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TMI Blog2010 (5) TMI 894X X X X Extracts X X X X X X X X Extracts X X X X ..... ound No. 1 The learned CIT(A) has erred in holding that the appellant is a conduit for Satellite Television Asian Region Limited ( Star Ltd. ). Ground No. 2 The learned CIT(A) has erred in holding that the Star India Pvt Ltd is a dependent agent of Star Limited. Ground No. 3 Having held in Ground No. 1 of appeal that the appellant is a conduit of Star Ltd, the learned CIT(A) has not considered it relevant to adjudicate on the balance grounds of appeal as detailed below: (i) concluding that the appellant has a permanent establishment in India under the double taxation avoidance agreement executed between India and the Netherlands ( Netherlands treaty ); (ii) without prejudice to the above, concluding that the app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... R Limited, Hongkong owner of the STAR TV network, and the assessee was only a conduit company. It was observed that the assessee company was brought into picture only because of India having a favourable tax treaty with the Netherlands, where the assessee cmapny is located, and only because the Hong Kong , where STAR Limited was located, did not have any tax treaty with India. It was, according to the Assessing Officer, a clear case of treaty shopping. The concept of treaty shopping and conduit companies was discussed in detail. It was then observed that the assessee company is a floated only for the purposes of tax planning and avoidance, and that STAR Limited Hongkong has a permanent establishment by way of Star India Pvt Ltd which was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to encourage the creation of non genuine companies or conduit companies for the purposes of avoidance of tax . The Assessing Officer thus concluded that the assessee company is a conduit company and its real residency in not in the Netherlands. The treaty benefits were thus declined. It was observed that the income in question actually belonged to STAR Limited. As a protective measure, however, the Assessing Officer also assessed this income in the hands of the assessee. He however declined benefit of circular 742 on the ground that it is not a telecasting or broadcasting company, but only a conduit company. By invoking Rule 10 of the Income Tax Rules, the Assessing Officer estimated profit @ 20% of gross advertising revenues. Aggrieved b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eption that the STAR Ltd is deriving tax advantage by inserting the assessee company as a link in chain of entities to get the advertising revenues. This perception is, however, clearly erroneous. As held by Hon ble Bombay High Court in the case of SET Satellite (Singapore) Pte Ltd Vs DDIT (307 ITR 205), in terms of CBDT circular no. 23, where a non resident s sale to Indian customers are secured through an agent, the assessment in India of the income arising from the said transaction will be restricted to amount of profit which is attributable to the agents services. No doubt, this circular is now withdrawn with effect from 22nd October 2009 but a withdrawal of the circular, as is the settled legal position, is only prospective in nature. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... documents evidencing these disputes and their settlements were also filed before us. Learned Departmental Representative could not point out any reasons as to why all these commercial justifications can be ignored. 8. Based on the material before us in the case of this case, there is no good reason thus to disregard the existence of the assessee company and proceed to tax the entire advertising revenue in the hands of its parent company. It is difficult to understand the reasoning adopted by the CIT(A) who has observed that given the facts of case, it would be more appropriate to tax the income in the hands of the STAR Limited. He exercised a choice which was not available to him. What is to be taxed in the hands of STAR Limited is to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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