NGC Network Asia LLC Vs DDIT- International Tax (ITAT Mumbai)
One of The ground raised by the assessee is with regard to charging of interest u/s.234B of the Act. We find that assessee is a non-resident whose entire income is subject to deduction of tax at source u/s.195 of the Act. Accordingly, the assessee had pleaded that it is not liable to pay advance tax and consequently not liable to pay any interest u/s.234B of the Act which was not appreciated by the ld. AO and the ld. CIT(A). We find that the issue in dispute is squarely addressed by the decision of the Hon’ble Jurisdictional High Court in the case of DCIT vs. NGC Network Asia LLC reported in 313 ITR 187 (Bom) wherein the Hon’ble Court had held that when the duty is cast on the payer to deduct and pay the tax at source and on payer’s failure to do so, interest u/s.234B of the Act cannot be imposed on the payee assessee. Moreover, we also find that the proviso to Section 209(1) of the Act, which has been heavily relied upon by the ld. DR at the time of hearing was inserted in the statute only w.e.f. A.Y.2013-14 onwards and the same is not applicable for the year under consideration. Accordingly, we hold that no interest u/s.234B of the Act could be charged in the hands of the assessee as the entire income is subject to deduction of tax at source. Accordingly, the ground No.4 raised by the assessee is allowed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
This appeal in ITA No.8671/Mum/2004 for A.Y.2000-01 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-XXXIII, Mumbai in appeal No.CIT(A)XXXIII/Intl.Tax Rg 3/1-N/03-4 dated 12/08/2004 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 26/02/2003 by the ld. Asst. Director of Income Tax (International Taxation)-2(2), Mumbai (hereinafter referred to as ld. AO).
ITA No.3834/Mum/2007 A.Y.2001-02 (Assessee Appeal)
This appeal in ITA No.3834/Mum/2007 for A.Y.2001-02 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-XXXIII, Mumbai in appeal No.CIT(A)XXXIII/Intl.Tax/IT/53-N/04-05 dated 14/03/2007 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/03/2004 by the ld. Asst. Director of Income Tax (International Taxation)-3(2), Mumbai (hereinafter referred to as ld. AO).
ITA No.3835/Mum/2007 A.Y.2002-03 (Assessee Appeal)
This appeal in ITA No.3835/Mum/2007 for A.Y.2002-03 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-XXXIII, Mumbai in appeal No.CIT(A)XXXIII/Intl.Tax/IT/53-N/04-05 dated 14/03/2007 (ld. CIT(A) in short) against the order of assessment passed u/s.147 r.w.s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/11/2005 by the ITO (International Taxation)-3(1), Mumbai (hereinafter referred to as ld. AO).
ITA No.3836/Mum/2007 A.Y.2003-04 (Assessee Appeal)
This appeal in ITA No.3836/Mum/2007 for A.Y.2003-04 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-XXXIII, Mumbai in appeal No.CIT(A)(((III/Intl.Tax/IT/179-N/05-06 dated 14/03/2007 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 30/11/2005 by the ld. Asst. Director of Income Tax (International Taxation)-3(1), Mumbai (hereinafter referred to as ld. AO).
ITA No.1662/Mum/2008 A.Y.2004-05 (Assessee Appeal)
This appeal in ITA No.1662/Mum/2008 for A.Y.2004-05 arises out of the order by the ld. Commissioner of Income Tax (Appeals)-(((III, Mumbai in appeal No.CIT(A)(((III/Intl.Tax/IT/53-N/04-05 dated 14/03/2007 (ld. CIT(A) in short) against the order of assessment passed u/s.143(3)of the Income Tax Act, 1961 (hereinafter referred to as Act) dated 18/12/2006 by the ld. Asst. Director of Income Tax (International Taxation)-3(2), Mumbai (hereinafter referred to as ld. AO).
1.1. At the outset, we would like to mention that all these files are reconstructed files in view of the original files not becoming traceable by the Registry. Pursuant to the order sheet noting in ITA No.8671/Mum/2004 dated 24/06/2020 wherein the Registry is directed by the Bench to comply with appeal papers in all respects pursuant to reconstruction and similarly for other A.Yrs. 2001-02, 2002-03, 2003-04 and 2004-05, these appeals are taken up for hearing based on the reconstructed appeal papers.
Let us take up Appeal in ITA No.8671/Mum/2004 (A.Y.2000-01)
2. The ground Nos. 1 to 3 raised by the assessee are with regard to taxability of advertisement revenue as business income.
3. We have heard the rival submissions and perused the materials available on record. We find that the assessee is a non-resident company, incorporated in the US. As per Article 4 of the India-US Double Taxation Avoidance Agreement (‘India-US DTAA’), it is eligible for the benefits of the India-US Tax Treaty by virtue of being a resident of USA. It is primarily engaged in the media industry, and its business constitutes of broadcasting of its channels over various countries, including over Indian sub-continent. We find that the assessee executed an Advertisement Sales Representation Agreement dated 29 February 2000 with News Television (India) Limited (‘NTIL’), now known as Star India Private Limited (‘SIPL’) as its representative for marketing and collection of advertisement revenue for which SIPL was remunerated commission at 15%. We find that the assessee had submitted during the course of assessment proceedings that the income from advertisement air time is business income and in the absence of a Permanent Establishment (PE) of the assessee in India, the same is not taxable. The ld. AO however, held that SIPL constitutes PE of the assessee by holding it as a dependant agent as per para 4(c) of the Article 5 of India-USA DTAA and taxed the advertisement revenue earned by the assessee as business income on a net basis. In this regard, it would be pertinent to reproduce the relevant extracts of Article 5(4) and Article 5(5) of India-USA DTAA which deals with agency PE:-
“4. Notwithstanding the provisions of paragraphs 1 and 2, where a person-other than an agent of an independent status to whom paragraph 5 applies-is acting in one of the States on behalf of an enterprise of the other State, that enterprise shall be deemed to have a permanent establishment in the first mentioned State, if (a) he has and habitually exercises in the first-mentioned State an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to those mentioned in paragraph 3 which, if exercised through a fixed place of business, would now make that fixed place of business a permanent establishment under the provisions of that paragraph;
(b) he has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise, and some additional activities conducted in that state on behalf of the enterprise have contributed to the sale of the goods or merchandise; or
(c) he habitually secures orders in the first mentioned state, wholly or almost wholly for the enterprise.
5. An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent, or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise and the transactions between the agent and the enterprise are not made under arm’s length conditions, he shall not be considered an agent of independent status within the meaning of this paragraph”
3.1. We find that SIPL had been remunerated by way of 15% commission from the assessee for the activities performed by it. It was submitted that the said commission of 15 percent is at arm’s length as it is based on the industry standards for foreign telecasting companies. Circular No. 742 dated 2nd May 1996 issued by the CBDT which provides for computation of taxation of advertisement revenues by foreign telecasting companies, has also recognised the same. The Circular provides 15 percent advertising agency commission and 15 percent Indian agent’s commission, which is in line with industry standards for media commission agents. In this regard, it would be pertinent to note that even the ld. AO had not disputed the fact that commission retained by SIPL is on arm’s length basis. From this, it could be safely concluded that SIPL had been remunerated at arm’s length price. It would be also relevant to note that transfer pricing provisions were not applicable for A.Y.2000-01 as the same were introduced in statute by Finance Act 2001 applicable from A.Y.2002-03 onwards. From A.Yrs 2002-03 onwards transfer pricing assessments were framed on the assessee u/s.92CA(3) of the Act wherein the ld. TPO had confirmed the international transaction between SIPL and the assessee for commission income @15% and accepted the same to be at arm’s length. This is evident from TPO orders passed u/s.92CA(3) of the Act for A.Yrs. 2002-03, 2003-04 and 2004-05 on 29/10/2010, 30/12/2005, 06/12/2006 respectively. We find that the assessee had pleaded before the ld. AO that once arm’s length payment has been made, nothing further remain to be taxed in the hands of the nonresident even if there is existence of PE in India. The ld. AO however, did not agree to the contentions of the assessee and proceeded to place reliance on the second part of the Circular No.742 dated 02/05/1996 by adding 10% of net revenues and accordingly determined the income at Rs.20,35,202/- for A.Y.2000-01 which action was upheld by the ld. CIT(A).
3.2. At the outset, we find that the commission remunerated at 15% was accepted to be at arm’s length by the ld. TPO for A.Yrs.2002-03, 2003-04 and 2004-05 in the hands of SIPL. Though there was no transfer pricing assessment applicable in the statute for A.Y.2000-01, the CBDT Circular No.742 dated 02/05/1996 had provided for computation of taxation of advertisement revenues by foreign telecasting companies wherein a commission of 15% has been accepted and recognized to be at arm’s length. On perusal of the order of the ld. AO and the ld. CIT(A), we find that the authorities had not disputed this fact that a commission retained by SIPL is at arm’s length. So, once the arm’s length payment is made, nothing further remains to be taxed in the hands of the non-resident. This principle has been upheld by various decisions of the Hon’ble High Court including the Hon’ble Jurisdictional High Courts and Tribunal as under:-
a. Decision of the Hon’ble Jurisdictional High Court in the case of Set Satellite (Singapore) PTE Limited vs. DDIT reported in 307 ITR 205 (Bom), wherein the Hon’ble High Court had observed that if the correct arm’s length price is applied and paid, then nothing further would left to be taxed in the hands of foreign enterprises. The Hon’ble High Court was dealing with a foreign telecasting company, similarly to the assessee herein for the A.Y. 1999-2000 (i.e prior to the applicability of transfer pricing provisions as in the case of the assessee herein), wherein the Hon’ble High Court had relied on CBDT Circular No.742 to conclude that the commission paid to Indian agent is fair and reasonable for examining the arm’s length basis. The relevant extract of the said decision is reproduced hereunder:-
” 10. From the order of the CIT, which has been accepted it is clear that the Appellant herein has paid to its PE on arm’s length principle. It recorded a finding of fact that the Appellant had paid service fees at the rate of 15 per cent of gross ad revenue to its agent, SET India, for procuring advertisements during the period April 1998 to October, 1998. The fact that 15 per cent service fee is an arm’s length remuneration is supported by Circular No. 742 which recognizes that the Indian agents of foreign telecasting companies generally retain 15 per cent of the ad revenues as service charges. Effective November Page 3 of 23 1998, a revised arrangement was entered into between the parties whereby the aforesaid amount was reduced to 12.5 per cent of net ad revenue (i.e., gross ad revenues less agency commission). Simultaneously, the Appellant also entered into an arrangement entitling SET India to enter into agreements, collect and retain all subscription revenues. Considering all these aspects and the fact that the agent has a good profitability record, it held that the Appellant has remunerated the agent on an arm’s length basis.” (emphasis applied)
b. Decision of Hon’ble Delhi High Court in the case of DIT vs. BBC Worldwide Ltd., reported 203 Taxmann 554 (Del), wherein the Hon’ble Delhi High Court by placing reliance on the decision of Hon’ble Bombay High Court in the case of Set Satellite Singapore Pte Ltd., supra upheld that 15% commission to Indian agents as per Circular No.742 of CBDT is normally accepted commission rate payable to agents of foreign telecasting companies. The relevant extract is in para 16 of the said order which is not reproduced herein for the sake of brevity.
c. Decision of the Hon’ble Jurisdictional High Court in the case of DIt vs B4U International Holdings Limited reported in 374 ITR 453 (Bom) also expressed the similar view. The relevant extract is in para 12 of the said order which is not reproduced herein for the sake of brevity.
d. Decision of Mumbai Tribunal in the case of International Globa l Network BV reported in 84 Taxmann.com 188:–
In this case, the assessee before the Mumbai Tribunal had appointed an agent for marketing and advertising at the commission rate of 15% which is identical to the facts of the assessee herein before us. The Tribunal after placing reliance on the aforesaid decision of Hon’ble Jurisdictional High Court referred to supra upheld the principle that when the agent has been remunerated at arm’s length price, no further attribution can be made in the hands of the foreign principal. The relevant operative portion of the judgement of this Tribunal reported in 84 taxmann.com 188 is reproduced hereunder:-
“6.4 We find that in the case of Set Satellite Singapore PTE Ltd.(supra) similar issues have been considered by the Hon’ble High Court. Facts of the case were that the Assessee, a resident of Singapore, was having business activities in India, that through its dependent agent, namely SET India (P.)Limited, it carried on marketing activities in India for advertisement slots by canvassing advertisements in India, that it claimed that it did not have any tax liability in India as it did not have a PE in india, that it was also argued that its dependent agent was remunerated on an arm’ s length basis, that income from various activities had been assessed to tax in the hands of SET India, that there could not be further assessment of income in the hands of the Assessee on account of the said activities. Reliance was placed on Circular No. 23, dated 23/07/1969, issued by the CBDT. While filing revised return on 05/03/2001,it computed its taxable income as per the formula prescribed in the Circular No. 742 without prejudice to its contention that, it did not have any income which was taxable in India. The AO assessed the income of the Assessee which included income from marketing fees as also advertisement collected from India and further the subscription fees received from cable operators of its dependent agent.
“6.4.1 We would also like to refer to the case of Dy. DIT (International Taxation) v. B4U International Holdings Ltd. [2012] 23 taxmann.com 372/137 ITD 346 (Mum.). In that matter the Tribunal has held as under:
“Coming to the alternate argument even if it is held that there is a PE of the Assessee in India, then we would hold that the rate of commission of 15% was accepted as ALP by the TPO for the AY 2003-04 to 2004-05, no further profit is attributable to the PE. This is the rate mentioned in the CBDT Circular No.742 of the order 1996. Similar rate is accepted by the Hon’ble Bombay High Court in the case of Set Satellite (Singapore) Pte. Ltd. (supra). Thus we have no agitation in upholding the contention of the Assessee that the payment was at arms’ length. When the payment is at ALP there is no further need to attribute profit to the PE as held by the Hon’ble Supreme Court in the case of Morgan Stanley &Co.( supra).
” 6.4.2 We would also like to rely upon the matter of BBC Worldwide Ltd. (supra).In that matter also the Hon’ble Delhi High Court had referred to the case of Sat Satellite (Singapore) Pte. Ltd. (supra) and held that if correct ALP was applied and paid nothing further would be left to be taxed in the hands of the foreign enterprise. It also placed reliance on Circular No.742 and held that CBDT itself had considered 15% commission as normally accepted commission rate payable to the agents of telecasting companies.
7. Considering the above discussion, we hold that the Assessee did not have a PE in India, that it was not carrying out any business activities in India and therefore no part of its revenue was attributable to India, that SIPL was an independent agent under Article 5(6)of the tax treaty between India and Holland, that the activities of the agent were carried out in its ordinary course of business, that the agent was not wholly and exclusively devoted to the Assessee, that payments made to SIPL were at arm’s length, that provisions of Circular 742 were applicable for determining the tax liability of the Assessee. In short, the Assessee was not liable to pay tax in India in any of the AY.s. mentioned above. Effective ground of appeal is decided in favour of the Assessee.” (emphasis applied)”
3.3. From the aforesaid decisions, we find lot of force in the alternative argument advanced by the ld. AR that even assuming that SIPL constitutes a PE of the assessee in India under Article 5(5) of India-USA DTAA, considering the fact that SIPL had been remunerated at arm’s length price by the assessee, no further profit could be attributed in the hands of the assessee. In fact, similar view has also been expressed by the Hon’ble Apex Court in the case of ADIT vs. E-Funds IT Solutions Inc. reported in 399 ITR 34(SC) even if such agent is treated as a dependent agent PE. The relevant extract of the said judgment of Hon’ble Apex Court is reproduced hereunder:-
22. ………………………………….
“Shri Ganesh is correct in stating that as the arm’s length principle has been satisfied in the present case, no further profits would be attributable even if there exists a PE in India. This was specifically held in Morgan Stanley (supra) as follows:
……………………….
36. Under the impugned ruling delivered by AAR, remuneration to MSAS was justified by a transfer pricing analysis and, therefore, no further income could be attributed to the PE (MSAS). In other words, the said ruling equates an arm’s length analysis (ALA) with attribution of profits. It holds that once a transfer pricing analysis is undertaken, there is no further need to attribute profits to a PE. The impugned ruling is correct in principle insofar as an associated enterprise, that also constitutes a PE, has been remunerated on an arm’s length basis taking into account all the risk-taking functions of the enterprise. In such cases nothing further would be left to be attributed to PE. The situation would be different if transfer pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a situation, there would be a need to attribute profits to PE for those functions/risks that have not been considered. Therefore, in each case the data placed by the taxpayer has to be examined as to whether the transfer pricing analysis placed by the taxpayer is exhaustive of attribution of profits and that would depend on the functional and factual analysis to be undertaken in each case. Lastly, it may be added that taxing corporates on the basis of the concept of economic nexus is an important feature of attributable profits (profits attributable to PE).
3.4. Similar views were also expressed by the Hon‟ble Apex Court in yet another decision in the case of Honda Motor Ltd., vs. ADIT 255 Taxman 72.
3.5. We find that the ld. DR had filed the following written submissions before us:-
“The above mentioned appeals were heard through Virtual Court today. The following is the gist of arguments made by me in these appeals.
2. Taxability of advertisement income-
This issue came up and was heard in this very case for AY 2007-08 and AY 2008-09 in ITA 7994/M/11 and ITA 7631/M/12 dated 16.12.2015. The MA 30/31/M/2016 was disposed vide order dated 23.11.2016 against which assessee filed a writ petition. The MA was restored by the HC and was finally disposed vide order dated 2.8.2017. The reasons for recall of the order are stated in detail. The Hon’ble HC did not express any views on merits of the earlier ITAT decision. I rely on the arguments of the DR and the views expressed by the ITAT in that order.
As regards existence of the PE, Article 5(4) applies. The benefit of Art 5(5) is not available since the agent is not an independent agent. It is clearly controlled by the assessee. Further the agent habitually secures orders for the assessee and is therefore covered under Art 5(4) giving rise to deemed PE.
As regards the attribution of income to PE, there is no TP audit as far as AY 2000-01 and AY 2001-02 are concerned. If the CBDT circular is relied upon by the assessee, it cannot be relied upon partially for treating the commission paid as arms length, ignoring the taxability of net advertisement income @ 10% prescribed by the same Circular.
For AY 2002-03, as regards reopening of assessment, assessee never asked for the reasons for reopening, as elaborated in Para 7 of the CIT(A) order. The Ld AR has not pressed this ground.
The case laws relied upon by the assessee were considered in the order of ITAT in AY 2007-08 and AY 2008-09. The decisions cited have proceeded on their own specific facts and such facts are distinguishable.
i) Set Satellite Singapore –Bom HC
Here the DTAA involved is with Singapore. CIT(A) had given some reliefs based on CBDT circular where as revenue was aggrieved only in respect of advertisement revenue income of one particular channel AXN. The HC noted that the findings of CIT(A) were not disputed by the revenue.
(ii) E Funds IT Solution Inc –SC
This was a case of an Indian Sub providing auxiliary services – it was held that no part of main business was carried out through fixed place of business in India. Hence there was no PE.
(iii) Delmas France – Bombay HC
Here before the ITAT, the DR requested for certain clauses of DTAA to be examined and to restore the matter to AO/DRP, which the ITAT did not allow.
3. Distribution fees-Royalty
Payment is made to assessee by Indian Sub for license to broadcast the channels of the assessee in India. This is a payment for the use of or right to use in connection with television broad casting. It is not necessary that all rights must be transferred for royalty to apply. Copyright is not defined in the DTAA and the definition of the term copyright is not to be construed in a limited restrictive sense. It encompasses rights of the nature which are protected and whose infringement attracts penal consequences.
The CIT(A) order narrates the meaning and context of the statutory provisions in respect of copy rights in several countries including that of USA. Under the Copyright Act 1957, even in section 14, reference is made to communication to public in respect of cinematographic films and sound recordings. The owner has copyright on such contents. Further section 37 of the same Act provides similar rights and protections to Broadcasting rights, which is a species of genus of Copyright.
Even the technical clarifications issued in respect of India US DTAA clearly refers to broadcasting (pages 25 and 26) as part of royalty. This
clearly shows that license for broadcasting is covered under royalty.
In the recent decision of the Apex Court in PILCOM, which deals with location of the activity giving rise to income under section 5 and 9 of the IT Act, there is a reference to the case of Performing Rights Society Ltd. 106 ITR 11(SC). This was a case where the foreign entity Performing Rights Society Ltd. had granted to All India Radio the authority to broad cast its musical works for which license fees were payable. It is to be noted that the same was assessed as royalty, which has been upheld by the Apex Court.
It does not matter that the distribution rights obtained by the Indian Sub by paying license fees to the assessee, gives rise to business income. If the payment received is covered by specific Article to the DTAA, the general article of business profits will not apply to such income (refer Article 7(6) of the DTAA).
The case laws relied upon by the assessee are distinguishable on facts.
(i) MSM Satellite (Singapore) Pte Ltd. Bom HC
This case proceeds on the facts that subscription revenues received from a large number of customers- ultimately received by the Singapore Assessee was taxed as Royalty by the revenue. Here it is the license fees paid by Indian Sub to the US assessee which has been held as royalty. The country and DTAA is different.
(ii) SET India Pvt. Ltd Bom HC
Here the HC states that the matter is settled by its decision in the case of Set Satellite (Singapore) Pte Ltd. 307 ITR 205. However in the decision referred to, discussed earlier in respect of advertisement income, the matter pertained to taxability of advertisement revenue and the attribution of income to PE and the CBDT Circulars and not the issue of royalty.
(iii) Sony Pictures Network India ITAT Mumbai
Here the issue was TP adjustments related to royalty. On page 14 of this order it is stated that the Ld DR did not controvert that distribution fees is not royalty. This is strongly contested here with facts and the explanation of the DTAA with USA.
(iv) Set India P Ltd. ITAT Mumbai
The case was of the Indian company who paid to a Singapore Company. The case proceeded on the decision of the CIT(A) that distribution rights are business right and not royalty which was accepted by the ITAT. In the present case the CIT(A) has extensively narrated the statutory provisions in several countries and I have argued with support of the Technical Explanation to India US DTAA and similar facts in the case of Performing Rights Society Ltd. to support the decisions of the AO and the CIT(A) on the facts of this case.
4. On section 234B, the proviso to section 209 was highlighted to note the distinction that no TDS is actually paid.
3.6. We find that each of the argument of the ld. DR which is also reproduced in the written submission hereinabove were met by the ld. AR at the time of hearing as under:-
a. The ld. DR vehemently opposed the reliance placed by the ld. AR on Circular No.742 dated 02/05/1996 issued by CBDT by stating that the ld. AR had placed reliance only on the first part of the Circular and not on the second part of the said Circular. We find that the said Circular No.742 dated 02/05/1996 issued by CBDT was issued in the form of guidelines for computation of Income Tax of foreign telecasting companies. We find that the second part of the said Circular states that in the absence of country-wise accounts and keeping in view the substantial capital cost, installation charges and running expenses etc., in the initial years of operation, it would be fair and reasonable if the taxable income is computed at 10% of the gross receipts (including the amount retained by the advertisement agent and the Indian agent of the non-resident foreign telecasting company as their commission / charges, made for the remittance abroad). The said Circular also states that the Assessing Officer shall accordingly compute the income in the case of foreign telecasting companies which are not having any branches or permanent establishment in India or are not maintaining country-wise accounts by adopting the presumptive profit rate of 10% of the gross receipts meant for remittance abroad or the income returned by such companies, whichever is higher and subject the same to tax at the prescribed rate. We find that the ld. DR vehemently placed reliance on this portion of the said Circular No.742 and accordingly justified the action of the lower authorities in bringing to tax 10% of the gross receipts.
We find that the second part of the Circular is the view of the CBDT. The same has been over ruled by various decisions of the Hon‟ble High Courts and the Tribunal as stated supra.
b. We find that the ld. AR had argued that SIPL’s commission income from assessee was less than 1% of its total commission income. The ld AR submitted that SIPL is not restricted from carrying on other business, including the business of being a representative to solicit advertisements for other television channels. During the year under consideration, SIPL was not only acting as an advertisement agent for the assessee but also acting as an advertisement agent for Satellite Television Asian Region Ltd., and ESPN Asia(s) Pvt. Ltd. Further SIPL is also engaged in other business such as producing / procuring of the content and supplying programmes and distribution rights of channels to cable operators in India. It was argued by the ld. AR that commission income from SIPL constitute less than 1% of the total commission income received by SIPL from other media companies, which fact is also noted by the ld. CIT(A) in para 3.7 in page 3 of his order. The ld. AR argued that if the commission income of the assessee company is compared to the entire business then the percentage will be even lower. Accordingly, SIPL as an agent is acting in the ordinary course of its business and by no stretch of imagination, the activities of SIPL could be considered to be „wholly or almost wholly devoted to the assessee’. The ld. AR also placed reliance on the Co-ordinate Bench decision of Mumbai Tribunal in support of its contentions in the case of Varian India (P) Ltd., vs. ADIT reported in 142 ITD 692 wherein the Tribunal had noted that authorised foreign enterprises had engaged the assessee and the activities are not devoted wholly or almost wholly for any one enterprise. The relevant extract of the said decision is reproduced hereunder:-
“…As stated in several places in this order that the Assessee is providing services to various VGCs namely Varian Inc. U.S.A., Varian Australia, Varian Italy, Varian Switzerland and Varian Netherlands. It has not devoted only for one foreign enterprise. The learned Counsel had submitted a statement representing the approximate value of sales made by these foreign enterprise in the calendar year 2001 & 2002, which for the sake of ready reference is reproduced below:-
