SIS LIVE ,NEW DELHI vs. ACIT CIRCLE-3(1)(2),INTERNATIONAL TAXATION, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: ‘D’ NEW DELHI

BEFORE SHRI G.S. PANNU, HON’BLE PRESIDENT AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER

ITA No.2145/Del/2022 Assessment Year: 2018-19 And ITA No.2146/Del/2022 Assessment Year: 2019-20 SIS Live, Vs. Assistant Commissioner of 4th Floor, Statesman House Income Tax, Building, Barakhamba Road, Circle-3(1)(2), International Connaught Place, Taxation, New Delhi New Delhi PAN :ABRFS4787L (Appellant) (Respondent)

Appellant by Sh. Kamal Sawhney, Advocate Sh. Nikhil Agarwal, Advocate Sh. Nishank Vashisht, Advocate Sh. Arun Bhadauria, Advocate Department by Sh. Gangadhar Panda, CIT(DR) Sh. Virendra Singh, Sr. DR Date of hearing 19.05.2023 Date of pronouncement 30.05.2023 ORDER PER SAKTIJIT DEY, JM: The captioned appeals have been filed by the assessee

assailing the final assessment orders passed under section

143(3) read with section 144C(13) of the Income-tax Act, 1961

(for short ‘the Act’), pertaining to assessment years 2018-19

and 2019-20.

ITA Nos.2145 & 2146/Del/2022 AY: 2018-19 & 2019-20

variation in figures. Therefore, for ease of reference, we

reproduce hereunder the grounds raised in ITA

No.2145/Del/2022:

of Income Tax, Circle 3(1)(2) (International tax), New Delhi ('Learned AO') has erred in passing the final assessment order dated July 07, 2022 under section 143(3) read with section 144C of the Income-tax Act, 1961 (the Act') and the Ld. Dispute Resolution Panel — 2, New Delhi (Learned DRP') has erred in issuing the directions as per section 144C of the Act, on the following grounds. 1. That, on the facts and circumstances of the case and in law, the final assessment order passed by the Learned AO is bad-in-law and liable to be quashed. 2. That. on the facts and in the circumstances of the case and in law, the Learned AO has grossly erred in making disallowance of the legal and professional expenses amounting to INR 45,342,685 claimed by the Appellant, by alleging that the Appellant has no taxable business presence in India in the form of a Permanent Establishment (PE") or business connection during the year under consideration. 2.1. In doing so, the Learned AO has grossly erred in not appreciating the fact that the Project Office (P0') of the Appellant is still operational in view of outstanding contractual revenues and hence, the Appellant still has a taxable business presence and PE in India 2.2. The Learned AO has grossly erred in disregarding the fact that the Appellant follows cash method of accounting and therefore, business continues to be operational until the contractual revenues are realized and the PO is closed. 3. That, on the facts and in the circumstances of the case and in law, the Learned AO has grossly erred in disallowing the brought forward business losses of the Appellant amounting to INR 564,020,407, ignoring the fact that the same are not a subject matter of assessment proceedings for the year under consideration. 4. That, on the facts and in the circumstances of the case, the Learned AO has grossly erred in following an inconsistent approach by holding that the Appellant does not have a business presence in India to disallow the legal and professional expenses, since the same is contrary to the tax position adopted by its predecessors in the assessment orders for earlier years wherein the facts and circumstances were entirely same. 5. That, on the facts and in the circumstances of the case and in law, the Learned AO has grossly erred in interpreting the provisions of the Act and the India-UK Double Taxation Avoidance Agreement (DTAA') by holding that interest income amounting to INR 8,910,553 received on inter-company receivable is taxable at the rate of 15% on gross basis as per Article 12(2) of the India-UK DTAA.

ITA Nos.2145 & 2146/Del/2022 AY: 2018-19 & 2019-20

5.1. That, on the facts and in the circumstances of the case and in law, the Learned AO has grossly erred in holding that the current year losses are not eligible to be set off against the interest income amounting to INR 8,910,553 received on inter-company receivables. Further, the Learned DRP has erred in not adjudicating on this issue. 5.2. Without prejudice, the Learned AO has failed to appreciate the fact that even where it is alleged that the Appellant does not have a business presence in India (without accepting), the interest income amounting to INR 8,910,553 received on intercompany receivable will not be taxable in India as per the provisions of section 9 of the Act. 6. That, on the facts and in the circumstances of the case, the Learned AO has grossly erred in following an inconsistent approach by holding that the provisions of set-off are not applicable to non-residents since the same is contrary to the tax position adopted by its predecessors in the assessment orders for earlier years wherein the facts and circumstances were entirely same. 7 That, on the facts and in circumstances of the case and in law, the Learned AO has grossly erred in charging interest under section 234D of the Act. 8. That, on the facts and in the circumstances of the case and in law, the Learned AO has erred in initiating penalty proceedings under section 270A of the Act for underreporting of income by way of misreporting. The above grounds and/ or sub-grounds are without prejudice to each other. The Appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of the appeal.

