NGC NETWORK ASIA LLC, MUMBAI V. DCIT (IT) RG 3(3)(1), MUMBAI

ITA 1178/MUM/2015

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 8645 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 4 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Assessment Year: 2010-2011
• Appeal Filed On: 26-02-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: PORUS KAKA AR SHRI S S IYENGAR
• Keywords: Business income; Transfer pricing; Double taxation relief; International transaction; Permanent establishment; Advance ruling; Revised return; TDS; Capital Gains
• Section: 271(1)(c); 143(3); 142(1); 5(2); 205; 274; 143(2); 271B; 9(1); 9(1); 9(1); 72; 13; 22; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER & SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO.1178/MUM/2015 (A.Y: 2010-11) ITA NOS 6677 & 6678/MUM/2018 (A.YS: 2014-15 & 2015-16) & ITA NO. 7142/MUM/2019 (A.Y: 2016-17) M/S NGC NETWORK ASIA LLC, C/O. SRBC &ASSOCIATES LLP,14 TH FLOOR, THEY RUBY, 29,SENAPATI BAPAT MARG, TULSI RD, DADAR(W) MUMBAI- 400028. VS. DCIT (IT) 3(3)(1) GROUND FLOOR, SCINIDA HOUSE, BALLARD ESTATE, MUMBAI.- 400038 ./ ./ PAN/GIR NO. : AABCN3136G APPELLANT .. RESPONDENT APPELLANT BY : SHRI PORUS KAKA, AR RESPONDENT BY : SHRI S S IYENGAR, DR DATE OF HEARING 24 .0 6 .2021 DATE OF PRONOUNCEMENT 12 . 0 7 .2021 / O R D E R PER PAVAN KUMAR GADALE JM: THE ASSESEE HAS FILED THESE FOUR APPEALS AGAINST THE SEPARATE ORDERS U/S 144C(13) R.W.S 143(3) OF THE ACT PASSED IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 2 - RESOLUTION PANEL (DRP) U/S 144C(5) OF THE ACT FOR THE A.Y 2010-11, 2014-15, 2015-16 & 2016-17.(INTHEA.Y.2014-15 THE LD.AR HAS NOT PRESSED GROUND OF APPEAL OF SHORT CREDIT OF TDS AND INTEREST U/SEC244A OF THE ACT AND THE SAME IS TREATED AS WITHDRAWN AND DISMISSED). SINCE, ALL THESE APPEALS HAVE COMMON AND IDENTICAL ISSUE, FOR THE SAKE OF CONVENIENCE ARE CLUBBED AND HEARD TOGETHER AND COMMON CONSOLIDATED ORDER IS PASSED. WE SHALL TAKE UP THE ITA NO. 1178/MUM/2015 FOR A.Y 2010-11 AS A LEAD CASE AND FACTS NARRATED. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL. GROUND NO. 1 A. ERRED IN DETERMINING A SUM OF RS. 12,93,45,520/-. B. ERRED IN DETERMINING THE TOTAL INCOME OF THE APPELLANT TO BE RS. 51,23,79,554/- GROUND NO. 2 ERRED IN HOLDING THAT THE APPELLANT HAS A PERMANENT ESTABLISHMENT IN INDIA AS PER THE PROVISIONS OF THE INDIA USA DOUBLE TAX AVOIDANCE AGREEMENT AND ACCORDINGLY HOLDING THAT THE ADVERTISEMENT SALES REVENUE EARNED BY THE APPELLANT ARE TAXABLE IN INDIA. GROUND NO. 3 WITHOUT PREJUDICE TO GROUND NO. 2 ABOVE, ERRED IN ATTRIBUTING ADDITIONAL PROFITS TO THE APPELLANT IN INDIA WITHOUT APPRECIATING THAT THE ALLEGED PE HAS BEEN REMUNERATED AT ARMS LENGTH. GROUND NO. 4. M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 3 - ERRED IN HOLDING THAT THE DISTRIBUTION FEE EARNED BY THE APPELLANT IS TAXABLE IN INDIA; GROUND NO. 5 ERRED IN GRANTING SHORT CREDIT OF TAXES DEDUCTED AT SOURCE AMOUNTING TO RS. 3,34,90,880/- GROUND NO. 6 ERRED IS NOT GRANTING THE ADDITIONAL TDS CREDIT AMOUNTING TO RS. 56,39,569/- GROUND NO. 7 ERRED IN LEVYING INTEREST U/S 234D OF THE ACT. GROUND NO. 8 ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271(1)(C) OF THE ACT WITHOUT APPRECIATING THE FACT THAT TH APPELLANT HAS NOT CONCEALED ANY INCOME NOR FURNISHED ANY INACCURATE PARTICULARS OF ITS INCOME; GROUND NO. 9 ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271A WITHOUT APPRECIATING THE FACT THAT THE APPELLANT IS A NON-RESIDENT AND IS NOT REQUIRED TO MAINTAIN INDIA SPECIFIC BOOKS OF ACCOUNT. GROUND NO. 10 ERRED IN INITIATING PENALTY PROCEEDINGS U/S 271B WITHOUT APPRECIATING THE FACT THAT THE APPELLANT IS A NON RESIDENT AND IS NOT REQUIRED TO GET ITS ACCOUNTS AUDITED. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A NON RESIDENT AND A FOREIGN COMPANY. THE ASSESSEE IS M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 4 - ENGAGED IN THE BUSINESS OF MEDIA INDUSTRY AND IS A TAX RESIDENT OF USA, AND ITS BUSINESS CONSTITUTE BROADCASTING OF ITS CHANNELS IN VARIOUS COUNTRIES INCLUDING OVER INDIAN SUBCONTINENT. DURING THE PREVIOUS YEAR RELEVANT TO A.Y 2010-11 THE ASSESSEE HAS TWO STREAMS OF REVENUE FROM INDIA (I) REVENUES FROM ADVERTISEMENT BUSINESS AND (II) REVENUES FROM DISTRIBUTION BUSINESS.THE ASSESSEE HAS APPOINTED NGC NETWORK (INDIA) PRIVATE LIMITED AS ITS EXCLUSIVE AGENT FOR DISTRIBUTION AND TO SOLICIT ADVERTISING FOR THE NATIONAL GEOGRAPHIC CHANNEL (NGC) AND ALSO APPOINTED OTHER TV CHANNELS. THE ASSESSEE HAS FILED THE RETURN OF INCOME FOR THE A.Y 2010-11 ON 30.09.2010 WITH A TOTAL INCOME OF RS. NIL. SUBSEQUENTLY THE REVISED RETURN OF INCOME WAS FILED. FURTHER, THE ASSESSEE HAS FILED THE INFORMATION THAT THE RECEIPT OF REVENUE/INCOME TO THE ASSESSEE FROM INDIA IS A BUSINESS INCOME IN THE HANDS OF THE ASSESSEE AND FURTHER THE ASSESSEE DOES NOT HAVE PERMANENT ESTABLISHMENT (PE) IN INDIA AND HENCE THE INCOME IS NOT TAXABLE. THE A.O. HAS ISSUED NOTICE U/S 143(2) AND 142(1) OF THE ACT. IN RESPONSE, THE LD. AR OF THE ASSESSEE APPEARED FROM TIME TO TIME AND FURNISHED THE DETAILS AND THE CASE WAS DISCUSSED. 2.1. THE A.O. FOUND AS PER FORM NO3CEB THAT THE ASSESSEE HAS INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATE M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 5 - ENTERPRISE (AE) AND THE MATTER WAS REFERRED TO THE TRANSFER PRICING OFFICER (TPO) FOR DETERMINATION OF ARMS LENGTH PRICE (ALP). THE TPO DEALT ON THE VARIOUS INTERNATIONAL TRANSACTIONS AND PASSED THE ORDER U/S 92CA(3) OF THE ACT DATED 29.112013, ACCEPTING THE ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTIONS ENTERED BY THE ASSESSEE WITH ITS AE. THE ASSESSEE HAS FILED DETAILS OF REVENUE AND AGREEMENTS ON 17-09-2013 IN RELATION TO THE BROAD CAST OF CHANNELS IN INDIA. THE A.O. DEALT ON THE AGREEMENTS WITH THE BROAD CAST CHANNELS IN RELATION TO DISTRIBUTION OF REVENUES AND ADVERTISEMENT REVENUES. THE ASSESSEE HAS FILED DETAILED LETTER DATED 16-12-2013 ON NON TAXABILITY OF ADVERTISEMENT REVENUES IN INDIA REFERRED AT PARA 8 OF THE ASSESSEEMENT ORDER. THE A.O. CONSIDERED THE PROVISIONS OF SECTION 5(2) AND 9(1)(I) OF THE ACT AND DTTA BETWEEN INDIA AND USA, ARTICLES, CBDT CIRCULAR, OECD REPORT, JUDICIAL DECISIONS AND INCOME TAX RULES AND FINALLY OBSERVED THAT THE ADVERTISEMENT REVENUES IS TAXED AS BUSINESS INCOME IN INDIA AND SIMILARLY THE DISTRIBUTION INCOME IS TREATED AS ROYALTY INCOME AND TAXED @15% AS PER ARTICLE 12 OF THE INDIA- USA TREATY. THE A.O. HAS PASSED THE DRAFT ASSESSMENT ORDER U/SEC 144C(1) R.W.S 143(3) OF THE ACT DATED 26.02.2014. THE ASSESSEE AFTER THE RECEIPT OF ORDER, HAS FILED OBJECTIONS IN FORM NO 35A WITH THE DRP. THE DRP CONSIDERED THE M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 6 - OBJECTIONS AND SUBMISSIONS AND PASSED ORDER U/SEC 144C(5) OF THE ACT DATED 14.11.2014. IN PURSUANCE TO THE DRP DIRECTIONS, THE A.O HAS PASSED THE FINAL ASSESSMENT ORDER U/S 144C(13) OF THE ACT R.W.S 143(3) OF THE ACT DATED 19.12.2014. AGGRIEVED BY THE FINAL A.O. ORDER, THE ASSESSEE HAS FILED AN APPEAL BEFORE THE HONBLE TRIBUNAL. 