2019 (5) TMI 1974 - AT - Income Tax

Income deemed to accrue or arise in India - Permanent Establishment in India - advertisement revenue -income attributable to assessee in India - income the assessee reported international transaction with its associated enterprises (AE) i.e. Taj Television and Zee Entertainment Ltd. for advertising sales agency services, share of distribution services, recovery of expenses on sale of broadcasting rights, reimbursement of expenses and recovery of expenses - HELD THAT - We respectfully following the decision of co-ordinate bench 2016 (12) TMI 1291 - ITAT MUMBAI held that the Taj India does not constitute agency PE in terms of India-Mauritius DTAA. Therefore, no income/profit can be said to be attributable to the assessee in India from its PE, as Taj India is remunerated at Arm s Length Price (ALP). Hence, we direct the Assessing Officer to delete the addition towards computation of income attributable to assessee in India. TDS u/s 195 - distribution of revenue - programming cost paid to various non residents and also payments made to M/s PanAM Sat International System Inc. towards transponder charges for failure to deduct tax at source - HELD THAT - As relying on assessee s own case for A.Y. 2006-07 2016 (12) TMI 1291 - ITAT MUMBAI we direct the Assessing Officer to delete the addition made for disallowance of programming cost, transponder charges and up-linking charges under section 40(a)(i). Decided in favour of assessee.

Summary

Issues Involved:
1. Permanent Establishment (PE) in India.
2. Taxability of advertisement revenue.
3. Disallowance of programming cost, transponder charges, and up-linking charges under section 40(a)(i).
4. Transfer Pricing Adjustments.

Detailed Analysis:

1. Permanent Establishment (PE) in India:
The primary issue was whether the assessee had a Permanent Establishment (PE) in India. The assessee, a tax resident of Mauritius engaged in the business of telecasting TV channels, claimed it had no business connection in India. However, the Assessing Officer (AO) concluded that Taj India, which represented the assessee in India, constituted a PE, thus making the subscription revenue taxable as business income in India. The CIT(A) upheld this view. However, the Tribunal, following its earlier decisions in the assessee's own case for AY 2006-07, 2009-10, and 2010-11, held that Taj India did not constitute an agency PE under the India-Mauritius DTAA. Since Taj India was remunerated at Arm's Length Price (ALP), no further income or profit could be attributed to the assessee in India from its PE. Thus, the Tribunal directed the AO to delete the addition towards computation of income attributable to the assessee in India.

2. Taxability of Advertisement Revenue:
The Tribunal noted that the issue of advertisement revenue was covered by its earlier decisions. It was held that since Taj India was remunerated at ALP, no further income or profit could be attributed to the assessee in India from its PE. The Tribunal directed the AO to delete the addition made towards computation of income attributable to the assessee in India.

3. Disallowance of Programming Cost, Transponder Charges, and Up-linking Charges under Section 40(a)(i):
The AO had disallowed programming costs, transponder charges, and up-linking charges under section 40(a)(i) on the grounds that the assessee had not deducted tax at source on these payments. The CIT(A), however, held that these disallowances were incorrect as the amendment to section 9(1)(vi) had not been effected at the time of remittance. The Tribunal, following its earlier decisions, directed the AO to delete the disallowance of programming costs, transponder charges, and up-linking charges under section 40(a)(i), as these payments were not taxable in India and there was no obligation to deduct tax at source.

4. Transfer Pricing Adjustments:
The AO had made a Transfer Pricing Adjustment of Rs. 2,57,61,838/-. The CIT(A) treated the grounds raised on the issue of transfer pricing adjustments as infructuous without deciding it on merits. The Tribunal noted that since it had already held that the assessee had no PE in India and the income earned by the assessee was not taxable in India, there should not be any adjustment under the Transfer Pricing Regulation. Thus, the Tribunal upheld the CIT(A)'s view that the issue was infructuous.

Conclusion:
The Tribunal allowed the appeal of the assessee and dismissed the appeal of the revenue. It directed the AO to delete the additions made towards computation of income attributable to the assessee in India and the disallowance of programming costs, transponder charges, and up-linking charges under section 40(a)(i). The Tribunal also upheld the CIT(A)'s view that the issue of transfer pricing adjustments was infructuous.