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2021 (2) TMI 95 - AT - Income TaxIncome taxable in India - Income accrued or deemed to accrues/arise in India - Permanent Establishment (PE) - Presence in India through agent - HELD THAT - It's an admitted position that the assessee does not have any office or place of management of its own, and its presence in India is only through its agents. Assessing Officer did not find specific fault in the agent s remuneration not being in accordance with the FAR analysis. He has rather proceeded to, in a way, disregard the foreign entity altogether by suggesting that no business risk is assumed by the foreign company, i.e. the assessee, as the content is provided by the Indian agent and the viewership is Indian, and, for that reason, the viewership is linked to the Indian PE. Mere existence of a physical location is not enough. This location should also be at the disposal of the foreign enterprise and it must be used for the business of foreign enterprise as well. A place of business should be at the disposal of the foreign enterprise for the purpose of its own business activities. This place has to be owned, rented or otherwise at the disposal of the assessee, and a mere occasional factual use of place does not suffice . Even a case is not made out for the satisfaction of this condition by the Assessing Officer, and, as such, there is no case for the existence of a permanent establishment under Article 5(1). As for the permanent establishment under Article 5(2), even by definition, there cannot be a permanent establishment under Article 5(2) unless it is at least alleged to be covered by one of the specific clauses in article 5(2). Assessing Officer has specifically picked up the aspect of functions and risk taken by the PE under that heading and title in the assessment year 2002-03 noted that there is no reason as to why the assessee should assume risk after having acquired the content in a working state from the content provider , that all risks for up linking and finally relaying the signals in India is borne by the transponder company and not the assessee , and, therefore, concluded that in view of the above discussions, it can be seen that major part of the risk in terms of market risk and technology risks are borne by the ZTL/El Zee and that almost 85% to 90% revenues from advertisement and subscription of the assessee comes through Indian viewership which is undoubtedly linked with the PE i.e., ZTL/El Zee . This is not the Indian viewership which is relevant in this context. What was relevant was the role played by the agent in India and whether the remuneration paid by the assessee company, for the services of the agent, was a fair and arm s length remuneration vis- -vis the functions performed, assets employed and risks assumed by the Indian agent. No issues are raised on the inadequacy of agent s remuneration by the Assessing Officer, and now a fresh inning is sought to find these inadequacies and improve the case of the revenue. That is impermissible. In his analysis. While the Assessing Officer has proceeded on sweeping generalizations about the risks assumed by the PE but there is no specific FAR analysis which could support that the agent s remuneration not being an arm s length remuneration, and the Assessing Officer has proceeded on the basis that all the business risks of the assessee (i.e. the foreign company) are borne by the PE as PE is the content provider and responsible for up linking activity. That s too sweeping a generalization to meet any judicial approval, and, on the same set of findings, the coordinate benches have disapproved the stand of the Assessing Officer. The limited argument before us is that here is a case of dependent agency permanent establishment, and the existence of a DAPE, in the light of these discussions, is wholly tax-neutral- particularly in the light of the legal position regarding profit attribution to the DAPE. We need not, therefore, deal with the question about the existence of a DAPE, as it is an academic exercise with no tax effect involved. The related grounds of appeal are thus infructuous.
Issues Involved:
1. Whether Zee Telefilms Limited (ZTL) constitutes a Permanent Establishment (PE) of the assessee in India. 2. Whether the income of the assessee is taxable in India in the absence of a PE, as per Article 7 of the DTAA. 3. Attribution of income to the PE if it is assumed that the assessee has a PE through its agent, ZTL. 4. Validity of assessment on a non-existent company post-merger. Issue-Wise Detailed Analysis: 1. Whether Zee Telefilms Limited (ZTL) constitutes a Permanent Establishment (PE) of the assessee in India: The Assessing Officer (AO) argued that ZTL constitutes a PE of the assessee in India based on the fact that the assessee's business activities in India were carried out through ZTL. The AO referenced the judgment in CIT Vs Vishakhapatnam Port Trust (144 ITR 146) to support the claim that ZTL is a virtual projection of the assessee in India. However, the CIT(A) held that the assessee does not have a PE in India, as there was no fixed place of business at the disposal of the foreign enterprise. The Tribunal agreed with the CIT(A) and noted that the existence of a fixed place of business is a prerequisite for constituting a PE under Article 5(1) of the Indo-Mauritius DTAA. 2. Whether the income of the assessee is taxable in India in the absence of a PE, as per Article 7 of the DTAA: The CIT(A) ruled that in the absence of a PE, the income of the assessee is not taxable in India under Article 7 of the DTAA. The Tribunal upheld this view, emphasizing that without a fixed place of business, the assessee cannot be deemed to have a PE in India. Consequently, the income earned by the assessee through its Indian agents is not taxable in India. 3. Attribution of income to the PE if it is assumed that the assessee has a PE through its agent, ZTL: The AO contended that even if the assessee had a PE in India, no further profits could be attributed to it since the agent (ZTL) was remunerated on an arm's length basis. The Tribunal referred to the judgment in Set Satellite Pte Ltd Vs CIT [(2009) 307 ITR 205 (Bom)] and DIT (International Taxation) v. Morgan Stanley & Co. Inc. [2007] 292 ITR 416 (SC)], which held that if the agent is remunerated on an arm's length basis, no additional profits can be attributed to the PE. The Tribunal concluded that the existence of a dependent agency permanent establishment (DAPE) is tax-neutral if the agent is paid an arm's length remuneration, which was the case here. 4. Validity of assessment on a non-existent company post-merger: The assessee raised an additional ground of cross-objection regarding the validity of the assessment on a non-existent company post-merger. The Tribunal admitted this additional ground but treated it as not pressed, given that it did not impact the outcome of the appeal. Conclusion: The Tribunal dismissed the departmental appeals as infructuous and allowed the cross-objections, holding that the assessee does not have a PE in India and that the income earned through Indian agents is not taxable in India. Even if a DAPE existed, it would be tax-neutral due to the arm's length remuneration paid to the agents. The additional ground of cross-objection regarding the validity of assessment on a non-existent company was admitted but not pressed.
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