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TMI Blog2024 (2) TMI 1495X X X X Extracts X X X X X X X X Extracts X X X X ..... on costs and expenses. The agreements unequivocally establish that ESS Distribution (Mauritius) is in no manner connected with the contracts executed by the Indian entities with cable operators and other intermediaries. Even the right to initiate legal action by the latter is available to be exercised only against the Indian entities. As far as the additional issue of profit attribution is concerned, we note that since there is no PE, the issue of profit attribution would clearly not arise. This issue, in any case, stands concluded in light of the judgment rendered in E-Funds IT Solution Inc. [ 2017 (10) TMI 1011 - SUPREME COURT ] Royalty receipt - As manifest from a reading of Article 12(3) that payments would fall within its ambit provided they represent consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work . As is evident from a reading of the agreement conditions extracted hereinabove, there was no transfer of copyright. The agreement that ESS Distribution (Mauritius) came to execute conferred no right with respect to copyright upon the Indian entities. This aspect, in any case, is liable to be answered in favour of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances of the case and in law, the Ld. ITAT is correct in holding that assessee has no business connection in India and is not taxable in terms of section 9(1) of the Income Tax Act when the assessee had complete control over sale of the agent and bore commercial risk on behalf of the agent? 2.4 Whether on the facts and in the circumstances of the case and in law, the Ld. ITAT is correct in holding that if the purported PE is remuneration on arm's length as subsidiary company, no further attribution of profit be made on foreign company, when the functions performed by the subsidiary company are much more what has been reported before TPO Analysis? 2.5 Whether on the facts and in the circumstances of the case and in law, the Ld. ITAT is correct in holding that no further attribution of profit be made on foreign company when the TP analysis did not adequately reflect the FAR borne by the Indian enterprise, for additional functions/risk performed by it as DAPE? 2. The appeals emanate from agreements entered into between ESS Distribution (Mauritius) S.N.C. ET Compagnie ESS Distribution (Mauritius), ESPN Star Sports and ESPN Software India Private Limited ESPN India. ESS Distributio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. E Funds 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 fixed place PE, it must be necessary that the said fixed place must be at the disposal of the assessees, which means that the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on facts, differing from the calculation formula by the authorities below, that nil tax was payable. This is the only part of the ITAT jud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 relevant for determining location or fixed place PE . Similarly what were the direct or indirect costs and corporate allocations in software development centre or BPO does not help ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . 6. It is thus manifest and as would be evident from the definitive findings of fact recorded, the appellant had woefully failed to adduce any evidence which may have lent credence to its contention of a fixed place PE. Proceeding to deal with the argument of DAPE, the ITAT has held as follows:- 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , artistic or scientific work (including cinematograph films and films or tapes for radio or television broadcasting, any patent trade-mark design, model plan, secret formula plan etc. Admittedly, the expression copyright has not been defined either under the Income Tax Act or under the India Mauritius Tax Treaty. Therefore, we have to find the meaning of copyright in the Copyright Act. As discussed earlier, section 14 of the Copyright Act defines copyright as under: 14. Meaning of copyright .-- For the purposes of this Act, copyright means the exclusive right subject to the provisions of this Act, to do or authorise the doing of any of the following acts in respect of a work or any substantial part thereof, namely-- (a) in the case of a literary, dramatic or musical work, not being a computer programme,-- (i) to reproduce the work in any material form including the storing of it in any medium by electronic means; (ii) to issue copies of the work to the public not being copies already in circulation; (iii) to perform the work in public, or communicate it to the public; (iv) to make any cinematograph film or sound recording in respect of the work; (v) to make any translation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered 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 is not covered under the definition of Royalty under section 9(1)(vi) of the Income Tax Acts well as Article 12 of the Treaty. Accordingly, the payment is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or ticket tape, substitution or any other modification, addition, deletion or any other variation whatsoever . xxx xxx xxx (2) Neither Distributor nor ESS shall have, or shall hold itself out as having, the right or 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 . 