TAJ TV LTD.,MUMBAI vs. DY CIT (INTERNATIONAL TAXATION)-4(1)(2), MUMBAI

PER PRASHANT MAHARISHI, AM:

Fact of Appeal 01. This appeal is filed by M/s Taj TV Limited [The Assessee/Appellant] for the assessment year 2017 – 18 against the assessment order passed under section 143 (3) read with section 144C (13) of The Income Tax Act, 1961 (The Act) dated 12/4/2021 by The Deputy Commissioner Of Income Tax, International Tax Circle 4 (1) (2), Mumbai (The Learned AO) where the return of income filed by the assessee on 30/11/2017 declaring a total income of ₹ 157,461,370 is assessed at ₹ 19,108,044,470/–. Assessee has offered Interest on Income tax Refund of ₹ 185,593,487 as Income from Other Sources.

Return of Income of Assessee

Assessment Proceedings Page 2 of 121

i. Coordinate bench for assessment year 2011 – 12 held that there is no permanent establishment in respect to distribution revenue and issue of the same with respect to advertisement revenue is kept open.

ii. However, the payment to its associated enterprises is at arm's-length, nothing further should be attributable to the assessee that can be taxed in India.

iii. There is no change in the facts and circumstances of the case compared to assessment year 2011 – 12 that is subsequently followed for assessment year 2006 – 07 to assessment year 2010 – 11 and 2012 – 13.

iv. Even otherwise, it was claimed that assessee does not have a fixed place of business in India not having any branch or office in India. The management and control of assessee is situated outside India and is managed by independent directors.

v. Assessee is also a tax resident of Mauritius. Further, the agent of the assessee Taj India does not have any authority to conclude contracts in the name of the assessee.

vi. It further relied on several judicial precedents to submit that none of the functions and activities is performed in India

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Findings of Assessing Officer

i. Assessee has a fixed place permanent establishment in India as assessee has shifted its Play out and production facilities to India and it does not have Play out of the channels anywhere else in India. The assessee company pays play out fees to its associated enterprise Zee Entertainment Enterprises Ltd [ZEE] for use of its premises for Channel play out. This is further confirmed by the LinkedIn profiles of some senior personnel involved in the process that confirms that assessee indeed had a fixed place of business in India during the year under consideration. Thus, according to the AO, assessee in the present case has a place of business, such place is fixed, activities have been performed by the assessee throughout the said fixed place of business, and the said fixed place of business was at the disposal of the assessee and its employees. It was further held that requirement of the ownership of the space is not required.

ii. Ld. AO further held that assessee also has an establishment in the form of dependent agent permanent establishment [DAPE] with respect to its advertisement and distribution revenue.

iii. For Advertisement income, on reading the advertisement sales agency agreement the learned AO was of the view that

a. Taj India is an associated enterprise of the assessee company. Page 4 of 121

c. Taj India also conducted activity in India and on behalf of the assessee, which only a dependent agent could carry out or it's principal like facilitating arrangement with advertising agencies, sales representatives, conducting market studies, promoting awareness regarding channel and other services incidental to acting as dependent agent for booking of advertisement in India.

d. In return for the above-mentioned services, Taj India only receives a commission of 10% of the advertisements in India.

e. Clause 5 (a) of the agreement clearly mentions that the assessee and Taj India acknowledges that Taj India can enter into contracts with third parties, subject to prior approval by the assessee in its absolute discretion.

f. Clause 10 of the agreement mentions that the assessee may assign or transfer without the prior written permission of Taj India, the whole or any part of its rights to any party in its absolute discretion.

g. It can be seen that a major part of the risk in terms of market risk and technology risk are borne by the Taj India. Further measure of the revenue is from advertisement and subscription of the assessee comes Page 5 of 121

ii. The learned AO also rejected the argument of the assessee that if remuneration is paid to the dependent agent in source country India at arm‟s-length price, no further profits can be attributed to the source country. AO was of the view that it is conceptually wrong.

iii. She referred to the reports on the „Attribution of Profits to Permanent Establishment‟; she held that single taxpayer approach has many conceptual problems. After discussing the above report, she held that a consensus has been arrived at internationally that if remuneration is paid to dependent agent, even in those cases, further profits can be attributed to the source state. Thereafter, she referred to the methodology of computation of the profit attributable. She further rejected the reliance by the assessee on the decision of the Honourable Supreme Court in case of Morgan Stanley [292 ITR 416] holding that reliance shall be applicable only when arm‟s-length price has been determined for all the functions and risks carried out by the dependent agent which is not the case of the assessee. Thus, she rejected claim of the assessee that if the payment to the agent is made at arm‟s-length, then non-resident is not liable to tax. The reasons for the same are

a. Payment to the agent and profit of the assessee from business operation in India is two separate things that cannot be compared.

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c. OECD report also suggest apportionment basis for determination of profits attributable to permanent establishment that is similar to the provision in rule 10 of the IT rules.

d. No such categorical statement/hypothesis has been suggested by the OECD or any other commentary.

e. It would also not be accordance with the statutory provisions like section 44B of the act that is a self- contained code.

f. Circular number 1 of 2004 also provides that when activities of the business of the assessee are outsourced, then there would be substantial profit of the principal would be the income of the non-resident taxable in India.

g. It would make principles of „force of attraction‟ inapplicable in India.

iv. Accordingly, she held that it is amply clear that Taj India is acting wholly and exclusively for the assessee company as a dependent agent and is regularly selling the advertisement spots on behalf of the assessee. It is also clear that the Taj India is functionally and economically dependent on the assessee and takes risk on behalf of the assessee. It is therefore independent

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v. She further referred to the agreement and held that even allowing for the fact that assessee company is responsible for setting down the broad guidelines under which the contracts to be made, served, the importance of Taj India in concluding the contracts cannot be ignored. According to her it is the later [Taj India] that is responsible for all the negotiations in India and its activities in India are devoted exclusively on behalf of the assessee company.

vi. Therefore, Taj India has authority to conclude contracts in the name of the assessee and the authority is exercised in India habitually and repeatedly. Hence the assessee has a Permanent Establishment in India within the meaning of article 5(4) (i) of The Double Taxation Avoidance Agreement.

vii. On distribution income, She further referred to the distribution agreement between the assessee and Taj India and held that it is clear that Taj India has exclusive right to represent the assessee before the distribution systems/cable operators and negotiate and procure cable distribution license agreement for the service, the term of which shall be determined by Taj India as authorized by the assessee. The distribution revenue collected by Taj India shall be shared in the ratio of 86 x 14 by the assessee and Taj India respectively.

viii. Therefore with regard to Taj India acting as a dependent agent for Advertisement Revenue and on account of similar legal position on that issue with respect to the Distribution Income of the assessee, she held that the assessee has a permanent

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ix. On Attribution of profit to PE, she held that 81.84% of the global revenues are received from India and therefore it is reasonable to hold that even 81.84% of the Global profits arising from Indian operations are attributable to the functions performed by fixed place and/or dependent agent permanent establishment in India and the same would be liable to be taxed in India.

x. The learned AO further held that assessee has incurred expenses of programming cost, transponder charges and up linking charges on which tax should have been deducted which assessee has failed to deduct at source. According to the learned AO, programming cost is a payment made for acquisition of right in respect of various content acquired by the assessee including live feeds for the casting India is in the nature of royalty requiring tax deduction at source. With respect to Transponder fees and up linking charges it was held that the process is always included the transmission by satellite and further it would also fall in the definition of equipment in explanation 5 of that section accordingly the payments being made by the assessee are taxable as royalty under section 9 (1) (vi) of the act. Hence tax at source been deducted thereon. According to the AO these payments are also chargeable to tax as royalty as per article 12 of the Indo US DTAA as recipient of income is US Resident. The learned AO further rejected the contention of the assessee that when there is a payment from one non-resident to another non- resident there is no liability for tax deduction at source under section 195 of the act the learned AO was of the view that liability to make tax deduction at source under section 195 is Page 9 of 121

xi. Accordingly, She held that the total profit of the business is US$ 4,839,582 out of which disallowance of expenditure under section 40 (a) (i) of the act is required to be made with respect to the programming cost of US$ 10,814,810, transponder fees of US$ 1,793,183, up linking charges of US$ 1,790,261 totaling to US$ 143,98,254. Therefore, the business income is US$ 19,237,836. Business income attributable to India was assumed at 81.8% at the exchange rate of ₹ 64.8386 per US dollar was determined at Rs. 102,03,35,860/- .

xii. There is also an issue of chargeability of capital gain on sale of Global Sports Business by Assessee to Sony Pictures Network [India] Private Limited [SONY] in this case. During the year under consideration the assessee has sold sports broadcasting business and all assets, right, title and interest of the assessee in the sports broadcasting business to Aqua holding investment private limited, Mauritius ongoing concern basis by way of a slump sale for consideration of US$ 338,400,00. The purchaser is [1] SPE Mauritius Holdings Ltd and [2] SPE Mauritius investment Ltd both the companies incorporated in Mauritius in turn owned Page 10 of 121

a) Assessee does not have any branch or place of business or any business connection in India and any asset or source of income in India any property or capital asset in India hence it does not have any permanent establishment in India. Therefore, the income of the assessee related to disposal of its global sports broadcasting business to another Mauritius company is not taxable in India.

