2010 (4) TMI 870 - AT - Income Tax

Summary

Issues involved: Tax liability of a foreign company in India for advertisement revenue and the impact of arm's length service fee on tax liability.

The Appellate Tribunal ITAT MUMBAI addressed the appeal by the Revenue against the order of the CIT(A) XXXI, Mumbai dated 31-1-2007. The assessee, a foreign company, engaged in acquiring television programs and motion pictures and transmitting them on Sony Entertainment Television from Singapore, claimed to be a tax resident of Singapore under the India-Singapore tax Treaty. The assessee contended that only income attributable to its Indian operations, specifically marketing activities through SET India, should be taxed in India as per the Income-tax Act and the Treaty provisions. The basis for declaring income was as per CBDT Circular No. 742, calculating income at a percentage of advertisement receipts. The Assessing Officer held the advertisement revenue earned by the assessee as taxable business income, deducting commissions and service fees. On appeal, the CIT(A) accepted the plea that the arm's length service fee paid to SET India extinguished the tax liability on advertisement revenue in India. The Tribunal noted previous cases and upheld the view that the payment of service fee on an arm's length basis extinguishes tax liability, dismissing both the Revenue's appeal and the assessee's cross-objection.

The Tribunal referred to previous cases where the issue of tax liability on advertisement revenue received in India by the assessee had been considered. In those cases, the Tribunal had reversed the CIT(A)'s orders but the High Court had restored the CIT(A)'s decision, emphasizing that payment of service fee on an arm's length basis extinguishes tax liability in India. The Tribunal noted that the facts and circumstances in the present assessment year were identical to those cases, leading to the dismissal of the Revenue's appeal based on the High Court's decision. The Tribunal also dismissed the assessee's cross-objection in light of the Revenue's appeal outcome.