3(a) Distributor shall comply with all laws, rules and regulations, and hall obtain all necessary licenses and permits. (b) Distributor acknowledges that the names and marks of ESPN STAR Sports and ESPN (and the names of certain programs which appear in the ESPN Service) are the exclusive property of ESPN, Inc., ESS and its program suppliers and that Distributor has not acquired and will not acquire any proprietary rights therein by reason of this Agreement. Subject thereto and to the terms of this Agreement, ESS grants to the Distributor a non exclusive license to use the said names and marks on advertising and promotional material, notepapers, stationery and related materials used by the Distributor for its business activities under the Agreement. ESS shall have the right to approve any of Dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es any governmental consent or approval within the Area to distribute . xxx xxx xxx (e) Except as herein provided to the contrary, neither Distributor nor ESS shall have any rights against the other party here to for claims by third persons or for the non operation of facilities or the non-furnishing of the ESPN Service if such non operation or non- furnishing is due to failure of equipment, action or claims by any third person, labour dispute or any cause beyond such party's reasonable control . 10. A similar agreement came to be executed between ESS Distribution (Mauritius) and ESPN India. That agreement incorporates the following salient clauses:- 1(a) ESS Distribution hereby appoints Distributor as distributor to distribute and, or make available for distribution (subject to ESS Distribution's prior written approval, not to be unreasonably withheld or delayed) the international ESPN network programming service (the ESPN Service ) throughout the Area effective April 1, 2002 through March 31, 2003 (the Term ) and Distributor hereby, accepts such appointment. The Term shall automatically renew for successive periods of one year each unless ESS Distribution gives written no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in all necessary licenses and permits. (b) Distributor acknowledges that the names and marks of ESPN STAR Sports and ESPN (and the names of certain programs which appear in the ESPN Service) are the exclusive property of ESPN, Inc., ESPN STAR Sports and their program suppliers and that Distributor has not acquired and will not acquire any proprietary rights therein by reason of this Agreement. Subject thereto and to the terms of this Agreement, ESS Distribution grants to the Distributor a non exclusive license to use the said names and marks on advertising and promotional material, notepapers, stationery and related materials used by the Distributors for its business activities under the Agreement. ESS Distribution shall have the right to approve any of Distributor mentioning or using of such names or marks and publicity about ESPN STAR Sports or the programming included in the ESPN Service. Distributor shall not publish or disseminate any material which violates any restrictions imposed by ESPN STAR Sports or ESPN, Inc. program suppliers and disclosed to Distributor by ESS Distribution. Upon ESS s request, Distributor shall promptly discontinue the use of any material or material ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to discontinue the Service in the area. For purposes of this Agreement, subscriber shall include any person or entity that receives the Service for exclusive viewership at a location within the area from the affiliate, or from sub-operators, sub-affiliate/ cable operators of the Affiliate and does not further transmit the Service to any other person. 2. OBLIGATIONS OF THE AFFILIATE The Affiliate shall at its own cost and expense cause the service to be received only from the designated satellite(s) and shall ensure distribution Systems on a separate, dedicated channel(s) (the 'Channel(s)') for reception by all its Subscribers. The Affiliate shall be responsible, at its sole cost and expenses for obtaining all licenses and permits necessary for the foregoing. The Affiliate shall use its best efforts to maintain a high quality of signal transmission for the service and shall take all other necessary steps to ensure that (i) the service is received only by subscribers who pay the full applicable subscription fees for such Service and (ii) no location for which the applicable, subscription fees is not paid shall be capable of viewing the service. The Affiliate further agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urpose, but only where activities of that nature continue (for the same or connected project) for a period or periods aggregating more than 90 days within any 12 month period.] 3. Notwithstanding the preceding provisions of this article, the term permanent establishment shall be deemed not to include: (a) the use of facilities solely for the purpose of storage or display of merchandise belonging to the enterprise; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or for collecting information for the enterprise; (e) the maintenance of a fixed place of business solely (i) for the purpose of advertising, (ii) for the supply of information, (iii) for scientific research, or (iv) for similar activities, which have a preparatory or auxiliary character for the enterprise. 4. Notwithstanding the provisions of paragraphs (1) and (2) of this article, a person acting i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dustrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience . 4. The provisions of paragraphs (1) and (2) shall not apply if the recipient of the royalties, being a resident of a Contracting State carries on business in the other Contracting State in which the royalties arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base. In such a case, the provisions of article 7 or article 14, as the case may be, shall apply. 5. Royalties shall be deemed to arise in a Contracting State when the payer is that Contracting State itself, a political sub-division, a local authority or a resident of that State, where, however, the person paying the royalties whether he is a resident of a Contracting State, or not, has in a Contracting State a permanent establishment in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such permanent establishme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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