TaxTMI 
TaxTMI 
2021 (7) TMI 1399
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....ad case and facts narrated. The assessee has raised the following grounds of appeal. "Ground No. 1 a. erred in determining a sum of Rs. 12,93,45,520/-. b. Erred in determining the total income of the appellant to be Rs. 51,23,79,554/- Ground No. 2 Erred in holding that the appellant has a permanent establishment in India as per the provisions of the India - USA Double Tax Avoidance Agreement and accordingly holding that the advertisement sales revenue earned by the appellant are taxable in India. Ground No. 3 Without prejudice to Ground No. 2 above, erred in attributing additional profits to the appellant in India without appreciating that the alleged PE has been remunerated at arms length. Ground No. 4. Erred in holding that the distribution fee earned by the appellant is taxable in India; Ground No. 5 Erred in granting short credit of taxes deducted at source amounting to Rs. 3,34,90,880/- Ground No. 6 Erred is not granting the additional TDS credit amounting to Rs. 56,39,569/- Ground No. 7 Erred in levying interest u/s 234D of the Act. ....
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.... its AE. The assessee has filed details of revenue and agreements on 17-09-2013 in relation to the broad cast of channels in India. The A.O. dealt on the agreements with the broad cast channels in relation to distribution of revenues and advertisement revenues. The assessee has filed detailed letter dated 16-12-2013 on non taxability of advertisement revenues in India referred at Para 8 of the assesseement order. The A.O. considered the provisions of Section 5(2) and 9(1)(i) of the Act and DTTA between India and USA, Articles, CBDT circular, OECD report, judicial decisions and Income Tax Rules and finally observed that the advertisement revenues is taxed as business income in India and similarly the distribution income is treated as royalty income and taxed @15% as per Article 12 of the India- USA treaty. The A.O. has passed the Draft Assessment order U/sec 144C(1) r.w.s 143(3) of the Act dated 26.02.2014. The assessee after the receipt of order, has filed objections in Form no 35A with the DRP. The DRP considered the objections and submissions and passed order u/sec 144C(5) of the Act dated 14.11.2014. In pursuance to the DRP directions, the A.O has passed the final assessment ord....
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....d 30-12-2020 has dealt on this disputed issue and decided in favour of the assessee and has observed at page 19 Para 3.6 &3.7 of the order read as under: "3.6. We find that each of the argument of the ld. DR which is also reproduced in the written submission hereinabove were met by the ld. AR at the time of hearing as under:- a. The ld. DR vehemently opposed the reliance placed by the ld. AR on Circular No.742 dated 02/05/1996 issued by CBDT by stating that the ld. AR had placed reliance only on the first part of the Circular and not on the second part of the said Circular. We find that the said Circular No.742 dated 02/05/1996 issued by CBDT was issued in the form of guidelines for computation of Income Tax of foreign telecasting companies. We find that the second part of the said Circular states that in the absence of country-wise accounts and keeping in view the substantial capital cost, installation charges and running expenses etc., in the initial years of operation, it would be fair and reasonable if the taxable income is computed at 10% of the gross receipts (including the amount retained by the advertisement agent and the Indian agent of the non-resident f....
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....in the case of Varian India (P) Ltd., vs. ADIT reported in 142 ITD 692 wherein the Tribunal had noted that authorised foreign enterprises had engaged the assessee and the activities are not devoted wholly or almost wholly for any one enterprise. The relevant extract of the said decision is reproduced hereunder:- "...As stated in several places in this order that the Assessee is providing services to various VGCs namely Varian Inc. U.S.A., Varian Australia, Varian Italy, Varian Switzerland and Varian Netherlands. It has not devoted only for one foreign enterprise. The learned Counsel had submitted a statement representing the approximate value of sales made by these foreign enterprise in the calendar year 2001 & 2002, which for the sake of ready reference is reproduced. From the above, it is evident that the percentage of commission income and sales from the three VGCs are quite normal and with regard to Varian Inc. USA, the activities of the Assessee are between 5 to 7%. Hence, it cannot be said that the Assessee is devoted wholly or almost wholly on behalf of any one VGC. We find that the ld. DR had argued that the above fact that SIPL commission income from asse....
