TaxTMI 
TaxTMI 
2011 (9) TMI 807
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.... ld. CIT(A) has erred on facts and in law in upholding that the assessee had a "permanent establishment" in India. 5. The ld. CIT(A) has erred on facts and in law by upholding the action of the AO in treating the gross receipts of Rs. 5,26,26,383/- from Prasar Bharti, as "fee for technical services" and imposing the tax of 20% (Rs.1,05,25,276/-) on such receipts. AY Gross Receipts Tax 2003-04 7,64,27,368/- 1,52,85,474/- 2004-05 7,01,68,520/- 1,40,68,520/- 6. The ld. CIT(A) has erred on facts and in law in not treating the receipts from Prasar Bharti as business income being purely commercial receipts, not liable to tax in India in the absence of any PE. 7. The ld. CIT(A) erred on facts and in law in confirming the estimate of income of Rs. 80,32,331/- in respect of amount received by the assessee in Singapore from Indian parties towards services rendered outside India and applying the rate of tax at 48% thereon. AY Income 2003-04 11,73,262/- 2004-05 2,07,607/- 8. The interest levied u/s 234A, 234B and 234C is against the law and facts and deserves to be deleted." 2. At the time of hearing, the asses....
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....company claims that it was incorporated in Singapore and was resident in Singapore for tax purposes and was wholly managed and controlled from Singapore and did not have any PE in India within the meaning of Article-5 of India-Singapore Tax Treaty, it filed its returns of income for A.Ys. 2002-03 and 2003-04 on 21.11.2003 in Mumbai with Dy. Director of Income-tax (International Taxation)-2(2), Mumbai, which the Company honestly believed had jurisdiction over the assessee company, and which jurisdiction was accepted by the AO as per order u/s 197 of the Income-tax Act, 1961 dated 11.02.2002 regarding tax deduction at source, passed by the Asst. Director of Income-tax (International Taxation)-2(2), Mumbai. The return of income for A.Y. 2004-05 was filed on 28.10.2004 also with the Dy. Director of Income-tax (International Taxation)-2(1), Mumbai declaring nil income. 6. The AO did not agree with the submissions of the assessee and held that the assessee had a PE in India. Alternatively, he held that the income of the assessee was in the nature of 'fees for technical services'. He taxed the gross receipts @ 20% u/s 44D read with section 115A of the Act ignoring the plea of t....
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.... (pp.78-81/PB) (ix) Assembly of technicians from different countries and their total stay in India in hotels at different places of cricket matches, in each of the three years under consideration was of less than 90 days in each year as per the following details:- AY Period of stay No. of days. 2002-03 16-02-02 to 21-03- 02 34 days 2003-04 03-10-02 to 27-11-02 56 days 2004-05 3-10-03 to 21-11-03 29 days Total :- 119 days (x) Details of the cricket matches played in India:- Dates Tournaments Venue Tests ODI Match days Feb/March 2002 Zim v. India India 2 5 15 Oct/Nov. 2002 WI v. India India 3 7 22 Oct. 2003 NZ v. India India 2 - 10 Oct/Nov. 2004 NZ v. India v. Aus. India - 10 10 Total 7 22 57 10. The assessee claimed exemption from income tax on the ground that its income was from business and there was no Permanent Establishment, as the stay for carrying on the business in India was less than 90 days in each of the three fiscal years, as required for service PE vide Article 5(6) of the DTAA.....
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....nor was he regularly acting on behalf of the assessee. In any case, the agreement was entered into on 12-02-2002 which in any case involves less than 90 days of "furnishing of services" in the fiscal year 2002-03; No PE could be attributed on this reasoning for the AY 2002-03. In the subsequent two years, the assessee having furnished services for less than 90 days in each year, there could be no PE in India. 14. The Ld CIT(A) has failed to appreciate the importance of the fact that clarifications as may be required are sought and furnished through correspondence or other wise over the phone or by e-mail or by other means of communications from Singapore without the need for personal interaction. 15. Assessee is a separate entity from Nimbus Communications Ltd (NCL in short), Mumbai whose media reporting is adversely referred by the CIT(A). It is a company of Nimbus Communication Worldwide Ltd (NCWL) - a company incorporated under the laws of Mauritius, and is a joint venture partner in the assessee company along M/s World Sports Group Ltd. (WSG) - a company incorporated under the laws of British Virgin Islands. There were 4 directors in NCWL namely, Dr. Akash Khurana, Mr. As....
