B4U INTERNATIONAL HOLDINGS LTD, MUMBAI V. DDIT (IT) 3(2), MUMBAI

CO 118/MUM/2010

• Counselvise Citation: [2012] 122 COUNSELVISE.COM (IT) 7241 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 8 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 28-05-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 10-04-2012
• Assessment Year: 2001-2002
• Appeal Filed On: 20-05-2010
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: ARVIND SONDE
• Keywords: Business income; Transfer pricing; Double taxation relief; International transaction; Permanent establishment; Question of law; Competent authority
• Section: 154; 92

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L BEFORE SHRI B.R. MITTAL (JM) & SHRI J. SUDHAKAR RED DY (AM) I.T.A.NO. 880/MUM/2005 (ASSESSMENT YEAR : 2001-02) DDIT(IT) 3(2) SCINDIA HOUSE R.NO. 132, 1 ST FLOOR N.M. ROAD MUMBAI-400 038. VS. B4U INTERNATIONAL HOLDINGS LTD. C/O. B4U TELEVISION NETWORK(I)(P)LTD. PLOT NO. 15, NEAR VARSOVA TELEPHONE EXCHANGE FOUR BUNGLOW MUMBAI-400 053. APPELLANT RESPONDENT C.O.NO. 118/MUM/2010 (ASSESSMENT YEAR : 2001-02) B4U INTERNATIONAL HOLDINGS LTD. C/O. B4U TELEVISION NETWORK(I)(P)LTD. PLOT NO. 15, NEAR VARSOVA TELEPHONE EXCHANGE FOUR BUNGLOW MUMBAI-400 053. VS. DDIT(IT) 3(2) SCINDIA HOUSE R.NO. 132, 1 ST FLOOR N.M. ROAD MUMBAI-400 038 APPELLANT RESPONDENT PAN/GIR NO. : AABCB4729M ASSESSEE BY : SHRI ARVIND SONDE DEPARTMENT BY : SHRI MAHESH KUMAR DATE OF HEARING : 1.5.2012 DATE OF PRONOUNCEMENT : ORDER PER J. SUDHAKAR REDDY (AM) :- THIS IS AN APPEAL FILED BY THE REVENUE DIRECTED AG AINST THE ORDER OF LEARNED CIT(A) DATED 8.11.2004 ON THE FOLLOWING GRO UNDS :- 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LEARNED CIT(A) ERRED IN HOLDING THAT B4U CANNOT BE TREATED AS A DEPENDING AGENT OF THE ASSESSEE. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW, LEARNED CIT(A) ERRED IN HOLDING THAT IF A DEPENDENT AGENT IS BEING PAID REMUNERATION AT ARMS LENGTH, FURTHER PR OFITS CANNOT BE TAXED IN INDIA. 2 2. FACTS OF THE CASE ARE BROUGHT OUT AT PARAGRAPH 2 &3 OF THE ASSESSMENT ORDER WHICH ARE EXTRACTED FOR READY REFE RENCE. THE ASSESSEE IS A FOREIGN COMPANY INCORPORATED IN MAURITIUS. IT HAS FILED A COPY OF TAX RESIDENCY CER TIFICATE IN THIS REGARD FROM THE COMPETENT AUTHORITY. IT IS ENG AGED IN THE BUSINESS OF TELECASTING OF TV CHANNELS SUCH AS B4U MUSIC, MCM, ETC. DURING THE ASSESSMENT YEAR UNDER CONSIDERATION, ITS REVENUE FROM INDIA CONSISTED OF COLLECTIONS FROM TIME SLOTS GIVEN TO ADVERTISERS FROM INDIA. AS PER THE DETAILS FILED BY THE AR OF THE ASSESSEE, THE FOLLOW ING PARTIES WERE GRANTED GENERAL PERMISSION BY THE RBI TO ACT A S ADVERTISEMENT COLLECTING AGENTS OF THE ASSESSEE. (I) FOR THE PERIOD .4.2000 TO 31.1.2001 - M/S. B4U MULTIMEDIA INTERNATIONAL LTD. (II) FOR THE PERIOD 1.2.2001 TO 31.3.2001 _ M/S. B4U BROAD BAND LTD. IN THE COMPUTATION OF INCOME FILED ALONGWITH THE RE TURN OF INCOME, THE ASSESSEE HAS CLAIMED THAT AS IT DOES NO T HAVE A PE IN INDIA, IT IS NOT LIABLE TO TAX IN INDIA UNDER ARTICLE 7 OF THE DTAA BETWEEN INDIA AND MAURITIUS. VIDE HIS LETT ER DATED 22.3.2004, THE AR OF THE ASSESSEE HAS SUBMITTED THA T THE ASSESSEE DID NOT HAVE ANY TAX LIABILITY IN INDIA FO R THE FOLLOWING REASONS. (I) IT DOES NOT HAVE A PE IN INDIA, AND HENCE ITS INCOM E CANNOT BE TAXED UNDER THE PROVISIONS OF THE DTAA. (II) THE AGENTS OF THE ASSESSEE HAVE MARKETED THE AD- TIME SLOTS OF THE CHANNELS BROADCASTED BY THE ASSESSEE, FOR WHICH THEY HAVE RECEIVED REMUNERATION ON ARMS LENGTH BASIS. THUS, IN THE LIGHT OF CBDTS CIRCULAR NO. 23 OF 1969, THE INCOME OF THE ASSESSEE IS NOT TAXABLE IN INDIA UNDER THE I.T. ACT, 1961, ALSO , ONCE THE CONDITIONS OF CIRCULAR 23 ARE FULFILLED, EXPLANATION (A) TO SECTION 9(1)(I) OF THE I.T. ACT, 1961 WILL HAVE NO APPLICATION. (III) CBDTS CIRCULAR NO. 742 IS NOT APPLICABLE IN ITS CA SE AS IT HAS PREPARED COUNTRYWIDE ACCOUNTS. 3. M/S. B4U MULTIMEDIA INTERNATIONAL LTD. AND M/S. B4U BROAD BAND LTD. ARE HEREINAFTER REFERRED TO AS B4U INDIA . 3 4. THE ASSESSING OFFICER DID NOT ACCEPT THE CONTENT ION OF THE ASSESSEE THAT IT DID NOT HAVE A PE IN INDIA IN THE FORM OF B 4U INDIA. HE ALSO DID NOT AGREE TO THE CONTENTION OF THE ASSESSEE THAT TH E PAYMENT OF ARMS LENGTH REMUNERATION BY THE ASSESSEE TO B4U INDIA DO ES EXTINGUISH THE TAX LIABILITY OF THE ASSESSEE IN INDIA. THE ASSESSI NG OFFICER SET OUT THE REASONS AT PARAGRAPH 5.1 TO 5.9 OF HIS ORDER WHICH ARE EXTRACTED FOR READY REFERENCE : 5.1 PARAGRAPH 5 OF ARTICLE 5 OF THE DTAA BETWEEN INDIA AND MAURITIUS, STATES THE FOLLOWING :- AN ENTERPRISE OF A CONTRACTING STATE SHALL NOT BE DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN THE OTHER CONTRACTING STATE MERELY BECAUSE IT CARRIES O N BUSINESS IN THAT OTHER STATE THROUGH A BROKER, GENE RAL COMMISSION AGENT, OR ANY OTHER AGENT OF AN INDEPENDENT STATUS, WHERE SUCH PERSONS ARE ACTING I N THE ORDINARY COURSE OF THEIR BUSINESS. HOWEVER, WHE N THE ACTIVITIES OF SUCH AN AGENT ARE DEVOTED EXCLUSI VELY OR ALMOST EXCLUSIVELY ON BEHALF OF THAT ENTERPRISE, HE WILL NOT BE CONSIDERED AN AGENT OF AN INDEPENDENT STATUS WITHIN THE MEANING OF THIS PARAGRAPH. 5.2 IT WOULD BE PERTINENT TO MENTION HERE THAT THE CHAN NELS BROADCASTED BY THE ASSESSEE IN INDIA ARE ALL FREE TO AIR CHANNELS. THIS MEANS THAT THEY COULD BE SHOWN ON CABLE NETWORKS WITHOUT ANY SUBSCRIPTION FEE. IN OTHERWORDS, THE SOLE PURPOSE OF THE BUSINESS OF THE ASSESSEE IS GENERATING REVENUES BY OFFERING ADVERTISEMENT SLOTS/TIME-SLOTS. THUS, THE ACTIVITIE S AND DUTIES M/S. B4U MULTIMEDIA INTERNATIONAL LTD. (BMM) AND M/S. B4U BROAD BAND LTD. (BBB) ARE THE LIFEBLOO D FOR THE BUSINESS OF THE ASSESSEE. IT IS NO SURPRISE THAT BOTH THESE CONCERNS ARE RELATED CONCERNS OF THE ASSESSEE. 5.3 THE ASSESSEE DOES NOT HAVE ANY FACILITY OR INFRASTRUCTURE IN MAURITIUS WHICH COULD BE USED FOR GENERATION OR MAXIMIZATION OF ADVERTISEMENT REVENUE . THUS, IN THE FORM OF BBB/BMM, THE ASSESSEE HAS BASICALLY EXTENDED ITS PHYSICAL PRESENCE IN INDIA F OR THE MOST IMPORTANT FUNCTION OF ITS BUSINESS IN GENE RAL, I.E., COLLECTION ON ACCOUNT OF OFFER OF TIME SLOT O N ITS CHANNELS FOR THE PURPOSE OF SHOWING ADVERTISEMENTS. 5.4 THE GAMUT OF ACTIVITY AS OUTLINES IN ADVERTISING S ALES REPRESENTATION AGREEMENT DATED 15.7.2000, AS ENTERED INTO BY BMM AND THE ASSESSEE, CLEARLY INDICATE THAT BMM IS A DEPENDENT AGENT OF THE ASSESSEE IN INDIA. CLUASE 1.6 OF THE AGREEMENT CLEA RLY MENTIONS THAT OTHER THAN ANOTHER PROGRAMMING 4 NETWORK OWNED OR MANAGED BY COMPANIES AFFILIATED WITH B4U INTERNATIONAL, B4U MULTIMEDIA WILL NOT REPRESENT ANOTHER TELEVISION NETWOK WHICH CONTAINS PROGRAMMING THAT CONSISTS PRIMARILY OF NON-FICTION PROGRAMMING BROADCAST IN THE SAME LANGUAGES THAT CONSIST PRIMARILY OF NON-FICTION PROGRAMMING BROADC AST IN THE SAME LANGUAGES AS THE (B4U CHANNELS). THE ABOVE CLEARLY ESTABLISHES THAT AFFILIATED ENTITIES OF THE ASSESSEE ARE BASICALLY AN EXTENSION OF THE ASSESSEE IN INDIA, AND BMMS TASK IS CUT OUT IN A WAY WHICH MAKES IT A DEPENDENT AGENT OF THE ASSESSEE WITHIN THE MEANING OF PARAGRAPH 5 OF ARTIC LE 5 OF THE DTAA. 5.5 THE ADVERTISING SALES REPRESENTATION AGREEMENT AS ENTERED INTO BY BBB AND THE ASSESSEE ON 12.1.2001, IS SIMILARLY WORDED AND CLAUSE 1.6 OF THE SAME IS A VERBATIM REPRODUCTION OF WHAT HAS BEEN STATED ABOVE . 5.6 ON THE BASIS OF THE ABOVE, IT IS HELD THAT FOR A.Y. 2001- 02, BBB AND BMM ARE DEPENDENT AGENTS OF THE ASSESSEE AND CONSTITUTE A PE OF THE ASSESSEE WITHIN THE MEANING OF ARTICLE 5 OF THE DTAA. THE BUSINESS OF THE PE OF THE ASSESSEE IS TO GENERATE ADVERTISEMENT REVENUES IN INDIA. 5.7 THUS, THE BUSINESS INCOME OF THE PE IS ASSESSABLE UNDER ARTICLE 7 OF THE DTAA. IN THIS REGARD, PARAGR APH 2 OF ARTICLE 7 OF THE DTAA IS BEING REPRODUCED BELO W :- SUBJECT TO THE PROVISIONS OF PARAGRAPH (3) OF THIS ARTICLE, WHERE AN ENTERPRISE OF A CONTRACTING STATE CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN, THERE SHALL IN EACH CONTRACTING STATE BE ATTRIBUTED TO THAT PERMANENT ESTABLISHMENT THE PROFITS WHICH IT MIGHT BE EXPECTED TO MAKE IF IT WERE A DISTRICT AND SEPARATE ENTERPRISE ENGAGED IN THE SAME OR SIMILAR ACTIVITIES UNDER THE SAME OR SIMILAR CONDITIONS AND DEALING WHOLLY INDEPENDENTLY WITH THE ENTERPRISE OF WHICH IT IS A PERMANENT ESTABLISHMENT. WHERE THE CORRECT AMOUNT OF PROFITS ATTRIBUTABLE TO A PERMANENT ESTABLISHMENT CANNOT BE READILY DETERMINED OR THE DETERMINATION THEREOF PRESENTS EXCEPTIONAL DIFFICULTIES, THE PROFITS ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT MAY BE ESTIMATED ON A REASONABLE BASIS. 5 5.8 IN THE VIEW OF THE FACT THAT THE ASSESSEE HAS BUSIN ESS OPERATIONS NOT ONLY IN INDIA BUT ALSO OUTSIDE INDIA , IT WOULD BE DIFFICULT TO ASCERTAIN THE PROFITS OF THE ASSESSEE IN RESPECT OF ITS INDIAN OPERATIONS. THUS, IT WOULD BE ONLY FAIR TO MAKE A REASONABLE ESTIMATE OF THE ASSESSEES PROFITS, AS MANDATED BY ARTICLE 7(2) OF THE DTAA, AND ALSO BY RULE 10 TO I.T. RULES, 1962. IN FACT, IN THIS REGARD, THE BEST AVAILABLE YARDSTICK IS PROVIDED BY CBDTS CIRCULAR NO. 742, WHICH ENVISAGE S PROFIT @ 10% AFTER ALLOWING COMMISSION PAYABLE TO ADVERTISING AGENTS AND OTHER PARTIES. 5.9 THE TOTAL REVENUES OF THE ASSESSEE FROM ITS INDIAN OPERATIONS ARE TO THE TUNE OF ` 9,41,03,019.57, AFT ER ALLOWING THE COMMISSION PAID TO AGENTS ETC. THUS, T HE PROFIT OF THE ASSESSEE IS WORKED OUT TO BE ` 94,10,302/- 5. ON THE ISSUE OF ARMS LENGTH PRICE THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE BY HOLDING AS FOLLOW S :- 6.9 TO SUMMARISE, THE CLAIM OF THE ASSESSEE THAT IF PAYMENT TO THE AGENT IS MADE AT ARMS LENGTH, THEN THE NON- RESIDENT IS NOT LIABLE TO TAX (HYPOTHESIS) IS NOT A CCEPTABLE FOR THE FOLLOWING REASONS :- A) THE PAYMENT TO THE AGENT AND PROFIT OF THE ASSES SEE FROM BUSINESS OPERATIONS IN INDIA ARE TWO SEPARATE THINGS WHICH CANNOT BE COMPARED. B) THE HYPOTHESIS IS APPLICABLE ONLY IN THE CASE OF INDEPENDENT AGENTS WHERE NO ASSES/CAPITAL OF NR ARE USED IN INDIA, NO RISK IS ASSUMED BY THE NR IN INDIA AND NO OTHER ACTIVITY IS CARRIED OUT BY THE NR IN INDIA. C) THE DRAFT DISCUSSION PAPER OF OECD ALSO SUGGEST APPORTIONMENT BASIS FOR DETERMINATION OF PROFITS ATTRIBUTABLE TO PE WHICH IS SIMILAR TO THE PROVISIONS IN RULE 10 OF THE I.T. RULES. D) NO SUCH CATEGORICAL STATEMENT/HYPOTHESIS HAS BEEN SUGGESTED BY THE OECD OR ANY OTHER COMMENTARY. E) IT WOULD ALSO NOT BE IN ACCORDANCE WITH THE STATUTORY PROVISIONS LIKE SECTION 44B OF THE ACT WHICH IS A SELF CONTAINED CODE. F) CBDTS CIRCULAR NO. 01 OF 2004 ALSO PROVIDES THAT WHEN CORE ACTIVITIES OF THE BUSINESS OF THE ASSESSEE IS OUTSOURCED, THEN THERE WOULD BE 6 SUBSTANTIAL PROFITS OF THE PRINCIPAL WOULD BE THE INCOME OF THE NON-RESIDENT TAXABLE IN INDIA. G) THERE HAS BEEN UNDUE RELIANCE ON ONE LINE OF THE CIRCULAR NO. 23 OF 1969 WITHOUT LOOKING INTO THE ENTIRE CONTEXT. H) IT WOULD MAKE PRINCIPLES OF FORCE OF ATTRACTION INAPPLICABLE IN INDIA. 6. THE ASSESSEE CARRIED THE MATTER IN APPEAL. THE C ONTENTIONS RAISED BEFORE THE ASSESSING OFFICER WERE REPEATED BEFORE T HE FIRST APPELLATE AUTHORITY. THE FIRST APPELLATE AUTHORITY HELD THAT: - (I) THE ASSESSEE CARRIES OUT ITS ENTIRE ACTIVITIES FROM MAURITIUS, AND (II) ALL THE CONTRACTS ARE CONCLUDED IN MAURITIUS. HE FURTHER OBSERVED THAT TH E ONLY ACTIVITY WHICH IS CARRIED OUT IN INDIA IS INCIDENTAL OR AUXILIARY/ PREPARATORY IN NATURE WHICH IS CARRIED OUT IN A ROUTINE MANNER AS PER THE DIRECTION OF THE PRINCIPALS WITHOUT APPLICATION OF MIND AND HENCE NO T A DEPENDENT AGENT. ON FACTS HE POINTED OUT THAT MERELY 4.69% OF THE TO TAL INCOME OF B4U INDIA, IS COMMISSION/SERVICE INCOME RECEIVED FROM T HE ASSESSEE-COMPANY AND HENCE IT CANNOT BE TERMED AS A DEPENDENT AGENT. ON THE ALTERNATIVE CONTENTIONS HE HELD THAT THE ASSESSEE AND B4U INDIA WERE DEALING WITH EACH OTHER ON AN ARM'S LENGTH BASIS. 15% SERVICE FE E IS SUPPORTED BY CIRCULAR NO. 742. THUS HE HELD THAT NO FURTHER PROF ITS SHOULD BE TAXED IN THE HANDS OF THE ASSESSEE. HE GRANTED RELIEF. 7. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US, O N THE TWO GROUNDS LISTED AT PAGE 1 OF THIS ORDER. 8. LEARNED DEPARTMENTAL REPRESENTATIVE, SHRI MAHESH KUMAR, SUBMITTED THAT THE FIRST ISSUE IN THIS APPEAL IS WH ETHER THE ASSESSEE HAS A PE IN INDIA OR NOT. HE SOUGHT PERMISSION OF THE BENCH TO REFER TO THE ORDER OF LEARNED CIT(A) FOR A.Y. 2003-04 TO SUPPORT HIS ARGUMENTS. AS THAT APPEAL IS ALSO BEFORE US, THE SAME IS PERMITTE D. 9. THE LEARNED D.R. SUBMITTED THAT THE ISSUE, AS TO WHETHER B4U INDIA IS A DEPENDENT AGENT OF THE ASSESSEE OR NOT H AS TO BE VIEWED FROM THE PERSPECTIVE OF THE NON-RESIDENT ASSESSEE AND NO T FROM THE PERSPECTIVE OF B4U INDIA WHICH IS THE RESIDENT AGENT. FOR THIS PROPOSITION HE RELIED ON THE JUDGMENT OF MUMBAI TRIBUNAL IN THE CASE OF A CIT VS. DHL 7 OPERATIONS B.V. (142 TAXMAN 1) (MUM) AND SUBMITTED THAT THE ISSUE WAS DECIDED IN FAVOUR OF THE REVENUE AND A SPECIAL BENC H WAS CONSTITUTED ON THE ISSUE. IT WAS POINTED OUT THAT HEARING OF THE A PPEAL ITSELF WAS STAYED BY HON'BLE HIGH COURT AND UNDER THOSE CIRCUMSTANCES , SPECIAL BENCH WOULD NOT BE ABLE TO DISPOSE OF THE APPEALS. THE LE ARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE PROPOSITION LAID DOW N BY THE DIVISION BENCH IN THE CASE OF DHL OPERATIONS B.V. (SUPRA) AN D ARGUED THAT THE PROPOSITIONS HAVE TO BE FOLLOWED AS IT IS A CO-ORDI NATE BENCH ORDER. 10. THE LEARNED DEPARTMENTAL REPRESENTATIVE REFERRE D TO PAGE NO. 48 OF THE ASSESSEES PAPER BOOK, WHICH IS AN AGREEMENT BETWEEN THE ASSESSEE AND B4U INDIA AND AFTER READING THE CLAUSE S 1.2 TO 1.6, 1.10 & 1.12, ARGUED THAT A PLAIN READING OF THESE CLAUSES SHOW THAT THE AGENT IS WORKING WHOLLY AND EXCLUSIVELY FOR THE PRINCIPAL. H E RELIED ON CLAUSE 1.10 AND ARGUED THAT THE AGENT IS AUTHORIZED TO CONCLUDE CONTRACTS AND FOR COMING TO SUCH AN INTERPRETATION, HE RELIED ON PARA GRAPH 8 OF THE AGREEMENT, SPECIFICALLY THE FOLLOWING WORDINGS IN THE EVENT OF TERMINATION OF THIS AGREEMENT BY B4U INTERNATIONAL, B4U MULTI SHALL SUPPLY TO B4U INTERNATIONAL SUCH INFORMATION B4U IN TERNATIONAL MAY REQUEST, TO INVOICE AND COLLECT ANY OUTSTANDING AMO UNTS FROM ADVERTISERS AND/OR AGENCIES WHICH WERE EARNED, BUT NOT INVOICED OR COLLECTED, PRIOR TO THE TERMINATION OF THE AGREEMENT. HE SUBMITTED THAT IF THE POWER TO CONCLUDE CONTRACTS IS NOT WITH THE AGENT, THEN THIS CLAUSE IS NOT REQUIRED. HE SUBMITTED THAT LEARNED CIT(A) RELIED ON THE ARTI CLE 5(5) OF INDO- MAURITIUS DTAA AND ARGUED THAT WHAT IS RELEVANT IS ARTICLE 5(4). HE RELIED ON LEARNED CIT(A)S ORDER FOR A.Y. 2003-04 SPECIFIC ALLY PAGE 15 PARAGRAPH 5 AND SUBMITTED THAT THE AUTHORITY TO CONCLUDE CONT RACTS IN THE NATURE OF ENTERPRISES DOES NOT CONFINE THE APPLICATION OF THE PARAGRAPH TO THE AGENT WHO ENTERED INTO CONTRACT LITERALLY IN THE NAME OF THE ENTERPRISES, BUT IT ALSO APPLIES EQUALLY TO AN AGENT WHO CONCLUDES CONT RACTS WHICH ARE BINDING ON THE ENTERPRISE EVEN IF THOSE CONTRACTS A RE NOT ACTUALLY IN THE NAME OF THE ENTERPRISE. HE ALSO POINTED OUT THAT TH E ASSESSING OFFICER AT PAGE 6 OF THE ASSESSMENT ORDER FOR A.Y. 2002-03 OBS ERVED THAT DESPITE A REQUISITION, THE ASSESSEE DID NOT SUBMIT A COPY OF THE CONTRACTS WITH THE ADVERTISING AGENCY AND HENCE THE ACTUAL CONDUCT OF THE PARTIES INVOLVED 8 COULD NOT BE EXAMINED. HE RELIED ON THE PAGE 17 PAR AGRAPH 19 OF LEARNED CIT(A)S ORDER. HE CONCLUDED HIS ARGUMENTS BY SUBMI TTING THAT AS THE AGENT HAD POWER TO CONCLUDE CONTRACTS, THE ISSUE FA LLS WITHIN ARTICLE 5(4) OF INDO-MAURITIUS DOUBLE TAXATION AVOIDANCE AGREEME NT AND HENCE THERE IS A PE. THAT IT IS ALSO COVERED BY ARTICLE 5(5) AS THE ISSUE WHETHER THERE IS A DEPENDENT AGENCY HAS TO BE VIEWED FROM THE ANG LE OF THE ASSESSEE AND NOT THE AGENT AND AS THE ASSESSEE IS DOING ITS ENTIRE OPERATION THROUGH THE AGENT, THE AGENT IS A DEPENDENT AGENT A ND HENCE A PE. 11. ON THE ISSUE OF ARMS LENGTH PRICE (ALP), LEARN ED DEPARTMENTAL REPRESENTATIVE REFERRED TO PAGE NO. 73 TO 80 OF ASS ESSEES PAPER BOOK AND PAGE NO. 37 PARAGRAPH 5.7 OF LEARNED CIT(A)S ORDER . HE RELIED ON THE DECISION OF L BENCH OF THE TRIBUNAL IN THE CASE O F HAPAG-LLOYOD VS. ADIT (20 TAXMAN 719) (ITA NO. 8854/MUM/2009 DATED 7 .5.2012) AND SUBMITTED THAT ONCE THE ASSESSEE HAS POWER TO CONCL UDE CONTRACTS THE DECISIONS IN THE CASE OF SET SATELLITE (SINGAPORE) PTE. LTD. VS. DIT (307 ITR 205) AND THE JUDGEMENT OF HON'BLE SUPREME COURT ON MORGAN STANLEY & CO. (292 ITR 416) ARE NOT APPLICABLE. 