THE DDIT(IT)-1(1), MUMBAI vs. M/S. ASIA TODAY LTD (FORMERLY WINTER HEATH LTD), MUMBAI

2. The common grounds of appeal raised in all the departmental appeals, i.e., the appeals filed by the Assessing Officer, are as under:

CO Nos. 124-125/Mum/2008, 63 and 64/Mum/.2009 1879/Mum/2008 and 5042-43/Mum/08 Assessment year: 2002-03, 2004-05, 2005-06 Page 3 of 21 1. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that Zee Telefilms Limited (ZTL) does not constitute a Permanent Establishment (PE) of the assessee in India.

2. On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in holding that, in the absence of a permanent establishment (PE), income of the assessee is not taxable as per article 7 of the DTAA.

3. The common grounds of cross objections, in CO Nos 124 and 125/Mum/2008, are as follows:

Without prejudice to our contentions as respondent of the appeal, even if it is assumed, without accepting, that the respondent is held to have permanent establishment (PE) through its agent, Zee Telefilms Limited, we contend that no income can be attributed to such PE as agent is remunerated on arm's length basis having regard to the functions and risks performed by the agent, and no income of the assessee is taxable in India.

4. In the remaining two cross-objections, i.e. CO No 63 and 64/Mum/2008, the issue raised in the cross objection remained the same, but with the benefit of Hon'ble Bombay High Court's judgment in the case of Set Satellite Pte Ltd Vs CIT [(2009) 307 ITR 205 (Bom)] in the meantime, wordings of the grievances have become a little more elaborate as follows:

Without prejudice to the judgment of Hon'ble CIT(A), wherein it is held that the assessee has no PE in India and hence income is not taxable in India, even if it is held that the assessee has a PE in India, the income of the assessee is not taxable in India as it has paid remuneration/ commission to agent in India on arm's length basis, as held by Hon'ble Supreme Court in the case of Morgan Stanley 292 ITR 416 {i.e. DIT (International Taxation) v. Morgan Stanley & Co. Inc. [2007] 292 ITR 416 (SC)]} and Hon'ble Bombay High Court in the case of Sony Entertainment Television (Singapore) Limited (173 Taxman 475) {i.e. Set Satellite Pte Ltd Vs CIT [(2009) 307 ITR 205 (Bom)]}

5. Learned counsel's contention is that the issue is covered, in favour of the assessee and in assessee's own cases, by a series of orders of the coordinate benches- such as order 12th January 2018 and two other orders- both 31st May 2018, copies of which are placed before us at pages 50 to 91 of the paper book filed before us. Learned Departmental Representative, however, does not share this perception. His stand is that "the adequacy of FAR analysis of risks undertaken by AEs (as discussed by the AO in the assessment order) is not adjudicated" in these decisions, and that "in other cases relied upon by the assessee, transfer pricing adjudication was made" and, therefore, "the decisions are not applicable as distinguishable on facts". Learned Departmental Representative has thus prayed that (a) the decision of the AO that permanent establishment of the assessee exists in India may be confirmed; and that (b)

CO Nos. 124-125/Mum/2008, 63 and 64/Mum/.2009 1879/Mum/2008 and 5042-43/Mum/08 Assessment year: 2002-03, 2004-05, 2005-06 Page 4 of 21 the matter may be remanded to the Assessing Officer or the Transfer Pricing Officer to examine whether the test with regard to the adequacy of FAR analysis of risks undertaken by the AEs, as laid down by Hon'ble Supreme Court in the case of Morgan Stanley (supra) is satisfied. In view of this position, we deem it appropriate to briefly deal with the issue on merits.

