AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (9) TMI 793
X X X X Extracts X X X X
X X X X Extracts X X X X
.... which, following grounds have been raised :- "1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that the Assessing Officer has correctly applied Rule 10 to estimate the net profit from advertisement revenue. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in not appreciating that the Assessing Officer has correctly treated the distribution receipt as 'Royalty Income'. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing to delete the interest u/s 234B of the Income Tax Act, 1961. 4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that penalty u/s 271B is not leviable ignoring the fact that no penalty was levied as per the assessment order and that the same is an independent proceedings". 3. At the outset, Ld. Senior Counsel, Shri Percy Pardiwalla, submitted before us that all the issues raised by the revenue are squarely covered by the decision of the Tribunal in the assessee's own case for the earlier years, which have also been confirmed by the High Court also. 4. As regards estimate of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ility of the Appellant in India. While coming to the conclusion, the High Court had followed the decision of the Supreme Court in the case of Morgan Stanley. The Supreme Court in Morgan Stanley's case at para 33 of the ruling has held as follow: "As regards attribution of further profits to the PE of MASCO where the transaction between the two are held to be at arm's length we hold that the ruling is correct in principle provided that an associated enterprise (that also constitutes a PE) is remunerated on arm's length basis taking into account all the risk taking functions of the multinational enterprises. In such a case nothing further would be left to attribute to the PE. The situation would 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 function/risks that have not been considered". In the light of the decision of the Supreme Court it thus becomes important to determine whether the transfer pricing analysis appropriately reflects the functions and risks assumed by the enterprise. In this regard, the Assessing....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... carry out any activity and it is only the dependant agent PE which is responsible for all the functions in India. It is seen that other than the functions carried on by the agent, i.e. MSM in India, no other functions of the Appellant are carried on in India. Further, it has already been established before the Transfer Pricing Officers that the Appellant has paid an arm's length fee to MSM, the dependent agent PE. This is supported by the Transfer Pricing analysis and the orders passed by the learned TPO in the case of both the Appellant as "Payer" and of MSM as the "Receiver" of the fees. Further, the orders of the Transfer Pricing Officers have been accepted by the AO as well. Thus, it is an undisputed fact that the Appellant has remunerated MSM on an arm's length basis for the marketing activities carried on by MSM on behalf of the Appellant. Accordingly, since the facts for AY 2005-06 in respect of the marketing of ad airtime by MSM on behalf of the Appellant are no different from those in AY 1999-00, it is held that the decision of the Hon'ble Mumbai High Court in the Appellant's own case for AY 1999-00 should apply in AY 2005-06 as well. Further, it is also noted that my pre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....stribution revenues are not in the nature of 'royalty' income under the Act or the Treaty. Accordingly, as has been held in the earlier assessments and appellate proceedings in the case of the Appellant, distribution revenues earned by the Appellant are taxable as business income in the hands of the Appellant. As per Article 7 of the Treaty, distribution revenues being in the nature of business income would be taxable in India if the Appellant has a PE in India in respect of the distribution business. In connection with the above, the AO in his assessment order dated December 29, 2008 for AY 2005-06, in relation to the taxability of distribution revenues in the hands of the Appellant, has held that the Appellant does not have a PE in India. However, on perusal of the assessment orders as well as the orders of my predecessors in earlier years, i.e. for 2003-04 and AY 2004-05, I have noted that on identical facts pertaining to the distribution business of the Appellant, it has been held that the Appellant has a PE in India in the form of MSM, for the distribution business as well. Accordingly, in view of the fact that the fundamental aspect relating to the distribution business car....
X X X X Extracts X X X X
X X X X Extracts X X X X
....'s length basis (as evidenced by the order of the Transfer Pricing Officer for AY 2005-06), its case is covered by the decision of the Mumbai High Court in its own case for AY 1999-00. I have considered the submissions of the Appellant. In my view the ratio laid down by the Supreme Court in Morgan Stanley's case which has been followed by the High Court in the Appellant's case for AY 1999-00 is squarely applicable in the present appeal before me for AY 2005-06. In the present case, the contentions of the Assessing Officer are not acceptable as it is seen that other then the functions carried on by the agent, i.e., MSM in India, no other functions of the Appellant are carried on in India. Further, it has already been established before the Transfer Pricing Officers that the Appellant has paid an arm's length fee to MSM, the dependent agent PE. This is supported by the Transfer pricing analysis and the orders passed by the Learned TPO in the case of both the Appellant as "Prayer" and of MSM as the "Receiver" of the fees. Further, the orders of the Transfer Pricing Officers have been accepted by the AO as well. Thus, it is an undisputed fact that the Appellant has remunerated MSM on....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... regards the issue of 'distribution receipts' treated as 'royalty income', we find that this has been treated as business income and such a finding or conclusion now have attained finality, as pointed out by the Ld. Senior Counsel. Thus, finding of the CIT(A) on both the issues are affirmed and ground no. 1 & 2 are dismissed. 12. As regard the issue relating to ground no. 3 on account of deletion of interest u/s 234B, the Ld. Senior Counsel, Shri Pardiwalla, submitted that this issue has now been decided in favour of the assessee by the Hon'ble High Court in the case of assessee in the assessment year 1997-98 & 1998-99, wherein the Hon'ble High Court has followed the decision of DIT vs NGC Network Asia LLC, reported in 313 ITR 187 (Bom). Accordingly, ground no. 3 raised by the revenue stands dismissed. 13. Regarding ground no. 4, it has been agreed by both the parties that this ground is purely academic, accordingly the same is dismissed as such. ITA No. : 2523/Mum/2010, Assessee's appeal : AY 2005-06 14. In this appeal, the assessee has raised following grounds:- Taxability of Distribution Revenues 1. erred in enhancing the assessment by holding that the Appellant has a De....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aised by the Department. Since this issue has been decided in favour of the assessee by holding that the same is not taxable on the ground that it has been paid at Arm's length price, therefore, this ground becomes purely academic. 16. As regards the issue relating to taxability of interest received u/s 244A, it is admitted that, so far as taxability of interest u/s 244 is concerned, under Article 11(4) of India Singapore Treaty, the same is now covered by the decision of the Hon'ble Special Bench in the case of ACIT vs Clough Engineering Ltd, reported in [2011] 09 ITR (Trib) 618 (Delhi)(SB). Accordingly, we hold that so far as the issue of taxability of interest u/s 244A in the hands of the assessee, we decide the same in favour of the assessee after following the ratio laid down by the Hon'ble Special Bench in the case of ACIT v Clough Engineering Ltd (supra). However ground raised, vide ground no. 2, 4 and 5 regarding taxability of interest u/s 244A, the same are treated as infructuous. CO No. 113/Mum/2011: Assessee's CO : Arising out of ITA 2870/Mum/2010, AY 2005-06 17. The Ld. Counsel for the assessee submitted that the grounds raised in the Cross Objection relating to tax....