3. AT THE TIME OF HEARING, THE LD. AR SUBMITTED THAT THE A.O. AND DRP HAS ERRED IN TREATING THE ADVERTISEMENT REVENUE OF THE ASSESSEE IS TAXED IN INDIA AS BUSINESS INCOME ON THE BASIS/ PRESUMPTIONS THAT THE NGC NETWORK (INDIA) PVT LTD. IS A PERMANENT ESTABLISHMENT (PE) OF THE ASSESSEE. THE LD. AR SUBMITTED THAT AS PER THE ARTICLE 5(5) INDIA-USA DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA),WHERE AN AGENT IS REMUNERATED ON AN ARMS LENGTH PRICE (ALP) BASIS, NO DEPENDANT AGENCY I.E. PERMANENT ESTABLISHMENT (PE) CAN BE CREATED. FURTHER THE ALP ATTRIBUTION EXTINGUISHES ANY FURTHER INCOME ASSESSABLE IN THE HANDS OF THE NON -RESIDENT PRINCIPAL AND SUPPORTED HIS ARGUMENTS WITH JUDICIAL DECISIONS, ITAT DECISION IN ASSESSEE OWN CASE AND CHART FILED IN THE COURSE OF HEARING. CONTRA THE LD.DR RELIED ON THE ORDERS OF LOWER AUTHORITIES. M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 7 - THE LD. AR ALSO RELIED ON THE FALLOWING JUDICIAL DECISIONS AS UNDER; 1. HONDA MOTOR CO. LTD. VS. ACIT (2018) 255 TAXMANN 72 (SC). 2. DIT VS MORGAN STANLEY [2007] 294 ITR 416 (SC) 3. ADIT VS. E-FUNDS IT SOLUTIONS INC, 399 ITR 34 (SC). 4. SET SATELLITE (SINGAPORE) PTE LTD. VS. DDIT [2008] 307 ITR 205, BOM HC. 5. DIT VS. B4U INTERNATIONAL HOLDINGS LTD [2015] 374 ITR 453, BOM HC 6. DIT VS. DELMAS FRANCE [2015] 53 TAXMANN.COM 294 BOM HC 7. DIT VS BBC WORLDWIDE LTD, 203 TAXMAN 554, 2011, DEL HC 8. ADIT VS ASIA TODAY LTD [2021] IN ITA NO. 1878&1879/MUM/2008. 4. WE HEARD THE RIVAL SUBMISSIONS ON THE DISPUTED ISSUE OF TREATMENT OF ADVERTISEMENT REVENUE AS BUSINESS INCOME TAXABLE IN INDIA. THE LD. AR EMPHASIZED THAT THE ALLEGED PERMANENT ESTABLISHMENT (PE) BY THE INCOME TAX DEPARTMENT HAS BEEN REMUNERATED ON AN ALP BASIS AND IS EVIDENT FROM THE TRANSFER PRICING ORDER OF THE ASSESSEE WHEREIN ALL ITS INTERNATIONAL TRANSACTIONS HAVE BEEN ACCEPTED AT ALP WITH NO TP ADJUSTMENTS. FURTHER THERE IS AN UPWARD ADJUSTMENT TO THE COMMISSION INCOME EARNED BY M/S NGC NETWORK (INDIA) PVT LIMITED FROM THE ASSESSEE, HOWEVER THE SAID ADJUSTMENT WAS DELETED BY THE HONBLE ITAT. WE FIND THE HONBLE ITAT IN ASSESSES OWN CASE FOR THE A.YS 2000-01 TO 2004-05 IN ITA.NO M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 8 - 8671/M/2004,&ITA.NO3834,3835&3836/M/2007AND ITA.NO1662/M/2008 DATED 30-12-2020 HAS DEALT ON THIS DISPUTED ISSUE AND DECIDED IN FAVOUR OF THE ASSESSEE AND HAS OBSERVED AT PAGE 19 PARA 3.6 &3.7 OF THE ORDER READ AS UNDER: 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 M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 9 - 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 HONBLE HIGH COURTS AND THE TRIBUNAL AS STATED SUPRA. B. WE FIND THAT THE LD. AR HAD ARGUED THAT SIPLS 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., M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 10 - 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. FROM THE ABOVE, IT IS EVIDENT THAT THE PERCENTAGE OF COMMISSION INCOME AND SALES FROM THE THREE VGCS ARE QUITE NORMAL AND WITH REGARD TO VARIAN INC. USA, THE ACTIVITIES OF THE ASSESSEE ARE BETWEEN 5 TO 7%. HENCE, IT CANNOT BE SAID THAT THE ASSESSEE IS DEVOTED WHOLLY OR ALMOST WHOLLY ON BEHALF OF ANY ONE VGC. WE FIND THAT THE LD. DR HAD ARGUED THAT THE ABOVE FACT THAT SIPL COMMISSION INCOME FROM ASSESSEE WAS LESS THAN 1% OF TOTAL COMMISSION INCOME DERIVED BY IT, WAS NOT VERIFIED BY THE LOWER AUTHORITIES AND THE SAME NEEDS TO BE SENT BACK TO THE LD. AO FOR VERIFICATION. IN THIS REGARD, WE FIND THAT THE LD. AR REBUTTED THE ARGUMENT OF THE LD. DR BY SUBMITTING THAT THIS FACT ALONG WITH ALL STATISTICS WERE DULY SUBMITTED BEFORE THE LD. CIT(A) AND THE LD. CIT(A) ALSO RECORDS THIS FACT IN HIS ORDER AND HAD NOT DISPUTED THE SAME. ONCE A PARTICULAR SUBMISSION WAS MADE AND THE SAME IS NOT DISPUTED BY THE LOWER AUTHORITIES BY BRINGING ANY CONTRARY FACT WITH EVIDENCES THEREON, THEN THE SAME NEEDS TO BE ACCEPTED AS SUCH. ON THE CONTRARY, WE FIND THAT THE LD. DR WAS NOT ABLE TO PROVIDE ANY CONTRARY EVIDENCES TO PROVE THAT THE FACT OF SIPLS COMMISSION FROM ASSESSEE WAS LESS THAN 1% OF TOTAL INCOME IS INCORRECT. HENCE, WE HOLD THAT THERE IS NO NEED FOR THIS ISSUE TO GO BACK TO THE FILE OF THE LD. AO AND ACCORDINGLY, THE ARGUMENT OF THE LD. DR IN THIS REGARD IS HEREBY REJECTED CONSIDERING THE FACT THAT THE ISSUE INVOLVED IS MORE THAN 20 YEARS OLD AS OF NOW AND HENCE THE MATTER IS NOT REMANDED BACK TO THE FILE OF LD AO. C. THE LD. DR VEHEMENTLY ARGUED THAT ASSESSEE HAD FULL CONTROL OVER THE ACTIVITY OF SIPL AND HENCE IS A SIPL DEPENDENT AGENT PE OF ASSESSEE IN INDIA. THE LD. DR ARGUED THAT CONTROL OVER THE ACTIVITIES OF THE AGENT IS A CRUCIAL POINT FOR THE PURPOSE OF DETERMINING THE INDEPENDENCE OF THE AGENT UNDER ARTICLE 5(5) OF M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 11 - INDIA-USA DTAA. THIS WAS DULY REBUTTED BY THE LD. AR BY PLACING RELIANCE ON THE DECISION OF THIS TRIBUNAL IN THE CASE OF VARIAN INDIA (P) LTD., VS. ADIT REPORTED IN 142 ITD 692 SUPRA AND ALSO ON THE DECISION OF AUTHORITY OF ADVANCE RULING IN THE CASE OF SPECIALITY MAGAZINES (P) LTD., REPORTED IN 274 ITR 310 (AAR) WHEREIN CRITERIA FOR SATISFACTION OF THE CONDITION OF WHOLLY OR ALMOST WHOLLY DEPENDENT WAS LAID DOWN TO MEET ANYTHING LESS THAN 90% OF INCOME FROM THAT CLIENT. AS THE SAME IS NOT SATISFIED IN THE INSTANT CASE AND ALSO IN ADDITION THAT THE CONDITIONS PROVIDED IN ARTICLE 5(5) INDIA-USA DTAA ARE SATISFIED, SIPL CANNOT BE TREATED AS DEPENDENT AGENT AS PER PARA 4. THUS, THE ALLEGATION OF EXISTENCE OF DEPENDENT AGENT PE BY THE LD. DR IS HEREBY DISMISSED. WE FURTHER FIND THAT THE LD. AR ALSO POINTED OUT THAT ARTICLE 5 OF INDIA USA DTAA FOR AGENCY PE PROVIDES THAT PARA 4 OF ARTICLE 5 SHALL APPLY ONLY TO THOSE AGENTS OTHER THAN AN INDEPENDENT AGENT. HE ARGUED THAT HOWEVER, BEFORE EXAMINING WHETHER AN AGENT SATISFIED CONDITIONS LAID DOWN IN PARA 4, IT MUST BE EXAMINED WHETHER IT SATISFIES THE CONDITION OF INDEPENDENT AGENT LAID DOWN IN PARA 5 OF ARTICLE 5. HE SUBMITTED THAT AN AGENT IS CONSIDERED OF HAVING INDEPENDENT STATUS IF THE ACTIVITIES ARE NOT DEVOTED WHOLLY OR ALMOST WHOLLY ON BEHALF OF FOREIGN ENTERPRISES AND THE TRANSACTIONS BETWEEN THE AGENT AND SUCH ENTERPRISES ARE MADE AT ARMS LENGTH THEN IT SHALL BE REGARDED AS AN AGENT OF INDEPENDENT STATUS. WE HOLD THAT AGENT WHO SATISFIES THE CONDITION WILL BE INDEPENDENT AND WOULD NOT CONSTITUTE THE PE IN INDIA EVEN IF HE SATISFIES THE CONDITIONS LAID DOWN IN PARA 4. ACCORDINGLY, IF SIPL IS AN AGENT OF INDEPENDENT STATUS AND FULFILS THE CONDITIONS LAID DOWN IN PARA 5, IT WILL NOT CONSTITUTE A PE FOR ASSESSEE IN INDIA. IN THIS REGARD RELIANCE WAS RIGHTLY PLACED ON THE CO- ORDINATE BENCH DECISION OF THIS TRIBUNAL BY THE LD. AR IN THE CASE OF DELMAS FRANCE VS. ADIT REPORTED IN 49 SOT 719 (MUM) WHICH AFFIRM THE ABOVE PROPOSITION. WE FIND THAT THIS RULING WAS RENDERED IN THE CONTEXT OF ARTICLE 5(6) OF INDIA FRANCE DTAA. SIMILAR LANGUAGE EXISTS IN ARTICLE 5(5) OF INDIA USA DTAA AND M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 12 - HENCE, SAID RULING WOULD BE MADE APPLICABLE TO THE FACTS OF THE ASSESSEE HEREIN. WE ALSO FIND THAT THE SAID DECISION OF THE TRIBUNAL HAS BEEN APPROVED BY THE HONBLE JURISDICTIONAL HIGH COURT REPORTED IN 53 TAXMANN.COM 294. D. JUDICIAL PRECEDENTS RELIED UPON BY THE LD. AR ON THE DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SET SATELLITE (SINGAPORE) PTE LIMITED AND OTHER CASES REPRODUCED SUPRA ARE CONSIDERED AND DISTINGUISHED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2007-08 AND 2008-09 AND HENCE HIGH COURT DECISIONS RELIED UPON NEED NOT BE GONE INTO. WE FIND THAT THE ORDER PASSED BY THIS TRIBUNAL FOR A.Y.2007-08 AND 2008-09 IN ASSESSEES OWN CASE HAS BEEN RECALLED BY THIS TRIBUNAL IN ITS ENTIRETY PURSUANT TO THE ORDER OF THE HONBLE HIGH COURT. IT IS TRITE LAW THAT ONCE THE ORDER IS RECALLED IN ITS ENTIRETY, IT IS NO ORDER IN THE EYES OF LAW. HENCE, ALL THE OBSERVATIONS MADE IN THE SAID RECALLED ORDER HAS GOT NO RELEVANCE FOR THE PURPOSE OF ADJUDICATION. AT THE MOST, IT MAY ONLY PERSUASIVE VALUE AND NOT ANY BINDING PRECEDENT. HENCE, THE ARGUMENT MADE BY THE LD. DR IN THIS REGARD IS REJECTED. 3.7. IN VIEW OF THE AFORESAID OBSERVATIONS AND RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE, WE HOLD THAT ASSESSEE HAS PAID ARMS LENGTH COMMISSION TO SIPL @15% WHICH HAS BEEN ACCEPTED TO BE AT ARMS LENGTH ALSO BY THE LOWER AUTHORITIES BY NOT DISPUTING THE SAME AND ALSO BY THE LD. TPO FOR SUBSEQUENT ASSESSMENT YEARS I.E. A.YRS. 2002- 03, 2003-04, 2004-05 IN THE ORDERS PASSED U/S.92CA(3) OF THE ACT AND ALSO CONSIDERING THE FACT THAT THE COMMISSION RATE OF 15% IS FAIR AND REASONABLE IN THE LIGHT OF THE CBDT CIRCULAR NO.742 DATED 02/05/1996 AND IS ACCEPTED BY THE VARIOUS COURTS AS MENTIONED ABOVE, NO FURTHER ATTRIBUTION OF PROFITS SHOULD BE DONE IN THE HANDS OF THE ASSESSEE AS THE AGENT HAS BEEN REMUNERATED ON ARMS LENGTH BASIS. ACCORDINGLY, THE GROUND NOS. 1-3 RAISED BY THE ASSESSEE ARE ALLOWED. M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 13 - 3.7. IN VIEW OF THE AFORESAID OBSERVATIONS AND RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE, WE HOLD THAT ASSESSEE HAS PAID ARM S LENGTH COMMISSION TO SIPL @15% WHICH HAS BEEN ACCEPTED TO BE AT ARM S LENGTH ALSO BY THE LOWER AUTHORITIES BY NOT DISPUTING THE SAME AND ALSO BY THE LD. TPO FOR SUBSEQUENT ASSESSMENT YEARS I.E. A.YRS. 2002- 03, 2003-04, 2004-05 IN THE ORDERS PASSED U/S.92CA(3) OF THE ACT AND ALSO CONSIDERING THE FACT THAT THE COMMISSION RATE OF 15% IS FAIR AND REASONABLE IN THE LIGHT OF THE CBDT CIRCULAR NO.742 DATED 02/05/1996 AND IS ACCEPTED BY THE VARIOUS COURTS AS MENTIONED ABOVE, NO FURTHER ATTRIBUTION OF PROFITS SHOULD BE DONE IN THE HANDS OF THE ASSESSEE AS THE AGENT HAS BEEN REMUNERATED ON ARM S LENGTH BASIS. ACCORDINGLY, THE GROUND NOS. 1-3 RAISED BY THE ASSESSEE ARE ALLOWED. WE FIND IN THE PRESENT CASE THE FACTS ARE SIMILAR AND THE ASSESSEE HAS PAID ARMS LENGTH COMMISSION TO ITS AGENT AND TPO HAS ACCEPTED THE PAYMENTS AND NO TRANSFER PRICING ADJUSTMENT WAS MADE CONSIDERING IT AS FAIR AND REASONABLE. WE RESPECTFULLY FALLOW THE JUDICIAL PRECEDENCE AND THE RATIO OF THE DECISION ON THE ADVERTISEMENT REVENUE TREATMENT AND DIRECT THE ASSESSEING OFFICER TO DELETE THE ADDITION AND ALLOW THE GROUNDS OF APPEAL IN FAVOUR OF THE ASSESSEE. 5. WE FIND THE ASSESSEE HAS CHALLENGED THE ACTION OF THE LOWER AUTHORITIES IN HOLDING THAT THE DISTRIBUTION M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 14 - REVENUES EARNED BY THE ASSESSEE FALLS WITHIN THE MEANING OF ROYALTY UNDER ARTICLE 12 OF INDIA- USA DTAA IS TAXABLE IN INDIA . THE LD.AR SUBMITTED THAT THE ASSESSEE WAS GRANTED RIGHTS TO DISTRIBUTE ITS CHANNELS IN INDIA TO NGC NETWORK(INDIA) PVT LIMITED AS PER THE DISTRIBUTION AGREEMENT. BUT THE A.O. HAS TREATED THE SAME AS COPY RIGHT AND SUCH REVENUE IS IN THE NATURE OF ROYALTY. THE LD. COUNSEL SUPPORTED THE SUBMISSIONS WITH JUDICIAL DECISIONS AND HONBLE ITAT DECISION IN ASSESSES OWN CASE AND THE CHART. WE FIND THE HONBLE TRIBUNAL IN ASSESSES OWN CASE FOR THE A.YS 2000-01 TO 2004-05 IN ITA.NO 8671/M/2004,& ITA.NO3834 /3835 & 3836/M/2007AND ITA.NO1662/M/2008 DATED 30-12-2020 HAS DEALT ON THIS DISPUTED ISSUE AND DECIDED IN FAVOUR OF THE ASSESSEE HAS OBSERVED AT PAGE 23 PARA 7.1 TO 7.23 OF THE ORDER READ AS UNDER: 7.1. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WE FIND THAT ASSESSEE VIDE AGREEMENT DATED 21/02/2001 HAD GRANTED RIGHTS TO DISTRIBUTE THE CHANNELS IN INDIA TO NGC NETWORK (INDIA) PVT. LTD., (NGC INDIA). THE ASSESSEE DOES NOT HAVE ANY CONTROL OVER THE ACTIVITIES UNDERTAKEN BY NGC INDIA UPON GRANT OF DISTRIBUTION RIGHTS, NOR DOES IT UNDERTAKE ANY ACTIVITY IN INDIA AS REGARDS THE DISTRIBUTION RIGHTS GRANTED. IN THIS REGARD, THE RELEVANT EXTRACTS OF THE DISTRIBUTION AGREEMENT THAT ARE PERTINENT ARE REPRODUCED HEREUNDER FOR THE SAKE OF CONVENIENCE:- '2. RIGHTS GRANTED 2.1 NGC ASIA HEREBY GRANTS NGC INDIA AND NGC INDIA HEREBY ACCEPTS UPON THE TERMS AND CONDITIONS SET OUT IN THIS AGREEMENT, THE M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 15 - RIGHT TO, DURING THE CONTRACTUAL PERIOD, DISTRIBUTE THE CHANNEL (S) THROUGH ANY MEANS TO INTERMEDIARIES, IN THE TERRITORY EXCEPT WHERE THE CHANNEL (S) MAY BE TRANSMITTED ON A KU-BAND FREQUENCY. 