9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (1) TMI 125 - AT - Income TaxIncome accrued in India - Taxability of advertisement revenue as business income - AO held that SIPL constitutes PE of the assessee by holding it as a dependant agent as per para 4(c) of the Article 5 of India-USA DTAA and taxed the advertisement revenue earned by the assessee as business income on a net basis - HELD THAT - We find that SIPL had been remunerated by way of 15% commission from the assessee for the activities performed by it. On perusal of the order of the ld. AO and the ld. CIT(A), we find that the authorities had not disputed this fact that a commission retained by SIPL is at arm s length. So, once the arm s length payment is made, nothing further remains to be taxed in the hands of the non-resident. We find lot of force in the alternative argument advanced by the ld. AR that even assuming that SIPL constitutes a PE of the assessee in India under Article 5(5) of India-USA DTAA, considering the fact that SIPL had been remunerated at arm s length price by the assessee, no further profit could be attributed in the hands of the assessee. In fact, similar view has also been expressed by the Hon ble Apex Court in the case of ADIT vs. E-Funds IT Solutions Inc. 2017 (10) TMI 1011 - SUPREME COURT even if such agent is treated as a dependent agent PE. DR was not able to provide any contrary evidences to prove that the fact of SIPL s commission from assessee was less than 1% of total income is incorrect. Hence, we hold that there is no need for this issue to go back to the file of the ld. AO and accordingly, the argument of the ld. DR in this regard is hereby rejected considering the fact that the issue involved is more than 20 years old as of now and hence the matter is not remanded back to the file of ld AO. Thus we hold that assessee has paid arm s length commission to SIPL @15% which has been accepted to be at arm s length also by the lower authorities by not disputing the same and also by the ld. TPO for subsequent assessment years i.e. A.Yrs. 2002-03, 2003-04, 2004-05 in the orders passed u/s.92CA(3) of the Act and also considering the fact that the commission rate of 15% is fair and reasonable in the light of the CBDT Circular No.742 dated 02/05/1996 and is accepted by the various Courts as mentioned above, no further attribution of profits should be done in the hands of the assessee as the agent has been remunerated on arm s length basis. Accordingly, the ground Nos. 1-3 raised by the assessee are allowed. Distribution revenues earned by the assessee falls within the meaning of Royalty under Article 12 of India USA DTAA and accordingly, such distribution revenues are taxable in India - HELD THAT - Definition of royalty as per India-USA DTAA, in para 3(a), payment received by an enterprise can be construed as royalty only if, they are for the use or right to use of any copy right of a literary, artistic or scientific work. We had already held that no right in respect of any copy right is given to NGC India and infact this is specifically set out in Clause 2.3 (a),(b),(c),(d),(e) and (g) of the agreement. We also find that the term copy right is not defined in the treaty. That is why we had to resort to the definition of copy right given under the Copy Right Act, 1957. We also find the alternative argument advanced by the ld. AR to be fair and reasonable that even if it is contended that the channel has copy right, what NGC India is paying for is a right to use the copy righted article (i.e. if the channel could be considered to be so) by virtue of being permitted to distribute the channel. Accordingly, since NGC India does not acquire any right in the underlying copy right (i.e. right to modify / reproduce channel / content). Hence any contention that NGC India is making a payment for copy right would be erroneous. We hold that the distribution rights granted by the assessee to NGC India is only a commercial right / Broad Cast reproduction right and not copyright and consequently consideration received by the assessee for the same cannot be treated as royalty or fees for included services under Article 12 of India-USA DTAA. Accordingly, the ground Nos. 2 3 raised by the assessee for A.Y.2001-02 are allowed. Charging of interest u/s.234B - assessee is a non-resident whose entire income is subject to deduction of tax at source u/s.195 - HELD THAT - We find that the issue in dispute is squarely addressed by the decision of the Hon ble Jurisdictional High Court in the case of DCIT vs. NGC Network Asia LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT wherein held that when the duty is cast on the payer to deduct and pay the tax at source and on payer s failure to do so, interest u/s.234B of the Act cannot be imposed on the payee assessee. Moreover, we also find that the proviso to Section 209(1) of the Act, which has been heavily relied upon by the ld. DR at the time of hearing was inserted in the statute only w.e.f. A.Y.2013-14 onwards and the same is not applicable for the year under consideration. Accordingly, we hold that no interest u/s.234B of the Act could be charged in the hands of the assessee as the entire income is subject to deduction of tax at source. Accordingly, the ground No.4 raised by the assessee is allowed.