12. THE LEARNED COUNSEL FOR THE ASSESSEE, SHRI ARVI ND SONDE, ON THE OTHER HAND, OPPOSED THE CONTENTIONS AND SUBMITTED T HAT ON A PLAIN READING OF THE AGREEMENT BETWEEN THE ASSESSEE AND B 4U INDIA, IT WOULD BE CLEAR THAT THE INFERENCE SOUGHT TO BE DRAWN BY T HE LEARNED DEPARTMENTAL REPRESENTATIVE IS WRONG. HE TOOK THIS BENCH TO EACH CLAUSE OF THE AGREEMENT AND SUBMITTED THAT :- (A) THE RATE CARD IS APPROVED BY THE PRINCIPAL. (B) AGENT HAS NO AUTHORITY TO DEVIATE FROM THE RATE CAR D AND IT REQUIRED APPROVAL OF THE ASSESSEE. (C) IT IS ONLY THE ASSESSEE I.E. B4U INTERNATIONAL WHIC H SHALL RISE THE INVOICES. (D) REFERRING TO CLAUSE 1.9 HE SUBMITTED THAT THE ASSES SEE HAS ABSOLUTE RIGHT TO REJECT ANY ADVERTISEMENT AND THE AGENT IS REQUIRED TO MERELY FORWARD IT. (E) THAT THE ALL ACTIVITIES MENTIONED IN THE AGREEMENT ARE SUBJECT TO CONTROL AND DIRECTION OF THE PRINCIPAL. (F) THE PRINCIPAL AGENCY RELATIONSHIPS ARE ONLY ON FOUR ACTIVITIES. I) TO PROMOTE SALE OF ADVERTISEMENTS II) FORWARD THE REQUEST OF ADVERTISERS 9 III) FEED AND COLLECT PAYMENTS IV) OBTAIN APPROVAL OF RBI. (G) REFERRING TO CLAUSE 1.12, HE SUBMITTED THAT THERE I S A SPECIFIC PROHIBITION THAT THE AGENT CANNOT DIRECTLY OR INDIR ECTLY BIND THE PRINCIPAL. (H) REFERRING TO CLAUSE 8 RELIED UPON BY LEARNED DEPART MENTAL REPRESENTATIVE, HE SUBMITTED THAT NOTHING TURNS ON IT AS IT IS A DOCUMENTATION PROCESS AND REQUIRES THE FACTUAL POSI TION TO BE INTIMATED TO THE PRINCIPAL. (I) HE RELIED UPON CLAUSE 14.5 AND SUBMITTED THAT AN AG ENT IS AN INDEPENDENT CONTRACTOR AND IS NOT A SERVANT OR EMPL OYEE OF THE PRINCIPAL. 13. ON THE ISSUE AS TO WHETHER INDO-MAURITIUS DTAA ARTICLE 5.4 IS ATTRACTED IN THIS CASE, HE SUBMITTED THAT THE ARTIC LE APPLIES ONLY IF THE AGENT HAS OR HABITUALLY EXERCISED AUTHORITY TO CONC LUDE CONTRACT IN INDIA. HE RELIED ON THE JUDGMENT IN THE CASE OF TVM LTD. V S. CIT (237 ITR 230) (AAR) AND SUBMITTED THAT THE TERM HAS MEANS THE L EGAL EXISTENCE AND ARGUED THAT IF THE AGREEMENT IS READ THERE IS NO LE GAL EXISTENCE. ON THE WORD HABITUALLY EXERCISED THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THERE IS NO EVIDENCE PRODUCED BY THE REVENUE TO PROVE SUCH EXERCISE AND ENTIRE ARGUMENT RELIED ON THE INT ERPRETATION OF THE AGREEMENT. 14. ON APPLICABILITY OF ARTICLE 5.5, HE SUBMITTED T HAT THE SAME COMES INTO PLAY ONLY WHEN THE ENTIRE ACTIVITIES OF AN AGE NT ARE DEVOTED EXCLUSIVELY TO THE PRINCIPAL. HE RELIED ON THE FOL LOWING CASE LAWS :- DIT VS. MORGAN STANLEY (292 ITR 416)(SC), PARAGRAPH 9 ON PAGE NO. 426 FOR THE PROPOSITION THAT WHEN THERE IS NO A UTHORITY TO ENTER INTO OR CONCLUDE CONTRACTS, THERE IS NO AGENC Y PE. ORDER OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF WESTERN UNION FINANCE SERVICES INC. VS. ADIT (104 ITD 34) ( DEL) KNOWWERX EDUCATION (INDIA) P. LTD (301 ITR 207) (AA R) SPECIALITY MAGAZINES P. LTD. (274 ITR 310)(AAR) DDIT VS. DAILMER CHRYSLER A.G (39 SOT 418)(MUM) 15. ON DHL OPERATIONS B.V.(142 TAXMAN-1), HE SUBMIT TED THAT HON'BLE HIGH COURT HAS STAYED THE DISPOSAL OF THE A PPEAL AND HENCE SPECIAL BENCH CONSTITUTED, CANNOT DISPOSE OF THE AP PEAL TILL THE STAY IS VACATED. 10 16. WHILE AGREEING THAT THE PROPOSITION LAID DOWN I N DHL OPERATIONS B.V. (SUPRA) IS THAT, THE PERSPECTIVE AS TO WHETHER AN AGENT IS DEPENDENT AGENT IS TO BE VIEWED FROM THAT OF THE NON-RESIDENT PRINCIPAL AND NOT THE INDIAN AGENT, HE POINTED OUT THAT IN THIS CASE 96% OF THE INCOME OF B4U INDIA IS NOT FROM THE NON-RESIDENT ASSESSEE AND ARG UED THAT ON FACTS IT CANNOT BE HELD AS A DEPENDENT AGENT. HE SUBMITTED T HAT IN DHL OPERATIONS BV THE TRIBUNAL HAD CONSIDERED ARTICLE 5 .1 AND BASED ITS DECISION ON THIS ARTICLE. HE POINTED OUT THAT ARTIC LE 5.5 ARISES ONLY WHEN ARTICLE 5.1 DOES NOT ARISE AND ARGUED THAT OBSERVAT IONS OF THE BENCH ON ARTICLE 5.5 & 5.6 ARE AN OBITER. HE POINTED OUT TH AT THE DECISION IS CONTRARY TO THE DECISION IN THE CASE OF WESTERN UNI ON FINANCE SERVICES INC. (SUPRA) AND DAIMER CHRYSLER A.G (SUPRA) AND HE NCE THAT DECISION SHOULD NOT BE FOLLOWED BY THE BENCH. HE ARGUED THAT THE VIEW FAVOURABLE TO THE ASSESSEE SHOULD BE TAKEN, WHEN THERE ARE TWO CONTRARY VIEWS ON THE SAME ISSUE. 17. ON REFERENCE MADE TO LEARNED CIT(A)S ORDER FOR A.Y. 2003-04, HE DISPUTED THE FINDINGS BASED ON AUDITORS REPORT AND SUBMITTED THAT AUDITOR DID NOT STATE ANYWHERE, THAT INVOICES WERE ISSUED BY THE AGENT. ON THE MEMORANDUM OF UNDERSTANDING REFERRED TO BY L EARNED CIT(A), IN HIS ORDER FOR A.Y. 2003-04, HE SUBMITTED THAT THIS HAS NOTHING TO DO WITH ADVERTISING. HE SUBMITTED THAT THERE IS NO VIRTUAL PROJECTION OF PRINCIPAL IN THE TERRITORY OF INDIA THROUGH AN AGENT. HE POIN TED OUT THAT THE MOU IS REGARDING DISTRIBUTION OF CHANNELS NETWORK AND F OR MAKING THEM PAY CHANNELS. THE EXPENDITURE WAS TO BE INCURRED BY THE AGENT AND SUBSCRIPTION REVENUE FROM CABLE OPERATORS AND OTHER CLIENTS ARE RETAINED IN FULL BY THE AGENT. THUS HE SUBMITTED THAT THE PR INCIPAL WOULD NOT HAVE RECEIVED ANY AMOUNT FROM THE SAID AGREEMENT, NOR IN CURRED ANY EXPENDITURE AND HENCE THE MOU IS NOT RELEVANT IN DE CIDING AS TO WHETHER THE ASSESSEE HAS A P.E., MUCH LESS A DEPENDENT AGEN T P.E. IN INDIA. 18. ON THE RELIANCE PLACED ON THE ORDER OF SATELLIT E TELEVISION ASIAN REGION LTD. (99 ITD 91 (MUM) BY LEARNED DEPARTMENTA L REPRESENTATIVE, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE CASE LAW IS NOT 11 APPLICABLE FOR THE REASON THAT STAR WAS NON-RESIDEN T PAYER AND WHEREAS THE ASSESSEE WAS NON-RESIDENT RECIPIENT OF AMOUNTS AND THAT STAR PURCHASED AIR-TIME BUT IN THE CASE OF THE ASSESSEE IT SOLD AIR-TIME AND HENCE THE FACTS WERE DIFFERENT. THUS HE ARGUED THAT THE MODEL WAS DIFFERENT FROM THAT OF THE ASSESSEE. HE SUBMITTED T HAT THE DECISION OF DELHI BENCH OF THE TRIBUNAL IN THE CASE OF DIT VS. BBC WORLDWIDE LTD. (37 SOT 253) APPLIES TO THE FACTS OF THE CASE. HE F URTHER RELIED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF BBC WORLDWIDE LTD. 203 TAXMAN 554. 19. ON THE SECOND ISSUE OF ARMS LENGTH PRICE, HE S UBMITTED THAT THERE ARE TWO FACETS TO THIS ARGUMENT, THE FIRST BEING WH ETHER IT IS ARMS LENGTH PRICE OR NOT AND, SECOND BEING, WHEN ARMS LENGTH P RICE IS PAID WHETHER THE LIABILITY OF THE PRINCIPAL GETS EXTINGUISHED. O N THE FIRST FACET, HE SUBMITTED THAT 15% IS THE NORM FOR ADVERTISING AGEN CY AND THIS IS SUPPORTED BY THE CIRCULAR NO. 742 DATED 2.5.1996. H E ALSO RELIED ON THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF S ET SATELLITE (SINGAPORE) PTE LTD. VS. DDIT (307 ITR 205) (BOM), DIT VS. GALI LEO INTERNATIONAL INC. (180 TAXMAN 357) FOR THE PROPOSITION THAT 15% COMMI SSION IS ARMS LENGTH PRICE. HE FURTHER SUBMITTED THAT THE TPO HAS ALSO ACCEPTED THE ALP @ 15% IN A.Y. 2002-03 TO 2004-05. 20. ON THE SECOND FACET HE RELIED ON THE FOLLOWING CASE LAWS :- (A) DIT VS. MORGAN STANLEY (292 ITR 416) (SC) SPECIFICA LLY AT PARAGRAPH 32 ON PAGE 443 SUBMITTED THAT ATTRIBUTION ARISES, IF THERE IS A PE. (B) THE JUDGMENT OF HON'BLE BOMBAY HIGH COURT IN THE CA SE OF SET SATELLITE (SINGAPORE) PTE (307 ITR 205) (BOM) (C) BBC WORLDWIDE LTD. VS. DCIT (203 TAXMAN 554) (DELHI HIGH COURT) 21. ON RELIANCE PLACED BY LEARNED DEPARTMENTAL REPR ESENTATIVE ON THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL IN THE CAS E OF HAPAG-LLOYOD VS. ADIT (20 TAXMAN 719), HE SUBMITTED THAT THIS I S DISTINGUISHABLE AS THE ASSESSEE CARRYING ON BUSINESS IN INDIA THROUGH PE WHICH HAD POWER TO CONCLUDE CONTRACTS. THE ASSESSEE, AS PER THE LEA RNED COUNSEL, HAD NO POWER TO CONCLUDE CONTRACTS. 12 22. LEARNED DEPARTMENTAL REPRESENTATIVE, IN REPLY, SUBMITTED THAT THE ASSESSEE HAS NOT GIVEN ANY EVIDENCE TO THE ASSESSIN G OFFICER THAT THE CONTRACTS ARE CONCLUDED BY IT AND UNDER THOSE CIRCU MSTANCES IT CANNOT CLAIM THAT THE AGENT HAS NOT CONCLUDED CONTRACTS. O N DHL OPERATIONS B.V. (SUPRA), HE SUBMITS THAT THIS IS A MUMBAI TRIB UNAL DECISIONS AND HAS TO BE FOLLOWED IN PREFERENCE TO AARS DECISIONS AND DELHI BENCH OF THE TRIBUNAL DECISIONS WHICH ARE CONTRARY. HE REFUT ED ARGUMENT OF LEARNED COUNSEL FOR THE ASSESSEE THAT COMMENT BY TH E BENCH ON ARTICLE 5.5 WAS AN OBITER. ON MORGAN STANLEY (SUPRA) HE SUB MITTED THAT IT WAS A SERVICE PE AND THE COURT WAS DEALING WITH A DEPEND ENT AGENT ENTERPRISE AND NOT A CASE OF A DEPENDENT AGENT A S IN THE CASE OF THE ASSESSEE. HE SUBMITS THAT FAR ANALYSIS IS DIFFERENT IN BOTH THE CASES. 23. ON CROSS OBJECTION, BOTH PARTIES AGREED THAT IF THE DEPARTMENTAL APPEAL IS DISMISSED, THEN THE CROSS OBJECTION HAVE TO BE TREATED AS INFRUCTUOUS AND THAT IF THE DEPARTMENTAL APPEAL IS ALLOWED, THEN THE CROSS OBJECTION SHOULD BE RESTORED TO THE FILE OF T HE LEARNED CIT(A) AS THE ISSUES HAVE NOT BEEN ADJUDICATED. 24. RIVAL CONTENTIONS WERE HEARD. ON A CAREFUL CONS IDERATION OF THE FACTS AND CIRCUMSTANCES OF THE CASE, PERUSAL OF THE PAPERS ON RECORD AND ORDERS OF THE AUTHORITIES BELOW AS WELL AS CASE LAW CITED, WE HOLD AS FOLLOWS :- THE ENTIRE ISSUE AS TO WHETHER THE ASSESSEE HAS A P E IN INDIA OR NOT, DEPENDS ON THE AGREEMENT ENTERED INTO BETWEEN BOTH THE PARTIES AND THE FUNCTIONS PERFORMED BY THEM. 25. FOR READY REFERENCE WE EXTRACT IMPORTANT CLAUSE S OF THE AGREEMENT:- 1.2 IT WILL CREATE A RATE CARD FOR THE SALE OF ADV ERTISING TIME ON THE (B4U CHANNELS), WHICH WILL BE USED ONLY AFTE R IT IS APPROVED BY B4U INTL. ANY SALES, WHICH DEVIATE FRO M THE APPROVED RATE CARD, MUST BE APPROVED BY B4U INTL WHICH WILL BE PROVIDED TIME TO TIME TO R.B.I. (THIS SHOWS THAT THE DECISION ON PRICING IS CONTROLLED BY THE ASSESSEE.) 13 1.4 B4U INTL SHALL INVOICE ADVERTISERS AND AGENCIE S WHO ARE BUYING TIME ON THE (B4U CHANNELS) : IN INSTANCE S WHERE THE ADVERTISERS AND AGENCIES CANNOT OR DO NOT USE A EEFC A/C, B4U MULTI WILL COLLECT AND KEEP ALL SALES REVE NUE TILL SUCH TIME THE APPROVAL OF RESERVE BANK OF INDIA IS OBTAINED TO REMIT SUCH SALES REVENUE B4U MULTI SHALL THEN MAKE ALL EFFORTS TO APPLY TO THE RESERVE BANK OF INDIA TO OBTAIN APP ROVALS FOR REMITTANCE OF SUCH SALES REVENUE TO B4U INTL, AND REMIT IT TO HSBC, PORT LOUIS, MAURITIUS TO THEIR A/C. NO. 08005 0800020. (THIS SHOWS THAT INVOICES WERE RAISED BY THE N.R. A SSESSEE ONLY. THE AGENT ONLY OBTAIN R.B.I. APPROVAL, COLLEC TS MONEY AND REMITS IT TO THE N.R. OWNER.) 1.9 IT ACKNOWLEDGES THAT B4U INTL SHALL RETAIN THE ABSOLUTE RIGHT TO REJECT ANY ADVERTISEMENT SUBMITTE D TO BE EXHIBITED ON THE (B4U CHANNELS) AT ITS SOLE DISCRET ION. B4U MULTI ACKNOWLEDGES THAT IT CANNOT BIND B4U INTL TO ACCEPT ANY REQUISITION MADE BY A POTENTIAL ADVERTISER TO E XHIBIT ITS ADVERTISEMENT ON THE (B4U CHANNELS) AND THAT IT SHA LL MERELY FORWARD THE REQUISITIONS OF SUCH ADVERTISERS TO B4U INTL. IN THIS REGARD, B4U INTL WILL MAKE BEST EFFORTS TO PR OVIDE B4U MULTI WITH GENERAL GUIDELINES REGARDING UNACCEPTABL E ADVERTISEMENT, BUT SUCH GUIDELINES SHALL NOT, IN AN Y MANNER LIMIT B4U INTLS RIGHT TO REJECT AN ADVERTISEMENT. B 4U INTL SHALL INFORM B4U MULTI OF ANY ADVERTISEMENT THAT IT REJEC TS. (THE AGENT ONLY FORWARDS THE ADVERTISEMENT TO THE ASSESS EE WHO HAS A RIGHT TO REJECT. THERE IS NO CONTROL WITH THE AGENT). 1.12 EXCEPT WITH THE PRIOR WRITTEN CONSENT OF B4U I NTL, B4U MULTI SHALL NOT BIND, WHETHER DIRECTLY OR INDIRECTL Y, B4U INTL OR SEEK TO ACT ON BEHALF OF B4U INTL. FOR REMOVAL OF DOUBT, THE PARTIES HEREBY AGREE THAT THIS AGREEMENT DOES NOT C ONSTITUTE B4U MULTI AS AN AGENT OF B4U INTL, EXCEPT TO THE L IMITED EXTENT THAT B4U MULTI SHALL MAKE EFFORTS TO PROMOTE THE SA LE OF ADVERTISEMENT TIME ON THE (B4U CHANNELS) AND FORWAR D THE REQUESTS OF ADVERTISERS SEEKING TO BUY TIME ON THE ( B4U CHANNELS) FEED AND COLLECT PAYMENT OF INVOICES AND OBTAIN APPROVALS FROM THE RESERVE BANK OF INDIA FOR REMITT ANCE OF FUNDS. (THIS CLAUSE IS VERY CLEAR ON THE ROLES OF E ACH PARTNER. BOTH ARE INDEPENDENT OF EACH OTHER.) 14.5 INDEPENDENT CONTRACTOR: IN THE PERFORMANCE OF THIS AGREEMENT, B4U MULTI IS AN INDEPENDENT CONTRACTOR A ND IS NOT A SERVANT OR EMPLOYEE OF B4U INTL. NOTHING CONTAIN ED HEREIN SHALL BE DEEMED TO CREATE A JOINT VENTURE OR PARTNE RSHIP BETWEEN THE PARTIES AND NEITHER PARTY SHALL HOLD IT SELF OUT TO THE CONTRARY. 26. A PLAIN READING OF THESE CLAUSES DEMONSTRATES T HAT B4U INDIA IS NOT THE DECISION MAKER, NOR IT HAS THE AUTHORITY TO CONCLUDE CONTRACTS. 14 THE AGENT HAS NO AUTHORITY TO FIX THE RATE OR TO AC CEPT AN ADVERTISEMENT. IT CAN MERELY FORWARD THE ADVERTISEMENT AND THE ASS ESSEE HAS THE RIGHT TO REJECT. NO DEVIATION CAN BE DONE FROM THE RATE CARD UNDER THE ASSESSEE APPROVES THE SAME. THE AGENT IS INDEPENDENT CONTRAC TOR AND IS NOT SERVANT OR EMPLOYEE OF THE ASSESSEE. THE JOB OF THE INDIAN AGENT IS WELL DEFINED I.E. :- (A) TO GENERATE THE MAXIMUM AMOUNT OF ADVERTISING S ALES. (B) NOT TO DEVIATE FROM THE APPROVED CARD RATE CARD , WITHOUT PERMISSION FROM THE PRINCIPAL. (C) TO ENSURE ALL ADVERTISERS HAVE THE VALID INDIAN DOCUMENTATION. (D) THE AGENT SHALL NOT REPRESENT OTHER TELEVISION NETWORK WHICH CONTAINS NON-FICTIONAL PROGRAMMING BROADCAST IN THE SAME LANGUAGES AS B4U CHANNELS. (E) TO UNDERTAKE MARKET ANALYSIS. (F) TO FORWARD ADVERTISEMENT TO THE PRINCIPLE. THE PRINCIPAL HAS THE ABSOLUTE RIGHT TO REJECT ANY ADVERTISEMENT. (G) THE PRINCIPAL RETAINS THE RIGHT TO SELL ADVERTI SEMENT TIME AND SUCH RIGHT IS NOT GIVEN TO THE AGENT. (F) ALL ACTIVITIES ARE SUBJECT TO THE CONTROL OF TH E PRINCIPAL. THE AGENT CANNOT BIND THE PRINCIPAL WITHOUT PRIOR WRITT EN CONSENT. IT CAN ONLY FORWARD REQUESTS OF ADVERTISE RS, COLLECT PAYMENT AND OBTAIN APPROVALS. AGENT SHALL PROCESS R BIS APPROVAL. 27. FROM THE ABOVE IT IS CLEAR THAT THE AGENT DOES NOT HAVE ANY POWER TO CONCLUDE CONTRACTS. THE REVENUE HAS NOT BROUGHT OUT ANYTHING ON RECORD TO PROVE THAT THE AGENT HAS POWER TO CONCLUD E CONTRACTS. THE INFERENCES DRAWN BY THE REVENUE BASED ON THE AGREEM ENT ARE FACTUALLY INCORRECT. OTHER THAN THE AGREEMENT THERE IS NO MAT ERIAL OR EVIDENCE WITH THE AO TO DISPROVE THE CLAIM OF THE ASSESSEE THAT T HE AGENT HAS NO POWER TO CONCLUDE CONTRACT. 28. WE NOW EXTRACT ARTICLE 5.4 & 5.5 OF INDO-MAURIT IUS DTAA FOR READY REFERENCE. PARA 3.4 OF THE ORDER PASSED BY THE LEAR NED CIT(A) FOR ASSESSMENT YEAR 2003-04, IS EXTRACTED BELOW: 5.4 NOTWITHSTANDING THE PROVISIONS OF PARAGRAPHS 1 AND 2 OF THIS ARTICLE, A PERSON ACTING IN A CONTRACTING S TATE FOR OR ON BEHALF OF AN ENTERPRISE OF THE OTHER CONTRACTING ST ATE (OTHER THAN AN AGENT OF AN INDEPENDENT STATUS TO WHOM THE PROVISIONS OF PARAGRAPH 5 APPLY) SHALL BE DEEMED TO BE A 15 PERMANENT ESTABLISHMENT OF THAT ENTERPRISE IN THE F IRST MENTIONED STATE IF; I) HAS AND HABITUALLY EXERCISES IN THAT FIRST MENTIO NED STATE AN AUTHORITY TO CONCLUDE CONTRACTS IN THE NAM E OF THE ENTERPRISE, UNLESS HIS ACTIVITIES ARE LIMITED TO THE PURCHASE OF GOODS OR MERCHANDISE FOR THE ENTERPRISE; OR II) HE HABITUALLY MAINTAINS IN THAT FIRST MENTIONED STATE A STOCK OF GOODS OR MERCHANDISE BELONGING TO THE ENTE RPRISE FROM WHICH HE REGULARLY FULFILLS ORDERS ON BEHALF O F THE ENTERPRISE. 5.5 AN ENTERPRISE OF A CONTRACTING STATE SHALL NOT BE DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN THE OTH ER CONTRACTING STATE MERELY BECAUSE IT CARRIES ON BUSI NESS IN THAT OTHER STATE THROUGH A BROKER, GENERAL COMMISSIO N AGENT OR ANY OTHER AGENT OF AN INDEPENDENT STATUS, WHERE SUCH PERSONS ARE ACTING IN THE ORDINARY COURSE OF THEIR BUSINESS. HOWEVER, WHEN THE ACTIVITIES OF SUCH AN AGENT ARE D EVOTED EXCLUSIVELY OR ALMOST EXCLUSIVELY ON BEHALF OF THAT ENTERPRISE, HE WILL NOT BE CONSIDERED AN AGENT OF AN INDEPENDEN T STATUS WHEN THE MEANING OF THIS PARAGRAPH. 29. LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITS THA T ARTICLE 5.4 IS ATTRACTED. IN OUR OPINION, ON FACTS IT CANNOT BE SA ID THAT THE INDIAN REPRESENTATIVE HAS HABITUALLY EXERCISES AUTHORITY TO CONCLUDE CONTRACTS. AS RIGHTLY SUBMITTED BY SHRI ARVIND SOND E, THE TERM HAS HAVE REFERENCE TO LEGAL EXISTENCE OF SUCH AUTHORITY IN TERMS OF THE CONTRACT BETWEEN PRINCIPAL AND AGENT. A READING OF THE AGREEMENT SHOWN THAT SUCH POWER IS NOT CONFERRED ON THE AGENT THE W ORDS HABITUALLY EXERCISES HAVE REFERENCE TO A SYSTEMATIC COURSE OF CONDUCT ON PART OF THE AGENT, AS HELD BY LEARNED AAR IN ITS ORDER IN THE C ASE OF TVM LTD. VS. CIT (237 ITR 230) (AAR). IN THE CASE ON HAND, THERE IS NEITHER LEGAL EXISTENCE OF SUCH AUTHORITY, NOR IS THERE ANY EVIDENCE TO PRO VE THAT THE AGENT HAS HABITUALLY EXERCISED SUCH AUTHORITY. IN FACT, THE PRINCIPAL HAS RAISED ALL THE INVOICES. WHEN IT IS THE CASE OF THE ASSESSEE T HAT THE AGENT HAS NO AUTHORITY TO CONCLUDE CONTRACTS, THE REVENUE CANNOT ASK FOR CONTRARY EVIDENCE AS NOBODY CAN PROVE THE NEGATIVE. THUS ART ICLE 5.4 OF INDO- MAURITIUS DTAA IS NOT ATTRACTED IN THIS CASE. 30. COMING TO ARTICLE 5.5, THE WORDING READS AS FOL LOWS WHEN THE ACTIVITIES OF SUCH AN AGENT ARE DEVOTED EXCLUSIVELY OR ALMOST EXCLUSIVELY 16 ON BEHALF OF THE ASSESSEE ENTERPRISES . IN OUR OPINION THESE WORDINGS REFER TO THE ACTIVITIES OF AN AGENT AND ITS DEVOTIO N TO THE NON-RESIDENT AND NOT THE OTHER WAY ROUND. THE PERSPECTIVE SHOULD BE FROM THE ANGLE OF THE AGENT AND NOT OF THE NON-RESIDENT. THIS VIEW OF OUR S IS CONTRARY TO THE DECISION OF THE TRIBUNAL IN THE CASE OF DHL OPERATI ONS B.V. (SUPRA). OUR VIEW IS IN LINE WITH THE DECISION OF AAR IN THE CAS E OF MORGAN STANLEY & CO., 272 ITR 416 (AAR), WHEREIN IT WAS HELD AS FOL LOWS: THERE IS NO MERIT IN THE PLEA OF THE CIT THAT THE DIFFERENCE BETWEEN 'DEPENDENT' AND 'INDEPENDENT' AGENTS HAS TO BE SEEN FROM THE PERSPECTIVE OF THE 'PRINCIPAL' AND NO T FROM THAT OF 'AGENT'. IN OUR VIEW FOR A PROPER UNDERSTANDING OF THE DEEMING PROVISIONS CONTAINED IN PARAS 4 AND 5 OF AR TICLE 5, THEY HAVE TO BE READ TOGETHER. PARA 4 DEALS WITH A PERSON OTHER THAN AN AGENT OF INDEPENDENT STATUS TO WHOM P ARA 5 OF THE ARTICLE APPLIES. WE SHALL, THEREFORE, REFER TO THE BASIC FEATURES OF PARA 5, AS MENTIONED ABOVE. IT CONTAINS A DEEMED NON-INCLUSION CLAUSE AND PROVIDES THAT AN EN TERPRISE OF THE CONTRACTING STATE SHALL NOT BE DEEMED TO HAV E A PE IN THE OTHER CONTRACTING STATE MERELY BECAUSE IT CARRI ES ON BUSINESS IN THAT STATE THROUGH A BROKER, GENERAL CO MMISSION AGENT OR ANY OTHER AGENT OF AN INDEPENDENT STATUS P ROVIDED SUCH PERSONS ARE ACTING IN THE ORDINARY COURSE OF T HE BUSINESS. THIS IS CLEAR ENOUGH. HOWEVER, THIS EXCLU SION CLAUSE, IS SUBJECTED TO AN EXCEPTION, NAMELY, WHERE ACTIVITIES OF SUCH AN AGENT ARE WHOLLY OR ALMOST WHOLLY DEVOTE D FOR THE ENTERPRISE OR CONTROLLING ENTERPRISE. IN SUCH A SIT UATION SUCH A PERSON SHALL NOT BE CONSIDERED AS AGENT OF INDEPE NDENT STATUS. THE TEST IS OBJECTIVE AND HAS TWO LIMBS. TH E FIRST LIMB REQUIRES THAT SUCH PERSONS SHALL BE AGENTS OF AN INDEPENDENT STATUS ACTING IN THE ORDINARY COURSE OF THEIR BUSINESS AND THE SECOND REQUIRES THAT THE ACTIVITIE S OF SUCH PERSONS SHALL NOT BE DEVOTED WHOLLY OR ALMOST WHOLL Y FOR THE ENTERPRISE. THE ACTIVITIES REFERRED TO THEREIN ARE THAT OF THE BROKER, GENERAL COMMISSION AGENT OR ANY OTHER AGENT AND NOT OF THE ENTERPRISE. THE PURPOSE IS TO EXCLUDE AGENTS WHO, THOUGH ACTING IN THE ORDINARY COURSE OF THEIR BUSIN ESS, ARE DEVOTED ENTIRELY OR ALMOST ENTIRELY TO THE WORK OF THE ENTERPRISE. THIS IMPLIES THAT THEY HAVE LITTLE WORK OF OTHER ENTERPRISES. IF PROPERLY UNDERSTOOD, THERE IS NO SC OPE TO EXCLUDE FROM PARA 5 'AGENTS' WHOSE ACTIVITIES IN TH E ORDINARY COURSE OF THEIR BUSINESS NOT ONLY COVER WHOLLY OR A LMOST WHOLLY THE WORK OF THE ENTERPRISE BUT ALSO INCLUDE WORK OF MANY OTHER ENTERPRISES WHO ARE ALSO THEIR CLIENTS. IN OTHER WORDS, ONLY SUCH AGENTS WILL BE OUT OF PURVIEW OF P ARA 5, WHOSE ORDINARY COURSE OF BUSINESS COMPRISES EXCLUSI VELY THE WORK OF THE ENTERPRISE WITH LITTLE WORK OF ANY OTHE R CLIENT; LIKE 17 THE STANDING COUNSEL OR LAW OFFICERS OF CENTRAL/STA TE GOVERNMENT. WITH RESPECT TO THE MEMBERS OF THE TRIB UNAL, MUMBAI BENCH 'D', MUMBAI, IN ITA NOS. 7987 AND 7988/BOM/1992 {ASSTT. CTT V. DHL OPERATIONS B.V. NETHERLANDS), WE ARE NOT PERSUADED TO AGREE WITH TH EIR APPROACH OUTLINED IN THEIR ORDER DT. 3RD OCT., 2000 THUS : 'FIRST CONDITION FOR APPLICATION OF PARA 6 IS THAT THE AGENT SHOULD BE OF INDEPENDENT STATUS. THE SECOND CONDITI ON TO BE SATISFIED FOR APPLICATION OF PARA 6 IS THAT THE AGE NT OF INDEPENDENT STATUS SHOULD NOT BE CARRYING ON THE BU SINESS OF THE NON-RESIDENT WHOLLY OR ALMOST WHOLLY. WE HAV E NO HESITATION TO STATE THAT SECOND CONDITION IS CAPABL E OF BEING MISINTERPRETED UNLESS ONE KEEPS IN MIND THE FIRST C ONDITION. FOR APPLICATION OF PARA 6 OF ARTICLE 5, AGENT HAS T O BE OF INDEPENDENT STATUS. IF A PERSON CARRIES ON WHOLLY O R ALMOST WHOLLY ALL THE ACTIVITIES OF THE NON-RESIDENT AND D OES NOT CARRY ON ANY OTHER ACTIVITY, THAT PERSON WILL NOT B E AN AGENT OF INDEPENDENT STATUS. THEREFORE, THE CONTENTION TH AT SINCE AIRFREIGHT LTD. IS CARRYING ON ACTIVITIES OF BUSINE SS OTHER THAN THE ACTIVITIES OF RESPONDENT THEY ARE EXCLUDED FROM OPERATION OF PARA 5, DOES NOT HOLD WATER. IT IS WELL-SETTLED PRINCIPLE OF LAW THAT THE WORDS IN A STATUTE OR DOCUMENT TAKE IT S COLOUR FROM THE CONTEXT. WHEN WE KEEP IN MIND THAT THE ENQ UIRY TO BE MADE IS RELATING TO THE ACTIVITIES OF THE NON-RE SIDENT VIS-A- VIS THE ACTIVITIES OF THE AGENT OF INDEPENDENT STAT US, IT IS NOT DIFFICULT TO APPRECIATE THAT THE ENQUIRY TO BE MADE AS PER PARA 6 IS NOT AS TO WHETHER THE AGENT IS CARRYING O N VARIOUS ACTIVITIES OTHER THAN THE ACTIVITY OF BEING AN AGEN T OF THE NON RESIDENT BUT AS TO WHETHER THE ENTIRE ACTIVITIES RE LATING TO THE NON-RESIDENT ARE CARRIED ON WHOLLY OR ALMOST WHOLLY BY THE AGENT ON BEHALF OF THE NON-RESIDENT ENTERPRISE.' (P ARA 6 OF THE TREATY IN THAT CASE IS IDENTICAL WITH PARA 5 IN THE CASE ON HAND) IN THAT CASE DHL OPERATIONS B.V., NETHERLANDS, ENTE RED INTO AGREEMENT WITH AIRFREIGHT LTD., AN INDIAN COMPANY. IN TERMS OF THE AGREEMENT, THE INDIAN COMPANY WOULD RENDER S ERVICES TO THE DHL AS FORWARDERS, ? COURIERS AND TRANSPORTE RS OF URGENT BUSINESS DOCUMENTS AND SMALL PARCELS IN INDI A AND THE DHL WOULD RENDER SUCH SERVICES TO THE INDIAN CO MPANY OUTSIDE INDIA. THERE WAS AGREEMENT FOR DOUBLE TAXAT ION AVOIDANCE AGREEMENT (TREATY) BETWEEN THE NETHERLAND S AND THE GOVERNMENT OF INDIA. WHILE INTERPRETING ARTICLE 5 OF THE TREATY DEALING WITH PE, THE TRIBUNAL CONSTRUED PARA 5 THEREOF IN THE TERMS EXTRACTED ABOVE. TO READ THE TEST SPECIFIED IN PARA 5 IN THE WAY ADO PTED BY THE TRIBUNAL AND WHICH IS SOUGHT TO BE REINFORCED B Y MR. SINGH, WOULD AMOUNT TO DISTORTING THE TEST MENTIONED IN THE SAID PARA. WE ARE UNABLE TO ACCEPT THE CONTENTION O F MR. 18 SINGH. WE ARE SUPPORTED IN OUR VIEW BY THE RULING O F THIS AUTHORITY IN APPLN. NO. AAR/615/2003, DUN & BRADSTR EET ESPANA, S.A., SPAIN, 31. THE AAR IN THE CASE OF SPECIALTY MAGAZINES P. L TD.