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PER PAWAN SINGH, JUDICIAL MEMBER; 1. These cross appeal by assessee and by revenue under section 253 of the Income-tax Act (‘the Act’) are directed against the order of ld. CIT(A)-55, Mumbai dated 14.12.2017 for Assessment Year 2011-12.
& 1501 Mum 2018-Taj TV Ltd.
Brief facts of the case are that the assessee-company is a tax residents of Mauritius and engaged in the business of Telecasting of TV Channel (TEN Sports), filed its return of income on 28.11.2011 declaring total income of Rs. Nil. In the Note to the return of income the assessee claimed that the assessee is carrying its business outside India and it has no business connection in India and accordingly in view of the provisions of Article 7 read with section 90(2) of Income –Tax Act, the income of the assessee is not subject to income tax in India. The assessee stated that they have no fixed place of business in India, nor any project office. The return of income was selected for scrutiny. In the return of income the assessee reported international transaction with its associated enterprises (AE) i.e. Taj Television and Zee Entertainment Ltd. for advertising sales agency services, share of distribution services, recovery of expenses on sale of broadcasting rights, reimbursement of expenses and recovery of expenses. The assessee applied CUP as most appropriate method to conclude the transaction at arm’s length. The assessee compared ist transaction of distribution services of Taj India with similar comparable uncontrolled transaction entered into with third parties in Pakistan. Therefore, the assessing officer made reference under section 92CA(1) for computation of Arms Length Price (ALP). The learned transfer pricing officer (TPO) after granting opportunity to the assessee suggested adjustment of Rs.2,57,61,838/-.
The assessing officer after receipt of the report/ order of TPO passed a draft assessment order under section 143(3) rws 144C(1) on 05.03.2015 and served & 1501 Mum 2018-Taj TV Ltd. upon the assessee. The assessee vide its reply dated 01.04.2015 stated they that does not intends to file objection before Disputes Resolution Penal (DRP) and would exercise the option to file appeal before ld CIT(A), therefore, the assessing officer passed assessment order under section 143(3) rws 144C(3) on 21.04.2015. In the final assessment order the assessing officer made addition of Rs.2,57,61,838/- as suggested by TPO. The assessing officer after perusal of agreement between assessee and Taj India that Taj India has exclusive right to represent the assessee before distribution system/ cable operator and negotiate and procure cable distribution licence agreement for the services, term of which are determined by Taj India as authorised by the assessee. The distribution revenue collected by Taj India and assessee is shared in the ratio of 75: 25 from the period 01.04.2010 to 30.09.2010 and 86:14 from 01.10.2010 to 31.03.2011. Thus, the assessee has a PE in India and as such the subscription revenue is taxable on net basis as business income. It was also held that 87.75 % revenue of from advertisement and subscription of the assessee comes through viewership which is linked with the permanent establishment (PE) i.e. Taj India. The Assessing Officer also disallowed programming cost of USD 25901514 under section 40(a)(i). The Assessing Officer further treated the up- linking and transponder fees as royalty as per section 9(1)(vi) as well as under Article 12 of India-USA DTAA. The assessee has not deducted tax at source on payment made for transponder fees and up-linking charges, therefore, entire payment attributable to Indian operation was disallowed under section 40(a)(i). & 1501 Mum 2018-Taj TV Ltd.
On appeal before the ld. CIT(A), it was held that the finding of Assessing Officer that assessee is having PE in India and income attributable to its activity is assessable in India, thereby upheld the action of Assessing Officer.
However, on the disallowing of programming cost, transponder charges and up-linking charges disallowed under section 40(a)(i) by following the decision of assessee’s own case that disallowance could not have been made by the Assessing Officer as the amendment to section 9(1)(vi) had not been affected at the time of remittance and therefore, the question of disallowance of programming cost, transponding charges and up-linking charges under section 40(a)(i) for deduction for failure to deduct tax under section 195 is incorrect and directed the Assessing Officer to delete the addition. Therefore, being aggrieved both the parties have filed their respective appeal raising the grounds of appeal. In , the assessee has raised the following grounds of appeal.
