TaxTMI 
TaxTMI 
2023 (4) TMI 568
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....87 as Income from Other Sources. Return of Income of Assessee 02. During the course of assessment processing, assessee has filed detailed note on business activities of the assessee company and said that it does not have any permanent establishment [PE] in India and therefore it has offered nil income. Accordingly, as per assessee, it has two streams of Income Advertising service income and Distribution service income and both these streams of income are not chargeable to tax in India. Assessment Proceedings 03. Ld. AO was of the view that past records and assessment shows that revenue has held that the assessee company has a permanent establishment and hence income attributable to the permanent establishment is chargeable to tax in India. 04. Assessee submitted that i. Coordinate bench for assessment year 2011 - 12 held that there is no permanent establishment in respect to distribution revenue and issue of the same with respect to advertisement revenue is kept open. ii. However, the payment to its associated enterprises is at arm's-length, nothing further should be attributable to the assessee that can be taxed in India. iii. There is....
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....sement on the channel and forwarding them to the assessee for acceptance. However, the assessee has not contemplated appointing any other advertising sales agent. c. Taj India also conducted activity in India and on behalf of the assessee, which only a dependent agent could carry out or it's principal like facilitating arrangement with advertising agencies, sales representatives, conducting market studies, promoting awareness regarding channel and other services incidental to acting as dependent agent for booking of advertisement in India. d. In return for the above-mentioned services, Taj India only receives a commission of 10% of the advertisements in India. e. Clause 5 (a) of the agreement clearly mentions that the assessee and Taj India acknowledges that Taj India can enter into contracts with third parties, subject to prior approval by the assessee in its absolute discretion. f. Clause 10 of the agreement mentions that the assessee may assign or transfer without the prior written permission of Taj India, the whole or any part of its rights to any party in its absolute discretion. g. It can be seen that a major part of the risk i....
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....ar number 1 of 2004 also provides that when activities of the business of the assessee are outsourced, then there would be substantial profit of the principal would be the income of the non-resident taxable in India. g. It would make principles of „force of attraction‟ inapplicable in India. iv. Accordingly, she held that it is amply clear that Taj India is acting wholly and exclusively for the assessee company as a dependent agent and is regularly selling the advertisement spots on behalf of the assessee. It is also clear that the Taj India is functionally and economically dependent on the assessee and takes risk on behalf of the assessee. It is therefore independent agent of the assessee within the meaning of Article 5 of the Indo Mauritius Double Taxation Avoidance Agreement. v. She further referred to the agreement and held that even allowing for the fact that assessee company is responsible for setting down the broad guidelines under which the contracts to be made, served, the importance of Taj India in concluding the contracts cannot be ignored. According to her it is the later [Taj India] that is responsible for all the negotiations in ....
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.... of equipment in explanation 5 of that section accordingly the payments being made by the assessee are taxable as royalty under section 9 (1) (vi) of the act. Hence tax at source been deducted thereon. According to the AO these payments are also chargeable to tax as royalty as per article 12 of the Indo US DTAA as recipient of income is US Resident. The learned AO further rejected the contention of the assessee that when there is a payment from one non-resident to another non-resident there is no liability for tax deduction at source under section 195 of the act the learned AO was of the view that liability to make tax deduction at source under section 195 is irrespective of the fact whether the person making payment is a resident or a non-resident or having a business connection in India or not. The learned AO further noted that coordinate bench has allowed a relief to the assessee on the issue of disallowance of non-deduction of tax for assessment year 2003 - 04 until assessment year 2011 - 12. Against these orders, the revenue has filed an appeal before the Honourable High Court, which is pending. However, each assessment proceedings for each year are separate and a principle of....
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....2/2019 partially. The AO held that assessee did not file a valuation report for sale of Global Sports broadcasting business neither any computation of income arising on the said transfer. Assessee also did not file global financials that can assist the learned AO in computing the income arising on the transfer of broadcasting business. Assessee has also not filed details with respect to approvals taken from any government or statutory or regulatory authorities in India for the transfer and has not notified details of authorized bank signatories for the period relevant to the said transaction. xiv. The learned AO held that it is too simplistic an assertion that the transaction is an overseas transaction between two overseas companies. According to her, it is equally important to view the true nature and character of the transaction from the covenants of the contract in the light of surrounding circumstances. The AO noted that Zee entertainment enterprises Ltd [ ZEE] in its annual report for 2017 has categorically stated that its board has approved sale of sports broadcasting business comprising of assets and rights relating to Ten brand of sports channel held in Taj TV Limi....
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....xv. According to her, the transaction has resulted in consequential effective control and management or Indian business of the company and not merely transfer of sports broadcasting business outside India. The entire agreement allowed Sony pictures network India private limited through other entities, which was later merged/amalgamated, with Sony pictures network India to step into the shoes of Taj TV and increase its presence in the sports TV channel viewership in India and other territories. xvi. Thereafter, the learned AO looked into The Business Purchase Agreement dated 31/8/2016 and reached at a conclusion that the definition of sports broadcasting business is all inclusive and pertained to broadcast, distribution and syndication of sports content along with the distribution of channels anywhere in the world (other than Pakistan). Therefore, according to her the business purchase agreement has transferred all assets, rights, title, and interest in and to the sports broadcasting business of the assessee to the purchaser. The „assets‟ means the assets of the seller relating to or used to operate the sports broadcasting business including all movable assets, ....
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....he principal and the agent is the same. xx. She further noted that that both the assessee‟s[i] sports broadcasting business and [ii] shares in its exclusive Indian agent i.e. Taj TV India have been transferred to Sony pictures network India private limited, hence, effectively entire Indian operations have been transferred to that company. Therefore, it establishes the territorial nexus of the said agreement with India. xxi. Based on this: - a) the AO held that by the means of the business purchase agreement assessee has transferred all assets, rights, title and interest in and to the sports broadcasting business which is squarely covered by the definition of „property‟ and hence „capital asset‟ situated in India. b) The provisions of The Income Tax Act under section 50B dealing with income on sale of a business unit/undertaking/division via slump sale is required to be computed. c) The capital gain is required to be computed by deducting net worth of the undertaking as on the date of transfer. d) As the assessee has transferred assets, rights, title and interest in and to the sports broadcasting bus....
