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Income Tax Appellate Tribunal, ―I‖ BENCH,
Before: SHRI PRASHANT MAHARISHI, AM & SHRI SANDEEP SINGH KARHAIL, JM
PER BENCH:- 1. For All these appeals for respective Assessment years, assessee has filed revised memorandum of appeal in accordance with rule 9A of The Income Tax (Appellant Tribunal) Rules, 1963 reinstating the name of Reuters Limited with Refinitive Limited and Reuters Online SA with Reifinitive SA. 2. We deal with the various appeals, which involves the common issue that whether the income arising in the hands of the foreign non-
Assessment Year 2003-04
ITA 1708/M/2008 [Assessee]
ITA 1978/M/2008[By AO]
For assessment year 2003 – 04 cross appeals filed by Refinitiv Ltd (earlier known as Reuters Ltd ) and The Deputy Commissioner Of Income Tax (International taxation) range – 2 (1) Mumbai (the learned A O ) against the appellate order passed by The Commissioner Of Income Tax (Appeals) XXX-57, Mumbai (The Learned CIT – A) dated 24/4/2006.
i. In confirming the contention of The Deputy Director Of Income Tax (International Taxation) – 2 (1) , Mumbai that the appellant had a service permanent establishment in India by virtue of article 5 (2) (a) of the Double Taxation Avoidance Agreement between India and UK ii. in confirming the contention of the learned assessing officer that the appellant had an agency permanent establishment in India by virtue of article 5 (4) of the DTAA iii. in holding that the payment received by the appellant from Reuters India private limited under the distribution agreement and also received from ANI media should be taxed as business profit in accordance with rule 10 of the income tax rules, 1962 7. In ITA 1978/M/2008 the learned AO has raised following grounds of appeal:- i. on the facts and in the circumstances of the case and in law, the learned CIT (A) erred in holding that the payments received by Reuters India private limited under distribution agreement (TA) does not constitute royalty but it is than in the nature of the business income under article 7 of India and United Kingdom DTAA ii. On the facts and in the circumstances of the case and in law, the learned CIT (A) erred in not appreciating the fact that the license agreement (LA), distribution agreement (DA) and production distribution agreement (PDA) are inextricably
―4. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position. 5. So far as the grievance of the Assessing Officer is concerned, we find that a coordinate bench of this Tribunal, vide order dated 12thJanuary 2006 in the case of the Indian subsidiary of the assessee- namely Reuters India Pvt Ltd and for the same assessment years as before us, has held that the amounts received under the DA and the PDA cannot be taxed as royalty of as fees for technical services under the Indo UK tax treaty. While doing so, the coordinate bench has, inter alia, observed as follows: 39. With the above background, the question before us is whether the payment of distribution fees falls under Royalty in sharing of business revenue. First let us analyse the nature of business and impact of the 3 agreements entered by the assessee with RI. RL is the holding company and service provider. 40. RL is the provider of the news and financial information products through the use of sophisticated technological devices. These products are compiled and distributed by RL through the Reuters Global Network. This is a global communication network consisting of data storage facilities in three locations linked by satellite links and terrestrial links. RL uses network to receive and transmit news and financial information.
In view of the above discussions, as also bearing in mind the entirety of the case, we uphold the conclusions arrived at by the learned CIT(A), so far as non-taxation of impugned amounts as „royalties" and „fees for technical services" is concerned, and decline to interfere on this count. To that extent, conclusions arrived at by the learned CIT(A) are approved. 9. As regards the grievance of the assessee, with respect to the learned CIT(A)"s findings to the effect that the assessee had a DAPE in India, and, accordingly, the profits attributable to such a DAPE are liable to be taxed in India, we are of the considered view that this issue, as on now, is wholly academic inasmuch as it is not in dispute that the assessee had paid arm"s length remuneration consideration for the services rendered by the Indian subsidiary, and, as such, no further amounts can be brought to tax, even if the assessee indeed has a DAPE. There is a categorical finding to that effect in a coordinate bench order, and the payment of an arm"s length remuneration is not thus even in dispute. While on this issue of tax neutrality of the DAPE, we may refer to the following observations made by a coordinate bench of this Tribunal, in the case of ADIT Vs Asia Today Ltd [(2021) 124 taxmann.com 1 (Mum)]: 11. The case of the Revenue is thus clearly confined to the existence of DAPE on the facts of this case. The question thus arises as to what are the tax implications of the existence of a dependent agent permanent establishment (DAPE) under Article 5(4). The DAPE is, after all, a type of permanent establishment, and the very concept of permanent establishment is a compromise between source rule and residence rule inasmuch as it provides justification to trigger source jurisdiction taxation over business activities of a foreign enterprise. Unless there is a PE in the source jurisdiction, there cannot be taxation of business profits of the foreign enterprise in the source jurisdiction, and when there is a
30,00,000 Less : Commission paid to Ind. Co. 9,00,000(-) : Cost of purchases 10,00,000(-) : Sing Co.'s handling charges 6,00,000(-) Profit of the DAPE or, in other words, 25,00,000 profits Attribute to India operations of the Sing Co. $ 5,00,000 8 As far as 'A' in the above example is concerned, it does not have anything to do with the income of the foreign company. This taxability is in the hands of the domestic dependent agent and is on net basis after taking into account the expenses incurred by the agent for earning of remuneration whether or not the same relates to the business of the foreign company or not. As regards 'B' above, it represents the earnings of the foreign company attributable to the dependent agent permanent establishment, on account of its having a dependent agent in source country. This income is taxable in the hands of the foreign company in the source country and the tax credit in respect of such taxability will be available to the foreign company in residence country. If, in this example, we are to assume that the income of the PE is only the remuneration earned by the agent on net basis, we will end up in a situation that while profits of Sing Co. attributable to India operations will be $ 5,00,000, the taxability of the profits will be confined to only $ 1,000. What is to be taxed under Article 7 is income of the foreign enterprise attributable to the permanent establishment in the host country. The income attributable to the permanent establishment in the host country is the income attributable to foreign company's operations in the host country, which, in turn, implies the income attributable to the activities carried on the foreign enterprise in the host country. That income, as shown in 'B' above is the income arrived at by taking
Accordingly, respectfully following decision of coordinate bench , ground number 1 – 3 of the appeal of the assessee becomes merely academic. Therefore, we direct the learned assessing officer follow the decision of the coordinate bench in assessee‘s own case for assessment year 1998 – 1999 and 1999 – 2000 dated 5/7/2022 in ITA 5024 and 5025/M/2004. 20. Accordingly, appeal of the learned assessing officer is dismissed and appeal of the assessee is allowed with above direction.
AY 2004-05 ITA 1979/M/2008 [by AO] ITA 1709/M/2008 [by assessee] Appeals of Assessee against Appeal effect order ITA 1287/M/2009 [by assessee]
Now we come to the cross appeals of both the parties for assessment year 2004 – 05. ITA 1979/M/2008 is filed by the learned assessing officer in ITA 1709/M/2008 is filed by the assessee. The facts are identical to the facts of the assessment year 2003 – 04 as stated above. The assessee is aggrieved by the order of the learned CIT – A
ITA number 5182/M/2009 is filed by the assessee and ITA number 5155/M/2009 is filed by the assessing officer against the appellate order passed by the learned CIT – A dated 30/6/2009 for assessment year 2005 – 06. The learned assessing officer is aggrieved that the impugned income of the assessee is not held by the learned CIT – A chargeable to tax as royalty income as per the Double Taxation Avoidance Agreement and further even in case of business income, it is held that no additional profits can be attributed to the permanent establishment if the associated enterprise has been remunerated at arm‘s-length price. The assessee is aggrieved with the appellate