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....se agents other than an independent agent. He argued that however, before examining whether an agent satisfied conditions laid down in para 4, it must be examined whether it satisfies the condition of independent agent laid down in para 5 of Article 5. He submitted that an agent is considered of having independent status if the activities are not devoted "wholly or almost wholly‟ on behalf of foreign enterprises and the transactions between the agent and such enterprises are made at arm‟s length then it shall be regarded as an agent of independent status. We hold that agent who satisfies the condition will be independent and would not constitute the PE in India even if he satisfies the conditions laid down in para 4. Accordingly, if SIPL is an agent of independent status and fulfils the conditions laid down in para 5, it will not constitute a PE for assessee in India. In this regard reliance was rightly placed on the Coordinate Bench decision of this Tribunal by the ld. AR in the case of Delmas France vs. ADIT reported in 49 SOT 719 (Mum) which affirm the above proposition. We find that this ruling was rendered in the context of Article 5(6) of India France DTA....
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....disputing the same and also by the ld. TPO for subsequent assessment years i.e. A.Yrs. 2002- 03, 2003-04, 2004-05 in the orders passed u/s.92CA(3) of the Act and also considering the fact that the commission rate of 15% is fair and reasonable in the light of the CBDT Circular No.742 dated 02/05/1996 and is accepted by the various Courts as mentioned above, no further attribution of profits should be done in the hands of the assessee as the agent has been remunerated on arm‟s length basis. Accordingly, the ground Nos. 1-3 raised by the assessee are allowed. We find in the present case the facts are similar and the assessee has paid Arms Length Commission to its Agent and TPO has accepted the payments and no transfer pricing adjustment was made considering it as fair and reasonable. We respectfully fallow the judicial precedence and the ratio of the decision on the advertisement revenue treatment and direct the assesseing officer to delete the addition and allow the grounds of appeal in favour of the assessee. 5. We find the assessee has challenged the action of the lower authorities in holding that the distribution revenues earned by the assessee falls within the m....
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....the same for marketing purposes in accordance with and subject to Clause 6; (c) cut, edit, club voice-over, subtitle or otherwise in any manner change or alter any of the channel (s) or any of the content thereof, including but not limited to programmes, advertisements, interstitials and promotions, except as may be required by any applicable law. Provided that in the event there is such a requirement under the applicable law, NGC INDIA shall forthwith inform NGC ASIA of all details regarding such mandate changes or alterations; (d) copy any of the programmes included on the channel (s) for the purpose of retransmitting them later, or for any other reason, except as may be required by any applicable law; Page 12 of 23 (e) do any act which might tend to indicate that (i) any television programme(s) advertisement, interstitial or promotions from a television services other than the channel (s) forms part of or is associated with the channel (s), or (ii) any programme, advertisement or interstitial which is included in the channel (s) does not form part of the channel (s). (f) use any person, object or event appearing in any Channel(s) in a defamato....
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....n his assessment order that the consideration received by the assessee from NGC India for grant of distribution rights of the channels is in the nature of "Royalty" under the provisions of the Act and accordingly, the receipts are liable to tax in the hands of the assessee which was upheld by the ld. CIT(A). 7.5. In this regard, the provisions of Explanation 2 to Section 9(1)(vi) of the Act would be relevant and the same is reproduced hereunder:- For the purpose of this clause, 'Royalty means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head "Capital gains") for- (i) the transfer of all or any rights (including the granting of a license) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; (ii) the imparting of any information concerning the working of, or the use of, a patent, invention, model, design, secret formula or process or trade mark or similar property; (iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar pr....
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....of whether such copy has been sold or given on hire on earlier occasions; Provided that such commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental ; (c) in the case of an artistic work, (i) to reproduce the work in any material form including depiction in three dimensions of a two dimensional work or in two dimensions of a three dimensional work; (ii) to communicate the work to the public; (iii) to issue copies of the work to the public not being copies already in circulation; (iv) to include the work in any cinematograph film; (v) to make any adaptation of the work; (vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in sub-clauses (i) to (iv); (d) in the case of a cinematograph film, (i) to make a copy of the film, including a photograph of any image forming part thereof; (ii) to sell or give on hire, or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions; (iii)....
