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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 ..... eement between the assessee and ESPN Indian clearly stated that the transaction is on principal to principal basis. The agreement further allowed ESPN India to enter into 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. 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pportunity of being heard to the assessee. Short grant of credit of TDS - HELD THAT:- It is the claim of the assessee that TDS claimed in the revised return is reflected in form 26AS and appeal effect order passed by the AO. Therefore, complete credit of TDS should be given. 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. - ITA No.3388/Del/2010 And ITA No.1201/Del/2017 And ITA No.6706/Del/2017 And ITA No.6578/Del/2016 And ITA No.5303/Del/2018 And ITA No.6579/Del/2016 Shri G.S. Pannu, Hon ble President And Shri Saktijit Dey, Judicial Member For the Assessee : Sh. Porus Kaka, Sr. Advocate, Sh. Manish Kant, Advocate And Sh. Divesh Chawla, Advocate For the Department : Ms. Anupama Anand, CIT(DR) And Sh. Sanjay Kumar, Sr. DR 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 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer, the assessee pleaded that the transaction between the assessee and ESPN India is on a principal to principal basis without any agency relationship. It was submitted by the assessee that ESPN India bears the costs and expenses in connection with the distribution activities. Whereas, the assessee does not have any privity of contract or any other type of relationship with cable operators through whom ESPN India distributes Star Sports and ESPN Channels. The Assessing Officer, however, was not convinced with the submissions of the assessee. After analyzing the contract between the assessee and ESPN Star Sports, Singapore, which is the owner of sports channels Star Sports and ESPN, the Assessing Officer observed that the assessee bears commercial risk as it has to pay certain minimum guaranteed amount to ESPN Star 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 assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lms, and films or tapes for radio or television broadcasting has to be considered as royalty. Further, referring to section 13 of Copyrights Act, 1957 he observed that copyright subsists in respect of cinematograph films. Proceeding further and extensively referring to the provisions contained under the Copyrights Act, he observed that as per section 14(d)(iii), in case of cinematograph films, copyright also includes communicating the film to the public. Referring to the definition of cinematograph film under section 2(f) of the Copyright Act, he observed that it includes any work of visual recording on any medium produced through a process from which a moving image may be produced by any means and includes a sound recording accompanying such visual recording and cinematograph shall be construed as including any 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 m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis and the alternative contention that ESPN India is an agent of independent status, learned Commissioner (Appeals) concluded that since, the assessee exercises control over ESPN India, it will constitute a dependent upon agent PE of the assessee. Further, he held that ESPN India can also be considered to be fixed place PE of the assessee in terms of Article 5(2)(a) of the Tax Treaty. Having held so, he modified the attribution of royalty income to PE made on estimate basis by holding that the entire royalty income is attributable to the PE. However, it will be chargeable to tax on net basis. 7. Before us, learned counsel appearing for the assessee drew our attention to the agreement between the assessee and ESPN India and submitted that the terms of the agreement make it clear that the appointment of ESPN 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y coming within the ambit of Article 12(3) of India-Mauritius Tax Treaty. Thus, he submitted, in absence of PE in India, the amount received towards distribution/subscription revenue, being in the nature of business income is not taxable in India. In support of such contention, learned counsel relied upon the following decisions: 1. Turner Broadcasting System Asia Pacific Inc. Vs. DDIT [2020] 120 taxmann.com 155 (Delhi-Trib.). 2. NGC Network Asia LLC Vs. Dy. Director of Income Tax (International Taxation), ITA No.8671/Mum/2004 and Others (Mumbai Trib.) 3. NGC Network Asia LLC Vs. Joint Director of Income Tax (International Taxation), ITA No. 7994/Mum/2011 (Mumbai Trib.). 3. NGC Network Asia LLC Vs. DCIT (IT), ITA No.1178/Mum/2015, ITA No. 6677 6678/Mum/2018 and Others. 4. DDIT (IT)-2(1) Vs. 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. 97 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the assessee is entitled to avail the benefit of India Mauritius Tax Treaty. Before we proceed to deal with the issue, it is necessary to briefly describe the factual backdrop relating to the arrangement between the assessee and ESPN Star Sports, Singapore on one hand and between the assessee and ESPN India on the other. It is an admitted factual position that ESPN Star Sports, Singapore is the owner of ESPN and Star Sports channels. The ESPN Star Sports, Singapore has entered into an agreement with the assessee to appoint the assessee as a distributor to distribute and make available for sub-distribution ESPN network programming services in India, Pakistan, Bangladesh, Sri lanka and Nepal via cable television system, satellite master antenna television 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 ES ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s receipts. However, in subsequent assessment years, the Assessing Officer treated it as royalty. While upholding the decision of the Assessing Officer in subsequent years and to bring the distribution revenue received by the assessee in the ambit of royalty, learned Commissioner (Appeals) has not only referred to Explanation 2(v) to section 9(1)(vi) of the Income Tax Act, but, has extensively referred to certain provisions of the Copyright Act. In this context, learned Commissioner (Appeals) has referred to definition of cinematograph film under section 2(f) of the Copyright Act, definition of broadcast under section 2(dd) of the Act, the meaning of copyright as provided under section 14 of the Copyright Act and section 13 of the Copyright Act, wherein, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o (vi); (b) in the case of a computer programme: (i) to do any of the acts specified in clause (a); 2 [(ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programmer: Provided that such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental.] (c) in the case of an artistic work,-- 3 [(i) to reproduce the work in any material form including-- (A) the storing of it in any medium by electronic or other means; or (B) depiction in three-dimensions of a two-dimensional work; or (C) depiction in two-dimensions of a three-dimensional work;] (d) in the case of a cinematograph film,-- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... righted or not. The said distribution is purely a commercial right, which is distinct from the right to use copyright. We observe that Id CIT(A) has considered the provisions of Section 14 and Section 37 of the Copyright Act, 1957. It is observed that Section 37 of the Copyright Act deals with Broadcast Reproduction Rights (BRR) and same is covered under Section 37 of the Copy Right Act and not under section 14 thereof. We observe that Id CIT(A) has also considered Clause 6.3 of the distribution agreement entered into between assessee company and Non-resident company, which states that the right granted to the assessee under the agreement is not and shall not be construed 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xclusive right, subject to the provisions of this Act, to do or authorise the doing of any of the following acts specified in the said provision in respect of a work or any substantial part thereof. Term work is defined under Section 2(y) of the Copyright Act, 1957, as to mean any of the works namely a literary, dramatic, musical or artistic work or a cinematograph film and a sound recording. Sub-section (1) of Section 14 of the Copyright Act, 1957 lists several Acts in respect of a work in relation to which exclusive right would be termed as copyright. In the present case, the assessee had not created any literary, dramatic, musical or artistic work or cinematograph 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... used in this Article means payments of any kind received as a consideration for the use of, or the right to use: (a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information; (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... channels on its own account and not on behalf of the assessee. He submitted, ESPN India earns income from cable operators on its own account and establishes legal relationship on its own account. It has no authority to conclude contract on behalf of the assessee. In the same way, the assessee does not have any privity of contract with the cable operators/intermediaries in India. Therefore, the relationship between ESPN India and assessee is on principal to principal basis. He submitted, besides carrying out the activities of distribution of channel services for the assessee, ESPN India was also engaged in acquisition and 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, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITA No. 1219/DEL/2017 (Delhi - Trib.) dt. 20 October 2021 (page no. 450471 of Legal Paper book) 21. Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned Commissioner (Appeals). 22. We have considered rival submissions and perused the materials on record. At the outset, we need to examine, whether, the assessee has a fixed place PE in India. The distribution agreement between the assessee and ESPN Indian clearly stated that the transaction is on principal to principal basis. The agreement further allowed ESPN India to enter into 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 busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all these businesses are carried on outside India and the property through which these businesses are carried out, namely ATM networks, software solutions and other hardware networks and information technology infrastructure were all located outside India, the activities of e- Funds India are independent business activities on which, as has been noticed by the High Court, independent profits are made and income assessed to tax under the Income Tax Act. According to the learned counsel, agency PE was never argued before the assessing officer and even before the ITAT. Therefore, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee. 7 xxxx 8 xxxx 9 xxxx 10 xxxx 11 xxxx 12. Thus, it is clear that there must exist a fixed place of business in India, which is at the disposal of the US companies, through which they carry on their own business. There is, in fact, no specific finding in the assessment order or the appellate orders that applying the aforesaid tests, any fixed place of business has been put at the disposal of these companies. The assessing officer, CIT (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Revenue on the United States Securities and Exchange Commission Form 10K Report, as has been correctly pointed out by the High Court, is also misplaced. It is clear that the report speaks of the e-Funds group of companies worldwide as a whole, which is evident not only from going through the said report, but also from the consolidated financial statements appended to the report, which show the assets of the group worldwide. 15. xxxxx 16. This report would show that no part of the main business and revenue earning activity 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 agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding the mode and manner of attribution of profit to the alleged PE has become redundant, hence, not required to be adjudicated. 25. In assessment year 2004-05, there is one more issue relating to non-disposal of assessee s ground pertaining to withdrawal of interest entitlement under section 244A, by learned Commissioner (Appeals). 26. We have heard the parties and perused the materials on record. Before us, it is the contention of learned counsel for the assessee that since no refund has been granted to the assessee, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmissioner (Appeals) on the issue. 31. Besides the above appeals, there is one more appeal by the Revenue, being ITA No. 6706/Del/2017. This appeal of the Revenue culminates out of the order of the Assessing Officer while giving effect to the order of learned Commissioner (Appeals). The ground raised by the Revenue in this appeal relates to the direction issued by learned First Appellate Authority to determine the income of the assessee on net basis. The issue raised in this appeal has become academic in 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 Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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