2021 (7) TMI 1399 - AT - Income Tax

Treatment of advertisement revenue as Business income taxable in India - AR emphasized that the alleged permanent establishment (PE) by the income tax department has been remunerated on an ALP basis and is evident from the transfer pricing order of the assessee wherein all its international transactions have been accepted at ALP with no TP adjustments - HELD THAT - We find the Hon ble ITAT in Assesses own case for the A.Ys 2000-01 to 2004-05 2021 (1) TMI 125 - ITAT MUMBAI has dealt on this disputed issue and decided in favour of the assessee We find in the present case the facts are similar and the assessee has paid Arms Length Commission to its Agent and TPO has accepted the payments and no transfer pricing adjustment was made considering it as fair and reasonable. We respectfully fallow the judicial precedence and the ratio of the decision on the advertisement revenue treatment and direct the assesseing officer to delete the addition and allow the grounds of appeal in favour of the assessee. Income accrued in India - distribution revenues earned by the assessee falls within the meaning of Royalty under Article 12 of India - USA DTAA is taxable in India - HELD THAT - The distribution rights granted by the assessee is only a Broad Casting right and cannot be brought under the purview of Copy right. We fallow the judicial precedence 2021 (1) TMI 125 - ITAT MUMBAI and direct the assesseing officer to delete the addition as per the ratio of the decision discussed in the above paragraphs and allow the grounds of appeal in favour of the assessee. Short of TDS credit - HELD THAT - We are of the opinion that the assessee should not be deprived of its legitimate right for TDS credits and direct the A.O. to verify the claim and grant the TDS credit. We find the assessee has claimed additional TDS credit (only in the A.Y.2010-11) in the DRP proceedings and the directions were issued to the Assessing officer (A.O).The asseesse has submitted the supporting claim of evidences before the A.O. Accordingly the assessing officer is directed to verify and examine the documents filed in support of TDS claim.

Issues Involved:
1. Determination of Total Income
2. Permanent Establishment (PE) in India
3. Attribution of Additional Profits
4. Taxability of Distribution Fee
5. Short Credit of Taxes Deducted at Source (TDS)
6. Additional TDS Credit
7. Levy of Interest under Section 234D
8. Initiation of Penalty Proceedings under Section 271(1)(c)
9. Initiation of Penalty Proceedings under Section 271A
10. Initiation of Penalty Proceedings under Section 271B

Issue-wise Detailed Analysis:

1. Determination of Total Income:
The assessee contested the determination of a sum of Rs. 12,93,45,520/- and the total income of Rs. 51,23,79,554/-. The tribunal did not delve deeply into this issue as it was intertwined with the PE and attribution of profits issues.

2. Permanent Establishment (PE) in India:
The tribunal examined whether the assessee had a PE in India as per the India-USA Double Tax Avoidance Agreement (DTAA). The assessee argued that NGC Network (India) Pvt Ltd. was remunerated at Arm's Length Price (ALP) and hence could not be considered a PE. The tribunal referred to previous judicial decisions and concluded that since the agent was remunerated on an ALP basis, no further income could be attributed to the non-resident principal. The tribunal directed the Assessing Officer (AO) to delete the addition related to the advertisement revenue being taxed as business income in India.

3. Attribution of Additional Profits:
The tribunal reiterated that no additional profits should be attributed to the assessee in India as the agent was remunerated at ALP. This was supported by the transfer pricing order where no adjustments were made, indicating the fairness and reasonableness of the commission rate.

4. Taxability of Distribution Fee:
The tribunal addressed whether the distribution fee earned by the assessee was taxable in India as royalty under Article 12 of the India-USA DTAA. The tribunal referred to various judicial precedents and concluded that the distribution rights granted by the assessee were commercial rights and not copyrights. Therefore, the distribution fee could not be treated as royalty. The tribunal directed the AO to delete the addition related to the distribution fee being taxed as royalty.

5. Short Credit of Taxes Deducted at Source (TDS):
The tribunal acknowledged the assessee's claim of short credit of TDS amounting to Rs. 3,34,90,880/-. The tribunal directed the AO to verify the claim and grant the TDS credit accordingly.

6. Additional TDS Credit:
The tribunal noted the assessee's claim for additional TDS credit amounting to Rs. 56,39,569/- for the A.Y. 2010-11. The tribunal directed the AO to verify and examine the documents filed in support of the TDS claim and grant the credit accordingly.

7. Levy of Interest under Section 234D:
The tribunal stated that the issue of levy of interest under Section 234D was consequential in nature and did not require specific adjudication.

8. Initiation of Penalty Proceedings under Section 271(1)(c):
The tribunal dismissed the ground related to the initiation of penalty proceedings under Section 271(1)(c) as premature, noting that the assessee had not concealed any income nor furnished inaccurate particulars.

9. Initiation of Penalty Proceedings under Section 271A:
Similarly, the tribunal dismissed the ground related to the initiation of penalty proceedings under Section 271A, noting that the assessee, being a non-resident, was not required to maintain India-specific books of account.

10. Initiation of Penalty Proceedings under Section 271B:
The tribunal also dismissed the ground related to the initiation of penalty proceedings under Section 271B, noting that the assessee, being a non-resident, was not required to get its accounts audited.

Conclusion:
The appeals were partly allowed, with the tribunal directing the AO to delete the additions related to the advertisement revenue and distribution fee being taxed in India, and to verify and grant the TDS credits claimed by the assessee. The issues of interest under Section 234D and penalty proceedings under Sections 271(1)(c), 271A, and 271B were dismissed as either consequential or premature.

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