Case Law Details
Warner Bros. Distributing Inc Vs ACIT (ITAT Mumbai)
The assessee is a tax resident of USA. The assessee is engaged in export of films from USA, produced either by its group studios or produced by third parties. The assessee has entered into an agreement dated 01/04/2009 with Warner Bros. Pictures (India) Pvt. Ltd. granting exclusive rights of distribution of cinematographic films on payment of royalty in terms of the above referred Agreement. During the period, relevant to assessment year under appeal, the assessee received Rs.39,19,73,663/- in the nature of royalty income from Warner Bros. Pictures (India) Pvt. Ltd. The assessee claimed the aforesaid “Royalty Income” as exempt under the Act as well as under India US Double Tax Avoidance Agreement (DTAA). The case of the assessee is that Warner Bros. Pictures (India) Pvt. Ltd. is not an agency PE of the assessee in India. In fact, the assessee has no PE, therefore, the royalty income is not taxable in India.
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 he has invoked only Article 12(2) and not considered the amounts business income 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 excluded without examining ‘PE proviso provisions of the 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 virtue of the agreement cannot be considered as Agency PE as the Indian assessee is not exclusively dealing with the assessee and referred to the receipts from another company 20th Century Fox to submit that the assessee is also dealing with the other Non Resident Companies, so assessee cannot be considered as Agency PE within the definition of Permanent Establishment.
We have examined this aspect also. As rightly held by the CIT (A) even if income arises to the Non-Resident due to the business connection in India, the 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 Ishikawajma 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.”
FULL TEXT OF THE ORDER OF ITAT MUMBAI
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