TaxTMI 
TaxTMI 
2020 (3) TMI 952
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.... [3] The relevant material facts, in the light of material on record, appear to be like this. The assessee before us is an Indian company. The assessee had made a payment of US $ 4,40,000, in respect of a celebrity appearance at Dubai, and the assessee did not withhold any tax from the said remittance. The Assessing Officer (TDS) probed the matter in some detail. It was found that an entity by the name of Audi India, a division of Volkswagen Group Sales India Ltd, and the assessee jointly planned an event in Dubai for launch of Audit A8L facelift model (Dubai Audi A8L launch event, in short). The purpose of this event was launch of a new model of Audi car, i.e. Audi A-8L, for the Indian market, but the launch event took place, on 3rd May 2014, at the Pavilion, Armani Hotel, Dubai. Kim Productions Inc, a company incorporated in the USA, agreed to facilitate the appearance of Nicholas Cage (hereinafter referred to as 'the international celebrity') for three consecutive hours, and it was a consideration of this appearance, that the assessee paid US $ 4,40,000, plus other incidentals such as costs of two return first class airline tickets from Los Angeles, costs of stay and lo....
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.... to potential customers. Majority of the customers were HNI individuals or existing customers already driving a different variant of the Audi car. Volkswagen Finance Private Limited (VWFPL) is a captive finance Company. Audi India and VWFPL are part of the same group - Volkswagen group. Such promotional events generate enquires of potential customers who in turn would like to purchase Audi cars and finance the same from VWFPL. In order to support mutual business VWFPL was part of this event. The audio visual clips were available for use exclusively for Audi India and VWFPL. [4] However, on the ground that the event took place in Dubai, UAE, and the celebrity made his appearance at the event in Dubai, it was claimed that this event did not rise to any tax implications in India so far as the event and the celebrity appearance was concerned. The stand of the assessee was that no tax was deductible from this payment as the celebrity or his agent were not carrying out any activities in India, in relation to the appearance fees received from the assessee, and as such the appearance fee could not be treated as accruing or arising in India, or deemed to be acc....
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....of this statutory provision is concerned, it simply refers to income accruing or arising in India. In other words, to trigger taxation under first limb of Section 5(2)(b), as a plain look at the statutory provisions would show, the event resulting in accrual of income must take place in India. That is not the situation before us. What results in an income accruing or arising to the international celebrity is participation in the Dubai Audi 8 L launch event, and this event has taken place outside India. In strict legal sense of the expression 'accrues or arises', therefore, the income to the celebrity cannot thus be said to have accrued or arisen in India, but then, given the broader scheme of the Income Tax Act, even first limit of Section 5(2)(b) needs to be read with, inter alia, Section 9(1)(i) of the Act which extends the scope of income accruing or arising in India by including, in the deeming fiction, "all income accruing or arising, whether directly or indirectly, through or from any business connection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India". W....
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....ut then we are not really concerned about these observations as these observations were made in the respect of business carried on by the non-resident. Their Lordships did specifically observe that "important cases which have arisen before the courts may briefly be reviewed, not for evolving a definition applicable generally to all cases but with a view to illustrate what relations between the non-resident and activity in the taxable territories which contributed to the earnings of the income may or may not be regarded as business connections". When such are the views of Hon'ble Supreme Court, it is beyond any dispute or controversy that the elements of business connection, as recognized in this case or, for that purpose, in the similar judicial precedents, cannot fetter what could be considered to be a business connection. Elsewhere in this very judgment, Hon'ble Supreme Court has observed that "a relation, to be a 'business connection', must be real and intimate, and through or from which income must accrue or arise, whether directly or indirectly, to the nonresident". What could, therefore, be a business connection is not only a tangible thing like people or businesses, but, ....
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....g car purchasing decisions of these less than 150 persons. To put a question to ourselves, what were the benefits of this event, held in Dubai, to the Indian assesses. In our humble understanding, and as the MoU with celebrity's agent unambiguously indicates in so many words- as noted earlier in this order, the predominant benefit of this event was "below the line publicity on internet, in press releases, news reports, social media" for Audi 8L facelift in India. The target audience was in India, the potential customers were in India, the intended benefits were in India, and yet the event was in Dubai UAE. The question then arises whether the income on account of this launch event in Dubai can be said to accrue or arise in India. Let us not forget the fact that the celebrity was to make an appearance in UAE event but admittedly the event was for below the line publicity in India. The expression 'below the line publicity' has been variously described as targeting "a specific group of potential consumers", "highly targeted, with advertisements being created keeping in mind the demographic and psychographic characteristics of particular customer segment", and "an advertising strategy ....
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.... and its associate Audi India, and claimed as a deduction under section 37(1), which essentially implies that the expenses, even by assessee's admission, has been incurred "wholly and exclusively for the purposes of business" of the assessee and the business of the assessee is only in India. Viewed thus, when we examine relation between Indian business and participation in an event by the celebrity at Dubai launch event, we have no doubt that it is because of this relationship between event in Dubai and business of the assessee in India that the income has accrued and arisen to the celebrity making appearance in Dubai launch event. There cannot be any justification for an assessee in India, doing business only in India, paying money to a celebrity to make an appearance in an event in Dubai unless such an appearance benefits the business of the assessee in India, and the fact that it did benefit the business interests of the assessee in India is not even in doubt or controversy. As a matter of fact, there is an inherent dichotomy in the approach of the assessee inasmuch as, on one hand, he claims the expenses in the Dubai launch event as expenses incurred for the purposes of busines....