b) Assessee stated that as per article 13 (4) of the Double Taxation Avoidance Agreement between India and Mauritius, any gain on sale of its business is not chargeable to tax in India.

c) Assessee has received Nil deduction certificate under section 197 (1) of the act.

d) Accordingly, according to assessee chargeability of this transaction is not tenable.

xiii. The AO further per letter dated 3/12/2019 asked for the several details that were replied to 16/12/2019 partially. The AO held that assessee did not file a valuation report for sale of Global Sports broadcasting business neither any computation of income arising on the said transfer. Assessee also did not file global financials that can assist the learned AO in computing the income arising on the transfer of broadcasting business. Assessee has also not filed details with respect to approvals taken from any government or statutory or regulatory authorities in India Page 11 of 121

xiv. The learned AO held that it is too simplistic an assertion that the transaction is an overseas transaction between two overseas companies. According to her, it is equally important to view the true nature and character of the transaction from the covenants of the contract in the light of surrounding circumstances. The AO noted that Zee entertainment enterprises Ltd [ ZEE] in its annual report for 2017 has categorically stated that its board has approved sale of sports broadcasting business comprising of assets and rights relating to Ten brand of sports channel held in Taj TV Limited Mauritius, a step down subsidiary of the company and sale of entire equity stake in the Indian subsidiary handling sports business viz. Taj Television (India) Private Limited [ Taj India] to Sony group at an aggregated all-cash consideration of US$ 385 million. ZEE in its annual reports of 2018 further noted that second phase of sale of sports broadcasting business was concluded upon receipt of aggregate consideration of US$ 366.32 million after certain adjustment as per the terms of agreement. On 31 August 2016, Zee made announcement at stock exchange disclosing material events of sale of sports broadcasting business. Further, on 20 February 2017, Zee filed to the Bombay stock exchange and National stock exchange of further update on sale of sports broadcasting business. The AO further referred information available in public domain that showed that purchaser has applied to The Competition Commission of India [CCI] to receive approval for the said transfer/transaction. The Competition Commission Of India as per order dated 13/1/2017 passed under section 31 (1) of The Competition Act 2002 on the basis of notice given by SONY Page 12 of 121

xv. According to her, the transaction has resulted in consequential effective control and management or Indian business of the company and not merely transfer of sports broadcasting business outside India. The entire agreement allowed Sony pictures network India private limited through other entities, which was later merged/amalgamated, with Sony pictures network India to step into the shoes of Taj TV and increase its presence in the sports TV channel viewership in India and other territories.

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xvii. The learned AO further noted that revenue has been consistently holding that assessee has a Dependent Agent Permanent Establishment [DAPE] in the form of Taj TV India and has been holding that the business income attributable to the assessee from its operations in India is chargeable to taxation in India.

xviii. The learned AO further noted that during the year under consideration the assessee has shifted its play out and production facilities to India, which has created a fixed place permanent establishment in India.

xix. The learned AO further noted that global CEO of 10 sports and CEO of assessee's distribution agent are one Shri Rajesh Settee who is based out of Noida. She noted that he also spearheaded the sale of Ten sports broadcasting business and therefore the policy-making head of both the principal and the agent is the same.

xx. She further noted that that both the assessee‟s[i] sports broadcasting business and [ii] shares in its exclusive Indian agent i.e. Taj TV India have been transferred to Sony pictures network India private limited, hence, effectively entire Indian operations have been transferred to that company. Therefore, it establishes the territorial nexus of the said agreement with India.

xxi. Based on this: – Page 15 of 121

b) The provisions of The Income Tax Act under section 50B dealing with income on sale of a business unit/undertaking/division via slump sale is required to be computed.

c) The capital gain is required to be computed by deducting net worth of the undertaking as on the date of transfer.

d) As the assessee has transferred assets, rights, title and interest in and to the sports broadcasting business by means of a Business Purchase Agreement dated 31/8/2016 and it has also been established that the said business has territorial nexus with India and that the said transfer is covered by the provision of The Income Tax Act, she invoking the provisions of section 9 (1) read with section 5, held that that any income accruing or arising in India ,directly or indirectly or from business connection in India shall be taxable in India.

e) With respect to the eligibility of assessee for the benefit of Double Taxation Avoidance Agreement, it was noted that assessee is a company Incorporated under the laws of Mauritius and it runs and operates its business from Mauritius. The assessee has claimed that it is a tax resident in Mauritius and satisfies the condition under section 90 (4) of The Income Tax Act for being eligible to

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f) The AO further noted that parent company Zee Entertainment Enterprises Ltd has given corporate guarantee with respect to various associations/boards to acquire the licensing rights for matches in various territories, therefore, according to AO the subsidiary is not functioning independently as a „separate legal entity‟.

g) Assessee has not established how the funds realized after the sale by it for its business purposes and further it has also not submitted any valuation report.

h) Thereafter, ld. AO looked at statement of segmental assets and liabilities as on 31 August 2016 of the assessee and found that the out of total net worth of global sports broadcasting division, US$ 7,893,917 is required to be deducted as cost of acquisition and improvement being net worth of the business as per accounts of the assessee. Accordingly, from sale consideration of US$ 33,84,00,000, the cost of acquisition of US$ 7,893,917 was deducted and long-term capital gain on sale of sports broadcasting business division of US$ 330,506,083 was worked out. The same was converted at exchange rate of SBI TT Buying rate of US dollar as on 31/8/2016 and capital gain chargeable to tax in India was worked out that ₹ 22,137,594,895/–.

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Sr Particulars INR No

1 Business income from Broadcasting of 102,03,35,860/- channels from India holding that assessee has a DAPE

2 Capital gain on slump sale of Global 2213,75,94,895/- Broadcasting business of Assessee chargeable to tax in India as per the Income tax Act as well as per DTAA and benefit of DTAA is not available to the assessee

3 Income from Other sources being 18,55,93,487/- Interest on Income tax Refund

Total income 2234,35,24,242/-

Proceedings before DRP

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ii. With respect to objection number 1 and 2, the learned dispute resolution panel held that through business purchase agreement assessee has transferred the assets, right, title and interest of its sports broadcasting business in India and other territories. As the assessee has a permanent establishment in India, the revenue derived from advertisement and distribution of any India is attributable to its permanent establishment. Therefore, according to this business purchase agreement assessee has transferred the immovable property including assets, rights, title, and interest on goodwill of its business in India, which forms part of the business property of the permanent establishment. Accordingly,Article13 (2) of The Double Taxation Avoidance Agreement is applicable and the state in which the permanent establishment is situated may tax the same. Accordingly, the gain arising out the above sale is taxable in India under article 13 (2) of the India Page 20 of 121

iii. With respect to objection number 3 and 4 it was held that as the revenue has been consistently holding that assessee has a permanent establishment in India which has also been confirmed by the learned CIT – A in earlier years, there is no change on the facts and circumstances of the case and therefore the action of the learned assessing officer was confirmed holding that Taj TV Ltd has income chargeable to tax in India in respect of advertisement and distribution revenue as it has a business connection and permanent establishment in India.

iv. With respect to objection number 4 being an alternative submission that the permanent establishment has been compensated at arm‟s-length in respect of various services provided in India and therefore no further attribution can be made, the action of the learned assessing officer was upheld holding that without benchmarking of all functions of the permanent establishment for generating advertisement revenue it cannot be presumed that the payment made to the agent was at arm‟s-length. It held that even before the

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v. With respect to the objection number 5 about disallowing the programming cost by holding that the same is royalty chargeable to tax and under section 195 of the act the tax was required to be deducted, which is not been made and therefore is disallowable under section 40 (A) (I) of the act and objection number 6 with respect to disallowance of transponder fees and up linking charges, the learned DRP held that as the decision of the coordinate bench, decided in favour of the assessee, has not been accepted by the revenue, and as appeal has been filed before the Honourable High Court, to keep the issue alive, it did not issue any direction to the AO.

Grounds of Appeals

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a. The Dispute Resolution Panel (hereinafter referred to as "the DRP") erred in upholding and confirming the action of the Deputy Commissioner of Income- tax (International Taxation) Circle 4(1)(2), Mumbai (hereinafter referred to as "the AO") holding that the gain of Rs. 1790,21,15,124/- on sale of sports broadcasting undertaking by the Appellant outside India, is chargeable to tax in India under section 5 read with section 9(1)() of the Income- tax Act, 1961 (the Act") as a slump sale.

b. The DRP erred in holding that the gain of Rs. 1790,21,15,124/- on sale of sports broadcasting is chargeable to tax under the India-Mauritius Double Taxation Avoidance Agreement (hereinafter referred to as "the Treaty"). The DRP erred in relying on the provisions of Article 13(2) of the Treaty to justify taxability under the Treaty without appreciating that the provision of Article 13(2) is not applicable in the facts and circumstances of the present case as the Appellant neither has a Permanent Establishment in India nor can the instant transfer of sports broadcasting undertaking be equated as an alienation of movable property

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c. The DRP / AO failed to appreciate that the gain on transfer of sports broadcasting business is not chargeable to tax in India in view of Article 13(4) of the Treaty.