(SUPRA), HELD THAT :- THE CLAUSE IN THE AGREEMENT BETWEEN SMPL AND TENL T HAT THE FORMER WOULD NOT ACCEPT ANY AGENCY OF A COMPETI TOR WITHOUT FIRST OBTAINING ITS CONSENT, WOULD NOT, IN OUR VIEW, MAKE IT A DEPENDENT AGENT. IN FIDELITY ADVISOR SERIES VIII, IN RE [2004] 271 ITR 1, 14 (AAR) THE AUTHORITY HELD THUS : WHAT IS CONTENDED BY MR. GUPTA IS THAT THE SCB IS NOT AN AGENT OF INDEPENDENT STATUS WITHIN THE MEANING OF C LAUSE 5 OF ARTICLE 5 OF THE TREATY AND THAT THE ACTIVITIES OF THE DOMESTIC CUSTODIAN ARE ALMOST EXCLUSIVELY TO THE AP PLICANT. WE ARE UNABLE TO ACCEPT THIS SUBMISSION. IT WOULD B E NECESSARY TO NOTE HERE THAT THE SCBTHE DOMESTIC CU STODIAN OF THE APPLICANT IN INDIAPROVIDES CUSTODIAL SERVIC ES TO A NUMBER OF OTHER LOCAL AND INTERNATIONAL COMPANIES O N A ROUTINE BASIS AND, THEREFORE, IT CANNOT BUT BE AN I NDEPENDENT AGENT OF THE APPLICANT BOTH LEGALLY AND ECONOMICALL Y. SMPL IS NO DOUBT THE SOLE AGENT OF TENL BUT WHAT IS REQUIRED TO BE SHOWN IS THAT TENL IS THE SOLE CLIENT OF SMPL TO BRING IT WITHIN THE MISCHIEF OF THE SECOND PART OF PARA. 5. IN THIS CONTEXT, THE ASPECT WHICH REMAINS TO BE CONSIDERED IS, WHEN SMPL EARNS 75 PER CENT. TO 78 PER CENT. OF ITS INCO ME FROM TENL AND 22 PER CENT. TO 25 PER CENT. OF ITS INCOME FROM OTHER CLIENTS, COULD IT BE SAID THAT ITS ACTIVITIES ARE C ARRIED OUT WHOLLY OR ALMOST WHOLLY FOR TENL. THE TERMS WHOLLY AND ALMOST WHOLLY ARE NOT TECHNICAL TERMS OR TERMS OF ART. THEY MUST RECEIVE THEIR ORDINARY MEANING AS UNDERSTOOD B Y ENGLISH SPEAKING PEOPLE. THE WORD WHOLLY MEANS EN TIRELY, COMPLETELY, FULLY, TOTALLY; ALMOST WHOLLY WOULD M EAN VERY NEAR TO WHOLLY, A LITTLE LESS THAN WHOLE. IN TERMS OF PERCENTAGE ALMOST WHOLLY WOULD MEAN ANYTHING LESS THAN 90 PE R CENT. IT IS SHOWN THAT THOUGH SMPL HAS OTHER CLIENTS, THE FACT REMAINS THAT THE ACTIVITIES OF SMPL FOR TENL YIELD 75 PER CENT. TO 80 PER CENT. OF ITS INCOME AND INCOME FROM OTHER CLIENTS IS BETWEEN 22 PER CENT. TO 25 PER CENT., SO IT CANNOT BE SAID THAT THE ACTIVITIES OF THE SMPL ARE CARRIED OU T WHOLLY OR ALMOST WHOLLY FOR TENL. IT FOLLOWS THAT SMPL DOES N OT FALL IN THE SECOND PART OF PARA. 5 OF ARTICLE 5 OF THE TREA TY. 19 32. THIS DECISION AS WELL AS THE DECISION IN THE CA SE OF MORGAN STANLEY & CO INT. LTD. (SUPRA) ARE IN LINE WITH OUR VIEW. I N THE CASE OF KNOWERXEDUCATION (INDIA) P.LTD.(SUPRA), THE AAR ON THE TERM, HELD AS FOLLOWS :- AS PER PARAGRAPH 4, IF THE AGENT DOES NOT HAVE INDE PENDENT STATUS AND HABITUALLY CONCLUDES CONTRACT OR MAINTAI NS STOCK OF GOODS AND MERCHANDISE AND DELIVERS THEM, ON BEHA LF OF THE ENTERPRISE, THAT AGENT SHALL BE TREATED AS A PERMAN ENT ESTABLISHMENT OF THE ENTERPRISE. SO ALSO WILL BE TH E CASE WHERE THE AGENT HABITUALLY SECURES ORDERS WHOLLY OR ALMOST WHOLLY FOR THE ENTERPRISE. WHAT FOLLOWS FROM THIS I S THAT IT IS NOT ENOUGH FOR AN ENTERPRISE TO MERELY HAVE A DEPEN DENT AGENT IN THE OTHER CONTRACTING STATE, BUT THAT AGEN T SHOULD ALSO HAVE AUTHORITY TO BIND THE ENTERPRISE IN ITS B USINESS ACTIVITIES IN THAT OTHER STATE. IT IS ONLY THEN THA T THE DEPENDENT AGENT SHALL BE TREATED AS THE PERMANENT ESTABLISHMENT OF THE ENTERPRISE. ON THE OTHER HAND, IF THE AGENT IS A BROKER, GENERAL COMMISSION AGENT OR ANY OTHER AGENT OF INDEPENDENT STATUS AND IS ACTING IN THE OR DINARY COURSE OF ITS BUSINESS, THEN AS PER PARAGRAPH 5, IT WILL NOT BE REGARDED AS A PERMANENT ESTABLISHMENT OF THE ENTERP RISE. THIS POSITION WILL, HOWEVER, CHANGE IF THE ACTIVITI ES OF THE INDEPENDENT AGENT ARE DEVOTED WHOLLY OR ALMOST WHOL LY TO THAT ENTERPRISE AND THE TRANSACTION BETWEEN THE TWO ARE NOT AT ARMS LENGTH. IN THAT CASE, THE INDEPENDENT AGEN T WILL BE TREATED AS A PERMANENT ESTABLISHMENT OF THE ENTERPRISE. 33. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF GALILEO INTERNATIONAL INC 19 SOT 257 (DEL), HELD THAT A S LONG AS THE AGENT HAS AN AUTHORITY TO CONCLUDE CONTRACTS WHICH ARE BINDING ON THE ENTERPRISE, IT IS NOT NECESSARY THAT HE SHOULD ENTER INTO CONTRACTS LITERALLY IN THE NAME OF THE ENTERPRISE. THUS, TH E FOREIGN ENTERPRISE WOULD BE CONSIDERED AS HAVING AGENCY PE IN INDIA EV EN IF THOSE CONTRACTS ARE NOT ACTUALLY IN THE NAME OF THE FOREIGN ENTERPR ISE. IN AL NISR PUBLISHING IN RE [1999] 237 ITR 877 (AAR) IT WAS HELD THAT IF THE ADS ARE ROUTED THROUGH AN INDEPENDENT B USINESSMAN THERE WOULD BE A NO PE. THE AAR IN THIS CASE HAS BROUGHT OUT THE DISTINCTION BETWEEN AN AGENT WHO MAY CONSTITUTE A P E AND ONE WHO MAY NOT. IN THE CASE OF TVM LIMITED V. CIT [1999] 102 T AXMAN 518 (AAR), 237 ITR 230 HAS HELD THAT BUT PARA. 4 IS, UNAMBIGUOUSL Y AND DEFINITELY, ATTRACTED TO CASES WHERE THERE IS A PERSON IN ONE S TATE ACTING ON BEHALF OF 20 THE OTHER STATE THAT IS, AN AGENT WHO IS OTHER THA N AN AGENT OF INDEPENDENT STATUS TO WHOM THE PROVISIONS OF PARA. 5 APPLY. THE CONSEQUENCE IS THAT WHEN AN AGENT FAILS TO COME UP TO THE STANDARD OF INDEPENDENCE REFERRED TO IN PARA. 5, THE ISSUE REGARDING PERMANENT ESTABLISHMENT IS NOT CLOSED BUT HAS TO BE RESOLVED IN TERMS OF PARA4. THE WORDING OF PARA 4 IS SOMEWHAT AMBIGUOUS. THE PARAGRAPH IS APPLICABLE IN ALL CASE S WHERE THE ENTERPRISE IN A CONTRACTING STATE HAS AN AGENT IN T HE OTHER WHO DOES NOT HAVE AN INDEPENDENT STATUS. SUCH A PERSON WILL BE DEEMED TO BE A PERMANENT ESTABLISHMENT ONLY IF HE HAS, AND EXER CISES, THE AUTHORITY TO CONCLUDE CONTRACTS IN THE NAME OF THE ENTERPRISE. B UT EVEN THE EXISTENCE OF SUCH AUTHORITY WILL NOT MAKE HIM A PERMANENT EST ABLISHMENT (I) IF HE IS A MERE AGENT FOR PURCHASE OF GOODS OR MERCHANDIS E; OR (II) BEING AN AGENT FOR SALE OF GOODS OR MERCHANDISE IS ALLOWED T O HABITUALLY MAINTAIN A STOCK OF THE GOODS OF THE ENTERPRISE AND EFFECT S ALES THEREFROM. HE CAN BE DEEMED TO BE A PERMANENT ESTABLISHMENT ONLY IF H E CAN OF THE PRINCIPAL, ON HIS FREELY AND WITHOUT CONTROL FROM T HE LATTER. 34. IN THE CASE OF SUTRON CORPORATION, IN RE-[2004] 268 ITR 156 (AAR) THE AAR HELD THE COUNTRY MANAGER (CM) TO BE A DEPENDENT AGENT OF THE APPLICANT WHO CONCLUDED CONT RACTS IN INDIA ON BEHALF OF THE APPLICANT. THE AAR ALSO T REATED THE RESIDENCE OF CM AS A FIXED BUSINESS PLACE IN INDIA OF THE APPLICANT, WHICH COULD BE TERMED AS PLACE OF MANAGEMENT OR AN OFFICE. THE AAR THEREFORE HELD THAT THE COMPANY HAS A PE AND THE PROFITS OF THE COMPANY WOULD BE TAXABLE IN INDIA TO THE EX TENT ATTRIBUTABLE TO THE PE. 35. THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF WESTERN UNION FINANCIAL SERVICES INC. V/S ADIT (2006) 101 TTJ 56 (DELHI) HAS INTERPRETED PE AS A SPECIFIC GEOGRAPHICAL POINT AT THE DISPOSAL OF THE NON RESIDENT THROUGH WHICH A BUSINESS IS CARRIED ON. IN THIS REGARD, IT HAS CONSIDERED FULFILLMENT OF TWO TESTS LAID DOWN FOR A FIXED PLACE OF BUSINESS TO BE CONSIDERED AS PE. FIRSTLY, A PE SHOULD PROJEC T THE FOREIGN ENTERPRISE 21 IN INDIA AND SECONDLY, THE TAXPAYER CAN, AS A MATTE R OF RIGHT, ENTER AND MAKE USE OF THE PREMISES FOR ITS BUSINESS. 36. MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF DDI T VS. DAILMER CHRYSLER A.G. (39 SOT 418) HELD THAT MERELY ACTS AS FOR A NON-RESIDENT PRINCIPAL WOULD NOT BY ITSELF RENDER AS AN AGENT TO BE CONSIDERED AS PE FOR THE PURPOSE OF ALLOCATING PROFITS TAXABLE IN HA NDS OF PE. IT HELD THAT THERE SHOULD BE SOME DEFINITE ACTIVITY OF PE TO WHI CH PROFITS CAN BE ATTRIBUTED. 