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....ave highest respects for the judicial precedents, we do not think given the peculiar question that we are dealing, these judicial precedents will have any application. The business models were always constantly changing, but post the internet and social media revolution, the business models have changed so drastically that the very fundamental rules of game have changed. The very concept of 'below the line publicity' is something quite fundamentally new, and, beyond any dispute or controversy, none of the judicial precedents cited before us has anything to do with such contemporary instruments influencing customer behaviour. Given the peculiar situation that we are dealing with, and finding that the principles laid down in the context of rather primitive trade, commerce or services are not of much relevance in the present context, we are not inclined to deal with these judicial precedents in any detail. In any case, as observed by Hon'ble Supreme Court in the oft quoted case of CIT Vs Sun Engineering Works Pvt Ltd [(1992) 198 ITR 297 (SC)], "It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the que....
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....e same. Of course, it should not result in the enhancement of assessment or it should not be decided without affording due opportunity of hearing to the assessee. The matter was heard at length on 29th January 2020, 31st January 2020 and 6th February 2020, and it was specifically put to the assessee as to why, in the light of intimate business connection with India, the income to the international celebrity should not be brought to tax under section 5(2)(b). We may also mention that this issue was raised by the assessee itself, in the second ground of appeal which is reproduced below for ready reference: GROUND II: NON TAXABILITY OF APPEARANCE FEED PAID TO THE CELEBRITY UNDER THE ACT 2.1 Based on the facts and circumstances of the case and in law, the learned CIT(A) has erred in not appreciating that the appearance fees paid to the celebrity by the appellant was in the nature of business income of the celebrity not liable to tax in India under section 5 read with section 9(1)(i) of the Act, in the absence of celebrity's connections/ operations in India. 2.2 Without prejudice to Ground no. 2.1 above, the learned CIT(A) has erred in incorrectly presuming th....
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....on of Allahabad High Court in the case of Phool Chand Gajanand v. CIT [1966] 62 ITR 232 which has been applied by Full Bench of jurisdictional High Court in the case of Ahmedabad Electricity Co. Ltd. v. CIT [1993] 199 ITR 351 (Bom.). Their Lordships have discussed in detail, as to how powers of the Tribunal are to be exercised. In the case of Hukumchand Mills Ltd. v. CIT [1967] 63 ITR 232 (SC), which has been followed by the Hon'ble Bombay High Court's Full Bench judgment in the case of Ahmedabad Electricity Co. Ltd. (supra). Their Lordships of Hon'ble Supreme Court were in seisin of a situation in which it was argued before Their Lordships that "the Tribunal was not competent to go into the question whether the provisions of paragraph 2 of Taxation Laws Order were applicable to the present case and the respondent (i.e., the revenue) should be allowed to raise this contention for the first time before the Tribunal". In essence, therefore, one of the qualifying condition, which was not considered by the Assessing Officer or Appellate Commissioner, was disputed for the first time before the Tribunal. It was in this background, and dealing with the powers of the T....
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....dore State, were required to be deducted in arriving at written down value of the assets of the assessee". This plea was accepted by the Tribunal and the Hon'ble Supreme Court confirmed the action of the Tribunal in doing so. In this view of the matter, not only that admitting the plea regarding the assessee not rendering eligible telecommunication services does not suffer from any mistake apparent on record, but it does not suffer from any mistake at all. The stand so taken by the Tribunal is clearly in conformity with the law laid down by the Hon'ble Supreme Court. Once the Tribunal is called upon to examine as to whether or not the assessee is entitled to a claim of deduction, there is no escape from its duty to ensure that the requirements of section are fully complied with and the Tribunal cannot shun away from its duty to examine all the eligible conditions merely on the ground that some of these conditions are not specifically rejected by the authorities below. As is clearly evident from the observations made by the Assessing Officer, which have been extracted hereinbefore, the claim is rejected on one ground but such a rejection cannot be construed to mean that all ....
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....y be taxed in the residence state. Our attention is invited to the wordings of article 23(1) to the effect "Subject to the provisions of paragraph 2, items of income of a resident of a Contracting State, wherever arising, which are not expressly dealt with in the foregoing Articles of this Convention shall be taxable only in that Contracting State". This plea is fit to be only noted and rejected for the simple reason that article 23(3), which is a non obstante clause visà- vis article 23(1), provides that "notwithstanding the provisions of paragraphs 1 and 2, items of income of a resident of a Contracting State not dealt with in the foregoing articles of this Convention and arising in the other Contracting State may also be taxed in that other State". What essentially follows is that article 23(3) allows the country in which the income arises, to tax such income if its law so provides. The scheme of the treaty is thus unambiguous inasmuch as the treaty protection from source taxation is not available to an income which is not covered by the specific articles of the treaty in question. We, therefore, reject the claim of the assessee on treaty protection under article 23(1) ag....