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....the learned AO held that the decision to authorize him was not independently taken by the assessee company but was dictated to it by its parent company ZEE. f) The AO further noted that parent company Zee Entertainment Enterprises Ltd has given corporate guarantee with respect to various associations/boards to acquire the licensing rights for matches in various territories, therefore, according to AO the subsidiary is not functioning independently as a „separate legal entity‟. g) Assessee has not established how the funds realized after the sale by it for its business purposes and further it has also not submitted any valuation report. h) Thereafter, ld. AO looked at statement of segmental assets and liabilities as on 31 August 2016 of the assessee and found that the out of total net worth of global sports broadcasting division, US$ 7,893,917 is required to be deducted as cost of acquisition and improvement being net worth of the business as per accounts of the assessee. Accordingly, from sale consideration of US$ 33,84,00,000, the cost of acquisition of US$ 7,893,917 was deducted and long-term capital gain on sale of sports broadcasting busin....
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....13 (2) of The Double Taxation Avoidance Agreement is applicable and the state in which the permanent establishment is situated may tax the same. Accordingly, the gain arising out the above sale is taxable in India under article 13 (2) of the India Mauritius Double Taxation Avoidance Agreement. It also rejected the claim of the assessee that about gains is covered by Article 13 (4) of DTAA. Accordingly, ld. DRP confirmed the action of the learned assessing officer holding that capital gain attributable to the permanent establishment in India of US$ 267,271,940 is chargeable to tax in India u/s 50 B of the act read with article 13 (2) of the DTAA. iii. With respect to objection number 3 and 4 it was held that as the revenue has been consistently holding that assessee has a permanent establishment in India which has also been confirmed by the learned CIT - A in earlier years, there is no change on the facts and circumstances of the case and therefore the action of the learned assessing officer was confirmed holding that Taj TV Ltd has income chargeable to tax in India in respect of advertisement and distribution revenue as it has a business connection and permanent establishm....
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....g that the gain of Rs. 1790,21,15,124/- on sale of sports broadcasting undertaking by the Appellant outside India, is chargeable to tax in India under section 5 read with section 9(1)() of the Income-tax Act, 1961 (the Act") as a slump sale. b. The DRP erred in holding that the gain of Rs. 1790,21,15,124/- on sale of sports broadcasting is chargeable to tax under the India-Mauritius Double Taxation Avoidance Agreement (hereinafter referred to as "the Treaty"). The DRP erred in relying on the provisions of Article 13(2) of the Treaty to justify taxability under the Treaty without appreciating that the provision of Article 13(2) is not applicable in the facts and circumstances of the present case as the Appellant neither has a Permanent Establishment in India nor can the instant transfer of sports broadcasting undertaking be equated as an alienation of movable property forming part of the business property of the alleged permanent establishment. c. The DRP / AO failed to appreciate that the gain on transfer of sports broadcasting business is not chargeable to tax in India in view of Article 13(4) of the Treaty. 2. The DRP erred in upholding the action of th....
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.... the assessee, assessee has sold an undertaking or business which is a „capital asset‟ and there is no separate sale of individual assets, the undertaking itself constitute a capital asset. It was further submitted that if the capital asset is not situated in India and if the transfer of the same is outside India, it cannot give rise to a chargeable capital gain in India. It was claimed that global sports broadcasting undertaking is not situated in India and therefore its transfer does not give any rise to any taxability under the head capital gain. ii. It was further submitted that the situs of the undertaking would be the situs of the owner where the company is Incorporated. Assessee company is resident of Mauritius and therefore the undertaking has corresponding situs in Mauritius and hence undertaking is situated in Mauritius and not India. Assessee strongly relied on the decision of the Honourable Delhi High Court in case of CUB Pty Ltd versus Union of India 71 taxmann.com 315. iii. Further submitted that even otherwise where the situs of the undertaking is located ought to be based upon where the „operations and activities‟ are carrie....
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....so claim of the assessee that all the assets and liabilities, intellectual property rights, goodwill, rights and claims that form part of the global sports broadcasting undertaking are located outside India. The learned authorized representative referred to the letter dated 19/12/2019 and submitted that same has not been disputed by the learned assessing officer or the learned dispute resolution panel. Therefore, entire undertaking is situated outside India. x. Assessee also claims that no fixed assets are located in India. Assessee referred to the India operations financials placed at page number 6 of the paper book. It was submitted that depreciation claimed in the profit and loss account is an apportionment of the expenses of assets used globally to earn revenue from India. xi. It also claims that the control and management of the assessee is situated in Mauritius and not in India. It was claimed that none of the directors of the assessee were resident of India during the year under consideration, all the board meetings of the Board of Directors were held outside India, the directors at those board meetings took the significant decisions and therefore 'head....
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....t assessment years. It was the claim of the assessee that assessee has sold its global sports broadcasting business, being a capital asset, to another non-resident entity and accordingly the provisions of Article 13 of the Double Taxation Avoidance Agreement dealing with the capital gain shall apply. According to Article 13 (5) of the Treaty the gains derived by resident of the contracting state from the alienation of any property other than those mentioned in paragraph (1), (2) and (3) of this article shall be taxable only in that state. Accordingly when an undertaking is sold, as a whole, there is no separate sale of land or plant and machinery or furniture and therefore it cannot be split into its components. Therefore, the taxability of transfer of undertaking is covered under Article 13 (4) of DTAA. According to that the alienation of any other property are taxable in the state of residence irrespective of where the assessee situated or whether there is a permanent establishment in India or not. Therefore, in the present case, since the assessee is a residence of Mauritius, the gains are taxable in Mauritius. Therefore even otherwise, assuming while denying, that the global sp....
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....ity of treaty provisions to the transaction of the sale of business undertaking , however it held that the transaction to be taxable incomes of Article 13 (2) of DTAA. Therefore, the applicability of treaty to the transaction of sale of global sports broadcasting undertaking is an accepted position and cannot be contested by the learned assessing officer. It was further claimed that the AO does not have any right to file an appeal against the decision of the learned dispute resolution panel, as its direction is mandatory. xxi. With respect to the applicability of article 13 (2) of the treaty to the transaction of the sale of undertaking, it was claimed that that article deals with the „movable property‟ forming part of the business property of the permanent establishment of an enterprises. The provision applies either to (i) alienation of such property that was owned by the alienator or (ii) the alienation of permanent establishment itself. It was submitted that as assessee does not have any permanent establishment in India, there is no question of alienation of permanent establishment or any alienation of movable property of the alleged permanent establishment....