arising for consideration is whether the assessee has a Permanent

Establishment (PE) in India so as to entitle the assessee to claim

certain expenses as well as other benefits.

partnership firm incorporated under the laws of United Kingdom

(UK) and is a tax resident of UK. In the year 2010, the assessee

entered into an agreement with Prasar Bharti for production and

telecasting of Common Wealth Games, 2010 through

Doordarshan. In terms with the contract, the assessee was to

ITA Nos.2145 & 2146/Del/2022 AY: 2018-19 & 2019-20

receive an amount of Rs.246 crores. Though, the assessee

undertook the contract of television broadcasting and coverage of

Common Wealth Games, 2010, however, subsequently, dispute

arose between the contracting parties and Prasar Bharti refused

to pay the entire contract value and paid an amount of Rs.146

crores only. In terms with the contract, the assessee invoked the

arbitration clause and arbitral award was passed in July, 2020.

However, still unsatisfied with the award of the arbitrator, the

assessee challenged it before the Hon’ble Delhi High Court. Be

that as it may, as a consequence of the contract with Prasar

Bharti, the assessee has set up a Project Office (PO) in India in

2010, which constitutes a Permanent Establishment (PE) in terms

of Article 5 of India – UK Double Taxation Avoidance Agreement

(DTAA), and started filing its return of income offering income to

tax. Due to ongoing legal proceedings arising out of arbitral

award, the assessee claimed that it continued to operate its PO in

India and the expenditure incurred in India in connection with

the legal proceedings and others were claimed to be in relation to

activities of the PE. Pertinently, the assessee had been claiming

these expenses in its books and the resultant loss has been

allowed to be carried forward year after year. Out of the 4 | P a g e

ITA Nos.2145 & 2146/Del/2022 AY: 2018-19 & 2019-20

contractual receipts, the assessee had transferred certain

amounts from its overseas bank accounts to its Associated

Enterprises (AE), Sports Information Services (Holdings) Ltd. (SIS

holdings). On the amount transferred, the assessee earns interest

income, which is offered to tax in India as business profits

attributable to the PE and legal and other against expenditures

are set off against such income. The resultant loss is claimed in

the return of income filed. Following its earlier practice in the

assessment years under dispute, the assessee set off the

expenditure incurred towards legal and other fees against the

interest income earned from SIS Holdings and claimed the

business loss. In assessment years 2018-19, the assessee filed its

return of income declaring loss of Rs.3.62 crores. Additionally, the

assessee claimed brought forward loss of Rs.56.40 crores.

Similarly, in assessment year 2019-20, the assessee filed its

return of income declaring loss of Rs.1.79 crores and brought

forward business loss of Rs.30.73 crores. While framing the draft

assessment orders, the Assessing Officer observed that in the

assessment years under dispute, the assessee did not conduct

any business operation in India. Whereas, the assessee claimed

expenses on account of legal and professional fees and set off 5 | P a g e

ITA Nos.2145 & 2146/Del/2022 AY: 2018-19 & 2019-20

such expenditure against the interest income earned from SIS

Holdings and ultimately claimed loss. Referring to section 5(2)

and section 9(1)(i) of the Act, the Assessing Officer held, since, the

assessee had no business activity or operation in India, it cannot

be said that it has a PE in India. Therefore, the business

expenditure claimed by the assessee cannot be allowed. Insofar as

taxability of interest income is concerned, the Assessing Officer

observed that such income has to be taxed on gross basis by

applying the rate of 15% as per Article 12(2) of India – UK DTAA.

Assessing Officer observed that the assessee had taxable business

presence in the form of PE only in financial year 2010 relevant to

assessment year 2011-12. Thereafter, the assessee had no

business operation or activity in India, thus, it cannot be said

that the assessee had a PE in India. Thus, he held that the

brought forward business loss has to be disallowed. In the same

manner he proposed the draft assessment orders for the both

assessment years in dispute. Against the draft assessment orders,

the assessee raised objections before learned DRP. As regards the

existence of PE in India, learned DRP fully endorsed the view

expressed by the Assessing Officer. For the same reason, learned 6 | P a g e

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DRP also upheld the disallowance of brought forward business

losses. Learned DRP also upheld the taxability of interest income

under Article 12(2) of India – UK DTAA. As regards assessee’s

claim that the interest income was set off against current years

business losses, learned DRP directed the Assessing Officer to

factually verify assessee’s claim and rectify the same, if found

correct.

submitted that in the assessment years under dispute, the stand

taken by the Assessing Officer is thoroughly inconsistent with the

stand taken by him in earlier assessment years. He submitted,

while considering identical issue in preceding assessment years,

the Assessing Officer has accepted assessee’s claim by not only

allowing the business expenses connected to the PE, but has also

allowed set off of such expenses against interest income. He

submitted, even in the immediately preceding assessment year,

i.e., assessment year 2017-18, the Assessing Officer has accepted

assessee’s claim of set off of business expenses against the

interest income. Thus, he submitted, without any change in the

factual position, the Assessing Officer cannot alter the position

taken by him in the preceding assessment years, as, rule of 7 | P a g e

ITA Nos.2145 & 2146/Del/2022 AY: 2018-19 & 2019-20

consistency has to be applied. In support of such contention,

learned counsel for the assessee relied upon the following

decisions:

i. Radhasoami Satsang Vs. CIT (1992) 60 taxman 248 (SC) ii. DIT Vs. Apparel Exports Promotion Council (2000) 244 ITR 374 iii. Mr. Mohan N. Karnani Vs. ACIT (ITA No.28/Mum/2023) iv. Krishak Bharati Cooperative Ltd. (2012) 23 taxmann.com 265 (Delhi)

operation in assessment year 2011-12, the assessee had a PE in

India. He submitted, even the Revenue does not dispute this fact.

He submitted, since assessment year 2011-12, the assessee had

been filing its Income Tax returns for the PE and claiming

expenses in relation to legal and profession fees and has been

carrying forward the losses setting them against the interest

income of the respective years. He submitted, in the assessment

orders passed for the earlier assessment years, the Assessing

Officer has accepted assessee’s claim and allowed carry forward of

business loss. He submitted, though, the Common Wealth Games

were held in 2010, however, Prasar Bharti violated the terms of

contract by making only part payment to the assessee and for

breach of contract, arbitration proceedings are going between the 8 | P a g e

ITA Nos.2145 & 2146/Del/2022 AY: 2018-19 & 2019-20

assessee and Prasar Bharti. He submitted, activity in relation to

realization of contractual revenue forms intrinsic and crucial part

of business, since the contract is with the object of earning

profits. He submitted, the assessee follows cash method of

accounting, hence, recognizes revenue only on receipt and

expenses on payment basis. Thus, he submitted, while the

receipts are to be taxed in the year of recovery, the expenses have

to be allowed in the year in which they are paid. Learned counsel

submitted, though, there is no specific provision in India – UK

DTAA dealing with cessation of PE, however, guidance in this

regard can be taken from OECD Commentary. Referring to

paragraph 44 of the OECD Commentary on Model Convention,

2017, learned counsel submitted, PE ceases to exist with the

disposal of the fixed place of business or with the cessation of any

activity through it, i.e., when all acts and measures connected

with the former activity of the PE are terminated. He submitted,

in the facts of the present appeal, the PE in India is yet to wind

up its current business transaction as the arbitration dispute is

still ongoing. Therefore, it cannot be said that the PE has ceased

to existence. Referring to the decision of the Hon’ble Supreme

Court in case of Engineering Analysis Centre of Excellence Pvt. 9 | P a g e

ITA Nos.2145 & 2146/Del/2022 AY: 2018-19 & 2019-20

Ltd. (432 ITR 471), learned counsel submitted, OECD guidelines

will have persuasive value. Further, he submitted, the business is

deemed to continue till all the assets in relation to the business

are realized and liabilities are discharged. He submitted, the

business cannot be said to be completed until all contractual

obligations are performed. In this context, he drew our attention

to a decision of Hon’ble Madras High Court in case of B.C.

Munirathinam Naidu Vs. M/s. Meena Financiers, AIR 1978 (Mad.)

46.

counsel submitted, losses determined and brought forward from

earlier years cannot be disallowed in the current years. For this

proposition, he relied upon the following decisions:

i CIT Vs Manmohan Das (Deceased), (1996) 59 ITR 699 (SC) ii Suraj Bhan Bajaj Vs. ITO (2008) 21 SOT 22 (Delhi) 9. As regards the finding of the Assessing Officer that the

provision for carry forward and set off of losses are not applicable

to a non-resident assessee, learned counsel submitted, section 71

and 72 of the Act, which provide for set off and carry forward of

losses refers to assessee and not resident assessee. Therefore, the

assessee will also include non-resident assessee. In this regard, 10 | P a g e

ITA Nos.2145 & 2146/Del/2022 AY: 2018-19 & 2019-20

learned counsel relied upon a decision of the Coordinate Bench in

case of Anchor Line Ltd., 32 ITD 403. He submitted, since as per

assessment orders passed in the preceding assessment years,

assessee’s claim of continuation of the PE has been accepted, the

interest income was eligible to be set off against the current year

business loss. Without prejudice, he submitted, in case, it is held

that the assessee had no PE in India, the interest income cannot

be made taxable in India, as, neither it was received or deemed to

be received in India, nor does it accrue in India. This is so

because, the advances were made from overseas bank accounts of

the assessee to the overseas accounts of SIS Holdings and the

corresponding interest income was also received outside India.

Therefore, it cannot be said to have been received or deemed to be

received in India under section 5(2)(1) of the Act. More so, when

the interest income has no nexus with India. He submitted, once

the interest income does not accrue or arise in India, it is not

taxable in India, both under the Act as well as under Article 12 of

India – UK DTAA. In support of such contention, learned counsel

relied upon the following decisions:

i. Rolls Royce Industrial Power Ltd. Vs. ACIT (2010) 6 ITR (T) 722 (Delhi) ii. Credit Agricole Indosuez Vs. JCIT (2007) 14 SIT 246 11 | P a g e

ITA Nos.2145 & 2146/Del/2022 AY: 2018-19 & 2019-20

iii. CIT Vs. MR. P. Firm, Muar (1965) 1 SCR 815 iv. Balmukund Acharya Vs. DCIT, (2009) 310 ITR 310 (Bombay HC) 10. Strongly relying upon the observations of the Assessing

Officer and learned DRP, learned Departmental Representative

submitted, except the arbitration proceedings, the assessee had

no other activities in India in the relevant assessment years. He

submitted, the assessee is not carrying on any business

operations or activities in India after conclusion of Common

Wealth Games in the year 2010. He submitted, the only income

offered to tax by the assessee in India in all these years is the

interest income from advances given to another sister concern.

Thus, he submitted, assessee’s claim of existence of PE in India is

unacceptable. As regards the taxability of the interest income,

learned Departmental Representative submitted, since, the

advance to the sister concern was out of the contractual amount

received by the assessee from Prasar Bharti, such interest income

is deemed to accrue and arise in India, hence, taxable in India. He

submitted, for carrying on business activity/operation through a

PE, there should be continuity, which is absent in the present

case. As regards the allowability of set off of brought forward

losses, he submitted, they can be considered in the year of set off.

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decisions relied upon and perused the materials on record.

Undisputed factual position emerging on record reveals that the

assessee entered into a contract with Prasar Bharti for television

production and coverage of Common Wealth Games, 2010 on

Doordarshan. For this purpose, the assessee set up a PO in India

which constitutes a PE in terms of Article 5 of India – UK DTAA.

In fact, not only the assessee filed Income Tax returns offering

income related to the PE but the Revenue accepted the existence

of PE. It is evident, though, as per contractual terms the assessee

was to receive Rs.246 crores from Prasar Bharti, however, dispute

arose between the parties and Prasar Bharti paid only an amount

of Rs.146 crores to the assessee.

clause and as stated before us, the arbitral award was passed in

July, 2020, which is under challenge before the Hon’ble Delhi

High Court. Even after conclusion of Common Wealth Games,

2010, the assessee did not wind up its PE in India as the PE was

required to look after the arbitration proceeding and other

contract related issues. It is a fact on record that out of the

amount received from Prasar Bharti, the assessee had advanced 13 | P a g e

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certain amounts towards inter-corporate deposit to one of its

