2007 (4) TMI 616 - AT - Income Tax

Accrual of Income in India - DTAA between India and Singapore - Computation of profits for dependent agent permanent establishment - whether or not once a dependent agent (DA) is paid an arm' s length price for the services rendered by him to the foreign company, any further income, other than the income so earned by the dependent agent, can be said to be attributed to the dependent agent permanent establishment (DAPE), and, accordingly, be brought to tax in the permanent establishment State - HELD THAT - As a matter of fact, in case the plea of the assessee is to be accepted, the whole concept of agency permanent establishment will be rendered meaningless. The profits earned by the dependent agent, or even independent agent, are anyway to be taxed in the host country of which the dependent agent is resident. The existence of the permanent establishment is therefore rendered meaningless by the interpretation sought to be canvassed by the assessee. It is well-settled that no law or treaty can be interpreted in such a manner so as to make a clause meaningless. The interpretation is required to be made ut res magis valeat quampereat, i.e, making it effective rather than making it redundant. We are of the considered view that the tax liability of a foreign enterprise, in respect of its dependent agency permanent establishment, is not extinguished by making an arm' s length payment to the dependent agent. There is no dispute in the present case to the extent that the assessee-company has a dependent agent in India, and that the profits of the dependent agent permanent establishment are, therefore, taxable in India. Since the assessee has not produced any details of computation of profits of such DAPE, and had instead accepted the tax liability on presumptive basis at 10 per cent. under CBDT Circular at the time of filing of income-tax return, we are of the considered view that the Assessing Officer had rightly taxed the income on that basis. The relief given by the Commissioner by holding that the taxability of the arm' s length remuneration to the dependent agent extinguishes the tax liability of dependent agent permanent establishment as well, is unjustified and we vacate the same. Ground No. 1 is thus allowed - Appeal is partly allowed

Issues Involved:
1. Taxability of profits attributable to a Dependent Agent Permanent Establishment (DAPE).
2. Taxability of advertisement revenue from AXN channel in India.
3. Applicability of interest under sections 234B and 234C of the Income-tax Act, 1961.
4. Non-taxability of advertisement revenues under the provisions of the Income-tax Act, 1961.

Detailed Analysis:

1. Taxability of Profits Attributable to a Dependent Agent Permanent Establishment (DAPE):
The core issue was whether a foreign company, after remunerating its dependent agent on an arm's length basis, has any further profits attributable to its DAPE in India. The Tribunal held that the dependent agent and the DAPE are distinct entities. The profits attributable to the DAPE should be computed by considering the functions, assets, and risks (FAR) analysis of the DAPE. The Tribunal concluded that the tax liability of the foreign enterprise in respect of its DAPE is not extinguished by making an arm's length payment to the dependent agent. The Tribunal overruled the Commissioner of Income-tax (Appeals) and upheld the taxability of Rs. 13,58,43,976 based on the presumptive basis under CBDT Circular No. 742.

2. Taxability of Advertisement Revenue from AXN Channel in India:
The Tribunal addressed the Assessing Officer's grievance regarding the taxability of advertisement revenue pertaining to AXN channel. The Commissioner of Income-tax (Appeals) had held that since the dependent agent was remunerated on an arm's length basis, no further profits should be attributed to the DAPE. The Tribunal, having reversed the decision on the first issue, also vacated the relief given by the Commissioner of Income-tax (Appeals) on this ground. The advertisement revenue from AXN channel was held to be taxable in India as business income.

3. Applicability of Interest Under Sections 234B and 234C of the Income-tax Act, 1961:
The Tribunal addressed the issue of whether interest under sections 234B and 234C is applicable when the entire income is subject to tax deduction at source under section 195. The Tribunal upheld the relief given by the Commissioner of Income-tax (Appeals), following the decisions of co-ordinate benches in similar cases such as Sedco Forex International Drilling Inc., Asia Satellite Telecommunications Co. Ltd., and the Special Bench decision in Motorola Inc. The Tribunal declined to interfere with the relief given.

4. Non-Taxability of Advertisement Revenues Under the Provisions of the Income-tax Act, 1961:
The Tribunal noted that the Commissioner of Income-tax (Appeals) had not adjudicated on the assessee's contentions regarding non-taxability under the provisions of the Income-tax Act. The matter was remitted to the Commissioner of Income-tax (Appeals) for adjudication. The Commissioner is to decide the matter afresh after giving due and fair opportunity of hearing to the assessee, in accordance with the law, and by way of a speaking order.

Conclusion:
The appeal filed by the Revenue was partly allowed, and the appeal filed by the assessee was partly allowed for statistical purposes. The Tribunal pronounced the judgment in the open court on April 20, 2007.

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