Case Law Details
Turner Broadcasting System Asia Pacific Inc. Vs DCIT (ITAT Delhi)
Conclusion: TDS credit can be claimed in the country in which the related income was offered to tax.
Held: Assessee derived revenue from the grant of exclusive rights to Turner International India Private Limited (TIIPL’) in India to sell advertising on the products and to distribute the products, namely, (a) satellite delivered television services; (b) from interactive entertainment services; and (c) from entertainment mobile telecommunications services. AO/TPO had proposed certain adjustments in the income of the assessee for AYs 2011-12 and 2015-16. Assessee contended that AO erred the amount derived by assessee on account of distribution revenue from TIPPL as royalty under Section 9(i)(vi) and also as per the provisions of India-USA Double Taxation Avoidance Agreement and erred in levying interest under Section 234B of the Act. It was held that the income did not form part of the total income of assessee the credit of TDS was denied correctly and held that the assessee can claim the credit of TDS in the country in which the related income was offered to tax. Appeal of assessee was allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
These appeals filed by the assessee are directed against the separate orders dated 15.02.2019 of the AO u/s 144C(13) r.w.s. 147/143(3) of the Income-tax Act, 1961 for Assessment Years 2011-12 & 2015-16.
2. Facts of the case, in brief, are that M/s Turner Broadcasting System Asia Pacific Inc (the assessee) is a company incorporated under the laws of the United States of America (‘USA’) and is a tax resident of the USA. During the relevant financial year (‘FY’), the Assessee derived revenue from the grant of exclusive rights to Turner International India Private Limited (TIIPL’) in India to sell advertising on the products and to distribute the products, namely, (a) satellite delivered television services called ‘Cartoon Network’, ‘TCM Turner Classic Movies’, ‘POGO’, ‘Boomerang’ and ‘WB’; (b) from interactive entertainment services known as ‘com’ and ‘POGO.tv; and (c) from entertainment mobile telecommunications services ‘Cartoon network Mobile and Boomerang Mobile’. The AO/TPO have proposed certain adjustments in the income of the assessee for AYs 2011-12 and 2015-16.
3. The assessee approached the Dispute Resolution Panel (DRP) raising objections to the adjustments proposed in the draft assessment order. Objection-wise directions of the DRP for both the assessment years, are as below:-
“AY 2011-12
2.1 Ground no. 2: That the Ld. AO grossly erred in law and on the facts of the case in initiating re-assessment proceedings under Section 147/148 of the Act without appreciating that the reassessment proceedings were barred by limitation in view of the proviso to Section 147 of the Act, as there was no failure on the Assessee’s part to disclose truly and fully all material facts.
2.1.1 In terms of the provisions of sub-section (8) of s. 144C of the Act the DRP “may confirm, reduce or enhance the variation proposed in the draft order so, however, that it shall not set-a-side any proposed variation or issue any direction under sub-section (5) for further enquiry and passing of the assessment order”. As per s. 251 of the Act the Commissioner (Appeals) has powers to confirm, reduce, enhance or annul an assessment or penalty, meaning thereby that the DRP has not been empowered by law to annul or quash an assessment. In this view of the legal position the DRP cannot give any direction with regard to the legal validity on issuance of notice or reassessment u/s 148/147 of the Act. This ground is therefore rejected.
2.2 The other grounds of Objections in AYs 2011-12 & 2015-16 are as under:
AY 2011-12
1. That on the facts and circumstances of the case and in law, the draft assessment order passed by the Learned Deputy Commissioner of Income Tax, Circle 3(1 )(1) International Taxation (‘Ld, AO’) is wrong, bad in law and void-ab-initio.
2. Without prejudice to Ground no. 2 above, on the facts and circumstances of the case and in law, the Ld. AO grossly erred in bringing to tax an amount of INR 47,31,30,183/- relating to distribution revenue derived by the Assessee from TIIPL holding that it was in the nature ‘Royalty’ under section 9(1 )(vi) of the Income Tax Act, 1961 (‘the Act’) and under the provisions of DTAA.