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....to India during the year. Therefore, ZEE or any premises of that company do not constitute a fixed place of permanent establishment of the assessee in India. xxvi. With respect to the allegation of the learned AO that Mr. Rajesh Shetty and Mr. Vijay parab constituting a permanent establishment of the assessee in India, assessee submitted that they are not employees of the assessee. Therefore, the allegation of the learned assessing officer that they were the employees of the assessee and are utilizing the premises of ZEE, which is at their disposal, is incorrect and without any evidence. xxvii. It was the claim of the assessee that a service permanent establishment is established in the India only if assessee renders services in India through its employees. It was the claim of the assessee that it does not have any employee in India and none of the employees of the assessee travelled to India during the year. Hence, the allegation of service permanent establishment also does not arise. xxviii. With respect to the LinkedIn profile of Mr. Rajesh Shetty and Mr. Vijay Parab , assessee submitted that Mr. Rajesh is CEO of Taj India, which was engaged as a distr....
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....rts broadcasting undertaking is a permanent establishment of the assessee in India and hence not covered under parameter of article 13 (2) of DTAA. xxxiii. It was the claim of the assessee that no relation of movable property of the alleged permanent establishment forming part of business property. Assessee submitted that, assuming while denying, that assessee has a permanent establishment in India, the property transferred by the assessee does not form part of the business property of the alleged permanent establishment. All the assets and liabilities of the undertaking transferred are located outside India. None of the movable properties forming part of the business property of alleged permanent establishment is transferred as a part of the transfer of global sports broadcasting undertaking. xxxiv. In the present case, the alleged fixed permanent establishment Zee Ltd has not alienated any assets. Even the play out facilities continues to be owned by that company and has not been alienated. Therefore, the article 13 (2) does not apply. xxxv. In the end assessee submitted that burden is on the revenue to establish that any income or gain arising on sale ....
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....fore there is no further liability of tax on assessee. 016. With respect to ground number 4 on disallowance of the programming cost for non-deduction of tax under section 195 of the act, the learned authorized representative submitted that this issue is covered in favour of the assessee by the various decisions of the coordinate bench in assessee‟s own case. Further, it was claimed that such payment is not royalty under the income tax act and further, as there is no permanent establishment in India. Further, the royalty paid relates to business carried on outside India. 017. With respect to ground number 5 of disallowance of transponder fees and up linking charges on account of non-deduction of tax under section 195 of the act, assessee submitted that the issue in dispute is squarely covered by the decision of the honorable Delhi High Court in case of director of international taxation versus New Skies satellite BV 382 ITR 114 and further the decision of the coordinate bench in assessee‟s own case for last several years wherein it has been held that the payment of up linking and transponder fees does not amount to royalty and further in absence of any permanent es....
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....as the claim of the learned departmental representative that when it comes to Indian Territory where the channels are being down linked and watched, the company must mandatorily be registered in India and must have a commercial presence in India with its principal place of business in India. According to the guidelines of Telecom Regulatory Authority Of India, company either must own the channel or must enjoy further territory of India exclusive marketing or distribution rights together with the rights to advertisement and subscription revenues for the channel. Therefore, the appellant assessee could not have operated its channels in India without having a distinct physical and commercial presence either on its own or through its agent. Therefore, Taj TV India Ltd, which is a step down wholly owned subsidiary of Zee entertainment Enterprises Ltd, has the exclusive marketing and distribution rights for the channels and is acting as an agent of the assessee in terms of those policy guidelines. iii. Assessee has entered into an advertisement sales agency agreement dated 4/5/2002 with its non-exclusive agent i.e. Taj India for soliciting orders for placement of advertisements ....
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....show that it has not been exercised. iv. Thus, combined effect of Global Business License - 1 and TRAI policy guidelines, assessee is not doing any business in Mauritius and had a physical/commercial presence in India either on its own or through its agent, which had exclusively authority to conclude contracts on its behalf as per the terms of the addendum to the advertisement agreement. Therefore, now it is not open for the assessee to argue that it had no presence of business operation in India or that it had no permanent establishment in India. v. It was further argued that before ld. AO assessee has taken a plea that though the terms of advertisement agreements were amended, they were not really acted upon which is a fallacious for the reason that it is not open for the assessee to say in the first place that they have amended the advertisement agreement but continued to violate the Telecom regulatory authority of India's guidelines and secondly there is no material to support the plea which the appellant is seeking to advances this stage to wriggle out of the situation. vi. With respect to the applicability of article 13 (2) or article 13 (4) of ....
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....ansfer of the sports broadcasting business has territorial nexus with India. His main argument is that clause 1.1 envisages material event impacting the sports broadcasting business and then make special exception for a change brought out by the implementation of the recommendation of the Lodha committee or regulation, tariff order and direction of the Telecom regulatory authority and Ministry of information and broadcasting affecting the broadcasting sector as a whole. Therefore, this proves that the transaction has sufficient territorial nexus to India. x. He further submitted that the business purchase agreement specifically refers to approval from the competent authorities in India such as competition commission and Ministry of information and broadcasting as a part of condition precedent and further the agreement has specific non-compete clause regarding sports broadcasting business in India and other territories which once again establishes the territorial nexus of the transaction with India. xi. Further, the agreement itself is subject to the governing laws of India. xii. Therefore, according to the learned special counsel, the transfer of the spor....
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....viewed in its totality. xvii. Thus, according to him as part of the whole arrangement both the assessee‟s sports broadcasting business and shares in its exclusive India agent Taj India have been transferred to Sony, therefore effectively the entire Indian operations have been transferred to Sony. xviii. It was therefore submitted that the suggestions of the assessee that agency permanent establishment cannot be roped in article 13 (2) for the reason that agents assets do not get transferred to the purchaser is wholly irrelevant in the peculiar facts of this case where the agent, too is getting transferred with all its assets, rights, titles and interest as an integral part of the impugned transaction. xix. The learned departmental representative further referred to the transfer pricing study report of the assessee. He referred to the background of the entity and assets employed, he submitted that the assessee is having a very advanced broadcast and production facility, it employs fixed assets, tangible and intangible assets, and however there is no indication that these assets are located out of India. He submitted that on the other hand, the title ....
