Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCH “L”, MUMBAI
Before: SHRI AMIT SHUKLA & SHRI ASHWANI TANEJA
आयकर अपीलीय अिधकरण “एल” �यायपीठ मुंबई म�। IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “L”, MUMBAI �ी अिमत शु�ला, �याियक सद�य एवं �ी अशवनी तनेजा, लेखा सद�य के सम� । BEFORE SHRI AMIT SHUKLA, JUDICIAL MEMBER AND SHRI ASHWANI TANEJA, ACCOUNTANT MEMBER ITA No. : 1405/Mum/2014 (Assessment year: 2010-11) वारनर �दर �ड���बु�टंग आई एन सी ADIT (IT) -2(2), Vs Scindia House, 1st Floor, Warner Brother Distributing N M Marg, Ballard Estate, Inc., Mumbai -400 001 C/o Warner Bros Picture (India) Pvt Ltd, 4th Floor, Eros Bldg, 42 M K Road, Mumbai -400 020 ��यथ� (Respondent) अपीलाथ� (Appellant) C.O. No. : 102/Mum/2015 Arising out of ITA No. : 1405/Mum/2014, AY 2010-11 वारनर �दर �ड���बु�टंग आई एन सी Vs ADIT (IT) -2(2), Scindia House, 1st Floor, Warner Brother Distributing N M Marg, Ballard Estate, Inc., Mumbai -400 001 C/o Warner Bros Picture (India) Pvt Ltd, 4th Floor, Eros Bldg, 42 M K Road, Mumbai -400 020 PAN:AAACU 6668 D ��यथ� (Respondent) अपीलाथ� (Cross Objector) �ी डब�यू हसन Assessee-Cross Objector by : Shri W Hasan �ी जसबीर चौहान Revenue by : Shri Jasbir Chouhan सुनवाई क� तार�ख /Date of Hearing : 27-10-2016 घोषणा क� तार�ख /Date of Pronouncement : 27-10-2016 आदेश ORDER �ी अिमत शु�ला, �याियक सद�य:
2 वारनर �दर �ड���बु�टंग आई एन सी Warner Brother Distributing Inc. ITA No. : 1405/Mum/2014 C O No. : 102/Mum/2015 PER AMIT SHUKLA, J.M.:
The aforesaid appeal has been filed by the Department and Cross Objection by the assessee against Final Assessment Order dated 31.12.2013, passed under section 144C(13) r.w.s. 143(3) for the assessment year 2010-11 in pursuance of directions given by the DRP vide order dated 30.12.2013. In the grounds of appeal
, the revenue has raised following grounds:-
1. Whether on the facts and in the circumstances of the case and in law, the Hon’ble DRP was correct in holding that royalty received by the assessee from Warner Bros Picture India Ltd in pursuance to the agreement for distribution and exhibition of the films in India being business profit attributable to the PE of the assessee in India is not taxable as it is not hit by rigors of Explanation 2(v) to section 9(1)(vi) of the Income Tax Act, 1961?
2. Whether on the facts and in the circumstances of the case and in law, the Hon’ble DRP was correct in holding that royalty received by the assessee from WBPIL in pursuance to the agreement for distribution if theatrical movies in India, is not taxable in India as it is not hit by the rigors of explanation 2(v) to section 9(1)(vi) without appreciating that the same is covered by the provisions of Section 9(1)(i) and that these two Sections are independent and exclusive to each other and have independent application?”
3. Without prejudice, whether on the facts and in the circumstances of the case and in law, the Hon’ble DRP was correct in holding that Royalty received by the assessee is not taxable in India as it is not hit by the rigors of Explanation 2(v) to section 9(1)(vi) without appreciating that the same is duly covered by the substantive provisions of 3 वारनर �दर �ड���बु�टंग आई एन सी Warner Brother Distributing Inc. ITA No. : 1405/Mum/2014 C O No. : 102/Mum/2015 section 5(2) and that a substantive provision ((section 5(2)) would have precedence over a deeming provision (section 9)?