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Submissions of Assessee

i. Gain on transfer of the global sports broadcasting business is not taxable Under the Income Tax Act. His argument was the assessee has transferred the global sports broadcasting business of the assessee to another non- resident and as per section 9 of the act the said transfer can be charged to tax in India only if the „income arises through‟ the transfer of any „capital asset‟ „situated in India‟. It was submitted that in case of a transfer of capital asset in any of the limbs of section 9 of the act such as business connection is not at all attracted. According to the assessee, assessee has sold an Page 25 of 121

ii. It was further submitted that the situs of the undertaking would be the situs of the owner where the company is Incorporated. Assessee company is resident of Mauritius and therefore the undertaking has corresponding situs in Mauritius and hence undertaking is situated in Mauritius and not India. Assessee strongly relied on the decision of the Honourable Delhi High Court in case of CUB Pty Ltd versus Union of India 71 taxmann.com 315.

iii. Further submitted that even otherwise where the situs of the undertaking is located ought to be based upon where the „operations and activities‟ are carried on. Merely because the channels are viewable in India amongst other countries, it cannot be said that the undertaking is situated in India. Further it was also claimed if the channels are viewed in more than one country, it cannot be said that situs of the business is in multiple countries.

iv. The assessee further claimed that assessee is a company Incorporated in Mauritius and is engaged in satellite television broadcasting business. The business process of Page 26 of 121

v. Assessee submitted that it only received certain services from Taj India in respect of advertisement and distribution and from ZEE entertainment Enterprises Ltd for play out services. All these entities are mere service providers and paid according to the contracts . However, the assessee has not conducted any activity in India and all its operations are carried outside India.

vi. Both these entity i.e.Taj India and ZEE Enterprises Ltd have been paid at arm‟s-length and therefore any further attribution in India extinguishes.

vii. Merely because some services are secured from person resident in India, it cannot be said that the undertaking of the assessee is in India. The service provider may have a business in India but the same is not the business or undertaking of the assessee and there is no question of any gain arising from sale of the business or undertaking of the assessee.

viii. It was also the claim of the assessee is that cost of play out is merely US$ 1,048,289 which is merely 1.23% of the

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ix. It was also claim of the assessee that all the assets and liabilities, intellectual property rights, goodwill, rights and claims that form part of the global sports broadcasting undertaking are located outside India. The learned authorized representative referred to the letter dated 19/12/2019 and submitted that same has not been disputed by the learned assessing officer or the learned dispute resolution panel. Therefore, entire undertaking is situated outside India.

x. Assessee also claims that no fixed assets are located in India. Assessee referred to the India operations financials placed at page number 6 of the paper book. It was submitted that depreciation claimed in the profit and loss account is an apportionment of the expenses of assets used globally to earn revenue from India.

xi. It also claims that the control and management of the assessee is situated in Mauritius and not in India. It was claimed that none of the directors of the assessee were resident of India during the year under consideration, all the board meetings of the Board of Directors were held outside India, the directors at those board meetings took

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xii. It was also the claim of the assessee that all significant contracts were negotiated, finalized, and executed outside India. These facts were brought to the notice of the learned assessing officer as per letter dated 23/10/2019 and same are not disputed.

xiii. With respect to the observation of the AO that most of the registered trademarks are registered in India, assessee submitted that because some of the trademarks registered in India, it would not mean that undertaking is situated in India. Specific reference was made to the decision of the Honourable Delhi High Court in case of CUB Pty Ltd ( Supra).

xiv. Therefore, since the operation of the undertaking are carried out outside India, gain on global sports broadcasting business is a transfer of capital asset situated outside India and hence, there cannot be said to be any income accrued or arising in India and accordingly cannot be taxed in India.

xv. Assessee, assuming while denying, submitted that the other limbs of section 9 are not applicable as even otherwise there is no business connection in India. It was the claim that once it is held that the capital asset cannot be taxed under the said limb , since it is not situated in India, it is not permissible to consider Other limbs of section 9 (1) (i) seeking to tax income from transfer of Page 29 of 121

xvi. Therefore, assessee contended that since there is neither any „business connection‟ nor capital asset situated in India, the gain from sale of global sports broadcasting division is not taxable in India under the provisions of The Income Tax Act.

xvii. Assessee further contended that even otherwise gain on transfer of global sports broadcasting business is taxable only in Mauritius. It was the claim of the assessee that assessee holds a valid tax residency certificate granted by the Mauritius tax authorities from financial year 2002 – 03 until date. Therefore, assessee is eligible to avail benefit of the provisions of Double Taxation Avoidance Agreement. In assessee‟s own case , revenue has always accepted the applicability of the tax treaty from assessment year 2003 – 2004 to assessment year 16-17 while assessing the income of the assessee for the relevant assessment years. It was the claim of the assessee that assessee has sold its global sports broadcasting business, being a capital asset, to another non-resident entity and accordingly the provisions of Article 13 of the Double Taxation Avoidance Agreement dealing with the capital gain shall apply. According to Article 13 (5) of the Treaty the gains derived by resident of the contracting state from the alienation of any property other than those mentioned in paragraph (1), (2) and (3) of this article shall be taxable only in that state. Accordingly when an undertaking is sold, as a whole, there is no separate sale of land or plant and machinery Page 30 of 121

xviii. With respect to the denial of treaty benefit in the present assessment year, alleging that assessee is a puppet, and run by its Parent ZEE, as assessee has not taken its decisions independently, it was submitted that all the decisions of the assessee have been taken independently in meeting. Mr. Anil is a non-resident and a director of ATL media Ltd, was authorized to enter into the necessary agreements for executing the sale of the global sports broadcasting undertaking. The involvement of ATL Ltd and ZEE is merely in terms of being a shareholder. The disclosure to the various stock exchanges is mandated because the holding company is a listed entity and any material transaction of its subsidiaries required to be disclosed to the stock exchange as per Stock Exchange Listing Agreements, which are mandatory compliances as per SEBI Act. It was the claim of the assessee that business of this assessee has been run for more than 15 Page 31 of 121

xix. It was the claim of the assessee that the assessing officer is applying treaty benefit in piecemeal. The AO denied treaty benefit for the transaction of sale of undertaking, however on the other hand applied treaty provisions to hold that the advertisement and subscription revenue from same business is taxable in India as assessee has a permanent establishment in India. The applicability of the treaty benefit per se has not been denied. It was claimed that the undertaking has been running since last several years and in none of the years, the assessing officer has questioned the applicability of or eligibility of treaty. Therefore, the denial of the treaty benefit is not in accordance with the law.

xx. The AR further stated that the learned dispute resolution panel has accepted the applicability of treaty provisions to the transaction of the sale of business undertaking , however it held that the transaction to be taxable incomes of Article 13 (2) of DTAA. Therefore, the applicability of treaty to the transaction of sale of global sports broadcasting undertaking is an accepted position and cannot be contested by the learned assessing officer. Page 32 of 121

xxi. With respect to the applicability of article 13 (2) of the treaty to the transaction of the sale of undertaking, it was claimed that that article deals with the „movable property‟ forming part of the business property of the permanent establishment of an enterprises. The provision applies either to (i) alienation of such property that was owned by the alienator or (ii) the alienation of permanent establishment itself. It was submitted that as assessee does not have any permanent establishment in India, there is no question of alienation of permanent establishment or any alienation of movable property of the alleged permanent establishment forming part of the business property.

xxii. With Respect to PE , assessee submitted that that there is a „subscription agreement‟ and „advertisement agreement‟ with Taj India. The Honourable Bombay High Court in assessee‟s own case for assessment year 2004 – 05 and 2005 – 06 has held that Taj India was acting independently, its distribution rights and the entire agreement was on „principal to principal‟ basis and therefore it does not constitute a permanent establishment of the assessee with respect to subscription agreement/ revenue.

xxiii. With respect to the advertisement agreement, it was submitted that Taj India would constitute a permanent establishment only if (1) it has the authority to conclude Page 33 of 121

xxiv. Assessee submitted that as per letter dated 23/10/2009 it submitted copies of various advertisement invoices, which clearly demonstrates that the same have been concluded by the assessee itself and not by anybody else including not by Taj India.

xxv. With respect to the ZEE Ltd, it was submitted that assessee has entered into an agreement with that company for provision of services for maintaining agreed technical specification in providing the broadcasting operation and engineering facility to each of the channel of the assessee and to provide quality support relating to latest broadcast features. This agreement does not contemplate that assessee has any establishment or place of any permanence or enduring nature in India at the disposal of assessee. That company is merely a service provider to the assessee from its own devices using its own assets. Such premises are not at the disposal of the assessee. It was further claimed that none of the assessee‟s employees have ever travelled to India during Page 34 of 121

xxvi. With respect to the allegation of the learned AO that Mr. Rajesh Shetty and Mr. Vijay parab constituting a permanent establishment of the assessee in India, assessee submitted that they are not employees of the assessee. Therefore, the allegation of the learned assessing officer that they were the employees of the assessee and are utilizing the premises of ZEE, which is at their disposal, is incorrect and without any evidence.

xxvii. It was the claim of the assessee that a service permanent establishment is established in the India only if assessee renders services in India through its employees. It was the claim of the assessee that it does not have any employee in India and none of the employees of the assessee travelled to India during the year. Hence, the allegation of service permanent establishment also does not arise.

xxviii. With respect to the LinkedIn profile of Mr. Rajesh Shetty and Mr. Vijay Parab , assessee submitted that Mr. Rajesh is CEO of Taj India, which was engaged as a distributor and Mr. Vijay was an employee of ZEE engaged as a production executive. The services provided by these individuals were in connection to the services provided by their employer entities to the assessee and they were under the control and management of their respective employers. Therefore, the reliance on the LinkedIn profile is misplaced.