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....e specifically objected to the argument of the assessee that assessee was getting the services of ZEE entertainment Ltd as a service provider. According to him if ZEE entertainment Ltd was rendering play out functions for the channels owned by the assessee, it was in operation done for and on behalf of the assessee and not as a service provider to whom such an operation was outsourced. He further submitted that the play out agreement is an afterthought. According to him the play out facility was used all along by the assessee and whatever facility was rendered by Zee entertainment Ltd, it was not in the capacity of a service provider but as a group entity acting for and on behalf of the appellant without any consideration and without any agreement or arrangement to show otherwise. xxii. He therefore explained that Fixed permanent establishment is triggered. It was referred that in the assessment order at paragraph number 5.3 of the assessment order, Ld. AO alleges that assessee has a fixed place of permanent establishment in India. xxiii. He further submitted that article 13 (2) does not provide any exception when it comes to alienation of movable assets of the pe....
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....is stated in the transfer pricing study report that such facilities or equipment do not belong to the assessee or that it is not being used for and on its own behalf. xxvii. Coming to the next aspect of the agency permanent establishment of the assessee, he submitted that there are four amendments to the advertisement and distribution agreement on 27/4/2006, 28/12/2007, 23/1/2008 and 5/11/2010. According to that, he contended that it is amply clear that the assessee had agent in India by the name of Taj India, who had authority to conclude contracts on behalf of the assessee. This Indian entity was representing the assessee in India and was satisfying various conditions laid down by the Telecom regulatory authority. xxviii. He further referred to the argument of the assessee that since the agent was paid on an arm's-length basis and therefore no revenue could be attributed to the assessee nor could such a permanent establishment be considered as a permanent establishment for the purposes of article 13 (2) of the Double Taxation Avoidance Agreement is untenable. He further submitted that the reliance by the assessee on the decision of Honourable Supreme Court i....
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.... ambit of article 13 (2) of the Double Taxation Avoidance Agreement. He further submitted that it is not the case of the assessee that the assets of the agents are not getting transferred. He further submitted that there is nothing in the provisions of the Double Taxation Avoidance Agreement that only permanent establishment other than agency permanent establishment are subject matter of transfer under article 13 (2) of the DTAA. xxx. He further submitted that it is of vital importance to understand that what the subject matter of transfer is. He submitted that the subject matter of the transfer is the entire business of the assessee by way of slump sale. It is not a transfer of individual assets and therefore the location/situs of different assets is wholly irrelevant. Therefore, the revenue does not consider it necessary to go into the various judicial precedents cited by the assessee to show that certain assets should be deemed located outside India. He submits that it is the business operation carried on in India which is getting transferred and therefore it is a case of transfer of permanent establishment itself in accordance with the second limb of article 13 (2) of ....
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....thout the presence of the assessee in India. The findings of the coordinate bench in earlier years are bereft of such important information, as it was never disclosed by the assessee. d) The transfer pricing study report shows the details of Indian operation stating the equipments, which are needed for production. He specifically made a reference of 2 studios of the assessee and robust transmission system, which has been highlighted by the assessee. According to him, these facts stated in the transfer pricing study report were never brought to the attention of the coordinate bench in earlier years. The above facts clearly stand in teeth of the assertion that there is no place, no assets, no employees, and no business operations in India. e) The play out agreement entered into between the assessee and ZEE entertainment Ltd relevant to assessment year 2018 - 19 brought into effect retrospectively. He submitted that how a service agreement can be given a retrospective operation and that too for a short period of 10 months. He specifically challenged that how can such an arrangement suggest that the transmission done from the Noida was not a business operation of the ....
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.... submits that it carries out its business from outside India i.e., from Dubai, however it does not have any clarity or evidence to such effect and therefore it cannot be accepted. xxxvii. He further submitted that the assessee shifted its play out facilities from Dubai to Noida in the year 2012 - 13 and therefore during the year under consideration the assessee carried out is play out facility from Noida. xxxviii. He further submitted the LinkedIn profile of 2 persons Mr. Vijay Parab and Mr. Rajesh Shetty. He submitted that Mr. Vijay Parab is head of migration of play out in production of 10 sports operations from Dubai to Noida. With respect to Mr. Rajesh who was also the chief executive officer of the assessee's distribution agent Taj India at the same time. xxxix. He further referred to the digital studio Magazine (volume 6, issue 7) which is placed at paper book volume 2 of the AO to show that the sifting of Ten sports was widely reported in international news, which shows that operations of Ten sports from Dubai to Noida happened in the year 2013 - 14. xl. He further referred to the news article titled dilemma for staff as ten sports rel....
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....ut for the revenue, it is a separate entity. He submits that revenue cannot be expected to recognize independent and separate corporate structure of the entity if the parent itself decides to tear apart the corporate veil and in such circumstances the entity has to be discarded and the consequences needed to follow. He referred to the decision of the Honourable Supreme Court in case of Vodafone international Holdings versus Union of India (2012) 6 SCC 613 referring to paragraph number 74, 79 and 277 and 280 of that decision. He submits an alternative argument has been taken by the assessing officer that assessee was not running the broadcasting business on its own account from Mauritius and the decision to sell the said business was not taken independently but was taken by its ultimate parent ZEE entertainment Ltd. To show these facts he referred to the resolutions approving the sale of broadcasting business which suggests that decision to sell the broadcasting business was taken by ultimate parent ZEE entertainment Ltd, the assessee was not at all involved in the decision-making process to finalize the nature of the transaction being slump sale and therefore it was not the decisio....
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.... all functioning as an independent legal entity and for all purposes, it is ZEE entertainment Enterprises Ltd that is functioning in the name of the assessee. He submitted that one of the principal criteria to see whether a subsidiary is functioning independently as a separate legal entity is to check its sources of funds and to how exercises authority to utilize the said funds. In the present case, none of the directors in the assessee exercises the authority over the bank account of the assessee independent of nominee of the parent. Therefore, the authority to utilize/ appropriate funds was also not in the hands of the assessee. Further ZEE entertainment Ltd has given guarantee to various sports Association and boards for acquiring the licensing rights for matches in various territories in return, the assessee was paying 1% finance charges for corporate guarantee. Therefore, all these cumulative effects leave no doubt that assessee has arranged it affairs to claim Double Taxation Avoidance Agreement benefit to evade taxes on income, which is accruing or arising in India. xliii. Therefore, the learned departmental representative special counsel made a serious allegation t....