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....d not other provisions that apply to copyright. Hence, based on the combined reading of Section 37 and 39A with Section 2(dd) of the copy right Act, it could be safely concluded that the consideration paid by NGC India for Broad Cast reproduction rights causing the Broad Cast to be heard or seen by the subscribers on payment of any charges / fees from the subscribers. However, such a right is not copyright as defined under the law and hence, not covered by the definition of 'Royalty' under the Income Tax Act. 7.10. We also find that the ld. AR further submitted that the Copyrights Act provides for different rights against infringement in the case of copyrights and broadcasting rights under Section 51 and Section 37(3) of the Copyrights Act. 7.11. We find that the ld. DR vehemently relied on the technical explanation of the convention and protocol between the USA and India, to argue that the definition of royalty includes television Broad Casting in India. The relevant extract of the technical explanation as relied upon by the learned DR is reproduced below:- "The royalty definition in subparagraph (a) of paragraph 3 of the Convention differs from th....
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....upreme Court decision referred to the decision of yet another Hon'ble Supreme Court decision in the case of Performing Rights Society ltd., vs CIT reported in 106 ITR 11. The ld. DR argued that since the broadcast of the channel is conducted in India, the receipts generated therefrom are taxable in India. We find that the decision relied upon by the Hon'ble Apex Court in the case of Pilcom vs. CIT referred to supra was rendered in the context of applicability of provisions relating to deduction of tax at source (TDS) on a particular transaction and not on the taxability of income of non-resident in India. Hence, reliance placed on the said decision by the ld. DR is completely misplaced herein. We also find that the decision of the Hon'ble Apex Court in the case of Performing Rights Society ltd., referred to supra is actually in favour of the assessee as in the said case, the broadcast of the music was conducted by All India Radio from its stations in India, and hence, the source of income was held to be in India. However, in the present case of the assessee before us herein, we find that the telecast of the channel happens from outside India. All the other core activities such as p....
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....ayment. Term "copyright" has been defined in Section 14 of the copy right Act, 1957. A glance at the said provision would show that the copyright means exclusive right, subject to the provisions of this Act, to do or authorise the doing of any of the following acts specified in the said provision in respect of a work or any substantial part thereof. Term "work" is defined under Section 2(y) of the Copyright Act, 1957, as to mean any of the works namely a literary, dramatic, musical or artistic work or a cinematograph film and a sound recording. Subsection (1) of Section 14 of the Copyright Act, 1957 lists several Acts in respect of a work in relation to which exclusive right would be termed as copyright. In the present case, the Assessee had not created any literary, dramatic, musical or artistic work or cinematograph film and/or a sound recording. 11. Infact, Section 37 of Copyright Act, 1957 separately defines broadcast reproduction right. Subsection (1) of Section 37 of the said Act provides that every broadcasting organisation shall have special rights to be known as "broadcast reproduction right" in respect of its broadcasts. Subsection (2) of Section 37 provides that....
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.... reproduced hereunder:- "22. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities. The first issue for our consideration is whether the 'distribution fee' is in the nature of 'Royalty' or not. Before us the ld. AR for the Assessee vehemently submitted that the TPO wrongly characterized the channel distribution fee as Royalty. It was further explained that the Assessee acts as a intermediary between the broadcaster and the ultimate customers who uses the channels. Thus, distribution fee paid by the Assessee cannot be termed as Royalty. This fact in not controverted by ld. DR for the revenue nor any contrary facts were brought on record by the lower authorities. The ld. DRP in Assessee's MSM Satellite (Singapore) Pte Ltd in its order dated 19.12.2014 for AY 2010-11 by following the order of Tribunal for AY 2005-06 & 2006-07 dated 28.08.2015 held that distribution revenue is not Royalty income. The Hon'ble Bombay High Court in CIT Vs SET India Pvt Ltd (ITA No. 1347 of 2013) held that the distribution fee paid is not in the nature of royalty. Similar view was affirmed by Hon'ble Bombay Hig....
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....he payment is not in the nature of Royalty but in the nature of business income... 7.19. Further the Hon'ble Bombay High Court in the case of Set Satellite (Singapore) PTE Limited vs. DDIT reported in 307 ITR 205 had noted that the distribution rights are in the nature of commercial rights and hence they are distinct and different from copy right. The relevant extract of the said decision of the Hon'ble High Court is reproduced hereunder:- "The distribution rights it was held were a commercial right which was distinct and different from a copyright and consequently there was no question of payment of royalty as has been held by the Assessing Officer and the income belonged to SET India which could not be subject to tax in the hands of the Appellant." 7.20. We find the term "Royalty" is defined under para 3 of India-USA DTAA as under:- (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright or a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, ....