Case Law Details
DDIT (International Taxation) Vs M/s. SET Satellite (Singapore) Pte. Ltd (ITAT Mumbai)
At the time of hearing of these appeals, it was brought to our notice that in assessment years 1999-2000 & 2000-01, identical issue had come up for consideration before the Tribunal; and the Tribunal had reversed the orders of CIT(A) and held that the advertisement revenue received by the assessee in India are taxable in India. As against the aforesaid order of ITAT, (since reported as DDIT Vs. SET Satellite (Singapore) Pvt. Ltd., 106 ITD 175 (Mum)), the assessee had preferred the appeal before the Hon’ble High Court of Bombay; and Hon’ble Bombay High Court was pleased to restore the order of CIT(A) in A.Y. 1990-2000. Hon’ble High Court held that merely because tax on income was paid for some assessment years would not stop the assessee from contending that its income is not liable to tax. Hon’ble Court upheld the view of CIT(A) that since the assessee paid service fee to SET India for marketing of airtime on an arm’s length basis, such payment extinguishes tax liability of the assessee in India vis-à-vis the advertisement revenue. It was further submitted that even though the circular No. 23 has been withdrawn, the rationale is same and the 15% commission is considered as arms length price. It is also further submitted that there is a finding that the assessee has no PE in India and the payment of commission was accepted as ‘arms length price’ in subsequent years and hence there is no merit in Revenue appeal. Since, the facts and circumstances in the present assessment year are identical, respectfully following the decision of Hon’ble High Court, we dismiss appeal of the Revenue.
FULL TEXT OF THE ITAT JUDGEMENT
This appeal by the Revenue is against the order of the CIT(A) XXXI, Mumbai dated 31.01.2007
2. The assessee is a foreign company engaged in the business of acquiring television programmes and motion pictures and exhibiting/transmitting the same on Sony Entertainment Television from Singapore. The assessee is a ‘tax resident’ of Singapore in terms of Article 4 of the Tax Treaty between India and Singapore (the Treaty). The assessee filed its return of income for the assessment year on November 29, 2000 declaring total income at NIL as per the formula prescribed in Circular No. 742 providing guidelines to Assessing Officer for computing tax liability of foreign telecasting companies. In the letter furnished along with the return, it was stated that the assessee did not have any tax liability in India in terms of the detailed submission made during the assessment proceedings for A.Ys. 1996-97 and 1997-98. According to the Assessee, the business operations of the assessee (viz. acquiring programmes/movies and exhibiting/transmitting the same on TV channels) are carried out from the Singapore. The only activities carried out in India are the marketing activities through SET India Private Limited (SET India). For these services, the assessee pays an arm’s length service fee to SET India. According to the assessee, as per Explanation (a) to section 9(1)(i) of the I.T. Act, in cases where all the business operations are not carried out in India, only such part of the income as is reasonably attributable to the Indian operations shall be deemed to accrue or arise in India. Further, as per Article 7(1) of the Treaty dealing with ‘Business Profits’ only so much of profits of an enterprises as are directly or indirectly attributable to its PE in India can be taxable in India. Thus, both under the Act and the Treaty, only income attributable to the assessee’s Indian operations (viz. marketing of the ad time slots) can be taxed in India. Further plea of the assessee was that SET India is appointed by the assessee to market the ad time slots in India. The assessee pays an arm’s length service fee to SET India for the marketing services rendered by it to the assessee. Payment of such arm’s length service fee extinguishes the assessee’s tax liability in India. According to the assessee, the above contention also finds support from Circular No. 23 which states that if the agent’s commission fully represents the value of the profit attributable to his service, it should prima facie extinguish the assessment of the principal. According to the Assessee, the above contention has also been accepted internationally. The protocol to the Austria-Germany Treaty goes a step further to suggest that where the dependent agent is paid an arm’s length commission, he is not even regarded as a PE of the principal and therefore no profits of the principal are liable to tax in the country of the dependent agent. Thus based on all the above, the assessee contended that no tax liability arises in India in the hands of the assessee vis-à-vis the ad revenue’s earned by it.
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