37. THE HON'BLE DELHI HIGH COURT IN I.T.A. NO.1278 OF 2010, ITA NO.1280 OF 2010, ETC., JUDGMENT DATED 30 TH AUGUST 2010, IN EH CASE OF ROLLS ROYCE (SINGAPORE) PVT. LTD. V/S ADIT, ACCEPTE D THE ARGUMENTS OF THE ASSESSEES COUNSEL WHICH WAS IN LINE WITH THE DECIS ION OF AAR IN MORGAN STANLEY & CO. (SUPRA) AND HELD AS FOLLOWS: (I) TO CONSTITUTE A DEPENDENT AGENT PERMANENT ESTABLISHMENT UNDER ARTICLE 5(9) OF THE DTAA IT HA S TO BE SEEN WHETHER THE ACTIVITIES OF THE AGENT ARE DEVOT ED WHOLLY OR ALMOST WHOLLY ON BEHALF OF THE ASSESSEE. WHILE THE ISSUES AS TO (A) WHETHER THE AGENT IS WAS PROHIBITED FROM TAKING COMPETITIVE PRODUCTS AND (B) WHETHER THE ASSESSEE E XERCISED EXTENSIVE CONTROL OVER THE AGENT WERE RELEVANT, THE Y ARE NOT CONCLUSIVE. IT IS NOT CORRECT TO SAY THAT MERELY BE CAUSE THE AGENT IS PROHIBITED FROM TAKING A COMPETITIVE PRODU CT MEANS THAT IT IS NOT AN AGENT OF INDEPENDENT STATUS. WHAT HAS TO BE SEEN IS WHETHER THE ACTIVITIES OF THE AGENT ARE D EVOTED WHOLLY OR ALMOST WHOLLY ON BEHALF OF THE ASSESSEE. IF THE ASSESSEE CAN SHOW THAT IT WAS NOT THE SOLE CLIENT O F THE AGENT AND THAT ACTIVITIES OF THE AGENT WERE NOT DEVOTED W HOLLY OR ALMOST WHOLLY ON BEHALF OF THE ASSESSEE, THERE MAY BE NO DAPE. THE INCOME EARNED BY THE AGENT FROM OTHER CLI ENTS AND THE EXTENT OF SUCH INCOME IS VERY RELEVANT TO DECID E WHETHER THE CRITERIA STIPULATED IN ARTICLE 5(9) IS SATISFIE D OR NOT. (MATTER REMANDED FOR FRESH CONSIDERATION); (II) WHILE IN PRINCIPLE IT IS CORRECT THAT IF A FAI R PRICE IS PAID BY THE ASSESSEE TO THE AGENT FOR THE ACTIVITIES OF THE ASSESSEE IN INDIA THROUGH THE DAPE AND THE SAID PRICE IS TAXED IN INDIA AT THE HANDS OF THE AGENT, THEN NO QUESTION OF TAXI NG THE ASSESSEE AGAIN WOULD ARISE, THIS IS SUBJECT TO A TR ANSFER PRICING ANALYSIS BEING UNDERTAKEN U/S 92. THE FACTS SHOWED THAT THE MANNER IN WHICH THE COMMISSION/ REMUNERATI ON HAD 22 BEEN FIXED WAS USUALLY NOT DONE BETWEEN INDEPENDENT PARTIES IN AN UNCONTROLLED TRANSACTION. THE ASSESSE E WAS IN A POSITION TO DICTATE TERMS TO THE AGENT AND SO IT COULD NOT BE SAID THAT THE COMMISSION WAS AT ARMS LENGTH WITHI N THE MEANING OF ARTICLE 7 (2) OF THE DTAA. THE TRANSFER PRICING ANALYSIS TO DETERMINE THE ARMS LENGTH PRICE HAS T O BE DONE BY TAKING THE FUNCTIONS, ASSETS USED AND RISK INVO LVED (FAR). 38. THE FIRST APPELLATE AUTHORITY HAS BROUGHT OUT A T PAGE 15 PARAGRAPH 4.4 OF HIS ORDER THAT TOTAL INCOME OF B4U INDIA FO R THE YEAR ENDED ON 31.3.2001 WAS ` 30.57 CRORES AND OUT OF WHICH, IT RECEIVED ONLY ` 1.44 CRORES FROM THE NON RESIDENT ASSESSEE AND THAT IT C ONSTITUTE MERELY 4.69% OF THE TOTAL INCOME AND HENCE NOT A DEPENDENT AGENT. THIS DECISION IS IN LINE WITH THE JUDGMENT OF THE HON'BL E DELHI HIGH COURT IN THE CASE OF ROLLS ROYCE SINGAPORE PTE. LTD. (SUPRA) . FROM THE PERSPECTIVE OF THE AGENT IT IS NOT DEPENDENT AT ALL ON THE NON RESIDENT ASSESSEE. WE PREFER TO FOLLOW THE SOLE HIGH COURT JUDGMENT ON TH E ISSUE IN PREFERENCE TO THAT OF THE TRIBUNAL IN THE CASE OF DHL OPERATIO NS B.V. (SUPRA). 39. IN VIEW OF THE ABOVE DISCUSSION AND IN VIEW OF THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF ROLLS ROYCE (SINGAPORE) PVT. LTD (SUPRA), WE ARE OF THE CONSIDERED OPINION THAT NEIT HER ARTICLE 5.4 NOR ARTICLE 5.5 OF THE INDO-MAURITIUS DTAA ARE ATTRACTE D THIS CASE. HENCE, THE ASSESSEE HAS NO P.E. IN INDIA. 40. COMING TO THE ALTERNATIVE ARGUMENT, EVEN IF IT IS HELD THAT THERE IS A PE OF THE ASSESSEE IN INDIA, THEN WE HOLD THAT AS THE RATE OF COMMISSION OF 15%, WAS ACCEPTED AS ALP BY THE TPO F OR A.Y. 2003-04 TO 2003-04 AND 2004-05, NO FURTHER PROFIT IS ATTRIBUTA BLE TO THE P.E. THIS IS THE RATE MENTIONED IN BOARD CIRCULAR NO. 742 OF THE ORDER 1996. SIMILAR RATE IS ACCEPTED BY HON'BLE BOMBAY HIGH COURT IN TH E CASE OF SET SATELLITE (SINGAPORE) (SUPRA). THUS, WE HAVE NO HES ITATION IN UPHOLDING THE CONTENTION OF THE ASSESSEE THAT THE PAYMENT WAS AT ARMS LENGTH. WHEN THE PAYMENT IS AT ALP, THERE IS NO FURTHER NEE D TO ATTRIBUTE PROFITS TO THE PE AS HELD BY HON'BLE SUPREME COURT IN THE C ASE OF MORGAN STANLEY (SUPRA). SIMILARLY DECISION IS GIVEN IN THE CASE OF SET SATELLITE (SINGAPORE) (SUPRA). 23 41. THE DECISION OF MUMBAI BENCH OF THE TRIBUNAL SA TELLITE TELEVISION ASIAN REGION LTD. (SUPRA) IS ON A DIFFERENT MODEL. IT WAS A CASE WHERE ALL THE AGREEMENTS CULMINATED IN INDIA. ON THE CONTRARY THE DECISION OF ITAT DELHI BENCH IN THE CASE OF BBC WORLDWIDE LTD. (SUPR A) SQUARELY APPLIES TO THE FACTS OF THE CASE. THE HON'BLE DELHI HIGH CO URT IN THE CASE OF DIT VS. BBC WOLDWIDE LTD (203 TAXMAN 554) CONFIRMED THE TRIBUNAL ORDER AND HELD AS FOLLOWS : 8. THESE SUBMISSIONS OF THE ASSESSEE CONVINCED THE TRIBUNAL. THE TRIBUNAL DID NOT GO INTO THE ISSUE OF BUSINESS CONNECTION OR PERMANENT ESTABLISHMENT, WHICH WAS NO T ADDRESSED BEFORE IT AND CONFINED ITSELF TO THE ISSU E AS TO WHETHER THE BWIPL HAD BEEN ADEQUATELY REMUNERATED O N THE BASIS OF TRANSFER PRICING. THERE IS NO DISPUTE THAT IF ANSWER TO THIS IS IN AFFIRMATIVE, THEN NO FURTHER INCOME O F THE ASSESSEE IS TAXABLE IN INDIA. THE TRIBUNAL HELD THA T ONCE THE T.P.O. HAD HIMSELF ACCEPTED THAT COMMISSION OF 15% PAID TO BWIPL IS A FAIR TRANSFER PRICE AND ON THE BASIS OF THIS OPINION OF THE TPO, INCOME DECLARED BY THE BWIPL FOR ITS AS SESSMENT YEAR 2002-03 WAS ACCEPTED BY THE DEPARTMENT, THE DEPARTMENT COULD NOT CONTEND OTHERWISE. REFERRING T O THE ORDER OF THE TPO, THE TRIBUNAL HAS NOTED THE FOLLOW ING FEATURES THEREIN:- IN THAT ORDER, THE TPO ACCEPTED THAT THE TRANSACTIO N WAS AT ARMS LENGTH PRICE. IT WAS HELD THAT THE CUP METHOD SELECTED BY BWIPL FOR DETERMINING THE ARMS LENGTH PRICE OF T HE COMMISSION INCOME EARNED BY IT, WAS ACCEPTABLE; THA T THIS WAS DUE TO THE FACT THAT BWIPL WITH THAT CHARGED BY AN UNCONTROLLED PARTY FOR SIMILAR SERVICES; THAT EVEN OTHERWISE, IT WAS FOUND THAT THE RATE OF COMMISSION IN THE ASSESS EES TRADE WAS FAIRLY UNIFORM AND ALMOST EVERYONE WAS CH ARGING THE SAME RATE FAIRLY UNIFORM AND ALMOST EVERYONE WA S CHARGING THE SAME RATE OF COMMISSION IN THE SALE OF AIRTIME ON TV CHANNELS AND FM CHANNELS; AND THAT IT WAS THE REFORE, THAT THE ARMS LENGTH PRICE DETERMINED BY BWIPL WAS NOT BEING DISTURBED. 9. APART FROM TAKING SUPPORT FROM THE JUDGMENT OF S ET SATELLITE (SINGAPORE) PVT. LTD. (SUPRA) AND THE JUD GMENT OF THIS COURT IN GALILEO INTERNATIONAL INCORPORATION ( SUPRA), THE TRIBUNAL ALSO DISCUSSED TWO CBDTS CIRCULARS, ON TH E SUBJECT, AND INTERPRETED THE SAME IN THE FOLLOWING MANNER: 17. CBDT CIRCULAR NO.23 OF 1969 (SUPRA) IS ELOQUENTLY CLEAR, PROVIDING THAT IF THE VALUE OF 24 THE PROFIT ATTRIBUTABLE TO THE SERVICES RENDERED BY THE AGENT IS FULLY REPRESENTED BY THE COMMISSION PAID, IT SHOULD BE, PRIMA FACIE EXTINGUISH THE ASSESSMENT. DIT V. MORGAN STANLEY AND COMPANY INC. (SUPRA , A STATED, HAS TAKEN INTO CONSIDERATION CBDT CIRCULAR NO.23 OF 1969 (SUPRA). IN THAT CASE, SINCE CERTAIN EMPLOYEES HAVE BEEN DEPUTED BY THE FOREIGN COMPANY TO THE INDIAN AFFILIATE COMPANY, THE FOREIGN COMPANY WAS HELD TO HAVE A PERMANENT ESTABLISHMENT IN INDIA. THE AAR HELD THAT ONCE THE TRANSFER PRICING ANALYSIS WAS UNDERTAKEN, THERE WAS NO FURTHER REQUIREMENT TO ATTRIBUTE PROFITS TO A PERMANENT ESTABLISHMENT. ADJUDICATING ON THE ISSUE AS TO WHETHER THE ACTION OF THE AAR IN HOLDING SO WAS CORRECT OR NO, THE HONBLE SUPREME COURT HELD, INTER ALIA, THAT WHERE THE TRANSACTION WAS HELD TO BE AT ARMS LENGTH, THE RULING OF THE AAR WAS CORRECT IN PRINCIPLE, PROVIDED THAT AN ASSOCIATED ENTERPRISE, WHICH ALSO CONSTITUTED A PERMANENT ESTABLISHMENT, WAS REMUNERATED ON ARMS LENGTH BASIS, TAKING INTO ACCOUNT ALL THE RISKS-TAKING FUNCTIONS OF MULTINATIONAL ENTERPRISES AND THAT IN SUCH A CASE, NOTHING FURTHER WOULD BE LEFT TO ATTRIBUTE TO THE PERMANENT ESTABLISHMENT. 18. AS CONTENDED, FOR THE YEAR UNDER CONSIDERATION, TRANSFER PRICING GUIDELINES WERE NOT APPLICABLE. THAT BEING SO, RELIANCE ON BEHALF OF THE ASSESSEE ON SET SATELLITE (SUPRA) CANNOT AT ALL BE SAID TO BE MISPLACED. THEREIN ALSO, THE ASSESSMENT YEAR BEING 1999-2000, THE TRANSFER PRICING GUIDELINES WERE NOT APPLICABLE, AS THEY BECAME APPLICABLE FROM THE NEXT YEAR. PERTINENTLY, THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF SET SATELLITE (SUPRA) AS WELL AS CBDT CIRCULAR NO.23 (SUPRA) WAS TAKEN INTO CONSIDERATION. THE FACTS IN THE PRESENT CASE ARE FOUND TO BE PARITY WITH THOSE PRESENT IN SET SATELLITE (SUPRA), TO THE EXTENT NOTICED ABOVE. BOTH THE CASES CONCERN YEARS BEFORE THE ONSET OF THE TRANSFER PRICING REGIME. AS SUCH, WE HOLD THAT SET SATELLITE (SUPRA) HAS RIGHTLY BEEN RELIED ON BEHALF OF THE ASSESSEE AND THAT IT IS DIRECTLY APPLICABLE TO THE ASSESSEES CASE. 21. SO FAR AS THE DEPARTMENTS CONTENTION THAT CBDT CIRCULAR NO.742 (SUPRA) HAS WRONGLY 25 BEEN RELIED ON, IT IS SEEN THAT CBDT CIRCULAR NO.765 DATED 15.04.1998 EXTENDED CIRCULAR NO.742 (SUPRA). AS PER CBDT CIRCULAR NO.742, IT WAS NEEDED TO BE ESTABLISHED, FOR THE APPLICABILITY OF THE CIRCULAR, THAT THE ASSESSEE OR A NON-RESIDENT FOREIGN TELECASTING COMPANY AND THAT IT DID NOT HAVE A BRANCH OFFICE OR A PERMANENT ESTABLISHMENT OR DID NOT MAINTAIN COUNTRY WISE ACCOUNTS OF ITS OPERATIONS. THE CIRCULAR WOULD NOT APPLY IN THE EVENT OF ANY OF THE SAID CONDITIONS BEING NOT SATISFIED. ALL THE CONDITIONS ARE NOT TO BE CUMULATIVELY SATISFIED SO AS TO APPLY THE CIRCULAR. IN THE ASSESSEES CASE, THE ASSESSEE HAD FILED BEFORE THE AO ITS COUNTRY ACCOUNTS FOR INDIA, WHEREIN THE TOTAL REVENUES AND EXPENSES OF THE ASSESSEE WERE ALLOCATED TO ITS INDIA ACTIVITY. A COPY THEREOF HAS BEEN PLACED BEFORE US. BEFORE THE CIT (A), THE ASSESSEE ALSO FILED ITS AUDITED ACCOUNTS CONTAINING ALLOCATION OF REVENUES AND EXPENSES TO IT INDIA ACTIVITY. A COPY THEREOF HAS ALSO BEEN FURNISHED BEFORE US. THE LEARNED CIT (A) REMANDED THESE TO THE AO. THEREFORE, EVIDENTLY, CBDT CIRCULAR NO.742 (SUPRA) DOES NOT APPLY. 42. AT PARAGRAPH 15 PAGE 565 HELD AS FOLLOWS : 15. AFTER CONSIDERING THE RESPECT ARGUMENTS, WE ARE OF THE OPINION THAT NO SUBSTANTIAL QUESTION OF LAW ARISES IN THE INSTANT CASES AS WE DO NOT FIND ANY JUSTIFICATION I N INTERFERING WITH THE IMPUGNED ORDER OF THE TRIBUNAL. FOLLOWING PERTINENT ASPECTS WHICH EMBOLDENED STAND OUT AND STARE AT THE FACE OF THE DEPARTMENT AND SHUT ITS CASE COMPLETELY: (I) THE PROVISIONS OF TRANSFER PRICING WAS INTRODUC ED FOR FINANCE ACT, 2002 FROM THE ASSESSMENT YEAR 2002-03 AND THEREFORE, IN RESPECT OF TWO APPEAL FOR THE ASSESSM ENT YEARS 2000-01 AND 2001-02, NO SUCH FAR ANALYSIS WAS EVEN REQUIRED. (II) FOR THE ASSESSMENT YEAR 2002-03, FAR ANALYSIS WAS PREPARED AND SUBMITTED BY THE ASSESSEES AGENT BWIP L. BWIPL HAD SUBMITTED THAT IT HAD RECEIVED COMMISSION @ 15% ON THE GROSS SALE FROM THE ASSESSEE FOR SELLING MAR KETING ADVERTISEMENT AND SPONSORSHIP AND AS PER BWIPL, IT WAS A REASONABLE COMMISSION PAID ON ARMS LENGTH BASIS. M ATTER WAS REFERRED TO TPO UNDER SECTION 92CA (3) OF THE A CT, WHO CLEARLY OPINED THAT THE AFORESAID COMMISSION PAID T O BWIPL WAS ALP. ONCE IT IS TREATED AS ALP AT THE HANDS OF RECIPIENT, WE FAIL TO UNDERSTAND HOW A DIFFERENT VIEW CAN BE T AKEN IN 26 THE CASE OF ASSESSEE WHO HAD PAID THE SAME COMMISSIO N TO ITS AGENT. THEREFORE, WE FAIL TO APPRECIATE THE CON TENTION OF THE DEPARTMENT THAT THE FAR ANALYSIS BY THE TPO IN THE CASE OF BWIPL WAS NOT RELEVANT. (III) MOREOVER, IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2002-03, TRANSFER PRICING REFERENCE WAS MADE T O THE TPO UNDER SECTION 92CA (3) AND TPO HAD OPINED THAT NO ADVERSE INFERENCE/ADDITION COULD BE DRAWN. LEARNED COUNSEL FOR THE ASSESSEE PRODUCED THE ORDER DATED 31.12.200 4 PASSED BY THE TPO, IN THIS BEHALF, INTER ALIA, STAT ED AS UNDER:- A REFERENCE UNDER SECTION 92CA WAS RECEIVED IN THE CASE OF BWIPL FROM ITS ASSESSING OFFICER. ALL THE ABOVE MEN TIONED INTERNATIONAL TRANSACTIONS HAVE BEEN EXAMINED AT LE NGTH IN THE ORDER UNDER SECTION 92CA (3) DATED 31ST MARCH, 2004, SUBSEQUENTLY RECTIFIED VIDE ORDER UNDER SECTION 154 DATED 30TH NOVEMBER, 2004 IN THE CASE OF BWIPL FOR THE ASSESSMENT YEAR 2002-03. IN THAT ORDER, NO ADVERSE INFERENCE WAS DRAWN IN RESPECT OF THE ARMS LENGTH PRICE OF A LL THE INTERNATIONAL TRANSACTIONS AS DECLARED BY THE ASSES SEE EXCEPT THE TRANSACTION FOR AVAILING MARKET SERVICES. THE A RMS LENGTH PRICE FOR THE INTERNATIONAL TRANSACTION FOR AVAILIN G MARKET SUPPORT SERVICES WAS DETERMINED AT RS.10,90,52,410/ - INSTEAD OF AN AMOUNT OF RS.7,44,30,694/- AS DECLARE D BY THE ASSESSEE. HOWEVER, SINCE THIS ADJUSTMENT WOULD HAVE THE EFFECT OF REDUCING THE INCOME CHARGEABLE TO TAX OR INCREASE IN THE LOSS, AS THE CASE MAY BE, IN THE CASE OF ASSESS EE THE PROVISIONS OF SECTION 92 SHALL NOT APPLY IN THIS CA SE I.E. THE EFFECT OF THE ADJUSTMENT MADE IN THE ARMS LENGTH P RICE OF THE TRANSACTION AVAILING MARKETING SUPPORT SERVICES BY THE ASSESSEE SHALL BE IGNORED WHILE COMPUTING THE INCOM E OF THE ASSESSEE. (IV) EVEN IF THE NEXT ASSESSMENT YEAR, I.E., 2003-0 4, THE ASSESSEE HAD SUBMITTED THE ACCOUNTS REPORT IN RELA TION TO ITS INTERNATIONAL TRANSACTIONS. FOR THIS YEAR ALSO, REF ERENCE WAS MADE TO TPO, WHICH AGAIN PASSED THE ORDERS DATED 07.3.2006, ONCE AGAIN OPINING THAT NO ADVERSE INFER ENCE COULD BE DRAWN IN RESPECT OF ALP. FOLLOWING PORTION OF THE SAID ORDER IS WORTHWHILE TO QUOTE: A REFERENCE UNDER SECTION 92CA WAS RECEIVED IN THE CASE OF BWIPL FROM ITS ASSESSING OFFICER. ALL THE ABOVE MEN TIONED INTERNATIONAL TRANSACTIONS HAVE BEEN EXAMINED AT LE NGTH IN THE ORDER UNDER SECTION 92CA(3) DATED 09.01.2006. I N THAT ORDER ARMS LENGTH PRICE OF INTERNATIONAL TRANSACTI ON MENTIONED ABOVE HAS BEEN REVISED UPWARD BUT THERE I S NO RECIPROCAL EFFECT IN THE CASE OF ASSESSEE IN VIEW O F PROVISIONS OF SUB-SECTION 3 OF SECTION 92 OF INCOME TAX ACT. H ENCE NO ADVERSE INFERENCE IS DRAWN IN RESPECT OF ARMS LENG TH PRICE OF 27 THE ABOVE MENTIONED TRANSACTION IN THE HANDS OF ASS ESSEE COMPANY. (V) WE DO NOT FIND ANY MERIT IN THE PLEA OF THE DEP ARTMENT THAT COUNTRY-WISE ACCOUNTS HAVE NOT BEEN MADE BY TH E ASSESSEE AND THEREFORE, THE DEEMED RATE OF TAXATION AT 10% OF ADVERTISEMENT REVENUE AS PER CIRCULAR NO.742 DAT ED 02.5.1996 ISSUED BY THE CBDT, SHOULD BE APPLIED TO TAX THE REVENUE OF THE PERMANENT ESTABLISHMENT OF THE ASSES SEE. IN THIS REGARD, WE NOTE THAT IN THE COURSE OF ASSESSME NT PROCEEDINGS, THE ASSESSEE HAD PREPARED ITS COUNTRY ACCOUNTS FOR INDIA, ALLOCATING TOTAL REVENUES AND EXPENSES O F THE ASSESSEE TO INDIA ACTIVITY AND FILED THE SAME BEFOR E THE AO. THIS FACT HAS BEEN RECORDED BY THE TRIBUNAL IN ITS ORDER IN ASSESSMENT YEAR 2000-01. IN THE LIGHT OF THIS OBSER VATION, CIRCULAR NO.742 IS NOT APPLICABLE IN THE INSTANT AP PEAL. 43. THEREAFTER AT PARAGRAPH 16 IT CONCLUDED AS FOLL OWS :- 16. WHEN THE AFORESAID FACTUAL POSITION IS KEPT IN MIND, THE JUDGMENT OF THE BOMBAY HIGH COURT IN SET SATELLITE (SINGAPORE) PVT. LTD. (SUPRA) IS CLEARLY ATTRACTED. IN THAT CASE THE HIGH COURT HAS HELD THAT IF CORRECT ALP IS APPL IED AND PAID, NOTHING FURTHER RWOULD BE LEFT TO BE TAXED IN THE HANDS OF THE FOREIGN ENTERPRISE. IN THE SAID CASE, MORGAN STANLEY (SUPRA) AS WELL AS CIRCULAR NO.23 ISSUED BY THE CBD T WAS TAKEN INTO CONSIDERATION. THE COURT WAS ALSO PLEASE D TO RECORD THAT THE COMMISSION PAID TO THE AGENT WAS 15 % SERVICES PERFORMED BY THE ASSESSEES AGENT IN INDIA WAS IN LINE WITH THE EXISTING INDUSTRY STANDARDS IN INDIA AT THE PREVALENT TIME. RELIANCE WAS ALSO PLACED ON PARA 3 OF CIRCULAR NO.742 DATED 02.5.1996 ISSUED BY THE CBDT, WHICH REFERRED TO THE FACT THAT THE AGENTS COMMISSION FR OM FOREIGN TELECASTING COMPANIES IS 15% OR SO OF THE GROSS SUM , TO CONTEND THAT THE CBDT ITSELF HAD CONSIDERED 15% AS THE NORMALLY ACCEPTED COMMISSION RATE PAYABLE TO AGENTS OF THE TELECASTING COMPANIES. 44. WE RESPECTFULLY FOLLOW THIS JUDGMENT AND AS IT APPLIES ON ALL FOURS TO THE FACTS OF THIS CASE, WE UPHOLD THE FINDINGS O F THE COMMISSIONER (APPEALS) ON THIS ISSUE ALSO. 45. COMING TO THE DECISION OF MUMBAI BENCH IN THE C ASE OF HAPAG- LLOYOD, IT WAS A CASE WHERE FACTUALLY IT WAS HELD T HAT THE AGENT HAD POWER TO CONCLUDE CONTRACTS AS IT WAS ISSUING BILL OF LADING. IT WAS A CASE WHERE IT WAS HELD THAT THE ASSESSEE HAD A PE IN IND IA. THE FACTS OF THE 28 CASE ON HAND ARE DIFFERENT AND HENCE RELIANCE PLACE D BY LEARNED DEPARTMENTAL REPRESENTATIVE ON THAT DECISION IN THE CASE OF HAPAG- LLOYOD IS MIS-PLACED. IN VIEW OF THE ABOVE DISCUSSI ON, WE UPHOLD THE ORDER OF THE FIRST APPELLATE AUTHORITY ON BOTH THE ISSUES AND DISMISS THIS APPEAL OF THE REVENUE. 46. COMING TO THE CROSS OBJECTION, WE DISMISS THE S AME AS INFRUCTUOUS. 47. IN THE RESULT, APPEAL OF THE REVENUE AS WELL AS CROSS OBJECTION IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH MAY 2012. SD/ (B.R. MITTAL) JUDICIAL MEMBER SD/ (J. SUDHAKAR REDDY) ACCOUNTANT MEMBER DATED : 28 TH MAY, 2012. COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A)-CONCERNED. 4. THE CIT, CONCERNED. 5. THE DR CONCERNED, MUMBAI 6. GUARD FILE BY ORDER TRUE COPY ASSTT. REGISTRAR, ITAT, MUMBAI PS