ESPN Star Sports Mauritius S.N.C. et Compagnie, Mauritius V. DCIT (International Taxation), New Delhi

ITA 1219/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3269 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 7 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 01-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: GANGADHAR
• Keywords: Business income; Transfer pricing; Double taxation relief; International transaction; Permanent establishment; Wholly owned subsidiary; Set aside
• Section: 143(3); 5(2); 9(1); 9(1); 9(1); 13; 22; 90; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI D BEN CH, NEW DELHI [THROUGH VIDEO CONFERENCE] BEFORE SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER, AND SHRI AMIT SHUKLA, JUDICIAL MEMB ER ITA NO. 1219/DEL/2017 [ASSESSMENT YEAR: 2012-13] ESPN STAR SPORTS MAURITIUS VS. THE D Y. C.I.T SNC ET COMPAGNIE CIRCLE 1(2)(2) [NOW KNOWN AS ESS ADVERTISING [INTL. TAXATION (MAURITIUS) SNC ET COMPAGNIE] NEW DELHI 5 TH FLOOR, EBENE ESPLANADE, 24, CYBER CITY, EBENE MAURITIUS. PAN : AABFE 6801 E [APPELLANT] [RESPONDENT] DATE OF HEARING : 11.10.2021 DATE OF PRONOUNCEMENT : .10.2021 ASSESSEE BY : SHRI PORAS KAKA, SR. ADV SHRI DINESH CHAWLA, ADV REVENUE BY : SHRI GANGADHAR PANDA, CIT-DR ORDER PER N.K. BILLAIYA, ACCOUNTANT MEMBER:- THIS APPEAL BY THE ASSESSEE IS DIRECTED TOWARDS THE ORDER OF THE CIT(A)-42, NEW DELHI DATED 30.12.2016 PERTAINING TO A.Y 2012-13. 2 2. GRIEVANCES OF THE ASSESSEE READ AS UNDER: 1. THAT ON FACTS AND IN LAW, THE APPELLANT DENIES ITS LIABILITY TO BE ASSESSED UNDER THE INCOME-TAX ACT, 1961 (THE ACT) AND THE ASSESSMENT ORDER MADE UNDER SECTION 143(3) OF THE A CT IS BAD IN LAW. 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) ERRED IN UPHOLDING THE ORDER OF THE LEAR NED ASSESSING OFFICER (LD. AO) THAT THE APPELLANT HAS A BUSINES S CONNECTION IN THE FORM OF STAR SPORTS INDIA PRIVATE LIMITED (SSI PL) (EARLIER KNOWN AS ESPN SOFTWARE INDIA (P) LTD.) (NOW MERGED WITH STAR INDIA PRIVATE LIMITED) AND THAT THE APPELLANT IS CA RRYING ON ITS BUSINESS IN INDIA AND EARNING ITS INCOME FROM SOURC ES IN INDIA IN TERMS OF SECTION 9(1 )(I) OF THE ACT. 3. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT(A) GROSSLY ERRED IN UPHOLDING THE ORDER OF THE LD. AO THAT APPELLANT HAS A FIXED PLACE PERMANENT ESTABLISHMENT (PE) IN THE FORM OF SSIPL UNDER THE DOUBLE TAXATION AVOIDANCE A GREEMENT ENTERED BETWEEN INDIA AND MAURITIUS (DTAA). 4. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, LD. CIT (A) GROSSLY ERRED IN UPHOLDING THE ORDER OF THE LD. AO THAT THE APPELLANT HAS A DEPENDENT AGENT PE IN THE FORM OF SSIPL UNDER ARTICLE 5(4) AND 5(5) OF THE DTAA WITHOUT APPRECIAT ING THE FACT THAT SSIPL IS ALSO ENGAGED IN DISTRIBUTION OF CHANN ELS IN INDIA UNDER SEPARATE AGREEMENTS WITH ESS DISTRIBUTION (MA URITIUS) SNC ET COMPAGNIE (ESSD). 3 5. THAT WITHOUT PREJUDICE TO THE ABOVE GROUNDS, THE LD. CIT(A) GROSSLY ERRED IN REJECTING THE CONTENTION OF THE AP PELLANT THAT WHERE THE PURPORTED PE IS REMUNERATED ON AN ARMS L ENGTH BASIS, NO ADDITIONAL PROFITS COULD BE ATTRIBUTED TO APPELLANT S INCOME. 6. THAT, WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALTERNATIVE, LD. CIT (A) HAS GROSSLY ERRED ON THE FACTS AND CIRC UMSTANCES OF THE CASE AND IN LAW IN ATTRIBUTING 50% OF THE NET P ROFITS OF THE APPELLANT AS THE PROFITS OF THE APPELLANT FROM ITS INDIAN OPERATIONS. THAT THE ABOVE GROUNDS OF APPEAL ARE WITHOUT PREJUD ICE TO EACH OTHER. THAT THE APPELLANT RESERVES ITS RIGHT TO ADD, ALTER , AMEND OR WITHDRAW ANY GROUND OF APPEAL EITHER BEFORE OR AT T HE TIME OF HEARING OF THIS APPEAL. 