2013 (3) TMI 554 - AT - Income Tax

Determination of advertising revenues of the assessee company to the extent attributable to its PE in India - different percentages of advertisement revenues for different years - Held that - Though the appellant has not produced any details of the various expenses, by no stretch of imagination it can be said that the appellant has not incurred any expenses under these heads. At the same time, it cannot be said that income of Indian Operations of the appellant of is definitely ascertainable in view of the fact that the appellant has not produced documentary evidence in cases of various other expenses. Further, the method of allocation of various expenses to India Operations cannot be said to be foolproof. Therefore, there is no other option but to apply Rule 10 in order to ascertain the profits attributable to Indian Operations of MTVA. Considering the verifiability of purchase of programmes and transponder charges the margin of the appellant comes to 0.85% ignoring all other expenses. Further the appellant has filed copies of tax computations file with Singapore Tax Authorities in respect of the Global Operations, in which substantial loss is reflected. On a perusal of the same it is clear that the appellant has indeed incurred huge losses. Therefore the margin of 30% applied by the Assessing Officer seems to be very high. - Estimation of profit reduced from 30% to 10%. - Decided partly in favor of assessee. Interest u/s 234B for failure to pay advance tax - held that - issue is squarely covered in favour of the assessee and against the Revenue by the decision of Hon ble Bombay High Court in the case of Director of Income Tax (International Taxation) vs. NGC Net Work Asia LNC 2009 (1) TMI 174 - BOMBAY HIGH COURT wherein it was held that when the entire income of non resident assessee was liable for deduction of tax at source by the payer, there was no obligation on the payee to pay advance tax in respect of his income and no interest u/s 234B, therefore, could be charged. - Decided in favor of assessee.

Issues Involved:
1. Existence of Permanent Establishment (PE) in India
2. Attribution of advertising revenue to PE in India
3. Levy of interest under Section 234D
4. Levy of interest under Section 234B
5. Rate of tax on interest received on income-tax refund

Issue-wise Detailed Analysis:

1. Existence of Permanent Establishment (PE) in India:
The assessee, a company incorporated in the Cayman Islands and operating from Singapore, claimed it did not have a permanent establishment (PE) in India, thus not liable for tax in India. However, the Assessing Officer (AO) determined that the company had an agency PE in India through its agent, MTV India (P) Ltd., which was involved in promoting and selling advertising time for MTV channels. The AO concluded that the business was carried out through a fixed place in India, making the assessee liable for tax. The CIT(Appeals) disagreed with the AO regarding the fixed place PE but confirmed the existence of an agency PE. The assessee did not press this ground in its appeals, resulting in the dismissal of the ground. Similarly, the Revenue's challenge to the CIT(Appeals)' decision on the fixed place PE was dismissed.

2. Attribution of Advertising Revenue to PE in India:
The AO and CIT(Appeals) attributed different percentages of advertisement revenue to the PE in India for various assessment years. The AO attributed 40% for 2002-03, 30% for 2003-04, and 25% for 2004-05 and 2005-06. The CIT(Appeals) reduced these percentages to 25% for 2002-03, 10% for 2003-04 and 2004-05, and nil for 2005-06. The Tribunal found the CIT(Appeals)' reasoning for attributing 10% of the advertising revenue as profit more convincing, based on Circular No. 742 issued by the CBDT. Consequently, the Tribunal upheld the attribution of 10% of the advertisement revenue as profit for the relevant years, partly allowing the assessee's appeals for 2002-03 and dismissing the Revenue's appeals for 2003-04 and 2004-05. The Revenue's appeal for 2005-06 was partly allowed.

3. Levy of Interest under Section 234D:
The assessee did not press the grounds relating to the levy of interest under Section 234D for the assessment years 2002-03 and 2003-04. These grounds were dismissed as not pressed.

4. Levy of Interest under Section 234B:
The issue of interest charged under Section 234B was raised by the assessee for all four assessment years. Both parties agreed that this issue was covered in favor of the assessee by the Bombay High Court's decision in the case of Director of Income Tax (International Taxation) vs. NGC Net Work Asia LNC, which held that no interest under Section 234B could be charged when the entire income of a non-resident assessee was liable for deduction of tax at source. The Tribunal directed the deletion of interest charged under Section 234B, allowing the grounds raised by the assessee.

5. Rate of Tax on Interest Received on Income-Tax Refund:
The assessee did not press the grounds disputing the rate of tax on interest received on income-tax refund for the assessment year 2005-06. These grounds were dismissed as not pressed.

Conclusion:
All four appeals of the assessee for assessment years 2002-03 to 2005-06 and the Revenue's appeal for 2005-06 were partly allowed. The remaining three appeals of the Revenue for assessment years 2002-03 to 2004-05 and the cross-objection of the assessee for assessment year 2005-06 were dismissed.

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