Appeal details
Counselvise Citation
[2010] 122 COUNSELVISE.COM (IT) 4940 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
7 month(s) 29 day(s)
Appellant
Respondent
Appeal Type
Cross Objection
Pronouncement Date
25-06-2010
Appeal Filed By
Assessee
Order Result
Dismissed
Bench Allotted
L
Next Hearing Date
20-04-2010
Assessment Year
2008-2009
Appeal Filed On
27-10-2009
Judgement Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L MUMBAI BEFORE SHRI P.M. JAGTAP (AM) AND SMT. ASHA VIJAYA RAGHAVAN (JM) ITA NO.7349/MUM/2004 ASSESSMENT YEAR-2003-04 SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 PAN - AABCS 9229H VS. THE ADDL DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION), RANGE 2, SCINDIA HOUSE, MUMBAI (APPELLANT) (RESPONDENT) ITA NO.7574/MUM/2004 THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI VS. SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 (APPELLANT) (RESPONDENT) ITA NO.4037/MUM/2005 THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI VS. SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 (APPELLANT) (RESPONDENT) C.O. NO. 399/M/2005 (ARISING OUT OF ITA NO.4037/MUM/2005) SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 VS. THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI (CROSS OBJECTOR) (RESPONDENT) MSM (SATELLITE) SINGAPORE 2 ITA NO.2692/MUM/2009 A.Y. 2007-08 & 2008-09 THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI VS. SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 (APPELLANT) (RESPONDENT) C.O. NO. 208/M/2009 (ARISING OUT OF ITA NO.2692/MUM/2009) (A.Y. 2008-09) SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 VS. THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI ( CROSS OBJECTOR ) (RESPONDENT) ITA NO.4040/MUM/2005 THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI VS. SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 (APPELLANT) (RESPONDENT) C.O. NO. 402/M/2005 (ARISING OUT OF ITA NO.4040/MUM/2005) SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 VS. THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI (CROSS OBJECTOR) (RESPONDENT) ITA NO.4039/MUM/2005 THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI VS. SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 (APPELLANT) (RESPONDENT) MSM (SATELLITE) SINGAPORE 3 C.O. NO. 401/M/2005 (ARISING OUT OF ITA NO.4039/MUM/2005) SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 VS. THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI (CROSS OBJECTOR) (RESPONDENT) ITA NO.4036/MUM/2005 THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI VS. SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 (APPELLANT) (RESPONDENT) C.O. NO. 398/M/2005 (ARISING OUT OF ITA NO.4036/MUM/2005) SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 VS. THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI (CROSS OBJECTOR) (RESPONDENT) ITA NO.4038/MUM/2005 THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI VS. SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 (APPELLANT) (RESPONDENT) C.O. NO. 400/M/2005 (ARISING OUT OF ITA NO.4038/MUM/2005) SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 VS. THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI (CROSS OBJECTOR) (RESPONDENT) MSM (SATELLITE) SINGAPORE 