Issues Involved:
1. Taxability of advertisement revenue as business income. 2. Distribution revenues as royalty under the Income Tax Act and India-USA DTAA. 3. Levy of interest under sections 234B and 234D of the Income Tax Act. 4. Validity of reopening of assessment. Issue-wise Detailed Analysis: 1. Taxability of Advertisement Revenue as Business Income: The primary issue revolves around whether the advertisement revenue earned by the non-resident company (the assessee) should be taxed as business income in India. The assessee, a US-based company, argued that its advertisement revenue should not be taxed in India due to the absence of a Permanent Establishment (PE) in India as per the India-US Double Taxation Avoidance Agreement (DTAA). The assessee had an Advertisement Sales Representation Agreement with Star India Private Limited (SIPL), which acted as its representative for marketing and collecting advertisement revenue. SIPL was remunerated with a 15% commission, which was accepted as being at arm's length by the Transfer Pricing Officer (TPO) for subsequent years. The Tribunal found that SIPL did not constitute a PE of the assessee in India as it was acting as an independent agent. The Tribunal relied on various judicial precedents, including the Hon'ble Bombay High Court's decision in Set Satellite (Singapore) PTE Limited vs. DDIT, which held that if the correct arm's length price is applied and paid, nothing further would be left to be taxed in the hands of the foreign enterprise. Consequently, the Tribunal concluded that no further attribution of profits should be done in the hands of the assessee since the agent had been remunerated on an arm's length basis. 2. Distribution Revenues as Royalty: The second issue was whether the distribution revenues earned by the assessee should be classified as "royalty" under Article 12 of the India-USA DTAA. The assessee had granted distribution rights to NGC Network (India) Pvt. Ltd. (NGC India) for a lump sum payment. The Tribunal examined the distribution agreement and found that NGC India did not acquire any rights in the underlying copyright; instead, it was granted the right to distribute the channel without making any alterations to the content. The Tribunal referred to Section 37 of the Copyright Act, which deals with Broadcast Reproduction Rights, and concluded that the payments received by the assessee were not for the use of any copyright but were for broadcast reproduction rights. Therefore, the distribution revenues could not be classified as "royalty" under the Income Tax Act or the India-USA DTAA. The Tribunal relied on the Hon'ble Bombay High Court's decision in MSM Satellite (Singapore) Pte Ltd., which held that distribution rights are commercial rights and not copyrights. 3. Levy of Interest under Sections 234B and 234D: The assessee contended that it was not liable to pay advance tax and, consequently, not liable to pay interest under section 234B, as its entire income was subject to deduction of tax at source under section 195. The Tribunal agreed with the assessee, relying on the Hon'ble Bombay High Court's decision in DCIT vs. NGC Network Asia LLC, which held that when the duty is cast on the payer to deduct and pay the tax at source, interest under section 234B cannot be imposed on the payee assessee. Regarding section 234D, the Tribunal noted that the issue was consequential in nature and did not require specific adjudication. 4. Validity of Reopening of Assessment: The assessee challenged the validity of the reopening of assessment for A.Y. 2002-03. However, the ground was not pressed by the assessee during the hearing, and therefore, it was dismissed as not pressed. Summary of Judgments: - A.Y. 2000-01 (ITA No.8671/Mum/2004): Appeal allowed. - A.Y. 2001-02 (ITA No.3834/Mum/2007): Appeal allowed. - A.Y. 2002-03 (ITA No.3835/Mum/2007): Appeal partly allowed. - A.Y. 2003-04 (ITA No.3836/Mum/2007): Appeal allowed. - A.Y. 2004-05 (ITA No.1662/Mum/2008): Appeal allowed.
|
