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Income Tax Appellate Tribunal, MUMBAI BENCH “L”, MUMBAI
Before: Shri Mahavir Singh & Shri G Manjunatha
O R D E R Per G Manjunatha, AM : These cross appeals filed by the revenue, as well as assessee are directed against separate, but identical orders of the CIT(A)-58, Mumbai dated 29-07-2016 for the assessment year, 2009-10 & 2010-11. Since facts are identical and issues are common, for the sake of convenience, these appeals are heard together and are disposed of by this common order.
The brief facts of the case are that the assessee company is a tax resident of Mauritius and is engaged in the business of telecasting on TV channels(TEN Sports). The activities of the assessee are to purchase broadcasting rights in respect of contents like cricket, football and other sports, consequent uplinking of channels from transponders and downlinking the same over the territory of India, sale of airtime on its channel to Indian persons and collection of subscription from cable operators in India. The assessee is receiving revnue’s in form of advertising, distribution income being the primary source of income. The assessee has filed its return of income for AY 2009-10 declaring total income at Nil. The assessee in its return of income, filed Notes to the computation of income and claimed that Taj TV is carrying on business from outside India and it does not have business connection in India. It has neither a fixed place of business in India, nor has any project / office
3 Taj TV Ltd in India as defined in paras 1 & 2 of Article 5 of the DTAA between India and Mauritius. The management and control of Taj TV is situated outside India. Accordingly it was stated that there is no permanent establishment for the assessee in India and hence, the income earned by it from its activities is not liable to tax in India.
The case has been selected for scrutiny and accordingly, notices u/s 143(2) & 142(1) of the Act, were issued. In response to notices, the authorized representative appeared from time to time and filed various details, as called for. A draft assessment order was passed on 05-03- 2013 u/s 144C(1) r.w.s. 143(3) of the Act. The assessee, in reply, vide letter dated 04-04-2013 has communicated that it is exercising the option to appeal before the CIT(A) instead of filing objections before the DRP against various proposed additions in the draft assessment order.
The AO rejected the claim of the assessee and assessed the income for the year under consideration at Rs.49,32,74,156 for the reason that Taj India conducts a host of activities in India on behalf of the assessee which is a dependent agent and carried out various services for its principal like facilitating arrangement with advertising agencies, sales representatives, conducting market status promoting awareness regarding channel and other services incidental to acting as dependent for booking advertisements. Accordingly, he concluded that Taj India
4 Taj TV Ltd constituted dependent agent PE with respect to activity of advertisement revenue and accordingly assessed income attributable in India. The AO, also disallowed programming cost and transponder fees paid to PanAM Sat International System Inc for rendering services, satellite launch outside India in telecasting the sports channel to various countries u/s 40(a)(i) of the Act, for failure to deduct tax at source from said payments as according to him it is in the nature of royalty and falls under clause (iva) of Explanation 2 to section 9(1)(vi) of the Act.
The assessee carried the matter in appeal before the CIT(A).
Before the CIT(A), the assessee has filed elaborate written submissions to argue that the assessee does not have any permanent establishment in India and hence, no part of its income is liable to tax in India, therefore, the AO was incorrect in holding that the operations carried out by Taj India constitute a dependent agent PE and accordingly, assessee is liable for tax in India. The assessee also challenged additions made by the AO towards disallowance of programming cost for acquiring telecasting rights and transponder fees paid to M/s PanAM Sat International System Inc. are in the nature of royalty as defined under Explanation (2) to section 9(1)(vi) and such income deemed to accrue or arise in India, without appreciating the fact that the payments made to non residents is for services rendered outside India and no part of 5 Taj TV Ltd income is accrued or deemed to accrue or arise in India. The CIT(A), after considering relevant submissions of the assessee and also relying upon certain judicial precedents, held that the assessee is liable to tax in India on the income which is attributable to its activities in India carried out by the Taj India with respect to its advertising receipts based on the functional analysis of this activity. The AO concluded that 75% of the income is liable to tax in India. Therefore, he opined that the AO was right in concluding that the assessee is having PE in India and income attributable to its activities in India is assessable in India. Accordingly, he upheld the findings of the AO and rejected ground raised by the assessee. Insofar as disallowance of programming cost and transponder charges paid to M/s PanAM Sat International System Inc., the CIT(A), after considering relevant facts and also relying upon various judicial precedents including, the decision of ITAT, Mumbai in assessee’s own case observed that disallowance could not have been made by the AO as the amendment to section 9(1)(vi) had not been effected at the time of making the remittance and accordingly, the question of disallowance of programming cost and transponder charges u/s 40(a)(i) for failure to deduct tax u/s 195 is incorrect. Accordingly, directed the AO to delete addition made towards programming cost and transponder charges. Aggrieved by the order of CIT(A), the assessee
6 Taj TV Ltd as well as the revenue are in appeals before us.
We shall first take up the assessee’s appeals. The assessee has taken more or less, common grounds of appeal
for both the assessment years under appeal. For the sake of brevity, the grounds of appeal for AY 2009-10 are extracted below:- “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 in respect of advertisement revenue. Without prejudice to above, even if the Appellant has a Permanent Establishment in India, the Commissioner (Appeals) erred in concluding that income is attributable to the Permanent Establishment without rebutting the fact that it has remunerated its agent at the arm's length price in respect of advertising revenue.”
6. The Ld.AR for the assessee, at the time of hearing submitted that the issue involved in these appeals is squarely covered in favour of the assessee by the decision of ITAT, “L” Bench in assessee’s own case for AY 2006-07 in wherein under similar set of facts, the ITAT held that Taj India does not constitute agency PE in terms of India Mauritius DTAA. Insofar as advertisement revenue income, the ITAT held that since Taj India is 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. It is an undisputed fact that the TPO has accepted the transaction between assessee and Taj India at an arm’s length price. Therefore, nothing further should be attributable to the assessee which has to be taxed in India. The Ld.DR present for revenue, fairly accepted that issue is squarely covered in favour of the 7 Taj TV Ltd assessee by the earlier decision of the ITAT for earlier assessment years.
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 lj(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 C1T(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"
8 Taj TV Ltd 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.”
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 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.
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. ITAs No.6326 & 6327/Mum/2016
The Ld.AR for the assessee, at the outset, submitted that the issues involved in these appeals are also squarely covered in favour of the assessee by the decision of ITAT, in assessee’s own case for AY
9 Taj TV Ltd 2006-07 in wherein under similar set of facts, the ITAT has deleted addition made by the AO towards programming cost paid to various non residents and also payments made to M/s PanAM Sat International System Inc. and other non residents towards transponder charges u/s 40(a)(i) for failure to deduct tax u/s 195 of the Income-tax Act, 1961. The Ld.DR, on the other hand, fairly accepted that the issues involved in these appeals are covered in favour of the assessee by the decision of ITAT for earlier assessment years.
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 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 HonTDle 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)
10 Taj TV Ltd 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 assesse’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.
In the result, the appeals filed by the assessee in ITAs No.6367 & 6368/Mum/2016 are allowed and appeals filed by the revenue in No.6326 & 6327/Mum/2016 are dismissed.
11 Taj TV Ltd
Order pronounced in the open court on 20th July, 2018.