WARNER BROS. DISTRIBUTING INC., MUMBAI V. ACIT (IT) 4(3)(2), MUMBAI

ITA 601/MUM/2022

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 2139 (ITAT-MUMBAI)
• Duration Of Justice: 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-07-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2018-2019
• Appeal Filed On: 31-03-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Permanent establishment; TDS
• Section: 2; 5(2); 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “I” BENCH, MUMBAI BEFORE SHRI AMIT SHUKLA, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO. 601/MUM/2022 (A.Y. 2018-19) Warner Bros. Distributing Inc. C/o. Warnere Bros. Pictures India Private Ltd 407, 4 th Floor, Windfall, Sahar Plaza Complex Andheri Kurla Road, JB Nagar Andheri (E), Mumbai – 400059 PAN: AAACW6559R v. ACIT (IT)-4(3)(2) Room No. 1611, 16 th Floor Air India Building Nariman Point Mumbai – 400 021 (Appellant) (Respondent) Assessee by : Shri A.F. Jahangir Department by : Ms. Bharati Singh Date of Hearing : 26.07.2022 Date of Pronouncement : 28.07.2022 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (DRP-2), Mumbai-3 [hereinafter in short “Ld.DRP”] dated 31.01.2022 for the A.Y. 2020-21 passed u/s. 144C(5) of Income-tax Act, 1961 (in short “Act”). 2 ITA NO. 601/MUM/2022 (A.Y. 2018-19) Warner Bros. Distributing Inc. 2. Brief facts of the case are, assessee filed its return of income for the A.Y. 2018-19 on 26.11.2018 declaring total income of ₹.66,67,780/-. The case was selected for scrutiny under CASS and notice u/s. 143(2) and 142(1) of Income-tax Act, 1961 (in short “Act”) were issued and served on the assessee. In response AR of the assessee attended and submitted the information as called for. 3. Assessee, Warner Bros. Distributing Inc., is a non-resident corporate entity incorporated in the United States of America. Its activities, inter alia, include, export of films from USA, produced either by its group studios or produced by other third parties. Warner Bros Pictures International, a Division of Warner Bros Distributing Inc. (WBDI) has entered into an agreement with Warner Bros Pictures (India) Pvt. Ltd. ('WBPIPL') in April 01, 2009 granting exclusive rights of distribution of cinematographic film to WBPIPL, on payment of specified royalty in terms of the above referred Agreement. During the year under consideration the assessee has received ₹.42,59,04,410/- from WBPIPL under the terms of agreement, which has been characterized as 'Royalty Income' by the assessee and claimed exempt under the Act and the India-USA DTAA, both. The income was claimed to be non-taxable as Royalty income by 3 ITA NO. 601/MUM/2022 (A.Y. 2018-19) Warner Bros. Distributing Inc. the assessee on the basis of the exception provided in Explanation 2 to Section 9(1)(vi) of the Act. The assessee has claimed refund of ₹.4,94,12,330/-, comprising of TDS, also. However, the Assessing Officer has held the royalty income received in India as taxable u/s 5(2) of the Act and alternatively taxable as Royalty Income under Section 9(1)(i) of the Act and Article 12(3) of the India-USA DTAA as well. The Assessing Officer has issued the Draft Order dated 01.04.2021 u/s 144C(1) of the Act and proposed an assessment of the income at ₹.28,35,05,640/- wherein he has considered an amount of ₹.27,68,37,866/- i.e. 65% of Gross Receipts / Royalty Receipts of ₹.42,59,04,410/- relating to distribution of films in India, as business income of the assessee. 4. Aggrieved, the assessee raised objections before Ld. DRP, inter-alia, by drawing attention to the fact that this issue was covered by the orders of Tribunal’s in assessee’s own case in earlier years. However, it was observed that the proceedings before Ld. DRP were continuation of assessment proceedings only and DRP was not an appellate authority and therefore, since the department was under appeal in earlier years before Hon’ble Bombay High Court, the view of Assessing Officer was to be upheld. Resultantly, final assessment order was passed on 28.02.2022, 4 ITA NO. 601/MUM/2022 (A.Y. 2018-19) Warner Bros. Distributing Inc. pursuant to the directions of Ld. DRP, assessing the income at ₹.28.35 Crores. Aggrieved, the assessee is under appeal before us. 5. During hearing before us, it is submitted that the issue under appeal is squarely stood covered in assessee’s favour by various decisions of this Tribunal right from A.Y. 2006-07 to 2017-18, copies of orders has been placed on record. SrNo Assessment Year ITA No. Date of Order Finding of Hon'ble ITAT 1 2006-07 ITA No. 3160/Mum/2010 30.12.2011 Para 11 2 2007-08 ITA No. 8734/Mum/2010 10.10.2012 Para 5.3 3 2008-09 ITA No. 8627/Mum/2011 22.02.2013 Para 4.3 4 2009-10 ITA No. 7553/Mum/2012 05.03.2014 Para 5, 5.1 5 2010-11 ITA No. 1405/Mum/2014 27.10.2016 Para 4 6 2011-12 ITA No. 1615/Mum/2015 08.11.2016 Para 6 7 2012-13 ITA No. 4877/Mum/2015 26.07.2017 Para 5 8 2013-14 ITA No. 7635/Mum/2016 26.07.2017 Para 11 9 2014-15 ITA No. 6479/Mum/2018 14.10.2019 Para 5 10 2017-18 ITA No. 33/Mum/2021 30.11.2021 Para 8 6. The lead order of the Tribunal is for the A.Y. 2006-07 in ITA.No. 3160/Mum/2010 dated 30.12.2011 is placed on record. 7. Ld. DR fairly agreed that the issue is covered in favour of the assessee. 