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2016 (11) TMI 65 - AT - Income TaxClaim of exception to provisions of section 9(1)(vii) (b) - whether BCCI is an Indian concern and its global income is chargeable to tax in India ? - PE in India - satisfaction of make available test - Indo UK DTAA - whether the whole contract is effectively connected with the permanent establishment or part of the services are effectively connected with the permanent establishment? Held that - The activities mentioned in the contract should be connected to the permanent establishment not only in the form but also in substance. According to us there are minimum activities performed by the PE of appellant in India. Hence just performing such minimum activities it cannot be said that whole of the revenue of ₹ 33 crores involved in the contract is effectively connected with the activities of the permanent establishment in India. Hence we reject the contention of the assessee that the whole of the revenue involved in the contract should be considered as effectively connected with the permanent establishment of the appellant. In transfer pricing study report, based on FAR analysis such attribution of the profit is considered to be at arm s length by the assessee and as well as by the transfer pricing officer, it cannot be said that the balance sum of ₹ 90 crores cannot be taxed in India as the whole contract was effectively connected with the permanent establishment created by the petitioner of some staff for performing some of the activities and crossing the threshold duration. We do not subscribe to such a view and we are also of the view that such is the case of the assessee before us. Article 13 (6) of the Double Taxation Avoidance Agreement shall apply only to the extent of the activities carried on by the appellant through its permanent establishment. In view of this we are of the view that activities carried out by the appellant which are not at all connected with the activities of the permanent establishment are not covered by article 7 or 15 of the Double Taxation Avoidance Agreement between India and United Kingdom and same shall remain as fees for technical services under article 13 only. Therefore natural corollary that follows is that whatever is income excluded by the applicability of article 13 (6) and goes back to article 7 is the same amount. We are of the view that activities carried on by the foreign office of the assessee are not at all arising through the permanent establishment of the appellant in India. Therefore one of the condition of the about twin conditions also failed in case of the appellant. Once again we would like to reiterate that for the purpose of applicability of article 13 (6) with respect to the fees for technical services one has to apply the activity test of the permanent establishment in the source country is held by the coordinate bench in case of the Nippon Kaiji Koyokoi V ITO (2011 (7) TMI 392 - ITAT MUMBAI ). Therefore we reject the contention of the assessee that out of 33 crores ₹ 9 crores are effectively connected with the permanent establishment of the appellant, the balance 22 crores cannot be taxed in India under article 13 as fees for technical services. Our one more reasons for holding such a view is that according to us there is no distinction between the two phrases used into two different articles of the Double Taxation Avoidance Agreement. These two phrases are (1) attributable to in article 7 of the Double Taxation Avoidance Agreement, and (2) effectively connected with in article 13 (6) the Double Taxation Avoidance Agreement, because Indo US DTAA uses the same term attributable to in place of effectively connected with in article 12(6). Therefore, in the present case, according to us, out of the total receipt of ₹ 33 crores the receipt of ₹ 92249819/- which is attributable to the permanent establishment in India and the balance sum of ₹ 237750181/- shall be chargeable as fees for technical services under article 13 of the DTAA. In the present case according to us the BCCI is enabled to absorb and apply the information and the advice provided by the appellant to it for conducting such sporting events. According to us when all this documentation and material is provided to the BCCI it is able to use such know-how and documentation generated from provision of the services of the appellant independent of the services of the appellant in future. It is too na ve to say that in absence of IMG services BCCI on its own IPL tournament cannot hold. Merely because the BCCI has entered into a contract for conducting further 9 events does not lead to the conclusion that the information documentation, agreements, contracts etc cannot be said to be made available to the appellant. In fact according to us it is. In view of this we reject the contention of the appellant that the sum of ₹ 237750181/-cannot be taxed as fees for technical services as it does not satisfy make available condition provided in article 13(4) (9c ) of the DTAA. To fall within the exception the assessee must be carrying out business outside India and such services must be utilized in that business by a person who is a resident in India and who pays income by way of fees for technical services to a non-resident. It is an established fact that BCCI is carrying on business in India and not outside India. Further the source of income of the BCCI is in India and not outside India. Merely because the event is performed outside India it cannot be said that source of income of the BCCI is not in India. Therefore according to us the income of the appellant of ₹ 237055181/-is chargeable to tax as fees for technical services under section 9 (1) (vii) of the Income Tax Act as Fees for technical services. We hold that receipt of the appellant satisfies the make available test as provided under article 13 (4) ( c) of the India UK DTAA as fees for technical services.
Issues Involved:
1. Validity of the AO's order assessing the income at ?117,350,220 instead of ?32,804,655. 2. Taxability of receipts from services rendered outside India as business income attributable to a Permanent Establishment (PE) in India under the India-UK DTAA. 3. Attribution of income to the PE examined and verified by the Transfer Pricing Officer (TPO). 4. Taxability of receipts for activities carried outside India. 5. Acceptance of income offered by the appellant based on a transfer pricing report. 6. Taxability of receipts as Fees for Technical Services (FTS) under Section 9(i)(vii) of the Act and Article 13(4)(c) of the India-UK DTAA. 7. Applicability of the exclusion clause in Section 9(i)(vii)(b) of the Act. 8. Source of income from IPL 2009 event held outside India. 9. Interpretation of the "make available" principle under Article 13(4)(c) of the India-UK DTAA. 10. Transfer of technical knowledge, experience, skill, know-how, or process to BCCI. Detailed Analysis: 1. Validity of the AO's Order: The assessee contended that the AO's order assessing the income at ?117,350,220 instead of ?32,804,655 was bad in law. However, the tribunal dismissed this ground, as no specific arguments were advanced. 2. Taxability of Receipts as Business Income: The assessee argued that the receipts from services rendered outside India should be taxed as business income attributable to the PE in India under Articles 5 and 7 of the India-UK DTAA. The tribunal noted that the assessee had a service PE in India due to the presence of staff and third parties connected with the IPL event in India. The tribunal held that only the income attributable to the PE could be taxed as business income in India. 3. Attribution of Income to the PE: The assessee contended that the attribution of income to the PE had already been examined and verified by the TPO and accepted by the AO. The tribunal agreed that the TPO had determined the arm's length price of ?92,249,819 attributable to the PE in India. However, the tribunal noted that the AO had considered the balance amount of ?237,750,181 as FTS. 4. Taxability of Receipts for Activities Outside India: The tribunal held that the receipts for activities carried outside India could not be attributed to the PE in India. The tribunal noted that the services rendered by the UK office of the appellant were not connected with the PE in India. 5. Acceptance of Income Based on Transfer Pricing Report: The assessee argued that the income offered in India was based on a transfer pricing report capturing the function, assets, and risk analysis, which had been accepted by the revenue. The tribunal agreed that the TPO had accepted the attribution of ?92,249,819 to the PE in India. 6. Taxability as Fees for Technical Services: The AO and DRP had observed that the receipts of ?237,750,181 could be taxed as FTS under Section 9(i)(vii) of the Act and Article 13(4)(c) of the India-UK DTAA. The tribunal held that the balance amount of ?237,750,181 was chargeable to tax as FTS, as it satisfied the "make available" test under Article 13(4)(c). 7. Applicability of Exclusion Clause: The assessee argued that the case was covered by the exclusion clause in Section 9(i)(vii)(b) of the Act, as the services were utilized in a business carried on outside India. The tribunal rejected this argument, noting that BCCI's business was carried on in India, and the source of income was in India. 8. Source of Income from IPL 2009 Event: The assessee contended that the source of income from the IPL 2009 event was outside India, as the event was held in South Africa. The tribunal rejected this contention, holding that the source of income was in India, as BCCI's business was carried on in India. 9. Interpretation of "Make Available" Principle: The tribunal held that the services provided by the appellant made available technical knowledge, experience, skill, know-how, or processes to BCCI, enabling BCCI to apply the technology independently in future events. Thus, the receipts satisfied the "make available" test under Article 13(4)(c) of the DTAA. 10. Transfer of Technical Knowledge: The tribunal found that the appellant had transferred technical knowledge, experience, skill, know-how, or processes to BCCI, as evidenced by the detailed documentation and agreements provided to BCCI. The tribunal held that the receipts of ?237,750,181 were chargeable to tax as FTS. Conclusion: The tribunal dismissed the appeal of the assessee and allowed the appeal of the revenue, holding that the balance receipt of ?237,750,181 was chargeable to tax as FTS under Article 13 of the India-UK DTAA and Section 9(i)(vii) of the Act. The tribunal also held that the receipts satisfied the "make available" test and did not fall under the exclusion clause of Section 9(i)(vii)(b).
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