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TMI Blog2022 (11) TMI 1536X X X X Extracts X X X X X X X X Extracts X X X X ..... of profit as held by this Tribunal in assessee's own case in A.Ys 2009-10 and 2011-12. Thus, following above we hold that since the assessee had no PE, either fixed place or DAPE in India, no part of its profit can be attributed to the PE. Accordingly, the addition made is deleted. Decided in favour of assessee. - 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 Sh. Divesh Chawla, Advocate. For the Department : Ms. Anupama Anand, CIT(DR) Sh. Sanjay Kumar, Sr. DR. ORDER PER SAKTIJIT DEY, JM : Captioned cross appeals arise out of a common order dated 18.01.2019 of learned Commissioner of Income Tax (Appeals)-42, New Delhi, pertaining to assessment year 2014-15. 2. Grounds raised by the assessee are as under: 1. On the facts and in the circumstances of the case, Ld. CIT(.4) has erred in reducing the profit attribution rate from 50% of net profit to 20% of net profit despite clearly agreeing with the AO that there are two different taxpayer enterprises viz (i) the Foreign company (ESPN Star) through its dependent agent PE, and (ii) the subsidiary company (ESPN India), both having di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtisement sales. Noticing the above, the Assessing Officer made a reference to the Transfer Pricing Officer (TPO) to examine the arm s length nature of such transaction. As admitted by the Assessing Officer, the TPO vide order dated 13.06.2017 has accepted the transaction between the associated enterprises to be at arm s length. However, referring to the assessment order passed for assessment year 2012-13 in case of the assessee and past assessment years, the Assessing Officer held that ESPN India constitutes a Permanent Establishment (PE) of the assessee in India both in the nature of fixed place PE and dependent agent PE (DAPE). 6. Having held so, he attributed 50% of the net profits to the PE. As a result, he made an addition of Rs. 3,95,55,855/-. The assessee contested the aforesaid addition before learned Commissioner (Appeals). While deciding the appeal, though, learned Commissioner (Appeals) agreed with the Assessing Officer that ESPN India constitutes fixed place PE and DAPE of the assessee in India, however, he reduced the rate of attribution of profit from 50% to 20% of the net profit. Accordingly, he decided the appeal. 7. Before us, learned counsel appearing for the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India purchased airtime from the assessee on Principal to Principal basis. The assessee claimed that the income arising from advertisement airtime is business income and in the absence of a PE of the assessee in India, the same is not taxable. The Assessing Officer relying upon the orders of Assessment Years 2003-04 and 2004- 05 held the transaction to be principal to agent and not on Principal to Principal basis. Further, ESPN India was constituted to be dependent agent as per Article- 5(4) and not an independent agent as defined by Article 5(5) of the India- Mauritius DTAA. The Assessing Officer attributed part of the gross profits to the PE. The CIT (A) also held that ESPN India constitutes PE under the India-Mauritius DTAA. However, he allowed partial relief to the assessee on the attribution of income to the DAPE in India. 13. The case of the assessee before us is that without prejudice to its contention on there being PE or dependent agent PE or not, when ESPN India is remunerated at arm's length basis then no further attribution of profits can be made in the hands of the assessee in India. The TPO in the order relating to Assessment Years 2009-10 and 2011-12 has held tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Margin Method was the appropriate method for determination of the arm's length price in respect of transaction between MSCo and MSAS. We accept as correct the computation of the remuneration based on cost plus mark-up worked out at 29% on the operating costs of MSAS. This position is also accepted by the Assessing Officer in his order dated 29.12.06 (after the impugned ruling) and also by the transfer pricing officer vide order dated 22.9.06. As regards attribution not further profits to the PE of MSCo where the connection, the department has also to examine whether the PE has obtained services from the multinational transaction between the two are held to / be at arm's length, we hold that the ruling is correct in principle provided that an associated enterprise (that also constitutes a PE) is remunerated on arm's length basis taking into account all the risk-taking functions of the multinational enterprise. In such a case nothing further would be left to attribute to the PE. The situation would be different if the transfer pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a case, there would be need t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the issue of whether ESPN India constitutes PE of the assessee in India under DTAA between India and Mauritius on the principle that ESPN India was remunerated at arm's length by the assessee, which has been accepted by the Assessing Officer/TPO of ESPN India and also the assessee, then no further attribution of profits is to be made in the hands of the assessee. Similar proposition has also been laid down by the Tribunal in assessee's own case for Assessment Years 2003-04 and 2004- 05. Accordingly, we hold so. Ground of appeal no.5.1 is thus decided and other grounds of appeal become academic. 15. Though the co-ordinate bench has not touched upon the issue whether ESPN Star Sports constitutes PE of the assessee in India under DTAA between India and Mauritius, however, we find that the Hon'ble Supreme Court in the case of E-funds IT Solutions Inc. 399 ITR 34 had an occasion to consider the test for whether there is fixed place PE. The relevant extracts read 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 Formu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee s 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessing 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 16. Considering the past history of the assessee in light of the decision of this Tribunal [supra] read with the decision of the Hon'ble Supreme Court in the case of E-funds IT Solutions Inc. [supra], we hold that the assessee has no business connection in India in terms of section 9(1) of the Act and has no PE under Article 5(2), 5(4) and 5(5) of India Mauritius DTAA. 17. Since we have held that there is no PE, we are of the considered view that there cannot be any attribution of profit as held by this Tribunal in assessee's own case in A.Ys 2009-10 and 2011-12. 18. For the sake of completeness of the adjudication, and as mentioned elsewhere, the TPO has accepted the international transactions at Arm's length and no adverse inference was drawn. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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