2.2 2.3 NGC INDIA SHALL NOT AND SHALL ENSURE THAT THE INTERMEDIARIES DO NOT: (A) IN THE TRANSMISSION OF THE CHANNEL (S), EFFECT OR PERMIT AND ANY DELAY OR MODIFICATION THEREOF AND/ OR DELETION THEREFROM. NGC INDIA SHALL ALSO ENSURE THAT THE CHANNEL(S) ARE TRANSMITTED IN THEIR ENTIRETY; (B) USE, MODIFY OR REPLACE ANY COPYRIGHT, TRADE MARKS, TRADE NAMES, LOGOS, NAMES AND/ OR LIKENESS, OR ANY PART OF THEM, INCLUDED IN ANY OF THE CHANNEL (S) OR ANY OF THE CONTENTS THEREOF, OR WHICH NGC INDIA USES FOR MARKETING PURPOSES, PROVIDED THAT THIS RESTRICTION ON USE SHALL NOT APPLY TO NGC INDIA IN SO FAR AS NGC INDIA USES THE SAME FOR MARKETING PURPOSES IN ACCORDANCE WITH AND SUBJECT TO CLAUSE 6; (C) CUT, EDIT, CLUB VOICE-OVER, SUBTITLE OR OTHERWISE IN ANY MANNER CHANGE OR ALTER ANY OF THE CHANNEL (S) OR ANY OF THE CONTENT THEREOF, INCLUDING BUT NOT LIMITED TO PROGRAMMES, ADVERTISEMENTS, INTERSTITIALS AND PROMOTIONS, EXCEPT AS MAY BE REQUIRED BY ANY APPLICABLE LAW. PROVIDED THAT IN THE EVENT THERE IS SUCH A REQUIREMENT UNDER THE APPLICABLE LAW, NGC INDIA SHALL FORTHWITH INFORM NGC ASIA OF ALL DETAILS REGARDING SUCH MANDATE CHANGES OR ALTERATIONS; (D) COPY ANY OF THE PROGRAMMES INCLUDED ON THE CHANNEL (S) FOR THE PURPOSE OF RETRANSMITTING THEM LATER, OR FOR ANY OTHER REASON, EXCEPT AS MAY BE REQUIRED BY ANY APPLICABLE LAW; PAGE 12 OF 23 (E) DO ANY ACT WHICH MIGHT TEND TO INDICATE THAT (I) ANY TELEVISION PROGRAMME(S) ADVERTISEMENT, INTERSTITIAL OR PROMOTIONS FROM A TELEVISION SERVICES OTHER THAN THE CHANNEL (S) FORMS PART OF OR IS ASSOCIATED WITH THE CHANNEL (S), OR (II) ANY PROGRAMME, ADVERTISEMENT OR INTERSTITIAL WHICH IS INCLUDED IN THE CHANNEL (S) DOES NOT FORM PART OF THE CHANNEL (S). (F) USE ANY PERSON, OBJECT OR EVENT APPEARING IN ANY CHANNEL(S) IN A DEFAMATORY MANNER OR IN SUCH A MANNER AS TO CONSTITUTE AN ENDORSEMENT OF ANY PERSON, ENTITY, PRODUCT OR SERVICE; AND M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 16 - (G) ALLOW OR PROCURE ANY OTHER PERSON OR ENTITY TO DO ANY OF THE ACTS LISTED IN PARAGRAPHS (A) TO (F) ABOVE. 7.2. IN CONSIDERATION OF THE TRANSFER, LUMP SUM PAYMENT OF USD 1,00,000/- WAS MADE BY NGC INDIA TO THE ASSESSEE. WE FIND THAT THE ASSESSEE HAD GRANTED TO NGC INDIA FOR A LUMP SUM CONSIDERATION, THE DISTRIBUTION RIGHT TO DISTRIBUTE THE CHANNEL BROADCASTED BY THE ASSESSEE. NGC INDIA INTURN IS ALLOWED TO INDEPENDENTLY ENTER INTO A CONTRACT WITH THE MEDIA INTERMEDIARIES / SUBSCRIBERS (I.E. CABLE OPERATORS) FOR DISTRIBUTION OF CHANNEL IN INDIA. THE FACT THAT THERE ARE NO COPYRIGHTS IN THE CHANNEL OR CONTENT THAT IS TRANSFERRED IS CLEARLY SPELT OUT BY PARA 2.3(B) OF THE AGREEMENT WHICH PROVIDES THAT NGC INDIA SHALL NOT AND SHALL ENSURE THAT THE INTERMEDIATES DO NOT MODIFY OR REPLACE ANY COPYRIGHTS TRADEMARKS, TRADE NAMES, LOGOS, NAMES OR LIKEWISE OR ANY CONTENTS. FURTHER IT PROVIDES THAT NGC INDIA OR INTERMEDIARIES CANNOT MODIFY OR ALTER OR DELETE ANYTHING IN THE CONTENT OF THE CHANNEL AND THAT IT HAS TO ENSURE THAT THE CHANNEL IS TRANSMITTED IN ITS ENTIRETY. IN FACT, IT IS AN OBLIGATION FOR NGC INDIA TO DISTRIBUTE THE CHANNEL ON AN 'AS IS' BASIS, WITHOUT MAKING ANY AMENDMENT TO CHANNEL. FURTHER, IT PROVIDES THAT NGC INDIA OR INTERMEDIARIES CANNOT CUT, EDIT, DUB, VOICE-OVER, SUBTITLE OR OTHERWISE CHANGE OR ALTER ANY OF THE CHANNEL(S) OR ANY OF THE CONTENT THEREOF, AS REQUIRED BY ANY APPLICABLE LAW, WITHOUT INFORMING THE ASSESSEE OF ALL THE DETAILS REGARDING THE MANDATED CHANGES OR ALTERATIONS. IT ALSO PROVIDES EXPLICITLY THAT NGC INDIA OR INTERMEDIARIES CANNOT COPY ANY OF THE PROGRAMMES INCLUDED ON THE CHANNEL FOR THE PURPOSE OF RE- TRANSMITTING THEM LATER OR FOR ANY OTHER REASON. THEREFORE, IT IS CLEAR THAT NO COPYRIGHTS ARE GRANTED NOR ANY RIGHTS TO COPY ANY PROGRAMME NOT ONLY TO NGC INDIA BUT ALSO TO ANY FURTHER INTERMEDIARIES. 7.3. WE FIND THAT THE ASSESSEE HAD GRANTED NGC INDIA THE LIMITED RIGHT TO USE THE TRADE NAME, TRADEMARKS, SERVICE MARKS AND LOGOS ('THE CHANNEL MARKS') SOLELY TO ENABLE IT TO MARKET AND DISTRIBUTE THE CHANNEL IN ACCORDANCE WITH THE DISTRIBUTION AGREEMENT. NGC INDIA DOES NOT HAVE THE RIGHTS TO EXPLOIT THESE SERVICE MARKS, IN ANY MANNER. M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 17 - 7.4. WE FIND THAT THE LD. AO HAD HELD IN HIS ASSESSMENT ORDER THAT THE CONSIDERATION RECEIVED BY THE ASSESSEE FROM NGC INDIA FOR GRANT OF DISTRIBUTION RIGHTS OF THE CHANNELS IS IN THE NATURE OF ROYALTY UNDER THE PROVISIONS OF THE ACT AND ACCORDINGLY, THE RECEIPTS ARE LIABLE TO TAX IN THE HANDS OF THE ASSESSEE WHICH WAS UPHELD BY THE LD. CIT(A). 7.5. IN THIS REGARD, THE PROVISIONS OF EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT WOULD BE RELEVANT AND THE SAME IS REPRODUCED HEREUNDER:- FOR THE PURPOSE OF THIS CLAUSE, 'ROYALTY MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS') FOR- (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENSE) IN RESPECT OF A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (II) THE IMPARTING OF ANY INFORMATION CONCERNING THE WORKING OF, OR THE USE OF, A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (III) THE USE OF ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY; (IV) THE IMPARTING OF ANY INFORMATION CONCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXPERIENCE OR SKILL; (IVA) THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44BB; (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADIO BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS; OR M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 18 - (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WITH THE ACTIVITIES REFERRED TO IN SUB-CLAUSES (I) TO (IV), (IVA) AND (V). 7.6. THE LD. AR SUBMITTED THAT THE PAYMENTS RECEIVED BY NGC INDIA ARE NOT TOWARDS THE TRANSFER OF ANY RIGHTS IN RESPECT OF THE COPY RIGHT IN RESPECT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK. THE TERM 'COPYRIGHT' IS NOT DEFINED UNDER THE ACT. ACCORDINGLY, THE DEFINITION OF COPYRIGHT PROVIDED UNDER THE COPYRIGHT ACT, 1957 NEEDS TO BE CONSIDERED. THE LD. AR SUBMITTED THAT SECTION 14 OF THE COPYRIGHT ACT CLEARLY DEFINES COPYRIGHT AS UNDER:- 'COPYRIGHT MEANS THE EXCLUSIVE RIGHT TO DO OR AUTHORISE THE DOING OF THE FOLLOWING ACTS IN RESPECT OF A WORK OR ANY SUBSTANTIAL PART THEREOF, NAMELY: (A) IN THE CASE OF A LITERARY, DRAMATIC OR MUSICAL WORK, NOT BEING A COMPUTER PROGRAMME, (I) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCLUDING THE STORING OF IT IN ANY MEDIUM BY ELECTRONIC MEANS; (II) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT BEING COPIES ALREADY IN CIRCULATION; (III) TO PERFORM THE WORK IN PUBLIC, OR COMMUNICATE IT TO THE PUBLIC; (IV) TO MAKE ANY CINEMATOGRAPH FILM OR SOUND RECORDING IN RESPECT OF THE WORK; (V) TO MAKE ANY TRANSLATION OF THE WORK; (VI) TO MAKE AN ADAPTATION OF THE WORK; (VII) TO DO, IN RELATION TO A TRANSLATION OR AN ADAPTATION OF THE WORK, ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB-CLAUSES (1) TO (VI); (B) IN THE CASE OF A COMPUTER PROGRAMME, (I) TO DO ANY OF THE ACTS SPECIFIED IN CLAUSE (A); (II) TO SELL OR GIVE ON HIRE, OR OFFER FOR SALE OR HIRE ANY COPY OF THE COMPUTER PROGRAMME, REGARDLESS OF WHETHER SUCH COPY HAS BEEN SOLD OR GIVEN ON HIRE ON EARLIER OCCASIONS; PROVIDED THAT SUCH COMMERCIAL RENTAL DOES NOT APPLY IN RESPECT OF COMPUTER PROGRAMMES WHERE THE PROGRAMME ITSELF IS NOT THE ESSENTIAL OBJECT OF THE RENTAL ; M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 19 - (C) IN THE CASE OF AN ARTISTIC WORK, (I) TO REPRODUCE THE WORK IN ANY MATERIAL FORM INCLUDING DEPICTION IN THREE DIMENSIONS OF A TWO DIMENSIONAL WORK OR IN TWO DIMENSIONS OF A THREE DIMENSIONAL WORK; (II) TO COMMUNICATE THE WORK TO THE PUBLIC; (III) TO ISSUE COPIES OF THE WORK TO THE PUBLIC NOT BEING COPIES ALREADY IN CIRCULATION; (IV) TO INCLUDE THE WORK IN ANY CINEMATOGRAPH FILM; (V) TO MAKE ANY ADAPTATION OF THE WORK; (VI) TO DO IN RELATION TO AN ADAPTATION OF THE WORK ANY OF THE ACTS SPECIFIED IN RELATION TO THE WORK IN SUB-CLAUSES (I) TO (IV); (D) IN THE CASE OF A CINEMATOGRAPH FILM, (I) TO MAKE A COPY OF THE FILM, INCLUDING A PHOTOGRAPH OF ANY IMAGE FORMING PART THEREOF; (II) TO SELL OR GIVE ON HIRE, OR OFFER FOR SALE OR HIRE, ANY COPY OF THE FILM, REGARDLESS OF WHETHER SUCH COPY HAS BEEN SOLD OR GIVEN ON HIRE ON EARLIER OCCASIONS; (III) TO COMMUNICATE THE FILM TO THE PUBLIC; (E) IN THE CASE OF A SOUND RECORDING, (I) TO MAKE ANY OTHER SOUND RECORDING EMBODYING IT; (II) TO SELL OR GIVE ON HIRE, OR OFFER FOR SALE OR HIRE, ANY COPY OF THE SOUND RECORDING REGARDLESS OF WHETHER SUCH COPY HAS BEEN SOLD OR GIVEN ON HIRE ON EARLIER OCCASIONS (III) TO COMMUNICATE THE SOUND RECORDING TO THE PUBLIC.' 7.7. THE LD. AR ARGUED THAT FROM THE AFORESAID DEFINITION, RIGHT GRANTED TO NGC INDIA, IN RESPECT OF WHICH IT MAKES PAYMENTS TO THE ASSESSEE CANNOT BE CLASSIFIED UNDER ANY OF THE ABOVE. IT IS MERELY A RIGHT TO DISTRIBUTE THE CHANNEL AND IT DOES NOT GRANT NGC INDIA ANY RIGHT IN RESPECT OF ANY WORK, TELECASTING OF THE CHANNEL. THE LD. AR ALSO ARGUED THAT THERE IS NO DOUBT THAT NGC INDIA DOES OBTAIN DISTRIBUTION RIGHT FROM THE ASSESSEE, BUT SUCH A RIGHT IS NOT IN THE NATURE OF A COPYRIGHT. IN FACT, SECTION 37 OF THE COPYRIGHT ACT SEPARATELY DEALS WITH 'BROADCAST REPRODUCTION RIGHT' OF A BROADCASTING ORGANIZATION. SECTION 37 OF THE COPYRIGHT ACT PROVIDES AS UNDER: M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 20 - 'ANY PERSON WHO WITHOUT THE LICENSE OF THE OWNER OF THE RIGHT DOES ANY OF THE FOLLOWING ACTS OF THE BROADCASTER, NAMELY: RE-BROADCASTS THE BROADCAST; OR CAUSES THE BROADCAST TO BE HEARD OR SEEN BY THE PUBLIC ON PAYMENT OF ANY CHARGES; OR MAKES ANY SOUND RECORDING OR VISUAL RECORDING OF THE BROADCAST; OR MAKES ANY REPRODUCTION OF SUCH SOUND RECORDING OR VISUAL RECORDING WHERE SUCHINITIAL RECORDING WAS DONE WITHOUT LICENSE OR WHERE IT WAS LICENSED, FOR ANY PURPOSE NOT ENVISAGED BY SUCH LICENSE; OR * SELLS OR HIRES TO THE PUBLIC, OR OFFERS FOR SUCH SALE OR HIRE ANY SUCH SOUND RECORDING OR VISUAL RECORDING REFERRED TO IN CLAUSE (C) OR CLAUSE (D), SHALL, SUBJECT TO THE PROVISIONS OF SECTION 39, BE DEEMED TO HAVE INFRINGED BROADCAST REPRODUCTION RIGHT.' 7.8. SECTION 2(DD) OF THE COPYRIGHT ACT DEFINES 'BROADCAST' TO MEAN - 'COMMUNICATION TO THE PUBLIC BY MEANS OF WIRELESS DIFFUSION, WHETHER IN ANY ONE OR MORE SIGNALS, SOUNDS OR VISUAL IMAGES OR BY WIRE AND INCLUDES RE-BROADCAST'. 7.9. SECTION 39A OF THE COPYRIGHT ACT PROVIDES THAT ONLY CERTAIN SPECIFIC SECTIONS OF THE COPYRIGHT ACT SUCH AS SECTION 18, 19, 30, 53, 58, 64, 65 AND 66 WILL APPLY TO THE BROADCAST RE-PRODUCTION RIGHTS AND NOT OTHER PROVISIONS THAT APPLY TO COPYRIGHT. HENCE, BASED ON THE COMBINED READING OF SECTION 37 AND 39A WITH SECTION 2(DD) OF THE COPY RIGHT ACT, IT COULD BE SAFELY CONCLUDED THAT THE CONSIDERATION PAID BY NGC INDIA FOR BROAD CAST REPRODUCTION RIGHTS CAUSING THE BROAD CAST TO BE HEARD OR SEEN BY THE SUBSCRIBERS ON PAYMENT OF ANY CHARGES / FEES FROM THE SUBSCRIBERS. HOWEVER, SUCH A RIGHT IS NOT COPYRIGHT AS DEFINED UNDER THE LAW AND HENCE, NOT COVERED BY THE DEFINITION OF ROYALTY UNDER THE INCOME TAX ACT. 7.10. WE ALSO FIND THAT THE LD. AR FURTHER SUBMITTED THAT THE COPYRIGHTS ACT PROVIDES FOR DIFFERENT RIGHTS AGAINST INFRINGEMENT IN THE M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 21 - CASE OF COPYRIGHTS AND BROADCASTING RIGHTS UNDER SECTION 51 AND SECTION 37(3) OF THE COPYRIGHTS ACT. 7.11. WE FIND THAT THE LD. DR VEHEMENTLY RELIED ON THE TECHNICAL EXPLANATION OF THE CONVENTION AND PROTOCOL BETWEEN THE USA AND INDIA, TO ARGUE THAT THE DEFINITION OF ROYALTY INCLUDES TELEVISION BROAD CASTING IN INDIA. THE RELEVANT EXTRACT OF THE TECHNICAL EXPLANATION AS RELIED UPON BY THE LEARNED DR IS REPRODUCED BELOW:- 'THE ROYALTY DEFINITION IN SUBPARAGRAPH (A) OF PARAGRAPH 3 OF THE CONVENTION DIFFERS FROM THE COMPARABLE PROVISION IN THE US MODEL IN TWO RESPECTS. FIRST, THE CONVENTION'S ROYALTY DEFINITION INCLUDES PAYMENTS RECEIVED IN CONNECTION WITH THE USE OR RIGHT TO USE CINEMATOGRAPHIC FILMS OR FILMS OR TAPES USED FOR RADIO OR TELEVISION BROADCASTING. SUCH PAYMENTS ARE EXCLUDED FROM THE ROYALTY DEFINITION IN THE US MODEL. SECOND, THE CONVENTION'S ROYALTY DEFINITION DOES NOT INCLUDE 'OTHER LIKE RIGHT OR PROPERTY' AT THE END OF ITS LISTING OF THE TYPES OF RIGHTS FOR WHICH A USE PAYMENT IS CONSIDERED TO BE A ROYALTY.' (EMPHASIS APPLIED) 7.12. PER CONTRA, THE LD. AR SUBMITTED THAT THE RELIANCE ON TECHNICAL EXPLANATION IN THE CONTEXT OF USE OR RIGHT TO USE OF CINEMATOGRAPHIC FILMS OR FILMS OR TAPES USED FOR RADIO OR TELEVISION BROADCASTING, IS ERRONEOUS. THE PROVISION IS APPLICABLE ONLY IN CASE OF CHANNEL OWNER WHO ACQUIRES RIGHTS FOR ANY CINEMATOGRAPHIC FILMS OR TAPES THAT USED FOR THE RADIO OR BROADCASTING. HOWEVER, IN THE PRESENT CASE, THE ASSESSEE HAS GRANTED DISTRIBUTION RIGHTS OF 'CHANNEL' TO NGC INDIA AND NOT THE RIGHTS OF ANY 'CINEMATOGRAPHIC FILMS' OR 'TAPES'. AS MENTIONED EARLIER, NGC INDIA CANNOT COPY ANY OF THE PROGRAMMES INCLUDED ON THE CHANNEL FOR THE PURPOSE OF RE-TRANSMITTING IT LATER OR IT CANNOT MODIFY OR DELETE OR CUT OR EDIT OR OTHERWISE, ANYTHING IN THE COURSE OF THE DISTRIBUTION TO THE CABLE OPERATORS. IN FACT, IT HAS TO ENSURE THAT THE CHANNEL IS TRANSMITTED IN ITS ENTIRETY. 7.13. WE FIND LOT OF FORCE IN THE REBUTTAL OFFERED BY THE LD. AR AS ADMITTEDLY NGC INDIA IS NOT ENTITLED AS PER THE AGREEMENT TO COPY ANY OF THE PROGRAMMES INCLUDED IN THE CHANNEL FOR THE PURPOSE OF RE- TRANSMITTING THE SAME AT A LATER POINT OF TIME BY MAKING ANY M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 22 - ALTERATIONS THEREON. THUS, WE HOLD THAT THE RELIANCE PLACED BY THE LD. DR ON THE ABOVE TECHNICAL EXPLANATION IS MISPLACED AND IS HEREBY REJECTED. MOREOVER, WE ALSO FIND THAT THE ABOVE TECHNICAL EXPLANATION WAS ISSUED BY THE TAX AUTHORITIES OF UNITED STATES OF AMERICA AND THE SAME IS NOT THE OFFICIAL PROTOCOL OR CLARIFICATION WHICH HAS BEEN MUTUALLY AGREED UPON BETWEEN THE TWO COUNTRIES. HENCE, IN ANY CASE, THE SAID TECHNICAL EXPLANATION WOULD NOT BIND THIS TRIBUNAL. 7.14. WE FIND THAT THE LD. DR PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF PILCOM VS. CIT REPORTED IN 116 TAXMANN.COM 394 DATED 29/04/2020. THE SAID HONBLE SUPREME COURT DECISION REFERRED TO THE DECISION OF YET ANOTHER HONBLE SUPREME COURT DECISION IN THE CASE OF PERFORMING RIGHTS SOCIETY LTD., VS CIT REPORTED IN 106 ITR 11. THE LD. DR ARGUED THAT SINCE THE BROADCAST OF THE CHANNEL IS CONDUCTED IN INDIA, THE RECEIPTS GENERATED THEREFROM ARE TAXABLE IN INDIA. WE FIND THAT THE DECISION RELIED UPON BY THE HONBLE APEX COURT IN THE CASE OF PILCOM VS. CIT REFERRED TO SUPRA WAS RENDERED IN THE CONTEXT OF APPLICABILITY OF PROVISIONS RELATING TO DEDUCTION OF TAX AT SOURCE (TDS) ON A PARTICULAR TRANSACTION AND NOT ON THE TAXABILITY OF INCOME OF NON-RESIDENT IN INDIA. HENCE, RELIANCE PLACED ON THE SAID DECISION BY THE LD. DR IS COMPLETELY MISPLACED HEREIN. WE ALSO FIND THAT THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF PERFORMING RIGHTS SOCIETY LTD., REFERRED TO SUPRA IS ACTUALLY IN FAVOUR OF THE ASSESSEE AS IN THE SAID CASE, THE BROADCAST OF THE MUSIC WAS CONDUCTED BY ALL INDIA RADIO FROM ITS STATIONS IN INDIA, AND HENCE, THE SOURCE OF INCOME WAS HELD TO BE IN INDIA. HOWEVER, IN THE PRESENT CASE OF THE ASSESSEE BEFORE US HEREIN, WE FIND THAT THE TELECAST OF THE CHANNEL HAPPENS FROM OUTSIDE INDIA. ALL THE OTHER CORE ACTIVITIES SUCH AS PROCUREMENT/AGGREGATION OF THE CONTENT, EDITING, UPLINKING, ETC. ARE CONDUCTED BY THE ASSESSEE FROM OUTSIDE INDIA. HENCE, THE SOURCE OF INCOME FOR THE ASSESSEE, EVEN BASED ON THE PRINCIPLE LAID DOWN IN PERFORMING ARTS SOCIETY CANNOT BE CONSIDERED TO BE IN INDIA. FURTHER, IT IS ALSO A SETTLED POSITION THAT MERELY BECAUSE THE FOOTPRINT OF THE SATELLITE IS IN INDIA AND/OR ADVERTISERS ARE IN INDIA, THE SOURCE OF INCOME CANNOT BE CONSIDERED TO BE IN INDIA. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CASE OF ASIA SATELLITE TELE COMMUNICATIONS LTD., VS. DIT REPORTED IN 332 ITR 340 (DEL). MOREOVER, M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 23 - WE FIND THAT THE DECISION IN THE CASE OF PERFORMING RIGHTS SOCIETY LTD., WAS RELATING TO THE EXISTENCE OF BUSINESS CONNECTION OF THE NON- RESIDENT IN INDIA, WHEREAS IN THE PRESENT CASE, THE ISSUE BEFORE US IS WHETHER THE DISTRIBUTION RIGHTS COULD BE TAXED AS ROYALTY OR NOT. THE ISSUE IN DISPUTE IS NOT RELATED TO THE ASPECT OF EXAMINING THE EXISTENCE OF BUSINESS CONNECTION OR SOURCE OF INCOME OF THE ASSESSEE IN INDIA. 7.15. WE FIND THAT THE LD. AR HAD PLACED RELIANCE ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF MSM SATELLITE (SINGAPORE) PTE LTD., IN ITA NO.103/2017 WITH ITA NO. 207/2017 DATED 23/04/2019 WHEREIN IT HAS BEEN HELD THAT THE DISTRIBUTION RIGHTS GRANTED BY THE ASSESSEE TO SET INDIA PRIVATE LIMITED (AN INDIAN GROUP COMPANY) ARE NOT IN THE NATURE OF 'ROYALTY' UNDER THE ACT AND THE INDIA- SINGAPORE TAX TREATY (SIMILAR TO THE INDIA- USA TAX TREATY). IT IS SUBMITTED THAT THE FACTS OF THIS CASE ARE SIMILAR TO THAT OF THE ASSESSEE, WHEREIN, THE ASSESSEE HAS ALSO GRANTED DISTRIBUTION RIGHTS TO THE INDIAN COMPANY (NGC INDIA). THE COURT HELD, THE PAYMENTS WERE NOT COPYRIGHTS BUT WERE BROADCAST REPRODUCTION RIGHTS THAT CANNOT BE ROYALTY UNDER THE ACT OR TREATY. THE RELEVANT OPERATIVE PORTION OF THE SAID DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IS REPRODUCED HEREUNDER:- '10. IN OUR OPINION, THE TRIBUNAL HAS NOT COMMITTED ANY ERROR. AS NOTED, THE ASSESSEE WOULD RECEIVE A PART OF SUBSCRIPTION CHARGES PAID BY A LARGE NUMBER OF CUSTOMERS THROUGH DIFFERENT AGENCIES. THE SAID SUBSCRIPTION CHARGES WOULD ENABLE THE CUSTOMERS TO VIEW CHANNELS OPERATED BY SUCH ASSESSEE. THE ASSESSEE WAS THUS NOT PARTING WITH ANY OF THE COPYRIGHTS FOR WHICH PAYMENT CAN BE CONSIDERED AS ROYALTY PAYMENT. TERM 'COPYRIGHT' HAS BEEN DEFINED IN SECTION 14 OF THE COPY RIGHT ACT, 1957. A GLANCE AT THE SAID PROVISION WOULD SHOW THAT THE COPYRIGHT MEANS EXCLUSIVE RIGHT, SUBJECT TO THE PROVISIONS OF THIS ACT, TO DO OR AUTHORISE THE DOING OF ANY OF THE FOLLOWING ACTS SPECIFIED IN THE SAID PROVISION IN RESPECT OF A WORK OR ANY SUBSTANTIAL PART THEREOF. TERM 'WORK' IS DEFINED UNDER SECTION 2(Y) OF THE COPYRIGHT ACT, 1957, AS TO MEAN ANY OF THE WORKS NAMELY A LITERARY, DRAMATIC, MUSICAL OR ARTISTIC WORK OR A CINEMATOGRAPH FILM AND A SOUND RECORDING. SUBSECTION (1) OF SECTION 14 OF THE COPYRIGHT ACT, 1957 LISTS SEVERAL M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 24 - ACTS IN RESPECT OF A WORK IN RELATION TO WHICH EXCLUSIVE RIGHT WOULD BE TERMED AS COPYRIGHT. IN THE PRESENT CASE, THE ASSESSEE HAD NOT CREATED ANY LITERARY, DRAMATIC, MUSICAL OR ARTISTIC WORK OR CINEMATOGRAPH FILM AND/OR A SOUND RECORDING. 11. INFACT, SECTION 37 OF COPYRIGHT ACT, 1957 SEPARATELY DEFINES BROADCAST REPRODUCTION RIGHT. SUBSECTION (1) OF SECTION 37 OF THE SAID ACT PROVIDES THAT EVERY BROADCASTING ORGANISATION SHALL HAVE SPECIAL RIGHTS TO BE KNOWN AS 'BROADCAST REPRODUCTION RIGHT' IN RESPECT OF ITS BROADCASTS. SUBSECTION (2) OF SECTION 37 PROVIDES THAT THE BROADCAST REPRODUCTION RIGHT SHALL SUBSIST UNTIL TWENTYFIVE YEARS FROM THE BEGINNING OF THE CALENDER YEAR NEXT FOLLOWING THE YEAR IN WHICH THE BROADCAST IS MADE. 12.. 13. IN OUR OPINION, THESE PROVISIONS WOULD IN NO MANNER CHANGE THE POSITION. ONLY IF THE PAYMENT IN THE PRESENT CASE BY WAY OF A ROYALTY AS EXPLAINED IN EXPLANATION (2) BELOW SUBSECTION (1) OF SECTION 9 OF THE ACT, THE QUESTION OF APPLICABILITY OF CLAUSE (VI) OF SUBSECTION (1) OF SECTION 9 WOULD ARISE. LEARNED COUNSEL FOR THE REVENUE PLACED CONSIDERABLE TRESS ON CLAUSE (V) OF EXPLANATION (2) BY VIRTUE OF WHICH THE TRANSFER OF THE RIGHTS IN RESPECT OF COPYRIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WOK INCLUDING CINEMATOGRAPH FILM OR FILMS OR TAPE USED FOR RADIO OR TELEVISION BROADCASTING ETC. WOULD COME WITHIN THE FOLD OF ROYALTY FOR THE PURPOSE OF SECTION 9(1) OF THE ACT. WE DO NOT SEE HOW THE PAYMENT IN THE PRESENT CASE COULD BE COVERED WITHIN THE SAID EXPRESSIONS. AS NOTED, THIS IS NOT A CASE WHERE PAYMENT OF ANY COPYRIGHT IN LITERARY, ARTISTIC OR SCIENTIFIC WORK WAS BEING MADE.' (EMPHASIS APPLIED) 7.16. WE FIND THAT THE LD. DR ALSO ARGUED THAT THE FACTS IN THE CASE OF MSM SATELLITE (SINGAPORE) PTE LTD., REFERRED TO SUPRA RELIED UPON BY THE ASSESSEE ARE DIFFERENT FROM THAT OF THE FACTS OF THE ASSESSEE AS IN THE CASE BEFORE US, THE NON-RESIDENT COMPANY RECEIVED DISTRIBUTION REVENUE FROM VARIOUS CABLE OPERATORS. WE FIND THE FACTS OF THE CASE OF THE ASSESSEE BEFORE US AND THE FACTS OF THE CASE BEFORE THE HONBLE BOMBAY HIGH COURT ARE IDENTICAL AS DISTRIBUTION RECEIPTS IN THE SAID CASE ARE COLLECTED BY THE INDIAN SUBSIDIARY SET INDIA PRIVATE LIMITED THROUGH LAYERS OF CABLE OPERATORS WHICH FACT IS MENTIONED IN PARA 8 OF M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 25 - THE SAID DECISION AND SET INDIA PVT. LTD., PAID DISTRIBUTION FEES TO MSM SATELLITE (SINGAPORE) PTE LTD.,, WHICH IS SIMILAR TO THE PRESENT CASE BEFORE US, WHEREIN SUCH DISTRIBUTION RECEIPTS ARE COLLECTED BY INDIAN SUBSIDIARY NGC INDIA THROUGH VARIOUS CABLE OPERATORS. NGC INDIA MAKES ONWARD PAYMENTS FOR ASSESSEE FOR GRANT OF DISTRIBUTION RIGHTS BY THE ASSESSEE. 7.17. WE ALSO FIND THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SONY PICTURES NETWORK INDIA PVT. LTD. VS. DCIT IN ITA NO. 971/M/2016 HAD ALSO HELD THAT DISTRIBUTION FEES FOR THE CHANNEL CANNOT BE TERMED AS ROYALTY. THE RELEVANT OBSERVATIONS OF THE SAID DECISION IS REPRODUCED HEREUNDER:- '22. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND HAVE GONE THROUGH THE ORDERS OF THE LOWER AUTHORITIES. THE FIRST ISSUE FOR OUR CONSIDERATION IS WHETHER THE 'DISTRIBUTION FEE' IS IN THE NATURE OF 'ROYALTY' OR NOT. BEFORE US THE LD. AR FOR THE ASSESSEE VEHEMENTLY SUBMITTED THAT THE TPO WRONGLY CHARACTERIZED THE CHANNEL DISTRIBUTION FEE AS ROYALTY. IT WAS FURTHER EXPLAINED THAT THE ASSESSEE ACTS AS A INTERMEDIARY BETWEEN THE BROADCASTER AND THE ULTIMATE CUSTOMERS WHO USES THE CHANNELS. THUS, DISTRIBUTION FEE PAID BY THE ASSESSEE CANNOT BE TERMED AS ROYALTY. THIS FACT IN NOT CONTROVERTED BY LD. DR FOR THE REVENUE NOR ANY CONTRARY FACTS WERE BROUGHT ON RECORD BY THE LOWER AUTHORITIES. THE LD. DRP IN ASSESSEE'S MSM SATELLITE (SINGAPORE) PTE LTD IN ITS ORDER DATED 19.12.2014 FOR AY 2010-11 BY FOLLOWING THE ORDER OF TRIBUNAL FOR AY 2005-06 & 2006-07 DATED 28.08.2015 HELD THAT DISTRIBUTION REVENUE IS NOT ROYALTY INCOME. THE HON'BLE BOMBAY HIGH COURT IN CIT VS SET INDIA PVT LTD (ITA NO. 1347 OF 2013) HELD THAT THE DISTRIBUTION FEE PAID IS NOT IN THE NATURE OF ROYALTY. SIMILAR VIEW WAS AFFIRMED BY HON'BLE BOMBAY HIGH COURT IN CIT VS MSM SATELLITE (SINGAPORE) PTE LTD (ITA NO. 103 OF 2017). CONSIDERING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT AND RESPECTFULLY FOLLOWING THE SAME, WE ARE OF THE VIEW THAT THE PAYMENT OF DISTRIBUTION FEE CANNOT BE TERMED AS 'ROYALTY'. SINCE, WE HAVE HELD THAT DISTRIBUTION FEE CANNOT BE TERMED AS 'ROYALTY' THUS; DISCUSSION ON THE ROYALTY AGREEMENT SELECTED FOR COMPARABILITY HAS BECOME ACADEMIC. M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 26 - 7.18. WE FURTHER FIND THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DDIT (IT) VS. SET INDIA PVT. LTD., IN ITA NO.4372/MUM/2004 HAD HELD THAT THE PAYMENT TOWARDS THE RIGHT TO DISTRIBUTION OF CHANNELS IS NOT IN THE NATURE OF COPY RIGHT. THE RELEVANT EXTRACT OF THE SAID DECISION IS REPRODUCED HEREUNDER:- 6. HAVING HEARD BOTH THE SIDES, WE OBSERVED THAT LD CIT(A) WHILE EXAMINING THE ISSUE HAS STATED THE NON-RESIDENT COMPANY HAS GRANTED NON-EXCLUSIVE DISTRIBUTION RIGHTS OF THE CHANNELS TO THE ASSESSEE AND HAS NOT GIVEN ANY RIGHT TO USE OR EXPLOIT ANY COPYRIGHT. THE ASSESSEE IS NO WAY CONCERNED WHETHER THE PROGRAMS BROADCASTED BY THE NON-RESIDENT COMPANY ARE COPYRIGHTED OR NOT. THE SAID DISTRIBUTION IS PURELY A COMMERCIAL RIGHT, WHICH IS DISTINCT FROM THE RIGHT TO USE COPYRIGHT. WE OBSERVED THAT LD CIT(A) HAS CONSIDERED THE PROVISIONS OF SECTION 14 AND SECTION 37 OF THE COPYRIGHT ACT, 1957. IT IS OBSERVED THAT SECTION 37 OF THE COPYRIGHT ACT DEALS WITH BROADCAST REPRODUCTION RIGHTS (BRR) AND SAME IS COVERED UNDER SECTION 37 OF THE COPYRIGHT ACT AND NOT UNDER SECTION 14 THEREOF. WE OBSERVE THAT LD CIT(A) HAS ALSO CONSIDERED CLAUSE 6.3 OF THE DISTRIBUTION AGREEMENT ENTERED INTO BETWEEN ASSESSEE COMPANY AND NON-RESIDENT COMPANY, WHICH STATES THAT THE RIGHT GRANTED TO THE ASSESSEE UNDER THE AGREEMENT IS NOT AND SHALL NOT BE CONSTRUCTED TO BE A GRANT OF ANY LICENSE OR TRANSFER OF ANY RIGHT IN ANY COPYRIGHT. LD CIT(A) HAS STARTED THAT THE ASSESSEE SUBMITTED TO IT BY A BROADCASTER WITHOUT ANY EDITING, DELAYS, INTERRUPTIONS, DELETIONS, OR ADDITIONS AND, THEREFORE THE PAYMENT MADE BY THE ASSESSEE TO THE NON-RESIDENT COMPANY IS NOT FOR USE OF ANY COPYRIGHT AND CONSEQUENTLY CANNOT BE CHARACTERIZED AS ROYALTY. LD CIT(A) HAS HELD THAT BROADCASTING REPRODUCTION RIGHT IS NOT COVERED UNDER THE DEFINITION OF ROYALTY UNDER SECTION 9(1)(VI) OF THE INCOME TAX ACT AS WELL AS ARTICLE 12 OF THE TREATY. ACCORDINGLY, THE PAYMENT IS NOT IN THE NATURE OF ROYALTY BUT IN THE NATURE OF BUSINESS INCOME 7.19. FURTHER THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SET SATELLITE (SINGAPORE) PTE LIMITED VS. DDIT REPORTED IN 307 ITR 205 HAD NOTED THAT THE DISTRIBUTION RIGHTS ARE IN THE NATURE OF COMMERCIAL RIGHTS AND HENCE THEY ARE DISTINCT AND DIFFERENT FROM COPY RIGHT. THE M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 27 - RELEVANT EXTRACT OF THE SAID DECISION OF THE HONBLE HIGH COURT IS REPRODUCED HEREUNDER:- THE DISTRIBUTION RIGHTS IT WAS HELD WERE A COMMERCIAL RIGHT WHICH WAS DISTINCT AND DIFFERENT FROM A COPYRIGHT AND CONSEQUENTLY THERE WAS NO QUESTION OF PAYMENT OF ROYALTY AS HAS BEEN HELD BY THE ASSESSING OFFICER AND THE INCOME BELONGED TO SET INDIA WHICH COULD NOT BE SUBJECT TO TAX IN THE HANDS OF THE APPELLANT. 7.20. WE FIND THE TERM ROYALTY IS DEFINED UNDER PARA 3 OF INDIA-USA DTAA AS UNDER:- (A) PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OR A LITERARY, ARTISTIC, OR SCIENTIFIC WORK, INCLUDING CINEMATOGRAPH FILMS OR WORK ON FILM, TAPE OR OTHER MEANS OF REPRODUCTION FOR USE IN CONNECTION WITH RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE, INCLUDING GAINS DERIVED FROM THE ALIENATION OF ANY SUCH RIGHT OR PROPERTY WHICH ARE CONTINGENT ON THE PRODUCTIVITY, USE, OR DISPOSITION THEREOF ; AND (B) PAYMENTS OF ANY KIND RECEIVED AS CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIAL, COMMERCIAL, OR SCIENTIFIC EQUIPMENT, OTHER THAN PAYMENTS DERIVED BY AN ENTERPRISE DESCRIBED IN PARAGRAPH 1 OF ARTICLE 8 (SHIPPING AND AIR TRANSPORT) FROM ACTIVITIES DESCRIBED IN PARAGRAPH 2(C) OR 3 OF ARTICLE 8. 7.21. FROM THE AFORESAID DEFINITION OF ROYALTY AS PER INDIA-USA DTAA, IN PARA 3(A), PAYMENT RECEIVED BY AN ENTERPRISE CAN BE CONSTRUED AS ROYALTY ONLY IF, THEY ARE FOR THE USE OR RIGHT TO USE OF ANY COPY RIGHT OF A LITERARY, ARTISTIC OR SCIENTIFIC WORK. WE HAD ALREADY HELD THAT NO RIGHT IN RESPECT OF ANY COPY RIGHT IS GIVEN TO NGC INDIA AND INFACT THIS IS SPECIFICALLY SET OUT IN CLAUSE 2.3 (A),(B),(C),(D),(E) AND (G) OF THE AGREEMENT. WE ALSO FIND THAT THE TERM COPY RIGHT IS NOT DEFINED IN THE TREATY. THAT IS WHY WE HAD TO RESORT TO THE DEFINITION OF COPY RIGHT GIVEN UNDER THE COPY RIGHT ACT, 1957. 7.22. WE ALSO FIND THE ALTERNATIVE ARGUMENT ADVANCED BY THE LD. AR TO BE FAIR AND REASONABLE THAT EVEN IF IT IS CONTENDED THAT THE CHANNEL M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 28 - HAS COPY RIGHT, WHAT NGC INDIA IS PAYING FOR IS A RIGHT TO USE THE COPY RIGHTED ARTICLE (I.E. IF THE CHANNEL COULD BE CONSIDERED TO BE SO) BY VIRTUE OF BEING PERMITTED TO DISTRIBUTE THE CHANNEL. ACCORDINGLY, SINCE NGC INDIA DOES NOT ACQUIRE ANY RIGHT IN THE UNDERLYING COPY RIGHT (I.E. RIGHT TO MODIFY / REPRODUCE CHANNEL / CONTENT). HENCE ANY CONTENTION THAT NGC INDIA IS MAKING A PAYMENT FOR COPY RIGHT WOULD BE ERRONEOUS. 7.23. IN VIEW OF THE AFORESAID OBSERVATIONS AND RESPECTFULLY FOLLOWING THE VARIOUS JUDICIAL PRECEDENTS RELIED UPON HEREINABOVE THAT ARE RELEVANT FOR ADJUDICATION OF THE ISSUE IN DISPUTE BEFORE US, WE HOLD THAT THE DISTRIBUTION RIGHTS GRANTED BY THE ASSESSEE TO NGC INDIA IS ONLY A COMMERCIAL RIGHT / BROAD CAST REPRODUCTION RIGHT AND NOT COPYRIGHT AND CONSEQUENTLY CONSIDERATION RECEIVED BY THE ASSESSEE FOR THE SAME CANNOT BE TREATED AS ROYALTY OR FEES FOR INCLUDED SERVICES UNDER ARTICLE 12 OF INDIA-USA DTAA. ACCORDINGLY, THE GROUND NOS. 2 & 3 RAISED BY THE ASSESSEE FOR A.Y.2001-02 ARE ALLOWED. WE FIND THE FACTS PRESENTED BEFOREUS ARE SIMILAR TO THE ASSESSES OWN CASE IN THE HONBLE ITAT DECISION. THE DISTRIBUTION RIGHTS GRANTED BY THE ASSESSEE IS ONLY A BROAD CASTING RIGHT AND CANNOT BE BROUGHT UNDER THE PURVIEW OF COPY RIGHT. WE FALLOW THE JUDICIAL PRECEDENCE AND DIRECT THE ASSESSEING OFFICER TO DELETE THE ADDITION AS PER THE RATIO OF THE DECISION DISCUSSED IN THE ABOVE PARAGRAPHS AND ALLOW THE GROUNDS OF APPEAL IN FAVOUR OF THE ASSESSEE. M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 29 - 6. IN RESPECT OF SHORT OF TDS CREDIT. THE LD. AR SUBMITTED THAT A.O. HAS ERRED IN NOT GRANTING FULL TDS CREDIT. WE ARE OF THE OPINION THAT THE ASSESSEE SHOULD NOT BE DEPRIVED OF ITS LEGITIMATE RIGHT FOR TDS CREDITS AND DIRECT THE A.O. TO VERIFY THE CLAIM AND GRANT THE TDS CREDIT. 7. WE FIND THE ASSESSEE HAS CLAIMED ADDITIONAL TDS CREDIT (ONLY IN THE A.Y.2010-11) IN THE DRP PROCEEDINGS AND THE DIRECTIONS WERE ISSUED TO THE ASSESSING OFFICER (A.O).THE ASSEESSE HAS SUBMITTED THE SUPPORTING CLAIM OF EVIDENCES BEFORE THE A.O. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO VERIFY AND EXAMINE THE DOCUMENTS FILED IN SUPPORT OF TDS CLAIM. 8. ON THE GROUND OF APPEAL OF CHARGEABILITY OF INTEREST U/S 234D OF THE ACT, IT IS CONSEQUENTIAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 9. THE ASSESSEE HAS ASSAILED GROUNDS OF APPEAL ON THE PENALTY PROCEEDINGS INITIATED U/S 271(1)(C), 271A AND 271B OF THE ACT. THESE GROUNDS OF APPEAL ARE RAISED PREMATURELY AND ARE DISMISSED IN THE RESULT, THE ASSESSEE APPEAL IS PARTLY ALLOWED M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 30 - ITA NOS. 6677 & 6678/MUM/2018 & ITA NO. 7142/MUM/2019 10. AS THE FACTS AND CIRCUMSTANCES IN THESE APPEALS ARE IDENTICAL TO ITA NO.1178/MUM/2015 FOR A.Y. 2010-11, THE DECISION RENDERED IN ABOVE PARAGRAPHS WOULD APPLY MUTATIS MUTANDIS FOR THESE APPEALS ALSO. ACCORDINGLY, THE GROUNDS OF APPEAL IN THESE APPEALS ARE PARTLY ALLOWED. 11. IN THE RESULT, THE APPEALS FILED BY THE ASSESSEE FOR THE A.Y.2010-11,2014-15,2015-16&2016-17 ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON12.07.2021. SD/- SD/- ( SHAMIM YAHYA ) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 12.07.2021 KRK, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. / THE CIT(A) 4. () / CONCERNED CIT 5. , , / DR, ITAT, MUMBAI M/S. NGC NETWORK ASIA LLC. ITA.NO1178/M/2015, ITA.NO 6677,&6678 /M/2018 & ITA.NO7142/M/2019 - 31 - 6. [ / GUARD FILE. / BY ORDER, //TRUE COPY// 1. ( ASST. REGISTRAR) ITAT, MUMBAI 2. OTHER MEMBER ON WHI