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Income Tax Appellate Tribunal, “I” BENCH, MUMBAI
Before: SHRI G.S. PANNU, & SHRI SANDEEP SINGH KARHAIL
The present cross-appeals have been filed challenging the impugned order dated 09/12/2019, passed under section 250 of the Income Tax Act,
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020 1961 ("the Act") by the learned Commissioner of Income Tax (Appeals)–58, Mumbai, [―learned CIT(A)‖], for the assessment year 2013–14.
In its appeal, the assessee has raised the following grounds:–
―On the facts and in circumstances of the case and in law, the Hon'ble Commissioner of Income-tax (Appeal) erred in concluding that Appellant has a Permanent Establishment in India in respect of advertisement revenue. Without prejudice to above, even if the Appellant has a Permanent. Establishment in India, the Hon'ble Commissioner of Income-tax (Appeal) erred in concluding that income is attributable to the Permanent Establishment without rebutting the fact that it has remunerated its agent at the arm's length price in respect of advertising revenue. Your appellants crave to leave, add, amend, alter, change or cancel any of the above grounds of appeal before or at the time of hearing.‖
3. While the Revenue has raised the following grounds in its appeal:– ―1. On the facts and circumstance of the case and in law, the Ld CIT(A) erred in holding that Taj India does not constitute an agency PE of the assessee within the meaning of Article 5(4) of the India-Mauritius DTAA with regard to the distribution income received by it, 2. On the facts and circumstance of the case and in law, the Ld CIT(A) erred in holding that if the arm's length price of international transaction between the assessee and Taj India has been accepted by the TPO, no further profits can be attributed to the DAPE in India, without considering the fact that no such analysis of functions and risks undertaken by the PE on behalf of the assessee has been undertaken in the year under consideration.
3. On the facts and circumstance of the case and in law, the Ld CIT(A) erred in holding that if the arm's length price of international transaction between the assessee and Taj India has been accepted by the TPO, no further profits can be attributed to the DAPE in India, by relying on the decision of the ITAT in the assessee's case in earlier years without considering, that while the Hon'ble ITAT had decided the issue in favour of the assessee in earlier years by placing reliance on the Hon'ble Supreme Court's decision in the case of Morgan Stanley [292 ITR 416] but the case of the assessee is distinguishable on facts from the case of Morgan Stanley.
4. On the facts and circumstance of the case and in law, the Ld CIT(A) erred in not considering that the ratio of Morgan Stanley shall be applicable only when arm's length price has been determined for all the functions and risks undertaken by Taj India, whereas in the case of the assessee, only the marketing function of the PE for generating advertising revenue had been Page | 2
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020 benchmarked in earlier years and no such benchmarking has been done in the year under consideration.
5. On the facts and circumstance of the case and in law, the Ld CIT(A) erred in not considering that the consideration paid by the assessee to Taj India was only for carrying out marketing services related to advertising, and not for the profit accruing to the assessee from core activities of the assessee in India carried on by Taj India as the assessee's dependent agent, and therefore the TPO, by accepting the ALP of advertising revenue, had only benchmarked the marketing functions and not other functions carried out by Taj India as assessee's agency PE in earlier years.
6. On the facts and circumstance of the case and in law, the Ld CIT(A) erred in not considering that the TPO, by accepting the ALP of advertising revenue in earlier years, had only benchmarked the marketing functions and not other functions carried out by Taj India as assessee's agency PE, and therefore further profits needed to be attributed to the assessee's PE to correctly tax the total income of the assessee arising in India.
7. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that payment of programming fees in respect of live programmes does not constitute Royalty as provided under Article 12 of DTAA between India and Mauritius? 8. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the income received from the assessee by M/s. Intelsat being in the nature of transponder charges have arisen in India and accordingly tax should have been deducted at source on this payment? 9. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT(A) failed to appreciate that the income received from the assessee by other non-residents being in the nature of up-linking charges have arisen in India and accordingly tax should have been deducted at source on this payment? 10. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in holding that section 40(a)(i) of the Act was not applicable on payments made to non-residents for programming rights, transponder charges and uplinking charges on the ground that these payments did not constitute royalty u/s 9(1)(vi) of the Act or under the respective DTAAS; 11. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in not taking into account that the payment made for programming rights, transponder charges and uplinking charges by the assessee to non- residents are specifically covered by Explanations 2, 5 and 6 and hence fall under definition of royalty as per section 9(1)(vi) of the Act; 12. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in not taking into account that Explanation 5 and 6 to section 9(1)(vi) of the Act was inserted by the Indian Parliament by way of Finance Act, 2012 as a declaratory and clarificatory amendment with retrospective effect from the Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020
day the source rule on royalty came into effect to specify the intent of the law and does not provide a new law; 13. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in not taking into account that the insertion of Explanation 5 and 6 to section 9(1)(vi) of the Act by the Indian Parliament by way of Finance Act, 2012 fulfils all the tests laid down by a Constitution Bench of Hon'ble Supreme Court in the case of CIT (Central)-1, New Delhi vs Vatika Township Pvt Ltd, 2015 (1) SCC 1, for being declaratory and clarificatory in nature and hence explaining and clarifying the existing law; 14. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in not taking into account that the terms'use or right to use', 'copyright', 'process' etc are not defined in Article 12 of India-USA DTAA or similar Articles of other DTAAS and hence their meaning has to be derived from the domestic law of India as required by Article 3(2) of India-USA DTAA and similar Articles of other DTAAS; 15. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in not taking into account that the meaning of the term 'process' as provided in Explanation 6 to section 9(1)(vi) of the Act is the domestic law meaning of the that term from 1.6.1976 as clarified by the Finance Act, 2012 and hence the meaning for purposes of Article 12 of India-USA DTAA or other DTAAS as prescribed by Article 3(2) of India-USA DTAA and similar Article of other DTAAS? 16. The Appellant craves leave to amend or alter any ground or add a new ground which may be necessary."
In the present cross-appeals, both the assessee and Revenue are aggrieved against the findings of the learned CIT(A) regarding the issue of the existence of Permanent Establishment (“P.E.”). The assessee has challenged the conclusion of the learned CIT(A) that the assessee has a P.E. in India in respect of Advertisement revenue. While, the Revenue, inter-alia, has challenged the findings of the learned CIT(A) that the assessee does not have a P.E. in India in respect of Distribution revenue.
The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee is a foreign company, which is registered under the laws of Mauritius. The assessee is engaged in the business of telecasting Page | 4
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020 its sports channel - “Ten Sports”. The assessee is considered a “resident” in Mauritius for tax purposes, as it is registered in Mauritius. For the year under consideration, the assessee filed its return of income on 29/11/2013, declaring a total income of Rs.Nil. Report in Form no.3CEB was also filed by the assessee on 28/11/2013, as per the requirement of the provisions of section 92E of the Act. The return filed by the assessee was selected for scrutiny and statutory notices under section 143(2) as well as section 142(1) of the Act were issued and served on the assessee. Along with its return of income, the assessee filed notes to the computation of income, wherein the assessee submitted that it has appointed Taj Televisions (India) Private Limited (“Taj India”) as advertising sales agent vide agreement dated 08/05/2002, to sell commercial advertising time to prospective advertisers and other parties in India, in connection with business of programming and telecasting on “Ten Sports” / “Ten HD” / “Ten Golf” channels and to collect advertisement charges from Indian exporters and advertisers on behalf of the assessee. Under the agreement, it was agreed that Taj India is entitled to 10% to 12.5% commission of the Advertisement revenue collected for the assessee. Further, the assessee also appointed Taj India as the Distributor vide agreement dated 01/07/2004, to distribute an encrypted advertiser and/or a subscription- supported television programming service known as “Ten Sports” / “Ten HD” / “Ten Golf” to cable systems solely for exhibition to subscribers in India. Under the aforesaid note, the assessee claimed that it does not have any branch or office in India and the telecasting is being done from outside India. It was further submitted that the assessee does not have a P.E. in India as Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020 transactions entered into by the assessee are on a principal-to-principal basis and at arm’s length prices. It was also submitted that Taj India has not habitually exercised any authority to conclude the contract on behalf of the assessee in India and therefore there is no P.E. of the assessee in India resulting in any further tax implication. Accordingly, in view of the provisions of Article 7 of the India Mauritius Double Taxation Avoidance Agreement (“DTAA”) read with section 90(2) of the Act, the assessee submitted that its income is not subject to tax in India. Further, the profit, if any, attributable to P.E. has already been taxed in India and therefore, no further profit is required to be attributed.