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....ct tax at sources results in to disallowance, it deserves to be upheld. Rejoinder of Assessee 019. The learned authorized representative in rejoinder heavily relied on his submissions made earlier. He vehemently reiterated content of business purchase agreement, decision of the coordinate bench in assessee's own case, the agreement for distribution and advertisement subscription, as well as submission made before the learned assessing officer and learned dispute resolution panel. It was reiterated that gain on transfer of global sports broadcasting business is not taxable under the income tax act as well as non-chargeability of tax on the above transaction as per the Double Taxation Avoidance Agreement submitting that provisions of article 13 (4) of the treaty applies and revenue is grossly erred in invoking article 13 (2) of the treaty. It was vehemently submitted that holding of tax residency certificate is of Paramount importance in granting benefit of Double Taxation Avoidance Agreement to the assessee. 020. The learned authorized representative submitted that argument of the revenue that production is done at the Zee entertainment Ltd.‟s facility at Noida in....
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.... lease agreement with Gulf DTH FZ LLC of its Dubai property to show that the appellant even after losing some part of the premises has retained two studios. v. It was further submitted that the assessee has leased premises in Dubai from Real media FZ LLC for its operation as is evident from the annexure to schedule 6 at point number C of slump sale agreement. Therefore, the allegation of the revenue that if the assets of the assessee are not in Mauritius, then they must be in India is factually wrong and contrary to the facts on record. vi. Further it was submitted that the revenue cannot now argue that the assets must be in India without actually pointing out as to which assets of the assessee are in India. He vehemently submitted that the allegation of the revenue that if property is not situated in Mauritius and therefore it is situated in India is fallacious. vii. It was submitted that as the critical operation of the undertaking are functioning outside India, the undertaking is situated outside India. viii. It was further submitted that the reliance placed by the learned departmental representative on the transfer pricing study report that t....
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....he assessment order itself. He placed reliance on the decision of Bangalore tribunal in case of Joint Commissioner Of Income Tax Versus Flipkart India Private Limited, Assistant Commissioner Of Income Tax Versus Balaji Trust, Mahindra And Mahindra Ltd Versus Deputy Commissioner Of Income Tax 30 SOT 374 (Special Bench) and Assistant Commissioner Of Income Tax Versus Parkash L shah 115 ITD 167. xii. The learned authorized representative further submitted that the revenue submitted that Taj India constitutes a permanent establishment of the assessee in India and that it had entered into contract on behalf of the appellant as is evident from schedule 7 of the share purchase agreement placed at page number 50 of the department‟s paper book volume 3. It was further stated that even the down linking guidelines provide for a foreign telecasting company to have a company, which has authority to conclude contracts in India is not correct. It was submitted that Taj India had been appointed by the assessee as a distributor of various sports channel in India as per agreement dated 28/4/2016, which is similar to the prior year‟s arrangement as per agreement dated 25/9/2014. ....
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....blishment in terms of article 5 (4) of the DTAA. xix. It was further stated that the assessee as per letter dated 23/10/2019 submitted the copy of the various advertisement invoices which clearly demonstrate that the same have been concluded by the assessee itself and not by Taj India. xx. Even otherwise, it was submitted that, the revenue has failed to show the any contract relating to the advertisement income has been concluded by Taj India or the fact that Taj India has habitually exercises such authority. In absence of any evidence contrary to the submission of the assessee, that Taj India has not concluded any contracts or does not habitually exercises such authority, negative presumption made by the revenue is unjustified. xxi. The learned authorized representative was also concerned about the submission of the learned departmental revenue that the assessee had not submitted various documents in the course of the assessment proceedings as mentioned in the draft assessment order at paragraph number 4 point 3. He referred to that paragraph and submitted that the learned AO has alleged that the assessee was not forthcoming in filing details regarding s....
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.... mention anything about it. This itself clearly prove that non-submission of it before ld. AO of global financial results by the assessee could not have gone against the assessee. xxii. With respect to any approvals taken from any governmental or statutory or regulatory authority in India for the said transfer, the learned authorized representative submitted that the submission of the assessee dated 19/12/2019 clearly states that the assessee being a Mauritius resident under foreign company is not required to take approval from government authorities of India for the purpose of selling of its global sports broadcasting undertaking. The learned authorized representative specifically referred to the assessment order and stated that the approval of the competition commission of India was obtained by the buyer and not by the assessee. He even otherwise submitted that the purpose of obtaining the permission before the competition commission of India is with respect to the dominant undertaking of the buyer and compliance with the provisions of the competition commission act. It has nothing to do with the tax liability of the assessee with respect to the sale of global sports bus....
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....ly accepts that this issue is already been decided in favour of the assessee and is now concluded. Decision and Reasons 022. We have carefully considered the rival contention and perused the orders of the lower authorities. Assessee has submitted factual paper book in two volumes, one volume of Case law compilation and written submission. On behalf of learned AO, three volumes of the paper books and one written submission was made. Both the parties have referred to several judicial precedents to buttress their contentions. We have considered all of them. 023. Briefly, the fact at the cost of repetition shows that assessee is a company Incorporated in January 2001, being a wholly owned subsidiary of Asia today Limited Mauritius, which in turn is also a fully owned subsidiary of Zee entertainment Enterprises Ltd. It is stated to be a full-service television concern having its registered office at St Louise business center, Mauritius, and the branch office at Dubai. It is stated to be a foreign telecasting company and the principal activities of the company includes television transmission, sale of commercial line on television, cable broadcasting, syndication of broadcasting....