3.1 The Ld. AO erred in disregarding the resolution arrived at between the competent authorities of India and the USA for earlier years with regard to the taxability of distribution revenue as business income.
3.2 The Ld. AO erred in disregarding circular no. 6/2001 issued by the Central Board of Direct Taxes wherein subscription revenue is classed as business profits.
4 That on the facts and circumstances of the case and in law, the Ld. AO erred in proposing to levy interest under section 234 of the Act.
5 That on the facts and circumstances of the case and in law, the Ld. AO erred in proposing to initiate penalty proceedings under section 271(1)(c) of the Act.
AY 2015-16
1. That on the facts and circumstances of the case and in iaw, the draft assessment order passed by the Learned Deputy Commissioner of Income Tax, Circle 3(1 )(1) international Taxation (‘Ld. AO’) is wrong and bad in law.
2. That on the facts and circumstances of the case and in law, the Ld. AO erred in treating Turner International India Private Limited (‘TIIPL’) as Permanent Establishment (‘PE’) of the Assessee in India under Article 5(4) of the India-USA Double Taxation Avoidance Agreement (‘DTAA’).
3. That on the facts and circumstances of the case and in law, the Ld. AO grossly erred in bringing to tax an amount of INR 72,71,69,325 relating to distribution revenue derived by the Assessee from TIIPL holding that it was in the nature ‘Royalty’ under section 9(1)(vi) of the Income Tax Act, 1961 (‘the Act’) and under the provisions of DTAA.
3.1 The Ld. AO erred in disregarding the resolution arrived at between the competent authorities of India and the USA for earlier years with regard to the taxability of distribution revenue as business income.
3.2 The Ld. AO erred in disregarding circular no. 6/2001 issued by the Central Board of Direct Taxes wherein subscription revenue is classed as business profits.
4. That on the facts and circumstances of the case and in law, the Ld. AO erred in proposing to initiate penalty proceedings under section 271 (1)(c) of the Act.
2.2.1 As regards the ground nos. 1 & 3 in AY 2011-12 and ground nos. 1 to 3.2 in AY 2015-16, these relate to treating Turner International India Private Limited (‘TIIPL’) as PE of ‘the assessee in India and holding that distribution revenue derived by the assessee from TIIPL was in the nature royalty u/s 9(1 )(vi) of the Act and under the provisions of DTAA. The subject matter of objections have been considered and decided by the DRP in its Directions for AYs 2010-11, 2012-13, 2013-14 and 2014-15 wherein the draft assessment orders of the AO have been upheld. In the DRP Directions dt. 03/03/2017 for AY 2013-14 the DRP has upheld the AO’s draft order observing as under:
“…. The panel has considered the facts and heard Ld AR at length on the objections filed on behalf of the assessee. This issue was also dealt with in MAP proceedings for AY 2000-01 to 2004-05.
ii. Subsequently, this issue has been dealt with by the DRP in AY 2010-11 and 2012-13. It is, pertinent to mention here that the MAP proceedings are for the specific period under consideration. The DRP has dealt with this issue in directions for AY 2010-11 as under:-
“4.2 The assessee in the above grounds has objected to the above treatment of distribution revenue as royalty and has also contended that since the assessee does not have a PE in India terms of Article 5(4) of DTAA, the distribution revenue being business income cannot be brought to tax in India since as per Article 7 of DTAA business income is to be taxable in USA unless the assessee has the PE in India. On careful consideration of the matter, we find that the AO has made the above proposition after detailed analysis of the terms of the Agreement of the assessee with TIIPL as well as India-USA DTAA. It is also clearly brought out by the AO that the distribution rights granted by the assessee is actually a license granted by the assessee company to TIIPL for viewership in India and hence the same cannot be treated as sales revenue. Instead the same is clearly covered under Explanation 5 to Section 9(1) (vi) of the Act. The AO has also brought out that broadcasting involves process and hence is clearly covered under Explanation 6 to Section 9(1) (vi) of the Act. We also find that the assessee itself had accepted the fact that it has a PE in India. In terms of Article 5 of the DTAA since it had offered the advertising sales fee and distribution fee as business income to be taxes in India. The assessee’s treatment of advertising sales fee has been accepted by the AO on the ground that the assessee has a PE in India. It is also brought out by the AO that TIIPL was authorized to conclude contracts on behalf of the assessee. In view of the above, we find no reason to interfere with the above proposed actions for the AO. The above grounds of objection are therefore rejected.”
