2011 (5) TMI 650 - AT - Income Tax

Double Tax Avoidance agreement assessee, foreign company, being subsidiary of STAR Ltd held as its conduit by Revenue assessee had exclusive rights for sale of advertising time in India on the channels assessee working through collecting agents - The assessee has been returning income in India on receipt basis on deemed profit rate of 10% under the provisions of Circular No. 742 of CBDT Held that - The assessee company was formed not only for procuring advertisement business from India but also from other countries and therefore, it was not driven by Indian Tax considerations alone. There were no good reasons to disregard the existence of assessee company. Therefore, assessee is not a conduit of STAR Ltd. and that income from sales revenue of advertisement belonged to assessee and had to be assessed in its name. It was also observed that whether advertisement revenue was taxed in the hands of the assessee company or STAR Ltd. there was no tax avoidance. Other grounds of appeal are restored to the file of CIT(A) for adjudication on merit. - Decided partly in favor of assessee.

Summary

Issues:
1. Dispute on whether the assessee was a conduit for another company.
2. Dispute regarding the status of an agent as a dependent agent.
3. Failure to adjudicate on grounds related to permanent establishment, taxability, computation of taxable profits, and interest levy.

Analysis:

Issue 1:
The first dispute in the case revolved around the Assessing Officer's decision that the assessee was a conduit for another company. The Assessing Officer held that the assessee was merely a conduit for its holding company, and therefore, assessed the income returned by the assessee on a protective basis. However, the assessee contended that it was a separate legal entity incorporated in the Netherlands and should be assessed separately under the law. The CIT(A) upheld the Assessing Officer's decision, considering the assessee as a conduit company. The Tribunal, upon review, found that the income from sales revenue of advertisement belonged to the assessee and had to be assessed in its name, not as a conduit for the other company.

Issue 2:
The second dispute raised by the assessee was regarding the status of an agent, SIPL, as a dependent agent of another company. However, upon perusal of the CIT(A)'s order, it was found that no such finding had been given. Therefore, this ground raised by the assessee was dismissed as infructuous.

Issue 3:
The third issue involved the failure of the CIT(A) to adjudicate on various grounds raised by the assessee, including permanent establishment, taxability as per Circular 742 of CBDT, computation of taxable profits, and levy of interest under sections 234B and 234C. Since the Tribunal had already determined that the assessee was not a conduit of the other company and that the income belonged to the assessee, these grounds needed to be adjudicated. As the CIT(A) had not addressed these issues, the Tribunal restored the issues to the CIT(A) for proper adjudication after allowing the assessee an opportunity to be heard.

In conclusion, the appeal of the assessee was partly allowed based on the Tribunal's decision that the assessee was not a conduit for the other company, and the issues related to permanent establishment, taxability, computation of taxable profits, and interest levy were to be reconsidered by the CIT(A) in light of this determination.