Case Law Details
Background:- The tax payer is a company incorporated in the United States of America (USA). It earned advertising and subscription revenues from sources in India during the year. Out of the said revenue, it also paid commission to an Indian agent.
The Assessing Officer (AO) assessed the income in the hands of the USA company holding that it has a permanent establishment in India and attributed 30% of net advertising revenue after allowing deduction of agency commission paid to the Indian agent. The tax payer preferred an appeal before the Commissioner of Income tax (Appeals) [CIT(A)]. The tax payer simultaneously applied for the resolution of the dispute by way of MAP under India-USA treaty. An agreement was reached to the effect that 10% of advertising and subscription revenue received during the relevant previous year from the Indian sources shall be deemed to be the net profit chargeable to tax in India.
The AO passed an order to give effect to the MAP resolution. The AO determined the total income of the tax payer at 10% of the gross receipts without reducing the commission paid to the Indian agent. Aggrieved, the USA company preferred an appeal before the CIT(A). The appeal was dismissed. The CIT(A) held that the competent authority determined the profit at 10% of advertisement and subscription revenue received during the relevant year and in the absence of any direction to determine profit on the basis of net amount, the claim regarding deduction of commission cannot be allowed.
The tax payer filed an appeal before the Income Tax Appellate Tribunal (ITAT).
Contentions of the Revenue
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