9911796707
TMI Blog2021 (2) TMI 1323X X X X Extracts X X X X X X X X Extracts X X X X ..... ainst the provisions of law. 2. The DRP erred in law and facts in directing the AO to assess the income on accrual basis instead of cash basis. The reasons given by them for doing so are wrong, contrary to the facts of the case and against the provisions of law. 3. The DRP erred in law and facts in upholding that the assessee has a permanent establishment in India. The reasons given by them for doing so are wrong, contrary to the facts of the case and against the provisions of law. 4. The DRP erred in law and facts in upholding that income of the assessee is taxable in India even though it has paid commission to its Indian agent on arm's length basis which has extinguished the tax liability of the assessee. 5. The DRP ought to have held that assessee has no PE in India and its income is not taxable in India. 6. The DRP ought to have held that income of the assessee is not taxable in India even if it has PE in India as it has paid commission to its Indian agent on arm's length basis. 7. Without prejudice to other grounds of appeal the DRP ought to have held that the income of the assessee is taxable in India it should be on cash/ collection basis instead of accrual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... before the AO that no part of the advertisement revenue arising from India is taxable in India. However, the AO was not convinced with the said reply for the reason that the appellant had an exclusive agent in India in the form of M/s ZTL, which is soliciting advertisement on behalf of the assessee and collecting advertisement revenue in India. As noted by the AO the Agreement dated 01.10.1997 with Ambience Space Sellers Ltd. (ASSL), which was later supplanted by M/s ZTL clearly mentions that ASSL, then M/s ZTL is its exclusive agent in India for the provision of information to it regarding advertisers and to help arrange for sale of advertisement and sponsorship on the TV Channel (clause 2.1), which means that apart from M/s ZTL, no one has any authority to work in India for the assessee. The AO noted that the assessee's contentions that M/s ZTL's income from working as an agent for the assessee is a small percentage of its overall income should be viewed in the context that M/s ZTL is working only for the same group. Relying on the order of the Tribunal in the case of ACIT v. DHL Operations B.V. Netherlands (ITA No. 7987 & 7988/Bom/92), the AO came to a finding that since the ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the Dispute Resolution Panel (DRP) to demonstrate that the sale of advertisement slots is concluded directly by the appellant and not by M/s ZTL. The Ld. counsel submits that the Transfer Pricing Officer (TPO) in M/s ZTL's case has found the fees paid by the assessee for earning advertisement revenues to be at arm's length. In this regard, he refers to page 20 (for AY 2006-07), and 21-22 (for AY 2007-08) of the Paper Book. Therefore, it is stated by him that no further attribution of income to PE can be made. Referring to the order of the Tribunal in the case of another entity of the group i.e. Zee TV USA Inc. v. ADIT (IT) (ITA No. 8862/M/10), it is stated by him that the Tribunal has held that the remuneration paid to M/s ZTL by Zee TV USA for advertisement revenues collected from India (which was similar to the remuneration paid by the assessee to M/s ZTL), being at arm's length price, extinguishes any tax liability in the hands of Zee TV USA. Also reliance is placed by him on the decision in ADIT v. E-Funds (399 ITR 34) (SC), DIT v. Morgan Stanley (292 ITR 416) (SC), Set Satellite (Singapore) Pte. Ltd. v. DDIT (307 ITR 205) (Bom), DDIT (IT) v. Asia Today Limited (4346/Mum/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... muneration can extinguish the assessment only if the price is determined taking into account all the risks and functions of the assessee-company and not only the risks of its agent in India; in fact, the 15% remuneration paid to the agent in India is only with respect to risks and functions of the agent activities in India and it does not cover in its ambit the risks and functions of the assessee-company in so far as they relate to the business of the assessee-company in India. Similarly, reliance is placed by the Ld. DR on the order of the Tribunal in the case of M/s Rolls Royce PLC v. DDIT (2009-TIOL-103-ITAT-Del). It is stated by him that accrual of income is to be determined in terms of the agreement between the assessee and the agent and as per it, the agent is due to collect its commission @ 15% and remit the remaining portion. Thus the Ld. DR supports the order passed by the AO. 6. We have heard the rival submissions and perused the relevant materials on record. The reasons for our decisions are given below. In the instant case, the AO reopened the assessment which was processed u/s 143(1) on the ground that the assessee had an exclusive agent in India in the form of M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a principal-to-principal basis. He further proceeded to examine whether profits arising to the assessee out of its DA's marketing activities in India were sufficiently taxed in India and considering article 7(2) of the India-Singapore DTAA, held that as the assessee had remunerated the DA on an arm's length basis, no further profits should be taxed in the hands of the assessee. He, however, held that as the assessee itself had filed the return of income and had offered the income to tax, there was no reason to interfere with the order of the Assessing