5.2.3 Now keeping the above in view point, one has to look into the factual aspects of the case, particularly the following:  The assessee could not have earned any income from India but for its Indian agent, ZTL/EI Zee.  The 'brand name' used by the assessee is same as that of its agent in India, that is, ZEE. Thus, for persons desirous of doing business with the assessee in India, there is no difference between ZTL/EI Zee and Asia Today Ltd. it is seen that in a number of TDS certificates issued to the assessee, the name 'Zee TV' or 'Zee ZTL/EI Zee Cinema' or 'Zee Telefilms' were used. There terms were therefore, used interchangeably.  The income stream of the assessee is from selling of advertising time and these are 'sold' by ZTL/EI Zee. Almost all the advertisers are from India and the advertisements are solicited by the Indian company. The advertisers book the slots on the channel by coming into contact with employees of ZTL/EI Zee at their office. The other stream of revenue is 'subscription revenue' which is also collected by ZTL/EI Zee on behalf of the assessee.  The payments are collected by ZTL/EI Zee and the same is remitted to Mauritius by it.  The employees of ZTL/EI Zee are employees of Zee group as a whole and they perform functions as required by ATL also.

CO Nos. 124-125/Mum/2008, 63 and 64/Mum/.2009 1879/Mum/2008 and 5042-43/Mum/08 Assessment year: 2002-03, 2004-05, 2005-06 Page 5 of 21  In the case of other telecasting channels also it is held by the revenue authorities that their agent in India constitute a Permanent Establishment. 5.2.4. The above stated factual position clearly brings out that the assessee's case falls under Article 5(1) of the Indo-Mauritius treaty when the business of the assessee is carried out through a fixed placed in India and in effect, is a virtual projection of the assessee in India.

5.3.3 No Further Profits can be taxed in view of Article 7(2) of the Treaty: The next submission of the assesses is that even if it is assumed that there is a PE in India, as per Article 7(2) of the Treaty, where an enterprise carries on business in India through a PE, the profits attributable to such PE shall be the profits that the PE would have made, if it were a distinct and separate enterprise dealing independently with the enterprise of which it is a PE. Thus, the profits attributable to the PE shall be the profits it would have made, if it were an independent enterprise. Since the assessee is making an arm's length payment to ZTL/EI Zee, ZTL/EI Zee would have made the same profits dealing with an independent enterprise. Since the said profits are already taxed in the hands of ZTL/EI Zee, no further profits can be attributed to the activities performed by it. Further, the assessee has laid Emphasis on CBDT Circular No. 5 dated September 28, 2004 which states that profits attributable to a PE have to be computed having regard to the arm's length principle. For the detailed reasons given in following paragraphs, I do not find merit in the claim of the assessee that if payment to ZTL/EI Zee is made at arm's length, then it extinguishes the tax liability of the assessee in India.

CO Nos. 124-125/Mum/2008, 63 and 64/Mum/.2009 1879/Mum/2008 and 5042-43/Mum/08 Assessment year: 2002-03, 2004-05, 2005-06 Page 6 of 21 Officer is aggrieved and in appeal before us. The assessee's cross-objections, however, deal with an even more fundamental aspect. That aspect is that given the fact that the assessee has paid arm's length remuneration to its Indian agents, no further taxability can be attributed to its income earned through the agents in India.

CO Nos. 124-125/Mum/2008, 63 and 64/Mum/.2009 1879/Mum/2008 and 5042-43/Mum/08 Assessment year: 2002-03, 2004-05, 2005-06 Page 7 of 21 also it is held by the revenue authorities that their agent in India constitute a Permanent Establishment", but in none of these cases the permanent establishment is said to be under basic rule, i.e., Article 5(1) and Article 5(2), and in all these cases, the permanent establishment is dependent agency permanent establishment, i.e., under Article 5(4). Even the case of the Assessing Officer thus hinges on the applicability of Article 5(4). There can be permanent establishments through the presence of the agency, for example. There can be virtual projections even without a fixed place of business, such as in the case of a dependent agency permanent establishment, but such cases will be covered by article 5 (4) rather than article 5(1) and 5(2). The detailed analysis by the Assessing Officer, as extracted earlier in this order, also makes that position evident. At best, therefore, it is a case of dependent agency permanent establishment under Article 5(4), and learned Departmental Representative also accepts that. There is no conflict between 'virtual projection of a foreign enterprise' and the 'dependent agency permanent establishment', and it's in this light that we have to take note of the analysis of legal position. There can be simple situations in which a foreign enterprise operates through an agent, acting as a franchise, and such a franchise can virtually project business of the foreign enterprise on the soil of another country. Clearly, therefore, just because there is virtual projection of business, as the case is made out by the Assessing Officer, it is to be inferred that that there is a permanent establishment under the basic rule, i.e., Article 5(1) an 5(2), and negate the existence of a dependent agency permanent establishment, as would at best emerge out of the facts marshalled out by the Assessing Officer. As we are examining this aspect of the matter, it may also be useful to refer to the following extracts, defining permanent establishment, from the India Mauritius Double Taxation Avoidance Agreement [(1984) 146 ITR (St.) 214]:-