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....er dated 07.02.2002 to Mr. David Mallinson, Group Counsel at Singapore) (ix) The equipment, cameras etc mentioned in para 7.3.3 of CIT(A)'s order is standard equipment and does not involve making available of any technology nor is it a relevant consideration for determining the PE. (x) The observation in para 7-3.4(p.37) of the order that the rendering of technical services required constant consultation with PB is also without any basis. The nature and content of services for producing the TV feed, enumerated in para 9 above, would show that there was no constant consultation after the award of the contract. Even the position of the cameras in the cricket field was settled then and communicated by PB to assessee. The selection of a producer does not require any constant consultation as it involves approving a person from a few well known persons in this area. (xi) No technical services as enumerated in para 7.3.5 (page 38) were rendered per se. They are all standard services and may be required or incidental to production of a commercial product, namely, TV feed which has been the subject matter of the contract. II. Observations- Pre-sales mapping....
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.... was vested in the Board of Directors, except for one meeting, all the Board meetings, during the period 2002-04 were held outside India. Details of all the Board meetings for the A.Ys. 2002-03 to 2004-05 have already been furnished at p.212/PB. III. Residence of the Directors and the domestic law - Section 6(3)(ii) of the Act 22. Even under the domestic law, the residence of a director is immaterial for the purpose of determining the residence or PE of a nonresident Company. Relevant Section 6(3)(ii) stipulates that a company is resident in India only if "during that year the control and management of its affairs is situated wholly in India" Even if a slight control and management is exercised outside India, it would be treated as a non-resident company. Following facts demonstrate that the assessee company's control and management was located wholly outside India: (i) Registered office of the Company is at Singapore. The certificate of incorporation dated 21.03. 200 is also from Singapore. (p 1/PB) (ii) Tax Residency Certificate is issued by the Singapore tax authorities. (p 213/PB) (iii) Seamus O'Brien Co-chairman of the Company and direc....
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....programmers and engineers of PB and other technical manpower. Taking support from certain observations from the Commentary on PE by Mr. Arvind A Skaar in the context of Construction PE, (para 7-3.12), lower authorities worked out the total duration and since it comes to more that 90 days in each of the three years, it has been held that the assessee company had a Service PE also. The period calculated in para 7.3.13 (f) [pp 53-55] of CIT(A)'s order is summarized as under:- Particulars AY 2002-03 AY 2003-04 AY 2004-05 TV Crew 36 days 58 days 51 days Mr. Seamus O'Brien 8 days 4 days 3 days Programmer & engineers 365 days 365 days 365 days Mr. Venu Nair 365 days 365 days 365 days Mr. Harish Thawani 365 days 365 days 365 days Technical personnal 54 days 78 days 69 days Mr. Digvijay Singh - 34 days 39 days Assessee's explanation 26. The stay of none of the above persons, except the actual period of stay of the technical personnel, is relevant in determining the period for "furnishing services" in connection with the performance of the contract. In response to the tender enqu....
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.... 42 212-A 2003-04 56 212-B 2004-05 60 212-C 28. It does not exceed the requirement of 90 days as provided in Art. 5(6) of the DTAA. And as such, according to the assessee, there was no service PE in India. The reliance on the commentary by A Skaar is misplaced. The LD author was commenting on the scope of the expression "carries on supervisory activities" with in the meaning of the construction PE in Article 5(4) of the OECD model DTAA. It was in that context that he opined that "the physical start of the actual construction is not required. This conforms best with the way the basic rule is interpreted, where a PE is established as soon as preparatory business activities are commenced in the country, provide that the activity later leads to the performance of a core business activity. A practical starting point for the time limit is the day when the first employee of the contractor arrives at the building site". In the present case the issue is whether there was a Service PE or not with in the meaning of Art. 5(6) of the DTAA under which one has to see for how long the foreign enterprise "furnishes services" in the Contracting State. The word " furnishes ....