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....elecast the advertisements worldwide in between various programs or events telecasting as per schedule of Ten sports . It controls the traffic of advertisements and ensures that the entire inventory of spots available on Ten sports channel is consumed to maximum extent. Assessee makes arrangement for displaying the contents in the channels specified as per the agreement and it complies with the rules and regulation including maintenance of requisite licenses. Legal and other compliances are also the responsibility of the assessee. With respect to the play out cost, Zee entertainment Enterprises Ltd maintains agreed technical specifications in providing the broadcasting operations and engineering facilities to channels mentioned as per the agreement and provide quality support relating to latest broadcast features. This entity raises invoices on assessee for services performed as specified in the agreement. 026. Assess filed its return of income on 29/3/2019 declaring a total income of Rs. 185,593,487/- being the interest on income tax refund received by it shown as income from other sources. It submitted two different computation of total income. In the first computation of tota....
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....authorizing assessee to pay Rs. 22,672,800,000 after deducting income tax at the rate of 0% to Aqua holding investment private limited, c/o, Sony pictures network India private limited, Mumbai. This was with reference to the fact that during the year financial year 2016 - 17 assessee has disposed its global sports broadcasting business to another Mauritius company namely Aqua holding investment private limited by way of a slump sale. 028. A Business Purchase Agreement was entered into on 31st of August 2016 by assessee i.e. Taj TV Limited as a seller, Aqua holding investment private limited, as purchase, ATL media Ltd as a third-party, SPE Mauritius Holdings Ltd as purchasers parent 1 and SPE Mauritius investments Ltd as purchasers parent 2. According to the agreement, the seller is wholly owned subsidiary of ATL Ltd and is engaged in the sports broadcasting business. Further ATL is wholly owned subsidiary of ZEE Entertainment Enterprises Ltd . The seller proposes to sell to the purchaser the sports broadcasting business on going concern, encumbrance free basis by way of a slump sale free of all income and on the terms and conditions of this business purchase agreement. 029. ....
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....onstrued in accordance with the substantive laws of India. The arbitration shall be conducted in accordance with the rules of the Singapore International arbitration Centre and the seat or legal place of arbitration shall be at the Delhi. 032. As per agreement :- i. According to schedule 1, it has several conditions precedent of Seller, purchases and joint conditions. One of the joint condition precedents was to obtain approval from The Competition Commission In India in terms of The Competition Act 2002 of India of the proposed consummation of the transaction contemplated in this agreement. It also included no objection or endorsement from the Ministry of information and broadcasting recording the change of ownership of the channel in the downlink permission issued. It was also the joint precedent for which counterparties for the various agreements are to be informed/intimated about this agreement. These are various sports Association or sports organizations. ii. As per schedule 2 there were certain closing actions where it is mentioned at serial number 5 that the closing of the transaction contemplated under this agreement sale take place, concurrently and co....
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....ontracts, which are to be invited for the consummation of the transaction. It has also reference of all related party transactions relating to the sports broadcasting business. According to that, there were contracts of commission payable by the assessee to Taj television (India) private limited in the form of agency commission on India advertisement revenue and distribution commission. With respect to the transmission cost the channel play out cost is payable by the assessee to see entertainment Enterprises Ltd. With respect to rent and electricity of office rent of the buy office payable by the assessee to real media FZ LLC were mentioned. The advertisement revenue contracts receivable by the assessee from group channel promotions was also mentioned. It also referred to content agreements for various sports such as cricket, football, golf, tennis, WWE, MotoGP, others, volleyball and technical contracts, syndication contracts, facility contracts, maintenance contracts, advertisement contracts and several other contracts including distribution contracts. iv. This agreement was signed on behalf of ATL media Ltd and assessee by one Shri Anil Maurya, who is stated to be the d....
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.... best efforts to ensure that Taj receives all sums due to it under this agreement j) remitting services are commissioned to advertisement agencies, sales representative and media agents k) other services incidental to acting as advertising sales agent. ii. According to clause 5 (a) of the agreement relates to the duties and responsibilities of Taj India private limited as under:- a) in providing the services pursuant to this agreement, Taj - India shall not have any writer authority to assume or create, in writing or otherwise, any obligation of any kind express or implied, in the name of all on behalf of Taj, unless expressly authorized by Taj. Taj and Taj India expressly acknowledges that Taj India is a ability to (i) enter into contracts with third parties (ii) incurred any cost and expenses (other than reasonable and customary advertising sales agency costs and expenses, in connection with the service), or (iii) otherwise obligate Taj in respect of the services to be provided by Taj India here under (including, without limitation, arranging and facilitating the sale of advertising time) shall at all times be subject to prior approval by Taj i....
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....The agreement was further amended on 26 March 2008 where the remuneration was changed with effect from 1 April 2006. vi. The agreement was further amended on first day of April 2013 as the addendum earlier had the terms up to 31 March 2013, by this agreement the term got extended up to 31 March 2014. vii. Further addendum was entered into on 1 May 2013 to change rates of the commission/fees as per clause 4 effective from 1 April 2013. viii. On 20 February 2015, the terms were extended up to 31 March 2015 and as per amended dated 20 February 2016, it was further extended up to 31 March 2018. 036. Assessee has also entered into a Channel Subscription Agreement with Taj Television ( India) Private Limited with effect from 1 May 2016 on 28 April 2016 wherein Taj Television India Private limited was granted an exclusive license to distribute and conduct related marketing of the channels. It was further amended by agreement dated 1 November 2016 wherein a further channel was launched and rights of distribution were granted to Taj India. 037. Based on above facts, the claim of the assessee is always that assessee does not have any permanent establishment i....
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....s yes no 6 fixed assets/telecasting facilities like studio et cetera yes no 7 Schedule of Programs Yes No 8 contract with advertisers yes No 9 Collection of advertising revenue from Indian advertisers No Yes 10 collection of distribution revenues from Indian distributors no yes 11 promotional and auxiliary activities for sports channels in India no yes Accordingly, the claim of the assessee is that the majority of the functions for telecasting of the sports channel carried out from outside India and Taj television India Ltd is only engaged in the marketing of sports channel in India for which it is paid at arm's-length consideration. 040. It is further the claim of the assessee that (1) the place of the effective management of the assessee is situated in Mauritius because, all the meetings of the board of directors were held outside India, (2) the main activity of telecasting is carried on by it outside India, (3) all the significant contracts are finalized and executed outside India, (4) all the employees of assessee are based outside India. 041. It is also the claim of the assessee that age....