ARTICLE 5 PERMANENT ESTABLISHMENT 1. 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.

6. The fact that a company, which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other Contracting State (whether through a permanent establishment or otherwise) shall not, of itself, constitute either company a permanent establishment of the other.

11. The case of the Revenue is thus clearly confined to the existence of DAPE on the facts of this case. The question thus arises as to what are the tax implications of the existence

CO Nos. 124-125/Mum/2008, 63 and 64/Mum/.2009 1879/Mum/2008 and 5042-43/Mum/08 Assessment year: 2002-03, 2004-05, 2005-06 Page 9 of 21 of a dependent agent permanent establishment (DAPE) under Article 5(4). The DAPE is, after all, a type of permanent establishment, and the very concept of permanent establishment is a compromise between source rule and residence rule inasmuch as it provides justification to trigger source jurisdiction taxation over business activities of a foreign enterprise. Unless there is a PE in the source jurisdiction, there cannot be taxation of business profits of the foreign enterprise in the source jurisdiction, and when there is a PE in the source jurisdiction, only so much of profits of the foreign enterprise, as are attributable to a PE, can be taxed in the source jurisdiction- as is the unambiguous mandate of Article 7(1). It is in this context one has to examine the tax implications of DAPE, and that tax implication is that the profits attributable to the DAPE are brought to tax in the source jurisdiction. The next logical point, therefore, as to how to compute profits attributable to a DAPE, and it is this aspect of the matter which has been a subject matter of academic debates and controversies. There are two approaches to it i.e., to borrow the terminology employed by International Tax Law Reports (see 2007, Volume 9; Part 5; at pages 963-964), first- a "single taxpayer" or "zero-sum approach", and, second- "two taxpayers" or "non zero-sum approach". While Philip Banker, a well known international tax lawyer, has all along advocated zero-sum approach, late Klaus Vogel touched a different chord, in his column 'Tax Treaty Monitor' in the 'Bulletin for International Taxation (November 2007 at page 475) and given his approval for "two taxpayers approach". The latter is also in consonance with Authorised OECD Approach of the OECD. On materially similar facts of dependent agency permanent establishment for a similarly placed foreign telecasting company as in this case, in the case of DDIT Vs Set Satellite (Singapore) Pte Ltd [(2007) 106 ITD 175 (Mum)], a coordinate bench, speaking through one of us, (i.e. the Vice President), had upheld the "two taxpayer approach", in computation of DAPE profits, and observed as follows:

B. Profits attributable to Sing Co.'s DAPE in India Sales consideration 30,00,000 Less : Commission paid to Ind. Co. 9,00,000(-) : Cost of purchases 10,00,000(-) : Sing Co.'s handling charges 6,00,000(-) 25,00,000 Profit of the DAPE or, in other words, profits Attribute to India operations of the Sing Co. $ 5,00,000 As far as 'A' in the above example is concerned, it does not have anything to do with the income of the foreign company. This taxability is in the hands of the domestic dependent agent and is on net basis after taking into account the expenses incurred by the agent for earning of remuneration whether or not the same relates to the business of the foreign company or not. As regards 'B' above, it represents the earnings of the foreign company attributable to the dependent agent permanent establishment, on CO Nos. 124-125/Mum/2008, 63 and 64/Mum/.2009 1879/Mum/2008 and 5042-43/Mum/08 Assessment year: 2002-03, 2004-05, 2005-06 Page 11 of 21 account of its having a dependent agent in source country. This income is taxable in the hands of the foreign company in the source country and the tax credit in respect of such taxability will be available to the foreign company in residence country. If, in this example, we are to assume that the income of the PE is only the remuneration earned by the agent on net basis, we will end up in a situation that while profits of Sing Co. attributable to India operations will be $ 5,00,000, the taxability of the profits will be confined to only $ 1,000. What is to be taxed under Article 7 is income of the foreign enterprise attributable to the permanent establishment in the host country. The income attributable to the permanent establishment in the host country is the income attributable to foreign company's operations in the host country, which, in turn, implies the income attributable to the activities carried on the foreign enterprise in the host country. That income, as shown in 'B' above is the income arrived at by taking into account revenues generated by the PE and deducting therefrom the expenditure incurred by the foreign enterprise to earn those revenues. However, it is open to the foreign enterprise to claim appropriate adjustment for the foreign enterprise's overheads and even a reasonable charge, on account of activities of the foreign enterprise carried on outside the host country, by treating the foreign enterprises as a fictionally separate entity.

12. Learned counsel, however, contends that since the profit attributable to the PE are the profits which the PE "might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is permanent establishment", the taxable profits of the foreign enterprise cannot extend beyond the profit earned by the dependent commission agent. The line of reasoning adopted by the learned counsel is that PE is nothing but the dependent agent, and, the taxability of PE can only, therefore, be in respect of the earnings of the agent. Learned counsel has, with his inimitable oration, erudition and legal skills, woven a complex web of arguments to support this legal proposition. However, as it sometimes happens, the quality of arguments in support of a legal proposition is inversely proportional, proportional if it is, to the merits of the proposition sought to be advanced. This is one such occasion. Let us set out the reasons why we think so, and, in the process, deal with various arguments of the learned counsel one by one.

13. At the outset, we must reiterate that a dependent agent (DA) and a dependent agent permanent establishment (DAPE), in our humble understanding, are two distinct things. As we have stated earlier, it is as a result of existence of a dependent agent that the foreign enterprise is 'deemed to have' a permanent establishment in the country in which dependent agent is situated.

14. Under Article 7 of the treaty, the taxability is of the foreign company. What is taxable under Article 7 is profit earned by the foreign enterprise, as it Article 7(i) provides that "The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein". Agency remuneration paid by the foreign enterprise is not an income of the foreign enterprise but an expenditure of the foreign enterprise. The taxability of any profit under Article 7 has to be in the hands of the foreign company and not the host company of which dependent agent is CO Nos. 124-125/Mum/2008, 63 and 64/Mum/.2009 1879/Mum/2008 and 5042-43/Mum/08 Assessment year: 2002-03, 2004-05, 2005-06 Page 12 of 21 resident. Therefore, in it is patently erroneous to suggest that by payment of tax liability by the dependent agent, tax liability of the foreign principal is discharged. So far as Article 7 is concerned, it deals with the taxability of the foreign company.

15. Under the scheme of the Act, the taxable unit is the foreign company, though the quantum of income taxable is such income as may be held to be attributable to the permanent establishment of the foreign company in India. The tax liability of the foreign company and not the Indian dependent agent. However, in case we are to uphold the stand of the learned counsel, we will end up in a situation that taxability of Indian company is to be allowed to extinguish tax liability of the foreign principal.

16. Learned counsel has relied upon the commentaries of various authors including Phillip Baker, Prof. Roy Rohtagi and Prof. David R. Davies. It is contended that according to these distinguished authors, payment of arms length remuneration by a foreign company to its agent extinguishes tax liability of the foreign principal. With respect, and for the reasons we have set out above, we are of the considered view that in the dependent agency permanent establishment situation, this proposition does not hold good. In any event, this approach proceeds on the assumption, which turns out to be fallacious assumption on the facts of the present case, that dependent agent and dependent agent permanent establishment are one and the same thing.

