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2021 (2) TMI 1323 - AT - Income TaxReopening of assessment u/s 147 - assessment which was processed u/s 143(1) on the ground that the assessee had an exclusive agent in India in the form of M/s ZTL which is soliciting advertisement on its behalf and collecting advertisement revenue in India - contention of the AO that M/s ZTL was held to be dependent agent of the assessee and also held to be constituting a PE of the assessee in India under Article 5(4)/5(5) of the DTAA between India and UK - HELD THAT - As mentioned earlier, in the order u/s 92CA(3) TPO was concerned with sale of TV programs and films which ZEEL has shown at Rs.83.78 crores. In the instant case, we are concerned with the gross revenue received by the appellant from advertisement from India. The above order passed by the TPO does not deal with the gross revenue received by the assessee from advertisement from India. It is not the case of the revenue authorities that the gross revenue received by the assessee from advertisement from India is not at arm s length remuneration. Therefore, once we hold that in the light of present legal position, existence of dependent agency permanent establishment is wholly tax neutral, the question regarding existence of DAPE is a wholly academic in question. We need not therefore deal with the question about the existence of the DAPE, as it is an academic exercise with not tax effect involved. Section 92F(ii) of the Act defines arm s length price as a price which is applied or proposed to be applied in the transaction between persons other than associated enterprises ( AE ) in uncontrolled transactions. As rightly held in E-Funds 2017 (10) TMI 1011 - SUPREME COURT that where transactions between assessees (two US Companies) and Indian entity where at arm s length price, no further profits could be attributed even if they are existed a PE in India. It is aptly held in Set Satellite (Singapore) Pte. Ltd. 2008 (8) TMI 96 - BOMBAY HIGH COURT if the correct arm s length price is applied and paid, then nothing further would be left to be taxed in the hands of the foreign enterprise . Similarly, in Asia Today Ltd. 2021 (2) TMI 95 - ITAT MUMBAI it is held that in the light of Hon ble Jurisdictional High Court s judgment in the case of Set Satellite (supra), so far as profit attribution of a DAPE is concerned, the legal position is held as long as an agent is paid an arm s length remuneration for the services rendered, nothing survives for taxation in the hands of the dependent agency permanent establishment. Viewed thus, the existence of a dependent agency permanent establishment is wholly tax neutral - Appeal allowed.
Issues Involved:
1. Validity of reopening the case under Section 143(3) read with Section 148 of the Income Tax Act. 2. Assessment of income on an accrual basis instead of a cash basis. 3. Determination of the existence of a Permanent Establishment (PE) in India. 4. Taxability of income in India despite payment of commission to an Indian agent at arm's length. 5. Whether the income of the assessee is taxable in India if it has no PE in India. 6. Whether the income of the assessee is taxable in India if it has paid commission to its Indian agent on an arm's length basis. 7. Basis of taxation of income in India—whether on a cash/collection basis or accrual basis. Issue-wise Detailed Analysis: 1. Validity of Reopening the Case: The Tribunal upheld the reopening of the assessment under Section 143(3) read with Section 148 of the Income Tax Act. The AO reopened the assessment based on the information that the assessee had an exclusive agent in India, M/s ZTL, which solicited advertisements and collected revenue on its behalf. The Tribunal cited the Supreme Court decision in ACIT v. Rajesh Jhaveri Stock Brokers P. Ltd. 291 ITR 500 (SC), which held that intimation under Section 143(1)(a) is not an assessment, and notice under Section 148 is validly issued. Therefore, the reopening was considered valid, and the first ground of appeal was dismissed. 2. Assessment of Income on Accrual Basis: The AO assessed the income on an accrual basis, arguing that the canvassing agent, M/s ZTL, booked advertisements in India and reported commission on an accrual basis. The AO estimated the gross receipts of the assessee on an accrual basis to be Rs.1,70,19,092/-. The Tribunal found that the gross revenue received by the assessee from advertisements in India was at arm's length remuneration. Therefore, the assessment on an accrual basis was not justified, and the second ground of appeal was allowed. 3. Determination of Permanent Establishment (PE): The AO held that M/s ZTL constituted a dependent agent PE of the assessee in India under Article 5(4)/5(5) of the DTAA between India and the UK. However, the Tribunal referred to various decisions, including E-Funds IT Solutions Inc. and Set Satellite (Singapore) Pte. Ltd., which held that if the transactions are at arm's length, no further profits could be attributed even if there existed a PE in India. The Tribunal concluded that the existence of a dependent agency PE is wholly tax-neutral if the agent is paid an arm's length remuneration. Therefore, the third ground of appeal was allowed. 4. Taxability of Income Despite Payment of Commission: The AO argued that the income collected by the agent in India was taxable in India. However, the Tribunal referred to decisions in cases like E-Funds IT Solutions Inc. and Set Satellite (Singapore) Pte. Ltd., which held that if the agent is remunerated at arm's length, no further profits are attributable to the foreign enterprise. Therefore, the fourth ground of appeal was allowed. 5. Taxability of Income if No PE Exists: The Tribunal found that the assessee's income was not taxable in India if it had no PE in India, as the transactions were at arm's length. The fifth ground of appeal was allowed. 6. Taxability of Income if Commission Paid at Arm's Length: The Tribunal held that the income of the assessee was not taxable in India if it had paid commission to its Indian agent on an arm's length basis. The sixth ground of appeal was allowed. 7. Basis of Taxation—Cash/Collection or Accrual Basis: The Tribunal found that the gross revenue received by the assessee from advertisements in India was at arm's length remuneration. Therefore, the income should not be taxed on an accrual basis. The seventh ground of appeal was allowed. Conclusion: For AY 2006-07, the appeal was partly allowed, with the Tribunal upholding the reopening of the case but allowing the grounds related to the assessment of income and taxability. For AY 2007-08, the appeal was fully allowed, as there was no reopening by the AO. The Tribunal's decision was pronounced in the open court on 15/02/2021.
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