2018 (7) TMI 2305 - AT - Income Tax

Income taxable in India - advertising, distribution income being the primary source of income - Permanent Establishment in India in respect of advertisement revenue - assessee company is a tax resident of Mauritius and is engaged in the business of telecasting on TV channels(TEN Sports) - DTAA between India and Mauritius - as submitted Taj TV is carrying on business from outside India and it does not have business connection in India - HELD THAT - The issue of PE and consequent taxability of income in India is no longer res integra. The ITAT, in assessee s own case for AY 2006- 07 2016 (12) TMI 1291 - ITAT MUMBAI after considering the ratio laid down in the case of DIT vs Morgan Stanley Co. 2007 (7) TMI 201 - SUPREME COURT held that since Taj India is being remunerated at arm s length price, no further income or profit can be said to be attributable to the assessee in India from its PE. Thus we are of the view that Taj India does not constitute agency PE in terms of India Mauritius DTAA. Consequently, no further income / profit can be said to be attributable to the assessee in India from its PE, since Taj India is being remunerated at arm s length price. Accordingly, we direct the AO to delete additions made towards computation of income attributable to the assessee in India. TDS u/s 195 - programming cost paid to various non residents and also payments made to M/s PanAM Sat International System Inc. and other non residents towards transponder charges u/s 40(a)(i) for failure to deduct tax - HELD THAT - In this view of the matter and consistent with the view taken by the co-ordinate bench in assessee s own case for earlier years 2016 (12) TMI 1291 - ITAT MUMBAI we direct the AO to delete addition made towards disallowance of programming cost and transponder charges u/s 40(a)(i) - Decided in favour of assessee.

Summary

Issues Involved:
1. Permanent Establishment (PE) in India concerning advertisement revenue.
2. Disallowance of programming cost and transponder fees under Section 40(a)(i) for failure to deduct tax at source.

Detailed Analysis:

Permanent Establishment (PE) in India Concerning Advertisement Revenue:

The assessee, a tax resident of Mauritius, engaged in telecasting TV channels, claimed it had no Permanent Establishment (PE) in India under the India-Mauritius DTAA. The Assessing Officer (AO) disagreed, asserting that Taj India, acting on behalf of the assessee, constituted a dependent agent PE in India. The AO attributed Rs. 49,32,74,156 as income taxable in India due to the activities conducted by Taj India, including facilitating advertising arrangements and market promotion.

The CIT(A) upheld the AO's view, concluding that the assessee had a PE in India and was liable for tax on income attributable to its activities in India. The CIT(A) determined that 75% of the income was taxable in India.

However, the ITAT referenced its earlier decision in the assessee's case for AY 2006-07, where it was held that Taj India did not constitute an agency PE under the India-Mauritius DTAA. Since Taj India was remunerated at arm's length, no further income or profit was attributable to the assessee in India. The ITAT directed the AO to delete the additions made towards the computation of income attributable to the assessee in India.

Disallowance of Programming Cost and Transponder Fees:

The AO disallowed programming costs and transponder fees paid to PanAM Sat International System Inc. under Section 40(a)(i) for failure to deduct tax at source, treating these payments as royalties under Section 9(1)(vi) of the Act. The CIT(A) disagreed, noting that the amendment to Section 9(1)(vi) was not in effect when the remittances were made. Consequently, the CIT(A) directed the AO to delete the disallowances.

The ITAT, referencing its decision for AY 2006-07, reiterated that such disallowances were incorrect. It held that payments for transponder facilities were for services, not for the use of equipment, and thus did not constitute royalties. Additionally, programming costs for acquiring live telecast rights were not royalties since there was no copyright involved. The ITAT directed the AO to delete the disallowances for both AY 2009-10 and 2010-11.

Conclusion:

The ITAT concluded that Taj India did not constitute an agency PE under the India-Mauritius DTAA, and since Taj India was remunerated at arm's length, no further income was attributable to the assessee in India. It also held that disallowances of programming costs and transponder fees under Section 40(a)(i) were incorrect, directing the AO to delete these additions. Consequently, the appeals filed by the assessee were allowed, and those by the revenue were dismissed.