2006 (7) TMI 124 - AAR - Income Tax

Applicant Indian company had agreement with M/s. Taj Television Ltd. Dubai petitioner seeks amendment of the application by substituting Taj Television Ltd. Dubai with Taj TV Ltd. Mauritius - Even if the name of the Mauritius company is permitted to be substituted in the application the said company s tax liability cannot be determined as in the agreement the name of the Dubai company is entered. For these reasons we dismiss the application filed u/r 20 of the Rules by the applicant.

Summary

Issues:
1. Nature of payment to be made to Taj Television Ltd.
2. Taxability of payment for purchase of advertising rights in India.
3. Applicability of Double Taxation Avoidance Agreement between India and UAE.
4. Requirement of tax deduction at source before payment.

Nature of Payment to Taj Television Ltd.: The applicant, an Indian company managing sports events, sought an advance ruling on whether the payment to Taj Television Ltd. constituted royalty or business income. The applicant entered into an agreement with Taj Television Ltd. Dubai, but later requested to substitute Taj TV Ltd. Mauritius in the application. The Revenue argued that the Dubai company was distinct from the Mauritius company, based on the agreement and annexures. The applicant claimed the Dubai entity was a branch of the Mauritius company. The Authority held that the substitution request was misconceived as the companies were different, and the tax liability could not be determined without the correct entity in the agreement.

Taxability of Payment for Advertising Rights: The applicant also sought clarification on the taxability of payments for purchasing advertising rights in India under the Income Tax Act, 1961. During the proceedings, the applicant requested to replace Taj Television Ltd. Dubai with Taj TV Ltd. Mauritius in the application. The Authority dismissed this request, emphasizing that the tax liability determination relied on the specific entity mentioned in the agreement. As the agreement referenced the Dubai company, substituting it with the Mauritius entity would not be appropriate for tax assessment purposes.

Applicability of Double Taxation Avoidance Agreement: Another issue raised was whether the Double Taxation Avoidance Agreement between India and UAE could be utilized to determine the taxability of the payments. However, the focus shifted to the substitution request made by the applicant during the proceedings. The Authority highlighted the importance of the accurate entity named in the agreement for tax assessment purposes. As the agreement specifically mentioned Taj Television Ltd. Dubai, substituting it with Taj TV Ltd. Mauritius would not address the core issue of tax liability determination.

Requirement of Tax Deduction at Source: The final issue pertained to whether tax deduction at source was necessary before making the payments. The applicant's counsel argued for the substitution of the Dubai company with the Mauritius entity, contending that it would not alter the facts significantly. However, the Revenue's counsel pointed out the distinct identities of the two companies based on the agreement and supporting documents. The Authority concluded that the substitution request under Rule 20 of the Rules was not applicable in this scenario, as the entities involved were different, and the tax liability determination was contingent on the specific entity named in the agreement. Therefore, the application under Rule 20 was dismissed by the Authority.