Nimbus sport International Pte Ltd, V. DDIT Circle-2 (2), New Delhi

ITA 2425/DEL/2008

• Counselvise Citation: 242520114 RSA 2008
• Duration Of Justice: 3 year(s) 2 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-09-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: F
• Next Hearing Date: 20-01-2011
• Assessment Year: 2004-2005
• Appeal Filed On: 01-07-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A K MAHAJAN; A D MEHROTRA S
• Assessee Lawyers: S R WADHWA
• Keywords: Business income; Depreciation; Residential status; Double taxation relief; Services rendered outside India; Permanent establishment; Advance ruling; Wholly owned subsidiary
• Section: 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F : NEW DELHI DELHI BENCH F : NEW DELHI DELHI BENCH F : NEW DELHI DELHI BENCH F : NEW DELHI BEFORE SHRI R.P.TOLANI, JM AND SHRI K.D.RANJAN, AM BEFORE SHRI R.P.TOLANI, JM AND SHRI K.D.RANJAN, AM BEFORE SHRI R.P.TOLANI, JM AND SHRI K.D.RANJAN, AM BEFORE SHRI R.P.TOLANI, JM AND SHRI K.D.RANJAN, AM ITA NO ITA NO ITA NO ITA NOS SS S. .. .2423/DEL/2008 2423/DEL/2008 2423/DEL/2008 2423/DEL/2008, 2424/DEL/2008 & 2425/DEL/2008 , 2424/DEL/2008 & 2425/DEL/2008 , 2424/DEL/2008 & 2425/DEL/2008 , 2424/DEL/2008 & 2425/DEL/2008 ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEAR ASSESSMENT YEARS SS S : : : : 2002 2002 2002 2002- -- -03, 2003 03, 2003 03, 2003 03, 2003- -- -04 & 2004 04 & 2004 04 & 2004 04 & 2004- -- -05 0505 05 M/S NIMBUS SPORT M/S NIMBUS SPORT M/S NIMBUS SPORT M/S NIMBUS SPORT INTERNATIONAL PTE INTERNATIONAL PTE INTERNATIONAL PTE INTERNATIONAL PTE LTD., LTD., LTD., LTD., (FORMERLY WORLD SPORT (FORMERLY WORLD SPORT (FORMERLY WORLD SPORT (FORMERLY WORLD SPORT NIMBUS PTE.LTD.), NIMBUS PTE.LTD.), NIMBUS PTE.LTD.), NIMBUS PTE.LTD.), 100 BEACH ROAD, 100 BEACH ROAD, 100 BEACH ROAD, 100 BEACH ROAD, # 17 # 17 # 17 # 17- -- -08, SHAW TOWER, 08, SHAW TOWER, 08, SHAW TOWER, 08, SHAW TOWER, SINGAPORE SINGAPORE SINGAPORE SINGAPORE 189702. 189702. 189702. 189702. VS. VS. VS. VS. DEPUTY DIRECTOR OF DEPUTY DIRECTOR OF DEPUTY DIRECTOR OF DEPUTY DIRECTOR OF INCOME TAX, INCOME TAX, INCOME TAX, INCOME TAX, CIRCLE CIRCLE CIRCLE CIRCLE 2(2), 2(2), 2(2), 2(2), INTERNATIONAL TAXATION, INTERNATIONAL TAXATION, INTERNATIONAL TAXATION, INTERNATIONAL TAXATION, NEW DELHI NEW DELHI NEW DELHI NEW DELHI. .. . (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S.R.WADHWA, ADVOCATE. RESPONDENT BY : SHRI A.K.MAHAJAN AND SHRI A.D.MEHROTRA, CIT-DRS. ORDER ORDER ORDER ORDER PER R.P.TOLANI, JM PER R.P.TOLANI, JM PER R.P.TOLANI, JM PER R.P.TOLANI, JM : :: : THESE ARE THREE APPEALS FILED BY THE ASSESSEE. FO LLOWING COMMON GROUNDS ARE RAISED:- 1. THE ORDER OF THE LD.CIT(A) IS BAD IN LAW AND ON FACTS. 2. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN APPROVING THE ACTION OF THE LD. DY.DIRECTOR OF INCO ME-TAX (INTERNATIONAL TAXATION), CIRCLE 2(2), NEW DELHI IN ASSUMING JURISDICTION WHEREAS THE ASSESSEE WAS BEING ASSESSE D TO TAX BY THE DY.DIT (INTERNATIONAL TAXATION), CIRCLE- 2, MUMBAI AND THEREBY UPHOLDING THE VALIDITY OF THE ASSESSMENT ORDER. 3. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THE VALIDITY OF THE ASSESSMENT ORDER WITH OUT THERE BEING ANY VALID NOTICE U/S 143(2)(II) OF THE ACT. 4. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN UPHOLDING THAT THE ASSESSEE HAD A PERMANENT ESTABLISHMENT IN INDIA. ITA-2423 TO 2425/D/2008 2 5. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW BY UPHOLDING THE ACTION OF THE AO IN TREATING THE GROS S RECEIPTS OF RS.5,26,26,383/- FROM PRASAR BHARTI, AS FEE FOR TECHNICAL SERVICES AND IMPOSING THE TAX OF 20% (RS.1,05,25,276/-) ON SUCH RECEIPTS. AY GROSS RECEIPTS TAX 2003-04 7,64,27,368/- 1,52,85,474/- 2004-05 7,01,68,520/- 1,40,68,520/- 6. THE LD.CIT(A) HAS ERRED ON FACTS AND IN LAW IN N OT TREATING THE RECEIPTS FROM PRASAR BHARTI AS BUSINES S INCOME BEING PURELY COMMERCIAL RECEIPTS, NOT LIABLE TO TAX IN INDIA IN THE ABSENCE OF ANY PE. 7. THE LD.CIT(A) ERRED ON FACTS AND IN LAW IN CONFI RMING THE ESTIMATE OF INCOME OF RS.80,32,331/- IN RESPECT OF AMOUNT RECEIVED BY THE ASSESSEE IN SINGAPORE FROM I NDIAN PARTIES TOWARDS SERVICES RENDERED OUTSIDE INDIA AND APPLYING THE RATE OF TAX AT 48% THEREON. AY INCOME 2003-04 11,73,262/- 2004-05 2,07,607/- 8. THE INTEREST LEVIED U/S 234A, 234B AND 234C IS AGAINST THE LAW AND FACTS AND DESERVES TO BE DELETE D. 2. AT THE TIME OF HEARING, THE ASSESSEE HAS NOT PRE SSED GROUND NOS.1, 2 & 3 IN RESPECT OF THE GROUNDS RELATING TO JURISDICTION AND ISSUE OF NOTICE U/S 143(2). THUS, THE EFFECTIVE GROUNDS WILL BE AS UNDER:- (I) WHETHER THE ASSESSEE HAS A PERMANENT ESTABLISHMENT IN INDIA. (II) ALTERNATIVELY, WHETHER THE RECEIPTS FROM PRASAR BHA RTI AMOUNT TO BUSINESS INCOME FOR ASSESSEE HAVING NO PERMANENT ESTABLISHMENT. (III) WHETHER THE RECEIPTS FROM PRASAR BHARTI CAN BE TREA TED AS FEE FOR TECHNICAL SERVICES AND TAXED ACCORDINGLY AT THE RATE ITA-2423 TO 2425/D/2008 3 OF 10% AS CLAIMED BY ASSESSEE OR 20% AS HELD BY THE REVENUE. (IV) WHETHER THE ASSESSEES RECEIPT OF ADVERTISEMENT REV ENUE IN SINGAPORE FROM INDIAN PARTIES CAN BE TAXED ON TH E BASIS AS ADOPTED BY THE LOWER AUTHORITIES. 3. BRIEF FACTS ARE THAT THE ASSESSEE COMPANY M/S WO RLD SPORTS NIMBUS PTE LTD, NOW KNOWN AS M/S NIMBUS SPORT INTER NATIONAL PTE LTD, ( NSI IN SHORT) WAS INCORPORATED ON 21.03.2000 UND ER THE SINGAPORE COMPANIES ACT. THE PRIMARY OBJECTIVE OF THE COMPAN Y IS TO ENGAGE ITSELF IN THE BUSINESS OF SPORTS COVERAGE/PRODUCTIO N AND/OR DISTRIBUTION AND/OR EVENTS MANAGEMENT AND/OR SPONSORSHIP. IT IS A 50:50 JOINT VENTURE BETWEEN TWO INDEPENDENT AND UNRELATED COMPA NIES I.E. NIMBUS COMMUNICATION WORLDWIDE LTD (NCWL) A COMPANY INCORPORATED IN MAURITIUS UNDER THE LAWS OF MAURITI US AND M/S WORLD SPORTS GROUP LTD. (WSG), A COMPANY INCORPORATED UND ER THE LAWS OF BRITISH VIRGIN ISLANDS. BEING INCORPORATED IN SING APORE, THE ASSESSEE COMPANY IS A TAX RESIDENT IN SINGAPORE. IT IS WHOL LY MANAGED AND CONTROLLED FROM THERE AND CLAIMS NOT TO HAVE ANY PE RMANENT ESTABLISHMENT (PE) IN INDIA, WHETHER BY WAY OF A TA NGIBLE FIXED PLACE PE OR SERVICE PE OR AGENCY PE OR OTHER TYPE OF PE. 4. THE ASSESSEE COMPANY ENTERED INTO AN AGREEMENT W ITH PRASAR BHARTI ( PB IN SHORT) A BROADCASTER OWNED BY THE GOVERNMENT OF INDIA, BEING THE LOWEST BIDDER IN THE FACE OF INTERNATIONA L BIDDING, FOR THE TELECASTING PRODUCTION OF CRICKET EVENTS HELD DURIN G THE PERIOD FROM FEBRUARY 2002 TO OCTOBER 2004. THE ASSESSEE COMPAN Y WAS TO PRODUCE, FOR BROADCASTING, LIVE TELEVISION SIGNALS OF INTERNATIONAL QUALITY MEETING PBS SPECIFICATIONS AND WHICH WERE OF A QUA LITY ACCEPTABLE TO INTERNATIONAL BROADCASTERS FOR COVERAGE OF INTERNAT IONAL CRICKET EVENTS. THE LIST OF SERVICES PROVIDED BY THE COMPANY HAS BE EN FURNISHED IN DETAIL IN ITS AGREEMENT WITH PRASAR BHARTI. ITA-2423 TO 2425/D/2008 4 5. ASSESSEE COMPANY CLAIMS THAT IT WAS INCORPORATED IN SINGAPORE AND WAS RESIDENT IN SINGAPORE FOR TAX PURPOSES AND WAS WHOLLY MANAGED AND CONTROLLED FROM SINGAPORE AND DID NOT H AVE ANY PE IN INDIA WITHIN THE MEANING OF ARTICLE-5 OF INDIA-SING APORE TAX TREATY, IT FILED ITS RETURNS OF INCOME FOR A.YS. 2002-03 AND 2 003-04 ON 21.11.2003 IN MUMBAI WITH DY. DIRECTOR OF INCOME-TA X (INTERNATIONAL TAXATION)-2(2), MUMBAI, WHICH THE COMPANY HONESTLY BELIEVED HAD JURISDICTION OVER THE ASSESSEE COMPANY, AND WHICH J URISDICTION WAS ACCEPTED BY THE AO AS PER ORDER U/S 197 OF THE INCO ME-TAX ACT, 1961 DATED 11.02.2002 REGARDING TAX DEDUCTION AT SOURCE, PASSED BY THE ASST. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATIO N)-2(2), MUMBAI. THE RETURN OF INCOME FOR A.Y. 2004-05 WAS FILED ON 28.1 0.2004 ALSO WITH THE DY. DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) -2(1), MUMBAI DECLARING NIL INCOME. 6. THE AO DID NOT AGREE WITH THE SUBMISSIONS OF THE ASSESSEE AND HELD THAT THE ASSESSEE HAD A PE IN INDIA. ALTERNATI VELY, HE HELD THAT THE INCOME OF THE ASSESSEE WAS IN THE NATURE OF FEES F OR TECHNICAL SERVICES. HE TAXED THE GROSS RECEIPTS @ 20% U/S 4 4D READ WITH SECTION 115A OF THE ACT IGNORING THE PLEA OF THE AS SESSEE THAT INCOME WAS IN THE NATURE OF BUSINESS PROFITS AND WAS NOT T AXABLE IN INDIA UNDER THE INDIA- SINGAPORE DTAA IN THE ABSENCE OF A PE. CIT(A) UPHELD HIS ORDERS. 7. NOW, WE ADVERT TO THE ARGUMENTS OF BOTH PARTIES. GROUND NO. 4 GROUND NO. 4 GROUND NO. 4 GROUND NO. 4 -- ---- -- WHETHER WHETHER WHETHER WHETHER ASSESSEE ASSESSEE ASSESSEE ASSESSEE HAD PERMANENT ESTABLISHMENT (PE) IN HAD PERMANENT ESTABLISHMENT (PE) IN HAD PERMANENT ESTABLISHMENT (PE) IN HAD PERMANENT ESTABLISHMENT (PE) IN INDIA IN THE YEARS UNDER CONSIDERATION NAMELY, A.YS . 2002 INDIA IN THE YEARS UNDER CONSIDERATION NAMELY, A.YS . 2002 INDIA IN THE YEARS UNDER CONSIDERATION NAMELY, A.YS . 2002 INDIA IN THE YEARS UNDER CONSIDERATION NAMELY, A.YS . 2002- -- -03 TO 2004 03 TO 2004 03 TO 2004 03 TO 2004- -- -05 0505 05 8. IT WAS SUBMITTED BY THE ASSESSEES AR THAT THE ONLY ACTIVITY OF THE ASSESSEE COMPANY IN INDIA WAS TO PRODUCE AND SUPPLY LIVE TELEVISION SIGNALS OF INTERNATIONAL QUALITY MEETING PBS TECHN ICAL SPECIFICATIONS IN ITA-2423 TO 2425/D/2008 5 TERMS OF ITS AGREEMENT DATED 11 TH FEBRUARY, 2002. IT IS A STANDARD ACTIVITY OF A COMMERCIAL NATURE WITH WELL KNOWN PRO CEDURES FOR PRODUCING THE TV FEED AND ITS LIVE TELECASTING. TH E PB HAD ACQUIRED THE TELECASTING RIGHTS OF CRICKET MATCHES FROM THE BOARD OF CONTROL FOR CRICKET IN INDIA (BCCI IN SHORT), DURING THE TERM 1 999-2004. 9. THE AWARD OF THE CONTRACT AND ITS EXECUTION INVO LVED THE FOLLOWING MATERIAL; STEPS:- (I) MAKING A PRE-QUALIFICATION BID SENT FROM SINGAPORE TO PB.(COPY AT PP39-59/PB/) (II) AFTER THE ASSESSEE COMPANYS APPROVAL IN THE PRE- QUALIFICATION BID, MAKING A FINANCIAL BID THROUGH INTERNATIONAL TENDERS WHICH WAS ALSO SENT FROM SINGAPORE. (III) SELECTION BEING LOWEST OF THE THREE BIDDERS, THE REMAINING TWO BEING TWI AND WORLDTEL ( LETTER DT 17 -12- 2001 FROM NSIS GROUP COUNSEL, MR. DAVID MALLINSON FROM SINGAPORE AT PP 451-52) (IV) AWARD OF THE CONTRACT FOR RS 28.41 CRORES BY PB VID E ITS LETTER DATED 25-01-2002 (PP-60-61/PB- MENTION OF NEGOTIATIONS WITH MR. VENU NAIR) - NO MENTION OF AN Y TRAINING TO THE TECHNICIANS OF PB. (V) PRE-AGREEMENT CORRESPONDENCE BETWEEN PB AND GROUP COUNSEL- MR. DAVID MALLINSON LETTER DATED 07-02- 02(P.453/PB) FROM PB WITH COVERAGE PLAN AND PLACEMENT OF CAMERAS AND OTHER TECHNICAL DETAILS 45 4- 463/- PB IN REPLY TO LATTERS LETTERS DATED 31-01-0 2 AND 01-02-02 ON THE FORMAT OF THE AGREEMENT. (VI) LETTER DT 08-02-02 FROM PB TO THE GROUP COUNSEL AT SINGAPORE SENDING REVISED AGREEMENT AND FORMAT OF T HE BANK GUARANTEE( P. 470/PB ) (VII) AGREEMENT DATED 11.02.2002 WITH PB SIGNED BY NSI AT SINGAPORE-THE CHAIRMAN, MR. SEAMUS OBRIEN AND THE WITNESS, HIS SECRETARY, AT SINGAPORE. (VIII) BANK GUARANTEE DATED 05-04-02 SIGNED BY MR. SEAMUS OBRIEN AT UK (PP.78-81/PB) ITA-2423 TO 2425/D/2008 6 (IX) ASSEMBLY OF TECHNICIANS FROM DIFFERENT COUNTRIES AN D ASSEMBLY OF TECHNICIANS FROM DIFFERENT COUNTRIES AN D ASSEMBLY OF TECHNICIANS FROM DIFFERENT COUNTRIES AN D ASSEMBLY OF TECHNICIANS FROM DIFFERENT COUNTRIES AN D THEIR TOTAL STAY IN INDIA IN HOTELS AT DIFFERENT PL ACES OF THEIR TOTAL STAY IN INDIA IN HOTELS AT DIFFERENT PL ACES OF THEIR TOTAL STAY IN INDIA IN HOTELS AT DIFFERENT PL ACES OF THEIR TOTAL STAY IN INDIA IN HOTELS AT DIFFERENT PL ACES OF CRICKET MATCHES CRICKET MATCHES CRICKET MATCHES CRICKET MATCHES , IN EACH OF THE THREE YEARS UNDER CONSIDERATION WAS OF LESS THAN 90 DAYS IN EACH YEAR AS PER THE FOLLOWING DETAILS:- AY AY AY AY PERIOD OF STAY PERIOD OF STAY PERIOD OF STAY PERIOD OF STAY NO. OF DAYS. NO. OF DAYS. NO. OF DAYS. NO. OF DAYS. 2002-03 16-02-02 TO 21-03- 02 34 DAYS 2003-04 03-10-02 TO 27-11-02 56 DAYS 2004-05 3-10-03 TO 21-11-03 29 DAYS TOTAL :- 119 119 119 119 DAYS (X) DETAILS OF THE CRICKET MATCHES PLAYED IN INDIA:- DATES DATES DATES DATES TOURNAMENTS TOURNAMENTS TOURNAMENTS TOURNAMENTS VENUE VENUE VENUE VENUE TESTS TESTS TESTS TESTS ODI ODI ODI ODI MATCH MATCH MATCH MATCH DAYS DAYS DAYS DAYS FEB/MARCH 2002 ZIM V. INDIA INDIA 2 5 15 OCT/NOV. 2002 WI V. INDIA INDIA 3 7 22 OCT.2003 NZ V. INDIA INDIA 2 - 10 OCT/NOV. 2004 NZ V. INDIA V. AUS. INDIA - 10 10 TOTAL 7 22 57 10. THE ASSESSEE CLAIMED EXEMPTION FROM INCOME TAX ON THE GROUND THAT ITS INCOME WAS FROM BUSINESS AND THERE WAS NO PERMANENT ESTABLISHMENT, AS THE STAY FOR CARRYING ON THE BUSI NESS IN INDIA WAS LESS THAN 90 DAYS IN EACH OF THE THREE FISCAL YEARS , AS REQUIRED FOR SERVICE PE VIDE ARTICLE 5(6) OF THE DTAA. I. I.I. I. OBSERVATION OBSERVATION OBSERVATION OBSERVATIONS SS S SHAREHOLDERS SHAREHOLDERS SHAREHOLDERS SHAREHOLDERS AND THEIR OFFICE USED FOR RENDERING AND THEIR OFFICE USED FOR RENDERING AND THEIR OFFICE USED FOR RENDERING AND THEIR OFFICE USED FOR RENDERING SERVICES SERVICES SERVICES SERVICES . .. . 