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2012 (6) TMI 15 - AT - Income TaxDependent Agent - Permanent Establishment - assessee, a Mauritius company, engaged in telecasting TV channels had an advertisement collection agent in India who collected revenue from time slots given to Indian advertisers - assessee claimed that its profits from India were not chargeable under the DTAA because (i) it did not have a PE and (ii) even if Indian agent is assumed to be PE, the agent had been remunerated at ALP and further profits could not be attributed - Revenue contending that as the assessee was dependent on the Indian agents, the Indian agents constituted a Dependent Agent PE - Held that - A plain reading of clauses of agreement demonstrates that Indian agent is not the decision maker, nor it has the authority to conclude contracts. The agent has no authority to fix the rate or to accept an advertisement. It can merely forward the advertisement and the assessee has the right to reject. The agent is independent contractor and is not servant or employee of the assessee. On facts it cannot be said that the Indian Representative has habitually exercises authority to conclude contracts. In the case on hand, there is neither legal existence of such authority, nor is there any evidence to prove that the agent has habitually exercised such authority. In fact, the Principal has raised all the invoices. Thus Article 5.4 of indo- Mauritius DTAA is not attracted in this case. Further, Article 5.5 states that when the activities of such an agent are devoted exclusively or almost exclusively on behalf of the assessee enterprises . These wordings refer to the activities of an agent and its devotion to the non-resident and not the other way round. In present case, Indian agent s revenue from Non-resident constituted merely 4.69% of the total income and hence cannot be termed as dependent agent. Neither Article 5.4 nor Article 5.5 of the Indo-Mauritius DTAA are attracted this case. Hence, the assessee has no P.E. in India. Alternatively, even if it is held that there is a PE of the assessee in India, then we hold that as the rate of commission of 15%, was accepted as ALP by the TPO for A.Y. 2003-04 to 2003-04 and 2004-05, no further profit is attributable to the P.E. This is the rate mentioned in Board Circular No. 742 of the order 1996
Issues Involved:
1. Whether B4U can be treated as a dependent agent of the assessee. 2. Whether the payment of arm's length remuneration to a dependent agent extinguishes the tax liability of the assessee in India. Issue-wise Detailed Analysis: 1. Dependent Agent Status: The core issue was whether B4U Multimedia International Ltd. and B4U Broad Band Ltd. (collectively referred to as "B4U India") could be considered dependent agents of the assessee, a foreign company incorporated in Mauritius. The Assessing Officer (AO) argued that B4U India was a dependent agent and thus constituted a Permanent Establishment (PE) of the assessee in India. The AO based this on clauses in the "Advertising Sales Representation Agreement" and the nature of activities performed by B4U India, which were deemed critical to the assessee's business. However, the Tribunal found that B4U India did not have the authority to conclude contracts on behalf of the assessee. The agreements stipulated that B4U India could not deviate from the rate card without approval, and the assessee retained the right to reject advertisements. The Tribunal emphasized that the agent was an independent contractor, not an employee or servant of the assessee. Thus, the Tribunal concluded that B4U India did not habitually exercise authority to conclude contracts, and therefore, did not constitute a PE under Article 5.4 of the Indo-Mauritius DTAA. 2. Arm's Length Remuneration: The second issue was whether the payment of arm's length remuneration to B4U India extinguished the tax liability of the assessee in India. The AO contended that the payment to the agent and the profits of the assessee from business operations in India were separate and could not be compared. However, the Tribunal noted that the Transfer Pricing Officer (TPO) had accepted a 15% commission as the arm's length price (ALP) for the assessment years 2003-04 to 2004-05. The Tribunal relied on the Supreme Court's decision in Morgan Stanley, which held that if an associated enterprise, which also constituted a PE, was remunerated on an arm's length basis, taking into account all risks and functions, then no further profits would be attributable to the PE. The Tribunal also referred to the Bombay High Court's decision in Set Satellite (Singapore) Pte Ltd., which supported the view that if the ALP is applied and paid, nothing further would be left to be taxed in the hands of the foreign enterprise. Consequently, the Tribunal upheld the assessee's contention that the payment was at ALP and no further profits should be attributed to the PE. Conclusion: The Tribunal dismissed the revenue's appeal, concluding that B4U India was not a dependent agent and did not constitute a PE of the assessee in India. Even if it were considered a PE, the payment of arm's length remuneration to B4U India extinguished any further tax liability of the assessee in India. The Tribunal also dismissed the cross-objection as infructuous.
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