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2016 (12) TMI 1291 - AT - Income TaxIncome from distribution activities - Income taxability in India - assessable profits arising from Indian operation to be attributable for the functions performed by the independent agent PE in India - Held that - If admittedly Taj India is being remunerated at arm s length then no further income/profit can be said to be attributable to the assessee in India from PE. It is an undisputed fact that the TPO has accepted the transaction between the assessee and Taj India at an arm s length price. Hence we also hold that if the arm s length price of the transaction has been accepted between the assessee and Taj India then nothing further should be attributable to the assessee which is to be taxed in India. Thus on this reasoning we allow the assessee s ground No.1. We are making it clear that so far as the issue of PE qua the advertisement revenue is concerned same is kept open. See DIT Vs Morgan Stanley & Co. reported in 2007 (7) TMI 201 - SUPREME Court Allowance u/s 40 (a) (i) - Held that - We hold that no disallowance u/s 40 (a) (i) can be made on account of programming cost paid to various non-residents and also payments made to PanAmSat and other non-residents.
Issues Involved:
1. Permanent Establishment (PE) and attribution of income. 2. Nature of payments as royalty under section 9(1)(vi) of the Income Tax Act. 3. Disallowance under section 40(a)(i) of the Income Tax Act for non-deduction of tax at source. Detailed Analysis: 1. Permanent Establishment (PE) and Attribution of Income: The primary issue was whether Taj TV Ltd. had a Permanent Establishment (PE) in India, thereby making its income chargeable to tax in India. The Assessing Officer (AO) held that Taj India was a Dependent Agent of the assessee, constituting a PE in India under Article 5(4) of the India-Mauritius DTAA. The Tribunal noted that the transaction between the assessee and Taj India was at arm's length, as confirmed by the Transfer Pricing Officer (TPO). Citing the Supreme Court's ruling in Morgan Stanley & Co. and the Bombay High Court's decisions in Set Satellite (Singapore) Pte Ltd. and B4U International Holdings Ltd., the Tribunal held that no further income could be attributed to the assessee in India if the PE was remunerated at arm's length. Thus, the assessee’s appeal on this ground was allowed, and it was held that no further income was attributable to the assessee from the PE in India. 2. Nature of Payments as Royalty: The AO classified payments made by Taj TV Ltd. to various non-residents for programming fees and transponder fees as "royalty" under Explanation 2 to section 9(1)(vi) of the Income Tax Act, making them taxable in India. The Tribunal referred to its previous decisions in the assessee’s own case for earlier assessment years, where it was held that such payments did not constitute "royalty" under the DTAA. The Tribunal emphasized that the definition of "royalty" in the DTAA should prevail over the domestic law. The Tribunal also noted the Delhi High Court's decision in New Skies Satellite, which clarified that amendments to the Income Tax Act would not affect the DTAA unless jointly amended by both treaty partners. Consequently, the Tribunal held that the payments in question did not constitute "royalty" and were not taxable in India. 3. Disallowance under Section 40(a)(i): The AO disallowed expenses under section 40(a)(i) for non-deduction of tax at source on payments made to non-residents, classifying them as "royalty." The Tribunal, following its earlier decisions and the Delhi High Court's ruling in New Skies Satellite, held that the payments did not fall within the definition of "royalty" under the DTAA. The Tribunal also noted that at the time of making the payments, there was no obligation to deduct tax as per judicial precedents and the prevailing law. Thus, the disallowance under section 40(a)(i) was not justified, and the Tribunal allowed the assessee’s appeal on this ground. Conclusion: The Tribunal allowed the assessee’s appeals for the assessment years 2006-07, 2007-08, and 2008-09, holding that no further income was attributable to the assessee in India from the PE, and the payments made to non-residents did not constitute "royalty" under the DTAA. Consequently, the disallowances under section 40(a)(i) were also not sustainable. The Revenue’s appeals were dismissed.
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