11. ACCORDING TO CIT(A), NIMBUS COMMUNICATION LTD. (NCL), SHARE HOLDER OF THE ASSESSEE COMPANY, HAD AN OFFICE IN MU MBAI, WHICH WAS USED FOR THE PURPOSES OF RENDERING A PART OF TECHNI CAL SERVICES. SHRI HARISH THAWANI, CO-CHAIRMAN AND SH. VENU NAIR, DIRE CTOR OF ASSESSEE ITA-2423 TO 2425/D/2008 7 COMPANY WERE HAVING OFFICE AT THE BUSINESS PREMISES OF NCL WHICH WERE USED FOR CARRYING OUT STEPS 1 TO 4 OF THE FOLL OWING 7 STEPS OF RENDERING TECHNICAL SERVICES, NAMELY:- STEP 1 TO UNDERSTAND THE TECHNICAL REQUIREMENT OF CUSTOMER BEFORE SUBMISSION OF BID PROPOSAL. STEP 2 TO DRAW DETAIL TECHNICAL PLAN AND SUBMIT BI D PROPOSAL. STEP-3 TO NEGOTIATE TECHNICAL PLAN, REQUIREMENT OF EQUIPMENT AND MANPOWER AND COMPENSATION WITH THE PB AND FINALIZAT ION OF TERMS AND CONDITIONS OF THE IMPUGNED AGREEMENT, AND TO SIGN A GREEMENT. STEP-4 TO GET APPROVAL FROM PB OF CERTAIN TECHNICA L MANPOWER, LOCATION OF EQUIPMENT ON THE RESPECTIVE STADIUM, CO LOUR DESIGN TO BE USED FOR LIVE TELEVISION SIGNAL AFTER DISCUSSIONS W ITH OFFICIALS OF PB, BCCI AND ICC. STEP 5. TO SEND TECHNICAL PERSONS AT SITE. STEP 6. ACTUAL RECORDING OF THE EVENT. STEP 7. RECORD OF EVENTS IN SP TAP SHAREHOLDERS WERE USED VIS SHAREHOLDERS WERE USED VIS SHAREHOLDERS WERE USED VIS SHAREHOLDERS WERE USED VIS- -- -A AA A- -- -VIS PE VIS PE VIS PE VIS PE. .. . 12. LD CIT (A) HELD THAT STEPS 1 TO 4 ABOVE WERE PE RFORMED IN INDIA BY MR. HARISH THAWANI, CO-CHAIRMAN AND MR. VENU NAI R DIRECTOR, OF THE COMPANY. WITH REGARD TO STEP NO 4, SOME ASSISTANCE IS ATTRIBUTABLE TO BY SHRI DIGVIJAY SINGH CEO AND SEAMUS O BRIAN. ITA-2423 TO 2425/D/2008 8 13. THERE WAS ABSOLUTELY NO EVIDENCE THAT STEPS 1 T O 4 WERE PERFORMED IN INDIA. THE ASSESSEE WAS FOUND TO BE TH E LOWEST TENDERER THROUGH INTERNATIONAL COMPETITIVE BIDDING, THE CONT RACT WAS, THEREFORE, AWARDED TO IT. EXCEPT FOR SOME ROUTINE POST TENDERI NG EXCHANGE OF INFORMATION AND CLARIFICATIONS TO PB, MR. VENU NAIR , DIRECTOR OF THE COMPANY DID NOT RENDER ANY SERVICE. IT HAS BEEN LO OSELY MENTIONED AS NEGOTIATIONS IN ONE OF THE COMMUNICATIONS BY PB O N WHICH ASSESSEE HAS NO CONTROL. ALL THE PRE AND POST TENDERING ACT IVITIES WERE PERFORMED FROM SINGAPORE. THE ACTION OF MR VENU NAI R IS CLEARLY TO BE EXCLUDED FROM THE SCOPE OF PE UNDER ARTICLE 5(8) (A ) OF THE DTAA AS ALL PRE-TENDERING AND POST-TENDERING ACTIVITIES WERE PE RFORMED FROM SINGAPORE. SHRI NAIR HAD NO AUTHORITY OF THE COMPAN Y TO SIGN THE CONTRACT NOR WAS HE REGULARLY ACTING ON BEHALF OF T HE ASSESSEE. IN ANY CASE, THE AGREEMENT WAS ENTERED INTO ON 12-02-2002 WHICH IN ANY CASE INVOLVES LESS THAN 90 DAYS OF FURNISHING OF S ERVICES FURNISHING OF SERVICES FURNISHING OF SERVICES FURNISHING OF SERVICES IN THE FISCAL YEAR 2002-03; NO PE COULD BE ATTRIBUTED ON THIS RE ASONING FOR THE AY 2002-03. IN THE SUBSEQUENT TWO YEARS, THE ASSESSEE HAVING FURNISHED SERVICES FOR LESS THAN 90 DAYS IN EACH YEAR, THERE COULD BE NO PE IN INDIA. 14. THE LD CIT (A) HAS FAILED TO APPRECIATE THE IMP ORTANCE OF THE FACT THAT CLARIFICATIONS AS MAY BE REQUIRED ARE SOUGHT A ND FURNISHED THROUGH CORRESPONDENCE OR OTHER WISE OVER THE PHONE OR BY E -MAIL OR BY OTHER MEANS OF COMMUNICATIONS FROM SINGAPORE WITHOUT THE NEED FOR PERSONAL INTERACTION. 15. ASSESSEE IS A SEPARATE ENTITY FROM NIMBUS COMMU NICATIONS LTD (NCL IN SHORT), MUMBAI WHOSE MEDIA REPORTING IS ADV ERSELY REFERRED BY THE CIT (A). IT IS A COMPANY OF NIMBUS COMMUNICATIO N WORLDWIDE LTD (NCWL) - A COMPANY INCORPORATED UNDER THE LAWS OF M AURITIUS, AND IS A JOINT VENTURE PARTNER IN THE ASSESSEE COMPANY ALONG M/S WORLD SPORTS GROUP LTD. (WSG) A COMPANY INCORPORATED UNDER THE LAWS OF BRITISH ITA-2423 TO 2425/D/2008 9 VIRGIN ISLANDS. THERE WERE 4 DIRECTORS IN NCWL NAME LY, DR. AKASH KHURANA, MR. ASHRAF RAMTOOLA, MRS. RUKHSANA SHAHABA LLY AND MR. HARISH THAVANI. THUS, ONLY MR. THAWANI IS A COMMON ON THE BOARD OF DIRECTORS OF THE ASSESSEE COMPANY. 16. NCWL IS THE WHOLLY OWNED SUBSIDIARY OF NCL WHIC H IS ITSELF AN ESTABLISHED MEDIA AND ENTERTAINMENT COMPANY SINCE 1 987 IN INDIA. AS PER THE JOINT VENTURE TERMS, NCL AND WSG HAD THE RI GHT TO APPOINT TWO NOMINEE DIRECTORS ON THE BOARD OF THE ASSESSEE COMP ANY. IT IS A COINCIDENCE THAT SHRI HARISH THAWANI AND SHRI VENU NAIR, WHO ARE ALSO THE DIRECTORS IN NCL, HOWEVER, THERE IS NO EVIDENCE THAT MR. THAWANIS SERVICES WERE UTILIZED OR NCLS OFFICE WAS REQUIRED OR USED FOR THE ASSESSEE COMPANYS BUSINESS. IT IS APPARENT THAT T V FEED AND ITS LIVE TELECAST WHICH WERE DONE ONLY FROM THE CRICKET FIEL DS/GROUNDS WHERE THE CRICKET MATCHES WERE PLAYED. THE LD. CIT (A) HA S MERELY PRESUMED THAT THE OFFICE PREMISES OF NCL MAY HAVE BEEN USED FOR CARRYING OUT CERTAIN BUSINESS ACTIVITIES OF ASSESSEE. 17. THE WORK PLANS WERE SPECIFIED BY THE PB IN THEI R TENDER DOCUMENTS AND ARE PART OF THE STANDARD PROCEDURES. THE ASSESSEE COMPANY WAS REQUIRED, ESSENTIALLY, TO CAPTURE LIVE CRICKET MATCHES THROUGH ITS HIRED CAMERAS AND PRODUCE LIVE TV SIGNA LS OF INTERNATIONAL QUALITY. THE PLANS FOR PLACEMENT OF CAMERAS ETC IN THE CRICKET FIELD ARE STANDARD PRACTICES NOW AND THE FINAL PLAN WAS GIVEN TO THE ASSESSEE BY PB. THE CIT (A) WITHOUT ANY MATERIAL PRESUMED THAT THE SERVICES AT STEPS 1-4 WOULD HAVE BEEN PERFORMED AND BY THE TWO INDIAN DIRECTORS OF THE COMPANY. 18. TO SUMMARIZE, ALL THE ACTIVITIES WERE ORGANIZED AND CONTROLLED FROM SINGAPORE AS UNDER :- ITA-2423 TO 2425/D/2008 10 I) PRE QUALIFICATION BID SUBMITTED FROM SINGAPORE AGAINST WORLDWIDE TENDER ENQUIRY OF PB. II) AGREEMENT WITH PRASAR BHARATI WAS SIGNED BY TH E CHAIRMAN OF THE ASSESSEE COMPANY IN SINGAPORE SEAMUS OBRIEN. III) PRASAR BHARATI MADE ALL CORRESPONDENCE AT SIN GAPORE. IV) DECLARATION CUM INDEMNITY FURNISHED FROM LONDO N. V) COPY OF INCOME TAX RETURN FILED SHOWS SINGAPORE ADDRESS ON THE PAN CARD. VI) THE ASSESSEE COMPANY HAS BEEN MANAGED AND CONT ROLLED FROM SINGAPORE. VII) DETAILED WORKING OF NO. OF DAYS STAY OF DIREC TORS AND CREW MEMBERS IN INDIA. VIII) ALL CORRESPONDENCE IS AT SINGAPORE ADDRESS. SO MUCH SO, PB SO MUCH SO, PB SO MUCH SO, PB SO MUCH SO, PB PROMISED TO SEND ITS AGREEMENT WITH BCCI BY COURIER TO SINGAPORE PROMISED TO SEND ITS AGREEMENT WITH BCCI BY COURIER TO SINGAPORE PROMISED TO SEND ITS AGREEMENT WITH BCCI BY COURIER TO SINGAPORE PROMISED TO SEND ITS AGREEMENT WITH BCCI BY COURIER TO SINGAPORE. .. . (PAGE 453 OF PBS LATTER DATED 07.02.2002 TO MR. DA VID MALLINSON, GROUP (PAGE 453 OF PBS LATTER DATED 07.02.2002 TO MR. DA VID MALLINSON, GROUP (PAGE 453 OF PBS LATTER DATED 07.02.2002 TO MR. DA VID MALLINSON, GROUP (PAGE 453 OF PBS LATTER DATED 07.02.2002 TO MR. DA VID MALLINSON, GROUP COUNSEL AT SINGAPORE) COUNSEL AT SINGAPORE) COUNSEL AT SINGAPORE) COUNSEL AT SINGAPORE) IX) THE EQUIPMENT, CAMERAS ETC MENTIONED IN PARA 7 .3.3 OF CIT (A)S ORDER IS STANDARD EQUIPMENT AND DOES NOT INVOLVE MA KING AVAILABLE OF ANY TECHNOLOGY NOR IS IT A RELEVANT CONSIDERATION F OR DETERMINING THE PE. X) THE OBSERVATION IN PARA 7-3.4(P.37) OF THE ORDE R THAT THE RENDERING OF TECHNICAL SERVICES REQUIRED CONSTANT C ONSULTATION WITH PB IS ALSO WITHOUT ANY BASIS. THE NATURE AND CONTENT O F SERVICES FOR ITA-2423 TO 2425/D/2008 11 PRODUCING THE TV FEED, ENUMERATED IN PARA 9 ABOVE, WOULD SHOW THAT THERE WAS NO CONSTANT CONSULTATION AFTER THE AWARD OF THE CONTRACT. EVEN THE POSITION OF THE CAMERAS IN THE CRICKET FIE LD WAS SETTLED THEN AND COMMUNICATED BY PB TO ASSESSEE. THE SELECTION O F A PRODUCER DOES NOT REQUIRE ANY CONSTANT CONSULTATION AS IT IN VOLVES APPROVING A PERSON FROM A FEW WELL KNOWN PERSONS IN THIS AREA. XI) NO TECHNICAL SERVICES AS ENUMERATED IN PARA 7. 3.5 (PAGE 38) WERE RENDERED PER SE. THEY ARE ALL STANDARD SERVICE S AND MAY BE REQUIRED OR INCIDENTAL TO PRODUCTION OF A COMMERCIA L PRODUCT, NAMELY, TV FEED WHICH HAS BEEN THE SUBJECT MATTER OF THE CO NTRACT. II. O II. O II. O II. OBSERVATIONS BSERVATIONS BSERVATIONS BSERVATIONS- -- - PRE PRE PRE PRE- -- -SALES MAPPING AND ADVERTISEMENT IN PB MATCHES SALES MAPPING AND ADVERTISEMENT IN PB MATCHES SALES MAPPING AND ADVERTISEMENT IN PB MATCHES SALES MAPPING AND ADVERTISEMENT IN PB MATCHES IN INDIA IN INDIA IN INDIA IN INDIA 19. THE CIT(A) HAS, NOTED FROM THE INTERVIEW OF SH RI HARISH THAWANI INDIA TV AS EXTRACTED IN PARA 7.3.6 (D)(PP 40-43) THAT HE CARRIED OUT FOLLOWING IMPORTANT AND CORE ACTIVITIES RELATING TO BUSINESS OF ADVERTISEMENT OF ASSESSEE COMPANY IN INDIA. (A) CARRIED OUT PRE-SALES MAPPING (B) IDENTIFIED THE NINE CATEGORIES OF TARGET FROM WHICH ASSESSEE COMPANY COULD EARN REVENUE (C) NEGOTIATED AGREEMENT WITH ADVERTISERS IN INDIA ASSESSEE ASSESSEE ASSESSEE ASSESSEES S S S EXPLANATION EXPLANATION EXPLANATION EXPLANATION 20. THE DISCUSSION IN THE TV INTERVIEW WAS ABOUT TH E WORLD CUP 2003 WHICH WAS NOT THE SUBJECT MATTER OF CONTRACT BETWEE N THE ASSESSEE AND PB. SUCH NEWS ITEMS RELATABLE TO SUBSEQUENT PER IOD DO NOT CONSTITUTE RELIABLE MATERIAL FOR DRAWING ANY CONCLU SIONS IN INCOME TAX PROCEEDINGS. BESIDES, ASSESSEE DID NOT GET ANY ADV ERTISEMENT ITA-2423 TO 2425/D/2008 12 BUSINESS FOR THE PB CRICKET MATCHES IN THIS PERIOD IN INDIA. THEREFORE, WHETHER OR NOT THERE WERE ANY NEGOTIATIONS CARRIED OUT BY MR. THAWANI WITH THE ADVERTISERS IS WHOLLY IRRELEVANT TO THE DE TERMINATION OF THE ISSUE OF PE OF THE ASSESSEE COMPANY. IN THE INTERVI EW, MR. THAWANI ONLY MENTIONED THE ACHIEVEMENTS OF HIS COMPANIES. H E IS NOT THE MANAGING DIRECTOR OF THE ASSESSEE COMPANY BUT ONLY ITS CO-CHAIRMAN. III. III.III. III. O OO OBSERVATIONS BSERVATIONS BSERVATIONS BSERVATIONS- -- - FIXED PLACE OF BUSINESS FIXED PLACE OF BUSINESS FIXED PLACE OF BUSINESS FIXED PLACE OF BUSINESS 21. THE ASSESSEE COMPANY HAD A FIXED PLACE OF BUSIN ESS IN MUMBAI IN THE FORM OF THE OFFICES OF S/SHRI HARISH THAWANI