2023 (1) TMI 952 - AT - Income Tax

Tribunal rules in favor of appellant: Warner Bros. not a DAPE, royalty income not taxable

The Tribunal allowed Ground No. 7 of the appeal in favor of the appellant, dismissing other grounds. It upheld the appellant's position that Warner Bros. ... PE in India - Dependent Agent Permanent Establishment of the appellant - income earned by the assessee as royalty from India is taxable in India - income from distribution and exhibition of films - The assessee is a tax resident of USA as engaged in export of films from USA, produced either by its group studios or produced by third parties - HELD THAT:- We find that the Tribunal in appeal by Revenue in [2011 (12) TMI 195 - ITAT MUMBAI] examined the issue and held that the assessee has no PE in India Tribunal in subsequent assessment years i.e. AY 2007-08 to 2014-15 and 2017-18 to 2018-19 has consistently decided this issue in favour of assessee by following the decision rendered in assessment year 2006-07 [2011 (12) TMI 195 - ITAT MUMBAI] We find that DRP of the directions for the impugned AY has recorded the fact that the DRP in assessee’s case has considered the issue in AY 2017-18 and the material facts remain the same during year under reference. The only reason for not following the order of Tribunal for preceding years is that the Hon’ble Bombay High Court on the issue of existence of PE of the assessee in India has admitted similar question of law in appeal by the Revenue in assessee’s case for assessment year 2008-09. No contrary decision was brought to the notice of Bench by the Revenue. In the light of the fact that in the preceding assessment years on same set of facts, the Tribunal has been consistently holding that the assessee has no PE in India. Following the decision of Co-ordinate Bench in assessee’s own case ground of the appeal is allowed. Issues:Assessment order under section 144 read with section 144C(13) of the Income Tax Act, 1961 for assessment year 2019-20. Whether Warner Bros. Pictures (India) Pvt. Ltd. is a Dependent Agent Permanent Establishment (DAPE) of the appellant, leading to taxable income in India.Analysis:1. Ground No. 7 Dispute: The appellant challenged the findings of the Dispute Resolution Panel (DRP) and the Assessing Officer (AO) regarding Warner Bros. Pictures India Pvt. Ltd. being a DAPE of the appellant. The appellant argued that previous Tribunal decisions favored them, emphasizing that the income from royalty is not taxable in India due to the absence of a Permanent Establishment (PE) in India. 2. Appellant's Position: The appellant, a USA tax resident, received royalty income from Warner Bros. Pictures (India) Pvt. Ltd. The appellant contended that the income is exempt under the Income Tax Act and the India-US Double Tax Avoidance Agreement. The appellant maintained that Warner Bros. Pictures (India) Pvt. Ltd. is not an agency PE in India, thus the royalty income is not taxable in India.3. Tribunal's Decision: Referring to previous judgments, the Tribunal for AY 2006-07 held that the appellant has no PE in India. The Tribunal reiterated that even if income arises due to business connection in India, it can only be taxed to the extent of activities attributed to a PE. Since the appellant lacked a PE in India and the Indian company acted independently, Agency PE provisions were deemed inapplicable. The Tribunal consistently ruled in favor of the appellant in subsequent assessment years based on the 2006-07 decision.4. DRP's Consideration: The DRP acknowledged that the issue was previously decided in the appellant's favor in AY 2017-18. The DRP's deviation from earlier Tribunal decisions was due to a pending appeal at the Bombay High Court regarding the existence of the appellant's PE in India for AY 2008-09. However, no contradictory decision was presented by the Revenue.5. Final Verdict: Ground No. 7 of the appeal was allowed in favor of the appellant, leading to the dismissal of other grounds. The Tribunal upheld the appellant's position, emphasizing the consistent rulings in previous years where it was established that the appellant does not have a PE in India. Consequently, the appeal of the appellant was allowed pro-tanto.This detailed analysis of the judgment highlights the legal arguments, precedents, and decisions that led to the Tribunal's final ruling in favor of the appellant regarding the taxability of royalty income in India.