Ground No.1 On the facts and in circumstances of the case and in law, the Commissioner (Appeals) erred in concluding that Appellant has a Permanent Establishment in India and in respect of advertisement revenue. 4. The revenue in its cross appeal has raised the following grounds of appeal:
1. On e facts and circumstance of the case and in law, the Ld CIT(A) erred in holding that Taj India does not constitute an agency PE of the assessee within the meaning of Article 5(4) of the India-Mauritius DTAA with regard to the distribution income received by it " 2. "On the facts and circumstance of the case and in law, the Ld CIT(A) erred in holding that if the arm's length price of international transaction between the assessee and Taj India has been accepted by the TPO, nothing further out of the 4 & 1501 Mum 2018-Taj TV Ltd.
revenue is attributable to the assessee's PE in India for offering for taxation in India, without considering the fact that the arm's length price had been accepted by the TPO w.r.t. marketing function for generating advertising revenue only and arm's length price had not been determined or accepted, for all the functions and risks undertaken by the PE on behalf of the assessee" 3. "On the facts and circumstance of the case and in law, the Ld CIT(A) erred in holding that if the arm's length price of international transaction has been accepted by the TPO, between the assessee and Taj India, nothing further out of the revenue is attributable to the assessee's PE in India for offering for taxation in India, by relying on the decision of the ITAT in the assessee's case in earlier years without considering, that while the Hon'ble ITAT had decided the issue in favour of the assessee in earlier year by placing reliance on the Hon'ble Supreme Court decision in Morgan Stanley [2921TR 4161, the case of the assessee is distinguishable from the case of Morgan Stanley (supra)" 4. "On the facts and circumstance of the case and in law, the Ld CIT(A) erred in not considering that the ratio of Morgan Stanley (supra) shall be applicable when arm's length price has been determined for all the functions and risks, whereas in the case of the assessee, only the marketing function of the PE for generating advertising revenue had been benchmarked"
On the facts and circumstance of the case and in law, the Ld CIT(A) erred in not considering that the consideration paid by the assessee to Taj India was only for carrying out marketing services related to advertising, and not for the profit accruing to the assessee from core activities of the assessee in India carried on by Taj India as the assessee's dependent agent, and therefore the TPO, by accepting the ALP of advertising revenue, had only benchmarked the marketing functions and not other functions carried out by Taj India as assessee's agency PE"
6. On the facts and circumstance of the case and in law, the Ld CIT(A) erred in not considering that the TPO, by accepting the ALP of advertising revenue, had only benchmarked the marketing functions and not other functions carried out by Taj India as assessee's agency PE, and therefore further profits needed to be attributed to the assessee's PE to correctly tax the total income of the assessee arising in India"
& 1501 Mum 2018-Taj TV Ltd.
7. "On the facts and circumstance of the case and in law, the Ld CIT(A) erred in treating the grounds raised
on the issue of transfer pricing adjustments of Rs 2,57,61,838/- as infructuous without deciding it on merits" 8. "The appellant prays that the order of the CIT(A) may be set aside on the above ground and that of the assessing officer restored."
5. We have heard the submission of ld. AR of the assessee and ld. DR for the revenue and perused the material available on record. First, we are taking up the assessee’s appeal. The sole ground of appeal raised by assessee related to PE in respect of advertisement revenue. The ld. AR of the assessee submits that the grounds of appeal raised by assessee is squarely covered by the decision o f Tribunal in A.Y. 2009-10 & 2010-11 in & 6366/Mum/2016 dated 20.07.2018 wherein decision in assessee’s own case for A.Y. 2006-07 in ITA No. 9097/Mum/2010 was followed. The ld. AR further submits that the co-ordinate bench in assessee’s own case for A.Y. 2006-07, 2009-10 & 2010- 11 on similar set of fact held that Taj India does not constitute agency PE in term of India-Mauritius DTAA. So far as advertisement revenue is concerned it was held that since Taj India being remunerated at Arm’s Length, so no further income or profit can be said to be attributable to the assessee in India from its PE. The ld. DR for the revenue accepted the contention of ld. AR of the assessee.
We have considered the submission of both the parties and have gone through the orders of authorities below and the decision of Tribunal in assessee’s own case for A.Y. 2006-07, 2009-10 & 2010-11. We have noted that on similar set of fact, the co-ordinate bench of Tribunal in assessee’s own case for A.Y. 6 & 1501 Mum 2018-Taj TV Ltd. 2009-10 & 2010-11 by following the decision of Tribunal in A.Y. 2006-07 in ITA No. 9079/Mum/2010 passed the following order.
“7. We have heard both the parties and perused the materials available on record. The issue of PE and consequent taxability of income in India is no longer res integra. The ITAT, in assessee's own case for AY 2006- 07 in after considering the ratio laid down by the Hon'ble Supreme Court in the case of DIT vs Morgan Stanley & Co & other cases reported in (2007) 292 ITR 416 (SC) held that since Taj India is being remunerated at arm's length price, no further income or profit can be said to be attributable to the assesse in India from its PE. The relevant portion of the order is extracted below:-
"9. As regards the AO's conclusion and finding that Distribution income earned by the assessee for the period 01.04,2002 to 12.07.2002, that is, for the period of little over 3 months, the distribution income earned by the assessee is be treated as 'royalty' income within the meaning of section (l)(vi), because prior to 13.07.2002, assessee was not Resident of Mauritius and therefore, the benefit of DTAA will not be applicable and accordingly the income shall be taxable as per the Domestic Law, that is, Indian Income-tax Act; Ld, CIT(A) held that post 12.07.2002, the AO himself has held that distribution income is not 'royalty' albeit is a business income and will not fall within the meaning of "royalty" as defined under Article 12 of the India Mauritius DTAA post 13.07.2002. Thus, there cannot be two different treatments for same income. The assessee's case before the CIT(A) in this regard was that, business of telecasting of channels process is continuous and non-stop, which is initiated by the channel companies and ultimately enjoyed by the viewers. The business carried on by the channel companies is an indivisible and wholesome chain of activities, which cannot be segregated and packed as independent modules. All the players involved in the business take part simultaneously in carrying on of the telecasting business which runs instantly. In support the assessee has referred and relied upon the decision of ITAT, Mumbai Bench in the case of Satellite Television Asian Region Ltd. in dated 18.01.2006. Thus, it was submitted by the assessee that, subscription/distribution revenue earned does not fall in the nature of "royalty" as defined in section 9(l)(vi). The Ld. CIT(A) after examining the definition of "royalty" as given in nation 2 to section 9(l)(vi) held that, the distribution income even up to 12th July, 2002 cannot to be taxed as a 'royalty' under section 9(l)(vi) of the Act, as copyright over the programs belong to the Assessee Company, whereas the Distributors or cable operators only transmit the signals received from the Assessee Company. They do not modify, alter, or replace the content of the telecast but broadcast the content as it is received by them from the Assessee Company. Therefore, it does not amount to transfer of any right over the copyright or granting any license over the copyright to the cable operators. Therefore, the AO has erred in taxing distribution income as 'Royalty' under the Act."
8. In this view of the matter and consistent with the view taken by the co-ordinate bench, we are of the view that Taj India does not constitute agency PE in terms of India Mauritius DTAA. Consequently, no further income / profit can be said to be 7 & 1501 Mum 2018-Taj TV Ltd.
attributable to the assessee in India from its PE, since Taj India is being remunerated at arm's length price. Accordingly, we direct the AO to delete additions made towards computation of income attributable to the assessee in India.
9. The facts and issues involved in for AY 2010-11 is identical to the facts and issues discussed in ITA No.6367/Mum/2016. Therefore, for the same reasons, we direct the AO to delete addition made towards computation of income attributable to the assessee in India.”
Considering the consistent view in assessee’s own case, wherein no material change in the fact is brought to our notice. We respectfully following the decision of co-ordinate bench held that the Taj India does not constitute agency PE in terms of India-Mauritius DTAA. Therefore, no income/profit can be said to be attributable to the assessee in India from its PE, as Taj India is remunerated at Arm’s Length Price (ALP). Hence, we direct the Assessing Officer to delete the addition towards computation of income attributable to assessee in India.
In the result, appeal of the assessee is allowed.
The ld. AR of the assessee submits that ground no.1 in revenue appeal and the ground of appeal raised by assessee in assessee’s appeal are common, which relates to agency PE. Ground No.2 to 6 relates to distribution of revenue and Ground no.7 relates to Transfer Pricing Adjustment. The ld. AR further submits that in case the issue/grounds of appeal relates with agency PE is held in favour of assessee, the Ground No.7 will be infructuous. The ld. AR further submits that ground no. 2 to 6 are also squarely covered by the decision of & 1501 Mum 2018-Taj TV Ltd. Tribunal in assessee’s own case for A.Y. 2009-10 & 2010-11, wherein the order for earlier year for A.Y. 2006-07 was followed in ITA No. 9079/Mum/2010.
On the other hand, the ld. Departmental Representative (DR) for the revenue after going through the order of lower authorities and the decision of Tribunal for earlier years agreed that all the grounds of appeal raised by revenue are covered in favour of assessee.
We have considered the submission of both the parties and have gone through the order of authorities below. We have also deliberated on the decision of Tribunal in assessee’s own case for A.Y. 2006-07, 2009-10 & 2010-11.
Ground No.1 relates to agency PE. We have noted that the common ground of appeal was raised by assessee in assessee’s appeal, which we have already decided in favour of assessee. Therefore, our order in assessee’s appeal shall apply mutatis mutandis on this ground of appeal.
12. In the result, ground no.1 of this appeal is dismissed.
Ground No. 2 to 6 relates to distribution of revenue. We have noted that on almost identical grounds of appeal, the co-ordinate bench of Tribunal in assessee’s own case for A.Y. 2009-10 & 2010-11 by following the decision of Tribunal in assessee’s own case for A.Y. 2006-07 passed the following order:
“11. Having heard both the sides and considered the material on record, we find that the co-ordinate bench of ITAT, "L" Bench in for AY 2006-07 has considered similar issue and after considering relevant provisions of the Act, and also by following its own order for AY 2003-04 to 2005-06 held that no disallowance can be made u/s 40(a)(i) on account of programming cost paid to various non residents and also payments made to M/s PanAM Sat International 9 & 1501 Mum 2018-Taj TV Ltd.
System Inc. towards transponder charges for failure to deduct tax at source. The relevant portion of the order is extracted below:-
10. In respect of disallowance of US $ 3,29,966, paid to PanAmSat as Transponder fees, under section 40(a)(i) of the Act, Ld. CIT(A) observed that the Delhi Tribunal in the case of DCIT vs. PanAmSat International System (9 SOT 100) itself has held that payment made for transponder facility is considered to be paid for the use of service and not for use of any equipment, therefore, it did not amount to 'Royalty'. The Hon’ble Tribunal also held that fees paid for Transponder facility does not amount to 'Royalty* as it is not for a secret process; or 'Fees for Included Services' as it does not make available technical knowledge as per Article -12 of India-US DTAA. The Id. CIT(A) also held that the payment of 'transponder fees' was not borne by the PE in India, hence, even if payment is held to be 'Royalty', it is still not taxable as it is not borne by PE of US company in India therefore, there was no obligation to deduct tax at source in view of Article J2(7). In respect of allowance of payment of US $ 305,347, to PanAmSat and various other non-residents as Up charges which has been disallowed under section by the AO, the Id, CIT(A) held that Up linking charges paid by the assessee company are in connection with the events taking place outside India for sending the signal from the venue of the event to the Satellite. The payment is made for rendering services by PanAmSat to uplink the signal from the venue of the event to the Satellite therefore, it is not in the nature of 'Royalty' or Tees for included services'. Ld. CIT(A) further held that the payment of Up linking charges is neither incurred in connection with the PE in India nor borne y the PE in India, therefore, there was no obligation to deduct tax at source. In respect of Programming cost paid to various cricket board and sport associations, which has been disallowed under section 40(a)(i) of the Act, the Id. CIT(A) held that Programming cost paid to acquire live telecast rights of events was not in the1 nature of 'Royalty1 as there is no copyright involved in live telecast of events. He further held that in any case, programming cost are neither in connection with the PE nor is it borne by the PE in India, therefore, even if the payments are characterized as 'Royalty' it will not be taxable as per Article 12(7) of DTAA. Hence, there was no obligation to deduct tax at source on programming cost paid to acquire live telecast rights. Thus, after detailed discussion, Id. CIT(A) held that none of the payments would be taxable in India even if it is deemed to be 'royalty', because the payment to the parties do not have their PE in India, therefore, virtue of article 12(7) the same cannot be taxed in India. \Regarding programming fee also, he has relied upon the of CIT(A) in the order passed under section dated 17.03.2004."
In this view of the matter and consistent with the view taken by the co-ordinate bench in assessee’s own case for earlier years, we direct the AO to delete addition made towards disallowance of programming cost and transponder charges u/s 40(a)(i) of the Income-tax Act, 1961 for AYs 2009-10 & 2010-11.”
Considering the decision of Tribunal in assessee’s own case wherein consistent view is taken by co-ordinate bench in earlier years, and when no material & 1501 Mum 2018-Taj TV Ltd. change in the fact is brought to our notice, we direct the Assessing Officer to delete the addition made for disallowance of programming cost, transponder charges and up-linking charges under section 40(a)(i). In the result, ground no.2 to 6 are dismissed.
Ground No.7 relates to treating the issue of TP Adjustment as infructuous. We have noted that by following the decision of earlier years, we have already held that the assessee has no PE in India. Therefore, the income earned by assessee is not taxable in India. Thus, there should not be any adjustment under the Transfer Pricing Regulation in the hand of assessee, therefore, the ld. CIT(A) righty treated the issue as infructuous. In the result, ground no.7 of the appeal is dismissed. 16. In the result, appeal of revenue is dismissed.
Order pronounced in the open court on 22/05/2019.