2011 (1) TMI 1208 - AT - Income Tax

Foreign Company's Tax Liability Extinguished in India Due to Arm's Length Service Fee

SET Satellite (Singapore) Pte. Ltd. Versus Deputy Director of Income-tax, (International Taxation), Range-2(1), Mumbai

The Tribunal held that the foreign company did not have a Permanent Establishment (PE) in India and that the arm's length service fee paid to the ... Double taxation relief - Where agreement exists Issues Involved:1. Whether the assessee has a Permanent Establishment (PE) in India.2. Taxability of advertisement revenues pertaining to AXN channel.3. Taxability of subscription revenues u/s 9 of the Income Tax Act, 1961.4. Liability of the assessee u/s 234B of the Income Tax Act, 1961.Summary:Issue 1: Permanent Establishment (PE) in IndiaThe assessee, a foreign company resident in Singapore, argued it did not have a PE in India as per Article 5 of the DTAA between India and Singapore. The AO determined that the assessee had a PE in India through SET India Ltd., a dependent agent. The CIT(A) held that if the service fee paid to SET India was on an arm's length basis, it extinguished the tax liability of the assessee in India. The Tribunal upheld this view, referencing the Supreme Court's decision in Morgan Stanley & Co. Inc., which stated that if the correct arm's length price is paid, nothing further would be left to tax in the hands of the foreign enterprise.Issue 2: Taxability of Advertisement Revenues Pertaining to AXN ChannelThe AO argued that ad revenues from AXN channel were taxable in India as the assessee had a PE in India. The CIT(A) held that since the assessee paid an arm's length service fee to SET India, no further profits should be taxed in India. The Tribunal upheld this decision, dismissing the Revenue's appeal on this ground.Issue 3: Taxability of Subscription Revenues u/s 9 of the Income Tax Act, 1961The AO assessed the entire subscription revenues retained by SET India as taxable in the hands of the assessee. The CIT(A) treated the income as business income and not royalty. The Tribunal agreed with the assessee's alternative contention that if the subscription income is considered as the assessee's income, the payment made to SET India should be treated as expenditure, resulting in nil income. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal on this ground.Issue 4: Liability of the Assessee u/s 234B of the Income Tax Act, 1961The CIT(A) held that since the assessee was not liable to tax in India, the question of levy of interest u/s 234B did not arise. The Tribunal agreed, referencing the Bombay High Court's decision in the assessee's own case, which followed the precedent set in DIT (International Taxation) v. NGC Network Asia LLC. The Tribunal dismissed the Revenue's appeal on this ground.Conclusion:The appeal filed by the Revenue was dismissed. Consequently, the assessee's appeal and cross objection were also dismissed as they became infructuous.