2020 (3) TMI 952 - AT - Income Tax

TDS u/s 195 - Intangible business connections - payment in respect of an appearance made by Nicholas Cage, an Oscar award winning celebrity, for an appearance made by him at Dubai (UAE) in a product launch event for promoting business of the assessee in India - assessee is an Indian company - HELD THAT - Explanation 3 to Section 9 (1)(i) further makes it clear that any income accruing or arising through a business connection will include an income accruing or arising by means of , in consequence of or by reason of a business connection in India. In other words, therefore, when an income accrues or arises to a non-resident outside India, but by the reason of any business connection in India or in consequence of any business connection in India, such an income shall also be taxable in India under section 5(2)(b). We find, as the assessee has admitted in so many words in the written note, that the event in Dubai was India centric, that the event was for the purpose of promoting business in India, that such promotional events generate enquires of potential customers in India who in turn would like to purchase Audi cars in India and finance the same from the assessee company, and that it was for this reason that the assessee company was a part of this event. It is also an admitted position that the audio-visual clips were available for use exclusively for Audi India and VWFPL . When these audio-visual clips were for exclusive use of the assessee and the Audi India, and both of these entities have operations only in India, the use of this event, as a tool of marketing, was only in India. In the terms of MoU signed between the assessee and celebrity s agent, predominant benefit to the assessee was usage of all the event footage/ material/ films/ stills/ interviews etc of the above mentioned launch event capturing celebrity s presence across all platform for below the line publicity on internet, in press releases, news reports, social media, Audi Magazine etc . There is also no dispute about the position that all expenses are borne by the assessee, and its associate Audi India, and claimed as a deduction under section 37(1), which essentially implies that the expenses, even by assessee s admission, has been incurred wholly and exclusively for the purposes of business of the assessee and the business of the assessee is only in India. When we examine relation between Indian business and participation in an event by the celebrity at Dubai launch event, we have no doubt that it is because of this relationship between event in Dubai and business of the assessee in India that the income has accrued and arisen to the celebrity making appearance in Dubai launch event. There cannot be any justification for an assessee in India, doing business only in India, paying money to a celebrity to make an appearance in an event in Dubai unless such an appearance benefits the business of the assessee in India, and the fact that it did benefit the business interests of the assessee in India is not even in doubt or controversy. As a matter of fact, there is an inherent dichotomy in the approach of the assessee inasmuch as, on one hand, he claims the expenses in the Dubai launch event as expenses incurred for the purposes of business in India, which is the only geographical location where the assessee does business, and yet he claims that the Dubai launch event does not have business connection in India. Once the expenses for holding this event is in connection with business in India, it is only a natural corollary thereto that income from participation, in this event, to a non-resident has a business connection in India. The business connection in India, on the facts of the present case, is intangible inasmuch as it is a relationship rather than an object, but it is a significant business connection which has resulted in income accruing and arising to the non-resident, but for which there would not have been any business expediency in making the impugned payment to the non-resident celebrity. What essentially follows is that article 23(3) allows the country in which the income arises, to tax such income if its law so provides. The scheme of the treaty is thus unambiguous inasmuch as the treaty protection from source taxation is not available to an income which is not covered by the specific articles of the treaty in question. We, therefore, reject the claim of the assessee on treaty protection under article 23(1) against source taxation of income in question. The income embedded in payment to the international celebrity, for participation in Dubai A8L launch event, was taxable in India. As a corollary to these findings, in our considered view, the assessee had the liability to withhold taxes from payment made for appearance made by the celebrity at Dubai A8L launch event, and the CIT(A) was justified in upholding impugned demands raised under section 201 r.w.s 195 of the Income Tax Act,1961. We, therefore, confirm the orders of the authorities below and decline to interfere in the matter. - Decided against assessee.

Summary

Issues Involved:
1. Tax withholding obligations under section 201 read with section 195 of the Income Tax Act, 1961.
2. Taxability of payments made to a non-resident celebrity for an appearance at an event held outside India.
3. Interpretation of "business connection" under section 9(1)(i) of the Income Tax Act, 1961.
4. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and the USA.

Detailed Analysis:

1. Tax Withholding Obligations:
The core issue in this appeal is whether the appellant was required to withhold tax from a payment of US $ 4,40,000 made to a non-resident celebrity for an appearance at a product launch event in Dubai. The Assessing Officer (AO) held that the payment was taxable in India and required tax withholding under section 201 read with section 195 of the Income Tax Act, 1961. The Commissioner (Appeals) confirmed this view, leading to the present appeal.

2. Taxability of Payments to Non-Resident Celebrity:
The appellant argued that the payment was not taxable in India as the event and the celebrity appearance occurred outside India. The AO, however, held that the payment was taxable in India under section 9(1)(vi) as royalty and also examined the provisions of Article 12 of the India-USA DTAA. The CIT(A) further held that organizing an India-centric event in Dubai was an attempt to avoid tax implications in India.

3. Interpretation of "Business Connection":
The Tribunal examined whether the income accruing to the international celebrity from the Dubai event had a business connection in India. Under section 5(2)(b) of the Income Tax Act, income is taxable in India if it accrues or arises, or is deemed to accrue or arise, in India. Section 9(1)(i) extends this to income accruing through any business connection in India. The Tribunal found that the event was India-centric, targeted at Indian customers, and the expenses were borne by Indian entities. The Tribunal concluded that there was a business connection in India, and the income from the event was taxable in India.

4. Applicability of DTAA:
The appellant argued for treaty protection under Article 23(1) of the India-USA DTAA, which states that income not expressly dealt with in the treaty shall be taxable only in the residence state. However, Article 23(3) allows source taxation if the income arises in the other contracting state. The Tribunal held that the treaty did not protect the appellant from source taxation in India, as the income arose due to a business connection in India.

Conclusion:
The Tribunal upheld the tax withholding obligations of the appellant under section 201 read with section 195 of the Income Tax Act, 1961. The income from the payment to the international celebrity for the Dubai event was deemed to have accrued in India due to the business connection and was, therefore, taxable in India. The appeal was dismissed, confirming the orders of the lower authorities.

Final Judgment:
The appeal is dismissed. The Tribunal confirmed the tax withholding obligations under section 201 read with section 195 of the Income Tax Act, 1961, and upheld the taxability of the payment to the non-resident celebrity under section 5(2)(b) read with section 9(1)(i) of the Income Tax Act, 1961. The Tribunal also rejected the plea for treaty protection under the India-USA DTAA.