9911796707
TMI Blog2021 (2) TMI 1323X X X X Extracts X X X X X X X X Extracts X X X X ..... ht 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 [ 2017 (10) TMI 1011 - SUPREME COURT] 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.[ 2008 (8) TMI 96 - BOMBAY HIGH COURT] 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. [ 2021 (2) TMI 95 - ITAT MUMBAI] it is held that in the light of Hon ble Jurisdictional High Court s judgment in the case of Set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 basis. 3. Briefly stated, the facts of the case are that the appellant is a resident of United Kingdom, country with which India has DTAA. It is engaged in the business of telecasting, broadcasting via Satellite in UK and rest of Europe. It is having income from subscription and advertisement mainly from UK and Europe. For getting business from Indian advertisers, M/s Zee Telefilms Ltd. (M/s ZTL) was appointed as canvassing agent by the appellant in India. The appellant disclosed the gross revenue on advertisement from India on cash basis but noted that its income is not taxable in India, as it has no Permanent Establishment (PE) in India and claimed refund of tax deduct at source. It declared income of Rs.13,36,204/- being interest on income tax refund/sale on equipment in installment. The return was processed u/s 143(1) of the Act. Subsequently, on receipt of information gathered during the course of assessment proceedings for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erall 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 entire activities of the appellant is wholly carried out by M/s ZTL in India, it is the dependent agent of the assessee and constitutes a PE of the assessee in India under Article 5(4)/5(5) of the DTAA between India and UK. Accordingly, the AO referred to Article 7 of the DTAA and estimated the profit @ 10% of gross receipts of Rs.1,70,19,092/- which comes to Rs.17,01,909/- and thereby brought to tax the total income of Rs.30,38,113/- by including the interest income of Rs.13,36,204/- shown by the assessee in its return of income. 4. Before us, the Ld. counsel for the appellant submits that the Ld. CIT(A) held in earlier years that there is no PE in India and since there is no change in facts as compared to AY 2005-06, the same may be followed. It is stated by him that the appellant entered into an agreement dated 01.10.1997 with ASSL. Subsequently, in 1998, ASSL merged with M/s ZTL. It is elaborated by him that subsequently M/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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/2009), DIT (IT) v. Delmas France (232 Taxman 401) (Bom), International Global Networks BV v. ADIT (IT) [84 taxmann.com 188, DDIT v. B4U International Holdings Ltd. (23 taxmann.com 372) and DIT v. B4U International Holdings Ltd. (374 ITR 453) (Bom. HC). 5. On the other hand, the Ld. Departmental Representative (DR) submits that the appellant has entered into an agreement with ASSL, a company incorporated in India, having its registered office in Mumbai ; this Indian Company collects advertisements in terms of the Agreement which is effectively for an indefinite period and it automatically gets renewed for five years period in terms of paragraph 3 of the said Agreement. It is explained by him that the details of obligations of the Indian Company as mentioned in para 4 of the said Agreement clearly indicates that the entire business of collection of advertisement of the appellant in India is carried out by the Indian Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ZTL which is soliciting advertisement on its behalf and collecting advertisement revenue in India. Further, it was the contention of the AO that M/s ZTL was held to be dependent agent of the assessee and also held to be constituting a PE of the assessee in India under Article 5(4)/5(5) of the DTAA between India and UK. In ACIT v. Rajesh Jahveri Stock Brokers P. Ltd. 291 ITR 500 (SC) it is held that intimation u/s 143(1)(a) is not an assessment and notice u/s 148 is validly issued. In the instant case, as the AO has reopened the assessment by issuing notice u/s 148 on the return which are processed u/s 143(1), following the above decision of the Hon ble Supreme Court, we hold the reopening as valid. Accordingly, the 1st ground of appeal is dismissed. 6.1 Then we turn to the remaining grounds of appeal. It would be apposite to refer to the relevant decisions on the matter. In E-Funds IT Solutions Inc. (supra) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 PE of the assessee and, as such, the assessee was deemed to have a PE. It further held that in addition to the taxability of the DA in respect of the remuneration earned by it, which was in accordance with the domestic law and which had nothing to do with the taxability of the assessee of which it was a dependent agent, the assessee was also liable to tax in India in terms of the provisions of article 7 in respect of the profits attributable to the dependent agent's permanent establishment. The Tribunal further held that the assessee, in respect of its dependent agency's permanent establishment, was not extinguished of tax liability by making an arm's length payment to the dependent agent and, consequently, the relief given by the Commissioner (Appeals) by holding that the taxability of arm's length remuneration to the dependent agent extinguished the tax liability of dependent agent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvertisement 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 India of the income arising out of the transaction will be limited to the amount of profit which is attributable to the agent's services, provided that : (i ) the non-resident principal's business activities in India are wholly channelled through his agent; (ii) the contracts to sell are made outside India; and (iii) the sales are made on a principal-to-principal basis. The Commissioner (Appeals) had recorded a specific finding in favour of the assessee in the affirmative on all three counts. It was in those circumstances that it was held that the advertisement revenue received by the assessee, might be from the customers in India, was not liable for tax in India. The fact that CBDT circulars are binding needs no repetition. The Tribunal, in its judgment, had not considered the effect of the finding recorded by the Commissioner (Appeals) based on the circular which was relevant for the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 order of the Commissioner (Appeals) deserved to be restored, except to the extent he had said that he could not interfere because the assessee had paid the tax. That part was liable to be set aside. [Para 14] 6.3 In a recent decision in the case of Addl. DIT International Taxation 1(1), Mumbai v. Asia Today Ltd. (ITA No. 1878, 1879/Mum/2008 CO No. 124- 125/Mum/2008) for AY 2002-03 AY 2004-05) and other related assessment years, the assessee is a foreign telecasting company incorporated in Mauritius and having a tax residency certificate of Mauritius. It sells advertising time and collects subscription revenues through its Indian affiliates Zee Telefilms Ltd. and Ei Zee, but its claim was that since it does not have any permanent establishment in India, no part of its income was taxable in India. The AO did not accept the claim. He was of the view that its Indian agent constitu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, we refer to page 20 of the P/B for AY 2006-07 and page 21-28 of the P/B for AY 2007-08. For AY 2006-07, the TPO has accepted the arm s length price of transactions as reported by M/s ZEEL. For AY 2007-08, the TPO has made a transfer pricing adjustment of Rs.137,46,33,244/-. During AY 2007-08 M/s ZEEL has reported the following international transactions with its AEs : S. No. Nature of transaction F.Y. 2006-07 Method used by Assessee 1 Sale of TV programs and films 837,860,756 TNMM 2 Performance fee (received) 932,200 CUP 3 Agent for Space Selling (received) 54,011,514 CUP 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight 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 po ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
