9911796707
TMI Blog2022 (11) TMI 1536X X X X Extracts X X X X X X X X Extracts X X X X ..... (ESPN Star) through its dependent agent PE, and (ii) the subsidiary company (ESPN India), both having different FAR, different taxable profits, and that the profit attributable to PE of foreign company are not merely arm's length profit for the subsidiary company. 2. On the facts and in the circumstances of the case, Ld. CIT (A) has erred in reducing the profit attribution rate from 50% of net profit to 20% of net profit without giving any basis or working for the same? 3. On the facts and in the circumstances of the case. Ld. CIT (A) has erred in reducing the profit attribution ate from 50% of net profit to 20% of net profit after holding rightly that FAR of DAPE is distinct from FAR of the associated enterprise (AF) in India and also after clearly holding that the facts regarding the FAR assigned to PE for the subject year without year corresponding compensation were not available with Hon'ble ITAT for A.Y. 200304 & 2004-05? 4. The appellant craves leave to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal. 3. Ground no. 1, being a general ground, does not required specific adjudication. 4. In ground nos. 2 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of profit from 50% to 20% of the net profit. Accordingly, he decided the appeal. 7. Before us, learned counsel appearing for the assessee submitted that the issue is squarely covered by the decision of the Coordinate Bench in assessee's own case in assessment year 2012-13. In this context, he drew our attention to order dated 20th October, 2021 in ITA No. 1219/Del/2017. 8. Though, learned Departmental Representative agreed that the Tribunal has decided the issue in favour of the assessee in earlier years, however, she relied upon the observations of the departmental authorities. 9. We have considered rival submissions and perused materials on record. The short issue arising for consideration in this appeal is, whether the assessee had any business connection or PE in India under the India - Mauritius Tax Treaty, so as to, attribute a part of the profits earned from the advertisement revenue to the PE. The observations of the Assessing Officer in the assessment order itself makes it clear that the decision taken by him with regard to the existence of fixed place PE and DAPE is based on the view taken by the Assessing Officer in the preceding assessment years. Notably, in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 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 that the international transaction of payment of advertising sales inventory cost to be at arm's length price. Copies of the orders of the TPO in the case of the assessee and also ESPN India have been filed during the course of hearing. Once, the transactions are demonstrated to be in accordance with arm's length principle then the question which arises is whether there can be any attribution of profits, even if, assessee has PE in India. We are not going in to the aspect of whether the assessee has PE or dependent agent PE in ESPN India for deciding the present issue raised before us. We are limiting our decision to further attribution of profits, in case, where once arm's length principle has been decided then, the Hon'ble Supreme Court has laid down the proposition that there can be no further profit attribution to a person, even if, it has a PE in India. The Hon'ble Supreme Court in Honda Motors Co. Ltd. vs ADIT in Civil Appeal Nos. 2833 to 2840 of 2018, judgement dated 14.03.2018, reported in [2018] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 to attribute profits to the PE for those functions/risks that have not been considered. The entire exercise ultimately is to ascertain whether the service charges payable or paid to the service provider (MSAS in this case) fully represents the value of the profit attributable to his service. In this enterprise at lower than the arm's length cost? Therefore, the department has to determine income, expense or cost allocations having regard to arm's length prices to decide the applicability of the transfer pricing regulations" (emphasis supplied)." 15. The said proposition have been also followed by the Hon'ble Delhi High Court in BBC Worldwide Limited (supra) and it has been held that if arm's length remuneration is paid to the dependent agent, nothing further remains to be attributed. In the case before Hon'ble Delhi High Court, the assessee was foreign telecasting company similar to the assessee, which had appointed its subsidiary in India to solicit orders for the sale of advertising a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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 assessees must have a right to use the premises for the purpose of their own business, which has not been made out in the facts of this case. He further argued that, on the facts of this case, both the US companies as well as the Indian company pay income tax, and the Transfer Pricing Officer by his order dated 22nd February, 2006, has specifically held that whatever is paid under various agreements between the US companies and the Indian company are on arm's length pricing and that, this being the case, even if a fixed place PE is found, once arm's length price is paid, the US companies go out of the dragnet of Indian taxation. He also adverted to Article 5(6) to state that the mere fact that a 100% subsidiary may be carrying on business in India does not by itself means that the holding company would ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew 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 judgment upheld by the High Court, and should not, therefore, be disturbed in any case. 6. Before we deal with the submissions made on both sides, it is necessary to first set out the statutory background. This is contained in Section 90 of the Income Tax Act, before it was amended in 2009. Section 90(1) and 90(2) of the Income Tax Act, as it then stood, read as under: "Section 90. Agreement with foreign countries.-- 1) The Central Government may enter into an agreement with the Government of any country outside India-- (a) for the granting of relief in respect of-- (i) income on which have been paid both income-tax under this Act and income-tax in that country; or (ii) income-tax chargeable under this Act and under the corresponding law in force in that country to promote mu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cation 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 or determine location PE. Assignment or sub-contract to e-Fund India is not a factor or rule which is to be applied to determine applicability of Article 5(1). Further whether or not any provisions for intangible software was made or had been supplied free of cost is not the relevant criteria/test. e-Fund India was/is a separate entity and was/is entitled to provide services to the assessees who were/are independent separate taxpayers. Indian entity i.e. subsidiary company will not become location PE under Article 5(1) merely because there is interaction or cross transactions between the Indian subsidiary and the foreign Principal under Article 5(1). Even if the foreign entities have saved and reduced their expenditure by transf ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