iii. The contentions were dismissed by the panel in the periods referred above. Further, section 9 (1) vi deals with transactions of identical nature. The purported distribution revenue received by the assesses is covered within the definition as laid down in 9(1) vi explanation 5 clauses b & c. Ld AR also referred to circular no 6/2001. The panel has considered the submissions in this regard. The circular is inapplicable to the facts of the assessee, hence this contention is not accepted.
iv. Having considered the facts of the case upon hearing Ld AR, the objections of the assessee are dismissed in view of the foregoing.”
2.2.1.1 The factual and legal matrix in these assessment years, i.e. AYs 2011-12 & 2015- 16, being the same, the Panel does not find any reason to differ from the DRP Directions in the above preceding assessment years. The objections of the assessee for the AYs 2011- 12 & 2015-16 are accordingly dismissed.
2.3 The interest u/s 234 of the Act is consequential and mandatory and therefore the objection taken in AY 2011-12 in this regard is rejected.
2.4 The ground of objection related to initiation of penalty in both assessment years are dismissed being pre-mature.
The objections of the assessee are decided as above. The assessing officer is directed to incorporate the findings of the DRP in respect of various objections suitably in the final order. AO shall also place a copy of the DRP Directions as Annexure to the final order.”
4. Aggrieved by the directions of the ld. DRP, the assessee is in appeal before the Tribunal raising the following grounds:-
Grounds of Appeal (AY 2011-12)
“1. That on the facts and circumstances of the case and in law, the impugned assessment order passed by the Learned Deputy Commissioner of Income-tax, Circle 3(1)(1), Intl. Taxation, New Delhi (“Ld. AO”) pursuant to the directions issued by the Learned Dispute Resolution Panel-II (‘Ld. DRP’) under Section 147/143(3) read with section 144C(13) of the Income-tax Act, 1961 (‘the Act’) is wrong, bad in law and void ab initio.
2. That on the facts and circumstances of the case and in law, the Ld. AO erred in initiating reassessment proceedings under Section 148 of the Act for the reason that reassessment proceedings were barred by limitation in view of proviso to Section 147 of the Act as there was no failure on the Assessee’s part to disclose fully and truly all material facts necessary for its assessment.
3. That on the facts and circumstances of the case and in law, the Ld. AO erred in initiating reassessment proceedings under Section 148 of the Act in the absence of any fresh/tangible material.
4. That without prejudice to Ground no. 1 to 3 above, on the facts and circumstances of the case and in law, the Ld. AO as well as the Ld. DRP grossly erred in treating the amount derived by the Appellant on account of distribution revenue from Turner International India Private Limited as royalty under Section 9(i)(vi) of the Act and also as per the provisions of India-USA Double Taxation Avoidance Agreement.
5. That without prejudice to the grounds above, on the facts and circumstances of the case and in law, the Ld. AO/ Ld. DRP, erred in disregarding the resolution arrived at between the competent authorities of India and the USA for earlier years with regard to the taxability of distribution revenue as business profits.
6. That on the facts and circumstances of the case and in law, the Ld. AO erred in not allowing the credit of tax deducted at source to the extent of INR 11,06,666/- duly withheld on revenue offered to tax in India.
7. That on the facts and circumstances of the case and in law, the Ld. AO erred in not allowing the credit of self assessment tax amounting to INR 7,48,100.
8. That on the facts and circumstances of the case and in law, the Ld. AO erred in levying interest under Section 234B of the Act.
9. That on the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under Section 27i(i)(c) of the Act.
That the above grounds of appeal are without prejudice to each other and the Appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal.”
