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TMI Blog2023 (1) TMI 403X X X X Extracts X X X X X X X X Extracts X X X X ..... R ORDER PER SAKTIJIT DEY, JM: Captioned appeals by the assessee and Revenue arise out of separate orders of learned First Appellate Authority pertaining to assessment years 2003-04, 2004-05, 2009-10, 2011-12, 2012-13 and 2014-15. Since, the issues raised in all these appeals are more or less common and overlapping, they have been clubbed together and disposed off in a common order. ITA No. 3412/Del/2010 (AY: 2003-04) ITA No. 3413/Del/2010 (AY: 2004-05) ITA No. 4426/Del/2016 (AY: 2009-10) ITA No. 4543/Del/2016 (AY: 2011-12) ITA No. 1220/Del/2017 (AY: 2012-13) ITA No. 6705/Del/2017 (AY: 2012-13) ITA No. 5084/Del/2018 (AY: 2014-15) 2. These appeal are by the assessee. Grounds raised by the assessee in these appeals are, more or less, common. The following major issues arise out of the grounds raised by the assessee:- i. Whether subscription/distribution revenue received by the assessee can be treated as royalty under India - Mauritius Double Taxation Avoidance Agreement (DTAA). ii. Whether the assessee has a Permanent Establishment (PE) in India under Indian - Mauritius Tax Treaty. iii. Assuming that there is a PE in India, if the PE is remunerated on arm's length bas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Sports, Singapore. The same risk continues with the assessee, even, in relation to the agreement between the assessee and ESPN India. Referring to certain specific clauses in the agreement, the Assessing Officer observed that ESPN India works only for the assessee. The revenue earned by ESPN India arises only by virtue of cable subscription, which it does for the assessee. He observed, the commission earned from soliciting advertisement comes entirely from another Associated Enterprises (AE), M/s. ESPN Star Sports, Mauritius. Thus, he observed, the cable subscription business of ESPN India being entirely dependent upon the assessee, it would simply collapse if the assessee would withdraw its patronage. Thus, he observed, due to such dependency of ESPN India on assessee, it cannot be said to be an agent of independent status under Article 5(5) of the India - Mauritius Tax Treaty. Further, he observed, since ESPN India is a 100% subsidiary of ESPN Mauritius Ltd., which in turn has a controlling stake in the assessee, it cannot be said that ESPN India is enjoying any degree of autonomy in its decision making process. Thus, ultimately, the Assessing Officer held that ESPN India const ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny work produced by any process analogous to cinematography, including video films. Referring to section 2(ff) of the Copyright Act, he observed, "communication to public" means making any work available for being seen or heard or otherwise enjoyed by the public directly or by any means of display or diffusion other than by issuing copies of such work regardless of whether any member of the public actually sees, hears or otherwise enjoys the work so made available. Further, referring to Explanation to section 2(ff) of the Copyright Act, he observed that communication through satellite or cable or any other means of simultaneous communication to more than one household or place of residence including residential rooms of any hotel or hostel shall be deemed to be communication to the public. Referring to section 2(dd) of the Act, he observed that communication to the public also includes broadcast by any means of wireless diffusion, whether in any one or more of the forms of signs, sounds or visual images, or by wire, and includes a re-broadcast. Thus, extensively referring to the various provisions of the Copyrights Act, learned Commissioner (Appeals) held that events broadcasted/te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SPN India is limited to the extent of making ESPN services available in the specified area through sub-distributors in accordance with terms and conditions of the agreement. He submitted, as per the condition of the agreement, on termination of the agreement all arrangements with sub-distributor would automatically be assigned to the assessee. He submitted, the agreement clearly specifies that the distributor, i.e., ESPN India will have no rights whatsoever to the ESPN service nor convey, confer, grant, assign or otherwise provide distributor with copyright, title or any other proprietary or ownership interest in or to the ESPN Service or any elements thereof. ESPN India cannot use, authorize or permit the use of the ESPN Service or any element thereof for any purpose other than the purpose expressly specified in the agreement. He submitted, agreement makes it clear that neither assessee nor ESPN India shall have any authority to bind the other or to assume, create or incur any liability or any obligation of any kind, express or implied, against or in the name of or on behalf of the other. He submitted, the agreement also made it clear that the transaction between the assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. M/s. SET Indian Pvt. Ltd., ITA No.4372/Mum/2004, dated 25th April, 2012 (Mumbai- Trib.)] 5. The Commissioner of Income Tax (International Taxation)-II Vs. SET India Pvt. Ltd., ITA No. 1347 of 2013 (Bombay High Court) 6. Commissioner of Income-tax (IT)-3 Vs. MSM Satellite (Singapore) Pte. Ltd. [2019] 106 taxmann.com 353 (Bombay) 7. Sony Pictures Network India Pvt. Ltd. Vs. DCIT, (2020) ITA No. 971/Mum/2016 (Mumbai) 8. Set Satellite (Singapore) PTE Ltd. Vs. Deputy Director of Income-tax, International Taxation and Another [2008] 307 ITR 205 (Bombay High Court) 9. ESPN Star Sports Vs. Global Broadcast News Ltd. & Ors. [2008] 38 PTC 477 (Delhi High Court) 10. ESPN Star Sports Mauritius SNC et Compagnie [Now known as ESS Advertising (Mauritius) SNC et Compagnie] Vs. The Dy. CIT [2021] , ITA No. 1219/Del/2017, dated 20th October, 2021 (Delhi-Trib.) 11. Engineering Analysis Centre of Excellence P. Ltd. Vs. Commissioner of India-tax and another [2021] 432 ITR 471 (SC 12. Taj TV Limited [TS-202-ITAT-2022 (Mum)] 13. Deputy Director of Income Tax, Intl. Taxation Vs. Unocol Bharat Ltd. [2018] 99 taxmann.com 158 (Delhi-Trib.) 14. State Bank of Mauritius Ltd. Vs. Deputy Di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision systems and direct to home via satellite. The agreement between ESPN Star Sports, Singapore and assessee makes it clear that the assessee has not been conferred with any rights whatsoever with regard to copyright, title or any other proprietary or ownership interest in or to the ESPN service or any elements thereof. The agreement makes it explicit that all rights in the contents of ESPN service are expressly reserved by ESPN Star Sports, Singapore and the distributor shall not use, authorize or permit the use of ESPN service or any element thereof for any purpose other than the purpose expressly specified in the agreement. The agreement also specifies that the assessee has to distribute the ESPN services in its entirety, without any alteration, editing, dubbing, scrolling or ticker tape, substitution or any other modification, addition, deletion or any other variation whatsoever. The agreement also provides that the names and marks of ESPN Star Sports and ESPN will remain exclusive properties of the ESPN, Inc and subject to agreement the distributor may be given non-exclusive license to use the names and marks on advertising and promotional material, notepapers, stationery a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cinematograph films has been enlisted as a form of work in which copyright subsists. Referring to all these provisions of the Copyright Act, learned Commissioner (Appeals), in sum and substance, has wanted to convey that by granting the distribution right to ESPN India the assessee has allowed broadcast of cinematograph films to communicate to the public. Thus, there is a transfer of copyright in terms of section 9(1)(vi) read with clause (v) to Explanation 2 there under, Article 12(3) of the India - Mauritius Tax Treaty and the relevant provisions of the Copyright Act, as referred to by him. 12. At this stage, it is necessary to look into the definition of royalty under Article 12(3) of the India-Mauritius DTAA, which reads as under: "12(3) The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph films, and films or tapes for radio or television broadcasting), any patent, trade mark, design or model, plan, secret formula or process or for the use of, or the right to use, industrial, commercial or scientific equipment, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4[(i) to make a copy of the film, including-- (A) a photograph of any image forming part thereof; or (B) storing of it in any medium by electronic or other means;] 5[(ii) to sell or give on commercial rental or offer for sale or for such rental, any copy of the film.] (iii) to communicate the film to the public; (e) in the case of a sound recording,-- (i) to make any other sound recording embodying it 6[including storing of it in any medium by electronic or other means]; 7[(ii) to sell or give on commercial rental or offer for sale or for such rental, any copy of the sound recording;] (iii) to communicate the sound recording to the public. Explanation.--For the purposes of this section, a copy which has been sold once shall be deemed to be a copy already in circulation]." 14. Section 37 of the Copyright Act deals with broadcast, reproduction rights, which reads as under: "37. Broadcast reproduction right.-- (1) Every broadcasting organisation shall have a special right to be known as "broadcast reproduction right" in respect of its broadcasts. (2) The broadcast reproduction right shall subsist until twenty-five years from the beginning of the calendar year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be a grant of any license or transfer of any right in any copyright. Ld CIT(A) has stated that the assessee submitted before him that the cable operator only retransmits the television signals transmitted to it by a broadcaster without any editing, delays, interruptions, deletions, or additions and, therefore the payment made by the assessee to the Non-resident company is not for use of any copyright and consequently cannot be characterized as Royalty. Ld. CIT (A) has held that Broadcasting Reproduction Right is not covered under the definition of Royalty under section 9(1)(vi) of the Income Tax Act as well as Article 12 of the Treaty. Accordingly, the payment is not in the nature of Royalty but in the nature of business income." 16. Similar to the case of DDIT Vs. Set India Pvt. Ltd. (supra), referred to above, in assessee's case also there is no transfer of any right to use of any copyright and there is specific restriction imposed upon ESPN India that it has to provide the ESPN services through sub-distributors without any editing, interruption, deletions, additions etc. It is relevant to observe, in case of Set Satellite (Singapore) Pte Ltd. Vs. DDIT (supra), the Hon'ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graph film and/or a sound recording. 11. Infact, Section 37 of Copyright Act, 1957 separately defines broadcast reproduction right. Sub-section (I ) of Section 37 of the said Act provides that every broadcasting organisation shall have special rights to be known as "broadcast reproduction right" in respect of its broadcasts. Sub-section (2) of Section 37 provides that the broadcast reproduction right shall subsist until twenty-five years from the beginning of the calender year next following the year in which the broadcast is made. 1 12. Section 9 of the Act pertains to income deemed to accrue or arise in India. Clause (vi) of Section 9(1) pertains to income by way of royalty. Relevant portion reads as under:-' (vi) income by way of royalty payable by - (a) the Government; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is non-resident, where the royalty is payable in respect of any ri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Paragraph 4(b) or 4 (c of Article 8' 15. Even going by this definition, the payment in question cannot be categorized as royalty." 17. Though, learned Commissioner (Appeals) has extensively referred to the definitions of copyright, communication to public, broadcast under the Copyright Act, however, he has completely ignored the broadcast reproduction right as provided under section 37 of the Act. Thus, in our view, the ratio laid down in the decisions referred hereinabove clearly clinches the issue in favour of the assessee, as, what the assessee has granted to ESPN India through the distribution agreement is broadcast reproduction right, as defined under section 37 of the Copyright Act and not any Copyright. In any case of the matter, the Assessing Officer himself in assessment year 2003-04 has observed that the copyright over all the contents of ESPN channels remains with ESPN Star Sports, Singapore and has not been transferred to the assessee. Therefore, when the assessee itself does not have ownership over the copyright, it could not have transferred such right to any other party. Thus, respectfully following the ratio laid down in the judicial precedents cited before us ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd allotment of air time for advertisement and sale/leasing of decoders etc. to cable operators for other entities. Therefore, ESPN India is an agent of independent status under Article 5(5) of the India - Mauritius Tax Treaty and is acting in ordinary course of business while dealing with the assessee. He submitted, ESPN India carries on its own business in its own premises and the assessee does not have any control over it and nor has the power of disposal over it. The assessee does not have any fixed place PE in India through which it carries out business. Therefore, it cannot be said that the assessee has a fixed place PE in India. In support of such contention, learned Counsel relied upon the following decisions: 1) International Global Networks BV v. ADIT, International Taxation, Range 4(1), Mumbai [2017] 84 taxmann.com 188 (Mumbai-Trib.) 2) Deputy Director of Income-tax (IT) - 3(2) v. B4U International Holdings Ltd. [2012] 137 ITD 346 (Mumbai Tribunal) 3) SPE Networks India Inc. v. Deputy Commissioner of Income-tax (Int. Taxation), Range-2(1) Mumbai [2017] 87 taxmann.com 345 (Mumbai - Trib.) 4) TVM Limited V. Commissioner of Income-tax [1999] 237 ITR 230 (AAR) 5) A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o agreement with sub-distributors/cable operators so that the channels can be distributed to end consumers in India. As per the terms of the agreement, the revenue earned from distribution of channels has to be shared between the assessee and ESPN India in certain ratio. The materials on record demonstrate that ESPN India is carrying on its distribution activity as well as other activities, such as, acquisition and allotment of air time for advertisement and sale/leasing of decoders. No material has been brought on record by the Revenue to suggest that the assessee has any kind of control over the business of ESPN India or the premises of ESPN India have been given at the disposal of the assessee or the assessee carries on any kind of business through the premises of ESPN India. In case of ADIT Vs. EFunds IT Solutions Inc. (supra), the Hon'ble Supreme Court while deciding the issue of existence to fixed place PE has held as under: "5. As against this, Shri S. Ganesh, learned senior counsel for the respondents, has argued that the tests for whether there is a fixed place PE have now been settled by the judgment of this Court in Formula One (supra), and that it is clear that for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, no factual foundation for the same has been laid. Equally, according to the learned counsel, the settlement procedure availed for the assessment years in question cannot be said to be binding for subsequent years as they were without prejudice to the assessees' contention that they have no PE in India. He also relied upon the OECD Commentary, paragraph 3.6 in particular, to demonstrate that the so-called admissions made and relied upon by the three authorities below were correctly overturned by the High Court. Learned counsel also stated that the ground of adverse inference was never argued or put before any of the authorities below, and the only place that it could be found is in the assessment order for the year 2003-04, which order became non-est as it was substituted by the agreement entered into between the parties ending in withdrawal of appeals before the CIT (Appeals). Thus, according to the learned counsel, the view of the High Court is absolutely correct and should not be interfered with. Learned counsel also argued that the cross- appeals of the Revenue were correctly dismissed in that, even though the ITAT decided the case in law against the assessees, yet it found ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (Appeals) and the ITAT have essentially adopted a fundamentally erroneous approach in saying that they were contracting with a 100% subsidiary and were outsourcing business to such subsidiary, which resulted in the creation of a PE. The High Court has dealt with this aspect in some detail in which it held: "49. The Assessing Officer, Commissioner (Appeals) and the tribunal have primarily relied upon the close association between e-Fund India and the two assessees and applied functions performed, assets used and risk assumed, criteria to determine whether or not the assessee has fixed place of business. This is not a proper and appropriate test to determine location PE. The fixed place of business PE test is different. Therefore, the fact that e-Fund India provides various services to the assessee and was dependent for its earning upon the two assessees is not the relevant test to determine and decide location PE. The allegation that e-Fund India did not bear sufficient risk is irrelevant when deciding whether location PE exists. The fact that e-Fund India was reimbursed the cost of the call centre operations plus 16% basis or the basis of margin fixation was not known, is not re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of the two American companies is carried on through a fixed business place in India which has been put at their disposal. It is clear from the above that the Indian company only renders support services which enable the assessees in turn to render services to their clients abroad. This outsourcing of work to India would not give rise to a fixed place PE and the High Court judgment is, therefore, correct on this score." 23. As per the ratio laid down in the aforesaid decision of the Hon'ble Supreme Court, burden is on the revenue to establish the existence of fixed place PE. Insofar as the issue, the ESPN Indian is a dependent agent of the assessee, the agreement between the parties does not make out a case of DAPE. There is no privity of contract between the assessee with the cable operators or end customers in India. It is ESPN India who has entered into contracts with cable operators for distribution of the channels in India and responsible for breach of contract with cable operators. The transaction between the assessee and ESPN India is limited to conferring of right to distribute the channels of ESPN Star Sports in India through cable operators. How, ESPN India does such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee, question of withdrawal of interest under section 244A of the Act does not arise. Considering the aforesaid submission of the assessee, we restore the issue to the Assessing Officer for factually verifying assessee's claim and deciding it afresh in accordance with law after providing opportunity of being heard to the assessee. 27. There is one more issue arising in assessee's appeal, being ITA No. 6704/Del/2017. This appeal has its genesis in the order passed by the Assessing Officer while giving effect to the order of learned Commissioner (Appeals). The issue raised by the assessee in this appeal is relating to short grant of credit of TDS. It is the claim of the assessee that TDS of Rs. 1,31,35,635/- claimed in the revised return is reflected in form 26AS and appeal effect order passed by the Assessing Officer. Therefore, complete credit of TDS should be given. Having considered the submissions of the parties, we direct the Assessing Officer to factually verify assesee's claim with reference to From 26AS and TDS certificate and thereafter allow credit for TDS in accordance with law. This disposes all the appeals filed by the assessee. ITA No.3387/Del/2010 (AY: 2003-04) I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... view of our decision in the earlier part of the order, while deciding assessee's appeals. Hence, the appeal has become infructuous. 32. In nutshell, appeals are decided as under: 1. ITA No.3412/Del/2010 Assessee's Appeal AY: 2003-04 Partly Allowed 2. ITA No.3413/Del/2010 Assessee's Appeal AY: 2004-05 Partly Allowed 3. ITA No.4426/Del/2016 Assessee's Appeal AY: 2009-10 Partly Allowed 4. ITA No.4543/Del/2016 Assessee's Appeal AY: 2011-12 Partly Allowed 5. ITA No.1220/Del/2017 Assessee's Appeal AY: 2012-13 Partly Allowed 6. ITA No.6705/Del/2017 Assessee's Appeal AY: 2012-13 Partly Allowed 7. ITA No.5084/Del/2018 Assessee's Appeal AY: 2014-15 Partly Allowed 8. ITA No.3387/Del/2010 Revenue's Appeal AY: 2003-04 Dismissed 9. ITA No.3388/Del/2010 Revenue's Appeal AY: 2004-05 Dismissed 10. ITA No.1201/Del/2017 Revenue's Appeal AY: 2012-13 Dismissed 11. ITA No.6706/Del/2017 Revenue's Appeal AY: 2009-10 Dismissed 12. ITA No.6578/Del/2016 Revenue's Appeal AY: 2009-10 Dismissed 13. ITA No.5303/Del/2018 Revenue's Appeal AY: 2014-15 Dismissed 14. ITA No.6579/Del/2016 Revenue's Appeal AY: 2011-12 Dismissed Order p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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