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2024 (2) TMI 917 - AT - Income TaxTaxability of income in India - Income attributable to India - income of advertisement and subscription revenue - Permanent Establishment (PE) in India at arm s length or not? - whether assessee has business connection in India as per section 9(1)(i) r.w.s 5(2) of the IT Act? - AO estimated 15% of the net advertisement revenue as Business Income of the assessee u/s. 9(1)(i) as attributable to India and held subscription income as royalty u/s 9(1) (vi) of the Act and has taxed the same @20% - case of assessee is that since assessee has remunerated Indian agents i.e. ZTL and El-Zee at arm s length, no further income is attributable to the assessee from operations carried out in India. HELD THAT - The assessee accepted the position that it has business connection in India. No meaningful arguments against the findings of CIT(A) on this issue were advanced by the ld. Counsel in the instant appeal. In this factual matrix, we have no hesitation in upholding that the assessee has Business Connection in India. Taxability of revenue from operations in India - Explanation 1(a) to section 9(1)(i) of the Act contemplates that a where a non resident has business connection in India and his business operations are carried out partly abroad and partly in India, in such a situation revenue only from operations in India shall be taken into account and a reasonable portion thereof shall be treated as income accruing or arising in India. As relying on Set Satellite (Singapore) PTE Ltd. 2008 (8) TMI 96 - BOMBAY HIGH COURT where the overseas entity has remunerated PE in India at arm s length nothing further is liable to be taxed in the hands of non-resident entity. It is not the case of Revenue that the assessee has not compensated it s India agents viz. ZTL and El Zee at arm s length. The ld. Counsel for the assessee made a categoric statement that remuneration paid to ZTL and El-Zee is commensurate to industry rates. This fact has not been rebutted by the Department. Therefore, the rate at which the assessee has remunerated ZTL and El-Zee are considered at arm s length. Thus, we find merit in ground No.2 of appeal by the assessee. The Assessing Officer is directed to delete addition confirmed by the CIT(A) on account of assessee s income from operations in India.
Issues Involved:
1. Business Connection in India 2. Attribution of Income to Indian Operations 3. Taxability of Subscription Revenue as Royalty 4. System of Accounting 5. Interest under Section 234B Summary: 1. Business Connection in India: The primary issue was whether the assessee, a resident of the British Virgin Islands engaged in telecasting satellite channels, had a business connection in India. The CIT(A) upheld the Assessing Officer's (AO) finding that the assessee had a business connection in India through its agreements with Zee Telefilms Ltd. (ZTL) and El-Zee Televisions Ltd. (El-Zee). The Tribunal confirmed this finding, noting that the assessee accepted this position in the earlier assessment year and did not advance meaningful arguments against it. 2. Attribution of Income to Indian Operations: The assessee contended that since ZTL and El-Zee were remunerated at arm's length, no further income was attributable to its Indian operations. The Tribunal referred to the decision in the case of Asia Today Ltd., where it was held that if an Indian agent is remunerated at arm's length, no further profits are attributable to the non-resident entity. The Tribunal directed the AO to delete the addition of Rs. 3,38,14,897/- confirmed by the CIT(A) on account of the assessee's income from operations in India. 3. Taxability of Subscription Revenue as Royalty: The AO treated the subscription revenue as royalty under section 9(1)(vi) of the Act, taxable at 20%. The CIT(A) disagreed, holding it to be business income. The Tribunal upheld the CIT(A)'s decision, noting that the distribution agreement did not involve any transfer of copyright or right to use the copyright. This was consistent with the decision in CIT vs. MSM Satellite (Singapore) Pte Ltd., where similar income was not treated as royalty. 4. System of Accounting: The Revenue challenged the CIT(A)'s acceptance of the cash system of accounting followed by the assessee. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had consistently followed this practice, which had been accepted in earlier years. 5. Interest under Section 234B: The CIT(A) directed the AO to delete the interest charged under section 234B, as the assessee's total income was subject to deduction of tax at source. The Tribunal found no reason to interfere with this well-reasoned finding. Conclusion: The appeals of the assessee for Assessment Years 2002-03 and 2003-04 were partly allowed, while the appeals of the Revenue for the same years were dismissed.
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