5 ITA NO. 601/MUM/2022 (A.Y. 2018-19) Warner Bros. Distributing Inc. 8. Considered the rival submissions and material placed on record, it is an admitted position that issue stood squarely covered in assessee’s favour by the lead decision of this Tribunal in assessee’s own case for the A.Y. 2006-07 in ITA.No. 3160/Mum/2010 dated 30.12.2011, wherein it is held as under: - “9) We have considered the rival contentions and examined the facts on record. There is no dispute with reference to the fact that the assessee has entered into agreement with Warner Brothers Pictures India (P) Ltd outside India and the amounts were also received outside India. There is also no dispute with reference to the fact that the definition of royalty under section 9(1)(vi) Explanation 2 to (v) excludes the payment received with reference to sale, distribution and exhibition of cinematographic films. There is also no dispute with reference to the provisions of DTAA entered into by India with USA, notified on 20th December, 1990, that the term royalty used in the Article 12 does not include payment of any gain received as consideration for the use of any copyright or literary, artistic or scientific work including cinematographic films or work on films, tape or other means of production for use in connection with Radio or T.V. broadcasting. In view of this specific provisions, the amount received by the assessee cannot be considered as royalty as was done by the Assessing Officer while invoking the Article 12(2) of the DTAA for taxing the amounts. To that extent the findings of the CIT (A) are correct and there is no need to deviate from such findings. In view of this the amount received by the assessee cannot be considered as royalty within the meaning of Indian Income Tax Act or under the DTAA. 10) The issue can be examined in another dimension whether the amount is taxable under the Indian Income Tax Act in India if not as royalty, but as business income. The CIT (A) finding is that assessee has a business connection in India. However, he considered that there is no PE to the assessee, the fact of which was also accepted by the Assessing Officer as he has invoked only Article 12(2) and not considered the amounts business income as per PE proviso. It was the contention of the learned Departmental Representative that the assessee having business connection, the findings of which was given by the CIT (A), the amount cannot be excluded without examining ‘PE proviso’ provisions of the DTAA. In this regard the learned Counsel’s submission that under the Income Tax Act as well 6 ITA NO. 601/MUM/2022 (A.Y. 2018-19) Warner Bros. Distributing Inc. as under the provisions of DTAA the transaction between the assessee and Indian Company to whom license was granted by virtue of the agreement cannot be considered as Agency PE as the Indian assessee is not exclusively dealing with the assessee and referred to the receipts from another company 20th Century Fox to submit that the assessee is also dealing with the other Non Resident Companies, so assessee cannot be considered as Agency PE within the definition of Permanent Establishment. 11) We have examined this aspect also. As rightly held by the CIT (A) even if income arises to the Non-Resident due to the business connection in India, the income accruing or arising out of such business connection can only be taxed to the extent of the activities attributed to permanent establishment. In this case, the assessee does not have any permanent establishment in India. Since the Indian company who obtained the rights is acting independently, Agency PE provisions are not applicable to the assessee company. The assessee relied on the decision of Ishikawajma-Harima Heavy Industries Ltd vs. Director of Income Tax 2007-(158)-TAXMAN 0259- SC that incomes arising to a Non-Resident cannot be taxed as business income in India, without a PE. As the assessee does not have any permanent establishment in India, the incomes arising outside Indian Territories cannot be brought to tax. Therefore, there is no need to differ from the findings of the CIT (A) and accordingly the Revenue Appeal is dismissed. 12) In the cross objection, the assessee is contesting about the findings of the CIT (A) that the general principles of section 9(1)(i) will apply in the absence of inclusion under section 9(1)(vi) and relied on the two decisions of the Gujarat and Madras High Courts referred (supra). Even though the cross objection was raised on findings of CIT(A), in view of the observations given above, we are of the opinion that the issue is only academic and does not require any specific adjudication.” 9. The above decision rendered in A.Y. 2006-07 has subsequently been followed by various co-ordinate benches of the Tribunal in assessee’s own case in subsequent years as tabulated above. Further, it is quite evident that Ld. DRP has dismissed assessee’s objections only in view of the fact that the department, in earlier years, was in further appeal before Hon’ble 7 ITA NO. 601/MUM/2022 (A.Y. 2018-19) Warner Bros. Distributing Inc. Bombay High Court. However, no distinguishing facts or features could be pointed out by revenue before us. The terms of the agreement are flowing from earlier years. Therefore, respectfully following the consistent view of the Tribunal, we delete the impugned additions and allow assessee’s appeal. 10. In the result, appeal filed by the assessee is allowed. Order pronounced in the open court on 28 th July, 2022. Sd/- Sd/- (AMIT SHUKLA) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 28.07.2022 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Appellant 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum