2023 (4) TMI 568 - AT - Income Tax

Income deemed to accrue or arise in India - income attributable to the permanent establishment as chargeable to tax in India - fixed place of business of the assessee in India - play out agreement - assessee submitted that that global sports business sold by the assessee, capital gain arising therefrom is not chargeable to tax in India - HELD THAT - It is to be noted that ZEEL is carrying out play out facilities not only for the assessee but also for many other broadcasters. It is not for this year but for past several years, ZEEL is providing the service of play out station. During this year, undisputedly there is an agreement for payment of services of play out facilities. No doubt, the agreement was made on 19/4/2017, which is given effect to from April 2016 till 28th of February 2017 at total consideration of US 1,048,290. The claim rose before us is that this is merely an afterthought. AO has accepted that there is an agreement during the year for play out facilities. If for the earlier years, such facilities were not remunerated to the ZEEl, that does not make the service provider a fixed place permanent establishment of the assessee for this year, especially when, for this year, there is an agreement and remuneration for using such facilities are paid. For this year, facts clearly show that ZEEL is a service provider to the assessee. Non-payment, subsistence of any agreement for this facility in earlier years, is also not the case of the LD AO or the learned Dispute Resolution Panel. Further with respect to the claim of the learned departmental representative that if this play out facilities are not used by the assessee then from where the play out is being carried out. For this purpose the assessee has placed a lease agreement between the assessee and Gulf DTH FZ LLC which clearly says that there are two studio accommodation already available with the assessee of 3603 ft on the ground and Mezzanine Floor on rent in UAE for which the rent agreement is placed on record. Therefore, it is not the cases that play out facility is not available with the assessee other than at Noida. Further, it cannot be said that the play out facility is at the disposal of the assessee, no evidence exists for such test. It is also not challenged that none of the assessee's employees have travelled to India during the year. Therefore, it is apparent that from the play out stations, ZEEL is carrying out its own business and not the business of the assessee. Even otherwise production is separate from play out services availed from ZEEL and further transmission services have been availed from third-party service providers, which happens outside India and not at the facility of ZEEL. Tests while determining the existence of fixed place permanent establishment is the business connection test - On the facts, assessee has clearly stated that play out activities are minuscule part of operation of the sports broadcasting business of the assessee which is assigned to a group company i.e. ZEEL. For the services of the group company, there is an agreement through which the payments are made. Undoubtedly, manner of entering into that agreement is doubted by the learned special counsel, but the fact of payment and play out activities carried out from that fixed place cannot be denied. Unless, there are specific evidences led by the revenue that it was not the business of the service provider but the business of the assessee itself was carried on from those play out facilities, fixed place permanent establishment of assessee cannot be established. It is generally the obligation of the party who alleges to prove the allegation. The defendant of the allegation cannot be asked to prove negative. It is nobody's case that playout activities do not require human efforts. In this case, business is not of the assessee that is being carried out from that play out facilities , but it is used for carrying out the business of ZEEL. AO has further referred to book which dealt with the permanent establishment with respect to server, data centre, and computer Reservation Systems. The reliance on the same is also rejected for the same reason that it is not the business of the assessee that is being carried out from play out facilities but of the service provider ZEEL. In view of this, in our opinion assessee does not have a fixed place permanent establishment in India. We do not find that several connecting facts such as registration of trademarks in India, standalone capability of Business Purchase agreement coupled with share sale agreements of Taj TV India Pvt Ltd etc do have any impact on determination of Fixed Place permanent Establishment. Permanent establishment in respect of advertisement and distribution revenue - DRP confirmed so only because of the reason that the revenue has been continuously holding that the applicant has a permanent establishment in India - With respect to the advertisement agreement, though the subsequent amendments, gives an authority to enter into an agreement to an Indian entity on behalf of the assessee but those have not been habitually exercised by that entity. Therefore, the assessee does not have dependent agency permanent establishment in India. The Burden of proving that assessee has a Permanent Establishment in India and must suffer taxation from business generated from such PE is initially on the revenue as held by Assistant Director of Income tax V E Funds It Solutions Inc. 2017 (10) TMI 1011 - SUPREME COURT Now it cannot be grievance of the revenue that any information is withheld by the assessee. Thus, we hold that, assessee does not have either fixed place permanent establishment or dependent agent permanent establishment in India. Whether the assessee is entitled to the treaty benefits or not? - challenge to the treaty benefits of the assessee is only for the reason to bring the taxation of capital gains in India - The operation of the bank account of the assessee was also jointly, where the directors of the assessee company were one of the signatories. Merely because one Mr. Anil Maurya was authorized to sign the agreement cannot lead to the conclusion that business is run by the parent of the assessee, especially when, that person is a director of ATL media Ltd and properly authorized by the assessee to carry out the necessary agreements. It is also a fact that assessee is denied treaty benefit for the purpose of taxation of the capital gain on sale of an undertaking however on other issues of advertisement and subscription revenue are held to be taxable, Treaty provisions are applied. Even otherwise the learned dispute resolution panel has accepted the applicability of the Treaty provisions to the transaction of the sale of undertaking holding that it is covered by article 13 (2) of the Double Taxation Avoidance Agreement. Therefore, we reject the contentions of the AO that assessee should be denied the treaty benefit. Whether the provisions of article 13 (2) of the treaty is applicable or article 13(4) of the treaty should be applied? - As we have already held that assessee does not have a permanent establishment in India, either in the form of a fixed place permanent establishment or dependent agency permanent establishment, article 13 (2) of DTAA does not apply. According to article 13 (4) of DTAA when any property other than the property is covered in earlier articles, gain arising on alienation of such property would be chargeable to tax only in the state of residence of the alienator. It may also include movable property, which is not forming part of the business property of permanent establishment or fixed base available to the alienator. As the alienator is a resident of Mauritius, according to us the capital gain on sale of global broadcasting business shall be chargeable to tax only in Mauritius and not in India. Accordingly, we hold that the gain on sale of sports broadcasting undertaking by the assessee is not chargeable to tax in India. Hence, ground number 1 of the appeal is allowed. Advertisement and subscription income is not chargeable to tax in India. Plea that if the assessee even if has a permanent establishment in India but is remunerated at arm's-length, further tax liability in India would extinguish - As we hold that, though there is no such provision as it exists in India US DTAA, in Indo Mauritius DTAA, even for attributing further profit to the income of the assessee, the revenue is required to bring on record further functions performed, risks assumed and assets used along with capital infused. Before us, revenue could not bring on record any such fact. Therefore, we hold that no further tax liability arises in the hands of the assessee in India. TDS u/s 195 - disallowance of programming cost, transponder fees and up linking charges for non-deduction of tax at source - disallowance under section 40 (a) (i) - AO has disallowed these expenses holding that the payments made for acquisition of rights in respect of various content acquired by the assessee including live feed for broadcasting in India is in the nature of Royalty requiring tax deduction at source - HELD THAT - DRP while disposing of the objection number 5 has held that the coordinate bench has decided the issue in favour of the assessee in earlier years and the order of the coordinate bench has not been accepted by the Department by preferring an appeal under section 260A of the act and therefore to keep the issue alive no directions were issued to the learned assessing officer. As the learned dispute resolution panel has accepted that this issue is covered in favour of the assessee by the order of the coordinate bench in assessee's own case in earlier years, we do not find any reason to deviate from the same, accordingly we direct the learned assessing officer to delete this disallowance. Accordingly, grounds of the appeal is allowed.

Summary

Issues Involved:
1. Taxability of gains from the sale of sports broadcasting undertaking.
2. Taxability of advertisement and distribution revenues.
3. Arm's length consideration paid to the advertising agent, distributor, and other service providers.
4. Disallowance of programming cost due to non-deduction of tax under section 195.
5. Disallowance of transponder fees and up-linking charges due to non-deduction of tax under section 195.

Summary:

1. Taxability of Gains from the Sale of Sports Broadcasting Undertaking:
The assessee argued that the gain on the transfer of its global sports broadcasting business is not taxable under the Income Tax Act, as the business is situated outside India and thus does not give rise to any taxability in India. The Assessing Officer (AO) held that the assessee has a fixed place permanent establishment (PE) in India and that the gain is taxable under Article 13(2) of the India-Mauritius Double Taxation Avoidance Agreement (DTAA). However, the tribunal found that the assessee does not have a fixed place PE or dependent agent PE in India. The tribunal also held that the gain from the sale of the global sports broadcasting business is covered under Article 13(4) of the DTAA, making it taxable only in Mauritius, not India.

2. Taxability of Advertisement and Distribution Revenues:
The tribunal referred to previous decisions, including those upheld by the Bombay High Court, which determined that the assessee does not have a PE in India with respect to distribution revenue. For advertisement revenue, the tribunal found that the Indian entity (Taj India) did not habitually exercise authority to conclude contracts on behalf of the assessee. Therefore, the tribunal held that the advertisement and subscription income is not chargeable to tax in India.

3. Arm's Length Consideration:
The tribunal noted that even if the assessee had a PE in India, the PE was remunerated at arm's length. Therefore, no further profits could be attributed to the assessee for tax purposes in India.

4. Disallowance of Programming Cost:
The AO disallowed the programming cost for non-deduction of tax at source, treating it as royalty. The tribunal found that this issue had been previously decided in favor of the assessee by the coordinate bench in earlier years. Consequently, the tribunal directed the AO to delete the disallowance.

5. Disallowance of Transponder Fees and Up-linking Charges:
Similar to the programming cost, the AO disallowed these expenses for non-deduction of tax at source. The tribunal, referring to previous decisions in favor of the assessee, directed the AO to delete these disallowances as well.

Conclusion:
The tribunal ruled in favor of the assessee on all grounds, holding that the gains from the sale of the sports broadcasting business are not taxable in India, the advertisement and subscription income is not chargeable to tax in India, and the disallowances for programming cost, transponder fees, and up-linking charges should be deleted.