AND VENU NAIR WHICH WERE LOCATED AT THE BUSINESS PREMISES OF NCL. THES E FIXED PLACES WERE AT THE DISPOSAL OF THE CO-CHAIRMAN AND DIRECTOR OF ASSESSEE COMPANY. THE TWO DIRECTORS ALSO RESIDED IN INDIA. ASSESSEE ASSESSEE ASSESSEE ASSESSEES EXPLANATION S EXPLANATION S EXPLANATION S EXPLANATION (I) THERE WAS NO FIXED PLACE OF BUSINESS AT MUMBAI FROM WHERE THE ASSESSEE CARRIED OUT ITS BUSINESS ACTIVI TIES. LOOKING TO THE NATURE OF THE ASSESSEES BUSINESS NO SUCH PL ACE WAS REQUIRED. SERVICES FOR PRODUCING THE DESIRED TV FEED WERE RENDERED FROM THE CRICKET GROUND AND NOT ANY OTHER PREMISES INCLUDING MR.THAWANI AND MR.NAIR. THE PRE-CONTRACT BIDDING DOCUMENT WAS PREPARED AND SUBMITTED FROM SINGAPORE, SIGNING OF CONTRACT ALSO TOOK PLACE FROM SINGAPORE AND ONLY A POSTAL ADDRESS IN INDIA CANNOT CONSTITUTE EXISTENCE OF PE. (II) ALL IMPORTANT DECISIONS TO NEGOTIATE AND CONCLUDE T HE AGREEMENT WITH PRASAR BHARTI WERE TAKEN BY THE BOARD OF DIREC TORS OF ASSESSEE AT SINGAPORE. THE MANAGEMENT AND CONTROL WAS VESTE D IN THE BOARD OF DIRECTORS, EXCEPT FOR ONE MEETING, ALL TH E BOARD MEETINGS, DURING THE PERIOD 2002-04 WERE HELD OUTSIDE INDIA. DETAILS OF ALL THE ITA-2423 TO 2425/D/2008 13 BOARD MEETINGS FOR THE A.YS. 2002-03 TO 2004-05 HAV E ALREADY BEEN FURNISHED AT P.212/PB. III. III. III. III. RESIDENCE OF THE DIRECTORS AND THE DOMEST IC LAW RESIDENCE OF THE DIRECTORS AND THE DOMESTIC LAW RESIDENCE OF THE DIRECTORS AND THE DOMESTIC LAW RESIDENCE OF THE DIRECTORS AND THE DOMESTIC LAW SECTION 6(3)(II) SECTION 6(3)(II) SECTION 6(3)(II) SECTION 6(3)(II) OF THE ACT OF THE ACT OF THE ACT OF THE ACT 22. EVEN UNDER THE DOMESTIC LAW, THE RESIDENCE OF A DIRECTOR IS IMMATERIAL FOR THE PURPOSE OF DETERMINING THE RESID ENCE OR PE OF A NON- RESIDENT COMPANY. RELEVANT SECTION 6(3) (II) STIPUL ATES THAT A COMPANY IS RESIDENT IN INDIA ONLY ONLY ONLY ONLY IF DURING THAT YEAR THE CONTROL AND MANAGEMENT OF ITS AFFAIRS IS SITUATED WHOLLY IN IND IA EVEN IF A SLIGHT CONTROL AND MANAGEMENT IS EXERCISED OUTSIDE INDIA, IT WOULD BE TREATED AS A NON-RESIDENT COMPANY. FOLLOWING FACTS DEMONSTR ATE THAT THE ASSESSEE COMPANYS CONTROL AND MANAGEMENT WAS LOCAT ED WHOLLY OUTSIDE INDIA: (I) REGISTERED OFFICE OF THE COMPANY IS AT SINGAPO RE. THE CERTIFICATE OF INCORPORATION DATED 21.03. 200 IS ALSO FROM SING APORE. (P 1/ PB) (II) TAX RESIDENCY CERTIFICATE IS ISSUED BY THE SI NGAPORE TAX AUTHORITIES. (P 213/ PB) (III) SEAMUS OBRIEN CO-CHAIRMAN OF THE COMPANY AN D DIRECTORS, OTHER THAN MR. THAWANI AND MR. VENU NAIR, WERE PERM ANENT RESIDENTS OUT SIDE INDIA INCLUDING SINGAPORE (IV) EXCEPT ONE, ALL BOARD MEETINGS WERE HELD AT S INGAPORE OR IN OTHER FOREIGN COUNTRIES (P 212) (V) STATUTORY AUDITORS OF THE COMPANY WERE APPOIN TED AT SINGAPORE AND ALSO BELONG TO SINGAPORE. (VI) MAINTENANCE OF STATUTORY BOOKS OF ACCOUNT INCL UDING RECORD OF MINUTES WERE MAINTAINED AND KEPT AT SINGAPORE. (VII) THE MANAGEMENT OF THE COMPANY INCLUDING ITS DAY TO DAY AFFAIRS WAS CONDUCTED FROM SINGAPORE. ITA-2423 TO 2425/D/2008 14 (VIII) THE ANNUAL GENERAL MEETING OF THE SHAREHOLD ERS WAS HELD AT SINGAPORE. (IX) THE BANK ACCOUNTS AND THEIR OPERATIONS WERE D ONE AT SINGAPORE. (X) THE CORRESPONDENCE RELATING TO THE BUSINESS AF FAIRS WAS CARRIED OUT AT SINGAPORE. (XI) THE CORPORATE EXISTENCE OF THE COMPANY WAS BE ING MAINTAINED AT SINGAPORE. (XII) THE LEGAL ADVISER OF THE COMPANY WAS LOCATED OUT SIDE INDIA. (XI) THE COMPANY SECRETARY AND ALSO THE CEO (MR. K . DIGVIJAY SINGH WERE PERMANENTLY LOCATED AT SINGAPORE. (XII) THE TAX RETURNS WERE REGULARLY FILED AT SING APORE. 23. COMPANY IS A NON-RESIDENT FOR THE PURPOSE OF TH E DOMESTIC LAW OF INDIA, IT IS A RESIDENT OF SINGAPORE UNDER ARTICLE 4 OF THE DTAA BECAUSE IT IS A RESIDENT UNDER THE DOMESTIC LAW OF SINGAPOR E AND ITS PLACE OF EFFECTIVE MANAGEMENT IS LOCATED AT SINGAPORE. 24. ITAT, DELHI BENCH IN RADHA RANI HOLDINGS (P) LT D. V. ADDL. DIRECTOR OF INCOME-TAX (2007) 110 TTJ (DEL) 920, HE LD THAT THE STAY OF A DIRECTOR IN INDIA DOES NOT MAKE THE COMPANY A RESID ENT OF INDIA. IN THAT CASE ALSO THE COMPANY WAS REGISTERED IN SINGAPORE A ND ONE OF THE TWO DIRECTORS WAS A PERMANENT RESIDENT OF INDIA. IT IS THE SITUS OF THE BOARD OF DIRECTORS WHICH EXERCISES CONTROL AND PERFORM MA NAGEMENT FUNCTIONS THAT IS THE RELEVANT CONSIDERATION. IV. IV.IV. IV. O OO OBSERVATIONS BSERVATIONS BSERVATIONS BSERVATIONS- -- - SERVICE PE SERVICE PE SERVICE PE SERVICE PE- -- - THE DURATION TEST THE DURATION TEST THE DURATION TEST THE DURATION TEST. .. . 25. ACCORDING TO CIT(A), THE TECHNICAL SERVICES WER E RENDERED BY VARIOUS PERSONS LIKE CO-CHAIRMAN, TECHNICAL CREW, T V CREW, PROGRAMMER AND ENGINEERS OF PB AND OTHER SUPPORTING STAFF WHICH STARTED WITH INITIAL STEP-1- ASCERTAINING THE TECHN ICAL REQUIREMENTS I.E. OCTOBER, 2001 WHEREAS ASSESSEE HAD ERRONEOUSLY DETE RMINED 90 DAYS ITA-2423 TO 2425/D/2008 15 DURATION TEST BY TAKING INTO ACCOUNT THE STAY PERIO D OF TV CREW ONLY AND HAD NOT TAKEN INTO ACCOUNT THE STAY OF CHAIRMAN , DIRECTOR OF ASSESSEE COMPANY, PROGRAMMERS AND ENGINEERS OF PB A ND OTHER TECHNICAL MANPOWER. TAKING SUPPORT FROM CERTAIN OBS ERVATIONS FROM THE COMMENTARY ON PE BY MR. ARVIND A SKAAR IN THE C ONTEXT OF CONSTRUCTION PE, (PARA 7-3.12), LOWER AUTHORITIES W ORKED OUT THE TOTAL DURATION AND SINCE IT COMES TO MORE THAT 90 DAYS IN EACH OF THE THREE YEARS, IT HAS BEEN HELD THAT THE ASSESSEE COMPANY H AD A SERVICE PE ALSO. THE PERIOD CALCULATED IN PARA 7.3.13 (F) [PP 53-55] OF CIT(A)S ORDER IS SUMMARIZED AS UNDER:- PARTICULARS PARTICULARS PARTICULARS PARTICULARS AY 2002 AY 2002 AY 2002 AY 2002- -- - 03 0303 03 AY 2003 AY 2003 AY 2003 AY 2003- -- - 04 0404 04 AY 2004 AY 2004 AY 2004 AY 2004- -- - 05 0505 05 TV CREW 36 DAYS 58 DAYS 51 DAYS MR. SEAMUS OBRIEN 8 DAYS 4 DAYS 3 DAYS PROGRAMMER & ENGINEERS 365 DAYS 365 DAYS 365 DAYS MR. VENU NAIR 365 DAYS 365 DAYS 365 DAYS MR. HARISH THAWANI 365 DAYS 365 DAYS 365 DAYS TECHNICAL PERSONNAL 54 DAYS 78 DAYS 69 DAYS MR. DIGVIJAY SINGH - 34 DAYS 39 DAYS ASSESSEE ASSESSEE ASSESSEE ASSESSEES EXPLANATION S EXPLANATION S EXPLANATION S EXPLANATION 26. THE STAY OF NONE OF THE ABOVE PERSONS, EXCEPT THE ACTUAL PERIOD OF STAY OF THE TECHNICAL PERSONNEL, IS RELEVANT IN DETERMINING THE PERIOD FOR FURNISHING SERVICES IN CONNECTION WITH THE PE RFORMANCE OF THE CONTRACT. IN RESPONSE TO THE TENDER ENQUIRY NO. 2/4 2/2001 FROM PB IN OCTOBER 2001, THE ASSESSEE COMPANY SENT FROM SINGAP ORE THE PRE- QUALIFICATION BID OFFER VIDE LETTER DTD. 12.12.2001 (P.57/PB). THE BID DOCUMENT WAS PREPARED AT SINGAPORE AND WAS SENT FRO M THERE TO THE PB. THE MEDIA REPORTS, RELIED UPON BY THE CIT (A) - EVEN IF WERE TO BE REGARDED AS CORRECT, DO NOT SHOW THAT MR. HARISH TH AWANI RENDERED ANY ITA-2423 TO 2425/D/2008 16 SERVICES IN THIS REGARD. THE NEWSPAPER REPORT SHOW SOME KNOWLEDGE OF MR. HARISH THAWANI ABOUT THE CONTRACT WHICH IS N ATURAL CONSIDERING THAT HE WAS CO-CHAIRMAN OF THE ASSESSEE COMPANY. SH RI VENU NAIR, DIRECTOR, DID APPEAR BEFORE THE NEGOTIATING COMMITT EE ON 16.1.2001 AS PER LETTER DATED 25.01.2002 (P. 60/PB) OF PRASAR BHARTI. THE ACCEPTANCE OF THE BID WAS SENT TO THE ASSESSEE COMP ANY AT SINGAPORE AND THE CONTRACT WAS EXECUTED AT SINGAPORE ON 11.02 .2002 BY MR. SEAMUS OBRIEN, CO-CHAIRMAN FOR THE ASSESSEE COMPAN Y IN THE PRESENCE OF HIS SECRETARY, KATY MACLEAN. 27. THE STAY OF THE DIRECTORS OF THE ASSESSEE COMPA NY IS NOT RELEVANT FOR PURPOSES OF DETERMINING PE SINCE THE MANAGEMENT AND CONTROL WAS IN THE HANDS OF BOARD OF DIRECTORS WHOSE MEETINGS W ERE HELD OUTSIDE INDIA EXCEPT ONE ON 02.04.2002 AT MUMBAI. THE DETA ILS OF THE BOARD MEETINGS ARE GIVEN ON PG. 212/PB. THE LD. CIT (A) HAS TAKEN INTO CONSIDERATION THE STAY OF PROGRAMMERS AND ENGINEERS OF PRASAR BHARTI IN DETERMINING THE PE WHICH IS TOTALLY INCORRECT. THESE PERSONS ARE NOT EMPLOYEES OF THE ASSESSEE COMPANY AND UNDER THE CON TRACT; THEIR SERVICES WERE NOT AT ALL TO BE PROVIDED BY THE ASSE SSEE COMPANY. THEY MAY HAVE BEEN PRESENT DURING THE DAYS OF MATCHES TO SUPERVISE THE PRODUCTION OF LIVE TELEVISION SIGNALS. BY NO STRETC H OF IMAGINATION THEIR STAY IN INDIA CAN BE INCLUDED FOR DETERMINING THE P E OF THE ASSESSEE COMPANY. THE NAMES OF TECHNICAL PERSONNEL WERE FURN ISHED TO THE LD. CIT (A) AND THEIR NAMES AND PERIOD OF STAY WERE DUL Y FURNISHED BEFORE THE AO AND HAVE BEEN REPRODUCED IN THE ASSESSMENT O RDER FOR A.Y. 2002-03. (PP. 5-6) THEY WERE ALSO FURNISHED TO THE LD. CIT(A) AND ARE AVAILABLE AT PP. 111-112/PB FOR A.Y. 2002-03 AND ON PP. 131-132/PB FOR A.Y. 2003-04. THE STAY OF THE TV CREW AND OTHER T ECHNICAL PERSONNEL INCLUDING MR. SEAMUS OBRIEN CHAIRMAN AND MR. DIGVI JAY SINGH, CFO SENT TO INDIA FOR THE PRODUCTION OF TV FEED AND OTH ER ALLIED ACTIVITIES WAS AS FOLLOWS:- ITA-2423 TO 2425/D/2008 17 A.Y. NO. OF DAYS RELEVANT PAGE NO. OF PAPER BOOK 2002-03 42 212-A 2003-04 56 212-B 2004-05 60 212-C 28. IT DOES NOT EXCEED THE REQUIREMENT OF 90 DAYS AS PROVIDED IN ART. 5(6) OF THE DTAA. AND AS SUCH, ACCORDING TO THE ASS ESSEE, THERE WAS NO SERVICE PE IN INDIA. THE RELIANCE ON THE COMMENTARY BY A SKAAR IS MISPLACED. THE LD AUTHOR WAS COMMENTING ON THE SCOP E OF THE EXPRESSION CARRIES ON SUPERVISORY ACTIVITIES WITH IN THE MEANING OF THE CONSTRUCTION PE IN ARTICLE 5(4) OF THE OECD MOD EL DTAA. IT WAS IN THAT CONTEXT THAT HE OPINED THAT THE PHYSICAL START OF THE ACTUAL CONSTRUCTION IS NOT REQUIRED. THIS CONFORMS BEST WI TH THE WAY THE BASIC RULE IS INTERPRETED, WHERE A PE IS ESTABLISHED AS S OON AS PREPARATORY BUSINESS ACTIVITIES ARE COMMENCED IN THE COUNTRY, PROVIDE THAT THE ACTIVITY LATER LEADS TO THE PERFORMANCE OF A CORE BUSINESS ACTIVITY. A PRACTICAL STARTING POINT FOR THE TIME LIMIT IS THE DAY WHEN THE FIRST EMPLOYEE OF THE CONTRACTOR ARRIVES AT THE BUILDING SITE'. IN THE PRESENT CASE THE ISSUE IS WHETHER THERE WAS A SERVICE PE OR NOT WITH IN THE MEANING OF ART. 5(6) OF THE DTAA UNDER WHICH ONE HA S TO SEE FOR HOW LONG THE FOREIGN ENTERPRISE FURNISHES SERVICES FURNISHES SERVICES FURNISHES SERVICES FURNISHES SERVICES IN THE CONTRACTING STATE. THE WORD FURNISHES SERVICES IS NARROWER I N SCOPE THAN THE EXPRESSION CARRIES ON SUPERVISORY SERVICES BUT EV EN THEN THE LD AUTHOR HAS TAKEN THE STARTING POINT AS THE DATE OF ARRIVAL OF THE FIRST EMPLOYEE OF THE CONTRACTOR FOR PERFORMING THE SERVI CES REQUIRED UNDER THE CONTRACT BUT NOT THE PERIOD OF STAY OF THE PERS ONS NOT REQUIRED TO PERFORM ANY ACTIVITIES UNDER THE CONTRACT OR VISITI NG INDIA FOR OTHER PURPOSES ( E.G. VISIT OF MR. DIGVIJAY SINGH CEO) OR MAKING PRESUMPTIVE CALCULATIONS OR PRIME-FACIE INCORRECT COMPUTATIONS AS WILL BE EXPLAINED BELOW:- V. V. V. V. ADDITION OF 2 DAYS FOR THE STAY OF CRE ADDITION OF 2 DAYS FOR THE STAY OF CRE ADDITION OF 2 DAYS FOR THE STAY OF CRE ADDITION OF 2 DAYS FOR THE STAY OF CREW MEMBERS ON AN ADHOC W MEMBERS ON AN ADHOC W MEMBERS ON AN ADHOC W MEMBERS ON AN ADHOC BASIS BASIS BASIS BASIS. .. . ITA-2423 TO 2425/D/2008 18 29. THE LD CIT(A) HAS ADDED TWO DAYS FOR THE DURA TION OF THE CREW MEMBERS STAY ON ACCOUNT OF THEIR ALLEGED ADVANCE VI SIT VIDE PARA 7.3. 