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TMI Blog2020 (3) TMI 500X X X X Extracts X X X X X X X X Extracts X X X X ..... distributor agreement. After examining the requirement of Article 5 of the DTAA to constitute agency Permanent Establishment, Tribunal as a matter of fact held that none of the conditions as stipulated in Article 5(4) was applicable because Taj India was acting independently qua its distribution rights and the entire agreement was on principal to principal basis. Therefore, it was held that the distribution income earned by the assessee cannot be taxed in India because Taj India does not constitute an agency Permanent Establishment under the terms of Article 5(4) of the DTAA. The order of the first appellate authority was accordingly upheld. On thorough consideration of the matter, we are in agreement with the views expressed by the Tribunal. In fact, there is concurrent finding of fact between both the appellate authorities on this point. Learned standing counsel Revenue has not been able to show any perversity in such finding returned by the appellate authorities. In the absence thereof, we see no good reason to interfere with the finding of the Tribunal affirming the order of the first appellate authority. - INCOME TAX APPEAL (IT) NO.1984 OF 2017 WITH INCOME TAX APPEAL (IT) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ges from the Indian advertisers. In this connection, assessee had entered into an agreement with Taj India on 08.05.2002. 10. Assessee had also appointed Taj India as its distributor to distribute the Channel Ten Sports to cable systems for exhibition to subscribers in India. In this connection, an agreement dated 01.03.2002 was entered into between the assessee and Taj India. 11. In the assessment proceedings for the assessment year 2004-05, the assessing officer sought for the views of the assessee regarding non-taxability of its income in India since it did not carry any business in India through its Permanent Establishment (PE) and as to why it was filing an alternative computation of income. Assessee submitted reply. Referring to the India-Mauritius Double Tax Avoidance Agreement, more particularly Article 5 thereof, which defines Permanent Establishment, it was contended on behalf of the assessee that it was not covered by any of the clauses of the Double Tax Avoidance Agreement (DTAA) and as such, it did not have a Permanent Establishment in India. Transactions between assessee and Taj India are on a principal to principal basis and at arm's length prices. Taj In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 5(4) for collection of advertisement revenue. Consequently, finding of the assessing officer in this regard was sustained. 13.2. Regarding distribution revenue, first appellate authority examined the distribution agreement entered into between the assessee and Taj India on 01.03.2002 wherefrom he deduced that Taj India was appointed as the exclusive distributor in India. Taj India was not acting as agent of the assessee but had obtained right of distribution for TV channel for itself. It was found by the first appellate authority that Taj India had subsequently entered into contracts with other parties in its own name. One such contract was examined; whereafter first appellate authority noted that in such contract, assessee did not figure at all. He, therefore, came to the conclusion that assessee had given distribution rights to Taj India for promoting and distributing TV channels in India on principal to principal basis. He opined that Taj India was not acting as agent of the assessee in India and the distribution agreement had given exclusive rights to Taj India to distribute the channel in India on its own behalf and not on behalf of the assessee. In such circumstances, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded) directing that all the provisions of the said DTAA shall be given effect to in the Union of India. 19. As per Article 3(1)(c), the expressions a Contracting State and the other Contracting State mean India or Mauritius as the context requires. Article 5 thereof defines Permanent Establishment . Clause 1 says that the term permanent establishment means a fixed place of business through which the business of the enterprise is wholly or partly carried on. As per clause 2, which is an inclusive provision, the term permanent establishment shall include a place of management; a branch; an office; a factory; a workshop; a warehouse in relation to a person providing storage facilities to others; a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; a firm, plantation or other place where agricultural, forestry, plantation or related activities are carried out; and a building site or construction or assembly project or supervisory activities in connection therewith, where such site, project or supervisory activity continues for a period of more than nine months. Clause 3 provides the exclusions to the term permanent establishment . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . As already noticed above, in so far advertisement revenue is concerned, the first appellate authority concurred with the findings of the assessing officer that the assessee had an agency Permanent Establishment in India which is Taj India within the meaning of Article 5(4) of the DTAA. Therefore, this part of the income was liable to be taxed in India. 21.1. In so far revenue earned by Taj India on account of distribution of pay channel, the first appellate authority held as under: 3.3 I have examined the arguments of the AR and I have also examined the facts. The AR filed the Distribution Agreement, and copies of agreement entered into by the distributor with the cable operators. The AR had explained that a sub-distributor agreement was entered into between Taj India and HMA Udyog Ltd. on 11.03.2002. Copy of this agreement has been filed. Agreements with the cable operators are entered into by the sub-distributor. A sample copy of the same has also been filed. I have examined the Distribution Agreement between the appellant and Taj India. Perusal of the agreement reveals that the appellant has appointed Taj India as exclusive distributor in India. Further agreement provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rators for the distribution of TV channel. No evidence is available to show that Taj India is acting as agent of appellant for the distribution business. Perusal of the assessment order reveals that the AO has provided no reason why Taj India should be treated as agency PE for the distribution income as per Article 5(4) of the DTAA. I am accordingly of the opinion that Taj India is not acting as agent of appellant in India and the distribution agreement has given exclusive right to Taj India to distribute the channel in India on its own behalf and not on behalf of the appellant. Contracts entered into by the Taj India are by virtue of Taj India being a distributor and not an agent of appellant. In view of this it is held that Taj India does not constitute an agency PE within the meaning of Article-5(4) of the DTAA in respect of distribution income. In the preceding assessment year 2003-04, my predecessor CIT(A) had similarly set aside the findings of the AO on this issue in Para No.2.8 of his order dt. 26.02.2007 in Appeal No.CIT (A)XXXI/ DDIT(IT)2(1)/IT-116/2006-07. I am in agreement with his findings on this issue. Findings of AO in this regard are set aside. 22. The first a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and the Taj India qua the advertisement income within the scope of Article 5(4). However, in the revenue s appeal, the main issue involved in ground no.1 is with regard to taxability of distribution revenue in terms of distribution Agreement dated 1st March, 2002. Under the terms of the distribution agreement, the assessee has appointed Taj India as exclusive distributor in India and prohibits the assessee for entering into distribution agreement with anybody else. The Ld. CIT(A) after taking note of the Distribution Agreement and examining various terms and clauses used therein and also taking into consideration the conduct of the parties, came to the conclusion that, Taj India is not acting as agent of the assessee but it had obtained the right of distribution of channel for itself and subsequently it is entering into contract with other parties in its own name in which the assessee is not party. The distribution of the revenue between the assessee and Taj India has been allocated in the ratio of 60:40 and the entire relationship is principal to principal basis. The Ld. CIT(A) has also noted that, there is no evidence on record to show that Taj India was acting as age ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her. Thus, an agent is deemed to be a PE of a foreign enterprise, if he is not independent and habitually exercises an authority to conclude contracts in the name of the enterprise unless the activities of such person are limited to those mentioned in paragraph 4 that is, to the purchase of goods or merchandise for the enterprise; or if he has no such authority, but habitually maintains a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise. Thus, the character of an agent, who can be said to be a dependent only if, firstly, the commercial activity for the enterprise is subject to instructions or comprehensive control and secondly, he does not bear the entrepreneur risk. It is sufficient for the establishment of an agency PE that the agent has sufficient authority to bind the enterprise s participation in the business activity. Here in this case, none of the conditions as stipulated in Article 5(4) is applicable because Taj India is acting independently qua its distribution rights and the entire agreement ostensibly is on principal to principal basis as analyzed and found by ld. CIT(A). When the entire relationship qu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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