2020 (10) TMI 1019 - AT - Income Tax

TP Adjustment - Attribution of profits - purported PE as remunerated on an arm s length basis - whether no additional profits could be attributed to assessee s income - case of the assessee before us is that without prejudice to its contention on there being PE or dependent agent PE or not, when ESPN India is remunerated at arm s length basis then no further attribution of profits can be made in the hands of the assessee in India - HELD THAT - Where once arm s length principle has been decided then, the Hon ble Supreme Court has laid down the proposition that there can be no further profit attribution to a person, even if, it has a PE in India - See Hon ble Supreme Court in Honda Motors Co. Ltd. vs ADIT 2018 (5) TMI 265 - SUPREME COURT and M/S E-FUNDS IT SOLUTION INC. 2017 (10) TMI 1011 - SUPREME COURT . The said proposition have been also followed in BBC Worldwide Limited 2016 (3) TMI 1025 - DELHI HIGH COURT and it has been held that if arm s length remuneration is paid to the dependent agent, nothing further remains to be attributed. Whether ESPN India constitutes PE of the assessee in India under DTAA between India and Mauritius on the principle that ESPN India was remunerated at arm s length by the assessee, which has been accepted by the Assessing Officer/TPO of ESPN India and also the assessee, then no further attribution of profits is to be made in the hands of the assessee. Interest under section 234B - HELD THAT - Since, the assessee is foreign company then no interest is to be charged under section 234B of the Act as entire income of the non-resident entity is subject to tax deduction at source. Accordingly, the assessee is not liable to pay any advance tax and consequently no liability to pay interest under section 234B of the Act. In this regard, we find support from the ratio laid down in DIT vs Jacabs Civil Inroporated/Mitsubishi Corporation 2010 (8) TMI 37 - DELHI HIGH COURT and in DCIT vs NGC Network Asia LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT wherein held that when a duty is cast on the payer to deduct and pay the tax at source, on payer s failure to do so interest under section 234B of the Act cannot be imposed on payee assessee - Appeals of the assessee are allowed.

Issues Involved:
1. Assessment under Section 143(3) of the Income-tax Act, 1961.
2. Existence of business connection in India.
3. Existence of Permanent Establishment (PE) under the India-Mauritius Double Taxation Avoidance Agreement (DTAA).
4. Attribution of profits to the PE.
5. Application of Circular No. 23 dated July 23, 1969.
6. Attribution percentage of net profits.
7. Levy of interest under Section 234B of the Income-tax Act.

Issue-wise Analysis:

1. Assessment under Section 143(3) of the Income-tax Act, 1961:
The appeals were against the orders passed under Section 143(3) of the Income-tax Act, 1961 for the Assessment Years 2009-10 and 2011-12. The appellant denied its liability to be assessed under the Act, claiming that the assessment order was bad in law.

2. Existence of Business Connection in India:
The CIT(A) upheld the Assessing Officer's decision that the appellant had a business connection in India through ESPN Software India (P) Ltd. (now Star Sports India Private Limited), which was merged with Star India Private Limited. The appellant was deemed to be carrying on its business in India and earning income from sources in India under Section 9(1)(i) of the Act.

3. Existence of Permanent Establishment (PE) under the India-Mauritius DTAA:
The CIT(A) upheld the Assessing Officer's decision that the appellant had a Permanent Establishment (PE) in India in the form of ESPN India under Article 5(4) and 5(5) of the DTAA. The appellant argued that ESPN India was an independent agent, but the CIT(A) rejected this, stating that ESPN India was a dependent agent PE.

4. Attribution of Profits to the PE:
The appellant contended that if the purported PE was remunerated on an arm's length basis, no additional profits could be attributed to its income. The Assessing Officer attributed 30% of gross revenue to the deemed PE, which was held to be taxable in India. The CIT(A) directed attribution of 50% of the net profits to the PE in the appellant's hand as taxable profits attributable to the appellant's PE.

5. Application of Circular No. 23 dated July 23, 1969:
The appellant argued that the transactions with ESPN India were held at arm's length by the Transfer Pricing Officer, and thus, no additional profits should be attributed. The CIT(A) rejected this contention.

6. Attribution Percentage of Net Profits:
The CIT(A) attributed 50% of the net profits of the appellant as the profits from its Indian operations. The appellant argued that this was excessive and that the transactions were at arm's length.

7. Levy of Interest under Section 234B of the Income-tax Act:
The appellant contended that interest under Section 234B was not leviable as the entire amount received by the respondent was subject to TDS. The Tribunal agreed, stating that no interest under Section 234B could be imposed on the appellant as it was a foreign company, and the entire income was subject to tax deduction at source.

Conclusion:
The Tribunal held that once the transactions are demonstrated to be in accordance with arm's length principle, no further attribution of profits can be made even if the appellant has a PE in India. The Tribunal relied on various judicial precedents, including the Hon'ble Supreme Court's decisions in DCIT(IT) vs Morgan Stanley & Co. Inc. and Honda Motors Co. Ltd. vs ADIT, which held that if the PE is remunerated at arm's length, no further profits can be attributed. Consequently, the Tribunal allowed the appellant's appeals, holding that no additional profits were attributable to the appellant's income, and no interest under Section 234B was leviable. The findings for Assessment Year 2009-10 applied mutatis mutandis to Assessment Year 2011-12.

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