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Income Tax Appellate Tribunal, “L” Bench, Mumbai
Before: Shri B.R. Baskaran (AM) & Shri Ravish Sood(JM)
O R D E R Per B.R. Baskaran (AM) :-
The revenue has filed these appeals challenging the orders passed by Ld CIT(A)-10, Mumbai and they relate to the assessment years 2005-06 and 2006-07.
The assessee is a Mauritius based company engaged in the business of telecasting of TV channels named B4U music and B4U Movies. During the years under consideration, the assessee generated revenue through advertisements procured from India. The assessee operates in India through a network of advertisement agencies and collection agents, who were remunerated @ 15% each. For collection of advertisement revenues, the assessee has appointed its subsidiary company named B4U Television Network (India) Pvt Ltd to act as its collection agents.
2 M/s. B4U International Holdings Ltd.
We shall now take up the appeal filed by the revenue for AY 2005-06. The AO computed total income of the assessee by holding that it is having Permanent Establishment in India. When the matter reached the Tribunal, it was noticed that the Tribunal had taken a view in AY 2001-02 that the assessee does not have permanent establishment in India in ITA No.880/Mum/2005. Hence the co-ordinate bench of Tribunal, by following the decision rendered in AY 2001-02, held in AY 2005-06 (ITA No.7190/M/08 dated 28-05-2012) that the assessee does not have Permanent Establishment in India. The Tribunal noticed that the assessing officer had disallowed the payments made to advertising and collecting agents by holding that the assessee had failed to deduct tax at source from those payments as required u/s 194H of the Act. Since the Ld CIT(A) had not adjudicated this issue, the Tribunal restored this issue to his file. Accordingly, the Ld CIT(A) passed the impugned order, wherein he held that the amendment brought in by Finance Act 2012 w.e.f. 1.4.2013 shall have retrospective application. In this regard, he followed the decision rendered by the Hon’ble Calcutta High Court in the case of CIT Vs. Virgin Creations (ITA No.302 of 2011). The assessee also submitted that the assessee does not have Permanent Establishment in India and hence no business income is taxable, in which case, there is no requirement of making any disallowance u/s 40(a)(ia) of the Act. Accordingly the Ld CIT(A) deleted the addition made u/s 40(a)(ia) of the Act and the revenue is agitating the said decision.
We have heard the parties and perused the record. Since the co-ordinate bench of Tribunal has already held that the assessee does not have permanent establishment in India. In the absence of Permanent Establishment there is no requirement of computing business income of the assessee under Indian Income tax Act. Hence there is merit in the contention of the assessee that the question of making any disallowance u/s 40(a)(ia) shall not arise in the absence of requirement of computation of business income. Accordingly we do not find any reason to interfere with the decision taken by Ld CIT(A) on this issue.
3 M/s. B4U International Holdings Ltd.
We shall now take up the appeal filed by the revenue for AY 2006-07. The assessment was reopened by the AO by issuing notice u/s 148 of the Act on 19-03-2013, since the AO took the view that the subsidiary company named M/s B4U television network (I) Pvt Ltd should be treated as dependent agent PE in India and hence the business income of the assessee is taxable in India. Accordingly the AO computed the total income of the assessee by making disallowance u/s 40(a)(i) and sec. 40(a)(ia) of the Act.
Before the Ld CIT(A), the assessee challenged the reopening of assessment and also contested various additions made by the AO. The Ld CIT(A) held that the reopening is bad in law and accordingly annulled the assessment. Since the Tribunal had held that the assessee does not have Permanent Establishment in India, the Ld CIT(A) also held that the additions made by the AO is not sustainable. The revenue is challenging the decision rendered by Ld CIT(A).
We heard the parties and perused the record. We notice the Ld CIT(A) has held that the reopening of assessment is bad in law by considering the facts of the case and the contentions of the assessee. For the sake of convenience, we extract below the relevant observations made and the decision taken by Ld CIT(A):-
3.1 I find that the appellant had filed its return of income as on 11.12.2006 declaring total loss of Rs.9,79,20,132/-. Subsequently, the AO re-opened the assessment u/s. 147 with issuance of notice u/s.148 dated 19.03.2013, which was served on the appellant on 21.03.2013. I find that the AO has given the reasons in Para 2 of the order for reopening of the assessment, which the AO considered as reason for escapement of income. I find that the AO considered the appellant's 100% subsidiary company, M/s.B4U Television Network India P.Ltd. as dependent agent P.E. in India. Besides this, the AO also denied the benefit of DTAA claimed by the appellant on the basis that the effective control and management of the business of the appellant was not in Mauritius. However, I find that the appellant's AR has vehemently argued against the re-opening of the assessment by the AO on the pretext that the appellant's assessment completed by the AO in A.Ys.2002-03, 2003-04 2004-05 and 2005-06 were already adjudicated by the CIT(Appeals) and also by the jurisdictional