During the assessment proceedings, based on the past records/assessments, the assessee was asked to show cause as to why the Indian entity, i.e. Taj India, should not be treated as an independent P.E. of the assessee and income be computed accordingly. In respect of Advertisement revenue, the assessee submitted that all the advertisement sales contracts were entered into between the advertisers and the assessee, and Taj India does not have the authority to conclude contracts in the name of the assessee. It was further submitted that even after the addendum dated 27/04/2006, w.e.f. 01/04/2006, in line with the Advertising Code prescribed under the Cable Television Networks (Regulation) Act, 1995, whereby clause 5(a) of the agreement was entirely replaced, Taj India never exercised authority to conclude the contracts with the advertisers and the assessee continued to conclude the contracts. Further, with respect to the Distribution revenue, the assessee submitted that as per the Distribution Agreement, the Page | 6
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020 assessee has given the right to Taj India to exclusively represent it with respect to licensing sports television channels known as “Ten Sports” / “Ten HD” / “Ten Golf” provided by the assessee in India directly or through one or more distributors to the cable system. The assessee further submitted that Taj India was appointed as its distributor and Taj India in turn appointed sub- distributors and cable operators to carry out the task deputed by the assessee in a better manner. In respect of the same, Taj India has compensated sub- distributors and cable operators out of its own 25% share. It further submitted that Taj India had entered into agreements with distributors or cable operators on his own account as a principal distributor and not on behalf of the assessee. Thus, with respect to the Distribution revenue arrangement, the relationship between the assessee and Taj India is on a principal-to-principal basis and not on a principal-agent basis.
The Assessing Officer (“AO”) vide order dated 30/04/2016, passed under section 143(3) read with section 144C(3) of the Act did not agree with the submissions of the assessee and in para 9 and 10 held that Taj India is acting wholly and exclusively for the assessee as a dependent agent and is regularly selling the advertisement spots on behalf of the assessee. It was further held that Taj India is functionally and economically dependent on the assessee and also takes risks on behalf of the assessee. The AO held that as Taj India has the authority to conclude contracts in the name of the assessee and has exercised this authority habitually and repeatedly in India, the assessee has a permanent establishment in India within the meaning of Article 5(4)(i) of the India-Mauritius DTAA in respect of the Advertisement revenue. Further, in Page | 7
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020 respect of the Distribution revenue, the AO in para 12 of the assessment order held that Taj India has the exclusive right to represent the assessee before the distribution systems/cable operators and negotiate and procure cable distribution license agreement for the service, the terms of which shall be determined by Taj India, as authorised by the assessee. Further, the Distribution revenue collected by Taj India shall be shared in the ratio of 86:14 amongst the assessee and Taj India respectively. Accordingly, the AO held that the assessee has a P.E. in India in respect of the Distribution revenue, and as such the same is taxable on a net basis in the hands of the assessee. Thus, the AO held that the assessee has a Dependent Agent Permanent Establishment (―DAPE‖) in the form of Taj India, which has been authorised to enter into a contract for subscription as well as advertisements. The AO also disagreed with the alternative submission of the assessee that even if the assessee has a DAPE in India no further profit is to be attributed as the P.E. has been remunerated at arm’s length. Accordingly, the AO attributed 75% of the assessable profits arising from Indian operations to the functions performed by the DAPE in India for the purpose of taxation, following the approach adopted in the earlier assessment years.
The learned CIT(A), following the order of its predecessor in assessee’s own case for the assessment year 2012-13, wherein the decision of the coordinate bench of the Tribunal in assessee’s own case was followed, held the assessee to not to have any P.E. with respect to its Distribution functions. Being aggrieved with the aforesaid findings, the Revenue is in appeal before
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020 us. While the assessee has challenged the conclusion of the learned CIT(A) that the assessee has a P.E. in India in respect of the Advertisement revenue.
During the hearing, the learned Authorised Representative (“learned AR”) submitted that the issue of existence of assessee’s P.E. in India in respect of Distribution income and Advertisement income has been decided in favour of the assessee by the coordinate bench of the Tribunal in assessee’s own case.
