2021 (10) TMI 1102 - AT - Income Tax

Income accrued in India - Fixed place PE - business connection in India - Attribution of profits - Whether the appellant has a permanent establishment (PE) under Article 5(2) 5(4)/5(5) of the India-Mauritius DTAA? - AO Proceeded by attribution of profit to PE and attributed 30% of the gross advertising revenue and made attribution - HELD THAT - Considering the past history of the assessee in light of the decision of this Tribunal 2020 (10) TMI 1019 - ITAT DELHI read with the decision of the Hon'ble Supreme Court in the case of E-funds IT Solutions Inc. 2017 (10) TMI 1011 - SUPREME COURT . we hold that the assessee has no business connection in India in terms of section 9(1) of the Act and has no PE under Article 5(2), 5(4) and 5(5) of India Mauritius DTAA. Since we have held that there is no PE, we are of the considered view that there cannot be any attribution of profit as held by this Tribunal in assessee's own case in A.Ys. 2009-10 and 2011-12. TPO has accepted the international transactions at Arm's length and no adverse inference was drawn. We have also gone through the TP assessment order and find no adjustment.

Summary

Issues Involved:
1. Business connection and taxability in India under Section 9(1) of the Income-tax Act, 1961.
2. Existence of a Permanent Establishment (PE) under Article 5(2), 5(4), and 5(5) of the India-Mauritius Double Taxation Avoidance Agreement (DTAA).
3. Attribution of profits to the PE when transactions are at arm's length.

Detailed Analysis:

1. Business Connection and Taxability in India under Section 9(1) of the Act:
The appellant, a partnership firm established under the laws of Mauritius, is engaged in selling advertisement time and program sponsorship from Mauritius. The primary issue was whether the appellant had a business connection in India and if it was taxable under Section 9(1) of the Income-tax Act, 1961. The Assessing Officer (AO) concluded that the appellant had a business connection in India through ESPN Software India Pvt. Ltd. (SSIPL), now merged with Star India Private Limited. The appellant argued that there was no change in its business model or factual matrix compared to the previous year. The AO, relying on the assessment of the previous year (A.Y. 2011-12), concluded that the appellant had a business connection in India, thereby making it taxable under Section 9(1) of the Act.

2. Existence of a Permanent Establishment (PE) under Article 5(2), 5(4), and 5(5) of the India-Mauritius DTAA:
The AO determined that the appellant had a Fixed Place PE and a Dependent Agent PE in India through SSIPL under the India-Mauritius DTAA. The AO's findings were based on the premise that SSIPL's premises were used as a fixed place PE for the appellant's business. The Tribunal, while referring to the past assessment years and judicial precedents, noted that the existence of a PE was a critical factor. However, the Tribunal emphasized that the appellant had no office or operations in India and that the sale of airtime was conducted on a Principal to Principal basis with SSIPL. The Tribunal referred to the Supreme Court's judgment in E-funds IT Solutions Inc., which clarified that for a fixed place PE to exist, the place must be "at the disposal" of the assessee, and the business must be carried out through it. The Tribunal concluded that the appellant did not have a fixed place PE or a Dependent Agent PE in India under the DTAA.

3. Attribution of Profits to the PE When Transactions are at Arm's Length:
The appellant argued that even if a PE existed, no additional profits could be attributed since the transactions were conducted at arm's length. The Tribunal referred to the Supreme Court's rulings in Honda Motors Co. Ltd. vs. ADIT and Asstt. DIT vs. E-funds IT Solutions Inc., which established that once arm's length principles are satisfied, no further profit attribution is necessary. The Tribunal noted that the Transfer Pricing Officer (TPO) had accepted the international transactions at arm's length, and no adverse inference was drawn. Consequently, the Tribunal held that no additional profits could be attributed to the appellant's income from its Indian operations.

Conclusion:
The Tribunal concluded that the appellant had no business connection in India under Section 9(1) of the Income-tax Act, 1961, and no PE under Article 5(2), 5(4), and 5(5) of the India-Mauritius DTAA. Additionally, since the transactions were conducted at arm's length, no further profit attribution was warranted. The appeal was allowed in favor of the appellant.