TaxTMI 
TaxTMI 
2024 (2) TMI 917
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....carrying out its operations from Singapore though its subsidiary. The assesse earns revenue from two streams i.e. (i) advertisement, and (ii) subscription. In India the assessee vide agreement dated 01/06/2000 appointed Zee Telefilms Ltd. (ZTL) as agent for advertising/marketing and El-Zee Televisions Ltd. (El-Zee) was appointed as exclusive distributor vide Distribution Agreement dated 01/07/2000 for distribution of rights of the satellite channels broadcasted by the assessee in India. As per the aforesaid agreement, ZTL was compensated for its services by way of commission @8.5% of the advertisement tariff paid by the advertiser to the assessee. As regards distribution activities El-Zee was allowed to retain 20% of subscription fee as commission in accordance with the Distribution Agreement. The assessee filed its return of income declaring Nil income. In scrutiny assessment proceedings the Assessing Officer made addition by estimating income from advertisement @15% of the advertisement revenue. In respect of subscription income from pay channels, the Assessing Officer held subscription as 'royalty' and levied tax @20% on such royalty income. There is no Double Taxation Avoidance....
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....the CIT(A) erred in law and facts in upholding the assessment of income on the assessee (Foreign Company) inspite of the fact of the assessee suffered losses in its worldwide business as per audited accounts of earlier years and there are huge accumulated losses during the year also. 4. The CIT(A) erred in law and facts in estimating income U/R 10(2)(ii) on the basis of percentage of profit in worldwide accounts of aft its activities instead of percentage of profit in broadcasting business, wherein the appellant suffered losses and he ought to have estimated no income based on losses in the relevant business" 4. Shri Niraj Sheth appearing on behalf of the assessee at the outset submitted that the primary ground in assessee's appeal is ground No.2, hence, he would be making his submissions in respect of ground No.2 only. He submitted that if, the assessee is remunerating its Permanent Establishment (PE) in India at arm's length, no further income is attributable to the assessee. Advancing his arguments he submitted that the assessee earns revenue from two streams (a) advertisement revenue and (b) subscription revenue. According to the assessee no part of the advertisemen....
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....Counsel for the assessee next submitted that the CIT(A) has accepted the transaction with ZTL at arm's length but taxed advertisement revenue and subscription revenue @ 9.36% as business income . This is contrary to the provisions of section 9(1)(i) of the Income Tax Act, 1961 [in short 'the Act'] and Circular No.23 dated 23/09/1969. In support of his submissions he placed reliance on the decision of Hon'ble Bombay High Court in the case of SET Satellite (Singapore) PTE Ltd. vs. DDIT (IT), 307 ITR 205(Bom). He pointed that in the aforesaid decision the issue was decided with reference to Article-7 of the DTAA, however, the provisions of section 9(1)(i) of the Act are pari-materia to the provisions of Article 7.1 of the Tax Treaty. To buttress his arguments he referred to the decision of Tribunal in the case of Galileo International Inc. vs. DCIT, 114 TTJ 289 (Del.-Trib.). 8. The ld.Counsel for the assessee further submitted that assuming without admitting that the assessee has business connection in India, as per section 9(1)(i) of the Act, only as much of the Revenue is chargeable to tax in India as reasonably attributable to the operations carried out in India. In the inst....
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....ubscription revenue be deleted. 11. Per contra, Shri Anil Sant representing the Department vehemently defended the assessment order and the order of Transfer Pricing Officer (TPO). The ld. Departmental Representative supported the order of CIT(A) to the extent that advertisement revenue and subscription revenue from operations in India is liable to be taxed in India. 12. We have heard the submissions made by rival sides and have examined the orders of authorities below. The assessee, tax resident of BVI is engaged in the business of telecasting satellite television channels. For marketing and advertising on channels in India, the assessee entered into an agreement dated 01/06/2000 with ZTL. As per the agreement, ZTL gets remunerated @ 8.5% of the advertisement tariff paid by the advertisers to the assessee. The assessee appointed El-Zee as an exclusive Distributor for distribution of marketing rights of Pay channels broadcasted by the assessee in the territory of India vide Distribution Agreement dated 01/07/2000. The assessee, remunerated El-Zee with 20% of the subscription fee collected in India. 13. The first contention of assessee is, the assessee has no business conne....
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.... business connection in India. No meaningful arguments against the findings of CIT(A) on this issue were advanced by the ld. Counsel in the instant appeal. In this factual matrix, we have no hesitation in upholding that the assessee has 'Business Connection' in India. 16. Once it is established that the assessee is having 'business connection' in India, the next question arises regarding taxability of revenue from operations in India. As noted earlier, the business of the assessee is carried out by it's two Indian agents viz. ZTL and El-Zee. The contention of the assessee is that ZTL and El-Zee are remunerated at arm's length, revenue from both the streams i.e. advertisement an subscription have been reasonably attributed to operations carried out in India, therefore, tax liability of the assessee on these revenue channels stands extinguished. The assessee has placed reliance on the decision in the case of one of its group concern Asia Today Ltd. ADIT(supra), wherein addition made for similar reasons were deleted by the Tribunal. Before we proceed further, it would be relevant to point out that in the case of Asia Today Ltd.(supra) the provisions of India-Mauritius DTAA were ....
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....in such a situation revenue only from operations in India shall be taken into account and a reasonable portion thereof shall be treated as income accruing or arising in India. An comparative analysis of provisions of Article 7(1) of DTAA and provisions of Explanation 1(a) to Section 9(1)(i) reflects that they are homogeneous. Both the provisions tax income that from business operations in India and only to the extent the revenue is reasonably attributable to India operations. The co-ordinate Bench in the case of Galileo International Inc. vs. DCIT (Supra) held, "Reading the above Article 7 of the treaty it is clear that the profit of an enterprise will be taxable only to the extent as is attributable to the permanent establishment. This is in pari material with clause (a) of Explanation 1 to section 9(1)(i) of the Act." 18. Thus, in this back drop, the ratio laid down in the case of Asia Today Ltd. (ATL) can be applied in the instant case. The facts in the case of Asia Today Ltd. are similar to the facts in the instant case, therein the assessee (ATL), a company incorporated in Mauritius, engaged in telecasting of satellite channels had entered into an agreement with ZTL and ....
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....ant may be from the customers in India is not liable for tax in India. That CBDT Circulars are binding needs no repetition. If authorities need be cited. We may now refer to the judgment of the Supreme Court in UCO Bank v. CIT [1999] 237 ITR 889. In that judgment the issue was whether Circular of 9-10-1984 was inconsistent or whether there was contradiction in the circular and Section 145 of the Income-tax Act. The Supreme Court observed that :- "... In fact, the circular clarifies the way in which these amounts are to be treated under the accounting practice followed by the lender. The circular, therefore, cannot be treated as contrary to section 145 of the Income-tax Act or illegal in any form. It is meant for a uniform administration of law by all the income-tax authorities in a specific situation and, therefore, validly issued under section 119 of the Income-tax Act. As such, the circular would be binding on the department." (p. 901) See also CIT v. Hero Cycles (P.) Ltd. [1997] 228 ITR 463 (SC). It would thus be clear that the Circular No. 23 would be binding on the Assessing Officer and had to be considered while assessing the tax liability of an assessee. ....
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.... entered into for providing certain support services to MSCo. MSCo. outsourced some of its activities to MSAS. MSAS was set up to support the main office functions in equity and fixed income research, account reconciliation and providing IT enabled services such as back office operations, data processing and support centre to MSCo. On 5-5-2005 MSCo. filed its advance ruling application . The basic question related to the transaction between the MSCo. and MSAS. The advance ruling was sought on two counts (i) whether the applicant was having PE in India under Article 5(1) of the DTAA on account of the services rendered by MSAS under the services agreement dated 14-4-2005 and if so (ii) the amount of income attributable to such PE. It was ruled that MSAS should be regarded as constituting a service PE under Article 5(2)(1). On the second question the AAR ruled that the transactional net margin method (TNMM) was the most appropriate method for the determination of the Arm's Length Price (ALP) in respect of the service agreement dated 14-4-2005 and it meets the test of arm's length as prescribed under section 92C of the 1961 Act and no further income was attributable in the hand....
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....s regards attribution of further profits to the PE of MSCo. where the transaction between the two are held to be at arm's length, we hold that the ruling is correct in principle provided that an associated enterprise (that also constitutes a PE) is remunerated on arm's length basis taking into account all the risk-taking functions of the multinational enterprise. In such a case nothing further would be left to attribute to the PE. The situation would be different if the transfer of pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a case, there would be need to attribute profits to the PE for those functions/risks that have not been considered. The entire exercise ultimately is to ascertain whether the service charges payable or paid to the service provider (MSAS in this case) fully represent the value of the profit attributable to his service. In this connection, the Department has also to examine whether the PE has obtained services from the multinational enterprise at lower than the arm's length cost." In our opinion considering the judgment, if the correct arm's length price is applied ....
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....ccounting. The Assessing Officer in preceding Assessment Years i.e. Assessment Year 1999-2000 and 2000-2001 has held that for the purpose of computing income of assessee, the gross receipts should be taken on accrual basis. The ld. Departmental Representative supporting the assessment order further submitted that the CIT(A) has erred in coming to the conclusion that subscription revenue collected is only business income of telecasting company and not royalty within the meaning of section 9(1)(vi) of the Act. The CIT(A) has further erred in applying global profitability rate of 9.36% as against 15% adopted by the Assessing Officer in respect of advertisement revenue. The Assessing Officer has given detailed reasons for holding subscription income as royalty taxable at 20%. He prayed for upholding the assessment order and reversing findings of the CIT(A). 25. Per contra, ld. Counsel for the assessee vehemently supporting the order of CIT(A) on this issue submitted that subscription revenue cannot be treated as royalty since the receipts do not involve any transfer of copy right, literary, artistic or scientific work. He further pointed that explanation to section 9(1)(vi) of th....
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.... held: "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 by way of royalty. Relevant portion reads as under:- '(vi) income by way of royalty payable by - (a) the Government; or (b) a person who is a resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is non-resident, where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Explanation 2 below sub-section (1) of Section 9 describes the term "royalty" for the purpose of said clause, relevant portion of which reads as under:- Explanation 2.- For the purposes of this clause, "royalty" means consideration (including any lump sum consideratio....