TaxTMI 
TaxTMI 
2023 (1) TMI 403
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....d, CIT(DR) And Sh. Sanjay Kumar, Sr. DR ORDER PER SAKTIJIT DEY, JM: Captioned appeals by the assessee and Revenue arise out of separate orders of learned First Appellate Authority pertaining to assessment years 2003-04, 2004-05, 2009-10, 2011-12, 2012-13 and 2014-15. Since, the issues raised in all these appeals are more or less common and overlapping, they have been clubbed together and disposed off in a common order. ITA No. 3412/Del/2010 (AY: 2003-04) ITA No. 3413/Del/2010 (AY: 2004-05) ITA No. 4426/Del/2016 (AY: 2009-10) ITA No. 4543/Del/2016 (AY: 2011-12) ITA No. 1220/Del/2017 (AY: 2012-13) ITA No. 6705/Del/2017 (AY: 2012-13) ITA No. 5084/Del/2018 (AY: 2014-15) 2. These appeal are by the assessee. Grounds raised by the assessee in these appeals are, more or less, common. The following major issues arise out of the grounds raised by the assessee:- i. Whether subscription/distribution revenue received by the assessee can be treated as royalty under India - Mauritius Double Taxation Avoidance Agreement (DTAA). ii. Whether the assessee has a Permanent Establishment (PE) in India under Indian - Mauritius Tax Treaty. iii. A....
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....ssessee bears commercial risk as it has to pay certain minimum guaranteed amount to ESPN Star Sports, Singapore. The same risk continues with the assessee, even, in relation to the agreement between the assessee and ESPN India. Referring to certain specific clauses in the agreement, the Assessing Officer observed that ESPN India works only for the assessee. The revenue earned by ESPN India arises only by virtue of cable subscription, which it does for the assessee. He observed, the commission earned from soliciting advertisement comes entirely from another Associated Enterprises (AE), M/s. ESPN Star Sports, Mauritius. Thus, he observed, the cable subscription business of ESPN India being entirely dependent upon the assessee, it would simply collapse if the assessee would withdraw its patronage. Thus, he observed, due to such dependency of ESPN India on assessee, it cannot be said to be an agent of independent status under Article 5(5) of the India - Mauritius Tax Treaty. Further, he observed, since ESPN India is a 100% subsidiary of ESPN Mauritius Ltd., which in turn has a controlling stake in the assessee, it cannot be said that ESPN India is enjoying any degree of autonomy in its....
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....cording accompanying such visual recording and cinematograph shall be construed as including any work produced by any process analogous to cinematography, including video films. Referring to section 2(ff) of the Copyright Act, he observed, "communication to public" means making any work available for being seen or heard or otherwise enjoyed by the public directly or by any means of display or diffusion other than by issuing copies of such work regardless of whether any member of the public actually sees, hears or otherwise enjoys the work so made available. Further, referring to Explanation to section 2(ff) of the Copyright Act, he observed that communication through satellite or cable or any other means of simultaneous communication to more than one household or place of residence including residential rooms of any hotel or hostel shall be deemed to be communication to the public. Referring to section 2(dd) of the Act, he observed that communication to the public also includes broadcast by any means of wireless diffusion, whether in any one or more of the forms of signs, sounds or visual images, or by wire, and includes a re-broadcast. Thus, extensively referring to the various pr....
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....d ESPN India and submitted that the terms of the agreement make it clear that the appointment of ESPN India is limited to the extent of making ESPN services available in the specified area through sub-distributors in accordance with terms and conditions of the agreement. He submitted, as per the condition of the agreement, on termination of the agreement all arrangements with sub-distributor would automatically be assigned to the assessee. He submitted, the agreement clearly specifies that the distributor, i.e., ESPN India will have no rights whatsoever to the ESPN service nor convey, confer, grant, assign or otherwise provide distributor with copyright, title or any other proprietary or ownership interest in or to the ESPN Service or any elements thereof. ESPN India cannot use, authorize or permit the use of the ESPN Service or any element thereof for any purpose other than the purpose expressly specified in the agreement. He submitted, agreement makes it clear that neither assessee nor ESPN India shall have any authority to bind the other or to assume, create or incur any liability or any obligation of any kind, express or implied, against or in the name of or on behalf of the ot....
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.... 3. NGC Network Asia LLC Vs. DCIT (IT), ITA No.1178/Mum/2015, ITA No. 6677 & 6678/Mum/2018 and Others. 4. DDIT (IT)-2(1) Vs. M/s. SET Indian Pvt. Ltd., ITA No.4372/Mum/2004, dated 25th April, 2012 (Mumbai- Trib.)] 5. The Commissioner of Income Tax (International Taxation)-II Vs. SET India Pvt. Ltd., ITA No. 1347 of 2013 (Bombay High Court) 6. Commissioner of Income-tax (IT)-3 Vs. MSM Satellite (Singapore) Pte. Ltd. [2019] 106 taxmann.com 353 (Bombay) 7. Sony Pictures Network India Pvt. Ltd. Vs. DCIT, (2020) ITA No. 971/Mum/2016 (Mumbai) 8. Set Satellite (Singapore) PTE Ltd. Vs. Deputy Director of Income-tax, International Taxation and Another [2008] 307 ITR 205 (Bombay High Court) 9. ESPN Star Sports Vs. Global Broadcast News Ltd. & Ors. [2008] 38 PTC 477 (Delhi High Court) 10. ESPN Star Sports Mauritius SNC et Compagnie [Now known as ESS Advertising (Mauritius) SNC et Compagnie] Vs. The Dy. CIT [2021] , ITA No. 1219/Del/2017, dated 20th October, 2021 (Delhi-Trib.) 11. Engineering Analysis Centre of Excellence P. Ltd. Vs. Commissioner of India-tax and another [2021] 432 ITR 471 (SC 12. Taj TV Limited....
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....s a distributor to distribute and make available for sub-distribution ESPN network programming services in India, Pakistan, Bangladesh, Sri lanka and Nepal via cable television system, satellite master antenna television systems and direct to home via satellite. The agreement between ESPN Star Sports, Singapore and assessee makes it clear that the assessee has not been conferred with any rights whatsoever with regard to copyright, title or any other proprietary or ownership interest in or to the ESPN service or any elements thereof. The agreement makes it explicit that all rights in the contents of ESPN service are expressly reserved by ESPN Star Sports, Singapore and the distributor shall not use, authorize or permit the use of ESPN service or any element thereof for any purpose other than the purpose expressly specified in the agreement. The agreement also specifies that the assessee has to distribute the ESPN services in its entirety, without any alteration, editing, dubbing, scrolling or ticker tape, substitution or any other modification, addition, deletion or any other variation whatsoever. The agreement also provides that the names and marks of ESPN Star Sports and ESPN will....
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....under section 2(f) of the Copyright Act, definition of broadcast under section 2(dd) of the Act, the meaning of copyright as provided under section 14 of the Copyright Act and section 13 of the Copyright Act, wherein, cinematograph films has been enlisted as a form of work in which copyright subsists. Referring to all these provisions of the Copyright Act, learned Commissioner (Appeals), in sum and substance, has wanted to convey that by granting the distribution right to ESPN India the assessee has allowed broadcast of cinematograph films to communicate to the public. Thus, there is a transfer of copyright in terms of section 9(1)(vi) read with clause (v) to Explanation 2 there under, Article 12(3) of the India - Mauritius Tax Treaty and the relevant provisions of the Copyright Act, as referred to by him. 12. At this stage, it is necessary to look into the definition of royalty under Article 12(3) of the India-Mauritius DTAA, which reads as under: "12(3) The term "royalties" as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work (including cinematograph f....
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....an artistic work,-- ^3[(i) to reproduce the work in any material form including-- (A) the storing of it in any medium by electronic or other means; or (B) depiction in three-dimensions of a two-dimensional work; or (C) depiction in two-dimensions of a three-dimensional work;] (d) in the case of a cinematograph film,-- ^4[(i) to make a copy of the film, including-- (A) a photograph of any image forming part thereof; or (B) storing of it in any medium by electronic or other means;] ^5[(ii) to sell or give on commercial rental or offer for sale or for such rental, any copy of the film.] (iii) to communicate the film to the public; (e) in the case of a sound recording,-- (i) to make any other sound recording embodying it 6[including storing of it in any medium by electronic or other means]; ^7[(ii) to sell or give on commercial rental or offer for sale or for such rental, any copy of the sound recording;] (iii) to communicate the sound recording to the public. Explanation.--For the purposes of this section, a copy which has been sold once shall be deeme....