Assessment year 2006 – 07 ITA number 3617/M/2010 [By Assessee] ITA number 4575/M/2010 [By AO] Penalty under section 271 (1) (C) ITA 4550/M/2013 [By AO]
Assessment year 2002 – 03 ITA 3366/M/2006 (by AO) ITA 3422/M/2006 (by assessee) 32. ITA number 3366/M/2006 is filed by the learned assessing officer against the appellate order passed by the Commissioner of income tax (appeals) – V, Mumbai for assessment year 2002 – 03 dated 27/3/2006 wherein it is held that that the income earned by the assessee, foreign entity from various agreement entered into with Reuters India Ltd and ANI media Ltd under the distribution agreement and service agreement does not constitute royalty but it is in the nature of the business income. It was further held that several agreements entered into by the assessee with the Indian entity are not inextricably connected. The learned CIT – A further held that income is chargeable to tax as business income under article 7 of the treaty. 33. ITA 3422/M/2006 is filed by the assessee challenging the finding of the learned CIT – A that assessee has a permanent establishment in India and therefore the profit should be attributed in the hands of the permanent establishment following the rule 10 of the income tax rules 1962. 34. We find that the facts are identical to the assessment year 2003 – 04 for which we have already discussed and respectfully following the decision of the coordinate bench in assessee‘s own case for earlier year wherein it has been held that the income is not chargeable to tax in the hands of the assessee as royalty income, we hold that, respectfully following the decision of the coordinate bench, that
Assessment year 2001 – 02 ITA 8348/M/2004 (by assessee) ITA 8463/M/2004 [by the AO] 43. ITA 8348/M/2004 is filed by the assessee against the appellate order passed by the learned CIT – A – XXXI, Mumbai dated 10 August 2004 for assessment year 2001 – 02 wherein the appeal filed by the assessee against the assessment order passed under section 143 (3) of the act dated 12/1/2004th passed by the deputy director of income tax (International taxation) – 2 (1), Mumbai (the learned assessing officer holding that assessee foreign company deriving income from the various agreements entered into with its associated enterprises in India and as well as with ANI media is chargeable to tax in the hence of the assessee as royalty income, the learned CIT – A categorically held that such income is not liable to be taxed under the act royalty as per the Double Taxation Avoidance Agreement but is a business income of the assessee chargeable to tax as assessee has a permanent establishment in India and the profit is required to be attributable in the hands of the assessee in terms of rule 10 of the income tax rules. The assessee is aggrieved with the direction of the learned CIT – A holding that there is a permanent establishment in India of the assessee and the profit is required to be chargeable to
AY 2001-02
ITA 8464/M/2004 is filed by the assessing officer against the appellate order passed by the CIT – A XXXI , Mumbai dated 2/9/2004 for assessment year 2001 – 02 in case of Reuters online SA now as per revised memorandum of appeal REFINITIVE SA wherein the appeal filed by the assessee against the assessment order passed under section 143 (3) of the act dated 28/mum/2004th passed by the Deputy Director of income tax (International taxation) – 2 (1), Mumbai (the AO) was partly allowed. Therefore the assessing officer is aggrieved by appellate order has learned CIT – A has held that the receipts in the hence of the assessee is in the nature of business income and not royalty. 48. Fact shows that Reuters online SA is a company Incorporated under the laws of Switzerland and is a tax resident of that country. It is in the business of providing Reuters investors services worldwide over the Internet. It includes predefined data sets of financial information including taxed, data and graphics specifically meant for private investors. It was for online delayed or real-time snap quotes. It is important to note that the information made available by the assessee is merely a compilation of publicly available information. It supports HTML format information or XML format to consolidate online data into custom-built templates. The customers who not need to install any hardware or software applications. The clients who were taxes, requests, receive processes and display data from
Order pronounced in the open court on 28/06/2023.
Sd/- Sd/- (SANDEEP SINGH KARAHAIL) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 28.06.2023 Dragon Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. CIT 4. DR, ITAT, Mumbai 5. Guard file. BY ORDER, True Copy//
Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai