2025 (1) TMI 899 - AT - Income Tax

Tax liability of the appellant in India - taxability of advertisement revenues - adopting the earlier resolution in MAP for subsequent years - consistency in tax treatment across different assessment years - Appelant is a tax resident company of Singapore engaged in the business of broadcasting television programmes through linear channels - HELD THAT - Following the principle of tax certainty and consistency, especially when there is no change in factual matrix and business operations of assessee in the year under consideration, compared to earlier and subsequent years, we are of the considered view that the taxation of assessee s revenue may be based on the resolution as per MAP in the impugned AY 2013-14 as well. We are fortified in our view by the decision in the assessee s group company namely ADIT v. Animal Planet (Asia) LLC 2015 (4) TMI 670 - ITAT DELHI We are inclined to hold that though there is merit in the ld DR arguments that MAP resolution applies to the particular assessee for particular year, taxation of business profit of the assessee in line with MAP would bring tax certainty as well as consistency, for both the Revenue and the assessee, in making assessment. We find that the Revenue itself has accepted the taxation of assessee receipts of Advertisement and Distribution on the basis of MAP resolutions in earlier as well as the subsequent years. We therefore are of the view that there should be tax certainty in the assessment of the assessee in the impugned assessment year for assessing the income of the assessee in a consistent manner. Since the issue pertain to AY 2013-14 and the assessee itself has adopted/accepted MAP resolution of DALLC of 24.08.2017, for AYs 2004-05 to 2012-13 and AYs 2017-18 to 2019-20, following the principle of certainty and consistency, we direct that the income of the assessee (DNAP) for the impugned AY be taxed as per resolution of MAP of DALLC i.e., (i) 10% of gross advertising revenues to be taxed @40% and (ii) Net Distribution revenues to be taxed @10% surcharge and Cess. Penalty u/s 271(1)(c) - As the assessee has disclosed complete facts with respect to aforesaid receipts in the submissions filed during the course of assessment proceedings. We further find that the Assessment Order nowhere lays down that the information/details were not filed and/or the Company failed to offer any explanation in respect to claim made. We also find that the issues pertaining to taxability of the assessee revenue have different judicial views. We are satisfied that the explanation offered by the assessee are bona-fide and based on judicial precedents. Taxability for the subject AYs has been recently resolved through MAP resolution agreed between the CA of India and Singapore and no mention of imposition of penalty has been made in aforesaid MAP resolution. Subsequently, the AO passed an order giving effect to the MAP resolution wherein no mention of penalty has been made. Thus, we hold no penalty can be imposed in the instant case u/s 271(1)(c) on account of furnishing inaccurate particulars of income.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions addressed in this judgment include:

• Whether the advertisement and distribution revenues received by the assessee from India are taxable as business profits or royalties under the India-Singapore Double Taxation Avoidance Agreement (DTAA).
• Whether the attribution of profits to the Permanent Establishment (PE) in India is justified when the PE has been remunerated at arm's length.
• Applicability of Mutual Agreement Procedure (MAP) resolutions to the current assessment year.
• Whether the penalty under Section 271(1)(c) of the Income-tax Act for furnishing inaccurate particulars of income is applicable.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Taxability of Advertisement and Distribution Revenues

• Relevant legal framework and precedents: The taxability of these revenues is evaluated under the provisions of the Income-tax Act, 1961, and the India-Singapore DTAA. The precedents include the Supreme Court's decision in DIT (International Taxation) v. Morgan Stanley & Co. Inc., which held that no further attribution of profits is necessary if the PE is remunerated at arm's length.
• Court's interpretation and reasoning: The court considered the MAP resolution, which provided a consistent approach to taxing similar revenues in previous and subsequent years.
• Key evidence and findings: The court noted that the MAP resolutions for previous and subsequent years provided a basis for consistency in the current year.
• Application of law to facts: The court applied the MAP resolution, taxing 10% of net advertising and distribution revenues as business profits.
• Treatment of competing arguments: The court balanced the need for consistency and certainty against the argument that MAP resolutions apply only to specific years.
• Conclusions: The court concluded that the MAP resolution should apply, ensuring tax certainty and consistency.

Issue 2: Attribution of Profits to PE

• Relevant legal framework and precedents: The court referred to the Morgan Stanley case, which supports no further profit attribution if the PE is adequately remunerated.
• Court's interpretation and reasoning: The court found that the PE was remunerated at arm's length, aligning with the MAP resolution.
• Key evidence and findings: The court noted the lack of change in the factual matrix and business operations.
• Application of law to facts: The court applied the MAP resolution, taxing 10% of net revenues.
• Treatment of competing arguments: The court considered the argument for further attribution but prioritized consistency.
• Conclusions: The court held that no further attribution was necessary.

Issue 3: Applicability of MAP Resolutions

• Relevant legal framework and precedents: The court considered the principles of tax certainty and consistency.
• Court's interpretation and reasoning: The court emphasized the importance of consistency in tax treatment.
• Key evidence and findings: The court noted the application of MAP resolutions in similar cases.
• Application of law to facts: The court applied the MAP resolution to the current year.
• Treatment of competing arguments: The court addressed the argument that MAP resolutions are specific to certain years.
• Conclusions: The court concluded that the MAP resolution should apply to ensure consistency.

Issue 4: Penalty under Section 271(1)(c)

• Relevant legal framework and precedents: The court referred to precedents such as CIT v. Reliance Petroproducts (P) Ltd., which held that a bona fide claim does not attract penalty.
• Court's interpretation and reasoning: The court found that the assessee had disclosed all material facts and that the issue was one of interpretation.
• Key evidence and findings: The court noted the absence of concealment or false reporting.
• Application of law to facts: The court held that the penalty was not justified due to the bona fide nature of the claim.
• Treatment of competing arguments: The court distinguished the facts from cases where penalties were upheld.
• Conclusions: The court concluded that the penalty should be deleted.

3. SIGNIFICANT HOLDINGS

• Core principles established: The judgment reinforces the principles of tax certainty and consistency, particularly in the context of MAP resolutions.
• Final determinations on each issue: The court applied the MAP resolution to the current assessment year, ensuring consistent tax treatment. The penalty under Section 271(1)(c) was deleted due to the bona fide nature of the claim.
• Verbatim quotes of crucial legal reasoning: "There is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity, and certainty."

The judgment underscores the importance of maintaining consistency in tax treatment across different assessment years, particularly when MAP resolutions have been applied in similar contexts. The court's decision to delete the penalty highlights the significance of bona fide claims and full disclosure in tax matters.