2010 (5) TMI 894 - AT - Income Tax

Summary

Issues involved:
The appeal involves the assessment u/s 143(3) of the Income Tax Act, 1961 for the assessment year 1998-99. The grievances raised by the assessee include the determination of whether the appellant is a conduit for Satellite Television Asian Region Limited (Star Ltd.), the status of Star India Pvt Ltd as a dependent agent of Star Limited, and the tax implications under the double taxation avoidance agreement and Circular 742 issued by the Central Board of Direct Taxes.

Issue 1 - Conduit Company Status:
The appellant, a company incorporated in the Netherlands, holds the exclusive right for advertising time sales in India on STAR TV network channels owned by STAR Limited. The Assessing Officer contended that the appellant was a conduit company for tax planning purposes, as India had a favorable tax treaty with the Netherlands. Despite the appellant's arguments and submission of tax residency certificates, the Assessing Officer concluded that the appellant was a conduit company and assessed the income in its hands. The CIT(A) upheld this decision, leading to the current appeal.

Issue 2 - Taxability of Advertising Revenues:
The revenue's case was based on the perception that the appellant was used as an intermediate entity to limit tax exposure for STAR Limited in India. However, the Tribunal found this perception erroneous, citing legal precedents and the now-withdrawn CBDT circular no. 23. The Tribunal noted that the advertising revenues were generated through a commission agent, Star India Pvt Ltd, and were already taxed in its hands. The Tribunal also considered the commercial justifications for routing sales through the appellant company on a global basis, beyond Indian tax considerations.

Conclusion:
The Tribunal held that the Assessing Officer was not justified in taxing the income from advertising time sales in India in the hands of the appellant, as the revenues were appropriately taxed in the hands of the commission agent. The Tribunal remitted other issues raised in the appeal for fresh adjudication by the CIT(A). The appeal was partly allowed, emphasizing the need for a comprehensive review of the tax implications and other consequences raised by the assessee.