9911796707
TMI Blog2012 (6) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... h as B4U Music, MCM, etc. During the assessment year under consideration, its revenue from India consisted of collections from time slots given to advertisers from India. As per the details filed by the AR of the assessee, the following parties were granted general permission by the RBI to act as advertisement collecting agents of the assessee. (i) For the period .4.2000 to 31.1.2001 - M/s. B4U Multimedia International Ltd. (ii) For the period 1.2.2001 to 31.3.2001 _ M/s. B4U Broad Band Ltd. In the computation of income filed alongwith the return of income, the assessee has claimed that as it does not have a PE in India, it is not liable to tax in India under Article 7 of the DTAA between India and Mauritius. Vide his letter dated 22.3.2004, the AR of the assessee has submitted that the assessee did not have any tax liability in India for the following reasons. (i) It does not have a PE in India, and hence its income cannot be taxed under the provisions of the DTAA. (ii) The agents of the assessee have marketed the adtime slots of the channels broadcasted by the assessee, for which they have received remuneration on arm's length basis. Thus, in the light of CBDT's Circular No. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st important function of its business in general, i.e., collection on account of offer of time slot on its channels for the purpose of showing advertisements. 5.4 The gamut of activity as outlines in "Advertising Sales Representation Agreement" dated 15.7.2000, as entered into by BMM AND THE Assessee, clearly indicate that BMM is a dependent agent of the assessee in India. Cluase 1.6 of the agreement clearly mentions that "other than another programming network owned or managed by companies affiliated with B4U International, B4U Multimedia will not represent another Television Netwok which contains programming that consists primarily of non-fiction programming broadcast in the same languages that consist primarily of non-fiction programming broadcast in the same languages as the (B4U channels)." The above clearly establishes that affiliated entities of the assessee are basically an extension of the assessee in India, and BMM's task is cut out in a way which makes it a dependent agent of the assessee within the meaning of paragraph 5 of Article 5 of the DTAA. 5.5 The "Advertising Sales Representation Agreement" as entered into by BBB and the assessee on 12.1.2001, is similarly wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , then the nonresident is not liable to tax (hypothesis) is not acceptable for the following reasons :- a) The payment to the agent and profit of the assessee from business operations in India are two separate things which cannot be compared. b) The hypothesis is applicable only in the case of independent agents where no asses/capital of NR are used in India, no risk is assumed by the NR in India and no other activity is carried out by the NR in India. c) The draft discussion paper of OECD also suggest apportionment basis for determination of profits attributable to PE which is similar to the provisions in Rule 10 of the I.T. Rules. d) No such categorical statement/hypothesis has been suggested by the OECD or any other commentary. e) It would also not be in accordance with the statutory provisions like section 44B of the Act which is a self contained code. f) CBDT's circular No. 01 of 2004 also provides that when core activities of the business of the assessee is outsourced, then there would be substantial profits of the principal would be the income of the non-resident taxable in India. g) There has been undue reliance on one line of the circular No. 23 of 1969 without look ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra) and argued that the propositions have to be followed as it is a co-ordinate Bench order. 10. The learned Departmental Representative referred to page No. 48 of the assessee's paper book, which is an agreement between the assessee and B4U India and after reading the clauses 1.2 to 1.6, 1.10 & 1.12, argued that a plain reading of these clauses show that the agent is working wholly and exclusively for the principal. He relied on Clause 1.10 and argued that the agent is authorized to conclude contracts and for coming to such an interpretation, he relied on paragraph 8 of the Agreement, specifically the following wordings "in the event of termination of this Agreement by B4U International, B4U Multi shall supply to B4U International such information B4U International may request, to invoice and collect any outstanding amounts from advertisers and/or agencies which were earned, but not invoiced or collected, prior to the termination of the Agreement". He submitted that if the power to conclude contracts is not with the agent, then this clause is not required. He submitted that learned CIT(A) relied on the Article 5(5) of Indo- Mauritius DTAA and argued that what is relevant is Arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and it required approval of the assessee. (c) It is only the assessee i.e. B4U International which shall rise the invoices. (d) Referring to clause 1.9 he submitted that the assessee has