Whether on the facts and in the circumstances of the case and in law, the Hon’ble DRP Mumbai was correct in coming to the conclusion that the Respondent does not have PE in India because the Indian company that has obtained the right is acting independently?
5. Without prejudice, whether on the facts and in the circumstances of the case and in law, the Hon’ble DRP was correct in holding that Royalty received by the assessee is not taxable as Business profit when the Indian entity emerges as DAPE of the assessee in view of various activities in terms of the agreement and supervision and control of the assessee over Indian entity?
The Appellant prays that the order of the DRP be set aside on the above grounds and the draft order of the Assessing Officer be restored”.
At the outset, the Ld. Counsel for the assessee, Shri W Hasan, submitted that the issues raised in the revenue’s appeal are squarely covered by the decisions of this Tribunal in assessee’s own case right from the assessment years 2006- 07 to 2009-10. Explaining the brief background, he submitted that, assessee is a non-resident company incorporated in USA and one of its activities includes export of films from USA which are either produced by its Group studios or produced by other third parties. The assessee had entered into an agreement with ‘Warner Bros Picture (India) Pvt. Ltd’, an Indian entity, granting distribution rights for Cinematographic Films on payment of specified “royalty”. The 4 वारनर �दर �ड���बु�टंग आई एन सी Warner Brother Distributing Inc. ITA No. : 1405/Mum/2014 C O No. : 102/Mum/2015 assessee’s contention was that though it is receiving royalty from the Indian company but same is on account of distribution of Cinematographic films. Since clause (v) of Explanation 2 to section 9(1)(vi) excludes consideration for the sale, distribution or exhibition of cinematographic films from the purview of royalty, therefore, such an income is not taxable under the Income-tax Act also. The Assessing Officer’s case on the other hand was that, income of the assessee is directly accruing or arising in India from the distribution of the films in the cinema halls / TV Channels etc. in India, therefore, by virtue of section 5 the same is taxable in India in the hands of the assessee company. Otherwise also, the assessee has business connection in India within the scope of section 9(1)(i). Thus, as per the Department income from the sale of distribution of Cinema Films is to be treated as ‘business profits’ which should be taxed in the hands of the assessee company. The Assessing Officer after going through the various clauses of the agreement also came to the conclusion that, assessee even has a “dependent agency PE” in India in the form of ‘Warner Bros Picture India Pvt. Ltd’, accordingly, he determined the taxable income of the assessee @ 65% of the income received by the assessee from India. He had also rejected the assessee’s contention that the royalty received by the assessee cannot be subjected to tax as the same has been remunerated at Arm’s Length Price (ALP). The Ld. DRP after referring and following the decision of the Tribunal in assessee’s own case right from the assessment years 2006-07 to 2008-09 has allowed the assessee’s appeal, holding that its income is not taxable in India. Accordingly, the appeal of the revenue should be dismissed following 5 वारनर �दर �ड���बु�टंग आई एन सी Warner Brother Distributing Inc. ITA No. : 1405/Mum/2014 C O No. : 102/Mum/2015 earlier years’ precedent, wherein, it has been held that the amount received by the assessee from the Indian company is not taxable either under the domestic law or under the DTAA.
The Ld. DR admitted that this issue has been decided by the Tribunal in favour of the assessee in earlier years. However, he strongly relied upon the order of the Assessing Officer.
4. After considering the rival submissions and on the perusal of the impugned order of the DRP, we find that the assessee’s claim that the ‘royalty’ received by it from the Indian entity, Warner Bros Picture India Pvt. Ltd was neither taxable in India under the Income-tax Act as the consideration for the sale, distribution or exhibition of cinematographic films have been categorically excluded from the purview of “royalty” under section 9(1)(vi) read with clause (v), nor under the terms of Article 12 of Indo-US DTAA. This claim of the assessee has been accepted by the Ld. CIT (A) in the AY 2006-07 and in the second appeal filed by the Revenue before the Tribunal, the order of the Ld. CIT (A) has been confirmed. The non-taxability of royalty income in India has been accepted in the succeeding assessment years 2007-08, 2008-09 and 2009-10 and allowed in favour of the assessee by the Tribunal. Assessee’s detailed submissions on merits as well as based on earlier years’ precedence has been incorporated and dealt in DRP’s order in para 3.2 from pages 4 to 7. The Ld. DRP after considering the entire submissions and entire gamut of facts have decided this issue in favour of the assessee after observing and holding as under:-
6 वारनर �दर �ड���बु�टंग आई एन सी Warner Brother Distributing Inc. ITA No. : 1405/Mum/2014 C O No. : 102/Mum/2015 “3.3.1 We have gone through the order of the AO and submissions of the assessee. It is seen that the similar issue was before the predecessor DRP for the AY 2007-08 and 2008-09 and DRP has rejected the claim of the assessee.
