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TMI Blog2005 (2) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ), which is a company registered in the United Kingdom (U.K.) and is carrying on business of publishing magazines from London. TENL is a non-resident company and does not have a permanent establishment in India. As an advertisement concessionaire for TENL in India, SMPL gets 15% commission on gross value of the invoices raised outside India directly on the Indian advertisers by TENL. The advertisement cost is payable in US dollars according to the invoices raised by TENL either by draft or by wire transfer. To enable the Indian advertisers including Government undertakings and to secure international market TENL extended the facility of payment of advertisement charges in Indian currency. Under an agreement which is to be concluded between them, TENL proposes to authorize SMPL to collect the advertisement charges from Indian advertisers in Indian currency and remit the same in foreign currency (US dollars) to TENL. On these facts SMPL seeks advance rulings of the Authority on the following questions: • Whether SPECIALITY MAGAZINES PRIVATE LIMITED (RESIDENT) collecting advertisement charges from Indian advertisers towards cost of advertisements in overseas publications, such colle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Representation International, New Delhi , for territorial representation in Southern States of India for the following publications: • National Geographic Group of Publications • North Star Travel Media , U.S.A. • Euro Sports Television Network based in Europe • FORTUNE, Time Inc., U.S.A. In June 2003 it has procured advertisement for Fortune Magazines from Infosys Technology Limited, Bangalore. It is asserted that SMPL is not a dependent agent of TENL but has enjoyed an independent status and that it cannot be treated as a representative assessee of the non-resident. 4. Number of opportunities were given to the applicant to represent its case by granting adjournments as prayed for from time to time. However, Counsel for the applicant expressed his inability to represent the case of the applicant on the last day of hearing and requested that the application might be considered on the basis of written submission filed by it. It is urged in the written submissions that SMPL is not the agent of the Economist group alone and that it is also the agent of Media Representation International, New Delhi for 'Travel Weekly' published by REED Group, Fortune published by the Tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, [ * ] or through the transfer of a capital asset situate in India. Explanation - For the purposes of this clause - • in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India; • in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export; (c) in the case of a non-resident, being a person engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India; (d) in the case of a non-resident, being - • an individual who is not a citizen of India ; or • a firm wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident; or • habitually secures orders in India, mainly or wholly for the non-resident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident:" It may be seen that Explanation (2) contains an inclusive definition; it brings in the business activities specified in clauses (a) to (c), referred to above, within the fold of the expression "business connection" which has to be understood in its ordinary meaning. We shall presently advert to the decisions of the Hon'ble Supreme Court wherein the meaning of that expression has been elucidated. On the facts of this case it cannot but be concluded that the business activities in the aforementioned clauses (a) and (c) are carried out in India by SMPL for TENL. There is thus "business connection" within the meaning of Explanation 2 between SMPL and TENL in India. We may with advantage note here the following decisions of the Hon'ble Supreme Court to comprehend the full import of the expression "business connection": - In CIT, Punjab , v. R.D. Aggarwal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'business connection' in India . 9. Apart from the fact that requirements of Explanation 2, referred to above, are satisfied, the facts of the instant case would also fulfil the aforementioned essential features of business connection. 10. The above discussion would suffice to pronounce rulings on the questions proposed by the applicant. However, in Annexure III as well as in the written submission, reference is made to the Double Taxation Avoidance Agreement entered into between the Government of the Republic of India and the Government of the United Kingdom of Great Britain and Northern Ireland which came into force on 26 th October, 1993 vide Notification dated 11.2.1994 (hereinafter referred to as the " Treaty "). It is, therefore, necessary to advert to the relevant provisions of the Treaty. 11. It is a common ground that by virtue of articles 1 and 2, both SMPL and TENL are covered by the Treaty. The contention based on article 7 of the Treaty is that the profit of TENL shall be taxable in India only if it has permanent establishment (PE) situated in India and only so much of them as is directly or indirectly attributed to that PE. The controversy now centres arou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o for or on behalf of the enterprise, unless the activities are limited to the purchase of goods or merchandise for the enterprise; clause (b) speaks of a case when he habitually maintains a stock of goods or merchandise in the first mentioned state from which he regularly delivers them on behalf of the enterprise and clause (c) speaks of a case when he habitually secures orders in the first mentioned State, wholly or almost wholly for the enterprise itself or for the enterprise and other enterprises controlling, controlled by, or subject to the same control, as that enterprise. Para 5, quoted above, is in two parts. The first part incorporates a deemed exclusion clause and says that an enterprise of a contracting State shall not be deemed to have a permanent establishment in the other contracting State merely because it carries on business in the other State through a broker, general commission agent or any other agent of an independent status provided that such persons are acting in the ordinary course of business. Nonetheless the second part provides that when the activities of such an agent are carried out wholly or almost wholly for the enterprise itself or on behalf of that e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... " What is contended by Mr. Gupta is that the SCB is not an agent of independent status with the meaning of clause 5 of Article 5 of 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." In re Morgan Stanley Company 2003, this Authority ruled (6) thus:- "There is no merit in the plea of the Commissioner that the difference between 'dependent' and 'independent' agents has to be seen from the perspective of the 'principal' and not from that of 'agent'. In our view for a proper understanding of the deeming provisions contained in paras 4 and 5 of (5) Ruling dated 27.9.2004 in Fidelity Advisor Services VIII (Application No. AAR/566/2002) (6) Ruling dated 29.11.2004 in Morgan Stanley Co. International Ltd. (Application No. AAR/611/2003) article 5, they have to be read together. Para 4 deals ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that its activities are carried out wholly or almost wholly for TENL. The term wholly and almost wholly are not technical terms or terms of art. They must receive their ordinary meaning as understood by English speaking people. The word 'wholly' means entirely, completely, fully, totally; 'almost wholly' would mean very near to wholly, a little less than whole. In terms of percentage 'almost wholly' would mean anything less than 90%. It is shown that though SMPL has other clients, the fact remains that the activities of SMPL for TENL yield 75% to 80% of its income and income from other clients, is between 22% to 25%, so it cannot be said that the activities of the SMPL are carried out wholly or almost wholly for TENL. It follows that SMPL does not fall in the second part of para 5 of article 5 of the Treaty. In Al Nisr Publishing v. Commissioner of Income-tax [supra (1)], applicant was a partnership registered under the United Arab Emirates (UAE) Laws, having its head office in Dubai. It was engaged in the business of publishing, printing and distributing newspapers, magazines and other publications. It entered into agency agreement with advertisement representative in various co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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