TaxTMI 
TaxTMI 
2017 (8) TMI 912
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....3/14 21/05/10 1999-00 31/01/00 Rs. 13.04 crores Rs. 15.33 crores 15/3/02 26/03/14 21/05/10 2000-01 30/11/00 Rs. 8.77 crores Rs. 17.54 crores 27/03/03 26/03/14 27/05/11 2001-02 30/10/01 Rs. 9.08 crores Rs. 2.12 crores 22/03/04 26/03/14 21/05/10 2002-03 31/10/12 Rs. Nil Rs. 76.41 lakhs 11/02/01 26/03/14 27/05/11 2003-04 07/11/03 Rs. Nil Rs. 3.90 lakhs 17/11/05 26/03/14 20/01/12 2004-05 26/10/04 Rs. 3.94 crores Rs. 3.96 Crores 20/09/06 26/03/14 23/07/10 ITA/5689/Mum/2014 A.Y.1998-99 :Brief Facts: 2. Assessee-company is incorporated in the Netherlands and is a wholly owned subsidiary of Satellite Television Asia Region Limited (STAR Limited)based in Hong Kong ,which in turn is subsidiary of STAR Television Limited. It had been granted the exclusive right for sale of advertising time, in India, on the channels of the STAR TV Network, which was owned by STAR Limited. It engaged STAR India Pvt Ltd.(earlier known as News Television (India) Limited),an Indian entity, to procure business from Indian advertisers, on a commission of 15% of receipts from such bu....
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.... India the assessee had argued that no further attribution of income should be made in the hands of the assessee. The FAA also held that Circular 742 was not applicable, that it was issued in connection with section 195 of the Act, that it was issued for telecasting companies, that the assessee itself had admitted that it was not a telecasting company, that it was not issued to facilitate the complexity of assessments of foreign telecasting companies, that the cases relied upon by the assessee pertained to the case of telecasting companies, that the AO was justified in determining the income of the assessee @ 20% of the profitability. 5. Before us ,the Authorised Representative(AR)argued that as per the tax treaty to constitute a PE the Indian agent should have power to enter into contract independently, that the agent had no power to conclude the contracts, that agency PE was not there, that the agent (SIPL)was wholly independent, that it was not dependent on the assessee, that as per the contractual arrangement STAR India Private Ltd(SPIL)was not a PE of the assessee in India, that SIPL was a commission agent and was paid commission(r) 15%for the services rendered by it to the....
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....6-07 , that additional commission income was offered by such entities, that the assessee had PE in India, that it was liable to pay tax in India for the income earned here. He also made reference to the case of DLF Operations, relied upon by the FAA. In the rejoinder the AR stated that the assessee had not approached the Settlement commission, that other entities of the group had filed petition before the Settlement Commission to end the litigation. 6. We have heard the rival submissions and perused the material before us. We find that agency agreement was entered into between Star Advertising Sales BV and News Television India Private Ltd on 31/05/1994, that supplement agreement were executed in the months of May, 1995,1996 and 1998 between the same parties. We would like to refer to some of the clauses of the agreement of 31/05/1994. "Appointment The Company hereby appoints the Agent as its non-exclusive independent agent in India to market television advertising for the said channel and the Agent uneqivocally accepts such appointment. Rate The Agent shall solicit the advertisements in India for the said channel at such rates as the Compa....
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....ting in one of the States on behalf of an enterprise of the other State, that enterprise shall be deemed to have a permanent establishment in the first State if, 6. An enterprise of one of the States shall not be deemed to have a permanent establishment in the other State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph if it is shown that the transactions between the agent and the enterprise were not made under at arm's-length conditions." From the above, it is clear that before examining the question as to whether an agent satisfies conditions laid down in paragraph-5,it has to be examined that whether it satisfies conditions mentioned in paragraph-6.The provisions of paragraph 5 will come into picture only if the agent does not satisfy the conditions in paragraph 6. In short, if the agent sa....
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....ate considered normal for the industry. It is a settled position that where the Indian agent is remunerated on an arm's length basis by foreign principal there would not be any further attribution of profits in the hands of the foreign principal. Circular 5 of 28/09/2004 stipulates that amount of profits attributable to a PE should be determined based on arm's length principle. It has to be remembered that circular dated 23/07/1969(Circular Number 23)had provided that the amount of profits attributable to PE should be determined as on the arm's length remuneration and that if transaction between a foreign enterprise and its PE were at arm's length it would extinguish the text liability of the foreign entity. CBDT circular No. 742 had recognised that rate of 15% commission payable to the Indian agents by the foreign telecasting companies was to be considered normal. It is also found that in the case of SIPL, while completing the transfer pricing assessments, for the AY.s 2002-03 to 2004-05,the TPO had held that payment of commission @of 15% by the assessee to its agent i.e. to SIPL was at arm's length. 6.3 One more issue to be deliberated upon is the applicabi....