absolute right to reject any advertisement and the agent is required to merely forward it. (e) That the all activities mentioned in the agreement are subject to control and direction of the principal. (f) The Principal agency relationships are only on four activities. i) To promote sale of advertisements ii) Forward the request of advertisers iii) Feed and collect payments iv) Obtain approval of RBI. (g) Referring to clause 1.12, he submitted that there is a specific prohibition that the agent cannot directly or indirectly bind the Principal. (h) Referring to clause 8 relied upon by learned Departmental Representative, he submitted that nothing turns on it as it is a documentation process and requires the factual position to be intimated to the principal. (i) He relied upon clause 14.5 and submitted that an agent is an independent contractor and is not a servant or employee of the Principal. 13. On the issue as to whether Indo-Mauritius DTAA Article 5.4 is attracted in this case, he su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are two contrary views on the same issue. 17. On reference made to learned CIT(A)'s order for A.Y. 2003-04, he disputed the findings based on Auditor's report and submitted that Auditor did not state anywhere, that invoices were issued by the agent. On the Memorandum of Understanding referred to by learned CIT(A), in his order for A.Y. 2003-04, he submitted that this has nothing to do with advertising. He submitted that there is no virtual projection of principal in the territory of India through an agent. He pointed out that the MOU is regarding distribution of Channels Network and for making them pay channels. The expenditure was to be incurred by the agent and subscription revenue from Cable Operators and other clients are retained in full by the agent. Thus he submitted that the Principal would not have received any amount from the said Agreement, nor incurred any expenditure and hence the MOU is not relevant in deciding as to whether the assessee has a P.E., much less a dependent agent P.E. in India. 18. On the reliance placed on the order of Satellite Television Asian Region Ltd. (99 ITD 91 (Mum) by learned Departmental Representative, the learned counsel for the assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... HL Operations B.V. (supra), he submits that this is a Mumbai Tribunal decisions and has to be followed in preference to AAR's decisions and Delhi Bench of the Tribunal decisions which are contrary. He refuted argument of learned counsel for the assessee that comment by the Bench on Article 5.5 was an obiter. On Morgan Stanley (supra) he submitted that it was a service PE and the Court was dealing with a "dependent agent enterprise" and not a case of "a dependent agent" as in the case of the assessee. He submits that FAR analysis is different in both the cases. 23. On cross objection, both parties agreed that if the departmental appeal is dismissed, then the cross objection have to be treated as infructuous and that if the departmental appeal is allowed, then the cross objection should be restored to the file of the learned CIT(A) as the issues have not been adjudicated. 24. Rival contentions were heard. On a careful consideration of the facts and circumstances of the case, perusal of the papers on record and orders of the authorities below as well as case law cited, we hold as follows :- The entire issue as to whether the assessee has a PE in India or not, depends on the Agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ote the sale of advertisement time on the (B4U channels) and forward the requests of advertisers seeking to buy time on the (B4U channels) feed and collect payment of invoices and obtain approvals from the Reserve bank of India for remittance of funds. (This clause is very clear on the roles of each partner. Both are independent of each other.) 14.5 Independent Contractor: In the performance of this Agreement, B4U Multi is an independent contractor and is not a servant or employee of B4U Int'l. Nothing contained herein shall be deemed to create a joint venture or partnership between the parties and neither party shall hold itself out to the contrary." 26. A plain reading of these clauses demonstrates that B4U India is not the decision maker, nor it has the authority to conclude contracts. The agent has no authority to fix the rate or to accept an advertisement. It can merely forward the advertisement and the assessee has the right to reject. No deviation can be done from the rate card under the assessee approves the same. The agent is independent contractor and is not servant or employee of the assessee. The job of the Indian agent is well defined i.e. :- (a) To generate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted exclusively or almost exclusively on behalf of that enterprise, he will not be considered an agent of an independent status when the meaning of this paragraph." 29. Learned Departmental Representative submits that Article 5.4 is attracted. In our opinion, on facts it cannot be said that the Indian Representative has "habitually exercises" authority to conclude contracts. As rightly submitted by Shri Arvind Sonde, the term "has" have reference to legal existence of such authority in terms of the contract between Principal and agent. A reading of the agreement shown that such power is not conferred on the agent The words "habitually exercises" have reference to a systematic course of conduct on part of the agent, as held by learned AAR in its order in the case of TVM Ltd. Vs. CIT (237 ITR 230) (AAR). In the case on hand, there is neither legal existence of such authority, nor is there any evidence to prove that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s shall not be devoted wholly or almost wholly for the enterprise. The activities referred to therein are that of the broker, general commission agent or any other agent and not of the enterprise. The purpose is to exclude agents who, though acting in the ordinary course of their business, are devoted entirely or almost entirely to the work of the enterprise. This implies that they have little work of other enterprises. If properly understood, there is no scope to exclude from para 5 'agents' whose activities in the ordinary course of their business not only cover wholly or almost wholly the work of the enterprise but also include work of many other enterprises who are also their clients. In other words, only such agents will be out of purview of para 5, whose ordinary course of business comprises exclusively the work of the enterprise with little work of any other client; like the standing counsel or law officers of Central/State Government. With respect to the Members of the Tribunal, Mumbai Bench 'D', Mumbai, in ITA Nos. 7987 and 7988/Bom/1992 {Asstt. CTT v. DHL Operations B.V. Netherlands), we are not persuaded to agree with their approach outlined in their order dt. 3rd Oct., ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d para. We are unable to accept the contention of Mr. Singh. We are supported in our view by the ruling of this Authority in Appln. No. AAR/615/2003, Dun & Bradstreet Espana, S.A., Spain," 31. The AAR in the case of Specialty Magazines P. Ltd.(supra), held that :- The clause in the agreement between SMPL and TENL that the former would not accept any agency of a competitor without first obtaining its consent, would not, in our view, make it a dependent agent. In Fidelity Advisor Series VIII, In re [2004] 271 ITR 1, 14 (AAR) the Authority held thus : "What is contended by Mr. Gupta is that the SCB is not an agent of independent status within the meaning of clause 5 of article 5 of the Treaty and that the activities of the domestic custodian are almost exclusively to the applicant. We are unable to accept this submission. It would be necessary to note here that the SCB-the domestic custodian of the applicant in India-provides custodial services to a number of other local and international companies on a routine basis and, therefore, it cannot but be an independent agent of the applicant both legally and economically." SMPL is no doubt the sole agent of TENL but what is required t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enterprise. This position will, however, change if the activities of the independent agent are devoted wholly or almost wholly to that enterprise and the transaction between the two are not at arm's length. In that case, the independent agent will be treated as a permanent establishment of the enterprise. 33. The Delhi Bench of the Tribunal in the case of Galileo International Inc 19 SOT 257 (Del), held that as long as the agent has an authority to conclude contracts which are binding on the enterprise, it is not necessary that he should enter into contracts 'literally' in the name of the enterprise. Thus, the foreign enterprise would be considered as having agency PE in India even if those contracts are not actually in the name of the foreign enterprise. In Al Nisr Publishing In re [1999] 237 ITR 877 (AAR) it was held that if the ads are routed through an independent businessman there would be a no PE. The AAR in this case has brought out the distinction between an agent who may constitute a PE and one who may not. In the case of TVM limited v. CIT [1999] 102 taxman 518 (AAR), 237 ITR 230 has held that "But para. 4 is, unambiguously and definitely, attracted to cases where there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... render as an agent to be considered as PE for the purpose of allocating profits taxable in hands of PE. It held that there should be some definite activity of PE to which profits can be attributed. 37. The Hon'ble Delhi High Court in I.T.A. no.1278 of 2010, ITA no.1280 of 2010, etc., judgment dated 30th August 2010, in eh case of Rolls Royce (Singapore) Pvt. Ltd. v/s ADIT, accepted the arguments of the assessee's Counsel which was in line with the decision of AAR in Morgan Stanley & Co. (supra) and held as follows:- (i) To constitute a "Dependent Agent Permanent Establishment" under Article 5(9) of the DTAA it has to be seen whether the activities of the agent are "devoted wholly or almost wholly on behalf of the assessee". While the issues as to (a) whether the agent is was prohibited from taking competitive products and (b) whether the assessee exercised extensive control over the agent were relevant, they are not conclusive. It is not correct to say that merely because the agent is prohibited from taking a competitive product means that it is not an agent of independent status. What has to be seen is whether the "activities" of the agent are devoted wholly or almost wholly on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in India, then we hold that as the rate of commission of 15%, was accepted as ALP by the TPO for A.Y. 2003-04 to 2003-04 and 2004-05, no further profit is attributable to the P.E. This is the rate mentioned in Board Circular No. 742 of the order 1996. Similar rate is accepted by Hon'ble Bombay High Court in the case of Set Satellite (Singapore) (supra). Thus, we have no hesitation in upholding the contention of the assessee that the payment was at arm's length. When the payment is at ALP, there is no further need to attribute profits to the PE as held by Hon'ble Supreme Court in the case of Morgan Stanley (supra). Similarly decision is given in the case of Set Satellite (Singapore) (supra). 41. The decision of Mumbai Bench of the Tribunal Satellite Television Asian Region Ltd. (supra) is on a different model. It was a case where all the agreements culminated in India. On the contrary the decision of ITAT Delhi Bench in the case of BBC Worldwide Ltd. (supra) squarely applies to the facts of the case. The Hon'ble Delhi High Court in the case of DIT Vs. BBC Woldwide Ltd (203 Taxman 554) confirmed the Tribunal order and held as follows : 8. These submissions of the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Analysis was undertaken, there was no further requirement to attribute profits to a permanent establishment. Adjudicating on the issue as to whether the action of the AAR in holding so was correct or no, the Hon'ble Supreme Court held, inter alia, that where the transaction was held to be at arms length, the ruling of the AAR was correct in principle, provided that an associated enterprise, which also constituted a permanent establishment, was remunerated on arm's length basis, taking into account all the risks-taking functions of multinational enterprises and that in such a case, nothing further would be left to attribute to the permanent establishment. 18. As contended, for the year under consideration, Transfer Pricing guidelines were not applicable. That being so, reliance on behalf of the assessee on TSET Satellite (supra) cannot at all be said to be misplaced. Therein also, the assessment year being 1999-2000, the Transfer Pricing guidelines were not applicable, as they became applicable from the next year. Pertinently, the Hon'ble Bombay High Court, in the case of TSET Satellite (supra) as well as CBDT Circular No.23 (supra) was taken into consideration. The facts in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ertisement and sponsorship and as per BWIPL, it was a reasonable commission paid on arm's length basis. Matter was referred to TPO under Section 92CA (3) of the Act, who clearly opined that the aforesaid commission paid to BWIPL was ALP. Once it is treated as ALP at the hands of recipient, we fail to understand how a different view can be taken in the case of assessee who had paid the same commission to its agent. Therefore, we fail to appreciate the contention of the Department that the FAR Analysis by the TPO in the case of BWIPL was not relevant. (iii) Moreover, in the assessee's own case for the Assessment Year 2002-03, transfer pricing reference was made to the TPO under Section 92CA (3) and TPO had opined that no adverse inference/addition could be drawn. Learned counsel for the assessee produced the order dated 31.12.2004 passed by the TPO, in this behalf, inter alia, stated as under:- "A reference under Section 92CA was received in the case of BWIPL from its assessing officer. All the above mentioned international transactions have been examined at length in the order under section 92CA (3) dated 31st March, 2004, subsequently rectified vide order under section 154 dated 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to India activity and filed the same before the AO. This fact has been recorded by the Tribunal in its order in Assessment Year 2000-01. In the light of this observation, Circular No.742 is not applicable in the instant appeal. 43. Thereafter at paragraph 16 it concluded as follows :- "16. When the aforesaid factual position is kept in mind, the judgment of the Bombay High Court in Set Satellite (Singapore) Pvt. Ltd. (supra) is clearly attracted. In that case the High Court has held that if correct ALP is applied and paid, nothing further rwould be left to be taxed in the hands of the foreign enterprise. In the said case, Morgan Stanley (supra) as well as Circular No.23 issued by the CBDT was taken into consideration. The Court was also pleased to record that the commission paid to the agent was 15% services performed by the assessee's agent in India was in line with the existing industry standards in India at the prevalent time. Reliance was also placed on Para 3 of Circular No.742 dated 02.5.1996 issued by the CBDT, which referred to the fact that the agent's commission from foreign telecasting companies is 15% or so of the gross sum, to contend that the CBDT itself had conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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