4 ITA NO.675/MUM/2007 A.Y. 2006-07 THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI VS. SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 (APPELLANT) (RESPONDENT) C.O. NO. 135/M/2007 (ARISING OUT OF ITA NO.675/MUM/2007 (A.Y. 2006-07) SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., 18 TH FLOOR, EXPRESS TOWERS, NARIMAN POINT, MUMBAI-400 021 VS. THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI (CROSS OBJECTOR) (RESPONDENT) ITA NO.674/MUM/2007 A.Y. 2006-07 THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI VS. SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 (APPELLANT) (RESPONDENT) C.O. NO. 134/M/2007 (ARISING OUT OF ITA NO.674/MUM/2007 (A.Y. 2006-07) SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 VS. THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI ( CROSS OBJECTOR ) (RESPONDENT) MSM (SATELLITE) SINGAPORE 5 ITA NO.673/MUM/2007 A.Y. 2006-07 THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI VS. SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 (APPELLANT) (RESPONDENT) C.O. NO. 133/M/2007 (ARISING OUT OF ITA NO.673/MUM/2007 (A.Y. 2006-07) SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., 18 TH FLOOR, EXPRESS TOWERS, MUMBAI-400 021 VS. THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI (CROSS OBJECTOR) (RESPONDENT) ITA NO.672/MUM/2007 A.Y. 2006-07 THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI VS. SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 (APPELLANT) (RESPONDENT) C.O. NO. 132/M/2007 (ARISING OUT OF ITA NO.672/MUM/2007 (A.Y. 2006-07) SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 VS. THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI (CROSS OBJECTOR) (RESPONDENT) MSM (SATELLITE) SINGAPORE 6 ITA NO.2691/MUM/2009 A.Y.2007-08 & 2008-09 THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI VS. SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 (APPELLANT) (RESPONDENT) C.O. NO. 207/M/2009 (ARISING OUT OF ITA NO.2691/MUM/2009) (A.Y. 2008-09) SET SATELLITE (SINGAPORE PTE LTD., NOW KNOWN AS MSM SATELLITE (SINGAPORE)PTE LTD. C/O S.R. BATLIBOI & CO., MUMBAI-400 021 VS. THE DDIT-2(1) (INTERNATIONAL TAXATION), SCINDIA HOUSE, MUMBAI (CROSS OBJECTOR) (RESPONDENT) ASSESSEE BY: SHRI S.E. DASTUR SHRI NIRAJ SHETH DEPARTMENT BY: SHRI NARENDER SINGH O R D E R PER BENCH AGAINST THE ORDER OF THE LD. CIT(A) DT. 2 ND JULY 2004 WHICH WAS EMANATED FROM THE ORDER U/S. 201(1) AND 201(1A) OF THE I.T. ACT, 1961 DT. FEB. 19, 2004, PASSED BY THE ADIT (INTERNATIONAL TA XATION), MUMBAI, REVENUE IS IN APPEAL AND THE ASSESSEE HAS FILED THE CROSS OBJECTION. THE REMAINING APPEALS OF THE REVENUE ARE AGAINST THE OR DERS OF THE LD. CIT(A) WHEREBY HE HAS DISPOSED OFF THE APPEALS FILED BY TH E ASSESSEE AGAINST ORDERS PASSED BY THE AO U/S. 195 OF THE I.T. ACT. SINCE THE ISSUES INVOLVED IN ALL THESE APPEALS ARE COMMON, THE SAME HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS SINGLE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. MSM (SATELLITE) SINGAPORE 7 2. THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS A SINGAPORE BASED COMPANY ENGAGED IN THE BUSINESS OF ACQUIRING TELEVI SION PROGRAMS, MOTION PICTURES AND SPORTS EVENTS AND EXHIBITING T HE SAME ON ITS TELEVISION CHANNELS FROM SINGAPORE. THE ASSESSEE I S A TAX RESIDENT OF SINGAPORE IN TERMS OF ARTICLE 4 OF THE INDIA SINGA PORE TAX TREATY. 3. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT ON JA NUARY 25, 2002 WITH GLOBAL CRICKET CORPN. PTE LTD (GCC) (ALSO A TA X RESIDENT OF SINGAPORE UNDER THE TREATY). UNDER THE AGREEMENT, GCC HAS GRANTED RIGHTS TO THE ASSESSEE THROUGHOUT THE LICENSED TE RRITORY. THE TERM RIGHTS UNDER SCH-I TO THE AGREEMENT HAS BEEN DEFI NED AS THE RIGHT TO TRANSMIT, BROADCAST, EXHIBIT, PERFORM, INCLUDE IN C ABLE PROGRAMS AND/OR OTHERWISE DISTRIBUTE, MAKE AVAILABLE TO THE PUBLIC ANY MOVING VISUAL OR AUDIO VISUAL REPRESENTATIONS AND/OR IMAGES OF MATCH ES, PLAYERS OR PLAY IN ANY EVENT, THE FEED, THE HIGHLIGHTS, PACKAGE AND ANY RECORDING AND OTHER MATERIAL BY MEANS OF ANY MEDIA. THE TERM LI CENSED TERRITORY HAS BEEN DEFINED UNDER SCH-I TO THE AGREEMENT AS INDIA, PAKISTAN, SRILANKA, BANGLADESH, SINGAPORE AND MALAYSIA. 4. THE ADIT INITIATED PROCEEDINGS U/S. 201 OF THE I .T. ACT ON THE ASSESSEE FOR NON DEDUCTION OF TAX AT SOURCE FROM PA YMENTS MADE TO GCC. DURING THE COURSE OF SEC. 201 PROCEEDINGS, THE ASSE SSEE MADE VARIOUS WRITTEN SUBMISSIONS BEFORE THE ADIT, THE GIST OF WH ICH IS SUMMARIZED BELOW: 1. THE TERRITORIAL JURISDICTION OF THE I.T. ACT, 19 61 IS RESTRICTED TO THE INDIAN TERRITORY AND CANNOT BE APPLIED TO A TRANSACTION CARRIED OUT OUTSIDE INDIA. 2. WHEN PAYMENT IS MADE OUTSIDE INDIA BY A NON-RESI DENT TO ANOTHER NON-RESIDENT, IT IS NOT COVERED BY THE PROV ISIONS OF SEC. 195. MSM (SATELLITE) SINGAPORE 8 3. THE PAYMENT CANNOT BE CONSIDERED AS ROYALTY AS D EFINED UNDER EXPLANATION 2 TO SEC. 9(1) (VI) OF THE ACT. 4. THE PAYMENT IS ALSO NOT IN THE NATURE OF ROYALTY AS DEFINED IN ARTICLE 12(3) OF INDO SINGAPORE TREATY. 5. THE INCOME DOES NOT ACCRUE IN INDIA AS PER ARTIC LE 12(7) OF THE TREATY. 6. THE LIMITATION CLAUSE UNDER ARTICLE 24 OF THE TR EATY IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE. 5. VIDE ORDER U/S. 201(1)/201(1A) OF THE I.T. ACT D T. FEB. 19, 2004, THE ADIT HELD THAT THE PAYMENTS MADE BY THE ASSESSE E TO GCC WERE IN THE NATURE OF ROYALTY AS DEFINED IN EXPLANATION 2 TO SEC. 9(1)(VI) OF THE I.T. ACT, WHICH WERE DEEMED TO ARISE IN INDIA AND H ENCE TAXABLE IN INDIA. ACCORDINGLY, THE ADIT RAISED A DEMAND OF RS,. 32 ,94,06,000/- U/S. 201(1) AND INTEREST OF RS. 5,46,76,000/- U/S. 201(1 A) OF THE I.T. ACT ON THE ASSESSEE FOR NON-DEDUCTION OF TAX AT SOURCE FRO M PAYMENTS MADE TO GCC. 6. AGGRIEVED BY THE ORDER OF ADIT, ASSESSEE FILED A N APPEAL BEFORE THE LD. CIT(A). THE LD. CIT(A) IN HIS ORDER DT. 2 ND JULY, 2004 INTER ALIA DISCUSSED AND DECIDED THE MAIN ISSUES IN PARAGRAPH NO. 8.42 AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AS WELL AS THE SUBMISSIONS MADE BY THE ADIT. THERE ARE TWO AS PECTS OF THE MATTER. WHETHER PAYMENT FOR LIVE CRICKET EVENT RIGHTS CONST ITUTES ROYALTY WITHIN THE MEANING OF ARTICLE 12(3) OF THE TAX TREATY. ASSUMING THAT THE ANSWER TO THE ABOVE IS IN THE AFF IRMATIVE, WHETHER SUCH A ROYALTY ARISES IN INDIA WITHIN THE M EANING OF PROVISIONS OF ARTICLE 12(7) OF THE TAX TREATY. AS IS APPARENT, IF MY ANSWER TO THE SECOND ISSUE VI Z., THAT THE ROYALTY DOES NOT ARISE IN INDIA IS IN THE AFFIRMATIVE, MY ANSWER TO QUESTION NO. 1 WOULD BECOME REDUNDANT. MSM (SATELLITE) SINGAPORE 9 ACCORDINGLY, WHILE I FIND SUBSTANTIAL MERIT IN THE ARGUMENTS CANVASSED BY THE APPELLANT THAT THE PAYMENT FOR LIV E FEED RIGHTS DOES NOT CONSTITUTE ROYALTY, I DO NOT CONSID ER IT NECESSARY TO DECIDE ON THIS ISSUE. THIS IS BECAUSE I AM IN FULL AGREEMENT WITH THE CONTENTION OF THE APPELLANT THAT EVEN IF ONE ASSUMED THAT THE PAYMENT WAS IN THE NATURE OF ROYAL TY, SUCH A ROYALTY DOES NOT ARISE IN INDIA HAVING REGARD TO THE PROVISIONS OF ARTICLE 12(7) OF THE TREATY. I CONCU R WITH THE OPINION OF MR. PHILLIP BAKER ON THE SUBJECT AND HOL D THAT UNLESS THERE IS A DIRECT NEXUS WITH THE ACTIVITIES OF THE PE AND THE INCURRING OF THE SAID EXPENDITURE, THE ROYALTY CANNOT BE SAID TO ARISE IN INDIA. SINCE THERE IS NO SUCH NEXU S IN THIS CASE, I HOLD THAT THE PAYMENT TO GCC CANNOT BE SAID TO ARISE IN INDIA WITH THE MEANING OF ARTICLE 12(7) OF THE T REATY. 7. THE LD. CIT(A) THUS INTER ALIA DECIDED THE MAIN ISSUE IN FAVOUR OF THE ASSESSEE HOLDING THAT EVEN IF IT IS ASSUMED T HAT THE AMOUNT IN QUESTION IS IN THE NATURE OF ROYALTY, SUCH ROYALTY INCOME DOES NOT ARISE IN INDIA IN TERMS OF ARTICLE 12(7) OF THE RELEVANT DT AA AND THUS THE SAME IS NOT CHARGEABLE TO TAX IN INDIA. ACCORDINGLY HE HELD THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM THE PAYMENT MADE TO GCC. THE LD. CIT(A) THUS PARTLY ALLOWED THE APPEAL OF THE AS SESSEE BY HIS IMPUGNED ORDER AGAINST WHICH THE ASSESSEE AND DEPA RTMENT HAS FILED THESE APPEALS BEFORE US. 8. THE MAIN ISSUE WHICH ARISES FOR OUR CONSIDERATIO N IN THIS CASE IS THE ONE RAISED BY THE REVENUE IN GROUND NO. 3 WHICH READS AS UNDER: WHETHER THE FACTS AND IN THE CIRCUMSTANCES OF CASE AND IN LAW, THE CIT(A) ERRED IN HOLDING THAT THE ROYALTY HAS NOT AR ISEN I INDIA HAVING REGARDING TO THE PROVISIONS OF ARTICLE 12(7) OF IND O-SINGAPORE DTAA. 9. THE LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED TH E FOLLOWING ARGUMENTS IN SUPPORT OF THE REVENUES CASE ON THIS ISSUE. MSM (SATELLITE) SINGAPORE 10 I) THE SOURCE OF REVENUE FOR THE ASSESSEE IS FROM ADVERTISEMENT WHICH ARE TELECASTED ON THE SET SATEL LITE CHANNEL AND PAID FOR MAINLY BY THE PERSONS IN INDIA . THE OTHER SOURCES OF THE REVENUE OF THE ASSESSEE IS THE SUBSCRIPTION INCOME COLLECTED FROM CABLE OPERATORS MAINLY IN INDIA. II) GCC AS A LICENSOR GRANTED RIGHTS TO THE ASSE SSEE AS LICENSEE THROUGHOUT THE LICENCED TERRITORY TOGETHE R WITH COMMENTARY IN THE AUTHORIZED LANGUAGES FOR A FEE FO R A AUTHORIZED NUMBER OF EXHIBITIONS DURING THE EXHIBIT ION PERIOD. THE DEFINITION OF RIGHTS IS EXHAUSTIVE. III) THE ASSESSEE HAS ALSO BEEN GIVEN RIGHT TO EDIT THE FEED I.E. RECONFIGURE, RECOMBINE OR REPACKAGE, TO COPY AND ST ORE THE FEED ON ANY STORAGE DEVICE IN ANY MEDIUM, TO DUB AN D SUB- TITLE THE FEED. THE ASSESSEE IS ALSO GIVEN A GUARA NTEE THAT THE LICENSOR SHALL NOT MAKE AVAILABLE LIVE FEED TO ANY OTHER PERSONS IN ANY PART OF THE LICENSED TERRITORY EXCEP T AS PROVIDED IN THE AGREEMENT IN A LIMITED WAY. IT SHO WS THAT THE ASSESSEE HAS EXCLUSIVE BROADCASTING RIGHTS FOR DISTRIBUTION IN THE LICENSED TERRITORY. THE ASSESS EE HAS ALSO BEEN GIVEN NON-EXCLUSIVE RIGHT TO USE, LOGO OF GCC. IV) SALE OF AIRTIME ON ITS CHANNEL TO INDIAN PERSON S, COLLECTION OF SUBSCRIPTION FROM CABLE OPERATORS IN INDIA WOULD AM OUNT TO DOING BUSINESS IN INDIA. V) THE ASSESSEE HAS A PERMANENT ESTABLISHMENT IN IN DIA IN THE FORM OF SET INDIA WHO IS DOING THE MARKETING ACTIVITY OF THE ASSESSEE NAMELY M/S. SET SATELLITE SINGAPORE. MSM (SATELLITE) SINGAPORE 11 VI) THERE IS A DIRECT NEXUS BETWEEN COLLECTION OF A DVERTISEMENT REVENUE FROM THE ASSESSEE FROM INDIA AND PAYMENT FO R ACQUISITION OF BROADCASTING RIGHTS OF CRICKET MATCH ES. VII) THE PAYMENTS MADE BY THE ASSESSEE TO GCC FOR T RANSFER OF TELECASTING RIGHTS ARE IN THE NATURE OF ROYALTY UND ER EXPLANATION-2 SUCH PAYMENTS ARE DEEMED TO ACCRUE OR ARISE IN INDIA U/S. 9(1)(VI)(C) OF THE ACT. 10. THE LD. DEPARTMENTAL REPRESENTATIVE ALSO CONTEN DED THAT THE PROVISIONS OF I.T. ACT 1961 ARE APPLICABLE TO THE T RANSACTION OUTSIDE INDIA IF THE SAME HAS ANY NEXUS IN INDIA. IN THIS CONTEXT , HE RAISED THE FOLLOWING POINTS: A) THE PROVISIONS OF THE SEC. 195 ARE APPLICABLE EV EN TO A TRANSACTION MADE BETWEEN TWO NON-RESIDENTS OUTSIDE INDIA. B) THE TELECASTING RIGHTS RECEIVED BY THE ASSESSEE FROM THE GCC ARE IN THE NATURE OF PROPERTY SIMILAR TO A PATENT, INVENTION, MODEL, DESIGN, TRADE MARK ETC. AS MENTIONED IN CLAU SE (I) OF EXPLANATION 2 TO SEC. 9(1)(VI) C) THE RIGHTS TO BE TRANSFERRED BY THE GCC TO THE A SSESSEE ARE ALSO COPYRIGHT RIGHTS AS MENTIONED IN CLAUSE (V) OF EXPLANATION 2 TO SEC. 9(1)(VI). D) THE ASSESSEE IS CARRYING ON BUSINESS IN INDIA AN D THE PAYMENTS MADE TO THE GCC WERE FOR THE PURPOSE OF BU SINESS CARRIED OUT IN INDIA AND ALSO FOR MAKING AN EARNING FROM SOURCES IN INDIA. E) THE PAYMENTS MADE BY THE ASSESSEE TO THE GCC ARE IN THE NATURE OF ROYALTY U/S. 9(1)(VI) OF THE ACT AND THER EFORE CHARGEABLE TO TAX IN INDIA. F) THE GCC IS NOT ENTITLED TO ANY BENEFIT UNDER IND O-SINGAPORE TREATY UNDER THE LIMITATION CLAUSE (ARTICLE 24) AS THE PAYMENTS HAVE BEEN RECEIVED IN JERSEY AND NOT IN SI NGAPORE. MSM (SATELLITE) SINGAPORE 12 11. THE LD. AR COUNTERED THE ARGUMENTS OF THE DR ST ATING THAT EVEN IF PAYMENTS ARE ASSUMED TO BE ROYALTY UNDER ARTICLE 12 (3) OF THE TREATY SUCH ROYALTY DOES NOT ARISE IN INDIA IN VIEW OF THE PROVISIONS OF ARTICLE 12(7) OF THE TREATY. THE LD. AR DISSECTED ARTICLE 12(7) OF THE TREATY AND EXPLAINED THAT THE FIRST CONDITION IS THAT THE PAYE R SHOULD BE A RESIDENT OF INDIA IN ORDER TO COME UNDER ARTICLE 12(7) WHICH HA S NOT BEEN FULFILLED IN THE INSTANT CASE. AS PER THE FIRST LIMB OF ARTICLE 12(7) OF THE TREATY, ROYALTIES WOULD ARISE IN CONTRACTING STATE, ONLY WH ERE THE PAYER IS A RESIDENT OF THAT CONTRACTING STATE. IN THIS CONNEC TION, THE LD. AR RELIED ON THE OPINION OF MR. PHILLIP BAKER WHERE HE HAS OPINED THAT (EVEN ASSUMING THE PAYMENTS TO BE IN THE NATURE OF ROYALT IES), THE SOURCE OF ROYALTIES UNDER ARTICLE 12(7) OF THE TREATY WOULD B E IN SINGAPORE, SINCE SUCH ROYALTIES ARE PAID BY THE ASSESSEE, WHICH IS A RESIDENT OF SINGAPORE AND THEREFORE CANNOT BE SAID TO ARISE IN INDIA UNDE R ARTICLE 12(7) OF THE TREATY. 12. FURTHER AS PER THE SECOND LIMB OF ARTICLE 12(7) OF THE TREATY, WHERE THE PAYMENTS ARE MADE BY ONE NON-RESIDENT TO ANOTHE R NON-RESIDENT, ROYALTY WOULD ARISE IN INDIA ONLY IF I) THE NON RESIDENT PAYER (I.E. THE ASSESSEE) HAS A PE OR FIXED BASE IN INDIA II) THE LIABILITY TO PAY ROYALTY IS INCURRED IN CO NNECTION WITH SUCH PE OR FIXED BASE AND III) THE ROYALTY IS BORNE BY SUCH PE OR FIXED BAS E. 13. FURTHER IN THE ASSESSMENT ORDER FOR THE A.Y. 20 01-02, THE LD. ADIT HAS HELD THAT THE ASSESSEE HAS AN AGENCY PE IN INDI A IN THE FORM OF SET INDIA. THE ASSESSEE HAS SUBMITTED THAT THE PROVISI ONS OF ARTICLE 12(7) ARE NOT ATTRACTED EVEN IF THE ASSESSEE HAS ONLY AN AGEN CY PE BECAUSE IT DOES NOT HAVE A PHYSICAL PRESENCE IN INDIA. THE LD. COUN SEL FOR THE ASSESSEE SHRI DASTUR BROUGHT OUT THAT UNDER ARTICLE 12(7), T HE CONDITION WHICH MSM (SATELLITE) SINGAPORE 13 NEEDS TO BE SATISFIED IS THAT THE LIABILITY TO PAY ROYALTY HAS BEEN INCURRED IN CONNECTION WITH THE PAYERS PE IN INDIA. FOR THIS HE PRODUCED A CHART WITH DIAGRAMS SHOWING HOW THE ENTIRE BROADCASTING BUSINESS IS BEING CARRIED OUT. HE POINTED OUT THAT FROM THE CHART IT COULD BE EASILY UNDERSTOOD THAT THE COLLECTION BY WAY OF ADVERTISEM ENTS AND THROUGH NEGOTIATIONS WITH CHANNEL OPERATORS WHICH ARE THE S OURCE OF REVENUE FOR SET INDIA HAS NO DIRECT NEXUS BETWEEN THE ACTIVITIE S OF THE PAYERS PE IN INDIA AND THE ROYALTY PAYMENT. HE FURTHER SUBMITTE D THAT ITS BROADCASTING BUSINESS IS BEING CARRIED OUT FROM SIN GAPORE AND IT DOES NOT CARRY OUT ANY SUCH ACTIVITY IN INDIA. THE PAYM ENT FOR THE CRICKET RIGHTS IS MADE ONLY FOR THE BROADCASTING OPERATIONS OF THE ASSESSEE, WHICH ARE CARRIED OUT FROM SINGAPORE. FURTHER, THE LIABILITY FOR THE PAYMENT IS INCURRED BY THE ASSESSEE IN CONNECTION W ITH ITS BROADCASTING OPERATIONS IN SINGAPORE AND HAS NO CONNECTION WITH THE MARKETING ACTIVITIES CARRIED THROUGH ITS ALLEGED PE IN INDIA. 14. THE SECOND ASPECT WHICH REQUIRES CONSIDERATION IS THAT ARTICLE 12(7) REQUIRES THE ROYALTY MUST BE BORNE BY THE PAY ERS PE IN INDIA. THE ASSESSEE CONTENDED THAT IN THE PRESENT CASE, THE FI NANCIAL BURDEN OF THE PAYMENT FOR LIVE CRICKET RIGHTS IS BORNE BY THE HE AD OFFICE OF THE ASSESSEE IN SINGAPORE AND NOT BY ITS ALLEGED AGENCY PE IN INDIA AND THEREFORE THE PAYMENT CANNOT BE TREATED AS BORNE B Y THE ASSESSEES PE IN INDIA. THE WORDINGS, VIZ., PAYMENTS BEING INCUR RED IN CONNECTION WITH AND BORNE BY BY A PE IN THE OTHER CONTRACTING STA TE ARE ALSO FOUND IN ARTICLE 11(5) OF THE OECD MODEL CONVENTION RELATING TO INTEREST. THE ASSESSEE HAS RELIED ON PARA 26 OF THE OECD COMMENTA RY ON ARTICLE 11 OF THE MODEL CONVENTION, WHICH DEALS WITH THE PLACE WH ERE INTEREST CAN BE SAID TO ARISE. IT HAS BEEN STATED IN PARA 26 THAT INTEREST BEARING LOANS SHOULD HAVE AN OBVIOUS ECONOMIC LINK WITH THE PE IN THE OTHER CONTRACTING STATE. PARA 27 OF THE COMMENTARY FURTH ER STATES THAT IN THE ABSENCE OF AN ECONOMIC LINK BETWEEN THE INTEREST BE ARING LOAN AND THE MSM (SATELLITE) SINGAPORE 14 PE, THE CONTRACTING STATE WHERE SUCH PE IS SITUATED CANNOT BE REGARDED AS THE STATE WHERE THE INTEREST ARISES. 15. THE LD. COUNSEL FOR THE ASSESSEE ALSO PRODUCED THE COPY OF OECD COMMENTARY BEFORE US. HE CONTENDED THAT THE AFORE SAID ANALOGY SHOULD EQUALLY APPLY IN THE PRESENT CASE WITH RESPECT OF A RTICLE 12(7) OF THE TREATY, WHICH ALSO DEALS WITH THE REQUIREMENT OF PA YMENTS BEING INCURRED IN CONNECTION WITH AND BORNE BY A PE I N INDIA. HE FURTHER CONTENDED THAT SINCE THE PAYMENTS TO GCC DO NOT HA VE ANY ECONOMIC LINK WITH THE ASSESSEES MARKETING/AGENCY PE IN IND IA (I.E. SET INDIA), THE SAID PAYMENTS CANNOT BE SAID TO ARISE IN INDIA UNDER ARTICLE 12(7) OF THE TREATY. THE LD. COUNSEL FOR THE ASSESSEE FURNIS HED THE OPINION OF MR. PHILLIP BAKER AT PAGE 70 OF THE PAPER BOOK. 16. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED KHAU S VOGEL COMMENTARY ON DOUBLE TAXATION CONVENTION POINTING O UT AS FOLLOWS: GENERALLY LIABILITY IS NOT RECOGNIZED AS PERTAININ G TO PE UNLESS IT IS SHOWN IN THE PE BALANCE SHEET. THE LD. COUNSEL ALSO PRODUCED THE BALANCE SHEET AN D SCH. XV TO PROVE THAT THE AMOUNT HAS NOT BEEN PAID BY SET INDIA PVT . LTD. TO GCC TO ACQUIRE THE BROADCASTING RIGHTS. 17. WE HEARD BOTH THE PARTIES. WE FIND NO INFIRMIT Y IN THE ORDER OF THE LD CIT(A). THE PAYMENT MADE BY THE ASSESSEE TO GCC CANNOT BE SAID TO ARISE IN INDIA UNDER ARTICLE 12(7) OF THE TREATY SI NCE THE PAYER ( I.E. ASSESSEE) IS NOT A RESIDENT OF IND IA. . AS PER THE FIRST LIMB OF ARTICLE 12(7) OF THE TREATY, ROYALTIES CANNOT AR ISE IN INDIA, SINCE THE PAYER IS NOT A RESIDENT OF INDIA. SUCH ROYALTIES U NDER THE FIRST LIMB OF ARTICLE 12(7) OF THE TREATY ARISE IN SINGAPORE SINC E THE PAYER (I.E. THE ASSESSEE) IS A RESIDENT OF SINGAPORE. THE SECOND LIMB OF ARTICLE 12(7) OF MSM (SATELLITE) SINGAPORE 15 THE TREATY DEALS WITH A SCENARIO WHERE THE PAYMENTS ARE MADE BY A NON- RESIDENT, WHERE SUCH NON-RESIDENT HAS A PE IN INDIA . HOWEVER, A MERE EXISTENCE OF A PE IN INDIA CANNOT LEAD TO A CONCLUS ION THAT ROYALTIES ARISE IN INDIA. IN ADDITION TO THE EXISTENCE OF PE, FOR ROYALTIES TO ARISE IN INDIA UNDER ARTICLE 12(7) OF THE TREATY, IT IS ESSENTIAL THAT LIABILITY TO PAY SUCH ROYALTIES HAS BEEN INCURRED IN CONNECTION WITH AN D IS BORNE BY THE PE OF THE PAYER IN INDIA. 18. BASED ON AN ANALOGY FROM PARAGRAPH 26 AND 27 OF THE OECD COMMENTARY ON ARTICLE 11, IT IS CLEARLY EVIDENT THA T FOR ROYALTIES TO ARISE IN INDIA, AN EXISTENCE OF AN ECONOMIC LINK BETWEEN THE LIABILITY FOR PAYMENT OF SUCH ROYALTIES AND PE IS NECESSARY. HOW EVER, IN THE PRESENT CASE THERE IS NO ECONOMIC LINK BETWEEN THE PAYMENT OF ROYALTIES AND THE ALLEGED PE OF THE ASSESSEE IN INDIA (I.E. SET INDIA ), THE ECONOMIC LINK IS ENTIRELY WITH THE ASSESSEES HEAD OFFICE IN SINGAP ORE. THUS, THE PAYMENTS TO GCC CANNOT BE SAID TO HAVE BEEN INCURRE D IN CONNECTION WITH THE APPELLANTS PE IN INDIA (I.E. SET INDIA). FURTHER, THE ALLEGED PE IN INDIA (I.E. SET INDIA) WAS ALSO NOT INVOLVED IN ANY WAY WITH THE ACQUISITION OF THE RIGHT TO BROADCAST THE CRICKET M ATCHES, NOR DID THE PE BEAR THE COST OF PAYMENTS TO GCC. THUS THE PAYMENT S TO GCC CANNOT BE SAID TO HAVE BEEN BORNE BY THE ASSESSEES PE IN I NDIA (I.E. SET INDIA). 19. WE FIND THAT THE CASE LAWS CITED BY THE LD. COU NSEL FOR THE ASSESSEE ALSO SUPPORTS THE ASSESSEES CASE. IN THE CASE OF STANLEY KEITH KINNETT VS CIT 278 ITR 155 AND CIT VS ELITOS S.P. A & OTHERS 280 ITR 495 IN WHICH IT HAS BEEN HELD THAT WHEN THE BURDEN OF PAYMENT IS NOT BORNE BY PE OR FIXED BASE , TRADE OR BUSINESS LOCA TED IN INDIA, THE AMOUNT IS NOT TAXABLE IN INDIA. FURTHER ON GOING T HROUGH SCHEDULE-XV, WE FIND THAT SET SATELLITE SINGAPORE HAS NOT RECOVE RED ANY AMOUNT FROM THE INDIAN PE, IN THE ROYALTY TO ARISE IN INDIA AS ENVISAGED UNDER ARTICLE 12(7) OF THE TREATY, THE CONDITION WHICH READS AS FOLLOWS: MSM (SATELLITE) SINGAPORE 16 ROYALTIES AND FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN A CONTRACTING STATE WHEN THE PAY ER IS THAT STATE ITSELF, A POLITICAL SUB-DIVISION, A L OCAL AUTHORITY, A STATUTORY BODY OR A RESIDENT OF T. WH ERE, HOWEVER, THE PERSON PAYING THE ROYALTIES OR FEES FO R TECHNICAL SERVICES, WHETHER HE IS A RESIDENT OF A CONTRACTING STATE OR NOT, HAS IN A CONTRACTING STA TE A PERMANENT ESTABLISHMENT OR A FIXED BASE IN CONNECTI ON WITH WHICH THE LIABILITY TO PAY THE ROYALTIES OR F EES FOR TECHNICAL SERVICES WAS INCURRED, AND SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE BORNE BY SUCH PERMA NENT ESTABLISHMENT OR FIXED BASE, THEN SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN THE STATE IN WHICH THE PERMANENT ESTABLISHMENT OR FIXED BASE IS SITUATED. 20. FIRSTLY THE PAYER IS NOT A RESIDENT OF INDIA. SECONDLY THE LIABILITY TO PAY SUCH ROYALTY HAS NOT BEEN INCURRED IN CONNECTIO N WITH AND DOES NOT BORNE BY THE PE OF THE PAYER IN INDIA. THEREFORE T HERE BEING NO ECONOMIC LINK BETWEEN THE PAYMENT OF ROYALTY AND SET INDIA H ENCE THE ROYALTY DOES NOT ARISE IN INDIA HAVING REGARD TO THE PROVIS IONS OF ARTICLE 12(7) OF THE TREATY. HENCE EVEN IF IT IS ASSUMED THAT THE P AYMENT FOR BROADCASTING CRICKET CONSTITUTES ROYALTY, IN OUR OP INION SUCH ROYALTY DOES NOT ARISE IN INDIA WITHIN THE MEANING OF PROV ISIONS OF ARTICLE 12(7) OF THE TAX TREATY AND HENCE THE SECOND GROUND NO. 3 RAISED BY THE REVENUE IS DISMISSED. 21. IN VIEW OF OUR DECISION RENDERED ABOVE ON THE M AIN ISSUE, OTHER GROUNDS RAISED IN REVENUES APPEAL AND ASSESSEES A PPEAL HAVE BECOME ONLY ACADEMIC AND WE DO NOT DEEM IT EXPEDIENT TO AD JUDICATE UPON THE SAME. 22. AS REGARDS THE REMAINING APPEALS FILED BY THE R EVENUE, THE MAIN ISSUE INVOLVED THEREIN IS SIMILAR TO THE ONE WHICH HAS ALREADY BEEN DECIDED BY US IN THE FOREGOING PORTION OF THIS ORDE R WHILE DISPOSING OF THE MSM (SATELLITE) SINGAPORE 17 CROSS APPEALS FILED FOR A.Y. 2003-04. FOLLOWING THE SAID DECISION, WE DISMISS ALL THESE APPEALS FILED BY THE REVENUE. CON SEQUENTLY, THE CROSS OBJECTION FILED BY THE ASSESSEE HAVE BECOME INFRUCT UOUS AND THE SAME ARE ACCORDINGLY DISMISSED. 23. IN THE RESULT, THE REVENUES APPEALS AS WELL AS THE APPEAL OF THE ASSESSEE AND CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON THIS 25 TH DAY OF JUNE, 2010 SD/- SD/- (P.M. JAGTAP) (ASHA VIJAYARAGHAVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED .. JUNE, 2010 RJ COPY TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT-CONCERNED 4. THE CIT(A)-CONCERNED 5. THE DR L BENCH TRUE COPY BY ORDER ASSTT. REGISTRAR, I.T.A.T, MUMBAI MSM (SATELLITE) SINGAPORE 18 DATE INITIALS 1 DRAFT DICTATED ON: 22.6.2010 SR. PS/PS 2. DRAFT PLACED BEFORE AUTHOR: 23. 6 .2010 ______ SR. PS/PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER: _________ ______ JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER: _________ ______ JM/AM 5. APPROVED DRAFT COMES TO THE SR. PS/PS: _________ ______ SR. PS/PS 6. KEPT FOR PRONOUNCEMENT ON: _________ ______ SR. PS/ PS 7. FILE SENT TO THE BENCH CLERK: _________ ______ SR. PS/PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK: _________ ______ 9. DATE OF DISPATCH OF ORDER: _________ ______
