M/s. INTERNATIONAL GLOBAL NETWORKS BV, MUMBAI V. ADIT (INT. TAXATION) - 3(1), MUMBAI

ITA 1211/MUM/2006

• Counselvise Citation: 121119914 RSA 2006
• Duration Of Justice: 5 year(s) 3 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: J
• Assessment Year: 2002-2003
• Appeal Filed On: 17-02-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: JI TENDRA YADAV
• Keywords: Double taxation relief; Permanent establishment; Wholly owned subsidiary

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L : MUMBAI BEFORE SHRI N.V. VASUDEVAN,(JM) AND SHRI RAJENDRA SINGH,(AM) ITA NO. 1211/MUM/2006 ASSESSMENT YEAR : 2002-03 INTERNATIONAL GLOBAL NETWORKS BV (FORMERLY KNOWN AS SATELLITE TELEVISION ASIAN REGION ADVERTISING SALES BV) C/O., STAR INDIA PRIVATE LIMITED STAR HOUSE, 3 RD FLOOR OFF DR. D.E. MOSES ROAD, MAHALAXMI MUMBAI-400 011. ..( APPELLANT ) P.A. NO. (AABCI 0556 K) VS. ASSISTANT DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) 3(1) SCINDIA HOUSE, BALLARD PIER MUMBAI-400 038. ..( RESPONDENT ) APPELLANT BY : SHRI DIVESH CHAWLA RESPONDENT BY : SHRI J ITENDRA YADAV O R D E R PER RAJENDRA SINGH (AM). THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 22.11.2005 OF CIT(A) FOR THE ASSESSMENT YEAR 2002-0 3. THE ASSESSEE IN THIS APPEAL HAS RAISED DISPUTE ON TWO GROUNDS. 2. THE FIRST DISPUTE IS REGARDING THE FINDING OF CI T(A) HOLDING THE ASSESSEE AS CONDUIT FOR SATELLITE TELEVISION ASIA R EGION LIMITED (STAR LTD.). THE FACTS IN BRIEF ARE THAT THE ASSESSEE (FORMERLY KNOWN AS SATELLITE TELEVISION ASIAN REGION ADVERTISING SALES B.V.) A C OMPANY INCORPORATED IN ITA NO.1211/MUM/06 A.Y:2002-03 2 NETHERLANDS, WAS GRANTED EXCLUSIVE RIGHTS FOR SALE OF ADVERTISING TIME IN INDIA ON THE CHANNELS. THE ASSESSEE HAD APPOINTED STAR I NDIA LTD. (SIPL) (FORMERLY KNOWN AS NEWS TELEVISION (INDIA) LTD.) A S ITS COLLECTING AGENT IN INDIA WITH RESPECT TO ADVERTISING CHARGES FROM INDI AN ADVERTISERS FOR ADVERTISEMENT PLACED ON THE CHANNELS. SIPL WAS ENT ITLED TO A COMMISSION OF 15% ON THE RECEIPTS FROM INDIAN ADVERTISERS NET OF ADVERTISING AGENCY COMMISSIONS. THE ASSESSEE HAS BEEN RETURNING INCOME IN INDIA ON RECEIPT BASIS ON DEEMED PROFIT RATE OF 10% UNDER THE PROVIS IONS OF CIRCULAR NO.742 DATED 2.5.96 OF CBDT. IN THE ASSESSMENT YEAR 2000-0 1 I.E., THE YEAR UNDER CONSIDERATION, THOUGH NO INCOME HAD ACCRUED TO THE ASSESSEE, IT HAD RECEIVED ADVANCES RELATING TO ADVERTISEMENT RELEASE D PRIOR TO 1.4.1999. THOUGH THE ASSESSEE HAD OFFERED INCOME AS PER CIRCU LAR 742 OF CBDT IN THE RETURN OF INCOME, IT HAD RESERVED ITS RIGHTS TO BE TAXED AS PER THE PROVISIONS OF THE INDIA-NETHERLANDS DTAA. IN THE ASSESSMENT O RDER, THE ASSESSING OFFICER FOLLOWING THE DECISION TAKEN IN ASSESSMENT ORDER FOR THE YEAR 1998-99 HELD THAT THE ASSESSEE WAS A CONDUIT FOR ITS HOLDIN G COMPANY I.E. SATELLITE TELEVISION ASIA REGION LTD. (STAR LTD.). THE ASSESS ING OFFICER ALSO OBSERVED THAT THE ASSESSEE HAD A P.E. IN INDIA AND WAS NOT E LIGIBLE FOR BENEFITS/PROVISIONS OF CIRCULAR NO.742. THE ASSES SING OFFICER ASSESSED THE INCOME RETURNED IN CASE OF ASSESSEE ON PROTECTIVE B ASIS AFTER HOLDING THAT THE INCOME BELONGED TO STAR LTD.. 3. THE ASSESSEE DISPUTED THE DECISION OF THE ASSESS ING OFFICER AND SUBMITTED BEFORE THE CIT(A) THAT THE ASSESSEE WAS A SEPARATE LEGAL ENTITY INCORPORATED IN NETHERLANDS AND, THEREFORE, WAS REQ UIRED TO BE ASSESSED SEPARATELY UNDER THE PROVISIONS OF LAW. IT WAS POI NTED OUT THAT EARLIER FROM MAY 1992 TO MAY 1994, MEDIA SCOPE ASSOCIATES (MEDIA SCOPE) HAD BEEN APPOINTED BY STAR LTD. AS AGENT FOR SALE OF ADVERTI SEMENT. HOWEVER SUBSEQUENTLY DISPUTE AROSE BETWEEN THE TWO PARTIES AND IT WAS DECIDED BY STAR THAT THE ASSESSEE, ITS WHOLLY OWNED SUBSIDIARY , SHOULD UNDERTAKE THE ADVERTISEMENT SALES ACTIVITY. THE CONTRACT BETWEEN ASSESSEE AND STAR LTD. WAS VALID AND BONAFIDE ARRANGEMENT DRIVEN SOLELY ON COMMERCIAL ITA NO.1211/MUM/06 A.Y:2002-03 3 CONSIDERATION. IT WAS ALSO SUBMITTED THAT IN CASE THE ASSESSING OFFICERS CONTENTIONS WERE ACCEPTED AND STAR LTD. WERE TO BE TAXED ON ADVERTISEMENT REVENUE, THE BASIS OF TAXATION OF STAR WOULD BE NO DIFFERENT FROM THE BASIS OF TAXATION OF THE ASSESSEE AND THERE WAS THUS NO TAX AVOIDANCE. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE COULD CLAIM THE BENEFIT OF DTAA WHICH WAS NOT DONE AND THE ASSESSEE WAS RETURNING INCOME BASED ON CIRCULAR 742 WHICH ALSO SHOWED THAT THE ASSESSEE HAD NO INTENTIO N OF EVADING ANY TAX. THE CIT DID NOT HOWEVER ACCEPT THE CONTENTION RAISE D FOLLOWING THE DECISION IN ASSESSMENT YEAR 1998-99 AND ASSESSMENT YEAR 2001 -02. IT WAS HELD BY HIM THAT THE ASSESSEE WAS MERELY A CONDUIT COMPANY OF STAR LTD. AND ACCORDINGLY UPHELD THE ASSESSING OFFICERS ORDER AG GRIEVED BY WHICH THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 4. BEFORE US LD. AR FOR THE ASSESSEE AT THE VERY OU TSET POINTED OUT THAT IN ASSESSMENT YEAR 1998-99 BASED ON WHICH CIT(A) HAD T AKEN DECISION, HAD ALREADY BEEN CONSIDERED BY THE TRIBUNAL IN ITS ORDE R DATED 21.5.2010 IN ITA NO.1840/MUM/04 IN WHICH THE VIEW TAKEN BY AUTHORITI ES BELOW HAS NOT BEEN UP HELD. THE TRIBUNAL HELD THAT THE INCOME FROM AD VERTISING TIMES BELONGED TO THE ASSESSEE AND HAS TO BE TAXED ON SUBSTANTIVE BASIS IN ITS NAME. THE LD. DR FAIRLY CONCEDED THAT THE ISSUE WAS COVERED. 5. WE HAVE PERUSED THE RECORDS AND CONSIDERED THE M ATTER CAREFULLY. WE HAVE GONE THROUGH THE ORDER DATED 21.5.2010 OF THE TRIBUNAL IN ITA NO.1840/MUM/04 FOR THE ASSESSMENT YEAR 1998-99 IN A SSESSEES OWN CASE. THE TRIBUNAL OBSERVED IN THE SAID ORDER THAT THE PE RCEPTION OF THE REVENUE THAT STAR LTD. WAS DERIVING TAX ADVANTAGE BY INSERT ING THE ASSESSEE COMPANY AS A LINK IN CHAIN OF ENTITIES TO GET ADVER TISEMENT REVENUES WAS NOT CORRECT. THE TRIBUNAL REFERRED TO THE JUDGMENT OF HONBLE BOM BAY HIGH COURT IN THE CASE OF SET SATELLITE (SINGAPORE) PVT. LTD. (307 ITR 205) IN WHICH THE HONBLE BOMBAY HIGH COURT HELD THAT IN TERMS OF CBDT CIRCULAR NO.23 WHERE A NON RESIDENTS SALE TO INDIAN CUSTOMERS ARE SECUR ED THROUGH AN AGENT, THE ASSESSMENT IN INDIA OF THE INCOME ARISING FROM THE SAID TRANSACTION WILL BE RESTRICTED TO AMOUNT OF PROFIT WHICH IS ATTRIBUTABL E TO THE AGENTS SERVICES. ITA NO.1211/MUM/06 A.Y:2002-03 4 THE ADVERTISEMENT REVENUE IN THIS CASE HAD BEEN GEN ERATED THROUGH COMMISSION AGENT I.E. SIPL AND INCOME IN CASE OF SI PL HAD ALREADY BEEN TAXED. THEREFORE, IN TERMS OF CIRCULAR 23 WHICH WAS IN FORCE IN THAT YEAR TAXABILITY IN RESPECT OF SUCH SALES CANNOT EXTEND B EYOND THAT INCOME. THEREFORE, WHETHER ADVERTISEMENT REVENUE WAS TAXED IN THE HANDS OF THE ASSESSEE COMPANY OR STAR LTD. THERE WAS NO TAX AVOI DANCE. THE TRIBUNAL FURTHER OBSERVED THAT THE ASSESSEE COMPANY WAS FORM ED NOT ONLY FOR PROCURING ADVERTISEMENT BUSINESS FROM INDIA BUT ALS O FROM OTHER COUNTRIES AND THEREFORE, IT WAS NOT DRIVEN BY INDIAN TAX CONS IDERATIONS ALONE. THERE WERE NO GOOD REASONS TO DISREGARD THE EXISTENCE OF ASSESSEE COMPANY. THERE WAS NO MATERIAL TO HOLD THAT THE SALES REVENU E OF ADVERTISEMENT DID NOT BELONG TO THE ASSESSEE. THE TRIBUNAL ACCORDING LY UPHELD THE ASSESSMENT OF INCOME IN CASE OF THE ASSESSEE. THE SAME VIEW WA S FOLLOWED BY THE TRIBUNAL IN ASSESSMENT YEAR 2001-02. FACTS IN THIS YEAR ARE IDENTICAL. IN FACT, CIT(A) HAS FOLLOWED THE DECISION IN ASSESSMEN T YEAR 1998-99 AND IN ASSESSMENT YEAR 2001-02 WHICH HAS NOT BEEN UPHELD B Y THE TRIBUNAL. THEREFORE, RESPECTFULLY FOLLOWING THE DECISION OF T HE TRIBUNAL IN 1998-99 (SUPRA), WE HOLD THAT ASSESSEE IS NOT A CONDUIT OF STAR LTD. AND THAT INCOME FROM SALES REVENUE OF ADVERTISEMENT BELONGED TO ASS ESSEE AND HAS TO BE ASSESSED IN ITS NAME. 6. IN GROUND NO.2, THE DISPUTE RAISED BY THE ASSESS EE IS THAT CIT(A) HAD FAILED TO ADJUDICATE REMAINING GROUNDS OF ASSESSEE RELATING TO PERMANENT ESTABLISHMENT(PE), COMPUTATION OF TAXABLE PROFITS ON ADHOC BASIS AND NOT GRANTING CREDIT FOR TAXES DEDUCTED AT SOURCE. SINC E CIT(A) HAD HELD THAT THE ASSESSEE WAS ONLY A CONDUIT OF STAR LTD. AND INCOME DID NOT BELONG TO IT, HE DID NOT GO INTO MERITS OF AFORESAID GROUNDS OF THE ASSESSEE. AS WE HAVE HELD EARLIER THAT THE ASSESSEE WAS NOT A CONDUIT OF STAR LTD. AND INCOME HAS TO BE ASSESSED IN ITS NAME, THE ABOVE GROUNDS ARE REQU IRED TO BE ADJUDICATED. SINCE CIT(A) HAS NOT ADJUDICATED THE ABOVE GROUNDS, WE RESTORE THE ISSUES RAISED IN THOSE GROUNDS TO THE FILE OF CIT(A) FOR A DJUDICATION ON MERIT AFTER ALLOWING OPPORTUNITY OF HEARING TO THE ASSESSEE. ITA NO.1211/MUM/06 A.Y:2002-03 5 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED IN TERMS OF ORDER ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 27.5.2011. SD/- SD/- (N.V. VASUDEVAN) (RAJENDRA SINGH ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED: 27.5.2011. JV. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT(A) CONCERNED, MUMBAI THE DR BENCH TRUE COPY BY ORDER DY/ASSTT. REGISTRAR, ITAT, MUMBAI.