13 (F) OF HIS ORDER. THERE WAS NO JUSTIFICATION FOR MAKING THIS ADHOC ADDITION WHEN ADVANCE ARRIVAL IS EVIDENT FROM THE Y EAR WISE DATES OF ARRIVAL AND DEPARTURE OF THE CREW AND OTHER TECHNIC AL PERSONNEL REQUIRED FOR FURNISHING THE SERVICES UNDER THE CO NTRACT. THE RELEVANT DATES HAVE BEEN PRODUCED IN THE ORDER OF THE CIT (A ) ITSELF ON PAGE 34 OF HIS ORDER. AS AGAINST THE DURATION OF THE MATCHE S FOR THE THREE YEARS AS AGAINST THE DURATION OF THE MATCHES FOR THE THRE E YEARS AS AGAINST THE DURATION OF THE MATCHES FOR THE THRE E YEARS AS AGAINST THE DURATION OF THE MATCHES FOR THE THRE E YEARS OF 57 DAYS, [15 + 32 + 10] THE PERIOD OF STAY OF TH E CREW IS 119 DAYS [34 OF 57 DAYS, [15 + 32 + 10] THE PERIOD OF STAY OF TH E CREW IS 119 DAYS [34 OF 57 DAYS, [15 + 32 + 10] THE PERIOD OF STAY OF TH E CREW IS 119 DAYS [34 OF 57 DAYS, [15 + 32 + 10] THE PERIOD OF STAY OF TH E CREW IS 119 DAYS [34 + 56+ 29] + 56+ 29] + 56+ 29] + 56+ 29] (II) ADDITION OF 20 DAYS FOR STAY OF TECHNICAL CREW (II) ADDITION OF 20 DAYS FOR STAY OF TECHNICAL CREW (II) ADDITION OF 20 DAYS FOR STAY OF TECHNICAL CREW (II) ADDITION OF 20 DAYS FOR STAY OF TECHNICAL CREW - -- - DUE TO THEIR ALLEGED DUE TO THEIR ALLEGED DUE TO THEIR ALLEGED DUE TO THEIR ALLEGED ADVANCE VISIT. ADVANCE VISIT. ADVANCE VISIT. ADVANCE VISIT. 30. ON THE BASIS OF A NEWSPAPER REPORT AS APPEARED IN THE DAILY NEWSPAPER, THE TELEGRAPH, CALCUTTA ON 18.10.2002 THE CIT (A) CONCLUDED THAT IN ORDER TO PRODUCE AND GENERATE A L IVE TELEVISION SIGNAL, THE ASSESSEE COMPANY HAD SENT ITS TECHNICAL PERSONNEL, MR. JOE LOPEZ 20 DAYS IN ADVANCE FROM THE DATE OF THE MATCH TO INSPECT THE STADIUM, TO IDENTIFY THE LOCATION OF THE INSTALLATI ON OF THE EQUIPMENT, TO STUDY PITCH CONDITION AND FOR OTHER TECHNICAL DISCU SSIONS WITH BIHAR CRICKET ASSOCIATION. HE HAS THEREFORE INCREASED THE DURATION SPAN BY 20 DAYS IN ALL THE THREE YEARS AND ADDED THEM TO TH E STAY OF THE CREW TO MAKE ADDITIONAL STAY OF 54, 78 AND 69 DAYS IN TH E AYS 2002-03. 2003-04 AND 2004-05 RESPECTIVELY. ASSESSEE ASSESSEE ASSESSEE ASSESSEES EXPLANATION S EXPLANATION S EXPLANATION S EXPLANATION 31. AS PER THE EXTRACTS FROM THE TELEGRAPH IN PARA 7.5.13 (P.52), MR. JOE LOPEZ VISITED JAMSHEDPUR ON 17.10.2002 TO INSPE CT THE STADIUM FOR THE MATCH TO BE PLAYED ON 06.11.2002. AS PER DETAI LS FURNISHED ON ITA-2423 TO 2425/D/2008 19 PAGE 212/PB, AND ALSO REPRODUCED ON PP 5-6 OF THE A OS ASSESSMENT ORDER FOR THE AY 299-03, MR. JOE LOPEZ (SHOWN AT SL NO 3), ALONG WITH TWENTY SIX OTHER CREW AND OTHER TECHNICAL MEMBERS I NCLUDING THE PRODUCER MARGARET HUTCHINGS (AT SL NO. 20 IN THE LI ST), CAME TO-GATHER AND WAS IN INDIA FOR 56 DAYS DURING F.Y. 2002-03 FR OM 3.10.2002 TO 27.11.2002. THIS PERIOD INCLUDED THE INSPECTION VIS ITS TO EACH OF THE VENUES. SINCE HE WAS IN INDIA, HE MAY HAVE VISITED JAMSHEDPUR ON 17- 10 2002 I.E. THE DAY REPORTED BY THE TELEGRAPH. TH ERE WAS NO MATERIAL WITH THE LD. CIT (A) TO ADD 20 DAYS TO HIS STAY MUC H LESS MAKE AN ADHOC ADDITION OF 20 DAYS STAY FOR THE OTHER TWO YE ARS ALSO AND THAT TOO BY ADDING IT TO THE STAY OF THE OTHER CREW MEMB ERS TO MAKE ADDITION OF 54, 78 AND 69 DAYS IN EACH OF THE THREE YEARS.. NO OPPORTUNITY WAS ALLOWED DURING THE COURSE OF PROCEE DINGS BEFORE DRAWING THIS UNWARRANTED INFERENCE. (III) ADDITION ON ACCOUNT OF OBRIAN AND DIGVIJAY S INGHS STAY. (III) ADDITION ON ACCOUNT OF OBRIAN AND DIGVIJAY S INGHS STAY. (III) ADDITION ON ACCOUNT OF OBRIAN AND DIGVIJAY S INGHS STAY. (III) ADDITION ON ACCOUNT OF OBRIAN AND DIGVIJAY S INGHS STAY. 32. SHRI DIGVIJAY SINGH, CEO OF THE ASSESSEE COMPA NY (W.E.F. 26.07.2002) AND MR. SEAMUS OBRIEN, CO-CHAIRMAN HAD ALSO VISITED INDIA IN YEARS UNDER CONSIDERATION TO FINALIZE TECH NICAL PLAN AND TO ATTEND CO-ORDINATION MEETING FOR PRODUCTION AND GEN ERATION OF TV SIGNALS. ASSESSEE ASSESSEE ASSESSEE ASSESSEES S S S EXPLANATION EXPLANATION EXPLANATION EXPLANATION 33. SHRI DIGVIJAY SINGH WAS IN INDIA FOR 8 DAYS OU T OF 34 DAYS AS PER DETAILS GIVEN ON PAGE 212B OF PB AND 31 DAYS IN F.Y . 2003-04 AS PER DETAILS GIVEN ON P.212C. THESE DETAILS WERE DULY F URNISHED BEFORE THE LD. CIT (A) AND ARE AVAILABLE AT PP. 111-112/PB FOR A.YS. 2003-04 AND 2004-05. MR. K. DIGVIJAY SINGH WAS ALSO A DIRECTOR OF THOMAS COOK IN INDIA FOR WHOSE BOARD MEETINGS; HE USED TO BE IN IN DIA, AS IS SPECIFICALLY MENTIONED AGAINST THE DATES OF HIS VIS IT TO INDIA. MR. ITA-2423 TO 2425/D/2008 20 DIGVIJAY SINGH HAS BEEN PERMANENTLY STAYING AT SING APORE AT 61, GRANGE ROAD, #04-04, BEVERLY HILLS, SINGAPORE-24957 0 EVER SINCE HE HAD BEEN THE CHIEF EXECUTIVE OFFICER OF THE ASSESSE E COMPANY FROM 26.08.2002. HIS VISIT ALSO INCLUDED HOME LEAVE FOR 21 DAYS AND MEETINGS WITH THOMAS COOK WHERE HE WAS A DIRECTOR. HIS VISITS SYNCHRONIZED WITH THE VISIT OF THE CREW AND HOLDING OF MATCHES IN INDIA. LIKE WISE, THE VISIT OF O, SEAMUS BRIEN SYNCHRONIZE D WITH THE VISIT OF THE CREW AND HOLDING OF MATCHES. IN ANY CASE, WHER EVER APPLICABLE, THEY HAVE BEEN TAKEN INTO CONSIDERATION AS PER CALC ULATIONS ON PP. 212A TO 212C/PB. NO FURTHER ADDITION IN THE NUMBER OF DAYS IS CALLED FOR. (IV) COUNTING OF 365 DAYS FOR EACH OF THE THREE YEA RS OF THE (IV) COUNTING OF 365 DAYS FOR EACH OF THE THREE YEA RS OF THE (IV) COUNTING OF 365 DAYS FOR EACH OF THE THREE YEA RS OF THE (IV) COUNTING OF 365 DAYS FOR EACH OF THE THREE YEA RS OF THE PROGRAMMERS AND ENGINEERS OF THE PB FOR CRICKET MAT CHES HELD FOR A FEW PROGRAMMERS AND ENGINEERS OF THE PB FOR CRICKET MAT CHES HELD FOR A FEW PROGRAMMERS AND ENGINEERS OF THE PB FOR CRICKET MAT CHES HELD FOR A FEW PROGRAMMERS AND ENGINEERS OF THE PB FOR CRICKET MAT CHES HELD FOR A FEW DAYS: DAYS: DAYS: DAYS: 34. THE ABOVE ADDITION IN THE NUMBER OF DAYS MADE BY THE LD CIT (A) IS ALSO WITHOUT ANY BASIS. ALL TECHNICAL DETAILS, INCLUDING FINAL PLACEMENT PLAN OF CAMERAS (P. 454/PB) WERE FINALIZE D BEFORE 07.02.2002 WHEN A REVISED AGREEMENT WAS SIGNED (PP. 453-469/PB). THERE IS NO SUCH REQUIREMENT UNDER THE CONTRACT WIT H PRASAR BHARTI TO PROVIDE ANY OF THE PROGRAMMERS OR ENGINEERS. AT WOR ST, EVEN IF WE PRESUME THAT SOME PERSONS WERE FROM PB, THEIR SERVI CES TO NSI WOULD ONLY BE FOR THE DURATION OF THE MATCHES AND NOT BEF ORE AND AFTER. NO SEPARATE ADDITION TO THE NUMBER OF DAYS OF RENDERIN G SERVICES IS CALLED FOR ON THIS SCORE. (V) ADDITION BY THE CIT (A) OF 365 DAYS TO THE NUM BER ON ACCOUNT OF THE (V) ADDITION BY THE CIT (A) OF 365 DAYS TO THE NUM BER ON ACCOUNT OF THE (V) ADDITION BY THE CIT (A) OF 365 DAYS TO THE NUM BER ON ACCOUNT OF THE (V) ADDITION BY THE CIT (A) OF 365 DAYS TO THE NUM BER ON ACCOUNT OF THE STAY IN INDIA OF EACH OF THE TWO DIRECTORS. STAY IN INDIA OF EACH OF THE TWO DIRECTORS. STAY IN INDIA OF EACH OF THE TWO DIRECTORS. STAY IN INDIA OF EACH OF THE TWO DIRECTORS. 35. AS REGARDS THE STAY OF TWO DIRECTORS IN INDIA FOR 365 DAYS FOR EACH OF THE TWO DIRECTORS TO THE TOTAL NUMBER OF DAYS, T HERE IS NO EVIDENCE, ITA-2423 TO 2425/D/2008 21 EXCEPT OF SOME NEGOTIATION OF MR. VENU NAIR THAT AN Y SERVICES WERE RENDERED BY HIM OR BY MR. HARISH THAWANI. THEIR ST AY IN INDIA DOES NOT HEIR STAY IN INDIA DOES NOT HEIR STAY IN INDIA DOES NOT HEIR STAY IN INDIA DOES NOT CONSTITUTE A PE EITHER UNDER THE DOMESTIC LAW [SECT IO CONSTITUTE A PE EITHER UNDER THE DOMESTIC LAW [SECT IO CONSTITUTE A PE EITHER UNDER THE DOMESTIC LAW [SECT IO CONSTITUTE A PE EITHER UNDER THE DOMESTIC LAW [SECT ION 6(3) (II) OF THE N 6(3) (II) OF THE N 6(3) (II) OF THE N 6(3) (II) OF THE ACT] AS ACT] AS ACT] AS ACT] AS HAS BEEN EXPLAINED IN PARAS 24 TO 26 ABOVE. THE NU MBER OF DAYS AS WORKED OUT BY THE ASSESSEE ON PP. 212-A TO 21-C AND REPRODUCED AGAINST ITEM-5 ABOVE ARE THE ONLY DAYS U SED FOR PRODUCING TV FEED OF CRICKET MATCHES. EXCLUSIONARY EXCLUSIONARY EXCLUSIONARY EXCLUSIONARY CLAUSES (D) AND (E) OF ART 5 OF DTAA NOT APPLICABLE. CLAUSES (D) AND (E) OF ART 5 OF DTAA NOT APPLICABL E. CLAUSES (D) AND (E) OF ART 5 OF DTAA NOT APPLICABL E. CLAUSES (D) AND (E) OF ART 5 OF DTAA NOT APPLICABL E. 36. AS PER PAGE 56 OF CIT (A) S ORDER, NONE OF TH E EXCLUSIONARY CLAUSES (D) AND (E) AS PROVIDED UNDER ARTICLE 5(7) OF DTAA BETWEEN INDIA AND SINGAPORE ARE APPLICABLE AND HENCE THE AS SESSEE COMPANY HAD PE IN INDIA IN TWO FORMS NAMELY (A) FIXED PLACE OF PE UNDER ARTICLE- 5(1) OF DTAA AND (B) SERVICE PE UNDER ARTICLE 5(6) UNDER DTAA. ASSESSEE ASSESSEE ASSESSEE ASSESSEES S S S EXPLANATION EXPLANATION EXPLANATION EXPLANATION 37. THE REASONING GIVEN BY THE LD CIT (A) IS NOT C ORRECT, ARTICLES 5(1) AND 5(6) ARE INDEPENDENT OF ART 5(7) OF THE DTAA AN D THE TESTS LAID THERE HAVE TO BE INDEPENDENTLY SATISFIED. KLAUS V OGEL IN HIS COMMENTARY HAS DEFINED THE EXPRESSION FIXED PLACE AS UNDER:- THE FIXED PLACE OF BUSINESS MUST BE MORE THAN MERE LY TEMPORARILY AT THE ENTERPRISES DISPOSAL. A FIXED PLACE OF BUSINESS OWNED BY AN ENTERPRISE BUT PLACED AT THE D ISPOSAL OF A THIRD PARTY FOR THE LATTERS OWN PURPOSE (AND HENCE NOT FOR THE ENTERPRISES) WOULD NOT BE A PERMANENT ESTABLISHMEN T OF THE ENTERPRISE . 38. FURTHER AS PER THE COMMENTARY OF THE AUTHOR KLA US VOGEL:- ITA-2423 TO 2425/D/2008 22 THE ENTERPRISE MUST CARRY ON ITS BUSINESS ACTIVITI ES IN THE OTHER STATE THROUGH A FIXED PLACE. THE TERM FIXED IMPL IES THAT A CERTAIN LENGTH OF TIME IS REQUIRED FOR SUCH BUSINES S ACTIVITIES. THE PLACE OF BUSINESS MUST HAVE BEEN DESIGNED TO SE RVE THE ENTERPRISE WITH A CERTAIN DEGREE OF PERMANENCE RATH ER THAN MERELY TEMPORARILY .. ON THE OTHER HAND OF THE PLACE WHERE THE BUSINESS IS EXERCISED IS OFTEN CHANGED, E VEN A LONG PERIOD OF ACTIVITY IN A CONTRACTING STATE DOES NOT LEAD TO THE EXISTENCE OF A PERMANENT ESTABLISHMENT . 39. PARAS 5 & 6 OF OECD COMMENTARY ON ARTICLE -5 OF MODEL TAX CONVENTION STATE:- 5. ACCORDING TO THE DEFINITION, THE PLACE OF BUS INESS HAS TO BE A FIXED ONE. THUS IN THE NORMAL WAY, THERE HAS TO BE A LINK BETWEEN THE PLACE OF BUSINESS AND A SPECIFIC GEOGRA PHICAL POINT. IT IS IMMATERIAL HOW LONG AN ENTERPRISE OF A CONTRA CTING STATE OPERATES IN THE OTHER CONTRACTING STATE IF IT DOES NOT DO SO AT A DISTINCT PLACE. 6. SINCE THE PLACE OF BUSINESS MUST BE FIXED, IT AL SO FOLLOWS THAT A PERMANENT ESTABLISHMENT CAN BE DEEMED TO EXI ST ONLY IF THE PLACE OF BUSINESS HAS A CERTAIN DEGREE OF PERMA NENCY, I.E., IF IT IS NOT OF A PURELY TEMPORARY NATURE .. WHI LST THE PRACTICES FOLLOWED BY MEMBER COUNTRIES HAVE BEEN CO NSISTENT IN SO FAR AS TIME REQUIREMENTS ARE CONCERNED, EXPERIEN CE HAS SHOWN THAT PERMANENT ESTABLISHMENTS NORMALLY HAVE N OT BEEN CONSIDERED TO EXIST IN SITUATIONS WHERE A BUSINESS HAD BEEN CARRIED ON IN A COUNTRY THROUGH A PLACE OF BUSINESS THAT WAS MAINTAINED FOR LESS THAN SIX MONTHS (CONVERSELY, PR ACTICE SHOWS THAT THERE WERE MANY CASES WHERE A PERMANENT ESTABL ISHMENT ITA-2423 TO 2425/D/2008 23 HAS BEEN CONSIDERED TO EXIST WHERE THE PLACE OF BUS INESS WAS M AINTAINED FOR A PERIOD LONGER THAN SIX MONTHS). 40. FROM THE ABOVE EXTRACTS OF COMMENTARIES, IT MA Y BE NOTED THAT THERE SHOULD BE A PLACE OF BUSINESS WHICH SHOULD BE FIXED OR PERMANENT IN NATURE TO CONSTITUTE A PERMANENT ESTA BLISHMENT. THE ASSESSEE COMPANY DID NOT HAVE A PE IN INDIA DURING THE RELEVANT PERIOD NAMELY, A.YS. 2002-03, 2003-04 AND 2004-05. EVEN IF THE ASSESSEES PRESENCE IN INDIA IS TO BE RECKONED, THE N THE SAME WAS PURELY TEMPORARY IN NATURE AND WOULD NOT RESULT INT O ANY KIND OF ANY FIXED PLACE. DURING THE CRICKET SERIES, THE MATCHES WERE PLAYED IN DIFFERENT CITIES IN INDIA. THE CREW HAD TO MOVE FR OM ONE CITY TO ANOTHER TO PRODUCE THE LIVE FEED AS REQUIRED UNDER THE AGRE EMENT WITH PB. THEREFORE, THE PRESENCE OF THE ASSESSEE COMPANY AT ANY GIVEN LOCATION WAS TEMPORARY, WHICH COULD NOT GRANT ANY DEGREE OF PERMANENCE. SERVICE PE SERVICE PE SERVICE PE SERVICE PE 41. PARA-6 OF ARTICLE-5 OF THE DTAA PROVIDES THAT AN ENTERPRISE SHALL DEEM TO HAVE PE IN A CONTRACTING STATE (INDIA) IF I T RENDERS SERVICES IN INDIA THROUGH ITS EMPLOYEES OR OTHER PERSONNEL, BUT ONLY IF THE ACTIVITIES OF THAT NATURE CONTINUE WITHIN THAT CONT RACTING STATE (INDIA) FOR A PERIOD AGGREGATING MORE THAN 90 DAYS IN ANY F ISCAL YEAR. 42. THE AGREEMENT BETWEEN ASSESSEE COMPANY AND PB WAS IN RELATION TO THE CRICKETING EVENTS TAKING PLACE DURI NG THE PERIOD FEBRUARY, 2002 TO OCTOBER, 2004. FOR RENDERING PRO DUCTION SERVICES, THE ASSESSEE COMPANYS PRODUCTION CREW WAS PRESENT IN INDIA FOR A PERIOD OF 34 DAYS DURING F.Y. 2001-02, 56 DAYS DURI NG F.Y. 2002-03 AND 29 DAYS DURING F.Y. 2003-04. THE TIME SPENT IN NEG OTIATING AND SIGNING THE CONTRACT IS NOT TO BE TAKEN INTO CONSID ERATION TO DETERMINE ITA-2423 TO 2425/D/2008 24 THE PERIOD OF STAY IN INDIA. RELIANCE IS PLACED ON KLAUS VOGELS COMMENTARY WHICH STATES THAT:- A PERMANENT ESTABLISHMENT BEGINS TO EXIST WHEN THE E NTERPRISE COMMENCES TO CARRY ON ITS BUSINESS THROUGH A FIXED PLACE OF BUSINESS . 43. FURTHER, IN RELATION TO A BUILDING PROJECT WHIC H ALSO REQUIRES COMPLETION OF A MINIMUM PERIOD OF STAY, KLAUS VOGEL COMMENTARY STATES THAT:- THE MINIMUM PERIOD BEGINS WHEN THE ENTERPRISE START S TO PERFORM BUSINESS ACTIVITIES ON THE SPOT IN CONNECTI ON WITH A BUILDING SITE OR CONSTRUCTION OR ASSEMBLY PROJECT . ACTUAL WORK ON THE BUILDING PROJECT IS REQUIRED FOR THE MI NIMUM TIME PERIOD TO BEGIN. THUS, LEGAL ACTS SUCH AS THE SIGN ING OF A CONTRACT OR REGISTRATION ARE NOT PART OF THE PROJEC T AND ARE NOT INCLUDED IN CALCULATING THE TIME . 44. APPLYING THE SAME ANALOGY IN CASE OF A SERVICE CONTRACTOR, IT COULD BE SAID THAT THE MINIMUM PERIOD WOULD BEGIN O NLY FROM THE DATE ON WHICH THE RENDERING OF SERVICE COMMENCES. 45. IN ADDITION TO THE ABOVE, THE ASSESSEE COM PANY RELIES UPON THE FOLLOWING DECISIONS:- (I) RADHA RANI HOLDINGS (P) LTD. V. ADDL. DIT (2007 ) 110 TTJ (DEL) 920 - RESIDENCE OF DIRECTORS NOT RELEVANT FOR PE. (II) EXTRACTS FROM COMMENTARY BY KLAUS VOGEL ON DOU BLE TAXATION CONVENTIONS, SOUTH ASIAN REPRINT EDITION - P.287, PARA-27 - RESIDENCE OF GENERAL PARTNER NOT RELEVANT FOR PE. ITA-2423 TO 2425/D/2008 25 (III) K.T. CORPORATION, IN RE (2009) 23 DTR (AAR) 3 61 - LIAISON OFFICE NOT TO SECURE ORDERS - NO PE. (IV) UOI V. AZADI BACHAO ANDOLAN (2003) 263 ITR 706 (SC) - DTAC TAKES PRECEDENCE OVER DOMESTIC LAW AND BOAR DS CIRCULAR ACCEPTING RESIDENCY CERTIFICATE ISSUED BY A FOREIGN JURISDICTION IS VALID. (V) CIT V. VISAKHAPATNAM PORT TRUST (1983) 144 ITR 146 (AP) - SERVICES OF A GERMAN ENGINEER AS IN CHARGE OF SUPERVISION OF ASSEMBLY AND INSTALLATION OPERATIONS DID NOT GIVE RISE TO PE. (VI) KNOWERX EDUCATION (INDIA) (P) LTD (2008) 217 C TR (AAR) 50 - NO AUTHORITY TO CONCLUDE CONTRACTS (VII) XYZ, IN RE (1997) 228 ITR 55 (AAR) CONTRACT S LASTING FOR 7 AND 39 DATES DID NOT CONSTITUTE PE (VIII) SHERATON INTERNATIONAL INC. V. DY. DIT (2007 ) 106 TTJ (DEL) 620 CONFIRMED BY DELHI HIGH COURT AT 313 ITR 267 (DEL) PAYMENT FOR ADVERTISING, PUBLICITY AND SALE PROMOTION ARE BUSINESS INCOME. (IX) WORLEY PARSONS SERVICES PTY. LTD., IN RE (NO.1 ) (2009) 312 ITR 273 (AAR) SERVICES PROVIDED MUST RELATE T O THE PE (OFFICE SPACE PROVIDED TO THE NON-RESIDENT) (X) TVM LTD V. CIT 237 ITR 230 (AAR) - DEVELOPMENT AND SALE OF TV PROGRAMMES IS A BUSINESS ACTIVITY. COMM ON SHAREHOLDERS DO NOT CONSTITUTE PE. FOR AN AGENCY P E, EVEN FOR A DEPENDENT AGENT, THERE HAS TO EXIST A LEGAL A UTHORITY TO CONCLUDE CONTRACTS WHICH HE HABITUALLY EXERCISE S BEING A SYSTEMIC COURSE OF CONDUCT ON THE PART OF T HE AGENT. (XI) GOLF IN DUBAI LLC. IN. RE (2008) 306 ITR 374 ( AAR) HOLDING OF GOLF TOURNAMENTS IN DELHI AND BANGALORE EACH OF ONE WEEK, THROUGH INDEPENDENT CONTRACTORS, DO NOT CONSTITUTE FIXED PLACE OR SERVICE PE IN INDIA. ITA-2423 TO 2425/D/2008 26 GROUND NOS. GROUND NOS. GROUND NOS. GROUND NOS. 5 & 6 5 & 6 5 & 6 5 & 6 RECEIPTS ARE OF BUSINESS NATURE AND NOT FEE RECEIPTS ARE OF BUSINESS NATURE AND NOT FEE RECEIPTS ARE OF BUSINESS NATURE AND NOT FEE RECEIPTS ARE OF BUSINESS NATURE AND NOT FEE FOR TECHNICAL SERVICES FOR TECHNICAL SERVICES FOR TECHNICAL SERVICES FOR TECHNICAL SERVICES 46. THE ASSESSING OFFICER HAS TREATED THE PAYMENTS RECEIVED FROM PRASAR BHARTI AS FEE FOR TECHNICAL SERVICES. HE HAS GIVEN THE FOLLOWING REASONS IN THE ASSESSMENT ORDER FOR A.Y. 2002-03:- THE ASSESSEE WAS ENGAGED IN MAKING AVAILABLE TO PR ASAR BHARTI TECHNICAL KNOWLEDGE FOR PRODUCTION OF TV SIGNAL FOR CRICKET SERIES IN INDIA. THESE ACTIVITIES INVOLVE USE OF SKILL AND EXPERTISE SINCE IT IS A HIGHLY SPECIALIZED JOB DONE WITH THE HELP OF S UPPORTING SOPHISTICATED EQUIPMENT WHICH NOT EVERYBODY CAN HAN DLE IN THE ENTIRE PROCESS SKILLED AND TECHNICAL SERVICE S ARE MADE AVAILABLE TO PRASAR BHARTI ENABLING IT TO EARN REVE NUE THERE FROM. IN VIEW OF THE ABOVE DISCUSSION, IT IS EVIDENT THAT THE NATURE OF SERVICES PROVIDED BY THE ASSESSEE FALLS WITHIN THE PURVIEW OF CLAUSE 4 OF ARTICLE 12 OF THE DTAA AND IS HENCE CHA RGEABLE TO TAX. (PG.5 OF THE ASSESSMENT ORDER) 47. THE LD. CIT (A) HAS UPHELD THE VIEW TAKEN BY TH E AO. HE HAS HELD THAT THE AMOUNTS RECEIVED FROM PRASAR BHAR TI ARE FEE FOR TECHNICAL SERVICES WITHIN THE MEANING OF SECTION 9( 1) (VII) OF THE INCOME-TAX ACT, 1961 AS WELL AS UNDER PARA-4 OF ART ICLE-12 OF DTAA BETWEEN INDIA AND SINGAPORE. HE HAS OBSERVED T HAT SERVICES OF PRODUCTION AND GENERATION OF LIVE TELEV ISION SIGNALS WERE IN THE NATURE OF TECHNICAL SERVICES. THE ASSE SSEE COMPANY HAD MADE AVAILABLE TO PRASAR BHARTI TECHNICAL KNOWL EDGE, EXPERIENCE, SKILL, KNOW-HOW AND PROCESSES WHICH CON SISTED OF DEVELOPMENT AND TRANSFER OF TECHNICAL PLAN AND DESI GN RELATING TO PRODUCTION AND GENERATION OF LIVE TELEVISION SIG NALS. THEREFORE THE CONSIDERATION RECEIVED FROM PRASAR BHARTI FOR R ENDERING SUCH ITA-2423 TO 2425/D/2008 27 TECHNICAL SERVICES ARE IN THE NATURE OF FEE FOR TEC HNICAL SERVICES WITHIN THE MEANING OF CLAUSES (B) AND (C) AND PARAG RAPH-4 OF ARTICLE -12 OF DTAA BETWEEN INDIA AND SINGAPORE. 48. THE ASSESSEE COMPANY SUBMITS THAT BOTH THE LOWE R AUTHORITIES NAMELY ASSESSING OFFICER AS WELL AS CIT (A) HAVE ARRIVED AT WRONG CONCLUSION THAT THE AMOUNTS RECEIV ED FROM PRASAR BHARTI ARE FEE FOR TECHNICAL SERVICES. ARTI CLE 12(4) (B) OF THE DTAA PROVIDES THAT THE TECHNICAL SERVICES WILL BE SAID TO HAVE BEEN PROVIDED IF THE ASSESSEE COMPANY WAS TO:- (B) (B) (B) (B) MAKE AVAILABLE MAKE AVAILABLE MAKE AVAILABLE MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW- HOW OR PROCESSES, WHICH ENABLES THE PERSON ACQUIRIN G THE SERVICES TO APPLY THE TECHNOLOGY CONTAINED THEREIN ; OR (EMPHASIS SUPPLIED). 49. AS PER THE REQUIREMENT OF CLAUSE (B) OF PARA 4 OF ARTICLE 12, A TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESS CAN BE SAID TO BE MADE AVAILABLE IF THE PERSON ACQU IRING SUCH SERVICES IS ABLE TO APPLY THE TECHNOLOGY CONTAINED THEREIN. IN OTHER WORDS, THE PERSON AVAILING THE SERVICES SHOUL D BE ABLE TO INDEPENDENTLY APPLY THE TECHNICAL KNOWLEDGE ON ITS OWN FOR ITS OPERATIONS. 50. THE ASSESSING OFFICER HAS ERRONEOUSLY / WRONGLY RELIED UPON THE RULING OF ADVANCE TAX AUTHORITY IN THE CASE OF ERICSSON TELEPHONE CORPORATION OF INDIA AB V/S. CIT (224 ITR 203), STATING THAT WHERE THE ASSESSEE HAS A PERMANENT ESTABLISHM ENT IN INDIA ITS INCOME IS TAXABLE UNDER HEAD FEES FOR TECHNICA L SERVICES AND ITA-2423 TO 2425/D/2008 28 TAX WILL BE PAYABLE AT 20% IN VIEW OF PROVISION OF SECTION 44 D READ WITH SECTION 115A OF THE INCOME TAX ACT, 1961. 51. THE RATIO OF THE ABOVE REFERRED ADVANCE RULING IS NOT AT ALL APPLICABLE TO THE ASSESSEE COMPANY FOR FOLLOWING RE ASONS; I. THE ADVANCE RULING AUTHORITY HAS NOT AT ALL GIVE N ANY SUCH RULING AND ISSUE INVOLVED RELATED TO PERCENTAG E OF WITHHOLDING TAX. II. THE AAR HAS VERY CLEARLY STATED THAT THE AUTH ORITY DOES NOT EXPRESS ANY OPINION ABOUT THE NET PROFIT O F THE APPLICANT COMPANY AND LEAVES THE QUESTION OPEN TO B Y AGITATED BY THE APPLICANT AND APPROPRIATE PROCEEDIN GS. IN ASSESSEES CASE, THE AO HAS MADE REGULAR ASSESSMENT AND THE RATIO OF AAR IN THE ABOVE CITED CASE IS NOT APP LICABLE EVEN REMOTELY. III. THE MUMBAI ITAT C BENCH RECENTLY HAD OCCASIO N IN PASSING JUDGEMENT IN THE CASE OF DEPUTY COMMISSIONE R OF INCOME TAX VS. BOSTON CONSULTING GROUP PTE. LIMITED WHEREIN THE RESPONDENT COMPANY WAS ALSO GOVERNED BY DTAA WITH SINGAPORE AND IT WAS HELD THAT THE LAW I S TRITE THAT IN A CASE WHERE INDIA HAS ENTERED INTO A DOUBL E TAXATION AVOIDANCE AGREEMENT WITH ANY OTHER COUNTRY , SO FAR AS THE ASSESSEES WHICH ARE COVERED BY SUCH AN AGREEMENT ARE CONCERNED, THE PROVISIONS OF THAT ACT WILL APPLY ONLY TO THE EXTENT TO WHICH THE PROVISIONS OF THE ACT ARE MORE BENEFICIAL TO THE ASSESSEE. IT IS A SETT LED LEGAL POSITION THAT WHENEVER THERE IS A CONFLICT BETWEEN THE PROVISIONS OF THE TAX TREATY AND THE DOMESTIC LAW, THE PROVISIONS & OF THE TAX TREATY WILL PREVAIL. THESE TAX TREATIES HAVE A SIGNIFICANT PLACE IN THE SCHEME OF THE ITA-2423 TO 2425/D/2008 29 INDIAN INCOME TAX LEGISLATION, IN AS MUCH AS THESE TREATIES LAY DOWN AN ALTERNATE SCHEME OF TAXATION, SO FAR AS THE BENEFICIARIES OF THE APPLICABLE TAX TREATY ARE CONC ERNED. THESE ALTERNATE PARADIGMS ARE ENTIRELY OPTIONAL TO THE ASSESSEE BECAUSE IT CANNOT BE THRUST UPON AN ASSESS EE AND THE PROVISIONS OF THE ACT CONTINUE TO BE APPLIC ABLE TO THE EXTENT THESE PROVISIONS ARE MORE FAVOURABLE TO THE ASSESSEE. ONCE THE ASSESSEE CHOOSES TO BE COVERED BY THE PROVISIONS OF AN APPLICABLE TAX TREATY, IT IS NOT OPEN TO THE REVENUE TO THRUST THE PROVISIONS OF THE ACT ON THE ASSESSEE. FURTHER, THE APEX COURT IN UNION OF INDI A V. AZADI BACHAO ANDOLAN 263 ITR 706(SC) AND CIT V. P VAL KULANDAGAN CHETTIAR 267 ITR 654, AS ALSO AAR IN SUT RON CORPN. IN RE 268 ITR 156 AND EMIRATES FERTILIZER T RADING CO. WILL, IN RE 142 TAXMAN 127, HAVE HELD THAT WHE RE THERE IS CONFLICT BETWEEN PROVISIONS OF THE ACT AND THE DTAA, THE TERMS OF DTAA WOULD PREVAIL OVER THE PROV ISIONS OF THE ACT, AND FURTHER, THAT THE AGREEMENT BEING I N THE NATURE OF A DOCUMENT PROVIDING FOR RELIEF AGAINST T AXATION, BENEFICIAL READING OF THE TERMS OF THE DTAA WAS REQ UIRED. 52. IN THE PROTOCOL NOTE ATTACHED TO AND FORMING PA RT OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT, BETWEEN USA AN D INDIA, ON THE INTERPRETATION OF AN IDENTICAL PROVISION HAS PROVIDED AS FOLLOWS: PARAGRAPH 4(B) OF ARTICLE 12 REFERS, TO TECHNICAL OR CONSULTANCY SERVICES THAT MAKE AVAILABLE TO THE PERSON ACQUIRIN G THE SERVICES TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW, O R PROCESSES, OR CONSISTS OF THE DEVELOPMENT AND TRANSFER OF A TE CHNICAL PLAN OR TECHNICAL DESIGN TO SUCH PERSON. (FOR THIS PURPOSE , THE PERSON, ACQUIRING THE SERVICE SHALL BE DEEMED TO INCLUDE AN AGENT, NOMINEE, OR TRANSFEREE OF SUCH PERSON.) THIS CATEG ORY IS NARROWER BECAUSE IT EXCLUDES AND SERVICES THAT DOES NOT MAKE ITA-2423 TO 2425/D/2008 30 TECHNOLOGY AVAILABLE TO THE PERSON ACQUIRING THE SE RVICE. GENERALLY SPEAKING TECHNOLOGY WILL BE CONSIDERED M AKE AVAILABLE WHEN THE PERSON ACQUIRING THE SERVICES I S ENABLED TO APPLY THAT TECHNOLOGY. THE FACT THAT THE PROVISION S OF THE SERVICE MAY REQUIRE TECHNICAL INPUT BY THE PERSON PROVIDING THE SERVICES DOES NOT PER SE MEAN THAT TECHNICAL KNOWLEDGE, SKIL LS, ETC. ARE MADE AVAILABLE TO THE PERSON PURCHASING THE SERVICE S, WITHIN THE MEANING OF PARAGRAPH 4(B). 53. FURTHER, THE MEMORANDUM OF UNDERSTANDING OF IND IA US TAX TREATY ALSO STATES THAT GENERALLY TECHNOLOGY WI LL BE CONSIDERED TO BE MADE AVAILABLE WHEN THE PERSON A CQUIRING THE ACQUIRING THE ACQUIRING THE ACQUIRING THE SERVICES IS ENABLED TO APPLY THE TECHNOLOGY. THE FA CT THAT THE SERVICES IS ENABLED TO APPLY THE TECHNOLOGY. THE FA CT THAT THE SERVICES IS ENABLED TO APPLY THE TECHNOLOGY. THE FA CT THAT THE SERVICES IS ENABLED TO APPLY THE TECHNOLOGY. THE FA CT THAT THE PROVISION OF SERVICES MAY REQUIRE TECHNICAL INPUTS BY PERSON PROVISION OF SERVICES MAY REQUIRE TECHNICAL INPUTS BY PERSON PROVISION OF SERVICES MAY REQUIRE TECHNICAL INPUTS BY PERSON PROVISION OF SERVICES MAY REQUIRE TECHNICAL INPUTS BY PERSON PROVIDING THE SERVICE DOES NOT PER SE MEAN THAT TEC HNICAL SKILLS, PROVIDING THE SERVICE DOES NOT PER SE MEAN THAT TEC HNICAL SKILLS, PROVIDING THE SERVICE DOES NOT PER SE MEAN THAT TEC HNICAL SKILLS, PROVIDING THE SERVICE DOES NOT PER SE MEAN THAT TEC HNICAL SKILLS, ETC. ARE MADE AVAILABLE TO THE PERSO ETC. ARE MADE AVAILABLE TO THE PERSO ETC. ARE MADE AVAILABLE TO THE PERSO ETC. ARE MADE AVAILABLE TO THE PERSON PURCHASING TH E SERVICE. N PURCHASING THE SERVICE. N PURCHASING THE SERVICE. N PURCHASING THE SERVICE. 54. IN THE PRESENT CASE, THE SERVICES RENDERED BY T HE ASSESSEE OF PRODUCING THE TV SIGNAL ARE TECHNICAL IN NATURE. HOWEVER, BY NO MEANS COULD IT BE REGARDED AS MAKING AVAILABLE TECHNICAL KNOWLEDGE TO PRASAR BHARTI. THE AGREEMENT ENTERED I NTO BETWEEN THE ASSESSEE AND THE PRASAR BHARTI WAS TO PRODUCE T HE FEED THAT COULD BE BROADCASTED ON TELEVISION CHANNELS. AS PER THE SAID AGREEMENT, THE PRIMARY SERVICES TO BE RENDERED BY T HE ASSESSEE WERE OF PRODUCTION OF THE FEED. ANY OTHER SERVICE P ROPOSED TO BE RENDERED- TRAINING WAS ANCILLARY TO THE PRIMARY SER VICE. THE PAYMENTS MADE BY PRASAR BHARTI TO THE ASSESSEE WERE ONLY WITH RESPECT TO THE PRODUCTION OF FEED, AS PER THE SPECI FICATIONS PROVIDED BY THE PRASAR BHARTI AND NOT FOR TRAINING. 55. DURING THE COURSE OF HEARING BEFORE THE LD. CIT (A), A REFERENCE WAS MADE TO THE CERTIFICATE ISSUED BY THE DIRECTOR (SPORTS) IN WHICH, IT WAS CLEARLY MENTIONED THAT WSN PRODUCED ITA-2423 TO 2425/D/2008 31 LIVE SIGNALS AS PER THE PRODUCTION REQUIREMENT STIP ULATED UNDER THE AGREEMENT. WSN ACTED AS PRODUCER, WHICH INVOL VED HIRING PROFESSIONALS INCLUDING PROFESSIONALS FROM PRASAR B HARTI TO PRODUCE LIVE TELEVISION SIGNALS. HOWEVER, IT DID N OT INVOLVE TRANSFER OF TECHNOLOGY, KNOW-HOW OR DEVELOP/TRANSFE R ANY TECHNICAL PLAN/DESIGN TO PRASAR BHARTI UNDER THE AG REEMENT. THE LD. CIT (A) HAS REFUSED TO TAKE COGNIZANCE OF T HIS IMPORTANT PEACE OF EVIDENCE BY OBSERVING AS UNDER:- (A) IT IS MATTER OF RECORD THAT NO REFERENCE WAS E VER MADE TO DIRECTOR GENERAL OF DOORDARSHAN AND THE LET TER WAS NOT ISSUED EITHER TO AO OR ANY OTHER INCOME TAX AUTHORITY. (B) WHETHER A SERVICE FALL U/S 9(1)(VII) OF THE ACT OR 12(4) OF DTAA IS SUBJECT MATTER OF INTERPRETATION BY INCO ME TAX AUTHORITIES AND JUDICIAL AUTHORITIES, AN EMPLOYEE O F DIRECTORATE GENERAL DOORDARSHAN HAS NO POWER TO MAK E SUCH INTERPRETATION BOTH UNDER THE ACT AND DTAA. (C) THE CONTENT OF LETTER IS CONTRARY TO TERMS AND CONDITIONS OF THE AGREEMENT AS STIPULATED UNDER CLA USE (XXVII) OF PARA-5 OF THE AGREEMENT . 56. THE ABOVE OBSERVATIONS OF THE LD. CIT (A) ARE N OT CORRECT AND ARE OUT OF PLACE. HE SHOULD NOT HAVE REJECTED THE CERTIFICATE ISSUED BY A SENIOR OFFICER OF THE RANK OF A DIRECTO R OF A PUBLIC SECTOR UNDERTAKING NAMELY, THE PRASAR BHARTI. IF H E HAD ANY DOUBT ABOUT THE AUTHENTICITY OF THE CERTIFICATE, HE SHOULD HAVE MADE A REFERENCE TO THE PRASAR BHARTI INSTEAD OF RE JECTING THE CERTIFICATE SUMMARILY. 57. IN VIEW OF THE ABOVE, IT IS SUBMITTED THAT THE ASSESSEE WAS MERELY RENDERING THE SERVICE OF PRODUCING TV SIGNAL S AS PER THE SPECIFICATION PROVIDED BY THE PRASAR BHARTI AND DID NOT MAKE ITA-2423 TO 2425/D/2008 32 AVAILABLE ANY TECHNICAL KNOWLEDGE, AS NOTED BY THE AO. ACCORDINGLY, THE INCOME RECEIVED BY IT IS NOT TAXAB LE AS FEES FOR TECHNICAL SERVICES UNDER PARA 4 OF ARTICLE 12 OF T HE TREATY. 58. IN THE CASE OF RAYMONDS LTD. (80 TTJ 120) RAYMONDS LTD. (80 TTJ 120) RAYMONDS LTD. (80 TTJ 120) RAYMONDS LTD. (80 TTJ 120) , WHILE DISCUSSING THE MEANING OF THE TERM MAKE AVAILABLE UNDER THE INDIA UK TAX TREATY, THE ITAT, MUMBAI OBSERVED AS UNDER: THUS, THE NORMAL, PLAIN AND GRAMMATICAL MEANING OF THE LANGUAGE EMPLOYED, IN OUR UNDERSTANDING, IS THAT A MERE RENDERING OF SERVICES IS NOT ROPED IN UNLESS THE PE RSON UTILISING THE SERVICES IS ABLE TO MAKE USE OF THE TECHNICAL K NOWLEDGE, ETC. BY HIMSELF IN HIS BUSINESS OR FOR HIS OWN BENEFIT A ND WITHOUT RECOURSE TO THE PERFORMER OF THE SERVICES IN FUTURE . THE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, ETC. MUST REMAIN WITH THE PERSON UTILISING THE SERVICES EVEN AFTER THE RENDERING OF THE SERVICES HAS COME TO AN END. A TRANSMISSION OF THE TECHNICAL KNO WLEDGE, EXPERIENCE, SKILLS, ETC. FROM THE PERSON RENDERING THE SERVICES TO THE PERSON UTILISING THE SAME IS CONTEMPLATED BY TH E ARTICLE. SOME SORT OF DURABILITY OR PERMANENCY OF THE RESULT OF THE 'RENDERING OF SERVICES' IS ENVISAGED WHICH WILL REM AIN AT THE DISPOSAL OF THE PERSON UTILISING THE SERVICES. THE FRUITS OF THE SERVICES SHOULD REMAIN AVAILABLE TO THE PERSON UTIL ISING THE SERVICES IN SOME CONCRETE SHAPE SUCH AS TECHNICAL K NOWLEDGE, EXPERIENCE, SKILLS, ETC.. . THE ADDITION OF THE WORDS IN THE SINGAPORE DTAA MERELY MAKE IT EXPLICIT WHAT IS EMBEDDED IN THE WORDS MAK E AVAILABLE APPEARING IN DTAA WITH UK AND USA. ITA-2423 TO 2425/D/2008 33 59. IN THE CASE OF NQA QUALITY SYSTEMS REGISTRAR LT D. (92 TTJ NQA QUALITY SYSTEMS REGISTRAR LTD. (92 TTJ NQA QUALITY SYSTEMS REGISTRAR LTD. (92 TTJ NQA QUALITY SYSTEMS REGISTRAR LTD. (92 TTJ 946) 946) 946) 946) WHEREIN, IN THE CONTEXT OF INDIA UK TAX TREATY, THE DELHI ITAT OBSERVED AS UNDER: GENERALLY SPEAKING, TECHNOLOGY WILL BE CONSIDERE D MADE AVAILABLE WHEN THE PERSON ACQUIRING THE SERVICE IS ENABLED TO APPLY THE TECHNOLOGY. THE FACT THAT THE PROVISION O F SERVICE MAY REQUIRE TECHNICAL INPUT BY THE PERSON PROVIDING THE SERVICE DOES NOT PER SE MEANS THAT THE TECHNICAL KNOWLEDGE, SKIL LS, ETC. ARE MADE AVAILABLE TO THE PERSON PURCHASING THE SERVICE , WITHIN THE MEANING OF PARA 4(B) A) A)A) A) DCIT VS. BOSTON CONSULTING GROUP PVT. LTD. (MUMBAI ITAT) DCIT VS. BOSTON CONSULTING GROUP PVT. LTD. (MUMBAI ITAT) DCIT VS. BOSTON CONSULTING GROUP PVT. LTD. (MUMBAI ITAT) DCIT VS. BOSTON CONSULTING GROUP PVT. LTD. (MUMBAI ITAT) 93 TTJ 293 93 TTJ 293 93 TTJ 293 93 TTJ 293 60. THE ABOVE CASE IS DIRECTLY ON THE INTERPRETATIO N OF ARTICLE 12(4) (B) OF INDIA-SINGAPORE TAX TREATY. THE PROVI SIONS OF SAID ARTICLE 12(4) (B) OF INDIA SINGAPORE TAX TREATY ARE , TO A LIMITED EXTENT, IN PARI MATERIA WITH THE DEFINITION OF FEES FOR INCLUDED SERVICES UNDER ARTICLE 12(4) (B) OF INDO USA DTAA WHICH IS AS FOLLOWS: (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW, OR PROCESSES, OR CONSIST OF THE DEVELOPME NT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. THE SCOPE OF INDIA-SINGAPORE TAX TREATY IS NARROWER IN THE SENSE THAT SPECIFICALLY PROVIDES THE SERVICES SHOULD BE S UCH WHICH ENABLES THE PERSON ACQUIRING THE SERVICES TO APPLY THE TECHNOLOGY CONTAINED THEREIN, EVEN THOUGH AS OBSER VED BY A CO- ITA-2423 TO 2425/D/2008 34 ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF RAYM ONDS LTD. V. DY. CIT (2003) 86 ITD 791 (MUM) THE ADDITION OF THESE WORDS IN THE SINGAPORE DTAA MERELY MAKE IT EXPLICIT WHAT IS EMBEDDED IN THE WORDS MAKE AVAILABLE APPEARING IN THE DTAA WITH UK AND USA . B) B)B) B) C.E.S.C LTD. VS. DCIT (CALCUTTA ITAT) C.E.S.C LTD. VS. DCIT (CALCUTTA ITAT) C.E.S.C LTD. VS. DCIT (CALCUTTA ITAT) C.E.S.C LTD. VS. DCIT (CALCUTTA ITAT) 80 TTJ 806 80 TTJ 806 80 TTJ 806 80 TTJ 806 61. IN THIS CASE, THE QUESTION REGARDING THE SCOPE OF EXPRESSION MAKING AVAILABLE CAME UP FOR THE CONSIDERATION OF THE TRIBUNAL. THE MAJORITY VIEW WAS THAT IN ORDER TO BE ATTRACTED BY THE PROVISIONS OF THE SAID ARTICLE OF THE TAX TREATY, NOT ONLY THE SERVI CES SHOULD BE TECHNICAL IN NATURE BUT SHOULD BE SUCH AS TO RESULT IN MAKING THE TECHNOLOGY AVAILABLE TO PERSON RECEIVING THE TECHNICAL SERVICE S IN QUESTION. THE TRIBUNAL ALSO REFERRED TO. WITH APPROVAL, EXTRA CTS FROM THE PROTOCOL TO THE INDO-US TAX TREATY TO THE EFFECT THAT GENER ALLY SPEAKING, TECHNOLOGY WILL BE CONSIDERED MADE AVAILABLE WHEN THE PERSON ACQUIRING THE SERVICE IS ENABLED TO APPLY THE TECHN OLOGY. THE MAJORITY VIEW IN CESCS CASE (SUPRA) WAS ALSO ON TH E SAME LINES. C) C)C) C) MCKINSEY & CO., INC. (PHILLIPPI MCKINSEY & CO., INC. (PHILLIPPI MCKINSEY & CO., INC. (PHILLIPPI MCKINSEY & CO., INC. (PHILLIPPINES) & ORS. VS. ADI T (MUMBAI ITAT) NES) & ORS. VS. ADIT (MUMBAI ITAT) NES) & ORS. VS. ADIT (MUMBAI ITAT) NES) & ORS. VS. ADIT (MUMBAI ITAT) 99 ITD 549 99 ITD 549 99 ITD 549 99 ITD 549 62. AFTER AN ELABORATE ANALYSIS OF THE ENTIRE CASE LAW AND THE EXAMPLES ON MAKING AVAILABLE GIVEN IN INDO-US TAX TREATY, IT WAS HELD THAT THE PERSON ACQUIRING THE SERVICE MUST BE MADE AVAILABLE AND HE SHOULD BE ABLE TO USE THE TECHNOLOGY WITHOUT THE ASSISTANCE OF THE PROVIDER OF THE SERVICE. ITA-2423 TO 2425/D/2008 35 63. IN ADDITION TO THE ABOVE, THE ASSESSEE COMPANY ALSO RELIES UPON THE FOLLOWING DECISIONS:- (I) (I)(I) (I) PAYMENT NOT FEE FOR TECHNICAL SERVICES EVEN UNDER EXPLANATION PAYMENT NOT FEE FOR TECHNICAL SERVICES EVEN UNDER E XPLANATION PAYMENT NOT FEE FOR TECHNICAL SERVICES EVEN UNDER E XPLANATION PAYMENT NOT FEE FOR TECHNICAL SERVICES EVEN UNDER E XPLANATION- -- -II IIII II TO SECTION 9(1) (VII) OF THE ACT TO SECTION 9(1) (VII) OF THE ACT TO SECTION 9(1) (VII) OF THE ACT TO SECTION 9(1) (VII) OF THE ACT (I) SKYCELL COMMUNICATIONS LTD. V. DY. CIT (2001) 2 51 ITR 53 (MAD) (PP. 583588/PB-III) - FEE FOR RENDERI NG STANDARD FACILITY IS NOT FEE FOR TECHNICAL SERVICES (II) CIT V. SUNDWIGER EMFG & CO. (2003) 262 ITR 110 (AP) (PP. 589591/PB-III) SERVICES RENDERED BY EX PERTS FOR DELIVERY AND INSTALLATION OF A PRODUCT ARE NOT FEE FOR TECHNICAL SERVICES (III) CIT V. ESTEL COMMUNICATIONS (P) LTD. (2008) 2 17 CTR (DEL) 102 (PP. 592593/PB-III) PAYMENT FOR USE OF INTERNET FACILITY, THOUGH REQUIRING USE OF SOPHISTICATED EQU IPMENT, IS NOT FEE FOR TECHNICAL SERVICES (II) INTERTEK TESTING SERVICES INDIA (P) LTD., IN RE (20 08) 307 ITR 418 (PP.594607/PB-III) - INSPECTION CHARG ES FOR INSPECTION BY EXPERTS ARE NOT FEE FOR TECHNICAL SER VICES. (I (I(I (II) I)I) I) UNDER DTAA ALSO, NOT FEE FOR TECHNICAL SERVICES UNDER DTAA ALSO, NOT FEE FOR TECHNICAL SERVICES UNDER DTAA ALSO, NOT FEE FOR TECHNICAL SERVICES UNDER DTAA ALSO, NOT FEE FOR TECHNICAL SERVICES (I) ANNEXURE TO INDO-US TAX TREATY VIDE NOTIFICATIO N NO. GSR 990(E) DATED 20TH DECEMBER, 1990 (PP.608619/PB - III) (II) CIT V. SIEMENS AKTIONGESELLSCHAFT (2009) 310 I TR 320 (BOM) (PP.620641/PB-III) ASSISTANCE FOR MANUFACT URE OF X-RAY TUBES IS NOT FEE FOR TECHNICAL SERVICES (III) ABC LTD, IN RE (2006) 284 ITR 1 (AAR) (PP.642 644/PB-III) BUSINESS INFORMATION REPORTS BEING PU BLICLY AVAILABLE ARE NOT TECHNICAL SERVICES (IV) DUN & BRADSTREET ESPANA, S.A., IN RE (2005) 27 2 ITR 99 (AAR) (PP.645648/PB-III) BUSINESS INFORMATION REPORTS ITA-2423 TO 2425/D/2008 36 DOWNLOADED BY INDIAN COMPANY CONSTITUTE BUSINESS IN COME WHICH IS NOT ROYALTY OR FEE FOR TECHNICAL SERVICES (V) TATA CONSULTANCY SERVICES V. STATE OF ANDHRA PR ADESH (2004) 271 ITR 401 (SC) (PP.694709/PB-III) SALE OF INTANGIBLE PROPERTY IS ALSO SALE OF GOODS. (VI) SAMSUNG ELECTRONICS CO. LTD. V. ITO (2005) 93 TTJ (BANG) 658 (PP. 710712/PB-III) PAYMENT FOR PURCH ASE OF SOFTWARE IS NOT ROYALTY. 64. BEFORE THE LD. CIT (A), IT WAS CONTENDED THAT, WITHOUT PREJUDICE TO THE STAND THAT ASSESSEE COMPANY DID NOT HAVE PE IN INDIA NOR THE PAYMENTS RECEIVED FROM PRASAR BHARTI WERE FEE FOR T ECHNICAL SERVICES, THE ASSESSING OFFICER WAS NOT CORRECT IN TAXING THE GROSS RECEIPTS AT THE RATE OF 20% U/S 44D READ WITH SECTION 115A OF THE I NCOME-TAX ACT, 1961. IN FACT, THE ASSESSEE COMPANY HAD SUFFERED L OSSES IN THIS VENTURE IN TWO YEARS NAMELY A.Y. 2003-04 AND 2004-0 5 AS PER DETAILS GIVEN BELOW:- A.Y. A.Y. A.Y. A.Y. PROFIT/LOSS INCURRED (RS.) PROFIT/LOSS INCURRED (RS.) PROFIT/LOSS INCURRED (RS.) PROFIT/LOSS INCURRED (RS.) 2002-03 58,50,314/- 2003-04 (-) 11,36,184/- 2004-05 (-) 37,52,659/- 65. THE ABOVE FIGURES OF PROFIT/LOSS ARE BEFORE DEP RECIATION. IF DEPRECIATION AS PER I.T. RULES IS ALLOWED, THE PROF IT FOR A.Y. 2002-03 WILL BE CONVERTED INTO LOSS AND OR A.YS. 2003-04 AND 200 4-05, THE LOSS SHALL FURTHER INCREASE. 66. THE LD. CIT (A) HAS NOT ACCEPTED OUR CONTENTION BY SAYING THAT AS PER THE SCHEME OF TAXATION UNDER INCOME-TAX ACT, 19 61, THE BUSINESS PROFITS BY WAY OF FEE FOR TECHNICAL SERVICES ARE TA XABLE ON GROSS BASIS WITHOUT ALLOWING ANY DEDUCTION OF EXPENDITURE OR AL LOWANCES, AT THE ITA-2423 TO 2425/D/2008 37 RATE OF 20% U/S 44D READ WITH SECTION 115A OF THE A CT. HE HAS RELIED UPON BOARDS CIRCULAR NO. 461 DATED 09.07.1986 AND THE FOLLOWING RULINGS OF AAR AND HIGH COURTS:- (I) ERICSSON TELEPHONE CORPORATION INDIA AB V. CIT (1997) 224 ITR 203 (AAR) (II) NO. P/6 OF 1995 IN RE 234 ITR 371 (AAR) (III) TIMKEN INDIA LTD; IN RE (2005) 273 ITR 67 (AA R) (IV) DHV CONSULTANTS BV IN RE (2005) 277 ITR 97 (AA R) (V) INTERNATIONAL OPERATING SERVICES LTD V. CIT (19 97) 228 ITR 599 (KARN). 67. THE RELIANCE PLACED BY THE LD. CIT (A) ON THE A BOVE RULINGS OF AAR AND HIGH COURT OF KARNATAKA IS TOTALLY MISPLACE D AS THE FACTS OF THE ASSESSEE COMPANYS CASE ARE DIFFERENT FROM THE FACTS/ISSUES INVOLVED IN THESE CASES. FIRST OF ALL, NONE OF THE ABOVE CASE RELATES TO THE DTAA BETWEEN INDIA AND SINGAPORE. SECONDLY, TH E PAYMENTS RECEIVED FROM PRASAR BHARTI ARE IN THE NATURE OF BU SINESS RECEIPTS AND NOT FEE FOR TECHNICAL SERVICES AS THEY WERE TO PROD UCE A TV FEED OF CRICKET MATCHES. THE ASSESSEE COMPANYS CASE IS GOV ERNED BY ARTICLE-7 OF DTAA BETWEEN INDIA AND SINGAPORE, WHICH DEALS WI TH TAXABILITY OF BUSINESS PROFIT AND HENCE ONLY NET INCOME/LOSS IS T O BE CONSIDERED FOR TAXATION. EVEN FOR THE SAKE OF ARGUMENT, AND, WITH OUT PREJUDICE AND IN ANY WAY AGREEING TO THIS, IF IT IS PRESUMED THAT TH E AMOUNTS RECEIVED FROM PRASAR BHARTI ARE FEE FOR TECHNICAL SERVICES; THE SAME ARE LIABLE TO BE TAXED AT THE RATE OF 10% AND NOT 20% AS HELD BY THE LD. CIT (A). PARA-2 OF ARTICLE-12 OF DTAA BETWEEN INDIA AND SING APORE READS AS FOLLOWS:- 2. HOWEVER, SUCH ROYALTIES AND FEES FOR TECHNICAL SERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE, IN WHIC H THEY ARISE AND ACCORDING TO THE LAWS OF THAT CONTRACTING STATE , BUT IF THE ITA-2423 TO 2425/D/2008 38 RECIPIENT IS THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, THE TAX SO CHARGED SHALL NOT EX CEED 10%. GROUND NOS. 7 GROUND NOS. 7 GROUND NOS. 7 GROUND NOS. 7 - -- - ADVERTISEMENT AMOUNTS RECEIVED OUTSIDE INDIA NOT LIABLE ADVERTISEMENT AMOUNTS RECEIVED OUTSIDE INDIA NOT L IABLE ADVERTISEMENT AMOUNTS RECEIVED OUTSIDE INDIA NOT L IABLE ADVERTISEMENT AMOUNTS RECEIVED OUTSIDE INDIA NOT L IABLE TO TAX TO TAX TO TAX TO TAX 68. IN EACH OF THE THREE ASSESSMENT YEARS, THE AO B ROUGHT TO TAX CERTAIN AMOUNTS REPRESENTING ADVERTISEMENTS INVOIC ED AND RECEIVED OUT SIDE INDIA, BY THE ASSESSEE FROM PARTIES IN IN DIA FOR TELECASTING FROM SRI LANKA IN CONNECTION WITH INTERNATIONAL CRI CKET MATCHES UNDER ICC CHAMPIONSHIP TROPHY AND OTHER SIMILAR CRICKET M ATCHES IN THAT COUNTRY. THE INDIAN ADVERTISERS INCLUDED COCA COLA INDIA PVT LTD; SEAGRAM MANUFACTURING LTD, HERO HONDA ETC. THE AO TOOK THE VIEW THAT THE ASSESSEE COMPANY HAD A PE IN INDIA; SOURCE OF THESE RECEIPTS LAY IN INDIA, THE INDIAN TEAM PLAYED IN THESE MATCH ES AND THESE MATCHES WERE BROADCAST INTERNATIONALLY WHICH INCLUD ED INDIA. BESIDES, AS PER CLAUSE 2 OF ARTICLE 12 OF THE DTAA, RECEIPTS FROM ROYALTY AND FEE FOR TECHNICAL SERVICES ARE TAXABLE IN INDIA BEING A SOURCE COUNTRY. ACCORDINGLY, HE PROCEEDED TO ADOPT 20% OF THE GROSS AMOUNT OF ADVERTISEMENTS AND ESTIMATED 50% THEREOF AS THE NET INCOME ATTRIBUTABLE TO THE PE IN INDIA. HE APPLIED THE MAX IMUM RATE OF TAX ON SUCH INCOME APPLICABLE TO FOREIGN COMPANIES AND MAD E THE FOLLOWING COMPUTATION OF INCOME AND TAX FOR EACH OF THE THREE YEARS:- A.Y. 2002 A.Y. 2002 A.Y. 2002 A.Y. 2002- -- -03 0303 03 I) GROSS RECEIPTS = RS. 8,03,23,312/- II) NET PROFIT @ 20% OF S.N. (I) = RS. 1,60,64,66 2/- III) 50% OF (II) ATTRIBUTABLE TO PE IN INDIA = RS. 80,32,331/- A.Y. 2003 A.Y. 2003 A.Y. 2003 A.Y. 2003- -- -04 0404 04 I) GROSS RECEIPTS = RS. 1,17,32,618/- II) NET PROFIT @ 20% OF S.N. (I) = RS. 23,46,5 20/- ITA-2423 TO 2425/D/2008 39 III) 50% OF (II) ATTRIBUTABLE TO PE IN INDIA= RS. 11,73,260/- A.Y. 2004 A.Y. 2004 A.Y. 2004 A.Y. 2004- -- -05 0505 05 I) GROSS RECEIPTS = RS. 20,76,072/- II) NET PROFIT @ 20% OF S.N. (I) = RS. 4,15, 214/- III) 50% OF (II) ATTRIBUTABLE TO PE IN INDIA = RS. 2,07,607/- 69. THE LD. CIT (A) HAS UPHELD THE ACTION OF THE A O VIDE DISCUSSION IN PARAS 9 TO 11 ON PP 68-79 OF HIS ORDER. HE HAS OBSERVED THAT VARIOUS COMPANIES IN INDIA NAMELY, COCA-COLA, PEPSICO FOOD, LG ELECTRONICS ETC SIGNED CONTRACTS WITH THE ASSESSEE COMPANY FOR ADVE RTISING THEIR PRODUCTS AND SINCE THE ASSESSEE COMPANY PROVIDED AD VERTISEMENT TO VARIOUS COMPANIES LOCATED IN INDIA THROUGH LIVE TEL ECAST WHICH WAS VIEWED BY CUSTOMERS IN INDIA, INCOME ARISING FROM A DVERTISEMENT IS TAXABLE IN INDIA. HE ALSO HELD IN PARA 9.3.1 ON PA GE 70 THAT THE ADVERTISEMENT INCOME IS TAXABLE U/S 9(1) OF THE INC OME-TAX ACT, 1961 AS THE SOURCE OF INCOME IS IN INDIA. HE HAS FURTHER HELD IN PARA 9.3.2 THAT IT IS ALSO TAXABLE UNDER ARTICLE-7(1) OF DTAA BETWEEN INDIA AND SINGAPORE BECAUSE THE ASSESSEE HAD CARRIED OUT THE CORE ACTIVITIES OF ADVERTISEMENT BUSINESS THROUGH FIXED PLACE PE IN IN DIA. HE CONFIRMED THE ESTIMATION OF PROFIT FROM ADVERTISEMENT BY OBSE RVING THAT THE SAME IS CORRECT AS PER RULE-10 OF THE INCOME-TAX RULES, 1962. THE LD. CIT (A) HAS RELIED UPON THE FOLLOWING JUDGEMENTS TO CONFIRM THE QUANTUM OF THE ADDITIONS MADE BY THE AO:- (I) CIT V. ONGC AS REPRESENTATIVE ASSESSEE M/S ROLL S ROYCE PLC (2007) TIOL 408; (2008) 214 CTR 135 (UTTRARAKHAND) (II) CIT V. ESUFALI (H.M.) ABDULALI (H.M.) (1973) 9 0 ITR 271 (SC) (III) KACHWALA JAIN V. JCIT (2007) 288 ITR 10 (SC) 70. THE LD. CIT (A) HAS FURTHER OBSERVED THAT ARTIC LE-7(1) OF DTAA BETWEEN INDIA AND SINGAPORE HAS INCORPORATED THE PR INCIPLE OF FORCE ITA-2423 TO 2425/D/2008 40 OF ATTRACTION BASED ON UN MODEL. HE QUOTED CERTAI N PARAS FROM THE BOOK TITLED PERMANENT ESTABLISHMENT- EROSION OF A TAX TREATY PRINCIPLE BY ARVIND A SKAAR AND FROM THE BOOK TITL ED KLAUS VOGEL ON DOUBLE TAXATION CONVENTION BY KLAUS VOGEL. 71. THE VIEW TAKEN BY THE LD. CIT (A) IS NOT CORREC T. THE INCOME EARNED BY THE ASSESSEE COMPANY FROM ADVERTISEMENTS RECEIVED FROM INDIA DID NOT REPRESENT ANY INCOME THAT COULD ACCRU E OR ARISE IN INDIA BECAUSE ALL THE MATCHES WERE PLAYED OUTSIDE INDIA I N SRI LANKA. THE LIVE TELECAST WAS MADE FROM THAT COUNTRY AND NOT FR OM INDIA. THERE WAS THUS NO SOURCE OF INCOME IN INDIA WITHIN THE ME ANING OF SECTION 9(1) (I) OF THE ACT. ALL THE ADVERTISEMENTS RECEIV ED FROM INDIA WERE INVOICED FROM THE ASSESSEES OFFICE IN SINGAPORE AN D THE PAYMENTS WERE RECEIVED THERE IN DOLLARS. THERE WAS NO AGENT OR OTHER FIXED PLACE FOR COLLECTING THE ADVERTISEMENTS AND AS SUCH THEIR BEING NO PE IN INDIA, THE AMOUNT WAS NOT TAXABLE IN ANY OF THE THR EE YEARS. THE FACT THAT THE LIVE TELECAST FROM SRI LANKA COULD BE VIEW ED IN INDIA OR THAT THE INDIAN CRICKET TEAM PARTICIPATED IN THE CRICKET MATCHES ARE TOTALLY IRRELEVANT CONSIDERATIONS. THE FORCE OF ATTRACTION RULE PROVISION, WRONGLY PRESUMED BY THE LD CIT (A), UNLIKE THE INDI A- CANADA DTAA, AND SOME OTHERS, IS ABSENT IN INDIA- SINGAPORE TREA TY WHERE ARTICLE 7(1) PROVIDES FOR THE TAXATION OF ONLY SO MUCH OF THEM (PROFITS) AS IS DIRECTLY OR INDIRECTLY ATTRIBUTABLE TO THAT PERMANE NT ESTABLISHMENT THE RELIANCE ON EXPERT COMMENTARIES IS THUS WHOLLY IRRE LEVANT AND OUT OF CONTEXT. 72. THE ASSESSEE COMPANY ALSO RELIES UPON THE FOLLO WING JUDGEMENTS TO SUPPORT ITS SUBMISSIONS:- (I) LUFTHANSA CARGO INDIA (P) LTD. V. DY. CIT (2004 ) 140 TAXMAN (DEL) 1 (PP.713720/PB-III) - (REPAIRS AND ITA-2423 TO 2425/D/2008 41 MAINTENANCE IN GERMANY- SOURCE OF INCOME IS OUTSIDE INDIA) (II) SET SATELLITE (SINGAPORE) PTE LTD V. DY. DIT ( 2008) 307 ITR 205 (BOM) (PP.721731/PB-III) ADVERTISEMENTS COLLEC TED BY A SINGAPORE TELECASTING COMPANY FROM INDIA IS NOT L IABLE TO INDIAN TAX. (III) ACIT V. DHL OPERATIONS B.V. (2005) 142 TAXMAN (MUMBAI)1 (PP.732733/PB-III) (NO ACTIVITY IN INDIA - NO SOURCE OF INCOME IN INDIA WITH IN THE MEANING OF S ECTION 9(1) (I) OF THE ACT). (IV) SPECIALTY MAGAZINES P LTD IN RE (2005) 274 ITR-310- AAR. ADVERTISEMENTS COLLECTED IN INDIA FOR PUBLICATION A BROAD ARE NOT TAXABLE IN INDIA. (V) BOARDS CIRCULAR NO. 23 DATED 23-07-1969 ( APPLICAB LE TO THE THREE YEARS UNDER CONSIDERATION)- PARA 5- NO PR OFIT ATTRIBUTED TO PURCHASE OF GOODS IN INDIA (IN PARIT Y WITH PURCHASE OF ADVERTISEMENTS IN INDIA TO BE TELECAST FROM SRI LANKA) 73. ALTERNATIVELY, IT IS CONTENDED THAT THE ESTIMAT E MADE BY LOWER AUTHORITIES IS HIGHLY EXCESSIVE AND ARBITRARY. 74. LEARNED DR SUPPORTED THE ORDER OF THE LEARNED C IT(A). 75. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE NATURE OF ASSESSEES WORK AS CONTRACTED WITH PRASAD BHARTI HAS BEEN NARRATED ABOVE. THE FIRST Q UESTION WHICH IS TO BE DETERMINED BY US IS WHETHER THE ASSESSEES ACTIV ITY CONSTITUTED BUSINESS INCOME OR FEES FOR TECHNICAL SERVICES AS T HE DETERMINATION OF THIS IMPORTANT ASPECT WILL DECIDE THE TAXABILITY OF THE ASSESSEE HAVING A PE OR OTHERWISE. ITA-2423 TO 2425/D/2008 42 76. THE RELEVANT PROVISIONS ABOUT FEES FOR TECHNICA L SERVICES ARE CONTAINED IN SECTION 9(1) OF THE IT ACT, WHICH ARE REPRODUCED AS UNDER:- 9(1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCR UE OR ARISE IN INDIA:- (VII) INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE BY - (A) THE GOVERNMENT; OR . EXPLANATION [2]. FOR THE PURPOSES OF THIS CLAUSE, FEES FOR TECHNICAL SERVICES MEANS ANY CONSIDERATION (INCLUD ING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCL UDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PER SONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUC TION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD SALARIES. 77. THE TERM FEES FOR TECHNICAL SERVICES IS FURTH ER DEFINED IN ARTICLE 12 PARAGRAPH 4 OF THE INDIA SINGAPORE DTAA AS UNDER :- 4. THE TERM FEES FOR TECHNICAL SERVICES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR SERVICES OF A MANAGERIAL, TECHNIC AL OR CONSULTANCY NATURE (INCLUDING THE PROVISION OF SUCH SERVICES THROUGH TECHNICAL OR OTHER PERSONNEL) IF S UCH SERVICES : (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY, OR INFORMATION FO R WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3 IS RECEIVED; OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES, WHICH ENABLES THE PER SON ACQUIRING THE SERVICES TO APPLY THE TECHNICAL CONTA INED THEREIN; OR (C) CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN, BUT EXCLUDES AN Y SERVICE ITA-2423 TO 2425/D/2008 43 THAT DOES NOT ENABLE THE PERSON ACQUIRING THE SERVI CE TO APPLY THE TECHNOLOGY CONTAINED THEREIN. FOR THE PURPOSES OF (B) AND (C) ABOVE, THE PERSON A CQUIRING THE SERVICE SHALL BE DEEMED TO INCLUDE AN AGENT, NO MINEE, OR TRANSFEREE OF SUCH PERSON. 78. THE CLAUSES (A), (B) & (C) OF THE INDIA-SINGAPO RE TREATY ARE MUTUALLY EXCLUSIVE AND ANY ACTIVITY FAILING IN ANY OF THE SUB-CLAUSES WILL AMOUNT TO FEES FOR TECHNICAL SERVICES. 79. CLAUSE (B) TO ABOVE PARAGRAPH IS FOUND TO BE RE LEVANT TO THE FACTS OF ASSESSEES CASE. AS PER THIS CLAUSE, THE TERM FEES FOR TECHNICAL SERVICES MEANS PAYMENT OF ANY KIND TO ANY PERSON I N CONSIDERATION FOR RENDERING OF ANY TECHNICAL SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) WHICH MAK E AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES WHICH ENABLES THE PERSON ACQUIRING THE SERVICES TO APPLY THE TECHNOLOGY. THE CLAUSE (C) OF ABOVE PARAGRAPH IS ALSO RELEVANT. AS PER THIS CLAUSE, THE TERM FEE FOR TECHNICAL SERVICES MEANS THE PAYMENT TO ANY KIND TO ANY PERSON IN CONSIDERATION OF RENDERING OF ANY TECHNIC AL SERVICES WHICH CONSIST OF DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. 80. THE LIST OF ACTIVITIES ARE LISTED BY CIT(A) IN HIS ORDER FROM PAGES 22 TO 25. IN VIEW OF THESE ACTIVITIES, IT IS EVIDE NT THAT SERVICES OF PRODUCTION AND GENERATION OF LIVE TELEVISION SIGNAL RENDERED BY THE ASSESSEE IN TERMS OF AGREEMENT WERE IN THE NATURE O F TECHNICAL SERVICES. ASSESSEE MADE AVAILABLE TO PB THE SERVIC ES WHICH ARE BASED ON TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW AND PROCESSES WHICH ALSO CONSISTED OF DEVELOPMENT AND TRANSFER TO PB OF TECHNICAL PLAN AND DESIGN RELATING TO PRODUCTION AND GENERATI ON OF LIVE TELEVISION SIGNAL AS PER CLAUSE (XXVII) OF PARA 5 OF THE AGREE MENT. THEREFORE, THE CONSIDERATION RECEIVED BY THE ASSESSEE FOR RENDERIN G SUCH TECHNICAL ITA-2423 TO 2425/D/2008 44 SERVICES WAS IN THE NATURE OF FEE FOR TECHNICAL SER VICES WITHIN THE MEANING OF CLAUSE (B) AND (C) AND PARAGRAPH 4 OF AR TICLE 12 OF DTAA. THUS, UNDER THE DTAA ALSO, THE CHARACTER OF INCOME ARISING TO ASSESSEE FROM OPERATION AND MAINTENANCE OF THE SERVICES REND ERED IN RESPECT OF PRODUCTION AND GENERATION OF LIVE TELEVISION SIGNAL WAS IN THE NATURE OF FEE FOR TECHNICAL SERVICES. IT IS FURTHER CLEAR FR OM CLAUSE (XXVII) OF PARA 5 OF THE AGREEMENT THAT THE REQUIREMENTS OF MAKE AV AILABLE SUCH SERVICES ARE FULFILLED IN THIS CASE. THUS, THE INC OME ARISING TO ASSESSEE FROM RENDERING OF TECHNICAL SERVICES FOR PRODUCTION AND GENERATION OF LIVE TELEVISION SIGNAL WAS A CHARACTER OF FEE FOR T ECHNICAL SERVICES UNDER IT ACT AS WELL AS UNDER DTAA. THE VARIOUS CASE LAW S RELIED UPON BY THE ASSESSEE FIND NO APPLICATION TO THE PECULIAR FACTS AND CIRCUMSTANCES OF THE CASE. 81. IN VIEW OF OUR FINDINGS, WE HAVE NO HESITATION TO HOLD THAT AS PER THE READING OF ARTICLE 12 OF THIS TREATY AND CONJOI NED READING WITH EXPLANATION (2) TO SECTION 9(1) CLINCHES THE ISSUE THAT THE SERVICES MADE AVAILABLE AND RENDERED BY THE ASSESSEE WERE OF TECHNICAL NATURE AND THE AMOUNT WHICH ASSESSEE RECEIVED FROM PRASAR BHARTI WAS FOR RENDERING SUCH TECHNICAL SERVICES. THEREFORE, WE A RE INCLINED TO HOLD THAT THE PAYMENT IN QUESTION IS IN THE NATURE OF FE ES FOR TECHNICAL SERVICES. 82. NOW, WE PROCEED TO DECIDE WHETHER THE ASSESSEE HAD PE IN INDIA OR NOT. IN THIS REGARD, WE OBSERVE AS UNDER:- (I) IT CLEARLY EMERGES FROM THE FACT THAT THE CONTR ACT WAS SIGNED BY THE ASSESSEE AT SINGAPORE AND ALL THE ACTIVITIES RE LATING TO THIS CONTRACT WERE CARRIED OUT FROM SINGAPORE. (II) THERE IS NO EVIDENCE ON RECORD THAT THE MANAGE MENT AND CONTROL OF THE AFFAIRS OF THE ASSESSEE COMPANY WERE SITUATE D IN SINGAPORE. MERELY BECAUSE HOLDING OF ONE BOARD MEETING IN INDI A WILL NOT LEAD TO A ITA-2423 TO 2425/D/2008 45 CONCLUSION THAT DURING THE YEARS UNDER CONSIDERATIO N, THE CONTROL AND MANAGEMENT OF ASSESSEES AFFAIRS WAS SITUATED ONLY IN INDIA. (III) THE ASSESSEES ACTIVITIES AT SINGAPORE AS LIS TED IN PARAGRAPH 22 OF ITS ORDER CLEARLY DEMONSTRATES THAT THE AFFAIRS OF THE ASSESSEE COMPANY WERE WHOLLY CARRIED OUT AT SINGAPORE. (IV) THE RESIDENCE OF TWO NON-RESIDENTS DIRECTORS I N INDIA WILL NOT MAKE THE COMPANY A RESIDENT IN INDIA AS HELD BY THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF RADHA RANI HOLDINGS (P) LTD. (SUPRA), WHICH, WE RESPECTFULLY FOLLOW ON THIS ISSUE. THEREFORE, I N VIEW OF THESE FACTS, WE HAVE NO HESITATION TO HOLD THAT THE AFFAIRS OF T HE ASSESSEE COMPANY WERE CARRIED OUT IN INDIA. 83. COMING TO THE OBSERVATIONS ABOUT THE NUMBER OF DAYS ON THE ISSUE OF SERVICE PE OR FIXED PLACE PE, IN OUR VIEW, THE ASSESSEE HAS LED SOME SUFFICIENT EVIDENCE TO ESTABLISH THE FACT THAT THE TV CREW, MR.SEAMUS OBRIEN, PROGRAMMER AND ENGINEERS, MR.VEN U NAIR, MR.HARISH THAWANI, TECHNICAL PERSONNEL AND MR.DIGVI JAY SINGH DID NOT STAY FOR MORE THAN 10 DAYS IN EACH YEAR. THE NUMBE R OF DAYS PROJECTED BY THE AO AND THE CIT(A) IS ON PRESUMPTIO NS AND IGNORING THE FACT THAT THE ASSESSEE IS A PART OF A WORLDWIDE GROUP AND THE REPORTS OF E-MAIL OR MR.THAWANIS INTERVIEW WAS IN RESPECT OF THE OVERALL ACTIVITIES OF THE GROUP. IN OUR VIEW, THE ESTIMATE OF DAYS MADE BY THE AO IS NOT MADE BASED ON THE RECORD OR INFORM ATION BUT ON THE BASIS OF CERTAIN NEWS ITEMS AND E-MAILS WHICH, IN O UR VIEW, DO NOT GIVE AN OBJECTIVE PICTURE OF THE ACTUAL DAYS OF THE STAY OF THE EMPLOYEES. IN VIEW OF THESE FACTS, WE FIND MERIT IN THE CONTENTIO NS OF THE ASSESSEE THAT THE NUMBER OF STAY OF HIS REPRESENTATIVES IS L ESS THAN 90 DAYS CANNOT BE HELD TO BE A FIXED PLACE OR SERVICE PE IN INDIA IN THE YEARS IN QUESTION. CONSEQUENTLY, WE UPHOLD THE ASSESSEES C ONTENTION THAT IT HAD NO PE IN INDIA DURING THESE YEARS. ITA-2423 TO 2425/D/2008 46 84. THUS, WE HOLD THAT THE ASSESSEES RECEIPTS DERI VED FROM PRASAR BHARTI ARE IN THE NATURE OF FEES FOR TECHNICAL SER VICES AND NOT BY WAY OF BUSINESS INCOME. THE ASSESSEE HAD NO FIXED PL ACE OR SERVICE PE IN INDIA. 85. THE NEXT ISSUE TO BE DECIDED IS THE RATE OF TAX APPLICABLE TO INDIA. SINCE THERE IS AN INDIA-SINGAPORE TREATY IN FORCE, THE TAXABILITY OF FEES FOR TECHNICAL SERVICES IS GOVERNED BY PARAGRAPH 2 OF ARTICLE 12 OF THE DTAA WHICH PRESCRIBES AS UNDER:- 2. HOWEVER, SUCH ROYALTIES AND FEES FOR TECHNICAL SERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE, IN WHIC H THEY ARISE AND ACCORDING TO THE LAWS OF THAT CONTRACTING STATE , BUT IF THE RECIPIENT IS THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, THE TAX SO CHARGED SHALL NOT EX CEED 10%. 86. THUS, THE TAX LEVIABLE ON THE ASSESSEE WILL BE 10% OF THE GROSS RECEIPTS. WE FIND MERIT IN THE ARGUMENT OF THE LEA RNED COUNSEL FOR THE ASSESSEE THAT THE SITUATION IS TO BE GOVERNED BY TH E DTAA AND NOT BY DOMESTIC LAW IN THIS BEHALF. WE REVERSE THE ORDERS OF LOWER AUTHORITIES APPLYING THE RATE OF 20% BY RECOURSING TO SECTION 4 4D READ WITH SECTION 115A OF THE IT ACT. THUS, IN CONCLUSION, W E HOLD THAT THE ASSESSEES ACTIVITY IS LIABLE TO BE TAXED AT THE RA TE OF 10% AS PER PARAGRAPH 2 OF ARTICLE 12 OF THE DTAA ON THE RECEIP TS WHICH ARE IN THE NATURE OF FEES FOR TECHNICAL SERVICES. IN VIEW THE REOF, WE DO NOT GO INTO ANY OTHER ARGUMENT OR CASE LAWS. 87. COMING TO THE ISSUE ABOUT THE ADVERTISEMENT REV ENUE RECEIVED BY THE ASSESSEE IN SINGAPORE FOR MATCHES PLAYED ABR OAD, IT HAS NOT BEEN DISPUTED THAT THE MATCHES IN QUESTION FOR WHIC H ADVERTISEMENTS WERE GIVEN BY THE INDIAN COMPANY WERE ALL PLAYED IN FOREIGN COUNTRIES. ITA-2423 TO 2425/D/2008 47 THE ASSESSEE DOES NOT HAVE A PE IN INDIA. IN THIS EVENTUALITY, THE REVENUE COLLECTED BY IT FOR THE MATCHES PLAYED OVER SEAS AND TELECAST AT OVERSEAS WILL NOT ATTRACT THE THEORY OF FORCE OF ATTRACTION FOR TAXING THEM IN INDIA. THE FORCE OF ATTRACTION CANNOT APPL Y ON AN ASSUMPTION THAT SOME PERCENTAGE OF THE VIEWERS MAY BE INDIAN A ND THE ADVERTISEMENT MADE HAVE SOME INCREMENTAL VALUE IN I NDIA FOR THE ADVERTISING COMPANIES. IN OUR VIEW, THIS IS A PURE ASSUMPTION. THE CLINCHER TO THE ISSUE IS THAT THE ASSESSEE DOES NOT HAVE A PE IN INDIA, THE MATCHES WERE NOT PLAYED IN INDIA, THE TELECAST OF THE MATCHES WAS NOT IN INDIA AND THE INDIRECT BENEFIT WHICH MIGHT H AVE BEEN DERIVED BY SOME OF THE INDIAN VIEWERS CANNOT BE HELD TO BE INC REMENTAL FOR INDIAN COMPANIES ON ASSUMPTION. THE DOMINANT OBJECT OF TH E PAYMENT BY THE INDIAN COMPANIES TO ASSESSEES SINGAPORE OFFICE WAS TO ADVERTISE THEIR PRODUCTS IN FOREIGN TERRITORY IN FOREIGN CRICKET MA TCHES AND THE DOMINANT OBJECT EMERGES TO BE THE ADVERTISEMENT IN FOREIGN TERRITORIES. IN OUR VIEW, THE ADVERTISEMENT REVENUE HAS NO ATTRI BUTION TO INDIA AND IN THE ABSENCE OF ANY PE, WE HAVE TO HOLD THAT THIS REVENUE CANNOT BE TAXED IN INDIA. OUR VIEW IS SUPPORTED BY THE FOLLO WING JUDGMENTS :- (I) LUFTHANSA CARGO INDIA (P) LTD. (SUPRA). (II) SET SATELLITE (SINGAPORE) PTE LTD. (SUPRA). (III) DHL OPERATIONS B.V. (SUPRA). (IV) SPECIALITY MAGAZINES P.LTD. (SUPRA). (V) BOARDS CIRCULAR NO.23 DATED 23.7.1969 (SUPRA). 88. APROPOS THE CHARGEABILITY OF INTEREST UNDER SEC TION 234B & C, WE FIND MERIT IN THE ARGUMENT OF THE LEARNED COUNSEL F OR THE ASSESSEE THAT THE RECEIPTS OF THE ASSESSEE WERE LIABLE TO TDS UND ER SECTION 195. THE RECEIPTS BEING LIABLE FOR TDS, THE SAME WILL NOT BE LIABLE FOR ADVANCE TAX AND THE INTEREST WAS NOT LIABLE BY THEM AS PER PROVISIONS OF SECTION 209. IN VIEW THEREOF, WE HOLD THAT THE INTEREST WI LL NOT BE CHARGEABLE ITA-2423 TO 2425/D/2008 48 ON THE ASSESSEE UNDER THESE SECTIONS. OUR VIEW IS FORTIFIED BY THE FOLLOWING BINDING JUDGMENTS:- (I) HALLIBURTON OFFSHORE SERVICES INC. (SUPRA). (II) MOTOROLA INC. (SUPRA). (III) ASIA SATELLITE TELECOMMUNICATIONS CO.LTD. (SUPRA). (IV) SEDCO FOREX INTERNATIONAL DRILLING INC. (SUPRA). 89. THE ISSUE HAS FURTHER BEEN DECIDED BY THE HON'B LE DELHI HIGH COURT IN THE CASE OF JACABS CIVIL INC. 235 CTR 12 3 (DELHI). ACCORDINGLY, WE ALLOW THIS GROUND OF THE ASSESSEE. 90. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PARTLY ALLOWED. DECISION PRONOUNCED IN THE OPEN COURT ON 30 TH SEPTEMBER, 2011. SD/- SD/- (K.D.RANJAN (K.D.RANJAN (K.D.RANJAN (K.D.RANJAN) )) ) (R.P.TOLANI (R.P.TOLANI (R.P.TOLANI (R.P.TOLANI) )) ) ACCOUNTANT ACCOUNTANT ACCOUNTANT ACCOUNTANT MEMBE MEMBE MEMBE MEMBER RR R JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER JUDICIAL MEMBER DATED : 30.09.2011 VK. COPY FORWARDED TO: - 1. ASSESSEE 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT ASSISTANT REGISTRAR