TaxTMI 
TaxTMI 
2019 (2) TMI 34
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....s liability to be "assessed" under the Income-tax Act, 1961 ('the Act'). 1.2 That on the facts and circumstances of the case and in law, Learned Commissioner of Income tax (Appeals)-XXIX ('Ld. CIT(A)') grossly erred in not appreciating the facts and circumstances of the case and thus based his decision on factually incorrect findings. 2. That on the facts and circumstances of the case, Ld. CIT(A) erred in upholding the order of the Learned Assessing Officer ('Ld. AO') that the appellant has a business connection in the form of ESPN Software India (P) Ltd. ('ESPN India') and that the appellant is carrying on its business in India and also earning its income from sources in India in terms of Section 9(1 )(i) of the Act. 3. That on the facts and circumstances of the case and in law, Ld. CIT(A) grossly erred in upholding the order of the Ld. AO that appellant has a fixed based permanent establishment ('PE') in India under Article 5(l)/5(2) of the India Mauritius Double Taxation Avoidance Agreement ('DTAA'). 4.1 That on the facts and circumstances of the case and in law, Ld. CIT(A) grossly erred in upholding the order of the Ld. AO that ESPN India is ....
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....gaged in the business of telecasting of ESPN and Star Sports channels in various South Asian Countries including India. The assessee entered into a representation agreement ("Agreement") with ESPN Software India (P) Ltd. ("ESPN India") appointing it as its representative for ad solicitation activities and for the collection of advertisement revenues from the Indian advertisers/ agencies. ESPN India collects the advertisement charges from various Indian companies (advertisers/advertising agencies) and remits the same to the assessee after deducting applicable taxes in India on the commission payable to it as per the agreement. In the income tax returns, the assessee declared 'Nil' income and in the notes of the computation, it was stated that revenue from the advertisements, being in the nature of business profits, are not subject to tax in India in accordance with Article 7 of the India-Mauritius DTAA, because assessee does not have any PE in India under Article 5. 3. Learned Assessing Officer required the assessee to justify as to why the Indian entity which is wholly owned subsidiary of ESPN (Mauritius) Ltd. should not be treated as dependent agent PE (DAPE) within the meaning....
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....n entity has the 'authority to conclude contract' on behalf the assessee and rejected all the contention of the assessee that none of the activities carried out by the Indian entity was in any manner of dependent agency and nowhere it had authority to conclude contract for the assessee. He also referred to the certain clauses of the agreement to reach to the conclusion that the Indian entity is DAPE of the assessee. Not only that, he also further held that Indian entity is a 'Fixed place PE' of the assessee and in support he relied upon the decision of Special Bench of Delhi ITAT in the case of M/s. Nokia Networks OY vs. DCIT. After having held that assessee has a PE, he attributed 70% of the profit from the Indian PE and thereby attributed the income of Rs. 8,60,66,552/-. 4. Before the CIT (A), the assessee submitted that the profit embedded in the transaction between the assessee and the Indian entity had already subjected to tax in the hands of the Indian entity and there should not be another assessment in the hands of the assessee to tax the very same profit. Further, Indian entity besides carrying out collection of ad revenues for the assessee was also engaged in the distr....
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....whether the Indian entity had the authority to conclude the contract on behalf of the assessee, he observed that the assessee's contention that one employee was sufficient to discharge the function with the allotment of his right does not hold any merit, because one person cannot handle and no documentary evidence was filed before the Assessing Officer or during the course of appellate proceedings in the form of any correspondence between the advertisers and the assessee. He also referred to the various observations as well as the decisions in this regard. * Lastly, he also held that assessee has a fixed place PE, because the Indian entity is a 'virtual projection' of the assessee in India and looking to the common management and a controlling stake, ESPN India acts as a fixed place PE of the assessee. 5. In so far as the issue of attribution of profit is concerned, assessee submitted that even if it is assumed that PE of assessee is constituted in India, then only the profits attributable to the PE in terms of Article 7 can alone be taxed and once the profits attributable to the activity of the PE are determined according to the Arms' Length principle in its dealing wi....
