TaxTMI 
TaxTMI 
2026 (10) TMI 153
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....omers under Article 13 of the Double Taxation Avoidance Agreement (DTAA) between India and the United Kingdom, they were heard together and are being disposed of by this common order. The appeal for assessment year 2019-20 was taken as the lead appeal. 2. The relevant particulars of the two assessment years are summarised below: Particulars AY 2019-20 AY 2020-21 Date of filing original return 26.11.2019 19.02.2021 Date of filing revised return NA 30.03.2021 Income declared as stated in the assessment order Rs.4,44,34,920/- Rs.32,60,96,490/- Date of draft assessment order under section 144C(1) 29.09.2021 27.09.2022 Income proposed in the draft assessment order Rs.1,28,54,16,238/- Rs.77,62,63,565/- Date of DRP directions under section 144C(5) 24.06.2022 27.06.2023 Date of final assessment order under section 143(3) read with section 144C(13) 19.07.2022 17.07.2023 Date of receipt of final assessment order, as stated in the grounds 25.07.2022 20.07.2023 Total income assessed in the final assessment order Rs.1,28,54,16,238/- Rs.77,62,75,565/- Disputed receipts from non-resident Rs.88,09,89....
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....13(6) of the India-UK DTAA and only the profits attributable to the permanent establishment could be brought to tax in India. Assessment year 2019-20 7. For assessment year 2019-20, the assessee filed its return of income on 26.11.2019 declaring total income of Rs. 4,44,34,920/-, as recorded in the assessment order. It claimed credit of tax deducted at source amounting to Rs. 4,33,06,719/-, and the tax payable was computed at Rs. 1,83,46,635/-. The return was processed under section 143(1) on 19.05.2020. The case was selected for complete scrutiny under CASS, inter alia, on the grounds that the assessee had claimed a substantial refund, had claimed a substantial refund out of tax deducted at source under section 195, and the taxable business receipts reflected in Schedule TDS2 were higher than the receipts disclosed in the profit and loss account. Notice under section 143(2) dated 31.03.2021 was issued and served upon the assessee. Notices under section 142(1) were thereafter issued from time to time, in response to which the assessee furnished details and explanations. 8. During the year, the assessee received licensing revenues from nine customers in respect of contracts....
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....ssee had failed to establish a connection between the permanent establishment and the right, property or contract in respect of which the royalty was received. He also observed that some of the customer agreements had been entered into before the manpower supply arrangement with Viacom 18 Media Private Limited. The Assessing Officer accordingly concluded that Article 13(6) could not be invoked to treat the receipts as business profits under Article 7. 12. As regards the receipts from non-resident customers, the assessee contended that, by virtue of Article 13(7) of the India-UK DTAA, royalty could be said to arise in India only where the payer was a resident of India or where a non-resident payer had a permanent establishment in India in connection with which the liability to pay the royalty was incurred and the royalty was borne by such permanent establishment. The Assessing Officer rejected this contention. He was of the view that Article 13(2) conferred taxing rights upon the Contracting State in which the royalty arose and that Article 13(7) could not be construed so as to override those taxing rights. He further observed that the assessee had not furnished sufficient eviden....
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....nued to assert that it had a permanent establishment in India by reason of the services rendered by the employee supplied by Viacom18 Media Private Limited and that 4 per cent of the revenues derived from the relevant contracts was attributable to such permanent establishment. It was, however, stated that, having regard to the position taken by the Assessing Officer in the assessment proceedings for assessment year 2017-18, the assessee had offered the royalty receipts relating to television licensing and distribution from resident payers to tax in India on a gross basis under section 115A. The assessee stated that such treatment was adopted to buy peace and avoid litigation, without conceding its contention regarding the existence of a permanent establishment in India. 18. During the year under consideration, the assessee earned licensing revenue aggregating to Rs. 45,01,67,071/- from the aforesaid five non-resident customers. The customer-wise particulars for AY 2020-21 are as follows: Sr. No. Name of the non-resident customer Revenue 1 Amazon Media EU S.a.r.l. Rs.11,34,40,384/- 2 MX Media & Entertainment Pte Ltd. Rs.2,27,72,747/- 3 Netflix Glo....