3. THE GRIEVANCES OF THE ASSESSEE CAN BE SUMMARISED AS UNDER: 1. WHETHER THE A PPELLANT HAS A BUSINESS CONNECTION IN INDIA AND IS TAXABLE IN TERMS OF SECTION 9(1) OF THE ACT ? AND WHETHER THE APPELLANT HAS A PERMANENT ESTABLISHMENT (PE) UNDER ARTICLE 5(2) & 5(4)/ 5(5) OF THE INDIA-MAURI TIUS DTAA ? 2. WHEN THE PURPORTED PE IS REMUNERATED ON AN ARM'S LE NGTH BASIS, NO ADDITIONAL PROFITS COULD BE ATTRIBUTED TO THE APPELLANT'S INCOME. 4 4. REPRESENTATIVES OF BOTH THE SIDES WERE HEARD AT LENGTH. CASE RECORDS CAREFULLY PERUSED AND JUDICIAL DECISIONS RE LIED UPON BY THE COUNSEL DULY CONSIDERED. 5. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE APPELLANT IS A PARTNERSHIP FIRM ESTABLISHED UNDER THE LAWS OF MAUR ITIUS AND IS ENGAGED IN THE BUSINESS OF SELLING ADVERTISEMENT TIME AND P ROGRAMME SPONSORSHIP FROM MAURITIUS IN CONNECTION WITH THE P ROGRAMMING VIA NON-STANDARD TELEVISION ON ESPN, STAR SPORTS AND ST ART CRICKET PROGRAMMING SERVICES. 4. DURING THE YEAR UNDER CONSIDERATION, THE APPELLA NT HAS ALSO ENTERED INTO SUCH SERVICES WITH RESPECT TO ESPN HD CHANNEL. ITS PARTNERS ARE WORLDWIDE WICKETS MAURITIUS HAVING 99. 9 SHARES IN PROFIT AND ESS ASIAN NETWORKS PTE LTD NEW TECH PARK, SINGA PORE HAVING 0.1% IN THE PROFIT. 5. IN FORM NO. 3CEB, GROSS RECEIPTS ON SALE OF ADV ERTISEMENT INVENTORY HAVE BEEN SHOWN AT RS. 344,40,06,771/-. DETAILS OF ASSOCIATED ENTERPRISE [AE] WAS GIVEN I.E. ESPN SOFT WARE INDIA PVT. LTD 5 FROM WHOM ADVERTISEMENT SALES INVENTORY COST AMOUNT ING TO RS. 344,40,06,771/- WERE RECEIVED. 6. A REFERENCE WAS MADE TO THE TPO U/S 92CA(1) OF T HE ACT FOR COMPUTING ARMS LENGTH PRICE OF THE INTERNATIONAL T RANSACTIONS. THE TPO, VIDE ORDER DATED 07.01.2016, ACCEPTED THE VALU E OF INTERNATIONAL TRANSACTIONS AND NO ADVERSE INFERENCE WAS DRAWN. 7. ASSESSMENT HISTORY OF THE APPELLANT SHOWS THAT F OR THE PAST A.YS., ESPN INDIA HAS BEEN HELD TO BE DEPENDENT AGENT PE A ND FIXED PLACE PE OF THE ASSESSEE. IT WAS POINTED OUT DURING THE COU RSE OF ASSESSMENT PROCEEDINGS FOR A.Y 2005-06 AND 2006-07 THAT THERE WAS CONSIDERABLE CHANGE IN THE ACTIVITIES AS COMPARED WITH THE EARLI ER YEARS. 8. VIDE ORDER-SHEET NOTE DATED 29.01.2016, THE ASSE SSEE WAS ASKED TO PROVIDE WHETHER THERE WAS ANY CHANGE IN THE BUSI NESS MODEL/FACTUAL MATRIX OF THE ASSESSEE DURING THE YEA R UNDER CONSIDERATION VIS A VIS PREVIOUS YEAR I.E. 2011-12. 9. THE ASSESSEE RESPONDED BY STATING THAT THERE IS NO CHANGE IN THE BUSINESS MODEL/FACTUAL MATRIX OF THE ASSESSEE DURIN G THE YEAR AS COMPARED TO THE PRECEDING YEAR. 6 10. TAKING A LEAF OUT OF THE ASSESSMENT OF A.Y 2011 -12, THE ASSESSING OFFICER CONCLUDED THEREFORE, KEEPING IN VIEW THE F ACTS AND CIRCUMSTANCES AS ABOVE, SINCE THERE IS ADMITTEDLY N O CHANGE IN THE FACTS OF THE CASE, THE ASSESSMENT FOR THIS YEAR IS BEING COMPLETED ON THE SAME LINES. THIS MEANS THAT THE ASSESSING OFF ICER HAS CONCLUDED THE ASSESSMENT PROCEEDINGS OF THE YEAR UNDER CONSID ERATION ON THE SAME LINES AS IT WAS DONE IN A.Y 2011-12. 11. IN SO FAR AS THE EXISTENCE OF FIXED PLACE PE IS CONCERNED, THE FINDINGS OF THE ASSESSING OFFICER READ AS UNDER: THE PREMISES OF ESPN INDIA, ARE THEREFORE, A FIXED PLACE PE OF THE ASSESSEE FROM WHERE BUSINESS OF THE ASSES SEE IS BEING CARRIED OUT IN TERMS OF ARTICLE 5(2)(A) OF TH E DTAA. BASED ON THESE FACTS IT IS CONCLUDED THAT FOR ALL P RACTICAL PURPOSES THIS DISTINCTION BETWEEN THE TWO HAS BECOM E INSIGNIFICANT AND WHEN A PROSPECTIVE ADVERTISING CL IENT DEALS WITH ESPN, IT IS AS IF HE WERE DEALING DIRECTLY WIT H ESSM. THIS VIEW IS SUPPORTED BY THE DECISION OF THE SPECI AL BENCH OF THE DELHI ITAT IN THE CASE OF M/S NOKIA NETWORKS OY VS. DCIT, NON RESIDENT CIRCLE AND ALSO BY THE JUDGM ENT OF THE ANDHRA PRADESH HIGH COURT IN THE CASE OF CIT VS . VISAKHAPATNAM PORT TRUST 144 ITR 146. 