2015 (9) TMI 793 - AT - Income Tax

Estimation of net profit from advertisement revenue - Held that - So far as the issue relating to addition on account of advertisement revenue and distribution revenue the same stands decided in favour of the assessee by the Tribunal, which has been affirmed by the Hon ble High Court in AY 1999-2000 and also in subsequent years. - Decided in favour of assessee Treatment to distribution receipt as Royalty Income - Held that - As regards this issue we find that this has been treated as business income and such a finding or conclusion now have attained finality, as pointed out by the Ld. Senior Counsel. Thus, finding of the CIT(A) on the issues are affirmed - Decided in favour of assessee Deletion of interest u/s 234B - Held that - This issue has now been decided in favour of the assessee by the Hon ble High Court in the case of assessee in the assessment year 1997-98 1998-99, wherein the Hon ble High Court has followed the decision of DIT vs NGC Network Asia LLC, (2009 (1) TMI 174 - BOMBAY HIGH COURT).- Decided in favour of assessee Non-grant of TDS credit - Held that - DRP has given direction to the Assessing Officer, however in the final assessment order Assessing Officer has not done so. Accordingly, we direct the Assessing Officer to give credit of TDS after verification of records. - Decided in favour of assessee

Issues Involved:

1. Estimate of net profit from advertisement revenue.
2. Treatment of distribution receipt as 'Royalty Income'.
3. Deletion of interest u/s 234B of the Income Tax Act, 1961.
4. Penalty u/s 271B.
5. Taxability of distribution revenue.
6. Taxability of interest received u/s 244A.
7. Non-grant of TDS credit.

Detailed Analysis:

1. Estimate of Net Profit from Advertisement Revenue:

The revenue's appeal argued that the Assessing Officer correctly applied Rule 10 to estimate the net profit from advertisement revenue. However, it was submitted that this issue has been decided in favor of the assessee in all earlier years, including by the High Court for AY 1999-2000 (307 ITR 205). The CIT(A) relied on this precedent, noting that the assessee, a Singapore-based company, did not have a Permanent Establishment (PE) in India per Article 5 of the India-Singapore Treaty. Even if an agency PE existed, the remuneration was made at arm's length, extinguishing further tax liability. The Tribunal upheld the CIT(A)'s decision, affirming that advertisement revenue is not taxable in India.

2. Treatment of Distribution Receipt as 'Royalty Income':

The Assessing Officer treated the distribution receipt as 'Royalty Income' under Article 12, taxing it on a gross basis at 15%. The CIT(A) disagreed, following the precedent from AY 1999-2000 to 2004-05, where distribution revenue was treated as business income. The CIT(A) noted that the appellant had remunerated its agent, MSM, at arm's length, supported by Transfer Pricing analysis. The Tribunal upheld this view, affirming that distribution revenue is not 'royalty' but business income, taxable only if there is a PE in India. Since MSM was remunerated at arm's length, no further tax was due.

3. Deletion of Interest u/s 234B:

The CIT(A) directed the deletion of interest u/s 234B. The Tribunal noted that this issue has been decided in favor of the assessee by the High Court for AY 1997-98 & 1998-99, following the decision in DIT vs NGC Network Asia LLC (313 ITR 187). Thus, the Tribunal dismissed the revenue's ground on this issue.

4. Penalty u/s 271B:

The CIT(A) held that penalty u/s 271B was not leviable, noting that no penalty was levied in the assessment order, and it was an independent proceeding. The Tribunal dismissed this ground as purely academic.

5. Taxability of Distribution Revenue (Assessee's Appeal):

The assessee's appeal contested the enhancement of assessment by holding that it had a Dependent Agent PE in India for distribution revenues. The Tribunal noted that since the issue was decided in favor of the assessee (as discussed in the revenue's appeal), this ground became academic.

6. Taxability of Interest Received u/s 244A:

The assessee argued that interest received u/s 244A should not be taxed under Article 11(4) of the India-Singapore Treaty, as it was not effectively connected with the PE. The Tribunal followed the Special Bench decision in ACIT vs Clough Engineering Ltd (09 ITR (Trib) 618), deciding in favor of the assessee. Grounds related to the effective connection of interest with the PE were treated as infructuous.

7. Non-Grant of TDS Credit:

For AY 2006-07, the assessee's appeal included the non-grant of TDS credit amounting to Rs. 26,16,619/-. The Tribunal directed the Assessing Officer to verify records and grant the TDS credit as directed by the DRP.

Conclusion:

The Tribunal dismissed the revenue's appeal and the assessee's cross-objection for AY 2005-06. The assessee's appeals for AY 2005-06 and 2006-07 were allowed. The order was pronounced on 28th August 2015.

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