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2019 (10) TMI 1543 - AT - Income TaxIncome deemed to accrue or arise in India - PE in India - Income directly accrued in India from exhibition of films in the cinema halls / TV channels in India - HELD THAT - As decided in assessee s own case for AY 2006-07 2011 (12) TMI 195 - ITAT MUMBAI as rightly held by the CIT (A) even if income arises to the Non-Resident due to the business connection in India the income accruing or arising out of such business connection can only be taxed to the extent of the activities attributed to permanent establishment. In this case the assessee does not have any permanent establishment in India. Since the Indian company who obtained the rights is acting independently Agency PE provisions are not applicable to the assessee company. The assessee relied on the decision of Ishikawajma-Harima Heavy Industries Ltd 2007 (1) TMI 91 - SUPREME COURT that incomes arising to a Non-Resident cannot be taxed as business income in India without a PE. As the assessee does not have any permanent establishment in India the incomes arising outside Indian Territories cannot be brought to tax. Therefore there is no need to differ from the findings of the CIT (A) and accordingly the Revenue Appeal is dismissed.
Issues:
1. Taxability of royalty income under India-USA DTAA. 2. Determination of permanent establishment (PE) in India. 3. Applicability of Section 5(2) and Section 9(1)(i) of the Income Tax Act. Issue 1 - Taxability of Royalty Income: The appeal involved the taxability of royalty income received by a non-resident entity engaged in the distribution of cinematographic films. The assessee contended that the royalty income was not taxable in India under the India-USA Double Taxation Avoidance Treaty (DTAA) based on previous Tribunal decisions. However, the Assessing Officer (AO) deemed the income as business income, subject to taxation in India. The AO concluded that the income accrued in India from the distribution of films, leading to the taxation of Rs. 16.16 Crores as business profits. Issue 2 - Determination of Permanent Establishment: The AO further argued that the income should be deemed to accrue in India under Section 9(1)(i) of the Income Tax Act, considering the presence of a dependent agent permanent establishment (DAPE) in India. The AO attributed 65% of the revenue earned by the assessee to activities in India through a local entity, leading to taxation in India. The Dispute Resolution Panel (DRP) upheld the AO's view, resulting in the final assessment order assessing the income at Rs. 16.16 Crores. Issue 3 - Applicability of Income Tax Act Sections: The Tribunal analyzed the case in light of Section 5(2) and Section 9(1)(i) of the Income Tax Act. The Tribunal noted that the issue was previously adjudicated in favor of the assessee by the lead decision of the Tribunal for AY 2006-07, where it was held that the income cannot be considered as royalty under the DTAA or the Indian Income Tax Act. The Tribunal reiterated that without a permanent establishment in India, the income arising outside Indian territories cannot be taxed as business income in India. The Tribunal, following consistent precedent, deleted the additions made by the AO and allowed the assessee's appeal. In conclusion, the Tribunal ruled in favor of the assessee, holding that the income was not taxable in India under the India-USA DTAA and that the assessee did not have a permanent establishment in India, thus rejecting the taxability of the income as business profits in India. The Tribunal's decision was based on the interpretation of relevant provisions of the Income Tax Act and previous Tribunal decisions in the assessee's favor.
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