3.3.2 We have also seen that in the AY 2006-07, the assessee had claimed that the royalty received by it from WBPIPL was not taxable in India either under the Income Tax Act or under India-USA DTAA. During the Assessment proceedings, the AO did not accept the claim of the assessee and assessed the royalty @ 15% under India-USA DTAA. Against the said order of the AO, the assessee filed appeal to CIT (A). The CIT (A) has held that the royalty received by the assessee from WBPIPL is not taxable either under the Income Tax Act or the DTAA. Against the said order of the CIT (A), the Department had filed appeal to the ITAT. The Hon’ble ITAT, “L” Bench, Mumbai vide its order dated 30th December, 2011 in has confirmed the order of the CIT(A) holding that the royalty received by the Assessee (WBPI) from WBPIPL is not taxable in India either under the Income Tax Act or India-USA DTAA.
3.3.3 In AY 2007-08 and 2008-09 the AO had assessed the said royalty as business income u/s 143(3) r.w.s 144C(13). Against the said order of the AO the assessee had filed appeal to Hon’ble ITAT, Mumbai. The Hon’ble ITAT “L” Bench, Mumbai has allowed the appeal of the 7 वारनर �दर �ड���बु�टंग आई एन सी Warner Brother Distributing Inc. ITA No. : 1405/Mum/2014 C O No. : 102/Mum/2015 assessee for both the years holding that the royalty received by the assessee from WBPIPL is not taxable in India.
3.3.4 As per the provisions of the DTAA, the business income of the assessee cannot be taxed in India in the absence of PE. The AO, after going through the various clauses of agreement, has held that the assessee has a Dependent Agent Permanent Establishment (DAPE) in India in the form of WBPIPL. The question whether the Indian company, namely, WBPIPL is the PE of the assessee company or not came up for consideration directly in AY 2006-07 in ITA No. 60/Mum/2010. After considering the detailed arguments of the learned CIT (DR) the Hon’ble “L” Bench held that WBPIPL is not the PE of the assessee company in India. The findings of the Hon’ble Bench are quoted hereunder: “10) The issue can be examined in another dimension whether the amount is taxable under the Indian Income Tax Act in India if not as royalty, but as business income. The CIT (A) finding is that assessee has a business connection in India. However, he considered that there is no PE to the assessee, the fact of which was also accepted by the Assessing Officer as per PE proviso. It was the contention of the learned Departmental Representative that the assessee having business connection, the findings of which was given by the CIT(A), the amount cannot be executed without examining ‘PE proviso’ provisions of DTAA. In this regard the learned Counsel’s submission that under the Income Tax Act as well as under the provisions of DTAA the transaction between the assessee and Indian Company to whom license was granted by the virtue of the agreement cannot be considered as Agency PE as the Indian assessee is not exclusively dealing with the assessee and 8 वारनर �दर �ड���बु�टंग आई एन सी Warner Brother Distributing Inc. ITA No. : 1405/Mum/2014 C O No. : 102/Mum/2015 referred to the receipts from another company 10th Century Fox to submit that the assessee is also dealing with the other Non Resident Companies, so assessee cannot be considered Agency PE within the definition of Permanent Establishment.
11) We have examined this aspect also. As rightly held by the CIT(A) even if income accruing or arising out of such business connection can only be taxed to the extent of the activities attributed to permanent establishment. In this case, the assessee does not have any permanent establishment in India. Since the Indian company who obtained the rights is acting independently. Agency PE provisions are not applicable to the assessee company. The assessee relied on the decision of Ishikawajama Harima Heavy Industries Ltd vs. Director of Income Tax 2007 – (158) TAXMAN 0259-SC that incomes arising to a Non- Resident cannot be taxed as business income in India, without a PE. As the assessee does not have any permanent establishment in India, the incomes arising outside Indian Territories cannot be brought to tax. Therefore, there is no need to differ from the findings of the CIT (A) and accordingly the Revenue Appeal is dismissed”.
The finding of the Hon’ble “L” Bench has been followed in the subsequent two appeals viz. for AY 2007-08 and ITA No.8627/Mum/2011 for AY 2008-09.
3.3.5 Thus, it is clear that the very issue of existence of PE in India has been considered by the Hon’ble ITAT. The income of the assessee company does not qualify for the definition of Royalty in term of income tax Act 1961. The AO himself has accepted in the assessment order that the income of the assessee cannot be taxed as Royalty. Once the income of the assessee company does not 9 वारनर �दर �ड���बु�टंग आई एन सी Warner Brother Distributing Inc. ITA No. : 1405/Mum/2014 C O No. : 102/Mum/2015 qualify under the definition of Royalty, the income has to be held as business income. The business income cannot be taxed in the absence of PE in India. We have seen that the Hon’ble ITAT has categorically held that the WBPIPL is not the PE of the assessee company.
3.3.6 Thus, respectfully following the decision of the Hon’ble ITAT in the assessee’s own case, we are of the view that the income of the assessee is not taxable in India and we direct the AO to delete the addition proposed on this account”.
Since, the aforesaid decision of the Ld. DRP is based on finding arrived at by the Tribunal in earlier years, therefore, consistent with the judicial precedence and view taken in earlier years which is applicable on the facts of the present year also, therefore, without taking any deviation we affirm the order of the Ld. DRP. Accordingly, ground raised by the revenue is dismissed.
In the result, appeal of the revenue stands dismissed.
Cross Objection No.102 of 2015: 6. In the cross objections assessee has raised following grounds:- “1. On the facts and in the circumstances of the case and in law the Hon’ble DRP erred in not dealing with the assessee’s submissions that relief also be granted to the assessee in view of the decision of the Hon’ble “L” Bench of ITAT Mumbai in the case of Delmas, France v. ADIT (Mum.) in which applies to the case of the assessee on all fours.
10 वारनर �दर �ड���बु�टंग आई एन सी Warner Brother Distributing Inc. ITA No. : 1405/Mum/2014 C O No. : 102/Mum/2015 2. On the facts and in the circumstances of the case and in law the Hon’ble DRP erred in not dealing with the assessee’s objection that the Assessing officer erred in holding that the royalty received by the assessee is liable to tax even when the same is determined at arm’s length.
3. On the facts and in the circumstances of the case and in law the Hon’ble DRP erred in not dealing with the assessee’s objection that the Assessing Officer erred in determining the taxable income of the assessee @ 65% of the royalty received by the assessee”.
It has been admitted by both the parties that, if revenue’s appeal is being dismissed, then grounds raised in the Cross Objection will become purely academic. Since we have already dismissed the revenue’s appeal, therefore, the issues raised in the Cross Objections are kept open and same is not adjudicated as it would purely academic exercise. Accordingly, Cross Objection raised by the assessee is dismissed as infructuous. To sum-up:- Revenue’s appeal and assessee’s Cross Objection stands dismissed. Order pronounced in the open court on 27th October, 2016.
Sd/- Sd/- (अशवनी तनेजा) (अिमत शु�ला) लेखा सद�य �याईक सदस (ASHWANI TANEJA) (AMIT SHUKLA) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Date: 27th October, 2016. ��त/Copy to:- 1) अपीलाथ� /The Appellant. 2) ��यथ� /The Respondent. 3) The DRP-II/CIT(Appeals) –concerned, Mumbai. 4) The CIT/ DRP/DIT – Concerned____, Mumbai 5) िवभागीय �ितिनिध “एल”, आयकर अपीलीय अिधकरण, मुंबई/