On the other hand, the learned Department Representative (“learned DR”) vehemently relied upon the findings in the assessment order. The written submission filed by the learned DR in the present cross-appeals, vide letter dated 21/07/2023, is reproduced as under:-
Dated: 21st July 2023 ―No.Sr.DR/ITAT–11/I–Bench/2023–14 To, The Honourable Members, ITA Mumbai ‗I‘ Bench Mumbai Respected Sir, Sub: Written Submission on behalf of the Appellant (Revenue) in the case of M/s. TAJ TV LTD. ITA no.1351/Mum./2020 & Assessee‘s appeal No.894/Mum./ 2020 for AY. 2013–14 – reg. ******************* Kindly, refeer to the above. In support of the various issues raised by the AO and certain issues confirmed by the Ld. CIT(A), the Revenue Department rely upon the factual findings made by the Assessing Officer in the assessment order. Yours faithfully, Sd/– (DILIP K. SHAH) Sr. AR. On roster duty ITAT–11, ‗I‘ Bench, Mumbai‖ Page | 9
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020
We have considered the submissions of both sides and perused the material available on record. As per the Distribution Agreement dated 20/10/2005, forming part of the paper book from pages 260-272, we find that the assessee has granted exclusive distribution rights to Taj India with respect to the distribution of a 24-hour per day encrypted, advertiser and/or subscription-supported, sports television programming service, known as “Ten Sports” to cable systems solely for exhibition to subscribers in India either directly or through one or more Distributors. Accordingly, Taj India entered into agreements with sub-distributors and cable operators. In this regard, it is relevant to note clause 1.3 of the aforesaid Distribution Agreement, which reads as under:-
“1.3 Taj India shall have the distribution rights for distribution of the Service in India to Distributor and Permitted Systems and negotiate and procure cable distribution license Agreements with Permitted Systems for the Service consistent with the terms thereof. Taj India shall enter into Agreements with third parties on its own behalf and in its own name. Upon Taj‘s request, Taj India shall inform Taj in advance and regularly update Taj regarding the negotiations of any proposed License Agreements with Permitted Systems.”
Therefore, under the aforesaid clause, Taj India was authorised to enter into agreements with third parties on its own behalf and in its own name. The aforesaid clause of the Distribution Agreement was replaced by the Addendum dated 28/12/2007 entered into between the assessee and Taj India. The amended clause 1.3 of the Distribution Agreement, reads as under:-
“1.3 Taj-India shall have the distribution rights for distribution of the Service in India to Distributor and Permitted Systems and negotiate and procure cable distribution license Agreements with Permitted Systems for the Service consistent with the terms thereof. Taj-India shall have the authority to enter into Agreements with third parties on behalf of the Taj. Upon Taj‘s request, Taj
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020
–India shall inform Taj in advance and regularly update Taj regarding the negotiations of any proposed License Agreements with Permitted Systems.”
As per the assessee, despite the grant of authority to the Taj India to enter into agreements with third parties on behalf of the assessee, no such agreement was entered, and therefore, the twin conditions as laid down in Article 5(4)(i) of the India-Mauritius DTAA are not satisfied in the present case. We find that the coordinate bench of the Tribunal in assessee’s own case in Taj TV Ltd v/s DCIT, in ITAs No. 6588 and 6741/Mum./2019, vide order dated 22/03/2022, for the assessment year 2012-13, while dealing with a similar issue, analysed the aforesaid clauses of Distribution Agreement vis-à-vis the provisions of Article 5(4)(i) and held that there is no material available on record to show that Taj India has habitually exercised the authority to conclude the contract on behalf of the assessee. Accordingly, the coordinate bench came to the conclusion that Taj India cannot be held to be a DAPE of the assessee in India in terms of Article 5(4)(i) of the India Mauritius DTAA with respect to the Distribution revenue. The relevant findings of the coordinate bench, in the aforesaid decision, are reproduced as under:-
“13. The Revenue has placed reliance on this clause, as replaced by the Addendum dated 28.12.2007, to allege that Taj India constitutes dependent agent P.E. of the assessee in India. In order to decide the issue whether the assessee has a P.E. in India with respect to the Distribution revenue under India Mauritius DTAA, it is relevant to analyse the provisions of Article 5(4) of the DTAA, which reads as under: ―4. Notwithstanding the provisions of paragraphs (1) and (2) of this article, a person acting in a Contracting State for or on behalf of an enterprise of the other Contracting State [other than an agent of an independent status to whom the provisions of paragraph (5) apply] shall be deemed 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 Page | 11
