TaxTMI 
TaxTMI 
2024 (2) TMI 1495
X X X X Extracts X X X X
X X X X Extracts X X X X
....e case and in law, the Ld. ITAT is correct in holding 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 taxa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-2004 held that ESS Distribution (Mauritius) had a fixed place PE in India and consequently 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ndian operations are employed only by the Indian company and the fact that the US companies may indirectly 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 subs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....or (d) for recovery of income-tax under this Act and under the corresponding law in force in that country, and may, by notification in the Official Gazette, make such 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 i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he assessees were a joint venture or sort of partnership with the Indian subsidiary was wholly incorrect. Also, none of these arguments have been invoked by the Revenue and such a finding would, therefore, be perverse. After citing Klaus Vogel on 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....onsidered to be a DAPE of the assessee. The decisions cited before us, particularly the decision of the Coordinate Bench in case of TAJ TV Ltd. (supra) and Turner Broadcasting Systems Asia Pacific Inc (supra) squarely apply to the facts of the present appeal. Therefore, following them, we 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 conc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e-dimensional work;] (d) in the case of a cinematograph film,-- 4[(i) to make a copy of the film, including-- (A) a photograph of any image forming part thereof; or (B) storing of it in any medium by electronic or other means;] 5[(ii) to sell or give on commercial rental or offer for sale or for such rental, any copy of the film.] (iii) to communicate the film to the public; (e) in the case of a sound recording,-- (i) to make any other sound recording embodying it 6[including storing of it in any medium by electronic or other means]; 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssive periods of one year each unless ES5 gives written notice to Distributor of its intent not to renew at least forty-five days prior to the scheduled expiration of the original or then applicable renewal Term. (b) Distributor acknowledges and agrees that the above appointment is limited and qualified to the extent of solely making the ESPN Service available in the Area to approved sub distributors in strict accordance 'With the terms and conditions herein. Distributor further agrees that nothing 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,....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... marks of ESPN STAR Sports and ESPN. 4(a) In consideration of the appointment of the Distributor to distribute the ESPN Service in the Area, Distributor shall pay ESS (subject to deduction, if required, of all applicable taxes), the aggregate of the following amounts: (i) a minimum guaranteed amount of USD 9,500,000 (United States Dollars Nine Million Five Hundred Thousand only) per annum; and (ii) an amount which is equal to 88% of the excess of the total gross revenues of the Distributor per annum over and above USD 9,500,000. For this 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ated; or (ii) the rights and obligations of distributor under the arrangement with such sub-distributor may, automatically, be assigned to ESS Distribution. Distributor further agrees that nothing 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. Distributor shall not use, authorize or permit the use of the ESPN 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-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 di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lable In two packages to the Affiliate namely, a Bouquet, In which both ESPN Service' as well as Star Sports Service will be provided ("Bouquet") and Alacarte under which package the Affiliate can choose to take either ESPN Service or Star Sports Service. The rates for both these packages have been fully communicated to and understood by the Affiliate. The Affiliate has indicated his choice by ticking the relevant box. VI. GENERAL TERMS AND CONDITIONS 1. NON EXCLUSIVE RIGHT The Licensor grants to the affiliate the non-exclusive right to distribute the Service in the area for reception by subscribers of the Distribution System(s) (referred to in 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 termin....
X X X X Extracts X X X X
X X X X Extracts X X X X
....'s authority to Licence the Service is derived from agreements granted to the Licensor by ESPN Star Sports ('ESS') for the ESPN Service and for the Star Sports Service (the ESS Agreements"). Affiliate expressly acknowledges and agrees that upon termination of either of the ESS Agreements by ESPN Star Sports, this agreement shall stand terminated as concerns the service for which the ESS Agreement(s) has been terminated. xxx xxx xxx 15.3 No Agency Neither Affiliate nor Licensor shall be or hold itself out as the agent of the other under this Agreement. No Sub-operators/Subscribers shall be deemed to have any privity of contract or direct contractual or other relationship with Licensor by virtue 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to be a permanent establishment of that enterprise in the first-mentioned State if: (i) he has and habitually exercises in that first-mentioned State, an authority to conclude contracts in the name of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise; or (ii) he habitually maintains in that first-mentioned State a stock of goods or merchandise belonging to the enterprise from which he regularly fulfils orders on behalf of the enterprise. 5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted exclusively 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ablishment is situated. 6. Where, by reason of a special relationship between the payer and the recipient or between both of them and some other person, the amount of royalties paid, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the recipient in the absence of such relationship, the provisions of this article shall apply only to the last-mentioned amount. In that case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention." 13. Taking up the issue of royalty first, it is manifest from a reading of Article 12(3) that payments would fall within its ambit provided they represent "consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work.....". As is evident from a reading of the agreement conditions extracted hereinabove, 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 lia....