7 13.2 IN VIEW OF THE DISCUSSION ABOVE, IT IS HELD TH AT THE ASSESSEE ALSO HAS A FIXED PLACE PE IN TERMS OF PROV ISIONS OF ARTICLE 5(2)(A) OF THE DTAA, IN ADDITION TO A DEPEN DENT AGENT PERMANENT ESTABLISHMENT IN INDIA AS DISCUSSED ABOVE. 12. AFTER GIVING THE AFOREMENTIONED FINDINGS, THE A SSESSING OFFICER PROCEEDED BY ATTRIBUTION OF PROFIT TO PE AND ATTRIB UTED 30% OF THE GROSS ADVERTISING REVENUE AND MADE ATTRIBUTION OF RS. 103 ,32,02,031/-. 13. THE ASSESSEE CARRIED THE MATTER BEFORE THE LD. CIT(A) BUT WITHOUT ANY SUCCESS. 14. AS MENTIONED ELSEWHERE, THE ASSESSING OFFICER A ND THE LD. CIT(A) HAVE PROCEEDED ON THE FINDINGS GIVEN IN ASSESSMENT YEAR 2011-12 WHEREIN THE QUARREL TRAVELLED UPTO THE TRIBUNAL AND THE TRIBUNAL IN ITA NO. 3760 AND 4242/DEL/2016 FOR ASSESSMENT YEARS 200 9-10 AND 2011- 12 HAS DECIDED THE QUARREL AS UNDER: 12. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE RECORD. THE ASSESSEE IS A PARTNERSHIP FIRM ESTABLISHED UNDE R THE LAWS OF MAURITIUS ON MARCH 29, 2002. THE ASSESSEE IS ENGAGE D IN THE BUSINESS OF ACQUIRING AND ALLOTTING ADVERTISEMENT T IME (AIRTIME) AND PROGRAMME SPONSORSHIP IN CONNECTION WITH PROGRA MMING VIA NON- STANDARD TELEVISION FROM MAURITIUS ON ESPN, STAR SP ORTS AND STAR 8 CRICKET PROGRAMMING SERVICES. THE ASSESSEE HAD ENTE RED INTO AGREEMENT WITH ESPN SOFTWARE INDIA (P) LTD., INCORP ORATED UNDER THE LAWS OF INDIA WHICH WAS ENGAGED IN THE BUSINESS OF ACQUIRING THE AIRTIME FROM ASSESSEE AND ALLOTTING IT TO VARIO US INDIAN ADVERTISERS AND ADVERTISING AGENCIES. THE SALE OF A IRTIME BY THE ASSESSEE TO ESPN INDIA IS OUTSIDE INDIA. FURTHER, T HE ASSESSEE HAS NO OFFICE IN INDIA AND/OR ANY OPERATIONS IN INDIA. THE PLEA OF THE ASSESSEE BEFORE THE LOWER AUTHORITIES WAS THAT ESPN INDIA PURCHASED AIRTIME FROM THE ASSESSEE ON PRINCIPAL TO PRINCIPAL BASIS. THE ASSESSEE CLAIMED THAT THE INCOME ARISING FROM A DVERTISEMENT AIRTIME IS BUSINESS INCOME AND IN THE ABSENCE OF A PE OF THE ASSESSEE IN INDIA, THE SAME IS NOT TAXABLE. THE ASS ESSING OFFICER RELYING UPON THE ORDERS OF ASSESSMENT YEARS 2003-04 AND 2004- 05 HELD THE TRANSACTION TO BE PRINCIPAL TO AGENT AN D NOT ON PRINCIPAL TO PRINCIPAL BASIS. FURTHER, ESPN INDIA WAS CONSTIT UTED TO BE DEPENDENT AGENT AS PER ARTICLE- 5(4) AND NOT AN IND EPENDENT AGENT AS DEFINED BY ARTICLE 5(5) OF THE INDIA- MAURITIUS DTAA. THE ASSESSING OFFICER ATTRIBUTED PART OF THE GROSS PROF ITS TO THE PE. THE CIT(A) ALSO HELD THAT ESPN INDIA CONSTITUTES PE UNDER THE INDIA-MAURITIUS DTAA. HOWEVER, HE ALLOWED PARTIAL R ELIEF TO THE ASSESSEE ON THE ATTRIBUTION OF INCOME TO THE DAPE I N INDIA. 13. THE CASE OF THE ASSESSEE BEFORE US IS THAT WITH OUT PREJUDICE TO ITS CONTENTION ON THERE BEING PE OR DEPENDENT AGENT PE OR NOT, WHEN ESPN INDIA IS REMUNERATED AT ARMS LENGTH BASI S THEN NO FURTHER ATTRIBUTION OF PROFITS CAN BE MADE IN THE H ANDS OF THE ASSESSEE IN INDIA. THE TPO IN THE ORDER RELATING TO ASSESSMENT YEARS 2009-10 AND 2011-12 HAS HELD THAT THE INTERNA TIONAL 9 TRANSACTION OF PAYMENT OF ADVERTISING SALES INVENTO RY COST TO BE AT ARMS LENGTH PRICE. COPIES OF THE ORDERS OF THE TPO IN THE CASE OF THE ASSESSEE AND ALSO ESPN INDIA HAVE BEEN FILED DU RING THE COURSE OF HEARING. ONCE, THE TRANSACTIONS ARE DEMON STRATED TO BE IN ACCORDANCE WITH ARMS LENGTH PRINCIPLE THEN THE QUESTION WHICH ARISES IS WHETHER THERE CAN BE ANY ATTRIBUTION OF P ROFITS, EVEN IF, ASSESSE HAS PE IN INDIA. WE ARE NOT GOING IN TO THE ASPECT OF WHETHER THE ASSESSEE HAS PE OR DEPENDENT AGENT PE I N ESPN INDIA FOR DECIDING THE PRESENT ISSUE RAISED BEFORE US. WE ARE LIMITING OUR DECISION TO FURTHER ATTRIBUTION OF PROFITS, IN CASE , WHERE ONCE ARMS LENGTH PRINCIPLE HAS BEEN