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....usiness income of Rs. 12,000/-, resulting in total assessed income of Rs. 77,62,75,565/-. Penalty proceedings under section 270A were initiated separately, and interest under sections 234A, 234B, 234C and 234D was directed to be charged, as applicable. 23. Aggrieved by the final assessment order for assessment year 2019-20, the assessee has raised the following grounds of appeal: "Based on the facts and the circumstances of the case, Paramount Pictures International Limited (hereinafter referred to as the 'Appellant') respectfully craves leave to prefer an appeal under Section 253 of the Income-tax Act, 1961 ('Act') against the order passed by the Deputy Commissioner of Income-tax (International Taxation) Circle 3(3)(2) ('AO') dated 19 July 2022, received on 25 July 2022 ('Final Assessment order') in pursuance of the directions issued by Dispute Resolution Panel ('DRP'), Delhi dated 24 June 2022 ('DRP Directions') on the following grounds which are independent and without prejudice to each other: On the facts and in the circumstances of the case and in law, the learned DRP and the learned AO has- General ground 1. erred in assessing the total ....
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....Commissioner of Income-tax (International Taxation) Circle 3(3)(2) ('AO') dated 17 July 2023, received on 20 July 2023 ('Final Assessment order') in pursuance of the directions issued by Dispute Resolution Panel ('DRP'), Mumbai dated 27 June 2023 ('DRP Directions') on the following grounds which are independent and without prejudice to each other: On the facts and in the circumstances of the case and in law, the learned DRP and the learned AO has - General ground 1. erred in passing the final assessment order dated 17 July 2023 under Section 143(3) read with Section 144C(13) of the Income-tax Act, 1961 ('the Act'), which is without jurisdiction and bad in law as the same is passed beyond the time limit provided under Section 153 of the Act. 2. erred in assessing the total taxable income of the Appellant for AY 2020-21 at Rs 77,62,75,565 instead of income of Rs 32,60,96,494 offered by the Appellant for the subject AY in the revised return of income. Royalty 3. erred in taxing Appellant's revenue received from non-resident customers under Article 13(2) of the India-UK Tax Treaty ('Tax Treaty'), disregarding Appellant's contention ....
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....he assessee and instead treated the entire licensing receipts from resident as well as non-resident customers as royalty taxable on a gross basis. The DRP upheld the action of the Assessing Officer. 26. For assessment year 2020-21, since the Assessing Officer had not accepted the assessee's position regarding the existence of a permanent establishment in the earlier assessment proceedings, the assessee, solely to avoid litigation and buy peace, offered the receipts from resident customers as royalty income on a gross basis in its revised return. This treatment was adopted without prejudice to its stand concerning the permanent establishment. 27. The learned AR submitted that the controversy surviving before the Tribunal was confined to the taxability of the licensing receipts received from non-resident customers incorporated and situated outside India. The assessee was not disputing, for the purposes of the present grounds, the characterisation of the receipts as royalty. Its principal contention was that even if the receipts were regarded as royalty, they neither accrued nor arose, nor were deemed to accrue or arise, in India under section 9(1)(vi)(c) of the Act or Article 1....
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....c nexus, the royalty received from the non-resident customers could not be deemed to accrue or arise in India under section 9(1)(vi)(c). 32. The learned AR also relied upon ADIT v. E-Funds IT Solution Inc. [2017] 399 ITR 34 (SC) and ITO v. Right Florists Pvt. Ltd. [2013] 25 ITR(T) 639 (Kolkata Tribunal), for the proposition that the initial burden of establishing the existence of a permanent establishment in India rests upon the Revenue. It was submitted that the Assessing Officer could not require the assessee to prove a negative fact and draw an adverse inference merely because the assessee had allegedly failed to establish that the non-resident customers did not have permanent establishments in India. 33. Turning to the India-UK DTAA, the learned AR submitted that Article 13(1) gives the State of residence, namely the United Kingdom in the present case, the primary right to tax royalty income. Article 13(2) permits the source State to tax royalty only where such royalty arises in that State, subject to the rate limitation specified therein. Therefore, the expression "arising in a Contracting State" in Article 13(2) necessarily had to be read together with the source rule e....
