TaxTMI 
TaxTMI 
2024 (2) TMI 1495
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....lding that assessee did not have a dependent agent PE (DAPE) in India by observing that the transaction between the assessee and ESPN India is limited to conferring of right to distribute the channels of ESPN Star Sport in India through cable operators in an independent manner when it has been brought out that the assessee had complete control over sale of agent, bore commercial risk on behalf of the agent thereby not appreciating the principle of substance over form? 2.2. Whether on the facts and in the circumstances of the case and in law, the Ld. ITAT is correct in holding that the assessee did not have a fixed place PE in India by observing that there was nothing to suggest that the assessee had any control over the business/premises of ESPN India when it has been clearly brought out that the assessee and ESPN India has common management and identical functions and for all practical purposes the distinction between the two was insignificant? 2.3 Whether on the facts and in the circumstances of the case and in law, the Ld. ITAT is correct in holding that assessee has no business connection in India and is not taxable in terms of section 9(1) of the Income Tax Act when the as....
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....sequently 70% of the gross distribution revenue was liable to be treated as business income of the assessee in India. On the appeal which was taken by ESS Distribution (Mauritius), the Commissioner of Income Tax (Appeals) CIT(A) had not only confirmed the view taken by the AO, it additionally held that ESPN India constituted a DAPE of the assessee. It was the aforesaid decision which was thereafter taken in appeal before the ITAT. 5. We note that insofar as the issue of fixed place PE is concerned, the ITAT has held as under: - "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 India 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 ....
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....y control such employees is only for purposes of protecting their own interest. Ultimately, there are four businesses that the assessees are engaged in, 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. H....
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.... provisions as may be necessary for implementing the agreement. (2) Where 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: ....
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....n Double 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. This outsourcing of wo....
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.... hold that the assessee does not either had a fixed place PE or dependant agent PE in India under Article 5 of the India- Mauritius Tax Treaty. In any case of the matter, it is an undisputed factual position that ESPN India has been remunerated at arm's length and there are no 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." 7. The aforesaid conclusions of the ITAT clearly merit no interference nor do they give rise to any substantial question of law. 8. While dealing with the issue of royalty, the ITAT has on a detailed review of the contract terms and the facts as placed before it recorded the following conclusions:- "13. A reading of the aforesaid Article would make it clear that the expression royalty means consideration received for the use of or right to use of any copyright of literary, artistic or scientific work (including cinematograph films and films or tapes for radio or television b....
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....,-- (i) to make any other sound recording embodying it 6[including storing of it in any medium by electronic or other means]; xxx xxx xxx 15. It is further relevant to observe, the consequences for infringement of copyright and broadcast reproduction right have been dealt with differently under the Copyright Act. Thus, on a conjoint reading of section 14 and 37 of the Copyright Act, a holistic view can be taken that broadcast reproduction right is distinct and separate from Copyright Act. In case of DDIT Vs. SET India Pvt. Ltd (supra), the Coordinate Bench, while dealing with aforesaid aspect, has held as under: "16. Having heard both the sides, we observe that Id CIT(A) while examining the issue has stated that the Non- resident company has granted non-exclusive distribution rights of the channels to the assessee and has not given any right to use or exploit any copyright. The assessee is no way concerned whether the programs broadcast by the Non- resident company are copyrighted or not. The said distribution is purely a commercial right, which is distinct from the right to use copyright. We observe that Id CIT(A) has considered the provisions of Section 14 and Section 37 ....
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....hing in this Agreement shall provide Distributor with any 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. All rights in the content of the ESPN Service are expressly reserved by ESS. Distributor shall not use, authorize or permit the use of the FSPN Service, or any element thereof, for any purpose other than the purpose expressly specified under this Agreement. Notwithstanding anything contained in this Agreement, if the Distributor becomes aware of any infringement or threatened infringement in the Area, of the. rights and entitlements of ESS in the ESPN Service, the Distributor shall inform ESS of such infringement. ESS may require Distributor to take, either by itself or through a person authorised by it, all reasonable steps to end such infringement, including initiating appropriate legal action on behalf of ESS. (c) Distributor agrees and undertakes to distribute the ESPN Service provided by ESS in its entirety, without any alteration, editing, dubbing, scrolling or ticket tape, substitution or any o....
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....is purpose gross revenues shall mean the amount due to the Distributor from distributing the ESPN Service in the Area as reduced by any taxes that are withheld in the Area. xxx xxx xxx 7(c) ESS will indemnify Distributor from and against any and all claims, damages, liabilities, costs and expenses arising out of the distribution, pursuant to this Agreement, of the ESPN Service to the extent that such claims, damages, liabilities, costs and expenses are: (i) based upon alleged libel slander, defamation or invasion of the right of privacy (as such concepts are limited and defined by New York and United States federal law), or violation or infringement of copyright or literary or dramatic rights or the requirements of applicable laws within the Area arising out of the content of the ESPN Service (other than music performing or music synchronization rights); and (ii) based upon the distribution of the ESPN Service as furnished by ESS without alterations, modifications, variations, additions or deletions by Distributor. It is hereby agreed and declared that ESS makes no representation or warranty as to whether or not the ESPN Service or any of its content requires any governmental c....
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....e expressly specified under this Agreement. Notwithstanding anything contained in this Agreement, if the Distributor becomes aware of any infringement or threatened infringement in the Area of-any intellectual property in the ESPN Service, the Distributor shall inform ESS Distribution of such infringement. ESS Distribution may require Distributor to take, either by itself or through a person authorised by it, all reasonable steps to end such infringement including initiating appropriate legal action on behalf of ESS Distribution. (c) Distributor agrees and undertakes to distribute the ESPN Service provided by ESS Distribution in its entirety, without any alteration, editing, dubbing, scrolling or ticker tape, substitution or any other modification, addition, deletion or any other variation whatsoever. xxx xxx xxx 2. Neither Distributor nor ESS Distribution shall have, or shall hold itself out as having, the right or 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 other. 3(a) Distributor shall comply with all laws, rules and regulations, and shall obtain a....
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....Article II) whether directly, or through its sub operators and sub affiliates/cable operators of the Affiliate listed at Annexure I, collectively referred to as the Affiliate's Subscribers. For purposes of this Agreement, sub- operators', 'sub affiliates/ cable operators' shall mean and include and person or entity that receives the service from the affiliate or from a person permitted by the affiliate to provide the service and who re-transmits the same for reception by subscribers. The licensor may terminate this Agreement, at any lime, without liability, upon prior written notice to the affiliate, if he believes in good faith and reasonable judgment that it is threatened by or may be subject to legal, governmental or other adverse action under applicable treaties, tariffs, laws, Rules, regulations or orders, that may restrict the right of the licensor to provide the Service or any part thereof to the Affiliate, or limit the licensor's right or authorization to offer the service. The Licensor may deactivate/ disconnect the Service hereunder provided and/or terminate this Agreement at any time without liability, by prior written notice to the Affiliate. If the Licensor exercis....
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....e of this Agreement or by Licensor's delivery of the Service of the Affiliate." 12. We also deem it apposite to notice Articles 5 and 12 as contained in the India - Mauritius DTAA and which are reproduced hereinbelow: - "Article 5 - Permanent establishment 1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of the enterprise is wholly or partly carried on. 2. The term "permanent establishment" shall include- (a) a place of management; (b) a branch; (c) an office; (d) a factory; (e) a workshop; (f) a warehouse, in relation to a person providing storage facilities for others; (g) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; (h) a firm, plantation or other place where agricultural, forestry, plantation or related activities are carried on; (i) a building site or construction or assembly project or supervisory activities in connection therewith, where such site, project or supervisory activity continues for a period of more than nine months. [(j) the furnishing of services, including consultancy services, by an enterprise through em....
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....ively or almost exclusively on behalf of that enterprise, he will not be considered an agent of an independent status within the meaning of this paragraph. 6. The fact that a company, which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other Contracting State (whether through a permanent establishment or otherwise) shall not, of itself, constitute either company a permanent establishment of the other. Article 12 - Royalties 1. Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties may also be taxed in the Contracting State in which they arise, and according to the law of that State, but the tax so charged shall not exceed 15 per cent of the gross amount of the royalties. 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 films, and films or tapes for radio or television broadcasting), any p....
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.... there was no transfer of copyright. The agreement that ESS Distribution (Mauritius) came to execute conferred no right with respect to copyright upon the Indian entities. This aspect, in any case, is liable to be answered in favour of the assessee bearing in mind the decision of the Supreme Court in Engineering Analysis Centre of Excellence Private Limited vs. Commissioner of Income Tax and Another (2022) 3 SCC 321 and which had clearly held and recognized the distinction between a broadcasting right and a copyright as flowing from Sections 14 and 37 of the Copyright Act, 1957 (1957 Act). This quite apart from the undisputed fact that insofar as the present respondent is concerned, even the question of broadcasting rights does not arise since it was in no manner connected therewith. 14. Insofar as the issue of fixed place PE is concerned, the same clearly stands concluded against the appellants by virtue of the findings of fact returned by the ITAT. The case of a DAPE appears to have been raised in the backdrop of Article 12(4)(i) of the India- Mauritius DTAA. However, the contract stipulations would unerringly point towards a manifest absence of a right having been conferred or ....