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.... of Section 14 and Section 37 of the Copyright Act, 1957. It is observed that Section 37 of the Copyright Act deals with Broadcast Reproduction Rights (BRR) and same is covered under Section 37 of the Copy Right Act and not under section 14 thereof. We observe that Id CIT(A) has also considered Clause 6.3 of the distribution agreement entered into between assessee company and Non-resident company, which states that the right granted to the assessee under the agreement is not and shall not be construed to be a grant of any license or transfer of any right in any copyright. Ld CIT(A) has stated that the assessee submitted before him that the cable operator only retransmits the television signals transmitted to it by a broadcaster without any editing, delays, interruptions, deletions, or additions and, therefore the payment made by the assessee to the Non-resident company is not for use of any copyright and consequently cannot be characterized as Royalty. Ld. CIT (A) has held that Broadcasting Reproduction Right is not covered under the definition of Royalty under section 9(1)(vi) of the Income Tax Act as well as Article 12 of the Treaty. Accordingly, the payment is not in the nature ....
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.... 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. Sub-section (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. Sub-section (I ) 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. Sub-section (2) of Section 37 provides that the broadcast reproduction right shall subsist until twenty-five years from the beginning of the calender year next following the year in which the broadcast is made. 1 12. Section 9 of the Act pertains to income deemed to accrue or arise in India. Clause (vi) of Section 9(1) pertains to income b....
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....nd received as a consideration for the use of, or the right to use: (a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information; (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in Paragraph 4(b) or 4 (c of Article 8' 15. Even going by this definition, the payment in question cannot be categorized as royalty." 17. Though, learned Commissioner (Appeals) has extensively referred to the definitions of copyright, communication to public, broadcast under the Copyright Act, however, he has completely ignored the broadcast reproduction right as provided under section 37 of the Act. Thus, in our view, the ratio laid down in the decisions referred hereinabove clearly clinches the issue in favour of the assessee, as, what the assessee has granted to ESPN India ....
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.... on its own account and not on behalf of the assessee. He submitted, ESPN India earns income from cable operators on its own account and establishes legal relationship on its own account. It has no authority to conclude contract on behalf of the assessee. In the same way, the assessee does not have any privity of contract with the cable operators/intermediaries in India. Therefore, the relationship between ESPN India and assessee is on principal to principal basis. He submitted, besides carrying out the activities of distribution of channel services for the assessee, ESPN India was also engaged in acquisition and allotment of air time for advertisement and sale/leasing of decoders etc. to cable operators for other entities. Therefore, ESPN India is an agent of independent status under Article 5(5) of the India - Mauritius Tax Treaty and is acting in ordinary course of business while dealing with the assessee. He submitted, ESPN India carries on its own business in its own premises and the assessee does not have any control over it and nor has the power of disposal over it. The assessee does not have any fixed place PE in India through which it carries out business. Therefore, it ca....
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....pagnie [Now known as ESS Advertising (Mauritius) SNC et Compagnie] vs. The Dy. C.I.T Circle 1(2)(2) [Intl. Taxation New Delhi [2021] ITA No. 1219/DEL/2017 (Delhi - Trib.) dt. 20 October 2021 (page no. 450471 of Legal Paper book) 21. Learned Departmental Representative strongly relied upon the observations of the Assessing Officer and learned Commissioner (Appeals). 22. We have considered rival submissions and perused the materials on record. At the outset, we need to examine, whether, the assessee has a fixed place PE in India. The distribution agreement between the assessee and ESPN Indian clearly stated that the transaction is on principal to principal basis. The agreement further allowed ESPN India to enter into agreement with sub-distributors/cable operators so that the channels can be distributed to end consumers in India. As per the terms of the agreement, the revenue earned from distribution of channels has to be shared between the assessee and ESPN India in certain ratio. The materials on record demonstrate that ESPN India is carrying on its distribution activity as well as other activities, such as, acquisition and allotment of air time for advertisement and sale/lea....
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....n, namely, ATM Management Services, Electronic Payment Management, Decision Support and Risk Management and Global Outsourcing and Professional Services. Since all these businesses are carried on outside India and the property through which these businesses are carried out, namely ATM networks, software solutions and other hardware networks and information technology infrastructure were all located outside India, the activities of e- Funds India are independent business activities on which, as has been noticed by the High Court, independent profits are made and income assessed to tax under the Income Tax Act. According to the learned counsel, "agency PE" was never argued before the assessing officer and even before the ITAT. Therefore, no factual foundation for the same has been laid. Equally, according to the learned counsel, the settlement procedure availed for the assessment years in question cannot be said to be binding for subsequent years as they were without prejudice to the assessees' contention that they have no PE in India. He also relied upon the OECD Commentary, paragraph 3.6 in particular, to demonstrate that the so-called admissions made and relied upon by the three a....
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....ere the Central Government has entered into an agreement with the Government of any country outside India under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee." 7 xxxx 8 xxxx 9 xxxx 10 xxxx 11 xxxx 12. Thus, it is clear that there must exist a fixed place of business in India, which is at the disposal of the US companies, through which they carry on their own business. There is, in fact, no specific finding in the assessment order or the appellate orders that applying the aforesaid tests, any fixed place of business has been put at the disposal of these companies. The assessing officer, CIT (Appeals) and the ITAT have essentially adopted a fundamentally erroneous approach in saying that they were contracting with a 100% subsidiary and were outsourcing business to such subsidiary, which resulted in the creation of a PE. The High Court has dealt with this aspect in some detail in which it held: "49. The Assessing O....
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....Taxation Conventions, Arvid A. Skaar in Permanent Establishment: Erosion of a Tax Treaty Principle and Bollinger vs. Commissioner, 108 S.Ct. 1173, the High Court found against the Revenue, holding that there is no fixed place PE on the facts of the present case. We agree with the findings of the High Court in this regard. 14. Reliance placed by the Revenue on the United States Securities and Exchange Commission Form 10K Report, as has been correctly pointed out by the High Court, is also misplaced. It is clear that the report speaks of the e-Funds group of companies worldwide as a whole, which is evident not only from going through the said report, but also from the consolidated financial statements appended to the report, which show the assets of the group worldwide. 15. xxxxx 16. This report would show that no part of the main business and revenue earning activity of the two American companies is carried on through a fixed business place in India which has been put at their disposal. It is clear from the above that the Indian company only renders support services which enable the assessees in turn to render services to their clients abroad. Thi....
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.... adjustments suggested by the TPO in any of the assessment years under dispute. That being the case, no further attribution of profit can be made to the PE. In this regard, we rely upon the decisions cited by learned counsel for the assessee. Thus, we hold that the distribution revenue received by the assessee is not taxable in India. 25. In view of our decision above, the fourth issue regarding the mode and manner of attribution of profit to the alleged PE has become redundant, hence, not required to be adjudicated. 25. In assessment year 2004-05, there is one more issue relating to non-disposal of assessee's ground pertaining to withdrawal of interest entitlement under section 244A, by learned Commissioner (Appeals). 26. We have heard the parties and perused the materials on record. Before us, it is the contention of learned counsel for the assessee that since no refund has been granted to the assessee, question of withdrawal of interest under section 244A of the Act does not arise. Considering the aforesaid submission of the assessee, we restore the issue to the Assessing Officer for factually verifying assessee's claim and deciding it afresh in accordance with law afte....
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..... 30. The only other issue raised by the Revenue in some of its appeals relates to chargeability of interest under section 234B of the Act. Having considered rival submissions, we are of the view that the issue is squarely covered by the decision of the Hon'ble Supreme Court in case DIT Vs. Mitshubishi Corporation [2021] 130 taxmann.com 276 (SC). Therefore, we do not find any reason to interfere with the decision of learned Commissioner (Appeals) on the issue. 31. Besides the above appeals, there is one more appeal by the Revenue, being ITA No. 6706/Del/2017. This appeal of the Revenue culminates out of the order of the Assessing Officer while giving effect to the order of learned Commissioner (Appeals). The ground raised by the Revenue in this appeal relates to the direction issued by learned First Appellate Authority to determine the income of the assessee on net basis. The issue raised in this appeal has become academic in view of our decision in the earlier part of the order, while deciding assessee's appeals. Hence, the appeal has become infructuous. 32. In nutshell, appeals are decided as under: 1. ITA No.3412/Del/2010 Assessee's Appeal AY: 2003-04 Par....