agreements with third parties on its own behalf and in its own name. Upon Taj s request, Taj India shall inform Taj in advance and regularly update Taj regarding the negotiations of any proposed License Agreements with Permitted Systems. 12. Therefore, under the aforesaid clause, Taj India was authorised to enter into agreements with third parties on its own behalf and in its own name. The aforesaid clause of the Distribution Agreement was replaced by the Addendum dated 28/12/2007 entered into between the assessee and Taj India. The amended clause 1.3 of the Distribution Agreement, reads as under:- 1.3 Taj-India shall have the distribution rights for distribution of the Service in India to Distributor and Permitted Systems and negotiate and procure cable distribution license Agreements with Permitted Systems for the Service consistent with the terms thereof. Taj-India shall have the authority to enter into Agreements with third parties on behalf of the Taj. Upon Taj s request, Taj India shall inform Taj in advance and regularly update Taj regarding the negot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers on behalf of the enterprise. 14. As per the provisions of Article 5(4)(i) of the DTAA, it is only when the person in a Contracting State has and habitually exercises the authority to conclude contracts in the name of the other enterprise, such person shall be deemed to be the P.E. of the other enterprise. Thus in order to invoke the provisions of Article 5(4)(i) of the DTAA, both the conditions i.e. (a) person has concluded the contract and (b) person habitually exercise the authority to conclude the contract, need to be satisfied. However, in the present case, the Revenue, except merely referring to the aforesaid clause of the Addendum, has neither established nor brought anything on record, either at the assessment stage or before us, that Taj India had habitually exercised the authority to conclude the contract on behalf of the assessee. Thus, the Revenue has failed to discharge the burden casted on it to prove that the twin conditions provided in Article 5(4)(i) of the DTAA are satisfied in the facts of the present case. As held by the Special Bench of the Tribunal in the case of Motorola Inc. v. Dy. CIT: [2005] 95 ITD 269 that DTAA is only an alternative tax regime a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erwise, any obligation of any kind, express or implied, in the name of or on behalf of Taj, unless expressly authorised by Taj. Taj and Taj-India expressly acknowledge that Taj-India's ability to (i) enter into contracts with third parties, (ii) incur any costs and expenses (other than reasonable and customary advertising sales agency costs and expenses, in connection with the services), or (ii) otherwise obligate Taj in respect of the Services to be provided by Taj-India hereunder (including, without limitation, arranging and facilitating the sale of Advertising Time) shall at all times be subject to prior approval by Taj in its absolute discretion, such approval to be granted or withheld by Taj in accordance with the procedure specified herein. 16. Subsequently, in order to ensure that the advertisements procured meet the requirements as laid down under the Advertising Code prescribed under the Cable Television Networks (Regulation) Act, 1995, the aforesaid clause of the Advertising Sales Agency Agreement was replaced by the Addendum dated 27/04/2006, entered into between the assessee and Taj India. The amended clause 5(a) of the Advertising Sales Agency Agreement, reads ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ritius DTAA in respect of the same. Accordingly, the conclusion of the learned CIT(A) on this issue is set aside and the ground raised by the assessee is allowed. 19. We further find that recently the coordinate bench of the Tribunal in assessee s own case in Taj TV Ltd v/s DCIT, ITA No.821/Mum./2021, vide order dated 31/03/2023, for the assessment year 2017-18, held that advertising and subscription income received by the assessee is not taxable in India as the assessee does not have any P.E. in India. The relevant findings of the coordinate bench, in the aforesaid decision, are reproduced as under:- 75. Ground number 2 of the appeal is with respect to the taxing advertisement and subscription income of Rs. 1,020,335,861. The fact shows that the assessee's businesses of telecasting of sports channels are carried out from outside India. The assessee has received services from Taj India in respect of advertisement and distribution as well as for play out services from Zee entertainment Enterprises Ltd. As we have already held that assessee does not have a permanent establishment in India, the article 7 of the treaty will trigger only if such profits are attributable to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the parties with whom the assessee has entered into agreements for telecasting sports events are outside India and do not have any branch/office or PE in India. Similarly, the assessee paid transponder fees and uplinking charges to an entity, i.e. Intelsat, who is a tax resident of the USA and is engaged in the business of providing transponder facilities to various entities in the world. Further, Intelsat was not carrying any business activities in India and does not have any business connection in India as per section 9(1)(i) of the Act. Accordingly, the assessee submitted that these payments are not taxable in India. The AO vide assessment order passed under section 143(3) of the Act did not agree with the submissions of the assessee and held that the assessee was required to withhold taxes on the aforesaid payment, as these payments are in the nature of Royalty and accordingly disallowed the same while computing the income of the assessee under section 40(a)(i) of the Act. 24. The learned CIT(A), vide impugned order, allowed the appeal filed by the assessee on this issue and held that the payment disallowed under section 40(a)(i) of the Act is not Royalty. Being aggrieved, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a consideration for 'use' or 'right to use' any copyright of various terms used in para 3(a) like copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting or in any manner relates to any patent or trademark, design, secret formula or process. It is also not use or right to use any industrial, commercial, or scientific equipment. There is no such kind of right to use which is given by Pan Am Sat to assessee. Thus, the said payment does not fall within the ambit of the terms used in para 3 of Article 12. So far as the reading of amended definition of 'royalty' as given in section 9(1)(vi) into treaty, Hon'ble Delhi High Court in its latest judgment in the case of New Skies Satellite BV (supra), wherein it has considered Hon'ble Madras High Court decision in the case of Verizon Communications Singapore Pte Ltd. (supra) also, have discussed the issue threadbare and came to the conclusion in the following manner: 60. Consequently, since we have held that the Finance Act, 2012 will not affect Article 12 of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its own case in ITA No. 1099 vide order dated 17.04.2012 and in ITA No.3702 vide order dated 18.05.2012. In these cases, the Tribunal has relied upon a decision of Set Satellite (Singapore) Pte Ltd. v. Addl. DIT (Int. Tax.)[2010] 6 taxmann.com 53 (Mum.) which decision has now been affirmed and approved by the Hon'ble Bombay High Court in the case of Set Satellite Singapore Pte Ltd. (supra) on the ground that, the programming cost is paid to the assessee to various non-resident outside India for acquiring right brought on sports events taking place outside India. Thus, such programming cost cannot be deemed to arise in India as liability to pay programming cost as assumed by the assessee company outside India and it cannot be held to be borne by any PE in India. Thus, ground No.4 is also dismissed. 26. Therefore, in the aforesaid decision, the coordinate bench of the Tribunal after taking into consideration the decision of the Hon ble Delhi High Court in CIT v/s New Skies Satellite BV [2016] 382 ITR 114 (Del.) held that the definition of the term Royalty as enlarged by the Finance Act, 2012 will not have any effect on Article 12 of the DTAA. We further find that in ano ..... X X X X Extracts X X X X X X X X Extracts X X X X
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