DECIDED THEN, THE HONBLE SUPREME COURT HAS LAID DOWN THE PROPOSITION THAT THERE CAN BE NO FURTHER PROFIT ATTRIBUTION TO A PERSON, EVEN IF, IT HAS A PE IN IN DIA. THE HONBLE SUPREME COURT IN HONDA MOTORS CO. LTD. VS ADIT IN C IVIL APPEAL NOS.2833 TO 2840 OF 2018, JUDGEMENT DATED 14.03.201 8, REPORTED IN [2018] 92 TAXMANN.COM 353 (SC) HELD AS UNDER:- 3. IN THE JUDGEMENT OF THIS COURT DATED 24.10.2017 IN ASSTT.DIT VS E-FUNDS IT SOLUTIONS INC. [2017] 86 TAXMANN.COM 240/251 TAXMAN 280/399 ITR 34 (SC) AND CONNECTED MATTERS, IT HAS BEEN HELD THAT ONCE ARMS LENGTH PRINCIPLE HAS BEEN SATISFIED, THERE CAN BE NO FURTH ER PROFIT ATTRIBUTABLE TO A PERSON EVEN IF IT HAS A PERMANENT ESTABLISHMENT IN INDIA. 4. SINCE, THE IMPUGNED NOTICE FOR THE REASSESSMENT IS BASED ONLY ON THE ALLEGATION THAT THE APPELLANT(S) HAS PE RMANENT 10 ESTABLISHMENT IN INDIA, THE NOTICE CANNOT BE SUSTAI NED ONCE ARMS LENGTH PRICE PROCEDURE HAS BEEN FOLLOWED. 5. ACCORDINGLY, THE IMPUGNED ORDER(S) IS SET ASIDE AND THE APPEALS ARE ALLOWED. 14. SIMILAR PROPOSITION HAS BEEN LAID DOWN BY THE H ONBLE APEX COURT IN ASSTT. DIT VS E-FUNDS IT SOLUTIONS INC. [2 017] 86 TAXMANN.COM 240/251 TAXMAN 280/399 ITR 34 (SC) AS I N HONDA MOTORS CO. LTD. VS ADIT (SUPRA). THE HONBLE SUPREM E COURT IN DIT VS MORGAN STANLEY AND CO. (SUPRA) HAVE ALSO HEL D AS UNDER '33. TO CONCLUDE, WE HOLD THAT THE AAR WAS RIGHT IN RULING THAT MSAS WOULD BE A SERVICE PE IN INDIA UNDER ARTI CLE 5(2)(1), THOUGH ONLY ON ACCOUNT OF THE SERVICES TO BE PERFORMED BY THE DEPUTATIONISTS DEPLOYED BY MSCO AN D NOT ON ACCOUNT OF STEWARDSHIP ACTIVITIES. AS REGARDS IN COME ATTRIBUTABLE TO THE PE (MSAS) WE HOLD THAT THE TRANSACTIONAL NET MARGIN METHOD WAS THE APPROPRIATE METHOD FOR DETERMINATION OF THE ARM'S LENGTH PRICE IN RESPECT OF TRANSACTION BETWEEN MSCO AND MSAS. WE AC CEPT AS CORRECT THE COMPUTATION OF THE REMUNERATION BASE D ON COST PLUS MARK-UP WORKED OUT AT 29% ON THE OPERATIN G COSTS OF MSAS. THIS POSITION IS ALSO ACCEPTED BY THE ASSE SSING OFFICER IN HIS ORDER DATED 29.12.06 (AFTER THE IMPU GNED RULING) AND ALSO BY THE TRANSFER PRICING OFFICER VI DE ORDER DATED 22.9.06. AS REGARDS ATTRIBUTION NOF FURTHER P ROFITS TO THE PE OF MSCO WHERE THE CONNECTION, THE DEPARTMENT HAS 11 ALSO TO EXAMINE WHETHER THE PE HAS OBTAINED SERVICE S FROM THE MULTINATIONAL TRANSACTION BETWEEN THE TWO ARE H ELD TO / BE AT ARM'S LENGTH, WE HOLD THAT THE RULING IS CORR ECT IN PRINCIPLE PROVIDED THAT AN ASSOCIATED ENTERPRISE (T HAT ALSO CONSTITUTES A PE) IS REMUNERATED ON ARM'S LENGTH BA SIS TAKING INTO ACCOUNT ALL THE RISKTAKING FUNCTIONS OF THE MU LTINATIONAL ENTERPRISE. IN SUCH A CASE NOTHING FURTHER WOULD BE LEFT TO ATTRIBUTE TO THE PE. THE SITUATION WOULD BE DIFFERE NT IF THE TRANSFER PRICING ANALYSIS DOES NOT ADEQUATELY REFLE CT THE FUNCTIONS PERFORMED AND THE RISKS ASSUMED BY THE ENTERPRISE. IN SUCH A CASE, THERE WOULD BE NEED TO ATTRIBUTE PROFITS TO THE PE FOR THOSE FUNCTIONS/RISKS THAT HA VE NOT BEEN CONSIDERED. THE ENTIRE EXERCISE ULTIMATELY IS TO ASCERTAIN WHETHER THE SERVICE CHARGES PAYABLE OR PA ID TO THE SERVICE PROVIDER (MSAS IN THIS CASE) FULLY REPRESEN TS THE VALUE OF THE PROFIT ATTRIBUTABLE TO HIS SERVICE. I N THIS ENTERPRISE AT LOWER THAN THE ARM'S LENGTH COST? THE REFORE, THE DEPARTMENT HAS TO DETERMINE INCOME, EXPENSE OR COST ALLOCATIONS HAVING REGARD TO ARM'S LENGTH PRICES TO DECIDE THE APPLICABILITY OF THE TRANSFER PRICING REGULATIO NS' (EMPHASIS SUPPLIED). 15. THE SAID PROPOSITION HAVE BEEN ALSO FOLLOWED BY THE HONBLE DELHI HIGH COURT IN BBC WORLDWIDE LIMITED (SUPRA) AND IT HAS BEEN HELD THAT IF ARMS LENGTH REMUNERATION IS PAID TO THE DEPENDE NT AGENT, NOTHING FURTHER REMAINS TO BE ATTRIBUTED. IN THE CASE BEFOR E HONBLE DELHI HIGH COURT, THE ASSESSEE WAS FOREIGN TELECASTING CO MPANY SIMILAR TO THE ASSESSEE, WHICH HAD APPOINTED ITS SUBSIDIARY IN INDIA TO SOLICIT 12 ORDERS FOR THE SALE OF ADVERTISING AIRTIME TO DIFFE RENT CHANNELS. THE ASSESSING OFFICER HELD THAT THE COMPANY HAD A DAPE UNDER ARTICLE 5 OF THE DTAA AND ATTRIBUTED 20% OF THE TOTAL ADVERTI SEMENT REVENUE TO INDIA. THE RELEVANT EXTRACT OF THE DECISION IS A S UNDER:- '16. WHEN THE AFORESAID FACTUAL POSITION IS KEPT IN MIND, THE JUDGMENT OF THE BOMBAY HIGH COURT IN SET SATELLITE (SINGAPORE) PTE. LTD'S. CASE (SUPRA) IS CLEARLY ATT RACTED. IN THAT CASE THE HIGH COURT HAS HELD THAT IF CORRECT A LP IS APPLIED AND PAID, NOTHING FURTHER WOULD BE LEFT TO BE TAXED IN THE HANDS OF THE FOREIGN ENTERPRISE. IN THE SAID CA SE, MORGAN STANLEY & CO. INC.'S CASE (SUPRA) AS WELL AS CIRCULAR NO.23 ISSUED BY THE CBDTWAS TAKEN INTO CONSIDERATIO N. THE COURT WAS ALSO PLEASED TO RECORD THAT THE COMMISSIO N PAID TO THE AGENT WAS 15% SERVICES PERFORMED BY THE ASSESSE E'S AGENT IN INDIA WAS IN LINE WITH THE EXISTING INDUST RY STANDARDS IN INDIA AT THE PREVALENT TIME. RELIANCE WAS ALSO PLACED ON PARA 3 OF CIRCULAR NO.742 DATED 02.5.1996 ISSUED BY THE CBDT, WHICH REFERRED TO THE FACT THAT THE AG ENT'S COMMISSION FROM FOREIGN TELECASTING COMPANIES IS 15 % OR SO OF THE GROSS SUM, TO CONTEND THAT THE CBDT ITSELF H AD CONSIDERED 15% AS THE NORMALLY ACCEPTED COMMISSION RATE PAYABLE TO AGENTS OF THE TELECASTING COMPANIES.' (E MPHASIS APPLIED) 16. IN APPLYING THE AFORESAID PROPOSITION TO THE IS SUE RAISED BEFORE US AND WITHOUT DECIDING THE ISSUE OF WHETHER ESPN I NDIA CONSTITUTES PE OF THE ASSESSEE IN INDIA UNDER DTAA BETWEEN INDIA 13 AND MAURITIUS ON THE PRINCIPLE THAT ESPN INDIA WAS REMUNERATED AT ARMS LENGTH BY THE ASSESSEE, WHICH HAS BEEN ACCEPT ED BY THE ASSESSING OFFICER/TPO OF ESPN INDIA AND ALSO THE AS SESSEE, THEN NO FURTHER ATTRIBUTION OF PROFITS IS TO BE MADE IN THE HANDS OF THE ASSESSEE. SIMILAR PROPOSITION HAS ALSO BEEN LAID DO WN BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR S 2003-04 AND 2004- 05. ACCORDINGLY, WE HOLD SO. GROUND OF APPEAL NO.5.1 IS THUS DECIDED AND OTHER GROUNDS OF APPEAL BECOME ACADEMIC . 15. THOUGH THE CO-ORDINATE BENCH HAS NOT TOUCHED UP ON THE ISSUE WHETHER ESPN STAR SPORTS CONSTITUTES PE OF THE ASSE SSEE IN INDIA UNDER DTAA BETWEEN INDIA AND MAURITIUS, HOWEVE, WE FIND T HAT THE HON'BLE SUPREME COURT IN THE CASE OF E-FUNDS IT SOLUTIONS I NC. 399 ITR 34 HAD AN OCCASION TO CONSIDER THE TEST FOR WHETHER THERE IS FIXED PLACE PE. THE RELEVANT EXTRACTS READ AS UNDER: 5. AS AGAINST THIS, SHRI S. GANESH, LEARNED SENIOR COUNSEL FOR THE RESPONDENTS, HAS ARGUED THAT THE TESTS FOR WHETHER THERE IS A FIXED PLACE PE HAVE NOW BEEN SETTLED BY THE JUDGMEN T OF THIS COURT IN FORMULA ONE (SUPRA), AND THAT IT IS CLEAR THAT F OR A FIXED PLACE PE, IT MUST BE NECESSARY THAT THE SAID FIXED PLACE MUST BE AT THE DISPOSAL OF THE ASSESSEES, WHICH MEANS THAT THE AS SESSEES MUST HAVE A RIGHT TO USE THE PREMISES FOR THE PURPOSE OF THEIR OWN BUSINESS, WHICH HAS NOT BEEN MADE OUT IN THE FACTS OF THIS CASE. HE FURTHER ARGUED THAT, ON THE FACTS OF THIS CASE, BOT H THE US 14 COMPANIES AS WELL AS THE INDIAN COMPANY PAY INCOME TAX, AND THE TRANSFER PRICING OFFICER BY HIS ORDER DATED 22ND FE BRUARY, 2006, HAS SPECIFICALLY HELD THAT WHATEVER IS PAID UNDER V ARIOUS AGREEMENTS BETWEEN THE US COMPANIES AND THE INDIAN COMPANY ARE ON ARMS LENGTH PRICING AND THAT, THIS BEING THE CA SE, EVEN IF A FIXED PLACE PE IS FOUND, ONCE ARMS LENGTH PRICE IS PAID, THE US COMPANIES GO OUT OF THE DRAGNET OF INDIAN TAXATION. HE ALSO A DVERTED TO ARTICLE 5(6) TO STATE THAT THE MERE FACT THAT A 100% SUBSIDIARY MAY BE CARRYING ON BUSINESS IN INDIA DOES NOT BY IT SELF MEANS THAT THE HOLDING COMPANY WOULD HAVE A PE IN INDIA. FURTH ER, ACCORDING TO LEARNED COUNSEL, SO FAR AS THE SERVICE PE IS CONCER NED, EVEN THE ASSESSING OFFICER DID NOT FIND THAT SUCH A PE EXIST ED. ACCORDING TO HIM, UNDER ARTICLE 5(2)(L ), IT IS NECESSARY THAT THE FOREIGN ENTERPRISES MUST PROVIDE SERVICES TO CUSTOM ERS WHO ARE IN INDIA, WHICH IS NOT REVENUES CASE AS ALL THEIR CUS TOMERS EXIST ONLY OUTSIDE INDIA. FURTHER, ACCORDING TO THE LEARNED CO UNSEL, THE ENTIRE PERSONNEL ENGAGED IN THE INDIAN OPERATIONS ARE EMPL OYED ONLY BY THE INDIAN COMPANY AND THE FACT THAT THE US COMPANI ES MAY INDIRECTLY CONTROL SUCH EMPLOYEES IS ONLY FOR PURPO SES OF PROTECTING THEIR OWN INTEREST. ULTIMATELY, THERE ARE FOUR BUSI NESSES THAT THE ASSESSEES ARE ENGAGED IN, NAMELY, ATM MANAGEMENT SE RVICES, ELECTRONIC PAYMENT MANAGEMENT, DECISION SUPPORT AND RISK MANAGEMENT AND GLOBAL OUTSOURCING AND PROFESSIONAL SERVICES. SINCE ALL THESE BUSINESSES ARE CARRIED ON OUTSIDE I NDIA AND THE PROPERTY THROUGH WHICH THESE BUSINESSES ARE CARRIED OUT, NAMELY ATM NETWORKS, SOFTWARE SOLUTIONS AND OTHER HARDWARE NETWORKS AND INFORMATION TECHNOLOGY INFRASTRUCTURE WERE ALL LOCATED OUTSIDE 15 INDIA, THE ACTIVITIES OF E-FUNDS INDIA ARE INDEPEND ENT BUSINESS ACTIVITIES ON WHICH, AS HAS BEEN NOTICED BY THE HIG H COURT, INDEPENDENT PROFITS ARE MADE AND INCOME ASSESSED TO TAX UNDER THE INCOME TAX ACT . ACCORDING TO THE LEARNED COUNSEL, AGENCY PE WAS NEVER ARGUED BEFORE THE ASSESSING OFFICER AND E VEN BEFORE THE ITAT. THEREFORE, NO FACTUAL FOUNDATION FOR THE SAME HAS BEEN LAID. EQUALLY, ACCORDING TO THE LEARNED COUNSEL, THE SETT LEMENT PROCEDURE AVAILED FOR THE ASSESSMENT YEARS IN QUESTION CANNOT BE SAID TO BE BINDING FOR SUBSEQUENT YEARS AS THEY WERE WITHOUT P REJUDICE TO THE ASSESSEES CONTENTION THAT THEY HAVE NO PE IN INDIA . HE ALSO RELIED UPON THE OECD COMMENTARY, PARAGRAPH 3.6 IN PARTICUL AR, TO DEMONSTRATE THAT THE SO-CALLED ADMISSIONS MADE AND RELIED UPON BY THE THREE AUTHORITIES BELOW WERE CORRECTLY OVERTURN ED BY THE HIGH COURT. LEARNED COUNSEL ALSO STATED THAT THE GROUND OF ADVE RSE INFERENCE WAS NEVER ARGUED OR PUT BEFORE ANY OF THE AUTHORITI ES BELOW, AND THE ONLY PLACE THAT IT COULD BE FOUND IS IN THE ASS ESSMENT ORDER FOR THE YEAR 2003-04, WHICH ORDER BECAME NON EST AS IT WAS SUBSTITUTED BY THE AGREEMENT ENTERED INTO BETWEEN T HE PARTIES ENDING IN WITHDRAWAL OF APPEALS BEFORE THE CIT (APP EALS). THUS, ACCORDING TO THE LEARNED COUNSEL, THE VIEW OF THE H IGH COURT IS ABSOLUTELY CORRECT AND SHOULD NOT BE INTERFERED WIT H. LEARNED COUNSEL ALSO ARGUED THAT THE CROSS- APPEALS OF THE REVENUE WERE CORRECTLY DISMISSED IN THAT, EVEN THOUGH THE ITAT D ECIDED THE CASE IN LAW AGAINST THE ASSESSEES, YET IT FOUND ON FACTS, DIFFERING FROM THE CALCULATION FORMULA BY THE AUTHORITIES BEL OW, THAT NIL TAX WAS PAYABLE. THIS IS THE ONLY PART OF THE ITAT JUDG MENT UPHELD BY 16 THE HIGH COURT, AND SHOULD NOT, THEREFORE, BE DISTU RBED IN ANY CASE. 6. BEFORE WE DEAL WITH THE SUBMISSIONS MADE ON BOTH SIDES, IT IS NECESSARY TO FIRST SET OUT THE STATUTORY BACKGROUND . THIS IS CONTAINED IN SECTION 90 OF THE INCOME TAX ACT, BEFORE IT WAS AMENDED IN 2009. SECTION 90(1) AND 90(2) OF THE INCOME TAX ACT, AS IT THEN STOOD, READ AS UNDER: SECTION 90 . AGREEMENT WITH FOREIGN COUNTRIES. 1) THE CENTRAL GOVERNMENT MAY ENTER INTO AN AGREEME NT WITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA (A) FOR THE GRANTING OF RELIEF IN RESPECT OF (I) INCOME ON WHICH HAVE BEEN PAID BOTH INCOME-TAX UNDER THIS ACT AND INCOME-TAX IN THAT COUNTRY; OR (II) INCOME-TAX CHARGEABLE UNDER THIS ACT AND UNDER THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY TO PROMO TE MUTUAL ECONOMIC RELATIONS, TRADE AND INVESTMENT, OR (B) FOR THE AVOIDANCE OF DOUBLE TAXATION OF INCOME UNDER THIS ACT AND UNDER THE CORRESPONDING LAW IN FORCE IN THAT CO UNTRY, OR (C) FOR EXCHANGE OF INFORMATION FOR THE PREVENTION OF EVASION OR AVOIDANCE OF INCOME-TAX CHARGEABLE UNDER THIS ACT O R UNDER THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY, OR INVE STIGATION OF CASES OF SUCH EVASION OR AVOIDANCE, OR 17 (D) FOR RECOVERY OF INCOME-TAX UNDER THIS ACT AND U NDER THE CORRESPONDING LAW IN FORCE IN THAT COUNTRY, AND MAY , BY NOTIFICATION IN THE OFFICIAL GAZETTE, MAKE SUCH PROVISIONS AS MA Y BE NECESSARY FOR IMPLEMENTING THE AGREEMENT. (2) WHERE THE CENTRAL GOVERNMENT HAS ENTERED INTO A N AGREEMENT WITH THE GOVERNMENT OF ANY COUNTRY OUTSIDE INDIA UN DER SUB- SECTION (1) FOR GRANTING RELIEF OF TAX, OR AS THE C ASE MAY BE, AVOIDANCE OF DOUBLE TAXATION, THEN, IN RELATION TO THE ASSESSEE TO WHOM SUCH AGREEMENT APPLIES, THE PROVISIONS OF THIS ACT SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THAT ASSE SSEE. 7. XXX 8. XXX 9. XXX 10. XXX 11. XXX 12. THUS, IT IS CLEAR THAT THERE MUST EXIST A FIXED PLACE OF BUSINESS IN INDIA, WHICH IS AT THE DISPOSAL OF THE US COMPAN IES, THROUGH WHICH THEY CARRY ON THEIR OWN BUSINESS. THERE IS, I N FACT, NO SPECIFIC FINDING IN THE ASSESSMENT ORDER OR THE APP ELLATE ORDERS THAT APPLYING THE AFORESAID TESTS, ANY FIXED PLACE OF BUSINESS HAS BEEN PUT AT THE DISPOSAL OF THESE COMPANIES. THE AS SESSING OFFICER, CIT (APPEALS) AND THE ITAT HAVE ESSENTIALLY ADOPTED A FUNDAMENTALLY ERRONEOUS APPROACH IN SAYING THAT THE Y WERE CONTRACTING WITH A 100% SUBSIDIARY AND WERE OUTSOUR CING BUSINESS TO SUCH SUBSIDIARY, WHICH RESULTED IN THE CREATION OF A PE. THE HIGH COURT HAS DEALT WITH THIS ASPECT IN SOME DETAIL IN WHICH IT HELD: 18 49. THE ASSESSING OFFICER, COMMISSIONER (APPEALS) AND THE TRIBUNAL HAVE PRIMARILY RELIED UPON THE CLOSE ASSOC IATION BETWEEN E-FUND INDIA AND THE TWO ASSESSEES AND APPL IED FUNCTIONS PERFORMED, ASSETS USED AND RISK ASSUMED, CRITERIA TO DETERMINE WHETHER OR NOT THE ASSESSEE HAS FIXED PLACE OF BUSINESS. THIS IS NOT A PROPER AND APPROPRIATE TEST TO DETERMINE LOCATION PE. THE FIXED PLACE OF BUSINESS PE TEST IS DIFFERENT. THEREFORE, THE FACT THAT E-FUND INDIA PR OVIDES VARIOUS SERVICES TO THE ASSESSEE AND WAS DEPENDENT FOR ITS EARNING UPON THE TWO ASSESSEES IS NOT THE RELEVANT TEST TO DETERMINE AND DECIDE LOCATION PE. THE ALLEGATION TH AT E-FUND INDIA DID NOT BEAR SUFFICIENT RISK IS IRRELEVANT WH EN DECIDING WHETHER LOCATION PE EXISTS. THE FACT THAT E-FUND IN DIA WAS REIMBURSED THE COST OF THE CALL CENTRE OPERATIONS P LUS 16% BASIS OR THE BASIS OF MARGIN FIXATION WAS NOT KNOWN , IS NOT RELEVANT FOR DETERMINING LOCATION OR FIXED PLACE PE . SIMILARLY WHAT WERE THE DIRECT OR INDIRECT COSTS AN D CORPORATE ALLOCATIONS IN SOFTWARE DEVELOPMENT CENTRE OR BPO D OES NOT HELP OR DETERMINE LOCATION PE. ASSIGNMENT OR SUB-CONTRACT T O E-FUND INDIA IS NOT A FACTOR OR RULE WHICH IS TO BE APPLIED TO D ETERMINE APPLICABILITY OF ARTICLE 5(1). FURTHER WHETHER OR NOT ANY PROVISIONS FOR INTANGIBLE SOFTWARE WAS MADE OR HAD BEEN SUPPLI ED FREE OF COST IS NOT THE RELEVANT CRITERIA/TEST. E-FUND INDIA WAS /IS A SEPARATE ENTITY AND WAS/IS ENTITLED TO PROVIDE SERVICES TO T HE ASSESSEES WHO WERE/ARE INDEPENDENT SEPARATE TAXPAYERS. INDIAN ENT ITY I.E. SUBSIDIARY COMPANY WILL NOT BECOME LOCATION PE UNDE R ARTICLE 5(1) MERELY BECAUSE THERE IS INTERACTION OR CROSS TRANS ACTIONS 19 BETWEEN THE INDIAN SUBSIDIARY AND THE FOREIGN PRINC IPAL UNDER ARTICLE 5(1). EVEN IF THE FOREIGN ENTITIES HAVE SAVED AND REDUCED THEIR EXPENDITURE BY TRANSFERRING BUSINESS OR BACK OFFICE OPERATIONS TO THE INDIAN SUBSIDIARY, IT WOULD NOT B Y ITSELF CREATE A FIXED PLACE OR LOCATION PE. THE MANNER AND MODE OF THE PAYMENT OF ROYALTY OR ASSOCIATED TRANSACTIONS IS NOT A TEST WH ICH CAN BE APPLIED TO DETERMINE, WHETHER FIXED PLACE PE EXISTS . 13. IT FURTHER WENT ON TO HOLD THAT THE ITATS FIND ING THAT THE ASSESSEES WERE A JOINT VENTURE OR SORT OF PARTNERSH IP WITH THE INDIAN SUBSIDIARY WAS WHOLLY INCORRECT. ALSO, NONE OF THESE ARGUMENTS HAVE BEEN INVOKED BY THE REVENUE AND SUCH A FINDING WOULD, THEREFORE, BE PERVERSE. AFTER CITING KLAUS V OGEL ON DOUBLE TAXATION CONVENTIONS, ARVID A. SKAAR IN PERMANENT E STABLISHMENT: EROSION OF A TAX TREATY PRINCIPLE AND BOLLINGER VS. COMMISSIONER, 108 S.CT. 1173, THE HIGH COURT FOUND AGAINST THE RE VENUE, HOLDING THAT THERE IS NO FIXED PLACE PE ON THE FACTS OF THE PRESENT CASE. WE AGREE WITH THE FINDINGS OF THE HIGH COURT IN THI S REGARD. 14. RELIANCE PLACED BY THE REVENUE ON THE UNITED ST ATES SECURITIES AND EXCHANGE COMMISSION FORM 10K REPORT, AS HAS BEE N CORRECTLY POINTED OUT BY THE HIGH COURT, IS ALSO MISPLACED. I T IS CLEAR THAT THE REPORT SPEAKS OF THE E-FUNDS GROUP OF COMPANIES WORLDWIDE AS A WHOLE, WHICH IS EVIDENT NOT ONLY FROM GOING THROU GH THE SAID REPORT, BUT ALSO FROM THE CONSOLIDATED FINANCIAL ST ATEMENTS APPENDED TO THE REPORT, WHICH SHOW THE ASSETS OF TH E GROUP WORLDWIDE. 15 XXXX 20 16 . THIS REPORT WOULD SHOW THAT NO PART OF THE MAIN BUS INESS AND REVENUE EARNING ACTIVITY OF THE TWO AMERICAN COMPAN IES IS CARRIED ON THROUGH A FIXED BUSINESS PLACE IN INDIA WHICH HA S BEEN PUT AT THEIR DISPOSAL. IT IS CLEAR FROM THE ABOVE THAT THE INDIAN COMPANY ONLY RENDERS SUPPORT SERVICES WHICH ENABLE THE ASSE SSEES IN TURN TO RENDER SERVICES TO THEIR CLIENTS ABROAD. THIS OUTSO URCING OF WORK TO INDIA WOULD NOT GIVE RISE TO A FIXED PLACE PE AND T HE HIGH COURT JUDGMENT IS, THEREFORE, CORRECT ON THIS SCORE. 16. CONSIDERING THE PAST HISTORY OF THE ASSESSEE IN LIGHT OF THE DECISION OF THIS TRIBUNAL [SUPRA] READ WITH THE DEC ISION OF THE HON'BLE SUPREME COURT IN THE CASE OF E-FUNDS IT SOLUTIONS I NC. [SUPRA], WE HOLD THAT THE ASSESSEE HAS NO BUSINESS CONNECTION IN IND IA IN TERMS OF SECTION 9(1) OF THE ACT AND HAS NO PE UNDER ARTICLE 5(2), 5(4) AND 5(5) OF INDIA MAURITIUS DTAA. 17. SINCE WE HAVE HELD THAT THERE IS NO PE, WE ARE OF THE CONSIDERED VIEW THAT THERE CANNOT BE ANY ATTRIBUTION OF PROFIT AS HELD BY THIS TRIBUNAL IN ASSESSEES OWN CASE IN A.YS 2009-10 AND 2011-12. 18. FOR THE SAKE OF COMPLETENESS OF THE ADJUDICATIO N, AND AS MENTIONED ELSEWHERE, THE TPO HAS ACCEPTED THE INTER NATIONAL TRANSACTIONS AT ARMS LENGTH AND NO ADVERSE INFEREN CE WAS DRAWN. WE 21 HAVE ALSO GONE THROUGH THE TP ASSESSMENT ORDER AND FIND NO ADJUSTMENT. 19. IN THE RESULT THE APPEAL OF THE ASSESSEE IN ITA NO. 1219/DEL/2017 IS ALLOWED. THE ORDER IS PRONOUNCED IN THE OPEN COURT IN THE PRESENCE OF BOTH THE REPRESENTATIVES ON .10.2021. SD/- SD/- [AMIT SHUKLA] [N.K. BILLAIYA] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 20 TH OCTOBER, 2021 VL/ COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI 22 DATE OF DICTATION DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE OTHER MEMBER DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.PS/PS DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE DICTATING MEMBER FOR PRONOUNCEMENT DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.PS/PS DATE ON WHICH THE FINAL ORDER IS UPLOADED ON THE WEBSITE OF ITAT DATE ON WHICH THE FILE GOES TO THE BENCH CLERK DATE ON WHICH THE FILE GOES TO THE HEAD CLERK THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER DATE OF DISPATCH OF THE ORDER