Case Law Details
ORDER
This is assesses’s appeal for the assessment year 2000- 01 against the Id. CIT(A)’s order dated 27.1.2006 confirming the AO’s action in holding that the assessee had a business connection in India u/s 9 of the Income Tax Act and that M/s. BBC Worldwide (India) Pvt. Limited (“BWIPL”, for short) was the assessee’s permanent establishment in India.
2. The brief facts are that the assessee company was incorporated under the laws of England and Wales. It is a part of the BBC Group. During the year under consideration, it was operating as an international consumer media company in the areas of television, publishing and program licensing etc. It also operated the BBC World News Channel (‘the Channel’, for short), which is a standard international Channel aired in the English language, operated by the assessee through a separate division, i.e., BBC World Division. The assessee had an Indirect subsidiary in India, namely, BWIPL. The assessee appointed BW1PL as its authorised agent in India under an airtime sales agreement dated 15.9.2000, effective from 13.11.1998, for dollar denominated deals, to solicit orders for the sale of advertising airtime on the Channel at the rates and on the terms and conditions provided by the assessee and to pass on such orders to the assessee for acceptance and confirmation. The payment from the Indian advertisers for airtime sales and sponsorship was to be received directly by the assessee under this agreement, through EEFC account or specific RBI permission. In consideration for the services provided by BWIPL, it was to receive a 15% marketing commission of the advertisement revenues received by the assessee from Indian advertisers. A second airtime sales agreement dated 1.2.1999 was entered into between the assessee and BWIPL for rupee denominated deals for soliciting orders for Channel airtime sales, as under the first agreement (supra). The second agreement was executed so as to enable BWIPL to collect payments from Indian advertisers on sales of airtime on behalf of the assessee and remit the same to the assessee, after deducting its commission at rate of 15%. While filing its return of income for the year under consideration, it declared an income of rupees nil, the assessee claimed that it would not be taxable in India on its airtime sales income, being business profits, in the absence of a permanent establishment in India. Later, the return of income was revised so as to disclose an income of Rs. 81,86,735/-, i.e., royalty income which had inadvertently not been shown in the original return. Other than the said royalty income, the assessee stated, it did not have any income chargeable to tax in India.
3. The AO observed that according to its own submissions, during the year, the primary activity of the assessee in India was that of sale of airtime for the Channel; that thus, it was clear that the assessee company was carrying out the activity of airtime sale in India; that the assessee had a clear and definite business connection in India inasmuch as there was a real and intimate relation between the business activities carried on outside India and the activity of soliciting, sourcing and collecting advertisement revenues from India; that the advertisement revenue received in India in respect of BBC World Channel was a business receipt in the hands of the assessee ; that BWIPL was acting as an agent of the assessee company and was rendering all services on behalf of the assessee company; that BWIPL , i.e., the Indian company prepared the rate-cards, collected the advertisements and advertisement revenue for onward remittance to the UK after deducting its commission; and that all these functions were undertaken by BWIPL in India on behalf of the assessee company and the advertisement revenues collected from India were remitted to the assessee company. The AO, therefore, held that the income of the assessee company from the advertisement revenues accrued or arose in India u/s 9(1) of the I.T. Act. It was held thai BWIPL constituted a business connection of the assessee as well as a permanent establishment under Article S(4)(a) and Article 5(4)(c) of the DTAA between India and the UK. The profits of the assessee were estimated at an ad-hoc rate of 20% of the total advertisement revenue attributed to India.
4. Before the Id. CIT(A) , the assessee contended that the obligation of BWIPL towards the assessee , in pursuance of the agreement entered into between them, was to solicit orders for the sale of advertisement airtime/ sponsorship on the BBC World Channel at the rates and on the terms and conditions as provided by the assessee, to pass on such orders to the assessee for acceptance and under the rupee agreement to collect advertisements/ sponsorship revenues from the advertisers/ advertising agencies and to remit the net proceeds to die assessee after deducting its agreed commission; that under the agreement, the assessee reserved the right to reject any order passed on to it for acceptance by BWIPL, which was not authorized to create obligation of any kind, whether express or implied, in the name of or on behalf of the assessee; that in consideration, BWIPL was paid commission @ 15% on the airtime sales/sponsorship revenues generated by the assessee from India; that BWIPL was in fact merely canvassing for the orders for sale of airtime payment on the Channel for its principal; that the activities of BWIPL were of soliciting orders resulting in the Indian advertisers making offers for availing airtime; that however, the right to accept or reject the order lay solely with the assessee; that therefore, no business connection was constituted for the assessee in India; that since the assessee did not have any place for business in India, whether fixed or temporary, the conditions of Article 5(1) of the Treaty were not satisfied and there was no existence of any permanent establishment of the assessee in India; that Article 5(4Xa) of the Treaty was attracted when the agent had or was habitually exercising authority to negotiate and enter into contracts on behalf of the principal; that the agreement for sale of airtime provided that BWIPL shall not represent the assessee in any manner whatsoever whereby BWIPL would be conferred any authority to bind the assessee; that it was clear as per the agreement that any act of BWIPL which was beyond its terms and conditions, would not be binding on the assessee; that as per the terms of the agreement, BWIPL had no authority to enter into contracts on behalf of the assessee; that BWIPL did not exercise such authority habitually or otherwise, since it was engaged in soliciting orders for sale of airtime on the BBC World Channel and was not engaged in entering into/ signing of contracts on behalf of the assessee or in negotiating the contracts; that therefore, no permanent establishment was constituted for the assessee in India; that the contract for sale of airtime was entered into by the assessee with advertisers, invoices were raised by the assessee on the advertisers, the transmission report was issued by the assessee and the story-board approval was granted by the assessee, which all were apparent from the documentary materia] provided by BWIPL to the AO in response to the summons issued u/s 131(1) of the Act; that it was the assessee who had the right to approve or disapprove the advertisement to be aired or to amend the rate-card or regulate the transmission; that as such, Article 5(4)(a) of the Treaty was not attracted to the assessee’s case; that Article 5{4)(c) of the Treaty was attracted when the agent habitually secured orders in India, wholly or almost wholly in principle; that in the assessee’s case, the orders solicited by BWIPL were subject to rejection by the assessee; mat therefore there was no assurance or guarantee to the prospective advertisers that BWIPL had solicited from them; that the advertisement would be at the rates and on the terms and conditions as were accepted by the assessee; that as such, there arose no question of BWIPL obtaining any secured orders for the assessee; that there was no representation of any kind by BWIPL to the advertisers to the effect that it had the authority to accept the orders; that this being so, Article 5(4Xc) of the Treaty was also not attracted; that merely due to there being business transactions/ dealings between the holding and the subsidiary company would not make a business connection or permanent establishment between the Indian company, i.e., BWIPL and the assessee; and that hence, there was no business connection in India u/s 9(1) of the Income Tax Act and the assessee did not have any permanent establishment in India under Article 5 of die Treaty.
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