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....d that the observation and the finding of both the authorities are completely divorced from the facts and misinterpretation of the entire transaction and the terms of the agreement. The Indian entity was an independent agent and was not devoted wholly or almost wholly for the assessee, because only 4% of the business of the Indian entity related to the assessee. Thus, he submitted that assessee has a very strong prima facie good case that Indian entity does not constitute any kind of PE for the assessee in India. 8. However, Mr. Porus Kaka pointed out that it is not in dispute that the transaction between the assessee and the Indian entity has been found to be at arm's length which has been noted even by the ld. CIT (A). Once the transaction and the remuneration arising thereof have been accepted to be at arm's length, then there could not be any further attribution of any profit. The Indian entity had filed its entire transaction in Form 3CEB and no TPO adjustment order has been passed and the margin of 10% of the commission paid to the Indian entity has been accepted to be at arm's length price. Similarly, in the Assessment Year 2004-05, he submitted that the reference was mad....
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....ng as to why the Indian entity is a DAPE of assessee in India. 10. We have heard the rival submissions and also perused the relevant findings given in the impugned orders as well as matter referred to before us. It is not in dispute that assessee is engaged in the business of acquiring and allotting advertisement time and programme sponsorships in connection with ESPN and Star Sports channel in Television, which it acquires the advertisement time from ESPN Star Sports Singapore. It has entered into with 'representation agreement' with ESPN India appointing it as its representative for ad soliciting activities and for collection of advertisement revenue from the Indian advertisers/ agencies. The ESPN India collects advertisement charges from various Indian companies and remits the same to the assessee after deducting the tax on the commission payable to it as per the agreement. However, before coming to the issue whether there is a PE of assessee in India either in the form of DAPE or fixed place, we would like to deal first, whether the remuneration paid by the assessee to the Indian entity is at arm's length price or not, because, if the transaction between the assessee and the....
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....he commercial format of the Channel and the amount of advertising time in each Channel available to the Representative for soliciting advertisers. The Representative shall not solicit any exclusivity, entitlements or other sponsor identified packages without prior written approval from ESS Mauritius. After having solicited the advertisements, the Representative shall forward by facsimile or electronic mail each advertiser's requisition ('order1 or 'advertising order6) for telecast of its advertisement(s) to ESS Mauritius or a person designated by it and ESS Mauritius reserves the right to accept or reject the aforesaid requisition at its sole discretion, For purposes of avoidance of doubt, any failure by ESS Mauritius to indicate its approval within thirty (30) days of receipt of a requisition from Representative shall be deemed to be a rejection of such requisition. ESS Mauritius shall not be obligated to accept any particular advertising order or orders. ESS Mauritius shall be free to accept or reject any such order as it may determine in its discretion, in light of the terms ESS Mauritius may set from time to time, which may include the qua....
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....out or there are any other transaction by the Indian entity vis-à-vis the assessee and all other functions of the ESPN India relate to distribution of the channel of other entities for which it is paid 'subscription fee'. If one goes by the overall revenue earned by the Indian Entity, then transaction with the assessee is much less than 5%, as noted by the TPO in his order the following international transaction of Indian entity with its AEs:- S. No. International Transaction Method Value (in Rs.) 1. Remittance of subscription fee TNMM 1,088,854,893 2. Receipt of Advertisement Commission TNMM 42,816,391 The receipt of advertisement commission only has been received from the assessee. Thus, if the Indian entity has been remunerated at arm's length price, then no further attribution of profit can be made. This proposition is well settled and upheld by the Hon'ble Supreme Court in the case of DIT vs. Morgan Stanley (supra) which has been reiterated and reaffirmed by the Hon'ble Supreme Court in the case of ADIT vs. E-funds IT Solution, (2017) 399 ITR 34 (SC). Apart from that Hon'ble Delhi High Court in the case of Galelio Ne....