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....f, it is shown that the dependant agent permanent establishment has performed functions on behalf of the non-resident entity by employing assets and assuming risk along with sufficient free capital to support those assets and risk, then only, further profit can be attributed. Therefore, it needs to be first established that there is a dependent agent PE of the assessee and it has performed functions on behalf of the assessee complying the assets and assuming the risk. 043. While holding so, we are conscious of the fact that in case of decision of the Honourable Bombay High Court in case of Set satellite (Singapore) PTE Ltd versus Deputy Director Of International Taxation(2008) 307 ITR 205/173 taxman 475 (Bom) and CIT versus B4U international Holdings Ltd (2015) 374 ITR 453 as well as in assessee‟s own case coordinate bench in 77 taxmann.com 355 for assessment year 2006 - 07 to 2008 - 09 dated 23 December 2016 has categorically held that no income could be said to be attributable to assessee, a foreign entity , in India from its Indian subsidiary when transfer pricing officer had accepted that the transaction between them was at arm‟s-length. The Double Taxation Avoid....
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....no further profit attribution is required. For assessment year 2009 - 10 and 2010 - 11, in assessee‟s own case in ITA number 6326 - 6327and 6366 - 6367/M/2016 in paragraph number 8 coordinate bench has held that the Taj India does not constitute agency permanent establishment in terms of India Mauritius DTAA for distribution income. It further held that as the permanent establishment is being remunerated at arm‟s-length price, no further attribution can be made. Further for assessment year 2011 - 12, in ITA number 1313 and 1501/M/2018 dated 22/5/2019, though the grounds mentioned the chargeability of income on the basis of advertisement revenue, the coordinate bench following the decision in assessee‟s own case for earlier years, (which was with respect to distribution income,) held that even for advertisement revenue, the Taj India does not constitute agency permanent establishment and further as the AE has been remunerated at arm‟s-length price, the addition was deleted. Further in the same appeal, where the learned CIT - A following the decision of the coordinate bench in assessee‟s own case held that distribution income stream does not have a perma....
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....red to be attributed with respect to advertisement revenue. It did not decide whether for advertisement revenue there exists a permanent establishment or not. Therefore it is apparent that the issues are squarely decided against the revenue on following issues:- i. Assessee does not have a permanent establishment with respect to the distribution revenue of the assessee. ii. When the permanent establishment has been remunerated at arm‟s-length, there is no further attribution of profit to the income of the assessee iii. Even in case of advertisement of revenue, in one year, the coordinate bench has decided that it does not have a permanent establishment. However, apparently, coordinate bench followed the decision in earlier years of the coordinate bench where it was held that it does not have a permanent establishment with respect to the distribution income. Therefore, even in case of advertisement of revenue, it was held that assessee does not have permanent establishment. This decision has not been challenged by the revenue by filing the miscellaneous application before the ITAT or before the honourable High Court. Therefore, the decision taken in ....
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.... Mauritius DTAA, there is a dependent agent permanent establishment. It was the specific argument of the learned departmental representative that Taj India had the authority to enter in to agreement with third parties on behalf of the assessee and thus it constitutes dependent agent permanent establishment in India. The coordinate bench after considering the amendment in the agreement, as per paragraph number 12 has held that that though the Taj India has a right to conclude the contracts on behalf of the assessee but the second condition that it habitually exercises that authority is not proved. One of the twin conditions fails, that is the decision of the coordinate bench, therefore held that according to article 5 (4) (i) assessee does not have a dependent agent PE in India. Hence, it cannot be said that addendum has not been considered by the coordinate bench with respect to advertisement sales agency agreement. There is no amendment with respect to the channel subscription agreement produced before us by either party. Hence, on this ground, it cannot be said that this fact was concealed before the ITAT. Contrary to this, these agreements and its addendum were produced by the l....
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....rity in functions performed. This does not make the orders of the earlier years erroneous or obtained by misrepresentation of facts. 051. For the play out agreement which was entered into for assessment year 2018 - 19 ( placed at page number 830 of paper book ) entered on 19 April 2017 between Zee entertainment Enterprises Ltd and assessee which came into effect from 1 April 2016 up to 28th of February 2017, the learned special counsel submits that how such an arrangement suggest that the transmission done from Noida was not a business operation of the assessee even in earlier years. This argument is coupled with paragraph number 5.3 of the draft assessment order (page 79 - 84 of the draft assessment order) where the learned AO has held that the assessee has a fixed place permanent establishment. It is necessary to appreciate the findings of the learned AO which are as under:- „5.3 fixed place permanent establishment 5.3.1 the assessee has contended that during the year under consideration there is no change in the facts and circumstances of the case and that it has neither a fixed place of business in India not having any branch/office et cetera. In Indi....
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.... , Ten 1 and Ten 2) ESOP linked onto satellite named IS -20 , which has a footprint over the Indian subcontinent, the Middle East, Africa, Singapore and Hong Kong, where the linear feet of one or more of the channel is distributed in each of these regions. There is no play out the channels anywhere else in the world. 5.3.2 And the assessee in the present case fulfils all the conditions prescribed in the OECD model commentary on the model tax Convention is relating to fixed place permanent establishment. The assessee in the present case has a place of business, such place s fixed , activities have been performed by the assessee through the said fixed place of business, and the said fixed place of business was at the disposal of the assessee and its employees. This equipment when installed in the premises of other entities creates PE as it is a fixed place at the disposal of the applicant through which the business of the applicant is being carried on. OECD commentary at note 5 of commentary on article 5 clearly says that:- "5.... It is immaterial how long an enterprise of a contracting state operates in the other contracting state if it does not d....
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.... " The enterprise can carry out its business activities through itself or, through its employees or dependent agents. The presence of personnel is not necessary to consider that an enterprise value your partly carries on its business at a location when personnel are in fact required to carry on business activities that location.(note 42.6 article 5, OECD commentary 2003). A permanent establishment may also exist where the business of the enterprises carried on through automatic equipment and the activities of the personnel in such cases are restricted setting up, operating, controlling and maintaining such equipment only. (Note 9, article 5, OECD commentary 1977). Examples of such cases are gaming and vending machines operating automatically (note 9, article 5, OECD commentary 1977). In the famous German pipeline ( IIR 12/92 dated 30 October 1996 [BFH]) case, the pipelines through which crude oil was transported by the taxpayer was considered as permanent establishment in Germany despite the fact that there were no employees, and the pipeline was operated automatically in Germany, by the German Federal tax court. In another case, a German company installed a server....
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.... the assessee is that :- i. Production facility was always based out of India and cannot be mixed up with play out service availed by Taj. ii. There was no corroborative evidence established by the learned assessing officer for shifting for production facilities to India. iii. It is only one of the components of entire telecasting operations and cannot be deemed entire telecasting facility in India. iv. Assessee has obtained the play out services from the ZEEL on independent basis and had paid arm‟s-length remuneration. v. The allegation of the learned assessing officer that the play out facility is at the disposal of assessee is completely misplaced. There is no substance in such fact. vi. Play out facility is actually at complete disposal of the service provider and not the assessee. vii. The assessee further referred to the LinkedIn profiles of to employees and submitted that those personnel are not employees of the assessee and have no connection with the transactions in question and therefore reliance on their LinkedIn profile is misplaced. viii. Therefore, it cannot be interpreted that Taj has contr....
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....on and without any agreement or arrangement to show otherwise. This together with the fact that in the business purchase agreement in warranties, properties are mentioned as per clause 9 and technical arrangements as per clause 19.1. According to him, it proved that the seller has obtained the necessary permission from its affiliates to use the premises. It is operating as no agreements have been entered and no payments are required for use of such premises. Further technical arrangements shows that the current play out of all the channels takes place in Noida and there is no play out of channels anywhere else in the world. Accordingly, it was claimed that clearly there is a fixed place, which is being used by the assessee from where the assessee is operating. The premises belong to the affiliates and are made available to the assessee for its business operations. Moreover, it satisfies all the conditions of paragraph 1 of article 5 of the double taxation avoidance agreement. 059. Argument of the assessee is that the agreement does not contemplate ZEEL to have an establishment/place of permanent or enduring nature in India at the disposal of the assessee. That company has merely....
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....change in the facts may suggest another thing at a different point of time. Further with respect to the claim of the learned departmental representative that if this play out facilities are not used by the assessee then from where the play out is being carried out. For this purpose the assessee has placed a lease agreement between the assessee and Gulf DTH FZ LLC which clearly says that there are two studio accommodation already available with the assessee of 3603 ft² on the ground and Mezzanine Floor on rent in UAE for which the rent agreement is placed on record. Therefore, it is not the cases that play out facility is not available with the assessee other than at Noida. Further, it cannot be said that the play out facility is at the disposal of the assessee, no evidence exists for such test. It is also not challenged that none of the assessee's employees have travelled to India during the year. Therefore, it is apparent that from the play out stations, ZEEL is carrying out its own business and not the business of the assessee. Even otherwise production is separate from play out services availed from ZEEL and further transmission services have been availed from third-par....
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....t be denied. Unless, there are specific evidences led by the revenue that it was not the business of the service provider but the business of the assessee itself was carried on from those play out facilities, fixed place permanent establishment of assessee cannot be established. It is generally the obligation of the party who alleges to prove the allegation. The defendant of the allegation cannot be asked to prove negative. 062. Coming to the observation of the learned officer wherein she referred page number 176 of the book of learned author Shri Ashish Kurundia which dealt with whether the carrying on of the business by human beings or automated machines / equipments are considered as fixed place permanent establishment or not. That deals with the fact that when the permanent establishment may also exist where the business of the enterprises is carried on through automatic equipments and the activities of the personnel in such cases are restricted to certain activities. There is no quarrel on the issue that when testing the connection between the business and the place of the business i.e. the business connection test, the business activity of the enterprises does not have to ....
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....es an authority to enter into an agreement to an Indian entity on behalf of the assessee but those have not been habitually exercised by that entity. Therefore, the assessee does not have dependent agency permanent establishment in India. 065. The Burden of proving that assessee has a Permanent Establishment in India and must suffer taxation from business generated from such PE is initially on the revenue as held by Assistant Director of Income tax V E Funds It Solutions Inc. 399 ITR 34 (SC) [ Para 10],. Now it cannot be grievance of the revenue that any information is withheld by the assessee. 066. Thus, we hold that, assessee does not have either fixed place permanent establishment or dependent agent permanent establishment in India. 067. Now, it is necessary that whether the assessee is entitled to the treaty benefits or not. This is necessary to examine whether the benefit of article 13 of the Double Taxation Avoidance Agreement would be available to the assessee or not. It is undisputed that assessee holds a valid tax resident certificate granted by the Mauritius tax authorities from financial year 2002 - 03 till date. Revenue has challenged the fact that assessee is ....
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....er Contracting State or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing independent personal services, including such gains from the alienation of such a permanent establishment (alone or together with the whole enterprise) or of such a fixed base, may be taxed in that other State.' 070. Article 13 (4) provides that:- 4. Gains from the alienation of any property other than that referred to in paragraphs 1, 2, 3 and 3A shall be taxable only in the Contracting State of which the alienator is a resident. 071. It is apparent that article 13 (2) applies when i. There is an alienation ii. of movable property iii. which forms part of the business property of a permanent establishment in India or fixed base available iv. or of permanent establishment itself 072. As we have already held that assessee does not have a permanent establishment in India, either in the form of a fixed place permanent establishment or dependent agency permanent establishment, article 13 (2) of DTAA does not apply. 073. According to article 13 (4) of....
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....ome of the assessee, the revenue is required to bring on record further functions performed, risks assumed and assets used along with capital infused. Before us, revenue could not bring on record any such fact. Therefore, we hold that no further tax liability arises in the hands of the assessee in India. 077. Accordingly, ground number 2 and 3 of the appeal are allowed. 078. Ground number 4 is with respect to the disallowance of programming cost of 108,14,810 US dollars for non-deduction of tax at source under section 195 of the income tax act and therefore disallowable under section 40 (a) (i) of the act. The fact shows that the during the year the assessee has incurred Rs. 70.12 crores towards purchase of program rights from non-resident entities which included consideration for broadcasting of live events. The assessing officer has disallowed these expenses holding that the payments made for acquisition of rights in respect of various content acquired by the assessee including live feed for broadcasting in India is in the nature of Royalty requiring tax deduction at source and therefore, as assessee has failed to deduct tax at source, disallowance was made under section 40....