Attribution of foreign broadcaster revenue in India limited where Indian marketing agent was paid arm's length remuneration.

A foreign telecasting company's advertisement revenue was examined under section 9(1)(i) of the Income-tax Act and article 7(1) of the applicable treaty to determine the extent of Indian tax attribution. The Indian entity performed only marketing services for airtime and was paid arm's length remuneration. On that basis, the profit attributable to the Indian activity was treated as exhausted by the arm's length service fee, so no further tax liability arose in India on the advertisement revenue. Prior tax treatment in earlier years did not prevent the assessee from disputing Indian taxability for the relevant year.

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Issues: Whether the advertisement revenue earned by a foreign telecasting company was taxable in India, and whether payment of arm's length service fee to the Indian marketing agent extinguished the Indian tax liability on such revenue.

Analysis: The assessee carried on the programme acquisition and telecasting business from Singapore, while the Indian entity only rendered marketing services for airtime. The relevant framework under Explanation (a) to section 9(1)(i) of the Income-tax Act, 1961 and article 7(1) of the applicable tax treaty required attribution of income only to the extent reasonably connected with the Indian operations or the permanent establishment in India. Since the marketing function in India was remunerated at arm's length, the fee paid to the Indian agent was treated as exhausting the profit attributable to the Indian activity. The fact that the assessee had offered income in earlier years did not preclude it from contending that the revenue was not taxable in India.

Conclusion: The advertisement revenue was not taxable in India beyond the arm's length remuneration paid for the Indian marketing services, and the Revenue's challenge failed.

Final Conclusion: The taxability of the foreign broadcaster's advertisement revenue was confined to the Indian activity attribution principles, and the arm's length payment to the Indian agent neutralised further tax liability on that income.

Ratio Decidendi: Where a foreign enterprise's Indian activities are carried out through an agent paid arm's length remuneration, only the profit attributable to the Indian operations can be taxed in India, and such arm's length payment may extinguish any further attribution-based tax liability.

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