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....see on account of the said activities. Reliance was placed on Circular No. 23, dated 23/07/1969, issued by the CBDT. While filing revised return on 05/03/2001,it computed its taxable income as per the formula prescribed in the Circular No. 742 without prejudice to its contention that, it did not have any income which was taxable in India. The AO assessed the income of the assessee which included income from marketing fees as also advertisement collected from India and further the subscription fees received from cable operators of its dependent agent. The assessee preferred an appeal before the FAA. Before him it was argued that only income attributable to the it's Indian operations viz., marketing of the ad time slots could be taxed in India and that ad revenues earned were not attributable to its Indian operations as the contract to sell were made outside India and the sales were made on principal to principal basis. The FAA held that paragraph 6(c) of Circular No. 23 was applicable to the assessee as the non-resident's business activities in India where wholly channelled through its agent, that the contracts to sell were made outside India, that the sales were made on ....
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.... ; (ii) the contracts to sell are made outside India ; and (iii) the sales are made on a principal-to-principal basis. The Commissioner of Income-tax (Appeals) had recorded a specific finding in favour of the appellant in the affirmative on all the three counts. Circular No. 23 would be binding on the Assessing Officer and had to be considered while assessing the tax liability of the assessee. Considering Circular No. 742 it would be fair and reasonable that the taxable income is computed at 10 per cent, of the gross profits. In the instant case in so far as marketing services were concerned by the arm's length principle what had been paid was more than 10 per cent, as could be seen from the order of the Commissioner of Income-tax (Appeals). This was not disputed by the Revenue in its appeal before the Income-tax Appellate Tribunal. Circular No. 23 of 1969 read with article 7(1) would result in holding that the advertisement revenue received by the appellant was not taxable in India as long as the treaty and the Circular stood." "15.From a reading of article 7(1) of the DTAA it is clear that the profits of an enterprise of a Contracting State shall be taxable only in t....
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.... Direct Taxes Circular No. 23, dated July 23, 1969, which clearly sets out that where a non-resident' s sales to Indian customers are secured through the services of an agent in India, the assessment in India of the income arising out of the transaction will be limited to the amount of profit which is attributable to the agent' s services, provided that (i) the non resident principal' s business activities in India are wholly channelled through his agent; (ii) the contracts to sell are made outside India ; and (iii) the sales are made on a principal-to-principal basis. The Commissioner of Income-tax (Appeals) had recorded a specific finding in favour of the appellant in the affirmative on all the three counts. It is in these circumstances that it was held that the advertisement revenue received by the appellant may be from the customers in India is not liable for tax in India. That Central Board of Direct Taxes Circulars are binding needs no repetition. If authorities need be cited, we may now refer to the judgment of the Supreme Court in UCO Bank v. CIT [1999] 237 ITR 889. In that judgment the issue was whether Circular of October 9, 1984, was inconsistent or whether t....
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....rtising agent of SET Satellite Singapore Pvt. Ltd. The assessee distributes these channels to the Indian cable operators and that the assessee has applied the TNM method to determine the arm's length price for its international transaction. It, however, clarified that the order is in respect of reference received for the assessment year 2002-03 and not for the subsequent assessment years. 20. We may now consider the judgment in DIT (International Taxation) v. Morgan Stanley and Co. Inc. [2007] 292 ITR 416 (SC). The appeals dealt with the Double Tax Avoidance Agreement (DTAA) between India and United States. That treaty advocated application of the arm' s length principle or provided a mechanism for avoiding double taxation on income. The issue involved, Morgan Stanley and Company (for short, " the MSCo." ) and one of the group companies of Morgan Stanley, Morgan Stanley Advantages Services Pvt. Ltd. (for short " the MSAS" ). An agreement was entered into for providing certain support services to MSCo. MSCo. outsourced some of its activities to MSAS. MSAS was set up to support the main office functions in equity and fixed income research, account reconciliation and ....
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....rtaken there is no further need to attribute profits to a permanent establishment. The court further noted that the computation of income arising from international transactions has to be done keeping in mind the principle of arm' s length price. The court further reiterated that the main point for determination is whether the Authority for Advance Rulings was right in ruling that as long as MSAS was remunerated for its services at arm' s length, there should be no additional profits attributable to the applicant or to MSAS in India. After considering the various methods by which arm' s length price can be determined the court observed as under (page 440) : "As regards determination of profits attributable to a permanent establishment in India (MSAS) is concerned on the basis of arm' s length principle we have quoted article 7(2) of the DTAA. According to the Authority for Advance Ruling where there is an international transaction under which a non-resident compensates a permanent establishment at arm' s length price, no further profits would be attributable in India. In this connection, the Authority for Advance Ruling has relied upon Circular No. 23 o....
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.... favour with the Tribunal was that the advertisement revenue received by the assessee was also income liable to tax in India. The Commissioner of Income-tax (Appeals) relied upon Circular No. 23 of 1969. That Circular read with article 7(1) would result in holding that advertisement revenue received by the appellant are not taxable in India as long as the treaty and the Circular stands. 24. In the light of the above appeal filed by the appellant herein is allowed and the order of the Income-tax Appellate Tribunal is set aside." 6.4.1 We would also like to refer to the case of B4U International Holding Ltd (supra). In that matter the tribunal has held as under: "Coming to the alternate argument even if it is held that there is a PE of the assessee in India, then we would hold that the rate of commission of 15% was accepted as ALP by the TPO for the AY 2003-04 to 2004-05, no further profit is attributable to the PE. This is the rate mentioned in the CBDT Circular No.742 of the order 1996. Similar rate is accepted by the Hon'ble Bombay High Court in the case of Set Satellite (Singapore) Pte. Ltd. (supra). Thus we have no agitation in upholding the contention o....