Grounds of Appeal (AY 2015-16)
“1. That on the facts and circumstances of the case and in law, the impugned assessment order passed by the Learned Deputy Commissioner of Income-tax, Circle 3(i)(i), Intl. Taxation, New Delhi (“Ld. AO”) pursuant to the directions issued by the Learned Dispute Resolution Panel-II (‘Ld. DRP’) under Section 143(3) read with section 144(3(13) of the Income-tax Act, 1961 (‘the Act’) is wrong and bad in law.
2. That on the facts and in circumstances of the case and in law, the Ld. AO as well as the Ld. DRP grossly erred in treating the amount derived by the Appellant on account of distribution revenue from Turner International India Private Limited (‘TIIPL’) as royalty under Section 9(i)(vi) of the Act and also as per the provisions of India-USA Double Taxation Avoidance Agreement (‘DTAA’).
3. That on the facts and circumstances of the case and in law, the Ld. DRP and the Ld. AO erred in treating TIIPL as the Permanent Establishment (‘PE’) of the Appellant in India under Article 5(4) of the DTAA.
4. That without prejudice to the grounds above, on the facts and circumstances of the case and in law, the Ld. AO/Ld. DRP, having held that the Appellant has a PE in India, ought to have taxed the distribution revenue under Article 7 of the DTAA instead of royalty, in terms of Article 12(6) of the DTAA.
5. That without prejudice to the grounds above, on the facts and circumstances of the case and in law, the Ld. AO/ Ld. DRP, erred in disregarding the resolution arrived at between the competent authorities of India and the USA for earlier years with regard to the taxability of distribution revenue as business profits.
6. That on the facts and circumstances of the case and in law, the Ld. AO erred in not allowing the credit of tax deducted at source to the extent of INR 1,73,82,259/- duly withheld on revenue offered to tax in India.
7. That on the facts and circumstances of the case and in law, the li AO erred in initiating penalty proceedings under Section 27i(i)(c) of the Act.
That the above grounds of appeal are without prejudice to each other and the Appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal.”
5. The ld. Counsel for the assessee, at the outset, submitted that the issues involved in these appeals, except ground No.7 for 2011-12, are squarely covered in favour of the assessee by the order of the Tribunal dated 30.09.2020 in assessee’s own case for Assessment Years 2009-10, 2010-11, 2012-13 and 201314 vide ITAs No.1343/Del/2014, 631/Del/2015, 4087/Del/2016 and 2610/Del/2017. This order of the Tribunal was followed by the Tribunal, again, in favour of the assessee in assessee’s own case for AY 2014-15 in ITA No.4325/Del/2018 vide order dated 08.12.2021, by which the ground No.7 raised by the assessee in the instant appeal for AY 2011-12 was decided against the assessee. It was, therefore, submitted that the instant appeals of the assessee may also be decided accordingly.
6. The ld. DR fairly conceded that all the issues, except ground No.7 for AY 2011-12, involved in the present appeals are squarely covered by the above orders of the Tribunal in assesseee’s own favour and the ground No.7 for AY 2011-12 was decided against the assessee and in favour of the Revenue.
7. We have considered the rival arguments and perused the record. We find, that the issues involved in the present appeals, except ground No.7 for 2011-12, are squarely covered in favour of the assessee by the order of the Tribunal dated 30.09.2020 in assessee’s own case for Assessment Years 2009-10, 2010-11, 2012-13 and 2013-14 vide ITAs No.1343/Del/2014, 631/Del/2015, 4087/Del/2016 and 2610/Del/2017. We also find that this order of the Tribunal was followed by the Tribunal, again, in favour of the assessee, except the issue involved in ground No.6 of the instant appeal for AY 2011-12, in assessee’s own case for AY 2014-15 in ITA No.4325/Del/2018 vide order dated 08.12.2021. The issue involved in ground No.6 raised by the assessee in the instant appeal for AY 2011-12 was decided against the assessee. The relevant observations of the Tribunal for AY 2014-15 in ITA No.4325/Del/2018 are reproduced hereunder:-
“2. The assessee has raised following grounds of appeal :-
“1. That on the facts and circumstances of the case and in law, the impugned assessment order passed by the Learned Deputy Commissioner of Income-tax, Circle 3(i)(i), Intl. Taxation, New Delhi (“Ld. AO”) pursuant to the directions issued by the Learned Dispute Resolution Panel-II (‘Ld. DRP’) under Section 143(3) read with section 1440(13) of the Income-tax Act, 1961 (‘the Act’) is wrong and bad in law.