4 M/s. B4U International Holdings Ltd.
ITAT, wherein, it was held that the appellant company does not have P.E. in India. Besides this, even the payments which were made to the Indian agent was at arm's length price and hence,. there was no tax liability of the appellant under the provisions of the Income-tax Act. In view of the same, the appellant's AR vehemently argued against the re-assessment proceedings initiated by the AO as per the aforestated notice. To support its contentions, the appellant's AR filed detailed written contentions, the same is extracted herein below 3.1.1 The initiation of reassessment proceedings u/s.147 and subsequent reassessment u/s 143(3) r.w.s. 147 is without jurisdiction, invalid and void ab-initio for the following reasons: The Ld. Assessing officer has reopened the assessment by stating that "In the case of the assessee for A. Y. 2002-03, 2003-04 and 2004-05, it was held that effective control and management of the assessee company is located nor in Mauritius but in Isle of Man or some other country and accordingly, the assessee is not entitled for the benefit of DTAA between India and Mauritius. Further, M/ s B4U Television Network (I) Pvt. Ltd held as dependent agent of the assessee and constitutes PE in India.
Similar situation about incomes and expenditures is involved for A. Y. 2006- 07 in the case of the assessee. Hence, there is reason to believe that the income of the assessee has escaped assessment"
3.1.2 In this regard, it is submitted that the appellant is in the business of broadcasting of TV channels and is incorporated in Mauritius and is having certificate of Residence from Mauritius Tax Authorities. Nature of activities/ business model of the appellant. company during the FY 2005-06 relevant to captioned AY 2006-07 are similar to that of earlier years. It is submitted that the fact appellant is tax resident of Mauritius and not liable in India and the fact that it has made payment to parties viz. Advance Satellite, Advance Broadcast, BT Broadcast Services, as well as payment to agency and collection agent commission were apparent and known to the assessing officer. These facts were emanating from the accounts and return of income filed, by the appellant.
3.1.3 In assessment orders for earlier years AY 2002-03 to AY 2004-05, it was held that appellant is having agency PE in India and that the appellant is not entitled to the benefit of DTAA between India & Mauritius. Further the payment made to Advance Satellite, PanAmSat Ltd, Advance Broadcast, BT Broadcast Services, LMB Holdings Mauritius and LMB Holdings (Isle of Man) were treated as Royalty/FTS and were disallowed u/s 40(a)(i).
5 M/s. B4U International Holdings Ltd.
On appeal against the said orders in Assessments Years 2001-02 to 2004- 05 the ld. CIT(A) confirmed the action of the ld. AO. On further appeals, the Hon'ble ITAT has allowed the appeals by its favour of appellant holding that the appellant is entitled for the benefit of DTAA between India & Mauritius. It has been held that the appellant has no PE in India in terms of Article 5 of the said DTAA & hence its income is not taxable in India. Further, the Hon'ble ITAT also held that even otherwise the commission payments have been paid at ALP, no further taxability arises in India, as per the ruling of Supreme Court decision in case of Morgan Stanley & Co Inc. 292 ITR 416 (SC). The copy of Income Tax Appellate Tribunal (ITAT)'s orders are enclosed at Paper Book no 135 - 195. Also in the assessment order of AY 2005-06, similar issue was involved. On appeal the ld. CIT(A) while passing the order for AY 2005-06 has held that Appellant has PE in India. However, CIT(A) by relying on decision of Supreme Court in 'case of Morgan Stanley & Co. Inc. 2921TR 416 (SC) has held that no income can be attributed to the PE since B4U Television Network Ltd. is paid at ALP, The ld. CIT(A) further held that the agent being compensated at ALP , no further income remains to be taxable in the hands of the appellant, following the decision Bombay High Court in the case of Set Satellite Singapore Pte Ltd. Accordingly, the CIT(A) also held that grounds pertaining to addition u/s 40(a)(1) pertaining to payment to various mentioned parties are infructuous.
The Income Tax Department has accepted the said decision of CIT(A) for AY 2005-06 and had not filed any appeal against the said order of CIT(A) before ITAT. The copy of CIT (A) order dated 19.09.2008 is enclosed at Paper Book. No 97-125. As the ld. CIT(A) held that agency PE exist in India, the appellant preferred appeal before Hon'ble ITAT. The said appeal of the appellant has been allowed by the Hon'ble ITAT. The copy of ITAT's order for A.Y 2005-06 is enclosed for your ready perusal.
3.1.4 As the facts pertaining to AY 2006-07 are similar to that of AY 2005- 06 for which Income Tax Department has already accepted the decision of CIT(A) there is no question of escapement of any income in the appellant's case as even if agency PE is said to be constituted, there will still be no taxability in the hands of appellant as the commission have been paid at ALP as per Supreme Court 'ruling of Morgan Stanley & Co. Inc. 292 ITR 416 (SC).
Further, the Hon'ble ITAT as stated above have already allowed the appeals in favour of the appellant on similar issue of incomes & expenditure for which orders were passed-in-May 2012. Therefore, now reopening the assessment on the said reasons recorded on 19.03.2013 is wrong.
6 M/s. B4U International Holdings Ltd.
3.1.5. Further all facts relating to income from sale of air slots, payment to above mentioned parties and that the appellant being a Mauritius Tax resident its income was not liable to India, were on record and disclosed in return of income(ROI). On the basis of similar facts in earlier AY 2005-06, assessment was made. The facts are similar for AY 2006-07 which are also admitted position by the Ld. AO in the recorded reasons and as such no new tangible material has come into being for the purpose of reassessment.
Therefore, it is submitted that the proposed opening in the absence of "fresh tangible material" is invalid It would be appreciated that if assessment is reopen on the basis of same material which was available on record, reassessment is not valid, in absence of any fresh tangible material.
3.1.6 Reliance is this regard is placed on the following decisions:- (i) CIT vs. Amitabh Bachchan (Bombay High Court)[2012] 349 ITR 76 (Born) (ii) NYK Line (India) Ltd. v. Dy. CIT (2012) 68 DTR 90(Bom) (High Court) (iii) Bapalal & Co. v/s. Jt. CIT - (2007) 289 ITR 37 (Mad.) (iv) M/s. Aipita Marketing Pvt. Ltd. v. ITO (21 SOT 302) (v) HV Transmissions Ltd. v. ITO (vi) Balakrishna Hiralal Wani vs. ITO (2010) 321 ITR 519 (Born.) (vii) Commissioner of Income-tax, Delhi-IV Vs. Feather Foam Enterprises (P.) Ltd. 296 ITR 342 (Delhi) (viii) Siemens Information System Ltd. v. ACIT 295 'TR 333 (Bom.)
In view of the foregoing, the appellant prays that as it had made full and true disclosure of its income in its Return of Income and the computation of total income and financial statements, and in absence of any new information or material, the id. Assessing officer is not justified in re-opening the assessment merely on the same facts without any proper reasons to form belief.
Thus, reopening on basis of material already available with the authorities in original assessment is void and wrong. In view of the above, the appellant prays that the reassessment order be quashed."
3.2 I have considered the AO's order as well as the appellant AR's submissions. Having considered both, I find that before the date of re-
7 M/s. B4U International Holdings Ltd. opening of the assessment in the appellant's own case, the jurisdictional Bombay ITAT vide its dated 28.05.2012 has held that there is no P.E. of the appellant exist in India. Therefore, the Hon'ble ITAT, Mumbai, has held in a very categorical manner in A.Y.2002- 03 to 2005-06 that the appellant is nowhere liable to be taxed in India. Besides, this I also find that in the appellant's own case for A.Y.2005-06, it has been held by me that the appellant's income is not taxable in India in view of the decision of the Supreme Court in the case of M/s.Morgan Stanley &, Co. Inc. 292 ITR 416 (SC). In view of these facts, I consider it proper and appropriate to hold that the AO was not justified in his action in re-opening of the assessment. Accordingly, the assessment order so passed is annulled.”
We have gone through the order passed by the Ld CIT(A) on the issue of validity of reopening of assessment. We notice that the Ld CIT(A) has taken note of the fact that the issue relating to “Permanent Establishment” has since been adjudicated by ITAT in favour of the assessee by the time the AO reopened the assessment. Accordingly the Ld CIT(A) held that the view of the AO that the assessee is having Permanent Establishment in India is not sustainable. Since the AO had reopened the assessment by taking the view that the assessee is having Permanent Establishment in India, the Ld CIT(A) has annulled the reopening of assessment, since in the absence of P E, no business income is required to be computed. We do not find any infirmity in the decision rendered by Ld CIT(A).
In any case, this bench is also required to follow the decision rendered by the co-ordinate bench. Since there is no change in facts, by following the decision rendered by the Tribunal in the earlier years, we also hold that the assessee does not have Permanent Establishment in India. Hence, in the absence of Permanent Establishment, there is no requirement to compute business income of the assessee and hence there is no requirement to make any disallowance u/s 40(a)(i) and 40(a)(ia) of the Act. We hold accordingly.
8 M/s. B4U International Holdings Ltd.
In the result, both the appeals of the revenue are dismissed. Order has been pronounced in the Court on 3.8.2017.