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....Joe Lopez (shown at sl No 3), along with twenty six other crew and other technical members including the producer Margaret Hutchings (at Sl No. 20 in the list), came to-gather and was in India for 56 days during F.Y. 2002-03 from 3.10.2002 to 27.11.2002. This period included the inspection visits to each of the venues. Since he was in India, he may have visited Jamshedpur on 17-10 2002 i.e. the day reported by the Telegraph. There was no material with the Ld. CIT(A) to add 20 days to his stay much less make an adhoc addition of 20 days stay for the other two years also and that too by adding it to the stay of the other crew members to make addition of 54, 78 and 69 days in each of the three years.. No opportunity was allowed during the course of proceedings before drawing this unwarranted inference. (iii) Addition on account of O'Brian and Digvijay Singh's stay. 32. Shri Digvijay Singh, CEO of the assessee company (w.e.f. 26.07.2002) and Mr. Seamus O'Brien, Co-Chairman had also visited India in years under consideration to finalize technical plan and to attend co-ordination meeting for production and generation of TV signals. Assessee's explanation 33. S....
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....n explained in paras 24 to 26 above. The number of days as worked out by the assessee on pp. 212-A to 21-C and reproduced against item-5 above are the only days used for producing TV feed of cricket matches. Exclusionary clauses (d) and (e) of Art 5 of DTAA not applicable. 36. As per page 56 of CIT(A)' s order, none of the exclusionary clauses (d) and (e) as provided under Article 5(7) of DTAA between India and Singapore are applicable and hence the assessee company had PE in India in two forms namely (a) fixed place of PE under Article-5(1) of DTAA and (b) service PE under Article 5(6) under DTAA. Assessee's explanation 37. The reasoning given by the Ld CIT(A) is not correct, Articles 5(1) and 5(6) are independent of Art 5(7) of the DTAA and the tests laid there have to be independently satisfied. Klaus Vogel in his Commentary has defined the expression 'fixed place' as under:- "The fixed place of business must be more than merely temporarily at the enterprise's disposal. A fixed place of business owned by an enterprise but placed at the disposal of a third party for the latter's own purpose (and hence not for the enterprise's) woul....
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.... kind of any fixed place. During the cricket series, the matches were played in different cities in India. The crew had to move from one city to another to produce the live feed as required under the agreement with PB. Therefore, the presence of the assessee company at any given location was temporary, which could not grant any degree of permanence. Service PE 41. Para-6 of Article-5 of the DTAA provides that an enterprise shall deem to have PE in a Contracting State (India) if it renders services in India through its employees or other personnel, but only if the activities of that nature continue within that Contracting State (India) for a period aggregating more than 90 days in any fiscal year. 42. The agreement between assessee company and PB was in relation to the cricketing events taking place during the period February, 2002 to October, 2004. For rendering production services, the assessee company's production crew was present in India for a period of 34 days during F.Y. 2001-02, 56 days during F.Y. 2002-03 and 29 days during F.Y. 2003-04. The time spent in negotiating and signing the contract is not to be taken into consideration to determine the period of stay ....
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....4 - Payment for advertising, publicity and sale promotion are business income. (ix) Worley Parsons Services Pty. Ltd., In re (No. 1) (2009) 312 ITR 273/179 Taxman 347 (AAR - New Delhi) - Services provided must relate to the PE (Office space provided to the non-resident) (x) TVM Ltd. v. CIT [1999] 237 ITR 230/102 Taxman 578 (AAR - New Delhi) - Development and sale of TV programmes is a business activity. Common shareholders do not constitute PE. For an agency PE, even for a dependent agent, there has to exist a legal authority to conclude contracts which he "habitually exercises" being a systemic course of conduct on the part of the agent. (xi) Golf in Dubai, LLC., In. re [2008] 306 ITR 374/174 Taxman 480 (AAR - New Delhi) - Holding of golf tournaments in Delhi and Bangalore each of one week, through independent contractors, do not constitute fixed place or service PE in India. Ground Nos. 5 & 6 - Receipts are of business nature and not 'Fee for technical services' 46. The Assessing Officer has treated the payments received from Prasar Bharti as fee for technical services. He has given the following reasons in the assessment order for A.Y. 20....
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....vices is able to apply the technology contained therein. In other words, the person availing the services should be able to independently apply the technical knowledge on its own for its operations. 50. The Assessing Officer has erroneously / wrongly relied upon the ruling of Advance Tax Authority in the case of Ericsson Telephone Corpn. of ;India AB v. CIT [1997] 224 ITR 203/90 Taxman 144 (New Delhi), stating that 'where the assessee has a permanent establishment in India its income is taxable under head "Fees for Technical Services" and tax will be payable at 20% in view of provision of section 44 D read with section 115A of the Income Tax Act, 1961. 51. The ratio of the above referred advance ruling is not at all applicable to the Assessee Company for following reasons; i. The Advance Ruling Authority has not at all given any such ruling and issue involved related to percentage of withholding tax. ii. The AAR has very clearly stated that "the authority does not express any opinion about the net profit of the applicant company and leaves the question open to by agitated by the applicant and appropriate proceedings." In assessee's case, the AO has m....