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xxx. The assessee submitted that even if the allegation of the revenue of Taj India constituting a dependent agent permanent establishment is presumed to be correct, still the provisions of article 13 (2) cannot be invoked as that article is applicable only in case of fixed place of permanent establishment and does not apply to dependent agent permanent establishment. The assessee led an example that if a foreign bank having various branches in India, the provisions of article 13 (2) of the treaty are attracted either on sale of branch in India or transfer of assets of the branch in India which are economically owned by the foreign bank. Therefore the provisions of article 13 (2) apply on transfer of fixed permanent establishment or assets forming part of fixed permanent establishment and cannot be workable in case of agency permanent establishment.

xxxi. The assessee submitted that assuming while denying that assessee has a permanent establishment in India, the property transferred in the instant case is a global sports broadcasting undertaking which is owned and controlled by the assessee and the same is not the alleged permanent establishment in India. The whole premises of the argument of the learned AO is that the fixed place permanent establishment i.e., Noida play out center of the ZEE Ltd. However, the Noida play out center belongs Page 36 of 121

xxxii. The present case is not the sale of the permanent establishment as it is not even the case of the revenue that the global sports broadcasting undertaking is a permanent establishment of the assessee in India and hence not covered under parameter of article 13 (2) of DTAA.

xxxiii. It was the claim of the assessee that no relation of movable property of the alleged permanent establishment forming part of business property. Assessee submitted that, assuming while denying, that assessee has a permanent establishment in India, the property transferred by the assessee does not form part of the business property of the alleged permanent establishment. All the assets and liabilities of the undertaking transferred are located outside India. None of the movable properties forming part of the business property of alleged permanent establishment is transferred as a part of the transfer of global sports broadcasting undertaking.

xxxiv. In the present case, the alleged fixed permanent establishment Zee Ltd has not alienated any assets. Even the play out facilities continues to be owned by that company and has not been alienated. Therefore, the article 13 (2) does not apply. Page 37 of 121

xxxvi. The revenue other than by making a bald assertion on surmises and conjunctures has not established the same.

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Submission of revenue

i. The assessee was Incorporated in the British Virgin Islands on 21/6/2000 and thereafter assessee got itself registered by continuation in Mauritius and obtained a Global Business License – 1 in terms of The Financial Services Commission Act 2007. The learned counsel further submitted that as assessee is a registered Mauritian company and at the time of its registration in Mauritius, it was governed by The Financial Services Development Act 2001, which was later changed to Financial Services Commission Act 2007. However prior to financial services development act which came into being in 2001, companies such as the assessee were governed by Mauritius Offshore Business Activities Act 1992. It was submitted That Global Business License – 1 company shall enjoy the benefit of non-taxation in Mauritius only if they are registered in Mauritius but carry out business with a person/entity outside Mauritius. He Page 40 of 121

ii. As the assessee is carrying on sports broadcasting business in India, the assessee is also governed by various guidelines of the Telecom Regulatory Authority of India [TRAI] . He referred to the policy guidelines of Down linking of television channels dated 5/12/2011 according to which the eligibility criteria states that the [1] company must be registered in India under The Companies Act 1956 and [2] the applicant company must have a commercial presence in India with its principal place of business in India. [3] It was also the condition that the applicant company must enjoy territory of India exclusive marketing/distribution rights for the same channels inclusive of the right to the advertisement and subscription revenues for the channel. Accordingly, it was the claim of the learned departmental representative that when it comes to Indian Territory where the channels are being down linked and watched, the company must mandatorily be registered in India and must have a commercial presence in India with its principal place of business in India. According to the guidelines of Telecom Regulatory Authority Of India, company either must own the channel or must enjoy further territory of India exclusive marketing or distribution rights together with the rights to advertisement and subscription revenues for the channel. Therefore, the appellant assessee could not have operated its channels in India without having a distinct physical and commercial presence either on its own or through its agent. Therefore, Taj TV India Ltd, which is a step down wholly owned subsidiary of Zee entertainment Enterprises Ltd, has the Page 41 of 121

iii. Assessee has entered into an advertisement sales agency agreement dated 4/5/2002 with its non-exclusive agent i.e. Taj India for soliciting orders for placement of advertisements on the channel and forwarding them, collecting advertisement revenue and behalf of Taj among other things. According to clause 5 (a) of the advertisement agreement, Taj India has denied any right authority to assume or create in writing or otherwise any obligation of any kind, express or implied in the name of on behalf of the assessee unless expressly authorized by Taj. However in addendum dated 27/4/2006 the above 5 (a) is turned on its head entirely and the Taj India is provided with the right and authority to creating writing or otherwise an obligation of any kind, express or implied in the name of an on behalf of the assessee relating to activities undertaken in India. It was further stated that clause 5 (b) of the advertisement agency agreement provided that Taj India agrees to submit all proposed agreements and contracts in respect of services and periodic budget of all costs and expenses to be incurred in connection with the services to the assessee for the assessee's approval which shall be granted or rejected by the assessee. This clause was also deleted by the addendum dated 23/1/2008. Accordingly, the effect of this is Taj India now has all the authority to conclude contracts as mandatorily required under the policy guidelines of the Telecom regulatory authority of India. Now it does not have to submit the agreements for the approval of the assessee. Thus the advertisement agreement as Page 42 of 121

iv. Thus, combined effect of Global Business License – 1 and TRAI policy guidelines, assessee is not doing any business in Mauritius and had a physical/commercial presence in India either on its own or through its agent, which had exclusively authority to conclude contracts on its behalf as per the terms of the addendum to the advertisement agreement. Therefore, now it is not open for the assessee to argue that it had no presence of business operation in India or that it had no permanent establishment in India.

v. It was further argued that before ld. AO assessee has taken a plea that though the terms of advertisement agreements were amended, they were not really acted upon which is a fallacious for the reason that it is not open for the assessee to say in the Page 43 of 121

vi. With respect to the applicability of article 13 (2) or article 13 (4) of The Double Taxation Avoidance Agreement, the learned departmental representative submitted that the case of the learned AO is that gain derived by the assessee are covered under article 13 (2) of the Double Taxation Avoidance Agreement In which case the applicability of article 13 (4) becomes fully irrelevant.

vii. He submitted that according to article 13 (2) of the Double Taxation Avoidance Agreement provides that if there is a permanent establishment in India and there is an alienation of permanent establishment itself, then in such case the gain arising therefrom are liable to be taxed in India. It was submitted that assessee during the course of hearing submitted that the permanent establishment in the context of article 13 (2) means only fixed place permanent establishment. This argument may be true to a certain extent, but it cannot be suggested that if an entity is operating through an agency permanent establishment and that business is validated on "as is where is basis” as a slump sale together with the transfer of agent itself with all his belongings, rights, titles, and interest, yet article 13 (2) would not apply. It is the case of the assessing officer that there is a fixed place permanent establishment as well as Dependent Agent permanent establishment.

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ix. He thereafter explained that what is the meaning of the sports broadcasting business as per clause 1 – 1. Based on this he submitted that the transfer of the sports broadcasting business has territorial nexus with India. His main argument is that clause 1.1 envisages material event impacting the sports broadcasting business and then make special exception for a change brought out by the implementation of the recommendation of the Lodha committee or regulation, tariff order and direction of the Telecom regulatory authority and Ministry of information and broadcasting affecting the broadcasting sector as a whole. Therefore, this proves that the transaction has sufficient territorial nexus to India.

x. He further submitted that the business purchase agreement specifically refers to approval from the competent authorities in India such as competition commission and Ministry of Page 45 of 121

xi. Further, the agreement itself is subject to the governing laws of India.

xii. Therefore, according to the learned special counsel, the transfer of the sports broadcasting business has territorial nexus with India.

xiii. It was also the claim of the learned departmental representative that clause 9 of schedule 6 extracted that the assessee has obtained permission from its affiliates to use its premises from where it is operating. Further, no written agreement has been entered into in this regard. He further submits that according to clause 19 of schedule 6 of the agreement clearly states that the play out is done from Noida only and from no other place in the world. He further referred to clause 12.1 of schedule 6 read with schedule 9 saying that it implies that the robust IT system is in place in Noida, which is being transferred under the business purchase agreement. Therefore, according to him the assessee operates from India.

xiv. He submitted that the overall implication of the sale of broadcasting business in India has to be seen in light of what is stated in the clause 2, schedule 2 of the business purchase agreement where the transfer of equity shares of Taj India to Sony is contemporaneous and meant to happen concurrently with the transfer of sports business of the assessee. Further as

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xv. He further submitted that Taj India functions as a distribution and advertisement-selling agent in India for television channels broadcasted by the assessee. Therefore, it is clear that what is being bought is the sports business with respect to its broadcasting, distribution and syndication of television channels in India. He further submitted that a close reading of the various clauses of business purchase agreement clearly shows that Sony is not paying for acquiring global sports business of the assessee but is in fact paying for acquiring rights for broadcast, distribution and syndication of television channels in India.

xvi. He further referred to the annual report of Zee entertainment Ltd and its announcements to the shareholders through stock exchange and submitted that even this declaration by the parent should also be viewed in its totality.

xvii. Thus, according to him as part of the whole arrangement both the assessee‟s sports broadcasting business and shares in its exclusive India agent Taj India have been transferred to Sony, therefore effectively the entire Indian operations have been transferred to Sony.

xviii. It was therefore submitted that the suggestions of the assessee that agency permanent establishment cannot be roped in article 13 (2) for the reason that agents assets do not get transferred to

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xix. The learned departmental representative further referred to the transfer pricing study report of the assessee. He referred to the background of the entity and assets employed, he submitted that the assessee is having a very advanced broadcast and production facility, it employs fixed assets, tangible and intangible assets, and however there is no indication that these assets are located out of India. He submitted that on the other hand, the title of the transfer pricing study report refers to India operation and therefore transfer pricing study report is dealing with only those assets, which are employed in India. Thus, Assessee has assets in India is clearly inferred.

xx. The learned special counsel further referred to the audited financial statements and submitted that the depreciation and employees‟ cost has been charged to the India operation and therefore it cannot be believed that the assessee does not have any asset in India , now it cannot be said that those assets have not been used for operation in India. If that is so than how assessee claimed depreciation on account of the India operation and further it is nowhere stated as to where the employees are located, if not in India.

xxi. He further referred to the claim of the assessee that the play out facility belong to ZEE entertainment Ltd and it was outsourced to that company for a consideration and therefore ZEE entertainment Ltd could not be regarded as a permanent establishment of the assessee. He further referred to the Page 48 of 121

xxii. He therefore explained that Fixed permanent establishment is triggered. It was referred that in the assessment order at paragraph number 5.3 of the assessment order, Ld. AO alleges that assessee has a fixed place of permanent establishment in India.

xxiii. He further submitted that article 13 (2) does not provide any exception when it comes to alienation of movable assets of the permanent establishment or of the permanent establishment itself. If the intent was to restrict its application to only fixed place permanent establishment, the Double Taxation Avoidance Agreement would certainly say so, more so because the Double Taxation Avoidance Agreement itself contains a wider definition of permanent establishment.

xxiv. He further referred to the clause 9 and 19 of schedule 6 of the business purchase agreement with respect to properties and technical arrangements and submitted that the appellant does not have any immovable property of its own in Noida, but it has got permission from its affiliates to use the premises and this clearly shows that there is a fixed place which is being used by the assessee. It clearly shows that wherefrom the assessee is operating. Accordingly, he submitted that the business operations are being carried on from this premises, which belongs to the affiliates but is made available to the appellant for its business operation. No payments are made for the use of this premise. He further submitted that there is a stipulation in Page 50 of 121

xxv. He further submitted that it is a settled principle that the premises may not belong to the enterprises, it may not be taken on rent by the enterprises, or may not be otherwise in its possession, but the only requirement is that the premise is at the disposal of the enterprise for its use in the business operations with or without ownership/lease/payment. Therefore, according to him it is not open for the assessee to suggest that they do not have fixed place permanent establishment in India.

xxvi. It was further vehemently stated that revenue has not to demonstrate any further. He once again referred to the transfer pricing study report and referred to paragraph number 41 and 42 of his return submission to show that assessee has already accepted the existence of a world-class facility, equipment and systems in place. He submitted that nowhere is it is stated in the transfer pricing study report that such facilities or equipment do not belong to the assessee or that it is not being used for and on its own behalf.

xxvii. Coming to the next aspect of the agency permanent establishment of the assessee, he submitted that there are four amendments to the advertisement and distribution agreement on 27/4/2006, 28/12/2007, 23/1/2008 and 5/11/2010. Page 51 of 121

xxviii. He further referred to the argument of the assessee that since the agent was paid on an arm's-length basis and therefore no revenue could be attributed to the assessee nor could such a permanent establishment be considered as a permanent establishment for the purposes of article 13 (2) of the Double Taxation Avoidance Agreement is untenable. He further submitted that the reliance by the assessee on the decision of Honourable Supreme Court in case of Director Of Income Tax (International Taxation) Mumbai Versus Morgan Stanley And Company Incorporation (2007) 7SCC 1 is inappropriate for the reason that there is a fundamental difference between the Double Taxation Avoidance Agreement Between India and the United States and the DTAA between India and Mauritius. According to him, the paragraph number 5 of article 5 of the Indo US DTAA contemplates that the agency would not emerge if the agent is paid at arm's-length basis. Thus if the enterprises is not paid at arm's-length, he shall not be considered as an agent of independent status. Then he referred to the paragraph number 5 of article 5 of the India Mauritius Double Taxation Avoidance Agreement stating that it is differently worded and whether or not the payment is made on arm's-length basis, if the activities of the agents are devoted exclusively or almost exclusively on behalf of that enterprises, sale agent would not be considered as an agent of the independent status and would Page 52 of 121

xxix. Agency permanent establishment cannot be roped in under article 13 (2) because the assets of the agent cannot be transferred as argued by the learned authorized representative, he submitted that in this case the agent Taj India is also being transferred as an integral part of the sports broadcasting business. He referred to the clause 2 read with clause 5 of schedule 2 of the business purchase agreement which suggest that the transfer of 100 % shares of Taj India and slump sale of the sports broadcasting business of the assessee would happen simultaneously and contemporaneously and if fails, entire arrangement fails and entire transaction would get nullified. Therefore according to him, where the agent is getting transferred all together with the sports broadcasting business of the assessee, it is not open for the assessee to argue that agency permanent establishment is outside the ambit of article 13 (2) of the Double Taxation Avoidance Agreement. He further submitted that it is not the case of the assessee that the assets of the agents are not getting transferred. He further submitted that there is nothing in the provisions of the Double Taxation Avoidance Agreement that only permanent establishment other than agency permanent establishment are subject matter of transfer under article 13 (2) of the DTAA. Page 53 of 121

xxxi. He further submitted that the assessee has fairly conceded during the hearing that in the event of transfer of permanent establishment itself, article 13 (2) of the Double Taxation Avoidance Agreement gets attracted. Therefore according to him the appellant's permanent establishment exists in India in no uncertain terms and thus article 13 (2) gets attracted on account of transfer of permanent establishment of the assessee to Sony. He submitted that it is so because the transfer of Taj India by the parent company as an integral part of the main transaction supports the proposition of the revenue.

xxxii. He further referred to the several decisions of the coordinate bench which is rendered in case of the assessee holding that assessee does not have a permanent establishment in India, he submitted that the facts as brought out on record for this assessment year are totally different from those in earlier years and therefore the decisions rendered by the coordinate bench would not be applicable for the year under consideration. Page 54 of 121

xxxiv. Even otherwise, he submitted that the appellant has misrepresented the facts in earlier years and therefore those decisions having been obtained on account of misrepresentation and concealment of vital facts do not have any binding character. He submitted that the following facts were neither disclosed to the assessing officer nor to the coordinate bench in earlier years: –

a) There was a fixed place of business of the assessee in India, at its disposal, as referred to in clause number 9 of schedule 6 of the business purchase agreement dated 31/8/2016 was never disclosed to the assessing officer or to the coordinate bench during the course of hearing for the earlier years.

b) It was also not disclosed to the coordinate bench that the Taj India was soliciting orders on behalf of the assessee as is evident from the addendum to the advertisement agreement entered into by the appellant with Taj India .

c) The transfer pricing study report of the assessee as well as ZEE Ltd shows several functions which could not be performed without the presence of the assessee in India. The findings of the coordinate bench in earlier years are bereft of such important information, as it was never disclosed by the assessee.

d) The transfer pricing study report shows the details of Indian operation stating the equipments, which are Page 55 of 121

e) The play out agreement entered into between the assessee and ZEE entertainment Ltd relevant to assessment year 2018 – 19 brought into effect retrospectively. He submitted that how a service agreement can be given a retrospective operation and that too for a short period of 10 months. He specifically challenged that how can such an arrangement suggest that the transmission done from the Noida was not a business operation of the assessee even in earlier years.

f) He submitted that the policy guidelines of Telecom regulatory authority for up linking and down linking of channels was never placed before the bench.

g) The earlier year orders of the coordinate bench have gone by the streams of revenue for determining the status of the permanent establishment. He submitted that permanent establishment and its determination is dependent on functions and mainly the business operations that are done from a place either through the enterprises owned employees all through other persons or through the agent etc. The determining factor for Page 56 of 121

h) The issue of the capital gain is arising for the first time in this year and therefore the fresh examination of the facts needs to be done for this year. For the earlier years, facts are only related to the income streams. Here the assets need to be examined and that too capital asset.

i) The difference between the DTAA of India and USA and India with Mauritius was never pointed out to the bench by either side.

xxxv. Coming to the provisions of the Income Tax Act, he submitted that the gains derived by the appellant are chargeable under the domestic tax laws. He submitted that according to section 9 (1) (i) of the act, income-accruing arising through the transfer of a capital asset situated in India shall be deemed to or accrue or arise in India. He further referred to the provisions of section 5 (2) of the act which makes it clear that the subject to other provisions of the act, the non-resident is liable to be taxed on his India source income. In the present case section 5 (2) is subject to the provisions of section 50 B of the act which talks about slump sale. Therefore, he submitted that the operations of the assessee i.e. business of sports broadcasting and telecasting of the same on TV channels are India centric and

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xxxvi. It was further the claim of the learned DR that though assessee submits that it carries out its business from outside India i.e., from Dubai, however it does not have any clarity or evidence to such effect and therefore it cannot be accepted.

xxxvii. He further submitted that the assessee shifted its play out facilities from Dubai to Noida in the year 2012 – 13 and therefore during the year under consideration the assessee carried out is play out facility from Noida.

xxxviii. He further submitted the LinkedIn profile of 2 persons Mr. Vijay Parab and Mr. Rajesh Shetty. He submitted that Mr. Vijay Parab is head of migration of play out in production of 10 sports operations from Dubai to Noida. With respect to Mr. Rajesh who was also the chief executive officer of the assessee's distribution agent Taj India at the same time.

xxxix. He further referred to the digital studio Magazine (volume 6, issue 7) which is placed at paper book volume 2 of the AO to show that the sifting of Ten sports was widely reported in international news, which shows that operations of Ten sports from Dubai to Noida happened in the year 2013 – 14.

xl. He further referred to the news article titled dilemma for staff as ten sports relocates to show that assessee closed it Dubai office and relocated to India by mid-September. Mr. Rajesh further stated that it is consolidating its operation into its facility in Noida. Therefore, it is clear that the assessee shifted its operations from Dubai long back and now it operates from Noida for carrying out its functions. He submitted that it is also Page 58 of 121

xli. He categorically submitted that that the operation of the assessee is not situated in any other place outside India. For this proposition he submitted that the assessee even after repeated queries has not been able to indicate from where, if not in India, the operations of the assessee is being carried out. Mere stating that assessee is still maintaining some properties in Dubai and rent agreement was filed in support of this contention cannot help the case of the assessee. Assessee need to show that wherefrom the business operations are being carried on. Therefore, in absence of any material to even remotely suggest that broadcasting of the channel is being done from Dubai or any other place except Noida is established. He therefore submitted that as the business is certainly a capital asset within the meaning of section 2 (14) of the act which is located in India and therefore the provisions of section 9 (1) (i) get attracted and thus gains arising from the transfer of a capital asset situated in India constitutes income which is deemed to accrue or arise in India and is chargeable to tax.

xlii. He even otherwise submitted that the underlying concept in International tax is the notion of separate entity approach, which forms the foundation of taxation of cross-border transaction. The fact that an entity works independent of aspirants and takes its own decisions form the basis on which subsidiaries are recognized in other tax jurisdiction. He submitted that the corporate veil is the very basis of its independent existence in other jurisdiction or else all its functions may get attributed to the parent company. He submits that it is not open to the parent to pierce corporate veil and Page 59 of 121

xliii. Therefore, the learned departmental representative special counsel made a serious allegation that the transaction involving Zee Entertainment Ltd selling its Sports broadcasting business for India and some other territories to Sony is a colourable device, which has been frowned upon by the Honourable Supreme Court even in the case of Azadi Bachao Andolan. Therefore, according to him, the learned assessing officer is justified in taking note of the non-existence of the corporate veil, which has not been torn out by the revenue, but the assessee itself, its ultimate parent and making the assessee company disentitled for any treaty benefits. He submits that once the corporate structure is derecognized, the income Page 62 of 121

xliv. Accordingly he concluded his submission on ground number 1 stating that that capital gain arising on the slump sale of global business sports of the assessee is chargeable to tax in India as per the Income Tax Act as well as per DTAA despite the fact that agent of the assessee is paid remuneration at arm's-length.

xlv. With respect to ground number 2 and 3, the learned special counsel submitted that the issue relates to the chargeability of the income of the year from business operation in India. He submitted that as submitted earlier the assessee has a permanent establishment in India and therefore its income from such permanent establishment is chargeable to tax in India. The reliance by the learned authorized representative on the decision of the coordinate bench in earlier years would not be applicable, as those decisions have been obtained by misrepresentation of facts. Accordingly, he urged that the addition made by the learned assessing officer deserves to be upheld.

xlvi. With respect to ground number 4 and 5 he relied on the findings of the learned assessing officer he submitted that the learned assessing officer has correctly held that tax is required to be deducted at source on programming cost, transponder fees and up linking charges as same are royalty on which tax should have been deducted accordingly these payments are taxable in India

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Rejoinder of Assessee

i. assessee is engaged in the business of satellite television broadcasting of sports events taking place outside India. The production facility lies at the place of the event i.e., outside India. The assets related to the same are also located outside India.

ii. He referred to the submissions before the learned assessing officer stating that it was repeatedly submitted before the learned assessing officer that the production takes place outside India and therefore the assets are located outside India.

iii. The learned authorized representative referred to the letter dated 14/3/2019, 23/10/2019, 23/10/2019 and 18/11/2019 to say that production facilities are at the place of the event, which is outside India, and therefore assets related to the same are not located in India. It was submitted that these letters have not been disputed by the AO, learned dispute resolution panel, and learned departmental representative.

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v. It was further submitted that the assessee has leased premises in Dubai from Real media FZ LLC for its operation as is evident from the annexure to schedule 6 at point number C of slump sale agreement. Therefore, the allegation of the revenue that if the assets of the assessee are not in Mauritius, then they must be in India is factually wrong and contrary to the facts on record.

vi. Further it was submitted that the revenue cannot now argue that the assets must be in India without actually pointing out as to which assets of the assessee are in India. He vehemently submitted that the allegation of the revenue that if property is not situated in Mauritius and therefore it is situated in India is fallacious.

vii. It was submitted that as the critical operation of the undertaking are functioning outside India, the undertaking is situated outside India.

viii. It was further submitted that the reliance placed by the learned departmental representative on the transfer pricing study report that the studio must be in India is contrary to record and based on presumption. It was

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ix. Transmission services have been availed from third party service providers like Intelsat Corporation and that the transmission happens outside India and not at the facility of the Zee enterprises entertainment Ltd.

x. With respect to the applicability of MAURITIUS OFFSHORE BUSINESS ACT (MOBA), learned authorized representative submitted that the appellant is registered under The Financial Services Development Act, 2001 and the provisions of Mauritius Offshore Business Act do not apply to it. It was further stated that MOBA applies to activities approved in section 34 of the act and not the activities of the assessee. It was even otherwise submitted that that act was repealed by the Financial Services Development Act, 2001 as per the provisions of section 48 of that act. The learned authorized representative referred to page number 30 of the paper book filed by the revenue. Then it was submitted that assessee is now governed by the Financial Services Act, 2007 that does not have any restriction of holding any Page 67 of 121

xi. In the end, it was submitted that the learned departmental representative by casting suspicion and merely on surmises and conjunctures has alleged that the production facility and assets are situated in India. The statement of the learned departmental representative travels beyond the case of the learned assessing officer and the same must be rejected on this count alone. It was submitted that the learned departmental representative cannot improve upon the assessment order itself. He placed reliance on the decision of Bangalore tribunal in case of Joint Commissioner Of Income Tax Versus Flipkart India Private Limited, Assistant Commissioner Of Income Tax Versus Balaji Trust, Mahindra And Mahindra Ltd Versus Deputy Commissioner Of Income Tax 30 SOT 374 (Special Bench) and Assistant Commissioner Of Income Tax Versus Parkash L shah 115 ITD 167.

xii. The learned authorized representative further submitted that the revenue submitted that Taj India constitutes a permanent establishment of the assessee in India and that it had entered into contract on behalf of the appellant as is evident from schedule 7 of the share purchase agreement placed at page number 50 of the department‟s paper book volume 3. It was further stated that even the down linking guidelines provide for a foreign telecasting company to have a company, which has authority to Page 68 of 121

xiii. It was submitted that the Honourable Bombay High Court in assessee's own case for the assessment year 2004 – 05 and 2005 – 06 has categorically held that Taj India was acting independently for its distribution rights and entire agreement was on principal-to-principal basis and therefore there was not a permanent establishment of the assessee. Therefore, reference to schedule 7 of the share purchase agreement is irrelevant.

xiv. It was further stated that Taj India has entered into contract for distribution of channels in India but the same was on principal-to-principal basis.

xv. It was further stated that the revenue failed to appreciate that the argument of the assessee that Taj India has not concluded contracts was with respect to the advertisement revenue and hence Taj India does not constitute a permanent establishment for advertisement revenue segment as well.

xvi. It was further submitted that whether the Taj India constitutes a permanent establishment of the assessee for

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xvii. With respect to the advertisement income assessee submitted that Taj India had been appointed by the assessee as its advertising sales agent to Solicit orders for sale of commercial advertising from clients in India as per agreement dated 4/05/2002 along with several amendments. However, it was submitted that as per article 5 (4) of DTAA , Taj India would constitute a permanent establishment only if (1) Taj India has the authority to conclude contract binding the assessee and (2) Taj India habitually exercises such authority. It was stated that in the present case, while Taj India in line with the guidelines issued by the Ministry of information and broadcasting has been given the authority to conclude contract, however it has not been exercised and contracts are concluded by the appellant itself. Taj India has not habitually concluded contract on behalf of the appellant in the present case. Therefore,

xviii. it cannot constitute a permanent establishment in terms of article 5 (4) of the DTAA.

xix. It was further stated that the assessee as per letter dated 23/10/2019 submitted the copy of the various advertisement invoices which clearly demonstrate that the same have been concluded by the assessee itself and not by Taj India.