2. That on the facts and in circumstances of the case and in law, the Ld. AO as well as the Ld. DRP grossly erred in treating the amount derived by the Appellant on account of distribution revenue from Turner International India Private Limited (‘TIIPL’) as royalty under Section 9(i)(vi) of the Act and also as per the provisions of India-USA Double Taxation Avoidance Agreement (‘DTAA’).
3. That on the facts and circumstances of the case and in law, the Ld. DRP and the Ld. AO erred in treating TIIPL as the Permanent Establishment (‘PE’) of the Appellant in India under Article 5(4) of the DTAA.
4. That without prejudice to the grounds above, on the facts and circumstances of the case and in law, the Ld. AO/Ld. DRP, having held that the Appellant has a PE in India, ought to have taxed the distribution revenue under Article 7 of the DTAA instead of royalty, in terms of Article 12(6) of the DTAA.
5. That without prejudice to the grounds above, on the facts and circumstances of the case and in law, the Ld. AO/ Ld. DRP, erred in disregarding the resolution arrived at between the competent authorities of India and the USA for earlier years with regard to the taxability of distribution revenue as business profits.
6. That on the facts and circumstances of the case and in law, the Ld. AO erred in not allowing credit of tax deducted at source to the extent of INR 18,82,488/- duly withheld on revenue offered to tax in India.
7. That on the facts and circumstances of the case and in law, the Ld. AO/Ld. DRP erred in not allowing credit of taxes deducted at source of INR 65,641/- wrongly withheld on revenue not chargeable to tax in India as per Section 9 of the Act.
8. That on the facts and circumstances of the case and in law, the Ld. AO erred in initiating penalty proceedings under section 271 (1) (c) of the Act.”
3. Ground No.1 is of general in nature and needs no separate adjudication.
4. Ground No. 2 to 5 are interlinked and taken up together. At the very outset the counsel for the assessee stated that while disposing of the objections raised by the assessee, the DRP dismissed the objections by observing “the subject matter of objection have been considered and decided by the DRP in its directions for A.Y.2010-11, 2012-13 and 2013-14 wherein the draft assessment orders of the Assessing Officer have been upheld. In the DRP directions dated 03.03.2017 for A.Y.2013-14 the DRP has upheld the AO’s draft order”.
5. The Counsel drew our attention to the decision of this Tribunal dated 30.09.2020 in ITA No.1343Del/2014, 631/Del/2015, 4087/Del/2016, 2610/Del/2017 for A.Y. 2009-10, 2010-11, 2012-13 and 2013-14 and pointed out that the quarrel has been settled in favour of the assessee and against the revenue by the coordinate bench.
6. Per contra the DR could not bring any distinguishing decision in favour of the revenue.
7. We have given a thoughtful consideration to the orders of the authorities below. We have carefully perused the order of the coordinate Bench (supra). We find force in the contention of the counsel. This Tribunal in assessee’s own case has considered identical grounds of appeal and has decided in favour of the assessee. The relevant findings read as under :-
8. Respectfully following the findings of the coordinate bench we direct the AO to delete the impugned additions.
9. Ground No.2 with its related grounds is allowed.
10. Ground No.6 relates non allowance of the credit of tax deducted at source to the extent of Rs.18,82,488/-duly withheld on revenue offered to tax in India.
11. Facts on record show that the AO has not given full credit of tax deducted at source. We accordingly direct the AO to consider the claim of the credit of TDS and if found correct, allow the same to the assessee.
