2015 (6) TMI 1211 - HC - Income Tax

Taxability in India - whether SAS BV (IGN BV) was not a conduit for the assessee or a sham entity - as per AO no commercial expediency in setting up via media companies and the only aim of this arrangement was to avoid assessee's direct taxability in India - HELD THAT - In the present appeal, the revenue is seeking to tax the very same income which has already been subjected to tax in the hands of SAS BV (IGN BV). This, even after the Tribunal by order 2010 (5) TMI 894 - ITAT MUMBAI has already held that SAS BV (IGN BV) is not a conduit or a sham entity and they are chargeable to tax on the income earned on account of their advertisement activity. In the above view, the impugned order holds that there can be no occasion to tax the same income in the hands of the respondent-assessee when the same has been subjected to tax in the hands of M/s.SAS BV (IGN BV). So, bearing in mind that the revenue has accepted the order of the Tribunal in case of SAS BV (IGN BV). It is relevant to note that, for the Assessment Year 2000-01 and 2002-03 on the same issue in respect of SAS BV (IGN BV), the revenue had challenged in this Court the order of the Tribunal holding that SAS BV (IGN BV) is not a conduit of Star Limited, the respondent-assessee herein 2013 (3) TMI 847 - BOMBAY HIGH COURT .This Court on 13 March 2013 dismissed the revenue's appeal for the Assessment Years 2000-01 and 2003-03. No substantial question of law Accrual of income - advertisement revenues - cash system of accounting as adopted by the assessee - HELD THAT - This issue stands concluded in favour of the assessee by the decision by this Court in the case of Pfizer Corporation v/s C.I.T. 2002 (11) TMI 80 - BOMBAY HIGH COURT wherein it is held that a non-resident has an option to follow either the cash system or mercantile system of accounting. It is contended on behalf of the revenue that, in view of the decision of the Supreme Court in Standard Motors v/s C.I.T., 1993 (2) TMI 9 - SUPREME COURT it is not open to the non-resident to follow the cash system of accounting. We find that the Apex Court has in fact not touched upon this aspect and has observed that the method of accounting adopted in the facts of the case are irrelevant and thus there is no occasion to examine the same. No fault can be found with the impugned order. Accordingly, question No.2 cannot be entertained as it does not give rise to a substantial question of law. Interest under Section 234A - Tribunal held that as no income has accrued or arisen to the assessee, interest under Section 234A was not chargeable to assessee - HELD THAT - . The aforesaid finding of the Tribunal is based on having held that the income arising on account of adversement sales is taxable in the hands of SAS BV (IGN BV) for the reasons indicated while considering question No.1. This finding of fact is not shown to be perverse. Thus, no substantial question of law arises with regard to question No.3. Accordingly, question No.3 cannot be entertained. Interest under Section 234C not chargeable - HELD THAT - We find that the impugned order of the Tribunal has merely followed the decision of this court in D.I.T. v/s NGC Network Asia, 2009 (1) TMI 174 - BOMBAY HIGH COURT . Moreover, once it is held that no income has arisen or accrued in the hands of respondent assessee, the question of payment of any interest does not arise. Accordingly question No.4 does not raise any substantial question of law. Thus not entertained.

Summary

Issues:
1. Taxability of income earned through advertisement sales by a subsidiary company.
2. Accounting method for nonresident companies.
3. Chargeability of interest under Section 234A.
4. Applicability of interest under Section 234C.

Issue 1: Taxability of income earned through advertisement sales by a subsidiary company
The case involved a dispute regarding the taxability of income earned through advertisement sales by a subsidiary company. The Tribunal had previously held that the subsidiary company was not a conduit for the main assessee and that its income was liable to be taxed separately. The revenue challenged this decision, seeking to tax the same income in the hands of the main assessee. However, the High Court upheld the Tribunal's decision, emphasizing that the subsidiary company had already been taxed on the income earned from advertisement activities. The Court noted that the revenue had accepted the Tribunal's order in a previous case involving the same issue. Therefore, the Court concluded that there was no basis to tax the income again in the hands of the main assessee.

Issue 2: Accounting method for nonresident companies
The High Court addressed the question of whether a nonresident company could follow the cash system of accounting or the mercantile system. The Court referred to a previous decision involving a similar issue and held that nonresident companies have the option to choose either accounting method. The revenue contended that the Supreme Court's decision in a specific case restricted nonresidents from using the cash system. However, the High Court clarified that the Supreme Court did not address this aspect in its ruling and stated that the method of accounting adopted by nonresident companies is irrelevant. Consequently, the Court found no fault with the Tribunal's decision to allow the nonresident company to follow the cash system of accounting, as it did not raise a substantial question of law.

Issue 3: Chargeability of interest under Section 234A
The Tribunal had determined that no income had accrued or arisen to the main assessee during the assessment year, leading to the conclusion that interest under Section 234A was not chargeable. The High Court found this factual determination to be reasonable and not perverse. As a result, the Court held that no substantial question of law arose concerning the chargeability of interest under Section 234A and dismissed the issue.

Issue 4: Applicability of interest under Section 234C
Regarding the applicability of interest under Section 234C, the High Court noted that the Tribunal had followed a decision of the Court in a previous case. Additionally, since no income had arisen or accrued to the main assessee, the question of payment of interest did not arise. Therefore, the Court concluded that this issue did not raise any substantial question of law and dismissed it.

In conclusion, the High Court dismissed the appeal by the revenue, upholding the Tribunal's decision on all the issues raised. No costs were awarded in the case.