12. Late Prof Klaus Vogel, one of the very eminent international tax scholars of our times, had favoured the path adopted by the coordinate bench. In his last in Tax Treaty Monitor (Bulletin for International Taxation, November 2007, page 475), referring to the above coordinate bench decision, he had this to say: "One can understand that many have problems imagining how profits should arise to a permanent establishment which, as the Tribunal itself repeatedly stated, does not exist in reality and is a non-entity "wholly hypothetical and fictional". Such sceptics should consider, however, that the parent enterprise as a rule will aim to realize receipts from the contracts concluded by the dependent agent which, in addition to compensating the agent's fee, include a surplus profit, for otherwise the parent would lack any commercial reason for employing the agent. This surplus is not– or only secondarily– attributable to activities in the parent's residence country. Rather, it is a profit that the parent obtains through employing the agent in the country in which the profits arise. Fairness ("inter- nations equity") requires that the surplus profit be taxed in that state. If the drafters of a treaty or model treaty want to provide this, they must notionally attribute it to a contact in that state. This does not mean that they must attribute it to a person or an object in the real world. In the world of law, a legal concept, a figure of thought, will do.

CO Nos. 124-125/Mum/2008, 63 and 64/Mum/.2009 1879/Mum/2008 and 5042-43/Mum/08 Assessment year: 2002-03, 2004-05, 2005-06 Page 13 of 21 The agency permanent establishment is such a figure of thought which makes it technically possible to connect the surplus profit to the agent's state. Thus, it is not only possible, but it is the rule that a profit exceeding the agent's compensation will be submitted to the agent's state". Philip Baker, another eminent international tax expert whose work in referred to, with approval and respect, in many of the judicial precedents from Hon'ble Courts above, did not agree with this approach. In his editorial comments in the International Tax Law Reports, he has favoured the other alternative approach to this issue, i.e., the single taxpayer approach. He observed that, "One view (to which editor of these law reports subscribes) is that if the dependent agent is being remunerated on a correct arm's length price for the function he performs, risks he assumes, and the assets he employs in his agency, there is no basis for attributing any further profits to the DAPE over and above the arm's length remuneration to the agent", and reasoned the same by observing that “As soon as one abandons the single taxpayer approach, one needs to start attributing the DAPE functions that were not performed by the agent, assets that were not employed by it and the risks that were not assumed by it. In other words, the two taxpayer approach requires an abandonment of reality and entirely hypothetical attribution which, in arm’s length world which must have some basis in reality, is simply a licence for arbitrary allocation of profits. Ultimately, that’s what Tribunal did here”. There is thus a cleavage of academic opinion on the approach to the DAPE profit attribution and that is a highly contentious issue on the first principles. When the matter travelled before Hon'ble High Court, however, these views of the coordinate bench did not find favour with Their Lordships. Rejecting the theory about separate profit attribution for the dependent agency permanent establishment vis-à-vis the dependent agent, Their Lordships have, in the judgment reported as Set Satellite Pte Ltd Vs CIT [(2009) 307 ITR 205 (Bom)], observed as follows:

10. From a reading of Article 7(1) of the DTAA it is clear that the profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. The profits of the enterprise may be taxed in the other State but only so much of them as is directly or indirectly attributable to that permanent establishment. In para 2 while determining the profits attributable to the permanent establishment the expression used is "estimated on a reasonable basis". The DTAA does not refer to arm's length payment. The principles contained in the matter of income from international transaction on an arm's length price are contained in section 92 of the Income- tax Act. The principles have been clarified by the Finance Act, 2001 as also Finance Act, 2002. From the order of the CIT, which has been accepted it is clear that the Appellant herein has paid to its PE on arm's length principle. It recorded a finding of fact that the Appellant had paid service fees at the rate of 15 per cent of gross ad revenue to its agent, SET India, for procuring advertisements during the period April 1998 to October, 1998. The fact that 15 per cent service fee is an arm's length remuneration is supported by Circular No. 742 which recognizes that the Indian agents of foreign telecasting companies generally retain 15 per cent of the ad revenues as service charges. Effective November 1998, a revised arrangement was entered into between the parties CO Nos. 124-125/Mum/2008, 63 and 64/Mum/.2009 1879/Mum/2008 and 5042-43/Mum/08 Assessment year: 2002-03, 2004-05, 2005-06 Page 14 of 21 whereby the aforesaid amount was reduced to 12.5 per cent of net ad revenue (i.e., gross ad revenues less agency commission). Simultaneously, the Appellant also entered into an arrangement entitling SET India to enter into agreements, collect and retain all subscription revenues. Considering all these aspects and the fact that the agent has a good profitability record, it held that the Appellant has remunerated the agent on an arm's length basis. This finding of the Tribunal has not been disputed by the Revenue. The entire contention of the Revenue is that the advertisement revenue pertaining to its own channel and AXN Channel are also taxable in India.

11. We may firstly point out that CIT has dealt with the issue as to why the advertisements received by the Appellant were not liable for being taxed in India based on the CBDT Circular No. 23, dated 23-7-1969 which clearly sets out that where a non-resident's sales to Indian customers are secured through the services of an agent in India, the assessment in India of the income arising out of the transaction will be limited to the amount of profit which is attributable to the agent's services, provided that (i) the non-resident principal's business activities in India are wholly channelled through his agent; (ii) the contracts to sell are made outside India; and (iii) the sales are made on a principal-to-principal basis. The CIT(A) had recorded a specific finding in favour of the Appellant in the affirmative on all three counts. It is in these circumstances that it was held that the advertisement revenue received by the Appellant may be from the customers in India is not liable for tax in India. That CBDT Circulars are binding needs no repetition. If authorities need be cited. We may now refer to the judgment of the Supreme Court in UCO Bank v. CIT [1999] 237 ITR 889. In that judgment the issue was whether Circular of 9-10-1984 was inconsistent or whether there was contradiction in the circular and Section 145 of the Income-tax Act. The Supreme Court observed that :— "... In fact, the circular clarifies the way in which these amounts are to be treated under the accounting practice followed by the lender. The circular, therefore, cannot be treated as contrary to section 145 of the Income-tax Act or illegal in any form. It is meant for a uniform administration of law by all the income-tax authorities in a specific situation and, therefore, validly issued under section 119 of the Income-tax Act. As such, the circular would be binding on the department." (p. 901) See also CIT v. Hero Cycles (P.) Ltd. [1997] 228 ITR 463 (SC). It would thus be clear that the Circular No. 23 would be binding on the Assessing Officer and had to be considered while assessing the tax liability of an assessee. The Tribunal in its judgment has not considered the effect of the finding recorded by the CIT (Appeals) based on the Circular and which circular was relevant for the purpose of deciding the controversy in issue. This circular read with Article 7(1) of the DTAA would result in holding that the income from advertisement if neither directly nor indirectly attributable to that of the permanent establishment, would not be taxable in India. The Tribunal in fact in CO Nos. 124-125/Mum/2008, 63 and 64/Mum/.2009 1879/Mum/2008 and 5042-43/Mum/08 Assessment year: 2002-03, 2004-05, 2005-06 Page 15 of 21 para 10 has recorded a finding that Article 7(2) provides that the arm's length price is the criterion for computation of these hypothetical profits. In our opinion the entire rational or reasoning given by the Tribunal has to be set aside. In matters of tax what has to be considered and more so in international transactions if there be a treaty, the provisions of the treaty and if the provisions of the treaty are more advantageous to an assessee, then the construction will have to be given which is advantageous to the assessee. At this stage we may note that on behalf of the assessee learned Counsel has produced an order passed by the Additional CIT (Transfer Pricing-II), Mumbai in the matter of determination of arm's length price with reference to all the transactions reported in Form No. 3CEB filed by the assessee. The assessee is SET India, the depending agent. The order records that the assessee is engaged in the business of providing audio-visual television content and also acts as an advertising agent of Set Satellite Singapore Pvt. Ltd. The assessee distributes these channels to the Indian cable operators and that the assessee has applied the TNM method to determine the arm's length price for its international transaction. It, however, clarified that the order is in respect of reference received for assessment year 2002-03 and not for subsequent assessment years.