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020 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.‖ 14. As per the provisions of Article 5(4)(i) of the DTAA, it is only when the person in a Contracting State has and habitually exercises the authority to conclude contracts in the name of the other enterprise, such person shall be deemed to be the P.E. of the other enterprise. Thus in order to invoke the provisions of Article 5(4)(i) of the DTAA, both the conditions i.e. (a) person has concluded the contract and (b) person habitually exercise the authority to conclude the contract, need to be satisfied. However, in the present case, the Revenue, except merely referring to the aforesaid clause of the Addendum, has neither established nor brought anything on record, either at the assessment stage or before us, that Taj India had habitually exercised the authority to conclude the contract on behalf of the assessee. Thus, the Revenue has failed to discharge the burden casted on it to prove that the twin conditions provided in Article 5(4)(i) of the DTAA are satisfied in the facts of the present case. As held by the Special Bench of the Tribunal in the case of Motorola Inc. v. Dy. CIT: [2005] 95 ITD 269 that DTAA is only an alternative tax regime and not an exemption regime and therefore, the burden is first on the Revenue to show that the assessee had a taxable income under the DTAA, and then the burden is on the assessee to show that its income is exempt under DTAA. Similarly, was held by the Co-ordinate Bench of the Tribunal in ITO v. Right Florists (P) Ltd. [2013] 143 ITD 445 (Kol-Trib.). In view of the above, Taj India cannot be held to be dependent agent P.E. of the assessee in India under Article 5(4)(i) of the India Mauritius DTAA with respect to the distribution revenue. Accordingly, to this extent order passed by the CIT(A) is upheld and the grounds raised by the Revenue are dismissed.‖
It is evident from the record that no material has been brought on record by the Revenue, in the present case, to show that Taj India has habitually exercised authority to conclude the contract on behalf of the assessee. In the absence of any allegation of any change in facts or law, we find no reason to deviate from the conclusion so reached by the coordinate bench in the aforesaid decision in assessee’s own case in the preceding assessment year. Accordingly, we find no infirmity in the findings of the learned CIT(A) in holding that the assessee does not have a P.E. with respect to its Distribution
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020 function. As a result, grounds no.1-2, raised in Revenue’s appeal are dismissed.
As regards the Advertisement function, vide Advertising Sales Agency Agreement dated 04/05/2002, forming part of the paper book from pages 211-217, the assessee appointed Taj India as its non-exclusive advertising sales agent for selling commercial advertisement time to prospective advertisers and other parties in India in connection with the business of programming and telecasting on Channels and to collect advertisement charges from Indian exporters and advertisers on behalf of the assessee. Clause 5(a) of the aforesaid agreement specifically provided that Taj India shall not have any right or authority to assume or create, in writing or otherwise, any obligation of any kind, express or implied, in the name of or on behalf of the assessee, unless expressly authorised by the assessee. Clause 5(a) of the Advertising Sales Agency Agreement dated 04/05/2002, reads as under:-
―(a) In providing the Services pursuant to this Agreement, Taj-India shall not have any right or authority to assume or create, in writing or otherwise, any obligation of any kind, express or implied, in the name of or on behalf of Taj, unless expressly authorised by Taj. Taj and Taj-India expressly acknowledge that Taj-India's ability to (i) enter into contracts with third parties, (ii) incur any costs and expenses (other than reasonable and customary advertising sales agency costs and expenses, in connection with the services), or (ii) otherwise obligate Taj in respect of the Services to be provided by Taj-India hereunder (including, without limitation, arranging and facilitating the sale of Advertising Time) shall at all times be subject to prior approval by Taj in its absolute discretion, such approval to be granted or withheld by Taj in accordance with the procedure specified herein.‖
Subsequently, in order to ensure that the advertisements procured meet the requirements as laid down under the Advertising Code prescribed under Page | 13
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020 the Cable Television Networks (Regulation) Act, 1995, the aforesaid clause of the Advertising Sales Agency Agreement was replaced by the Addendum dated 27/04/2006, entered into between the assessee and Taj India. The amended clause 5(a) of the Advertising Sales Agency Agreement, reads as under:-
―3. Clause 5(a) of the Agreement will be entirely replaced as follows: In providing the services pursuant to this Agreement, Taj-India shall have the right and authority to assume or create, in writing or otherwise, an obligation of any kind, express or implied, in the name of and on behalf of Taj, relating to activities undertaken in India, subject to exercising due diligence and care and pursuant to the interest of Taj, including but not limited to adherence to the rate card as is agreed to between Taj India and Taj, getting any arrangements at variance to the rate card agreed with Taj, and ensuring that the advertisements procured meet the requirements as laid down under the Advertising Code prescribed under the Cable Television Networks (Regulation) Act, 1995.‖
We find that this clause remained the same even in the Advertising Sales Agency Agreement dated 13/06/2011, entered between the assessee and Taj India, which forms part of the paper book from pages 243-249. As per the assessee, Taj India had never exercised authority to conclude contracts even after the aforesaid amendment to the Advertising Sales Agency Agreement and the assessee had continued to conclude contracts with the advertisers. In support of its aforesaid claim, the assessee has placed on record on a sample basis purchase order/deal copy/email correspondence, etc. From the perusal of these documents, forming part of the paper book from pages 200-203, we find that the Advertising Contract was entered by the assessee, even after the aforesaid Addendum dated 27/04/2006, to the Advertising Sales Agency Agreement.
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020
Thus, in respect of Advertisement revenue also no material has been brought on record by the Revenue that Taj India has habitually exercised the authority to conclude the contract on behalf of the assessee. Therefore, we are of the considered view that even with respect to Advertisement income, the Revenue failed to discharge the burden cast on it to prove that the twin conditions as laid down in Article 5(4)(i) of the India Mauritius DTAA are satisfied in the facts of the present case. Thus the conclusion of the coordinate bench of the Tribunal in the preceding year (cited supra) is equally applicable with respect to the Advertisement revenue and Taj India cannot be held to be a DAPE of the assessee in India under Article 5(4)(i) of the India-Mauritius DTAA in respect of the same. Accordingly, the conclusion of the learned CIT(A) on this issue is set aside and the ground raised by the assessee is allowed.
We further find that recently the coordinate bench of the Tribunal in assessee’s own case in Taj TV Ltd v/s DCIT, ITA No.821/Mum./2021, vide order dated 31/03/2023, for the assessment year 2017-18, held that advertising and subscription income received by the assessee is not taxable in India as the assessee does not have any P.E. in India. The relevant findings of the coordinate bench, in the aforesaid decision, are reproduced as under:-
―75. Ground number 2 of the appeal is with respect to the taxing advertisement and subscription income of Rs. 1,020,335,861. The fact shows that the assessee's businesses of telecasting of sports channels are carried out from outside India. The assessee has received services from Taj India in respect of advertisement and distribution as well as for play out services from Zee entertainment Enterprises Ltd. As we have already held that assessee does not have a permanent establishment in India, the article 7 of the treaty will trigger only if such profits are attributable to a permanent establishment in India. This issue has already been decided by the Hon'ble Bombay High Court in assessee's own case for assessment years 2004-05 and 2005-06 in TajTV Ltd.'s case (supra). Further starting from assessment years 2003-04 till 2016-17 this issue Page | 15
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020 has been decided in favour of the assessee. We do not find any reason to hold that about decisions are obtained by any misrepresentation of fact or withholding any vital facts. Further, there is no change in the facts and circumstances of the case, therefore respectfully following the decisions of the coordinate bench, which is upheld by the honourable High Court, we hold that the advertisement and subscription income is not chargeable to tax in India.‖
Since the relief is granted to the assessee on the issue of the existence of P.E., the alternative ground raised by the assessee with respect to attribution of profit when the remuneration is at arm’s length becomes academic and therefore, is left open.
In view of the aforesaid findings, grounds no.3-6, raised by the Revenue, in respect of profit attribution when the remuneration is at arm’s length are also rendered academic and therefore, are left open.
The issue arising in grounds no.7-15, raised in Revenue’s appeal, is pertaining to the deletion of disallowance of programming cost, transponder fees, and uplinking charges under section 40(a)(i) of the Act for non-deduction of TDS.
