ADIT (IT) 2(2), MUMBAI vs. ZEE TV USA INC, MUMBAI

This appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-11, Mumbai [in short ‘the CIT(A)’] dated 31/01/2010 for the assessment year 2006-07. The assessee has filed Cross Objections in the appeal of Revenue.

The assessee in Cross Objections has raised following grounds: “1. Without prejudice to the decision of the Hon. CIT (A) (wherein it is held that the assessee has no PE in India hence its income is not taxable in India) even if it is held that assessee has Permanent Establishment in India its income is not taxable in India as it has paid arms length remuneration/commission to its Agent in India having regards to the functions and risk performed by the agent, which is taxed in India as held by Supreme Court in the case of Morgan Stanley 292 ITR 416 and Bombay High Court in the case of Sony Entertainment Television (Singapore) Limited 173 Taxman 475.

Shri Niraj Seth appearing on behalf of the assessee submitted at the outset that the Tribunal in preceding assessment year i.e. 2005-06 and succeeding assessment year i.e. 2007-08 has granted relief to the assessee on the ground that the international transactions between the assessee and the Associated Enterprise(AE) are at arm’s length and hence, no adjustment is required to be made. Once the international transactions are held to be at arm’s length the grounds raised in Departmental appeal would become academic. The ld.Authorized Representative of the assessee furnished copy of Tribunal order in & CO No.47/Mum/2010 for assessment year 2005-06 decided on 23/04/2018.

Shri Vijay Kumar Subramaniyam representing the Department fairly admitted that on identical set of facts and grounds of appeal, the Tribunal has adjudicated the issue with regard to arm’s length transaction in favour of the assessee in 2005-06.

Both sides heard, orders of authorities below examined. The assessee is a U.S based company and is engaged in broadcasting satellite T.V Channels in USA. The assessee collect advertisements from India for telecasting the same on channels in the USA. The assessee entered into an agreement with Ambience Space Sellers Ltd., now merged with Zee Telefilms Ltd. (in short ‘ZeeL’), which provides that ZeeL would act as exclusive agent in India for the provision of information to Zee TV US regarding advertisers and to help in arranging for sale of advertisement and sponsorship. The Assessing Officer after examining the agreement between the parties held that ZeeL is a Permanent Establishment (PE) of the assessee in India. Zee TV USA has ultimate controlling power for advertisement procurement in India by ZeeL. The advertiser approaches ZEE TV US through ZeeL. The advertisement charges are paid to ZeeL, who in turn after deducting its commission remits the balance to the assessee. The Assessing Officer made adjustment of Rs.27,94,180/- on account of income from advertisements in India.

The assessee in Cross Objections has raised a ground that even if it is assumed that the assessee is having PE in India, no adjustment is warranted as the transaction between the assessee and the Indian entity is at arm’s length.

We find that the Revenue and the assessee in immediately preceding assessment year i.e. AY 2005-06 had assailed the order of CIT(A) on identical set of grounds. Both sides are unanimous in stating that the facts germane to dispute in AY 2005-06 and the impugned assessment year are identical. The Co-ordinate Bench of Tribunal in in CO No.47/Mum/2010 in for assessment year 2005-06 decide on 23/4/2018, in identical set of facts accepted ground No.1 raised in Cross Objections by the assessee. The Tribunal held that the transaction between the assessee and its AE are at arm’s length, therefore, no further income chargeable to tax in India can be said to be attributable for the PE of the assessee.

Here, we would also like to refer to the decision of Tribunal in the case of Additional Director of Income Tax (International Taxation)-1 vs. Asia Today Limited in decided on 29/01/2021, where the Tribunal in somewhat similar set of facts after considering catena of judgments on the issue of taxability of Dependent Agency Permanent Establish (DAPE), where the transactions were found to be at arm’s length held as under:- “16. Once we hold, as we have held above, that in the light of the present legal position, existence of dependent agency permanent establishment in wholly tax- neutral, unless it is shown that the agent has not been paid an arm's length remuneration, and when it is not the case of the Assessing Officer, as we have noted earlier, that the agents have not been paid an arm's length remuneration, the question regarding the existence of dependent agency permanent establishment, i.e., under article 5(4), is a wholly academic question. We humbly bow to the law laid down by Hon'ble Courts above. The limited argument before us is that here is a case of dependent agency permanent establishment, and the existence of a DAPE, in the (A.Y. 2006-07) C.O. NO.15/MUM/2011

In light of undisputed facts of the case and the decisions referred above, the assessee succeeds on ground no.1 of the cross objections.

As we have held that the transactions between the assessee and ZeeL are at arm’s length, the ground no.1 raised by Revenue in appeal has become inconsequential, hence, the same is dismissed as infructuous.

In ground no.2 of cross objections, the assessee has assailed charging of interest u/s. 234B of the Income Tax Act, 1961 (in short ‘the Act’). The Revenue has raised corresponding issue in ground no.2 of the appeal. Charging of interest under section 234B of the Act is consequential, hence, the ground No.2 of CO and appeal are dismissed.

In the result, appeal by the Revenue is dismissed and Cross Objections are partly allowed.