Officer. Insofar as distribution of revenue from AXN channel was concerned, the Commissioner (Appeals) held that distribution income belonged to the DA and not to the assessee; and that since said income had been offered to tax by the DA and had already been taxed in its hands same income could not be subjected to tax in the hands of the assessee. He, therefore, directed the Assessing Officer to delete the portion of income earned by the DA while computing the taxable income of the assessee. On cross appeals, the Tribunal, on the issue as to whether the DA was PE of the assessee, recorded a finding of fact that the DA was a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice charges. Effective from November, 1998, a revised arrangement was entered into between the assessee and DA, whereby the aforesaid amount was reduced to 12.5 per cent of the net ad revenue, i.e., gross ad revenue less agency commission. Simultaneously, the assessee had also entered into an arrangement entitling the DA to enter into agreements, collect and retain all subscription revenues. Considering all those aspects and the fact that the agent had a good profitability record, the Commissioner (Appeals) held that the assessee had remunerated the agent on an arm's length basis. That finding of the Commissioner (Appeals) had not been disputed by the revenue. The entire contention of the revenue was that the advertisement revenues pertaining to its own channel and AXN channel were also taxable in India. [Para 10] The Commissioner (Appeals) had dealt with the issue as to why the advertisement revenues received by the assessee were not liable for being taxed in India based on the CBDT Circular No. 23, dated 23-7-1969, which clearly set out that where a nonresident's sales to Indian customers are secured through the services of an agent in India, the assessment in In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsequent assessment years. [Para 11] If the correct arm's length price is applied and paid, then nothing further would be left to be taxed in the hands of the foreign enterprise. [Para 12] Therefore, considering the CBDT Circular No. 742, it would be fair and reasonable to compute the taxable income at 10 per cent of the gross profits. In the instant case insofar as marketing services were concerned, what had been paid by the arm's length principle was more than 10 per cent. The only contention advanced and which found favour with the Tribunal was that the advertisement revenue received by the assessee was also income liable to be taxed in India. The Commissioner (Appeals) had relied upon Circular No. 23 of 1969. That circular, read with article 7(1), would result in holding that advertisement revenue received by the assessee was not taxable in India as long as the Treaty and the circular were valid. [Para 13] Therefore, the impugned order of the Tribunal was not justified and deserved to be set aside. Merely because tax on income was paid for some assessment years would not stop the assessee from contending that its income was not liable to tax. Therefore, the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l position, existence of dependent agency permanent establishment in wholly taxneutral, unless it is shown that the agent has not been paid an arm's length remuneration, and when it is not the case of the Assessing Officer, as we have noted earlier, that the agents have not been paid an arm's length remuneration, the question regarding the existence of dependent agency permanent establishment, i.e., under article 5(4), is a wholly academic question. We humbly bow to the law laid down by Hon'ble Courts above. The limited argument before us is that here is a case of dependent agency permanent establishment, and the existence of a DAPE, in the light of these discussions, is wholly tax-neutral- particularly in the light of the legal position regarding profit attribution to the DAPE. We need not, therefore, deal with the question about the existence of a DAPE, as it is an academic exercise with no tax effect involved. The related grounds of appeal are thus infructuous." 6.4 We find that the TPO in M/s ZEEL's case (M/s ZTL subsequently changed its name to ZEEL ) has found the fees paid by the assessee for earning advertisement revenues to be at arm's length. In this context ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... light of present legal position, existence of dependent agency permanent establishment is wholly tax neutral, the question regarding existence of DAPE is a wholly academic in question. We need not therefore deal with the question about the existence of the DAPE, as it is an academic exercise with not tax effect involved. Section 92F(ii) of the Act defines arm's length price as a price which is applied or proposed to be applied in the transaction between persons other than associated enterprises ('AE') in uncontrolled transactions. As rightly held in E-Funds (supra), that "where transactions between assessees (two US Companies) and Indian entity where at arm's length price, no further profits could be attributed even if they are existed a PE in India. It is aptly held in Set Satellite (Singapore) Pte. Ltd. (supra) "if the correct arm's length price is applied and paid, then nothing further would be left to be taxed in the hands of the foreign enterprise". Similarly, in Asia Today Ltd. (supra), it is held that "in the light of Hon'ble Jurisdictional High Court's judgment in the case of Set Satellite (supra), so far as profit attribution of a DAPE is concerned, the legal position ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