The brief facts of the case pertaining to this issue, as emanating from the record, are: The assessee has made the majority of payments from outside India to various non-residents. During the year under consideration, the assessee paid programming costs of USD 13,581,016, transponder fees of USD 882,321, and uplinking charges of USD 1,026,671. The aforesaid payments were made by the assessee to non-residents who do not have any business connection in India. During the assessment proceedings, the assessee submitted that the payments made by the assessee outside India to Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020 various non-residents cannot be considered as income of such non-residents in India, and as such, no tax is required to be withheld. It was further submitted that the assessee has entered into agreements with various non-residents for acquiring programming rights for telecasting sports events taking place outside India on “Ten Sports” Channel. Both the events and the parties with whom the assessee has entered into agreements for telecasting sports events are outside India and do not have any branch/office or PE in India. Similarly, the assessee paid transponder fees and uplinking charges to an entity, i.e. Intelsat, who is a tax resident of the USA and is engaged in the business of providing transponder facilities to various entities in the world. Further, Intelsat was not carrying any business activities in India and does not have any business connection in India as per section 9(1)(i) of the Act. Accordingly, the assessee submitted that these payments are not taxable in India. The AO vide assessment order passed under section 143(3) of the Act did not agree with the submissions of the assessee and held that the assessee was required to withhold taxes on the aforesaid payment, as these payments are in the nature of Royalty and accordingly disallowed the same while computing the income of the assessee under section 40(a)(i) of the Act.
The learned CIT(A), vide impugned order, allowed the appeal filed by the assessee on this issue and held that the payment disallowed under section 40(a)(i) of the Act is not Royalty. Being aggrieved, the Revenue is in appeal before us.
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020
We have considered the submissions of both sides and perused the material available on record. We find that the coordinate bench of the Tribunal in assessee’s own case vide order dated 05/07/2016, passed in ADIT v/s Taj TV Ltd., [2016] 161 ITD 339, for assessment years 2003–04 to 2005–06, while deciding the similar issue in favour of the assessee observed as under:–
―19. First of all, let us examine the definition of "royalty" as been defined under Article 12 of the Indo-US-DTAA, which has been defined in the following manner: '3. The term "royalties" as used in this Article means: (a) payments of any kind received as a consideration for the use of or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; and (b) payments of any kind received as consideration for the use of or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8.' The article gives exhaustive definition of the term 'royalty' and therefore, the definition and scope of 'royalty' is to be seen from the Article alone and no definition under the domestic Act or law is required to be considered or seen or any amendment made in such definition whether retrospective or prospective which can be read in a manner so as to extend any operation to the terms as defined or understood in the Treaty. The Legislature or Parliament while carrying out amendment to interpret or define a given provision under the Domestic Law of the country cannot supersede or control the meaning of the word which has been expressly defined in a Treaty negotiated between executives of two sovereign nations. The payment of transponder charges to PanAmSat and uplinking charges cannot be treated as a consideration for 'use' or 'right to use' any copyright of various terms used in para 3(a) like copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting or in any manner relates to any patent or trademark, design, secret formula or process. It is also not use or right to use any industrial, commercial, or scientific equipment. There is no such kind of right to use which is given by Pan Am Sat to assessee. Thus, the said payment does not fall within the ambit of the terms used in para 3 of Article 12. So far as the reading of amended definition of 'royalty' as given in section 9(1)(vi) into treaty, Hon'ble Delhi High Court in its latest judgment in the case of New Skies
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020 Satellite BV (supra), wherein it has considered Hon'ble Madras High Court decision in the case of Verizon Communications Singapore Pte Ltd. (supra) also, have discussed the issue threadbare and came to the conclusion in the following manner:— "60. Consequently, since we have held that the Finance Act, 2012 will not affect Article 12 of the DTAAs, it would follow that the first determinative interpretation given to the word "royalty" in Asia Satellite, supra note 1, when the definitions were in fact pari materia (in the absence of any contouring explanations), will continue to hold the filed for the purpose of assessment years preceding the Finance Act, 2012 and in all cases which involve a Double Tax Avoidance Agreement, unless the said DTAAs are amended jointly by both partners to incorporate income from data transmission services as partaking of the nature of royalty, or amend the definition in a manner so that such income automatically becomes royalty. It is reiterated that the Court has not returned a finding on whether the amendment is in fact retrospective and applicable to cases preceding the Finance Act of 2012 where there exists no Double Tax Avoidance Agreement." The aforesaid decision takes care of all the arguments relied upon by the ld. DR including that of the Verizon Communications Singapore Pte Ltd's. The Hon'ble High Court has specifically clarified as to why the said decision of Madras High Court cannot be applied in such cases after observing as under:— "31. In a judgment by the Madras High Court in Verizon Communications Singapore Pte Ltd. v. The Income Tax Officer, International Taxation I, [2014] 361 ITR 575, the Court held the Explanations to be applicable to not only the domestic definition but also carried them to influence the meaning of royalty under Article 12. Notably, in both cases, the clarificatory nature of the amendment was not questioned, but was instead applied squarely to assessment years predating the amendment. The crucial difference between the judgments however lies in the application of the amendments to the DTAA. While TV Today, supra note 22 recognizes that the question will have to be decided and the submission argued, Verizon, supra note 23 cites no reason for the extension of the amendments to the DTAA.‖ Thus, respectfully following the ratio laid down by the Hon'ble Delhi High Court, we hold that, the definition of royalty as enlarged by Finance Act, 2012 with retrospective effect will not have any affect in Article 12 of DTAA. 20. ... 21. ... 22. ...