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xxi. The learned authorized representative was also concerned about the submission of the learned departmental revenue that the assessee had not submitted various documents in the course of the assessment proceedings as mentioned in the draft assessment order at paragraph number 4 point 3. He referred to that paragraph and submitted that the learned AO has alleged that the assessee was not forthcoming in filing details regarding sale of its broadcasting business in the form of any copy of the valuation report, details of global financials, up various approvals taken from any government or statutory or regulatory authority and details of authorized bank signatories for the period relevant to the transaction. It was submitted that the assessee as per letter dated 27/12/2019 had submitted point -wise reply wherein in point number 1 it has categorically mentioned that the assessee has not obtained any valuation report for the purposes of sale of its global sports broadcasting undertaking and nor any valuations are required under the Indian foreign exchange regulations or any other statute. Page 71 of 121

xxii. With respect to any approvals taken from any governmental or statutory or regulatory authority in India for the said transfer, the learned authorized representative submitted that the submission of the assessee dated 19/12/2019 clearly states that the assessee being a Mauritius resident under foreign company is not required to take approval from government authorities of India for the purpose of selling of its global sports broadcasting undertaking. The learned authorized representative specifically referred to the assessment order and stated that the approval of the competition commission of India was obtained by the buyer and not by the assessee. He even otherwise submitted that the purpose of obtaining the permission before the competition commission of India is with respect to the dominant undertaking of the buyer and compliance with the provisions of the competition commission act. It has nothing to do with the tax liability of the assessee with respect to the sale of global sports business.

xxiii. With respect to the operation of the bank account of the assessee and authorized bank signatories, assessee submitted that as per letter dated 18/12/2019 which is placed at page number 511 of the assessee's paper book it was submitted together with the copies of the board resolution which are taken on record and also referred in Page 73 of 121

xxiv. With respect to the orders of the coordinate bench in earlier years, the learned authorized this representative submitted that there is no misrepresentation of facts from the side of the assessee. The coordinate benches have passed its order as per the information available on record before the assessing officer. Appeal of the revenue against the order of the coordinate benches has reached the Honourable High Court and therefore the allegation of the learned departmental representative that those orders have been obtained by misrepresentation of facts is clearly incorrect.

xxv. Accordingly, the learned authorized representative submitted that the taxing of the capital gain on sale of global sports business is neither chargeable to tax in India Page 74 of 121

xxvi. With respect to ground number 2 – 5, the learned authorized representative submitted that the written submission of the learned departmental representative clearly accepts that this issue is already been decided in favour of the assessee and is now concluded.

Decision and Reasons

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i. According to schedule 1, it has several conditions precedent of Seller, purchases and joint conditions. One of the joint condition precedents was to obtain approval from The Competition Commission In India in terms of The Competition Act 2002 of India of the proposed consummation of the transaction contemplated in this agreement. It also included no objection or endorsement from the Ministry of information and broadcasting recording the change of ownership of the channel in the downlink permission issued. It was also the joint precedent for which counterparties for the various agreements are to be informed/intimated about this agreement. These are various sports Association or sports organizations.

ii. As per schedule 2 there were certain closing actions where it is mentioned at serial number 5 that the closing of the transaction contemplated under this agreement sale take place, concurrently and contemporaneously with the consummation of the transaction relating to the transfer of all equity shares of Taj India to SPNI and the transfer of the Page 81 of 121

iii. As per schedule 3 there were 272 trademarks registered in the name of the assessee registered in various jurisdictions including India. Out of this, 158 trademarks are registered in India. Other specific indemnities between the parties and five employees which are directly employed by the seller in relation to the sports broadcasting business and who are associated with the sports broadcasting business were listed. These 5 employees are based at Mauritius. Others are various general warranties between the parties. According to clause 8 and 9, it is stated that the sports broadcasting business is the sole and exclusive property of the seller and other than the seller no other person has any right or interest in the sports broadcasting business. The seller owns all of the assets necessary to conduct the business of sports broadcasting business and there are no arrangements with any other person that creates any encumbrance or the right to acquire any other rights in relation to any part of the assets. The properties were also not leased out or licensed to others but the seller has obtained the necessary permission from its affiliates to use the premises from where it is operating. No written agreement has been entered into by parties for such arrangement and no payments are due and shall be required to be made by the purchaser for use of such premises after the closing date. According to clause 19 of the warranties it is mentioned that

" Currently plays out of all the channels take place in Noida (India), which the feeds for this channel are sent via fiber to Germany. From Germany (except 10 Page 82 of 121

This schedule also refers to several contracts, which are to be invited for the consummation of the transaction. It has also reference of all related party transactions relating to the sports broadcasting business. According to that, there were contracts of commission payable by the assessee to Taj television (India) private limited in the form of agency commission on India advertisement revenue and distribution commission. With respect to the transmission cost the channel play out cost is payable by the assessee to see entertainment Enterprises Ltd. With respect to rent and electricity of office rent of the buy office payable by the assessee to real media FZ LLC were mentioned. The advertisement revenue contracts receivable by the assessee from group channel promotions was also mentioned. It also referred to content agreements for various sports such as cricket, football, golf, tennis, WWE, MotoGP, others, volleyball and technical contracts, syndication contracts, facility contracts, maintenance contracts, advertisement contracts and several other contracts including distribution contracts.

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v. The agreement is also supported by the written resolution of the assessee company dated 30/08/2016 signed by two directors of the assessee company.

i. The assessee has an agreement with Taj television India private limited titled as advertising sales agency agreement dated 4 May 2002. According to that assessee appointed Taj India private limited its non-exclusive advertising sales agent for:- Page 84 of 121

b) promote awareness regarding the channel

c) reporting to assessee unauthorized duplication and users of the program of which assessee has knowledge

d) facilitating arrangements with advertisement agencies, sales representative and advertisers for sale of advertisement line and establishing effective communication with them,

e) assistance in creating from time to time rate card both in rupees and US dollars,

f) conducting market studies and research in preparing market reports

g) submitting to assessee periodic reports on the market and its advice with regard to the market

h) collect advertisement revenue on behalf of assessee and remit the same in accordance with the prevailing regulations

i) using its best efforts to ensure that Taj receives all sums due to it under this agreement

j) remitting services are commissioned to advertisement agencies, sales representative and media agents

k) other services incidental to acting as advertising sales agent.

ii. According to clause 5 (a) of the agreement relates to the duties and responsibilities of Taj India private limited as under:-

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b) Taj India agrees to submit all proposed agreements and contracts in respect of the services, and a periodic budget of all costs and expenses to be incurred in connection with the services (including, without limitation, Taj India is estimated major marketing costs), to Taj fourth Taj approval which approval shall be granted or rejected by Taj within a reasonable time after such submission. However, if Taj does not grant or rejected approval within a reasonable period of time, and decides to keep its approval on hold, it will intimate Taj India accordingly. Taj (and not Taj India) shall be responsible for confirming all agreements relating to the services and the sale of advertising time for the channel and for directly booking advertising time for exit addition on the channel. Taj shall confirm all advertising time and book all Page 86 of 121

iii. On 27 April 2006, an addendum to the advertising sales agency agreement entered into between assessee and Taj television India private limited was entered into. According to that clause 5 (a) of the agreement was replaced with effect from 1 April 2006 as under:-

"in providing the services pursuant to this agreement, Taj India shall have the right and authority to assume or create, in writing or otherwise, and 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 brands to the rate card agreed with Taj and ensuring that the advertisement procured meet the requirements as laid down under the advertising code prescribed under the Cable Television Network (Regulation) Act, 1995."

iv. A further addendum was made on 28 December 2007 to the advertising sales agency agreement wherein no substantive changes were made to the rights and authorities of the parties. However on 23 January 2008 one more addendum was made according to that clause 5 (B) of the agreement entered into on 4 May 2002 was deleted.

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vi. The agreement was further amended on first day of April 2013 as the addendum earlier had the terms up to 31 March 2013, by this agreement the term got extended up to 31 March 2014.

vii. Further addendum was entered into on 1 May 2013 to change rates of the commission/fees as per clause 4 effective from 1 April 2013.

viii. On 20 February 2015, the terms were extended up to 31 March 2015 and as per amended dated 20 February 2016, it was further extended up to 31 March 2018.

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"24. The Tribunal noted that the first appellate authority, after due deliberation, had returned a finding of fact that Taj India was not acting as agent of the assessee but it had obtained the right of distribution of the channel for itself and subsequently, it had entered into contracts with other parties in its own name in which the assessee was not a party. The distribution of the revenue between the assessee and Taj India was in the ratio of 60 : 40 and the entire relationship was on principal-to-principal basis. The Tribunal noted that this finding by the first appellate authority is corroborated by the terms and conditions of the distribution agreement as well as the sub- distributor agreement. After examining the requirement of article 5 of the Double Taxation Avoidance Agreement to constitute agency permanent establishment, the Tribunal actually held that none of the conditions as stipulated in article 5(4) was applicable because Taj India was acting independently qua its distribution rights and the entire agreement was on principal-to-principal basis. Therefore, it was held that the distribution income earned by the assessee cannot be taxed in India because Taj India does not constitute an agency permanent establishment under the terms of article 5(4) of the Double Taxation Avoidance Agreement. The order of the first appellate authority was accordingly upheld."

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Serial Functions//activities Outside India In India number performed

1 Acquisition of programming Yes No contains/rights

2 Hiring of transponder Yes No facility

3 Venus of major events yes no held during the year

4 on ground activities like up yes no linking facilities

5 production of program and yes no production crews

6 fixed assets/telecasting yes no facilities like studio et cetera

7 Schedule of Programs Yes No

8 contract with advertisers yes No

9 Collection of advertising No Yes revenue from Indian

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10 collection of distribution no yes revenues from Indian distributors

11 promotional and auxiliary no yes activities for sports channels in India

Accordingly, the claim of the assessee is that the majority of the functions for telecasting of the sports channel carried out from outside India and Taj television India Ltd is only engaged in the marketing of sports channel in India for which it is paid at arm's- length consideration.

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"5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent, or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise and the transactions between the agent and the enterprise are not made under arm's length conditions, he shall not be considered an agent of independent status within the meaning of this paragraph."

Whereas in the India Mauritius double taxation avoidance agreement there is no such condition, article 5 (5) provides as under:-

"5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such Page 92 of 121

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i. Assessee does not have a permanent establishment with respect to the distribution revenue of the assessee.

ii. When the permanent establishment has been remunerated at arm‟s-length, there is no further attribution of profit to the income of the assessee

iii. Even in case of advertisement of revenue, in one year, the coordinate bench has decided that it does not have a permanent establishment. However, apparently, coordinate bench followed the decision in earlier years of the coordinate bench where it was held that it does not have a permanent establishment with respect to the distribution income. Therefore, even in case of advertisement of revenue, it was held that assessee does not have permanent establishment. This decision has not been challenged by the revenue by filing the miscellaneous application before the ITAT or before the honourable High Court. Therefore, the decision taken in that case will have a binding precedent.

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„5.3 fixed place permanent establishment

5.3.1the assessee has contended that during the year under consideration there is no change in the facts and circumstances of the case and that it has neither a fixed place of business in India not having any branch/office et cetera. In India as defined in paragraph number 1 and 2 of article 5 of the DTAA between India and Mauritius. The assessee has further contended that management and control of Taj is situated outside India. The assessee‟s contention is factually incorrect. As discussed in Page 101 of 121

A) the assessee had shifted its play out and production facilities to India. In addition, that there is no play out of the channels anywhere else in the world. The assessee company pays play out fees to its associated enterprises ZEE for use of its premises for Channel play out. The assessee has paid the play out fees to its associated enterprises ZEEL and it is duly reported in its transfer pricing study report for assessment year 2017 – 18. This is further corroborated by LinkedIn profiles of some senior personal involved in the process which again confirmed that the assessee indeed had a fixed place of business in India during the year under consideration (as discussed in Para 3 above).

Referring to play out fees details as per the transfer pricing study report:-

4.2.6 play out cost

During the year, ZEEL has provided broadcasting operations and engineering facility to Taj/work of channels. The facilities provided by ZEEL covers play out for each channel, encoding and up linking incidental functions.

During the FY 2016 – 17, Taj has paid US$ 1,048,289 for play out cost, encoding and up linking incidental functions

. As per the agreement, ZEEL provides following services to Taj:-

Maintaining agreed technical specification in providing the broadcasting operations and engineering facilities to each of the channel of TTL

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Referring to play out details as per business purchase agreement:-

19.1 Currently, play out of all the channels takes place in Noida (India),. Which, the feeds for this channel are sent via fiber to Germany. From Germany (except ten Cricket (Caribbean) which is distributed via fiber using ECG Canada), the signals of all these channels ( Ten 1HD, Ten Golf HD, Ten Sports (Pakistan) , Ten Cricket (ME) , Ten 1 and Ten 2) ESOP linked onto satellite named IS -20 , which has a footprint over the Indian subcontinent, the Middle East, Africa, Singapore and Hong Kong, where the linear feet of one or more of the channel is distributed in each of these regions. There is no play out the channels anywhere else in the world.

5.3.2 And the assessee in the present case fulfils all the conditions prescribed in the OECD model commentary on the model tax Convention is relating to fixed place permanent establishment. The assessee in the present case has a place of business, such place s fixed , activities have been performed by the assessee through the said fixed place of business, and the said fixed place of business was at the disposal of the assessee and its employees.

This equipment when installed in the premises of other entities creates PE as it is a fixed place at the disposal of the applicant through which the business of the applicant is being carried on. OECD commentary at note 5 of commentary on article 5 clearly says that:-

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It is immaterial how long an enterprise of a contracting state operates in the other contracting state if it does not do so at a distinct place, but this does not mean that the equipment constituting the place of business has to be actually fixed to the soil on which it stands. It is enough that the man remains on a particular site.”

Further, there is no requirement of ownership of the space of equipment, which constitutes PE. Note 4.1 of the same commentary also clarifies that there is no requirement of legal right. It states that:-

“4.1 As noted above, the mere fact that an enterprise has a certain amount of space at its disposal which is used for business activities are sufficient to constitute a place of business. No formal legal right to use that place is therefore required. Thus, for instance, a permanent establishment could exist where an enterprise illegally occupied a certain location where it carried on its business.”

In a recent Supreme Court ruling in the case of Formula One Word Championship Ltd versus CIT(394 ITR 80 (SC)) held that with the international circuit though on by the Jaypee is the permanent establishment of the non-resident since it was at its disposal, (even though not owned). There is no doubt that play out centers are at the disposal of the applicant. Further reliance is placed on German Swiss case quoted in Delhi High Court order in the case of Formula One world championship Ltd versus CIT (2016) 76 taxmann 6 (Delhi Page 104 of 121

From the above cases, it can be clearly seen that equipment similar to those used for play out for Channel has been held to be a permanent establishment if the business of the non-resident enterprises carried out through it. Further, in Swiss server case and Sweden data center case, it was held that there is no requirement that the employees of the German/overseas Company should operate the server/data center. It is situation here. There is no requirement that employees of the applicant should run the play out centers. in Swiss server case, affiliate of German company in Switzerland was managing the server. Here affiliate of the applicant in India is providing play out services.

The AO further placed reliance on page number 176 of the same book wherein it has been held that the

“ The enterprise can carry out its business activities through itself or, through its employees or dependent agents. The presence of personnel is not necessary to consider that an enterprise value your partly carries on its business at a location when personnel are in fact required to carry on business activities that location.(note 42.6 article 5, OECD commentary 2003).

A permanent establishment may also exist where the business of the enterprises carried on through automatic equipment and the activities of the personnel in such cases are restricted setting up, operating, controlling and maintaining such equipment only. (Note 9, article 5, OECD commentary 1977). Examples of such cases are

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5.3.3 Hence, it is not relevant whether the said premises was leased out and not actually owned by the assessee. It is also not relevant that the assessee may or may not have acquired the said premises for the entire year. What is relevant is that the assessee has a fixed place with a certain degree of permanence available to it for running its play out activities related to its channels in India. The third condition for a fixed PE is that such place of business should be at the disposal of the foreign entity. As noted above, the assessee was running play out of its channel through a premise in India. The said premises were at its disposal. In addition, to run its business activities, the assessee had access to the said premises.

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5.3.5 In view of the above, it is held that the assessee has a fixed place permanent establishment in India during the year under consideration.”

"For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of the enterprise is wholly or partly carried on"

i. Production facility was always based out of India and cannot be mixed up with play out service availed by Taj.

ii. There was no corroborative evidence established by the learned assessing officer for shifting for production facilities to India.

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iv. Assessee has obtained the play out services from the ZEEL on independent basis and had paid arm‟s-length remuneration.

v. The allegation of the learned assessing officer that the play out facility is at the disposal of assessee is completely misplaced. There is no substance in such fact.

vi. Play out facility is actually at complete disposal of the service provider and not the assessee.

vii. The assessee further referred to the LinkedIn profiles of to employees and submitted that those personnel are not employees of the assessee and have no connection with the transactions in question and therefore reliance on their LinkedIn profile is misplaced.

viii. Therefore, it cannot be interpreted that Taj has control over play out facility and hence it cannot be deemed the fixed place permanent establishment of Taj in India as per the India Mauritius DTAA.

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i. There is an alienation

ii. of movable property

iii. which forms part of the business property of a permanent establishment in India or fixed base available

iv. or of permanent establishment itself

Order pronounced in the open court on 31.03.2023.

Sd/- Sd/- (SANDEEP SINGH KARHAIL) (PRASHANT MAHARISHI) (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 31.03.2023 Dragon Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, True Copy//

Sr. Private Secretary/ Asst. Registrar Income Tax Appellate Tribunal, Mumbai

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