overseas sister concerns, SIS Holdings and regularly receives

interests on such advances. In assessment year 2013-14, the

assessee had incurred certain expenditure towards legal and

professional charges and other expenses. In the return of income

filed for assessment year 2013-14 assessee declared loss after

setting off legal and other expenses against interest income. In

course of assessment proceeding, noticing that the assessee had

advanced loans to its AE and earned interest income, the

Assessing Officer made a reference to the Transfer Pricing Officer

(TPO) to determine arm’s length nature of the interest earned. It is

observed, the TPO finding the rate of interest to be not at arm’s

length, made an upward adjustment and suggested addition to

the arm’s length rate of interest. In terms with the adjustments

suggested by the TPO, the Assessing Officer completed the

assessment after allowing the expenditure claimed by the

assessee. Even, in assessment year 2017-18, the Assessing

Officer raised a specific query regarding claim of expenses on the

ground that the assessee had no related business activity in

India. In response to the query raised, the assessee furnished its

reply stating its position relating to existence of PE and 14 | P a g e

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allowability of expenditure. Pertinently, after considering the

submissions of the assessee, the Assessing Officer completed the

assessment under section 143(3) of the Act vide order dated

25.12.2019 accepting the existence of PE as well as claim of

expenses. These are uncontroverted facts emerging on record.

though, the Assessing Officer had admitted that the factual

position remains unchanged in the impugned assessment years,

however, he has departed from the position accepted both by

assessee and the department in the preceding assessment years,

including, he immediately preceding assessment year 2017-18 by

holding that since the assessee does not have any taxable

business presence in the form of a PE, the expenses can neither

be allowed nor can be set off against the interest income. As

discussed earlier, upto assessment year 2017-18 the department

has not only accepted the existence of PE in India, but, has also

allowed set off of expenses related to PE against the interest

income. In fact, in the preceding assessment years, the Assessing

officer has not only determined the loss but has also allowed

carry forward of such loss. Thus, apparently there being no

difference in facts, vis-à-vis, the preceding assessment years and 15 | P a g e

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the impugned assessment years, the Assessing Officer cannot

alter the position relating to existence of PE. This is so because

when the parties have accepted certain factual position

permeating through different assessment years, unless there is

discernible change in such factual position, rule of consistency

should apply. For coming to this conclusion, we have drawn

support from the ratio laid down in the decisions cited before us

by learned counsel for the assessee.

in terms of Article 5 of India – UK DTAA. As per Article 5(1) of the

tax treaty, any fixed place of business through which the

business of an enterprise is wholly or partly carried on is treated

as PE. As per Article 5(2), the term ‘PE’ includes amongst others a

place of management, branch, office, factory, workshop etc. It is a

fact on record that the PO of the assessee is still in existence as it

is looking after arbitration proceeding and other contractual

issues. In other words, the PO has not been wound up. As per

paragraph 44 of OECD Commentary of Model Convention, 2017 a

PE ceases to exist with the disposal of fixed place of business or

with the cessation of activity through it, i.e., when all acts and

measures connected with the activity of the PE are terminated. 16 | P a g e

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The Hon’ble Supreme Court in case of Engineering Analysis

Centre of Excellence Pvt. Ltd. (supra) has held that OECD

Commentary will have persuasive value and can be referred for

guidance to determining a particular issue.

cessation of PE, if we look at the facts of the present appeal, the

conclusion would be, the PE is in existence as all acts and

measures connected with the former activities of the PE are not

terminated. Thus, in our view, PE of the assessee still exists.

Once it is held that the PE of the assessee exists, then in terms of

Article 12(6) of India – UK DTAA, the interest income being

connected to the PE, has to be treated as business profit under

Article 7 of the treaty. That being the case, expenses incurred by

the PE has to be set off against the interest income. In our view, if

we accept the view of the departmental authorities that the

assessee does not have a PE in India, rather than it being

beneficial to the Revenue, it will be prejudicial to the interest of

Revenue because, irrespective of the final result in the arbitral

proceedings, the receipts, which would be in the nature of

business profits, cannot be brought to tax in India in absence of a

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PE. For the aforestated reasons, we uphold assessee’s claim on

the issue.

forward loss and set off of current year loss against the current

years income, issues have become consequential in view of our

decision qua the issue of existence of PE and taxability of interest

income. Hence, the Assessing Officer has to give effect in

accordance with the relevant statutory provisions.

facts being identical, our decision in ITA No.2145/Del/2022

would apply mutatis mutandis. Accordingly, appeal is partly

allowed.

Order pronounced in the open court on 30th May, 2023

Sd/- Sd/- (G.S. PANNU) (SAKTIJIT DEY) PRESIDENT JUDICIAL MEMBER Dated: 30th May, 2023. RK/- Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asst. Registrar, ITAT, New Delhi

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