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.... services that make available to the person acquiring the services technical knowledge, experience, skill, know-how, or processes, or consists of the development and transfer of a technical plan or technical design to such person. (For this purpose, the person, acquiring the service shall be deemed to include an agent, nominee, or transferee of such person.) This category is narrower because it excludes and services that does not make technology available to the person acquiring the service. Generally speaking technology will be considered 'make available' when the person acquiring the services is enabled to apply that technology. The fact that the provisions of the service may require technical input by the person providing the services does not per se mean that technical knowledge, skills, etc. are made available to the person purchasing the services, within the meaning of paragraph 4(b)." 53. Further, the Memorandum of Understanding of India - US tax treaty also states that generally technology will be considered to be "made available" when the person acquiring the services is enabled to apply the technology. The fact that the provision of services may require technic....
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....sar Bharti. If he had any doubt about the authenticity of the certificate, he should have made a reference to the Prasar Bharti instead of rejecting the certificate summarily. 57. In view of the above, it is submitted that the assessee was merely rendering the service of producing TV signals as per the specification provided by the Prasar Bharti and did not 'make available' any technical knowledge, as noted by the AO. Accordingly, the income received by it is not taxable as 'fees for technical services' under para 4 of Article 12 of the treaty. 58. In the case of Raymonds Ltd. v. Dy. CIT [2003] 86 ITD 791 (Mum.), while discussing the meaning of the term 'make available' under the India - UK tax treaty, the ITAT, Mumbai observed as under: "Thus, the normal, plain and grammatical meaning of the language employed, in our understanding, is that a mere rendering of services is not roped in unless the person utilising the services is able to make use of the technical knowledge, etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill, etc. must ....
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.... explicit what is embedded in the words 'make available' appearing in the DTAA with UK and USA". (b) C.E.S.C Ltd. v. Dy. CIT [2003] 80 TTJ 806/87 ITD 653 (Kol.)(TM) 61. In this case, the question regarding the scope of expression 'making available' came up for the consideration of the Tribunal. The majority view was that in order to be attracted by the provisions of the said article of the tax treaty, "not only the services should be technical in nature but should be such as to result in making the technology available to person receiving the technical services in question"....... The Tribunal also referred to. with approval, extracts from the protocol to the Indo-US tax treaty to the effect that "generally speaking, technology will be considered 'made available' when the person acquiring the service is enabled to apply the technology". The majority view in CESC's Ltd. case (supra) was also on the same lines. (c) Mckinsey & Co., Inc. (Phillippines) v. Asstt. DIT [2006] 99 ITD 549 (Mum.) 62. After an elaborate analysis of the entire case law and the examples on 'making available' given in Indo-US Tax Treaty, it was held that the person....
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.... assessee company did not have PE in India nor the payments received from Prasar Bharti were fee for technical services, the Assessing Officer was not correct in taxing the gross receipts at the rate of 20% u/s 44D read with section 115A of the Income-tax Act, 1961. In fact, the assessee company had suffered losses in this venture in two years namely A.Y. 2003-04 and 2004-05 as per details given below:- A.Y. Profit/loss incurred (Rs.) 2002-03 58,50,314/- 2003-04 (-) 11,36,184/- 2004-05 (-) 37,52,659/- 65. The above figures of profit/loss are before depreciation. If depreciation as per I.T. Rules is allowed, the profit for A.Y. 2002-03 will be converted into loss and or A.Ys. 2003-04 and 2004-05, the loss shall further increase. 66. The Ld. CIT(A) has not accepted our contention by saying that as per the scheme of taxation under Income-tax Act, 1961, the business profits by way of fee for technical services are taxable on gross basis without allowing any deduction of expenditure or allowances, at the rate of 20% u/s 44D read with section 115A of the Act. He has relied upon Board's Circular No. 461 dated 09.07.1986 and the following rulings of AAR an....
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....ource of these receipts lay in India, the Indian team played in these matches and these matches were broadcast internationally which included India. Besides, as per clause 2 of Article 12 of the DTAA, receipts from royalty and fee for technical services are taxable in India being a source country. Accordingly, he proceeded to adopt 20% of the gross amount of advertisements and estimated 50% thereof as the net income attributable to the PE in India. He applied the maximum rate of tax on such income applicable to foreign companies and made the following computation of income and tax for each of the three years:- A.Y. 2002-03 (i) Gross Receipts Rs. 8,03,23,312/- (ii) Net profit @ 20% of S.N. (i) Rs. 1,60,64,662/- (iii) 50% of (ii) attributable to PE in India Rs. 80,32,331/- A.Y. 2003-04 (i) Gross Receipts Rs. 1,17,32,618/- (ii) Net profit @ 20% of S.N. (i) Rs. 23,46,520/- (iii) 50% of (ii) attributable to PE in India Rs. 11,73,260/- A.Y. 2004-05 (i) Gross Receipts Rs. 20,76,072/- (ii) Net profit @ 20% of S.N. (i) Rs. 4,15,214/....
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....e received there in dollars. There was no agent or other fixed place for collecting the advertisements and as such their being no PE in India, the amount was not taxable in any of the three years. The fact that the live telecast from Sri Lanka could be viewed in India or that the Indian cricket team participated in the cricket matches are totally irrelevant considerations. The "force of attraction rule" provision, wrongly presumed by the Ld CIT(A), unlike the India- Canada DTAA, and some others, is absent in India- Singapore Treaty where Article 7(1) provides for the taxation of "only so much of them (profits) as is directly or indirectly attributable to that permanent establishment" The reliance on expert commentaries is thus wholly irrelevant and out of context. 72. The assessee company also relies upon the following judgements to support its submissions:- (i) Lufthansa Cargo India (P) Ltd. v. Dy. CIT [2004] 140 Taxman 1 (Delhi) (Mag.) (pp.713-720/PB-III) - (Repairs and maintenance in Germany- source of income is outside India) (ii) Set Satellite (Singapore) Pte Ltd. v. Dy. DIT [2008] 307 ITR 205/173 Taxman 475 (Bom.) (pp.721-731/PB-III) Advertisements collec....
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....ervices" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property, or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technical contained therein; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person." 78. The clauses (a), (b) & (c) of the India-Singapore treaty are mutually exclusive and any activity failing in any of the sub-clauses will amount to 'fees for technical services'. 79. Clause (b) to abo....
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.... Article 12 of this treaty and conjoined reading with Explanation (2) to Section 9(1) clinches the issue that the services made available and rendered by the assessee were of technical nature and the amount which assessee received from Prasar Bharti was for rendering such technical services. Therefore, we are inclined to hold that the payment in question is in the nature of fees for technical services. 82. Now, we proceed to decide whether the assessee had PE in India or not. In this regard, we observe as under:- (i) It clearly emerges from the fact that the contract was signed by the assessee at Singapore and all the activities relating to this contract were carried out from Singapore. (ii) There is no evidence on record that the management and control of the affairs of the assessee company were situated in Singapore. Merely because holding of one board meeting in India will not lead to a conclusion that during the years under consideration, the control and management of assessee's affairs was situated only in India. (iii) The assessee's activities at Singapore as listed in paragraph 22 of its order clearly demonstrates that the affairs of the....
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....yalties or fees for technical services, the tax so charged shall not exceed 10%." 86. Thus, the tax leviable on the assessee will be 10% of the gross receipts. We find merit in the argument of the learned counsel for the assessee that the situation is to be governed by the DTAA and not by domestic law in this behalf. We reverse the orders of lower authorities applying the rate of 20% by recoursing to Section 44D read with Section 115A of the IT Act. Thus, in conclusion, we hold that the assessee's activity is liable to be taxed at the rate of 10% as per paragraph 2 of Article 12 of the DTAA on the receipts which are in the nature of fees for technical services. In view thereof, we do not go into any other argument or case laws. 87. Coming to the issue about the advertisement revenue received by the assessee in Singapore for matches played abroad, it has not been disputed that the matches in question for which advertisements were given by the Indian company were all played in foreign countries. The assessee does not have a PE in India. In this eventuality, the revenue collected by it for the matches played overseas and telecast at overseas will not attract the theory of fo....