DY.DIRECTOR OF IT (IT)-4(1), MUMBAI V. MSM SATELLITE (SINGAPORE)PTE LTD., (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD), MUMBAI

ITA 4449/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 71997 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 6 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-12-2013
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 05-12-2013
• Assessment Year: 2009-2010
• Appeal Filed On: 02-06-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KUMAR
• Keywords: Residential status; Double taxation relief; Permanent establishment

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L B ENCH, MUMBAI . . , , !'#$ , % & BEFORE SHRI B.R. MITTAL, JM AND SHRI N.K. BILLAI YA, AM ./ I.T.A. NO. 4449/MUM/2011 ( ' ' ' ' / ASSESSMENT YEAR : 2009-2010 THE DY. DIT (IT), (INTERNATIONAL TAXATION-4(1), MUMBAI M/S. MSM SATELLITE (SINGAPORE) PTE LTD., (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE)PTE. LTD., C/O M/S. S.R. BATLIBOI & CO., 18 TH FLOOR, EXPRESS TOWER, NARIMAN POINT, MUMBAI-400 021 C.O. NO. 50/MUM/2012 (ARISING OUT OF I.T.A. NO. 4449/MUM/2011 ( ' ' ' ' / ASSESSMENT YEAR : 2009-2010 M/S. MSM SATELLITE (SINGAPORE) PTE LTD., (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE)PTE. LTD., C/O M/S. S.R. BATLIBOI & CO., 18 TH FLOOR, EXPRESS TOWER, NARIMAN POINT, MUMBAI-400 021 THE DY. DIT (IT), (INTERNATIONAL TAXATION-4(1), MUMBAI ( % ./ )* ./PAN/GIR NO. : AABCS 9229H CROSS OBJECTOR .. ( +,(- / RESPONDENT ) (- . / REVENUE BY : ` SHRI NARENDRA KUMAR +,(- / . /ASSESSEE BY : SHRI RAJAN VORA / 01% / DATE OF HEARING :05.12.2013 23' / 01% / DATE OF PRONOUNCEMENT : 27.12.2013 ITA NO.4449/M/11 & C.O. NO. 50/M/2012 2 4 / O R D E R PER N.K. BILLAIYA, AM: THIS APPEAL BY THE REVENUE AND THE CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE LD. CIT(A)-11 , MUMBAI DT.23.3.2011 PERTAINING TO A.Y. 2009-2010. 2. THE REVENUE HAS RAISED FOLLOWING THREE SUBSTANTI VE GROUNDS OF APPEAL: 1) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT ARTICLE 2 4 OF THE DTAA BETWEEN INDIA AND SINGAPORE IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN NOT HOLDING THAT THE PAYMEN T IN QUESTION WAS IN THE NATURE OF ROYALTY UNDER THE RESPECTIVE DTAA. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND I N LAW, THE LD. CIT(A) ERRED IN HOLDING THAT THE ROYALTY HA S NOT ARISEN IN INDIA HAVING REGARD TO THE PROVISIONS OF ARTICLE 12(7) OF THE INDO-SINGAPORE DTAA. 3. AT THE VERY OUTSET, THE LD. COUNSEL FOR THE ASSE SSEE SUBMITTED THAT THE GRIEVANCES OF THE REVENUE HAVE BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE EARLIER ORDER OF THE TRIBUNAL IN AS SESSEES OWN CASE. 4. THE LD. DEPARTMENTAL REPRESENTATIVE THOUGH AGREE D WITH THE SUBMISSION OF THE LD. COUNSEL RELIED UPON THE FINDI NGS OF THE AO. WE PROCEED WITH GROUND NO. 3 OF THE APPEAL. ITA NO.4449/M/11 & C.O. NO. 50/M/2012 3 5. IT IS THE SAY OF THE REVENUE