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....rticularly paragraphs 17 to 20, which was upheld by the Hon'ble jurisdictional High Court in DIT v. Set Satellite (Singapore) Pte. Ltd. [2014] 269 CTR 197 (Bombay), particularly paragraph 7. Reliance was also placed on the decision of the Co-ordinate Bench in Decca Survey Overseas Limited UK v. Income Tax Officer, ITA Nos. 8506 to 8508, 8895 and 8897/Bom/1990 and 8625/Bom/1991, particularly paragraph 4. It was submitted that these decisions support the proposition that, in the case of royalty paid by a non-resident, the Revenue must establish the existence of the payer's permanent establishment in India as well as the connection between the royalty liability and such permanent establishment. 39. The learned AR thereafter addressed the decision of the Co-ordinate Bench in ADIT v. Global Cricket Corporation (2022) 145 taxmann.com 570. It was fairly submitted that, in that decision, while interpreting Article 12 of the India-Singapore DTAA, the Bench held that the expression "arise" took its meaning from the domestic law of the Contracting State and that royalty deemed to accrue or arise in India under sections 5 and 9 would be treated as royalty arising in India for the purposes o....
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....ncipal controversy was whether the royalty receipts were taxable under Article 13(2) of the India-UK DTAA, as held by the Assessing Officer, or were liable to be assessed as business profits under Article 7, as claimed by the assessee. 45. Referring to Article 13(6) of the India-UK DTAA, the learned DR submitted that paragraphs 1 and 2 of Article 13 would cease to apply only where the beneficial owner of the royalty carried on business in the other Contracting State through a permanent establishment situated therein and the right, property or contract in respect of which the royalty was paid was effectively connected with such permanent establishment. Unless both the conditions were satisfied, the royalty continued to be taxable under Article 13(2). 46. The learned DR submitted that the burden was upon the assessee to establish that the right, property or contract giving rise to the royalty was effectively connected with its alleged permanent establishment in India. Only upon discharging this burden could the assessee invoke Article 13(6) and seek assessment of the receipts as business profits under Article 7. Mere assertion regarding the existence of a permanent establishmen....
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....India under section 9 read with section 5, constituted royalty arising in India for the purposes of Article 13(2) of the India-UK DTAA. Therefore, the fact that the payer was a non-resident did not, by itself, exclude the royalty from taxation in India where the licensing rights were granted for exploitation of content in India and the receipts were deemed to accrue or arise in India under the Act. 52. The learned DR accordingly contended that the assessee's reliance on Article 13(7) was misplaced and that the disputed licensing receipts were taxable in India under Article 13(2). She, therefore, prayed that the treatment adopted by the Assessing Officer and sustained by the DRP be upheld and the grounds raised by the assessee be dismissed. 53. We have considered the rival submissions and the material presently available on record. Before examining the judicial precedents relied upon by the parties or recording any conclusion, it is necessary to identify the precise controversy and distinguish the separate statutory and treaty provisions invoked by them. 54. The rival submissions proceed on two materially different formulations of the controversy. According to the learned A....
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....8,38,19,887/- For assessment year 2020-21, the disputed receipts of Rs. 45,01,67,071/- were received from five non-resident customers tabulated in the facts. 58. Thus, for the substantive royalty ground, the amounts requiring examination appear to be Rs. 88,09,89,747/- for assessment year 2019-20 and Rs. 45,01,67,071/- for assessment year 2020-21. This segregation is necessary because the arguments concerning section 9(1)(vi)(c) and the second limb of Article 13(7) specifically concern royalty payable by non-residents. The exact extent to which the resident-customer receipts remain in dispute must be determined from the grounds and the relief sought, and not merely from the aggregate addition appearing in the assessment order. 59. Section 90(2) provides that where a DTAA applies, the provisions of the Act apply to the extent they are more beneficial to the assessee. The appropriate sequence is, therefore, first to examine whether the receipts are chargeable under the Act and, if they are, whether the applicable DTAA restricts or excludes that charge. The treaty may restrict the operation of the Act, but the primary charge must first be identifiable under the Act. 60. In....
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....n India. Where the payer is a non-resident, that enquiry is governed by clause (c), which requires the prescribed connection between the licensed right and either a business carried on by the payer in India or a source of income of the payer in India. The Explanation to section 9(2), which dispenses with the requirement of the presence, place of business or business connection of the non-resident recipient in India, does not remove these payer-side conditions contained in section 9(1)(vi)(c). 64. At the same time, the mere fact that the licence agreement includes India within the permitted territory may not, without further examination, answer every element of section 9(1)(vi)(c). The relevant factual questions include: - the nature of the rights granted to each non-resident customer; - whether and how those rights were commercially exploited in India; - whether the payer carried on any business or profession in India; - whether the payer made or earned income from a source in India; - the connection between the royalty payment and such Indian business or source; and - whether the payment related exclusively to India or to a ....
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....he situs of the royalty. Its first limb refers to the residence of the payer. Its second limb applies where the payer, whether a resident of a Contracting State or not, has a permanent establishment or fixed base in a Contracting State in connection with which the obligation to make the payment was incurred and the payment is borne by that permanent establishment or fixed base. 70. The learned DR's submissions concerning the failure of the assessee to establish effective connection with its own permanent establishment are relevant to Article 13(6) and the assessee's original claim for assessment under Article 7. They do not directly answer the separate question raised by the assessee under Article 13(7), namely whether royalty paid by non-resident customers can be regarded as arising in India. 71. Conversely, the existence or absence of the non-resident payer's permanent establishment in India is relevant to the second limb of Article 13(7), but not to the effective-connection test under Article 13(6). The two permanent establishments must not be conflated. One belongs, if at all, to the recipient of royalty; the other belongs, if at all, to the payer. 72. Since the Assess....
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....n of proof. The assessee contends that the Revenue must establish the jurisdictional facts necessary to bring the receipts within section 9(1)(vi)(c) and Article 13. The Revenue and the authorities below proceeded substantially on the basis that the assessee had failed to prove that the non-resident customers did not have permanent establishments in India. 78. The burden must be considered separately for the statutory and treaty enquiries. For section 9(1)(vi)(c), the Revenue must identify the Indian business or Indian source of the non-resident payer and establish the necessary connection of the royalty with that business or source. For Article 13(7), if the Revenue seeks to rely upon the payer's permanent establishment in India, the existence of that permanent establishment, the connection of the payment obligation with it, and the fact that the payment was borne by it are matters requiring supporting material. 79. At the same time, relevant information concerning the identity, residence, contractual arrangements and business operations of the customers may be within the assessee's knowledge or possession. The assessee cannot succeed only by asserting that the customers are....
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....he Act lies upon the assessee." 83. The principle emerging from the decision is that where the Revenue seeks to bring a receipt within a charging provision, the initial burden of establishing the ingredients of that provision lies upon the Revenue. Conversely, where the receipt admittedly falls within the charging provision and the assessee claims the benefit of an exemption, the burden of establishing the conditions of the exemption rests upon the assessee. 84. In the present appeals, the character of the receipts as royalty is not being disputed for the purpose of the substantive grounds. The controversy is whether royalty payable by non-residents satisfies the statutory conditions of section 9(1)(vi)(c). Therefore, this decision supports the proposition that the Revenue must establish the necessary statutory nexus, namely that the right, property or information was used for a business or profession carried on by the non-resident payer in India or for making or earning income from a source in India. 85. The decision, however, does not answer what constitutes a business carried on in India or a source of income in India. Nor does it interpret Article 13(7) of the India-UK....
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....tors did not constitute the source of the royalty income. The operative conclusion in paragraph 178 reads: "Thus, for all these reasons, we are of the considered opinion that the assessee was right in his argument that the Revenue has not proved that the OEMs have carried on the business in India and that they have used Qualcomm's patents for carrying on such business in India nor the Revenue has proved that the OEMs have used Qualcomm's patents for the purpose of making/earning income from a source in India." Having held that the royalty was not taxable under the Act, the Co-ordinate Bench considered it unnecessary to examine Article 12(7) of the India-USA DTAA. 91. This decision is directly relevant to the interpretation of section 9(1)(vi)(c) and supports the following propositions: - the provision is a deeming provision and its conditions must be established by the Revenue; - the business carried on by the payer in India and the Indian source of the payer's income are distinct statutory tests; - the activity giving rise to the payer's income must be identified; and - a subsequent commercial connection with India does not, by it....
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....establishment of a foreign customer in India, the foundational burden rests upon the Revenue. 96. Since we are presently proceeding on the factual assumption that the no-permanent-establishment declarations of all the concerned non-resident customers are available on record, the practical significance of E-Funds is further reduced. It does not determine whether royalty may still be deemed to accrue or arise in India under section 9(1)(vi)(c) without the payer having a permanent establishment in India. 97. In ITO v. Right Florists Pvt. Ltd. [2013] 25 ITR(T) 639 (Kolkata Tribunal), the assessee made payments to Google Ireland and Yahoo USA for online advertisement services. The Revenue sought to make a disallowance under section 40(a)(i) for failure to deduct tax under section 195. The Co-ordinate Bench examined whether the advertising receipts were taxable in India as business income or fees for technical services and whether Google or Yahoo had permanent establishments in India. In paragraph 28, the Co-ordinate Bench observed: "In any case, revenue has not brought anything on record, either at assessment stage or even before us, to suggest that Google or Yahoo had a ....
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.... essentially factual conclusions. They are peculiar to the facts and circumstances of the case of the assessee before the Tribunal and before us. There has been no general rule laid down..." The Hon'ble High Court declined to admit the Revenue's appeal because the conclusion reached by the Tribunal was a possible conclusion on the evidence and was neither perverse nor based on irrelevant material. 101. The decision is jurisdictional and factually significant because it concerns: - royalty paid by one Singapore resident to another Singapore resident; - telecast rights covering India; - Article 12(7), which is materially similar to Article 13(7) of the India-UK DTAA; - the payer's alleged permanent establishment in India; and - the absence of a connection between the payment obligation and that permanent establishment. 102. On the assumed facts of the present appeals, the non-resident payers did not have permanent establishments in India. To that extent, the factual requirement recognised in Set Satellite concerning the payer's permanent establishment and the economic connection of the royalty liability with it would not be satisf....
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....06. The legal conclusion in paragraph 5.18 reads: "In view of the above, we hold that royalty income that accrues/arises in India as per section 5 of the Act and the royalty income that is deemed to accrue/arise in India with the aid of section 9 read with section 5 of the Act would be considered as 'royalties' that arises in India for the purpose of article 12(1) and Article 12(2) of the DTAA." The Co-ordinate Bench thereafter applied section 9(1)(vi)(c). It found that Set Satellite exploited the licensed rights in India for earning advertisement revenue and subscription or distribution revenue from India. It accordingly held that the licence fee paid to Global Cricket Corporation was for rights used for earning income from sources in India and was deemed to accrue or arise in India under section 9(1)(vi)(c). The relevant finding in paragraph 5.23 is: "SET exploited these rights in the licensed territory of India for the purpose of earning income from source in India in the form of advertisement revenue and subscription/distribution fee from India." After separately examining whether the payment constituted royalty under the narrower treaty definition, the ....
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....n express ratio of the Hon'ble Bombay High Court. Whether its distinction is ultimately acceptable must be considered while harmonising the jurisdictional decision with the later, more direct consideration of Articles 12(2) and 12(7). 111. The learned AR also relied upon Decca Survey Overseas Limited UK v. ITO, ITA Nos. 8506 to 8508, 8895 and 8897/Bom/1990 and 8625/Bom/1991. In this case the Co-ordinate Bench was concerned, inter alia, with fees for technical services received by the assessee, a United Kingdom company, from two foreign companies, namely ETPM and McDermott. The case of the assessee therein was that the payments received from those non-resident entities could not be regarded as having arisen in India because the payer-companies did not have permanent establishments in India. It was further contended that, even if the payer-companies were assumed to have permanent establishments in India, the Revenue had not established that the payments were borne by such permanent establishments. 112. The controversy was examined with reference to Article XIII(6) of the then applicable India-UK DTAA dated 16 April 1981. The material part of that provision was substantially sim....
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....tablishment situated in that State. 114. Applying the above interpretation to the facts before it, the Co-ordinate Bench recorded that there was nothing on record to show that ETPM and McDermott had permanent establishments in India or that the payments made by them were borne by any such permanent establishments. The material findings were recorded as under: "There is no dispute that these companies are not residents of India, and therefore, in order to bring the fees paid by these foreign companies to tax, it was necessary for the Assessing Officer to demonstrate that these companies had the PEs in India and the fees for technical services received by the assessee company were allowed as a deduction in computation of profits attributable to such PEs." The Bench consequently held: "In this view of the matter, we accept the contention of the assessee and hold that the fees received by the assessee from ETPM and Mc Dermott's was on the facts of this case, cannot be said to have arisen in India. Accordingly, we direct the Assessing Officer to delete the same from taxable income of the assessee." 115. The ratio emerging from the decision is that, under the s....
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....hat the existence of an Indian territory within the licensed territory, or the possible exploitation of the licensed content in India, would not by itself satisfy the treaty source rule where the payer was a non-resident and the conditions relating to the payer's permanent establishment were not established. 119. The decision in Decca Survey Overseas Limited must, however, be evaluated together with the subsequent decision in case of ADIT v. Global Cricket Corporation Pte. Ltd. The latter decision expressly noticed the reliance placed on Decca Survey Overseas Limited. In paragraph 5.6 of Global Cricket Corporation, the assessee had argued, on the strength of Decca Survey Overseas Limited, that Article 12(7) of the India-Singapore DTAA exhaustively defined the place where royalty arose. 120. The Co-ordinate Bench in Global Cricket Corporation did not accept that contention. It held in paragraph 5.16 that Article 12(7) did not exhaustively define where royalty arose. It reasoned that royalty income could have an economic nexus with a State in different forms, including the nature and location of the right or property, the place of utilisation and the location of the payer. 1....
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....o-non-resident payment was not eligible to tax in India unless the payer had an Indian permanent establishment and the payment was borne by such establishment. It is, therefore, a substantive authority supporting the assessee's construction of Article 13(7), though its treatment in Global Cricket Corporation must necessarily be addressed. 124. The present case is closer to Decca Survey Overseas Limited in terms of the treaty involved because both concern the India-UK DTAA. However, the Revenue's case in the present appeals, like the case advanced in Global Cricket Corporation, is not confined to the second limb of Article 13(7). The Assessing Officer has also sought to invoke section 9(1)(vi) and Article 13(2) on the ground that the licensed content was intended for exploitation in the Indian territory. Consequently, the distinction drawn in paragraph 5.17 of Global Cricket Corporation cannot be ignored. 125. The correct application of Decca Survey Overseas Limited will, therefore, ultimately depend upon the determination of the anterior legal question whether Article 13(7) constitutes the governing and exhaustive treaty source rule for royalty, as contended by the assessee, ....
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....r with an identifiable source of income of that payer in India. 129. Considering the nature of the assessee's content-licensing business, the applicability of section 9(1)(vi)(c) was required to be examined separately with reference to each non-resident customer and the terms of the corresponding licensing agreement. The enquiry could not be confined to whether India formed part of the licensed territory. It was necessary to ascertain the precise nature of the rights granted, including whether the licence covered television broadcasting, digital streaming, theatrical exhibition, sub-licensing, distribution or any other mode of exploitation. It was further necessary to determine whether those rights were used, directly or indirectly, for the purposes of a business carried on by the particular non-resident payer in India or for making or earning income by that payer from an identifiable source in India. 130. The Assessing Officer could thereafter have examined whether the licensed films, television programmes or other content were streamed, broadcast, exhibited or distributed in India and whether such exploitation was undertaken directly by the non-resident payer or through a r....
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....ade to the assessee and the income earned from the Indian sub-licensee. 135. In the case of multinational groups, it was particularly necessary to identify the legal entity which earned the alleged income from India. The business or source of income of an Indian subsidiary, another foreign group company or an independent distributor could not automatically be treated as the business or source of income of the non-resident payer merely because the entities belonged to the same group or used a common trade name. The Revenue was required to establish that the particular entity which paid royalty to the assessee carried on the relevant business in India or earned income from an identified source in India. 136. The Assessing Officer could also have examined the customer-wise invoices, title-wise licensing statements, correspondence relating to exploitation in India, royalty reports received from the customers, revenue-sharing arrangements, Indian subscriber or viewership information, Indian distribution agreements and the basis on which the consideration was determined. If the necessary information was not available with the assessee, appropriate enquiries could have been made fro....
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....ning the distribution of content to subscribers, registration of customers, location of devices, geo-filtering and availability of content within the licensed territory pertain to the agreement with Reliance Jio Digital Services Private Limited. Reliance Jio Digital Services Private Limited was an Indian resident customer. Those clauses may establish the manner in which that resident customer was permitted to exploit the licensed content. They cannot, without examination of the corresponding agreements and the manner of exploitation thereunder, be applied to the disputed non-resident payers. 141. As regards the remaining non-resident customers, the assessment orders refer to certain agreements and state that licences were granted for distribution or exhibition of content in India. However, the Assessing Officer did not identify the material clauses of each agreement, the entity through which the content was directly or indirectly exploited in India, the Indian subscribers, advertisers, distributors or sub-licensees from whom income was earned, or the entity in whose accounts such income accrued. There is also no customer-wise finding, supported by corresponding material, that th....
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.... income of the respective non-resident payer in India and establishing the connection of the royalty payment with such business or source. The factual foundation present in Global Cricket Corporation is, therefore, absent in the appeals before us. 144. We further notice that, in the case of agreements covering India along with several other countries, the Assessing Officer brought the entire consideration to tax without ascertaining whether the agreements separately valued the rights relating to India or whether any part of the consideration was demonstrably attributable to direct or indirect commercial exploitation in India. Even where an Indian business or source of income of the payer is established, the entire consideration under a multi-territorial licence cannot be attributed to India without a reasonable factual basis. Such attribution would require examination of the contractual allocation, territory-wise revenue, subscriber or viewership data, title-wise exploitation reports or other relevant material. No such exercise has been demonstrated in the assessment orders. 145. In Qualcomm Incorporated, the Co-ordinate Bench emphasised that the Revenue must establish the bu....
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.... Article 13(7) requires that the payer should have a permanent establishment or fixed base in India, the obligation to make the royalty payment should have been incurred in connection with that permanent establishment or fixed base and the payment should have been borne by it. These conditions are cumulative. 148. For the purpose of the present adjudication, we have proceeded on the basis that the no-permanent-establishment declarations of all the concerned non-resident customers for the respective assessment years are available on record. No contrary material has been brought on record by the Revenue to establish that any of these customers had a permanent establishment or fixed base in India. There is also no finding that the obligation to make the royalty payment was incurred in connection with an Indian permanent establishment or that the payment was borne by such establishment. 149. The finding of the Assessing Officer that the assessee failed to establish the absence of permanent establishments of the payers cannot substitute the positive requirements of Article 13(7). In ADIT v. E-Funds IT Solution Inc. (supra), the Hon'ble Supreme Court held: "The burden of p....
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....nts in India. 152. The reliance placed by the learned DR on Article 13(6) does not alter this conclusion. Article 13(6) concerns the permanent establishment of the recipient of royalty and the effective connection of the royalty-generating right, property or contract with such establishment. Article 13(7), in contrast, concerns the residence or permanent establishment of the payer and the situs of the royalty. The provisions operate in different fields. 153. The Assessing Officer rejected the assessee's position regarding the existence of its permanent establishment in India. On the Assessing Officer's own factual premise, Article 13(6) could not be invoked. In any event, the existence or absence of a permanent establishment of the assessee does not establish the existence of permanent establishments of its several non-resident customers under Article 13(7). 154. The Revenue's reference to the treatment adopted in assessment year 2017-18 also does not determine the present controversy. The assessment order for that year concerned receipts from resident customers. The source rule applicable to royalty paid by a resident is materially different from the rule applicable to ro....
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....erification concerning the no-permanent-establishment declarations directed hereafter, we accordingly hold that the licensing receipts received by the assessee from its non-resident customers cannot be brought to tax in India under section 9(1)(vi)(c) or Article 13(2) of the India-UK DTAA. 158. For assessment year 2019-20, subject to the limited verification directed hereafter, the Assessing Officer is directed to exclude the licensing receipts of Rs. 88,09,89,747/- received from non-resident customers from taxation as royalty. The income already offered by the assessee in its return on the basis of attribution to its alleged permanent establishment shall continue to form part of the returned income, since the controversy argued before us is confined to the additional taxation of receipts from non-resident customers as royalty. The Assessing Officer shall ensure that no part of the same receipts is subjected to tax twice. Ground Nos. 2 and 3 for assessment year 2019-20 are accordingly allowed in the aforesaid terms. Ground No. 1 is general and consequential. 160. For assessment year 2020-21, subject to the limited verification directed hereafter, the addition of Rs. 45,01,67,....
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....ther the concerned non-resident payer had a permanent establishment or fixed base in India during the relevant period and, if so, whether the obligation to make the royalty payment was incurred in connection with and the payment was borne by such permanent establishment or fixed base. The mere non-availability of a declaration shall not, by itself, establish the existence of a permanent establishment or satisfaction of the other cumulative conditions of Article 13(7). The Assessing Officer shall record a finding on the basis of the material available on record after affording the assessee a reasonable opportunity of hearing. 164. The aforesaid verification shall not extend to receipts from resident customers, the characterisation of the receipts as royalty, the applicability of section 9(1)(vi)(c), the interpretation of Articles 13(2), 13(6) and 13(7), or any other legal issue decided in this order. The relief granted in respect of every customer whose declaration satisfies the aforesaid verification shall remain undisturbed. 165. During the course of hearing, the learned AR submitted that the assessee did not wish to press the additional ground raised for assessment year 201....