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2024 (2) TMI 1495 - HC - Income TaxDependent agent PE (DAPE) in India - nature of transaction between the assessee and ESPN India - HELD THAT - Appellant had woefully failed to adduce any evidence which may have lent credence to its contention of a fixed place PE. The case of a DAPE appears to have been raised in the backdrop of Article 12(4)(i) of the India- Mauritius DTAA. However, the contract stipulations would unerringly point towards a manifest absence of a right having been conferred or an authority granted to conclude contracts in the name of ESS Distribution (Mauritius). The ITAT has found that the Indian entities stood conferred with an independent right to enter into contracts with cable operators for channel distribution and that ESS Distribution (Mauritius) was not privy to those agreements. In terms of those agreements, it is the Indian entities which bear associated distribution costs and expenses. The agreements unequivocally establish that ESS Distribution (Mauritius) is in no manner connected with the contracts executed by the Indian entities with cable operators and other intermediaries. Even the right to initiate legal action by the latter is available to be exercised only against the Indian entities. As far as the additional issue of profit attribution is concerned, we note that since there is no PE, the issue of profit attribution would clearly not arise. This issue, in any case, stands concluded in light of the judgment rendered in E-Funds IT Solution Inc. 2017 (10) TMI 1011 - SUPREME COURT Royalty receipt - As manifest from a reading of Article 12(3) that payments would fall within its ambit provided they represent consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work . As is evident from a reading of the agreement conditions extracted hereinabove, there was no transfer of copyright. The agreement that ESS Distribution (Mauritius) came to execute conferred no right with respect to copyright upon the Indian entities. This aspect, in any case, is liable to be answered in favour of the assessee bearing in mind the decision of Engineering Analysis Centre of Excellence Private Limited 2021 (3) TMI 138 - SUPREME COURT and which had clearly held and recognized the distinction between a broadcasting right and a copyright as flowing from Sections 14 and 37 of the Copyright Act, 1957 (1957 Act). This quite apart from the undisputed fact that insofar as the present respondent is concerned, even the question of broadcasting rights does not arise since it was in no manner connected therewith. No merit in the instant appeals.
Issues Involved:
1. Existence of a Dependent Agent Permanent Establishment (DAPE) in India. 2. Existence of a Fixed Place Permanent Establishment (PE) in India. 3. Business connection and taxability under section 9(1) of the Income Tax Act. 4. Attribution of profit to the foreign company and adequacy of Transfer Pricing (TP) analysis. 5. Classification of subscription and distribution revenues as royalty. Issue-wise Detailed Analysis: 1. Existence of a Dependent Agent Permanent Establishment (DAPE) in India: The ITAT examined whether ESPN India acted as a DAPE for the assessee. The tribunal found that the agreement between the assessee and ESPN India did not establish a DAPE, as there was no privity of contract between the assessee and the cable operators or end customers in India. ESPN India independently entered into contracts with cable operators and bore the responsibility for any breaches. The ITAT concluded that ESPN India operated independently and did not habitually exercise authority to conclude contracts on behalf of the assessee, as required under Article 5(4) of the India-Mauritius DTAA. 2. Existence of a Fixed Place Permanent Establishment (PE) in India: The ITAT held that there was no fixed place PE in India. The distribution agreement between the assessee and ESPN India was on a principal-to-principal basis, with ESPN India conducting its distribution activities independently. The ITAT found no evidence of the assessee having control over ESPN India's business or premises. The tribunal relied on the Supreme Court's judgment in ADIT Vs. E Funds IT Solutions Inc., which clarified that a fixed place PE requires the place to be at the disposal of the assessee, which was not the case here. 3. Business Connection and Taxability under Section 9(1) of the Income Tax Act: The ITAT concluded that the assessee did not have a business connection in India under section 9(1) of the Income Tax Act. The tribunal noted that ESPN India was remunerated at arm's length and there were no adjustments suggested by the Transfer Pricing Officer (TPO). Consequently, no further attribution of profit could be made to the foreign company. 4. Attribution of Profit to the Foreign Company and Adequacy of Transfer Pricing (TP) Analysis: The ITAT found that since ESPN India was remunerated at arm's length and no adjustments were suggested by the TPO, no further attribution of profit to the foreign company was warranted. The tribunal emphasized that the functions performed by ESPN India were adequately reflected in the TP analysis, and the remuneration was consistent with the arm's length principle. 5. Classification of Subscription and Distribution Revenues as Royalty: The ITAT examined whether the revenues from subscription and distribution should be classified as royalty under Article 12 of the India-Mauritius DTAA. The tribunal found no transfer of copyright or broadcasting rights to the Indian entities. The agreement explicitly stated that no rights to the ESPN Service were conferred upon the Indian entities. The ITAT relied on the Supreme Court's decision in Engineering Analysis Centre of Excellence Private Limited vs. Commissioner of Income Tax, which distinguished between broadcasting rights and copyright. Therefore, the revenues were not classified as royalty. In conclusion, the ITAT's findings were upheld, and the appeals were dismissed as they did not raise any substantial question of law. The tribunal's conclusions on the absence of a PE, both fixed place and dependent agent, were based on comprehensive factual analysis and applicable legal principles. The classification of revenues as business income rather than royalty was consistent with the contractual terms and relevant legal precedents.
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