13. Considering the above principle as may be discerned from the judgment in DIT (International Taxation) 292 ITR 416 (supra) it would be clear that—

CO Nos. 124-125/Mum/2008, 63 and 64/Mum/.2009 1879/Mum/2008 and 5042-43/Mum/08 Assessment year: 2002-03, 2004-05, 2005-06 Page 17 of 21 (1) Considering the CBDT Circular No. 742 it would be fair and reasonable that the taxable income is computed at 10 per cent of the gross profits. In the instant case insofar as marketing services are concerned by the arm's length principle what has been paid is more than 10 per cent as can be seen from the order of CIT(A). This was not disputed by the revenue in its Appeal before the ITAT. (2) The only contention advanced and which found favour with the Tribunal was that the advertisement revenue received by the assessee was also income liable to tax in India. The CIT(A) relied upon Circular No. 23 of 1969. That Circular read with Article 7(1) would result in holding that advertisement revenue received by the appellant are not taxable in India as long as the treaty and the Circular stands.

14. In the light of the above Appeal filed by the Appellant herein is allowed and the order of the ITAT is set aside. Merely because tax on income was paid for some assessment years would not stop the assessee from contending that its income is not liable to tax. The order of CIT is restored except to the extent that it has said that it cannot interfere because the Appellant had paid the tax. That part is set aside.

CO Nos. 124-125/Mum/2008, 63 and 64/Mum/.2009 1879/Mum/2008 and 5042-43/Mum/08 Assessment year: 2002-03, 2004-05, 2005-06 Page 18 of 21 coordinate bench decision in the case of Delmas France vs ADIT [(2012) 17 taxmann.com 91 (Mum)], to the effect, "Similarly, before accepting DAPE profit neutrality theory, we will still have to deal with learned Departmental Representative's plea that as per the law laid down by Hon'ble Supreme Court in the case of DIT v. Morgan Stanley & Co Inc. [2007] 162 Taxman 165 (SC), the arm's length remuneration paid to the PE must take into account 'all the risks of the foreign enterprise as assumed by the PE', but then in an agency PE situation, unlike a service PE situation which was the case before the Hon'ble Supreme Court, a DAPE assumes the entrepreneurship risk in respect of which agent can never be compensated because even as DAPE inherently assumes the entrepreneurship risk, an agent cannot assume that entrepreneurship risk. To this extent, there may clearly be a subtle line of demarcation between the dependent agent and the dependent agency permanent establishment. The tax neutrality theory, on account of existence of DAPE, may not indeed be wholly unqualified- at least on a conceptual note". However, these issues are wholly academic before this forum because Hon'ble jurisdictional High Court has taken a specific call on the issue to the effect that the Morgan Stanley decision of Hon'ble Supreme Court covers the DAPE situations as well. In a series of decisions of the coordinate benches, the same view is reiterated. The successive coordinate benches in assessee's own case for different assessment years have upheld the contentions of the assessee and held that once an arm's length remuneration is paid to the agent, nothing further survives for taxation in the hands of the DAPE which, at best, can be brought to tax in the hands of the assessee. In any event, whatever be the academic justification for an alternative approach to the issue, the law laid down by Hon'ble Courts above is to be deeply respected and loyally followed. Respectfully following the law laid down by Hon'ble Courts above and consistent with the stand of the coordinate bench decisions, we uphold the plea of the assessee for the present years as well. We, therefore, hold that even if there is held to be a dependent agency permanent establishment on the facts of this case, as at best the case of the Assessing Officer is, it is wholly tax-neutral inasmuch as the Indian agents have been paid arm's length remuneration, and nothing further can, therefore, be taxed in the hands of the assessee.

CO Nos. 124-125/Mum/2008, 63 and 64/Mum/.2009 1879/Mum/2008 and 5042-43/Mum/08 Assessment year: 2002-03, 2004-05, 2005-06 Page 19 of 21 into by assessee have not been examined by the authorities below”. There is no material whatsoever before us to show, or even indicate, that the remuneration paid to the agents is not arm's length remuneration. In any case, the agent has been paid a remuneration at the rate of ten percent of the related revenues which is accepted as an arm’s length price, in similar circumstances, in a large number of cases- including assessee’s own cases for the assessment years, other than the assessment years in which this aspect of the matter is requested to be sent back for specific adjudication. Learned Departmental Representative himself submits that so far reliance of the assessment on the coordinate bench decisions for the assessment years 2006-07 to 2012-13 are concerned, “in the other cases relied upon by the assessee, the transfer pricing adjudication was made while in the present case, no such adjudication was made, and hence the decisions are not applicable as distinguishable on facts”. We have also noted that the matter has come up for specific consideration of the Assessing Officer, and yet he has not found any deficiencies on the specific issue of adequacy of arm’s length remuneration. It is not that this aspect was not examined. It was examined but the Assessing Officer did not find specific fault in the agent’s remuneration not being in accordance with the FAR analysis. He has rather proceeded to, in a way, disregard the foreign entity altogether by suggesting that no business risk is assumed by the foreign company, i.e. the assessee, as the content is provided by the Indian agent and the viewership is Indian, and, for that reason, the viewership is linked to the Indian PE. We have noticed that the Assessing Officer has specifically picked up the aspect of “functions and risk taken by the PE” under that heading and title of the paragraph 5.3.4, in the assessment year 2002-03 for example at page 31 of the assessment order, noted that “there is no reason as to why the assessee should assume risk after having acquired the content in a working state from the content provider”, that “all risks for up linking and finally relaying the signals in India is borne by the transponder company and not the assessee”, and, therefore, concluded that “in view of the above discussions, it can be seen that major part of the risk in terms of market risk and technology risks are borne by the ZTL/El Zee” and that “almost 85% to 90% revenues from advertisement and subscription of the assessee comes through Indian viewership which is undoubtedly linked with the PE i.e., ZTL/El Zee”. This is not the Indian viewership which is relevant in this context. What was relevant was the role played by the agent in India and whether the remuneration paid by the assessee company, for the services of the agent, was a fair and arm’s length remuneration vis-à-vis the functions performed, assets employed and risks assumed by the Indian agent. No issues are raised on the inadequacy of agent’s remuneration by the Assessing Officer, and now a fresh inning is sought to find these inadequacies and improve the case of the revenue. That is impermissible. In his analysis, while the Assessing Officer has proceeded on sweeping generalizations about the risks assumed by the PE but there is no specific FAR analysis which could support that the agent’s remuneration not being an arm’s length remuneration, and the Assessing Officer has proceeded on the basis that all the business risks of the assessee (i.e. the foreign company) are borne by the PE as PE is the content provider and responsible for up linking activity. That’s too sweeping a generalization to meet any judicial approval, and, on the same set of findings, the coordinate benches have disapproved the stand of the Assessing Officer. Under these circumstances, we see no reasons to remit the matter to the file of the Assessing Officer for a fresh round of ALP ascertainment proceedings, as prayed by the learned Departmental Representative. The plea of the assessee, as raised in the cross- objections, therefore, merits acceptance. Whether there is a DAPE or not, there are no additional profits to be brought to tax as a result of the existence of the DAPE, and, therefore, the question about the existence of a DAPE on the facts of this case is wholly academic.

CO Nos. 124-125/Mum/2008, 63 and 64/Mum/.2009 1879/Mum/2008 and 5042-43/Mum/08 Assessment year: 2002-03, 2004-05, 2005-06 Page 20 of 21

17. In view of the above position, the issue raised in the departmental appeals is wholly academic and does not call for any adjudication at this stage.