12. Ground No.6 is treated as allowed for statistical purpose.
13. Ground No.7 relates to non allowance of the credit of taxes deducted at source of Rs.65,641/- wrongly withheld on revenue not chargeable to tax in India as per Section 9 of the Act.
14. Facts on record show that the assessee derived revenue from Apalya Technologies Pvt. Ltd. and Parragon Publishing India Pvt. Ltd. during the year on which taxes were withheld at source. When the assessee claimed the credit of TDS the same was denied by the AO and the DRP by holding that since the assessee has not offered the revenue as its income during the year in its return of income the credit for TDS cannot be given.
15. The assessee raised objections before the DRP and the DRP while dismissing the objections raised by the assessee observed as under :-
16. Before us the counsel vehemently stated that since the taxes have been withheld by the payers and even if the corresponding income has not been shown as taxable in India, the credit of the TDS cannot be denied by the AO and the DRP and the same should be allowed to the assessee.
17. When the bench asked the counsel the fate of A.Y.2013-14 the counsel stated that the Tribunal did not adjudicate the ground raised before it. The Bench again asked the Counsel what action has been taken by the assessee on the non adjudication of the ground raised before the Tribunal, the counsel stated that due to the smallness of the amount no further action was taken.
18. We do not find any force in this contention of the Counsel. The ground No.7 of appeal in A.Y.2013-14 read as under :-
“That on the facts and circumstances of the case and in law, the Ld. AO/DRP erred in not allowing credit of taxes deducted at source of Rs.175334/- wrongly withheld on revenue not chargeable to tax in India as per section 9 of the Act.”
19. It can be seen from the quantum involved in A.Y. 2013-14 it is more than two times the quantum involved in the year under consideration.
20. Be that as it may, the undisputed fact is that the revenue derived from Apalya Technologies Pvt. Ltd. and Parragon Publishing India Pvt. Ltd. are not taxable in India as per Section 9 of the Act. It is also not in dispute that since the income does not form part of the total income of the assessee the credit of TDS was denied. The credit was also denied in A.Y.2013-14 as mentioned elsewhere. The assessee can claim the credit of TDS in the country in which the related income is offered to tax. We, therefore, do not find any reason to interfere with the findings of the DRP. Ground No.7 is accordingly dismissed.”
8. In view of foregoing order of ITAT in assessee’s own case for Assessment Year 2014-15 dated 08.12.2021 (supra), we decide the grounds of appeal raised by the assessee for both the years, except the ground of appeal No.6 in ITA NO.2172/Del/2019, in favour of the assesseee. Respectfully following the above order of ITAT dated 08.12.2021 (Supra), the ground of appeal No.6 in ITA No.2172/Del/2019 is decided against the assessee and thus the same is dismissed.
9. Since facts and circumstances particularly Grounds No. 1 to 6 for Assessment Year 1 to 6 for Assessment Year 2011-12 are quite similar and same to Assessment Year 2015-16 therefore, our conclusion and findings in Para 8 of this order (supra) would apply mutatis mutandis to appeal for Assessment Year 2015-16. Respectfully following the same, Ground Nos. 1 to 5 of assessee’s appeal are allowed and Ground No 6 is dismissed.
10. So far as Ground No. 7 of assessee for Assessment Year 2011-12 is concerned in the Tribunal order dated 08.12.2021 Paras 11 & 12 (supra) this issue has been restored to the file of the A.O with a direction that Tax Deducted at Source (TDS). Accordingly, A.O is directed to consider the claim of credit as TDS and it found correct, to allow the same to the assessee. Respectfully following the order dated 08.12.2021. Ground No. 7 of assessee is allowed for statistical purpose. Ground No. 8 & 9 for Assessment Year 2011-12 and Ground No. 8 for Assessment Year 2015-16 are consequential in nature. Thus, the same are not being adjudicated upon.
11. Accordingly, both the appeals are partly allowed.
Order pronounced in the open court on 31.05.2022.
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