23. Coming to the disallowance, as raised in ground No.4 the Ld. Counsel had stated that the impugned issue is covered by the decision of the Tribunal in its own case in vide order dated 17.04.2012 and in ITA No.3702 vide order dated 18.05.2012. In these cases, the Tribunal has relied upon a decision of Set Satellite (Singapore) Pte Ltd. v. Addl. DIT (Int. Tax.)[2010] 6 taxmann.com 53 (Mum.) which decision has now been affirmed and approved by the Hon'ble Bombay High Court in the case of Set Satellite Singapore Pte Ltd. (supra) on the ground that, the programming cost is paid to the assessee to various non-resident outside India for acquiring right brought on sports events taking place outside India. Thus, such programming cost
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020 cannot be deemed to arise in India as liability to pay programming cost as assumed by the assessee company outside India and it cannot be held to be borne by any PE in India. Thus, ground No.4 is also dismissed.‖
Therefore, in the aforesaid decision, the coordinate bench of the Tribunal after taking into consideration the decision of the Hon’ble Delhi High Court in CIT v/s New Skies Satellite BV [2016] 382 ITR 114 (Del.) held that the definition of the term “Royalty” as enlarged by the Finance Act, 2012 will not have any effect on Article 12 of the DTAA. We further find that in another decision rendered in assessee’s own case for the assessment year 2017-18 in ITA No. 821/Mum./2021 cited supra, the coordinate bench of the Tribunal deleted the disallowance made in respect of payment of programming costs, transponder fees, and uplinking charges. Further as regards the reliance placed by the Revenue on Article 3(2) of the India USA DTAA, we find that the coordinate bench of the Tribunal in assessee’s own case for the assessment year 2012-13 cited supra, observed as under:-
―23. Further, as regards the reliance placed by learned D.R. on the decision of Hon‘ble Jurisdictional High Court in Siemens Aktiongesellschaft (supra), it is pertinent to note that in ACIT v. Reliance Jio Infocomm Ltd. [2019] 111 taxmann.com 371, another Co-ordinate Bench of the Tribunal noted the difference in wordings of DTAA dealt with in Siemens Aktiongesellschaft (supra) and observed as under: ―17. So far as our purposes are concerned, it is sufficient to take note of the fact that the provisions of Article 3(2) of Indo Singaporean tax treaty are differently worded vis-à-vis the old Indo German tax treaty that Hon'ble jurisdictional High Court were dealing with in Siemens Aktiongesellschaft's case (supra) and the crucial words "laws in force" on which so much emphasis was placed in judicial analysis by Hon'ble jurisdictional High Court do not find place in this treaty. Strictly speaking, therefore, the judicial sanction for the theory of ambulatory interpretation, for the purpose of article 3(2), does not, therefore, necessarily extend to Indo Singaporean tax treaty that we are concerned with.‖ 24. The provisions of Article 3(2) of India US DTAA are similar to India Singapore DTAA, which were considered by Co-ordinate Bench of the Tribunal in aforesaid decision. Accordingly, respectfully following the judicial precedence Page | 20
Taj TV Limited ITA no.894/Mum./2020 ITA no.1351/Mum./2020 in assessee‘s own case, the order passed by the CIT(A), deleting the disallowance made by the Assessing Officer under section 40(a)(i) of the Act, is affirmed. Consequently, the grounds raised by the Revenue are dismissed.‖
Thus, respectfully following the aforesaid decisions of the coordinate bench of the Tribunal rendered in assessee’s own case, we find no infirmity in the impugned order deleting the disallowance of programming cost, transponder fees, and uplinking charges made under section 40(a)(i) of the Act. Accordingly, grounds no.7-15, raised in Revenue’s appeal are dismissed.
In the result, the appeal by the assessee is allowed, while the appeal by the Revenue is dismissed. Order pronounced in the open Court on 26/10/2023