THAT THE LD. CIT(A) ERRED IN HOLDING THAT THE ROYALTY HAS NOT ARISEN IN INDIA HAVING RE GARD TO THE PROVISIONS OF ARTICLE 12(7) OF THE INDO-SINGAPORE DTAA. 5. THIS ISSUE HAS BEEN CONSIDERED BY THE LD. CIT(A) AT PARA-4 ON PAGE-4 OF HIS ORDER. AFTER CONSIDERING THE FACTS A ND THE SUBMISSIONS OF THE ASSESSEE, THE LD. CIT(A) AT PARA-4.2 ON PAGE-6 OF HIS ORDER FOLLOWED THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE . THE RELEVANT PART OF THE ORDER OF THE TRIBUNAL IS ALSO EXTRACTED AT PARA -4.2 OF THE ORDER OF THE LD. CIT(A). 6. WE HAVE CAREFULLY PERUSED THE ORDERS OF THE LOWE R AUTHORITIES AND THE ORDER OF THE TRIBUNAL RELIED UPON BY THE ASSESS EE AND ALSO BY THE LD. CIT(A). FOR A.Y. 2003-04, IN ITA NOS. 7349/M/04 & 7574/M/04 THE TRIBUNAL AT PARA-17 ONWARDS HAS CONSIDERED THE RELE VANT ARTICLE 12(7) OF THE INDO-SINGAPORE TREATY AND DECIDED THE ISSUE AS UNDER: WE HEARD BOTH THE PARTIES. WE FIND NO INFIRMITY I N THE ORDER OF THE LD CIT(A). THE PAYMENT MADE BY THE ASSESSEE TO GCC CANNOT BE SAID TO ARISE IN INDIA UN DER ARTICLE 12(7) OF THE TREATY SINCE THE PAYER ( I.E. ASSESSEE) IS NOT A RESIDENT OF IND IA. AS PER THE FIRST LIMB OF ARTICLE 12(7) OF THE TREATY, ROYALTIES CANNOT ARISE IN INDIA, SINCE THE PAYER IS NOT A RES IDENT OF INDIA. SUCH ROYALTIES UNDER THE FIRST LIMB OF ARTI CLE 12(7) OF THE TREATY ARISE IN SINGAPORE SINCE THE PAYER (I .E. THE ASSESSEE) IS A RESIDENT OF SINGAPORE. THE SECOND LIMB OF ARTICLE 12(7) OF THE TREATY DEALS WITH A SCENARI O WHERE THE PAYMENTS ARE MADE BY A NON-RESIDENT, WHER E SUCH NON-RESIDENT HAS A PE IN INDIA. HOWEVER, A ME RE EXISTENCE OF A PE IN INDIA CANNOT LEAD TO A CONCLUS ION THAT ROYALTIES ARISE IN INDIA. IN ADDITION TO THE EXISTENCE OF PE, FOR ROYALTIES TO ARISE IN INDIA UNDER ARTICL E 12(7) OF THE TREATY, IT IS ESSENTIAL THAT LIABILITY TO PAY S UCH ITA NO.4449/M/11 & C.O. NO. 50/M/2012 4 ROYALTIES HAS BEEN INCURRED IN CONNECTION WITH AN D IS BORNE BY THE PE OF THE PAYER IN INDIA. BASED ON AN ANALOGY FROM PARAGRAPH 26 AND 27 OF THE OECD COMMENTARY ON ARTICLE 11, IT IS CLEARLY EVIDENT THAT FOR ROYALTIES TO ARISE IN INDIA, AN EX ISTENCE OF AN ECONOMIC LINK BETWEEN THE LIABILITY FOR PAYME NT OF SUCH ROYALTIES AND PE IS NECESSARY. HOWEVER, IN TH E PRESENT CASE THERE IS NO ECONOMIC LINK BETWEEN THE PAYMENT OF ROYALTIES AND THE ALLEGED PE OF THE ASSE SSEE IN INDIA (I.E. SET INDIA), THE ECONOMIC LINK IS ENT IRELY WITH THE ASSESSEES HEAD OFFICE IN SINGAPORE. THUS , THE PAYMENTS TO GCC CANNOT BE SAID TO HAVE BEEN INCURRE D IN CONNECTION WITH THE APPELLANTS PE IN INDIA (I .E. SET INDIA. FURTHER, THE ALLEGED PE IN INDIA (I.E. SET I NDIA) WAS ALSO NOT INVOLVED IN ANY WAY WITH THE ACQUISITI ON OF THE RIGHT TO BROADCAST THE CRICKET MATCHES, NOR DID THE PE BEAR THE COST OF PAYMENTS TO GCC. THUS THE PAYMENTS TO GCC CANNOT BE SAID TO HAVE BEEN BORNE BY THE ASSESSEES PE IN INDIA (I.E. SET INDIA). WE FIND THAT THE CASE LAWS CITED BY THE LD. COUNSEL FOR THE ASSESSEE ALSO SUPPORTS THE ASSESSEE S CASE. IN THE CASE OF STANLEY KEITH KINNETT VS CIT 278 ITR 155 AND CIT VS ELITOS S.P.A & OTHERS 280 ITR 4 95 IN WHICH IT HAS BEEN HELD THAT WHEN THE BURDEN OF PAYMENT IS NOT BORNE BY PE OR FIXED BASE , TRADE O R BUSINESS LOCATED IN INDIA, THE AMOUNT IS NOT TAXABL E IN INDIA. FURTHER ON GOING THROUGH SCHEDULE-XV, WE FI ND THAT SET SATELLITE SINGAPORE HAS NOT RECOVERED ANY AMOUNT FROM THE INDIAN PE, IN THE ROYALTY TO ARISE IN INDIA AS ENVISAGED UNDER ARTICLE 12(7) OF THE TREAT Y, THE CONDITION WHICH READS AS FOLLOWS: ROYALTIES AND FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN A CONTRACTING STATE WHEN THE PAYER IS THAT STATE ITSELF, A POLITICAL SUB-DIVISION, A LOCAL AUTHORITY, A STATUTORY BODY OR A RESIDENT OF T. WHERE, HOWEVER, THE PERSON PAYING THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, WHETHER HE IS A RESIDENT OF A CONTRACTING STATE OR NOT, HAS IN ITA NO.4449/M/11 & C.O. NO. 50/M/2012 5 A CONTRACTING STATE A PERMANENT ESTABLISHMENT OR A FIXED BASE IN CONNECTION WITH WHICH THE LIABILITY TO PAY THE ROYALTIES OR FEES FOR TECHNICAL SERVICES WAS INCURRED, AND SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE BORNE BY SUCH PERMANENT ESTABLISHMENT OR FIXED BASE, THEN SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN THE STATE IN WHICH THE PERMANENT ESTABLISHMENT OR FIXED BASE IS SITUATED. FIRSTLY THE PAYER IS NOT A RESIDENT OF INDIA. SECONDLY THE LIABILITY TO PAY SUCH ROYALTY HAS NOT BEEN INCURRED IN CONNECTION WITH AND DOES NOT BORNE BY THE PE OF THE PAYER IN INDIA. THEREFORE THERE BEING NO ECONOMIC LINK BETWEEN THE PAYMENT OF ROYALTY AND SET INDIA HENCE THE ROYALTY DOES NOT ARISE IN INDIA HAVING REGARD TO THE PROVISIONS OF ARTICLE 12(7) OF THE TREATY. HENCE EVEN IF IT IS ASSUMED THAT THE PAYMENT FOR BROADCASTING CRICKET CONSTITUTES ROYALTY, IN OUR OPINION SUCH ROYALTY DOES NOT ARISE IN INDIA WITHIN THE MEANING OF PROVISIONS OF ARTICLE 12(7) OF THE TAX TREATY AND HENCE THE SECOND GROUND NO. 3 RAISED BY THE REVENUE IS DISMISSED. IN VIEW OF OUR DECISION RENDERED ABOVE ON THE MAIN ISSUE, OTHER GROUNDS RAISED IN REVENUES APPEAL AND ASSESSEES APPEAL HAVE BECOME ONLY ACADEMIC AND WE DO NOT DEEM IT EXPEDIENT TO ADJUDICATE UPON THE SAME. 7. AS NO DISTINGUISHING FACTS HAVE BEEN BROUGHT ON RECORD BY THE REVENUE, RESPECTFULLY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE AS MENTIONED HEREINABOVE, GROUND NO. 3 IS DISMISSED. 8. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITT ED THAT THE GRIEVANCE RAISED VIDE GROUND NO. 1 HAS BEEN DECIDED BY THE TRIBUNAL IN ITA NO.4449/M/11 & C.O. NO. 50/M/2012 6 M.A. NO. 520/M/2010 ARISING OUT OF ITA NOS. 7574 & 7349/M/04 FOR A.Y. 2003-04. AT PARA 21.3, WE FIND THAT THE TRIBU NAL HAS HELD AS UNDER: AS EXPLAINED EARLIER IN THIS ORDER THE INCOME IN TH E INSTANT CASE, EVEN IF IT IS CONSTRUED AS ROYALTY, D O NOT ARISE IN INDIA UNDER ARTICLE 12(7) BECAUSE THE PAYE R (SET SINGAPORE) IS A RESIDENT OF SINGAPORE. PARAGRAPH 26 OF THE OECD COMMENTARY TO ARTICLE 11 STATES: THIS PARAGRAPH LAYS DOWN THE PRINCIPLE THAT THE STATE OF SOURCE OF THE ROYALTIES IS THE STATE OF WHICH THE P AYER OF ROYALTIES IS RESIDENT. IN THIS CASE, THE STATE OF SOURCE OF ROYALTIES IS SINGAPORE AS THE PAYER IS A RESIDENT O F SINGAPORE. THE ROYALTIES ARE NOT THEREFORE INCOME FROM SOURCES IN INDIA WHICH UNDER THE LAWS IN FORCE IN SINGAPORE ARE SUBJECT TO TAX BY REFERENCE TO THE AM OUNT THEREFORE WHICH IS REM ITTED TO .. SINGAPORE. 21.4 FURTHERMORE, AS THE LEARNED COUNSEL POINTED OU T THE TREATY SPECIFICALLY MENTIONS CASES WHERE AN INC OME IS EXEMPT FROM TAX IN A CONTRACTING STATE. THERE IS A DISTINCTION BETWEEN INCOME EXEMPT FROM TAX AND INCOME WHICH IS NOT TAXABLE; IN THE INSTANT CASE THERE IS NO QUESTION OF INCOME BEING EXEMPT FROM TAX IN INDI A AND THEREFORE ARTICLE 24 SHOULD NOT APPLY ON THIS COUNT AS WELL. FINALLY, BASED ON THE DOCUMENTS FILED, IT IS CLEAR THAT THE AMOUNT PAID BY SET SATELLITE (SINGAPORE) P TE LTD TO GCC, IN JERSEY, WAS SUBJECT TO TAX IN SINGAPORE UNDER ITS DOMESTIC LAWS AND HENCE ARTICLE 24 CANNOT APPLY ON THIS COUNT TOO. WE THEREFORE BELIEVE THAT THE PROVI SIONS OF ARTICLE 24 OF THE DTAA DO NOT APPLY TO THE FACTS OF THIS CASE AND THE ASSESSEE IS ENTITLED TO THE BENEFITS U NDER THE INDIA-SINGAPORE TREATY. WE DISMISS THE FIRST GR OUND OF APPEAL OF THE REVENUE. RESPECTFULLY FOLLOWING THE DECISION OF THE CO-ORDIN ATE BENCH (SUPRA), WE DISMISS GROUND NO. 1 OF THE REVENUES A PPEAL. ITA NO.4449/M/11 & C.O. NO. 50/M/2012 7 9. AS WE HAVE DECIDED THAT THE ROYALTY DOES NOT ARI SE IN INDIA HAVING REGARD TO THE PROVISIONS OF THE ARTICLE 12(7) OF TH E TREATY VIDE OUR DECISION FOR GROUND NO. 3 HEREINABOVE, WE DO NOT FI ND IT NECESSARY TO DECIDE WHETHER THE PAYMENT IN QUESTION WAS IN THE N ATURE OF ROYALTY UNDER THE RESPECTIVE DTAA. OUR FINDING IS IN LINE WITH THE DECISION OF THE TRIBUNAL (SUPRA) RELIED UPON BY US. WE ACCORDI NGLY DISMISS THIS APPEAL FILED BY THE REVENUE. CONSEQUENTLY, THE CRO SS OBJECTION FILED BY THE ASSESSEE BECOME OTIOSE AND THE SAME IS ACCORDIN GLY DISMISSED. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE AND THE CROSS OBJECTION FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH DECEMBER, 2013 . 4 / 3' % 5 67 27.12.2013 3 / 8 SD/- SD/- ( B.R. MITTAL ) (N. K. BILLAIYA) /JUDICIAL MEMBER % / ACCOUNTANT MEMBER MUMBAI; 6 DATED 27 /12/2013 . . ./ RJ , SR. PS ITA NO.4449/M/11 & C.O. NO. 50/M/2012 8 4 4 4 4 / // / +0! +0! +0! +0! 9!'0 9!'0 9!'0 9!'0 / COPY OF THE ORDER FORWARDED TO : 1. (- / THE APPELLANT 2. +,(- / THE RESPONDENT. 3. : ( ) / THE CIT(A)- 4. : / CIT 5. !;8 +0 , , / DR, ITAT, MUMBAI 6. 8< = / GUARD FILE. 4 4 4 4 / BY ORDER, ,!0 +0 //TRUE COPY// > >> > / ? ? ? ? ) ) ) ) (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI