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

ITA 6479/MUM/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7841 (ITAT-MUMBAI)
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2014-2015
• Appeal Filed On: 13-11-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SREEKAR LD
• Assessee Lawyers: W H ASAN LD AR ZUX
• Keywords: Business income; Double taxation relief; Permanent establishment
• Section: 143(3); 5(2); 144

Judgement Text

1 ITA NO.6479/MUM/2018 WARNER BROS DISTRIBUTING INC. ASSESSMENT YEAR-2014-15 IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI , , BEFORE HONBLE SHRI SAKTIJIT DEY, JM AND HONBLE SHRI MANOJ KUMAR AGGARWAL, AM ./ I.T.A. NO.6479/MUM/2018 ( / ASSESSMENT YEAR:2014-15) WARNER BROS. DISTRIBUTING INC. C/O. WARNER BROS. PICTURES (INDIA) PVT. LTD. 407, 4 TH FLOOR, WINDFALL, SAHAR PLAZA COMPLEX ANDHERI KURLA ROAD, J.B. NAGAR ANDHERI (E), MUMBAI-400 059. / VS. D CIT (INTL. TAXATION) - 4(3)(2) 16 FLOOR, ROOM NO.1611 AIR INDIA BUILDING, NARIMAN POINT MUMBAI-400 021. TU ./ ./ PAN/GIR NO. AAACW - 6559 - R ( UX / APPELLANT ) : ( Z[UX / RESPONDENT ) UX / APPELLANT BY : SHRI W. H ASAN - LD. AR Z[UX\ / RESPONDENT BY : SHREE V. SREEKAR - LD. CIT - DR / DATE OF HEARING : 23/09/2019 / DATE OF PRONOUNCEMENT : 14/10/2019 / O R D E R MANOJ KUMAR AGGARWAL (ACCOUNTANT MEMBER): - 1. AFORESAID APPEAL BY ASSESSEE FOR ASSESSMENT YEAR [AY] 2014-15 CONTEST FINAL ASSESSMENT ORDER DATED 04/10/2018 PAS SED BY LD. DEPUTY 2 ITA NO.6479/MUM/2018 WARNER BROS DISTRIBUTING INC. ASSESSMENT YEAR-2014-15 COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) -4(3)(2), MUMBAI [IN SHORT AO] U/S 144C(13) R.W.S. 143(3) PURSUANT TO THE DIRECTIONS OF LD. DISPUTE RESOLUTION PANEL-II, MUMBAI [DRP] U/S 144 C(5) DATED 24/09/2018. THE INCOME OF THE ASSESSEE HAS BEEN DETERMINED AT R S.16.16 CRORES AS AGAINST NIL RETURN E-FILED BY THE ASSESSEE ON 25/11/2014. 2. DURING HEARING BEFORE US, IT IS ADMITTED POSITIO N THAT THE ISSUE UNDER APPEAL SQUARELY STOOD COVERED IN ASSESSEES FAVOR B Y VARIOUS DECISIONS OF THIS TRIBUNAL RIGHT FROM AYS 2006-07 TO 2013-14, TH E COPIES OF WHICH HAS BEEN PLACED ON RECORD. THE LEAD ORDER OF THE TRIBUN AL IS FOR AY 2006-07 ITA NO. 3160/MUM/2010 & CO.NO.17/MUM/2011 DATED 30/12/2 011 WHICH HAS BEEN FOLLOWED IN SUBSEQUENT YEARS. THE DETAILS OF T RIBUNALS ORDER, FOR EASE OF REFERENCE, COULD BE TABULATED IN THE FOLLOWING M ANNER: - NO. AY CITATION DATE OF ORDER 1. 2006-07 ITA NO.3160/MUM/2010 (CROSS-APPEALS) 30/ 12/2011 2. 2007-08 ITA NO.8734/MUM/2010 10/10/2012 3. 2008-09 ITA NO.8627/MUM/2011 22/02/2013 4 2009-10 ITA NO.7553/MUM/2012 05/03/2014 5 2010-11 ITA NO.1405/MUM/2014 (CROSS-APPEALS) 27/1 0/2016 6 2011-12 ITA NO.1615/MUM/2015 08/11/2016 7 2012-13 ITA NO.4877/MUM/2015 (CROSS-APPEALS) 26/0 7/2017 8 2013-14 ITA NO. 7635/MUM/2016 26/07/2017 3.1 FACTS ON RECORD WOULD REVEAL THAT THAT ASSESSEE BEING NON-RESIDENT IS STATED TO BE ENGAGED IN DISTRIBUTION OF CINEMATOGRA PHIC FILMS. THE ASSESSEE IS STATED TO BE TAX RESIDENT OF USA AND ENTERED INT O AN AGREEMENT WITH ANOTHER ENTITY VIZ. WARNER BRO. PICTURES (INDIA) PV T. LTD. [WBPIPL] IN APRIL, 2009 GRANTING EXCLUSIVE RIGHTS OF DISTRIBUTION OF C INEMATOGRAPHIC FILMS ON PAYMENT OF ROYALTY IN TERMS OF THE AGREEMENT. THE A SSESSEE SUBMITTED THAT 3 ITA NO.6479/MUM/2018 WARNER BROS DISTRIBUTING INC. ASSESSMENT YEAR-2014-15 IN TERMS OF INDIA-USA DTAA, THE ROYALTY IS NOT TAXA BLE BY RELYING UPON THE DECISION OF THIS TRIBUNAL RENDERED IN AYS 2006-07 T O 2009-10 AND THE ORDERS OF LD. DRP FOR AYS 2010-11 TO 2012-13. DURIN G THE YEAR UNDER CONSIDERATION, IT RECEIVED ROYALTY OF RS.24.86 CROR ES. THE ASSESSEE SUBMITTED THAT IT DOES NOT HAVE ANY PERMANENT ESTAB LISHMENT IN INDIA, WHICH POSITION HAS BEEN ACCEPTED BY APPELLATE AUTHO RITIES IN EARLIER YEARS AND THEREFORE, THE AFORESAID RECEIPTS WERE NOT TAXA BLE IN INDIA. HOWEVER, LD. AO, UPON PERUSAL OF TERMS OF AGREEMENT DATED AP RIL,2009 OBSERVED THAT THE INCOME BEING EARNED BY THE ASSESSEE WAS DEPENDE NT ON REVENUE WHICH WERE BEING GENERATED FROM DISTRIBUTION OF FIL MS IN INDIA AND THE ASSESSEE WAS ENTITLED FOR CERTAIN PERCENTAGE OF GRO SS REVENUES EARNED FROM DISTRIBUTION OF FILMS IN INDIA. THEREFORE, THE INCOME, IN REALITY, WOULD BE BUSINESS INCOME AND NOT ROYALTY AS CONTENDED BY THE ASSESSEE. IN THE ABOVE BACKGROUND, LD. AO, AFTER APPRECIATING THE PR OVISIONS OF SECTION 5(2), REACHED A CONCLUSION THAT THE PROVISIONS OF S ECTION 5 WERE CLEARLY APPLICABLE TO THE FACTS OF THE CASE AND STATED INCO ME DIRECTLY ACCRUED IN INDIA FROM EXHIBITION OF FILMS IN THE CINEMA HALLS / TV CHANNELS IN INDIA. 3.2 ADDITIONALLY, THE STATED INCOME, IN THE OPINION OF LD. AO, WOULD BE DEEMED TO HAVE ACCRUED IN INDIA IN TERMS OF SECTION 9(1)(I) READ WITH EXPLANATION 2(V) TO SECTION 9(1)(VI) WHICH DEALS WI TH TRANSFER OF RIGHTS, INTER- ALIA, IN RESPECT OF FILMS OR VIDEO TAPES FOR USE IN CONNE CTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADIO BROADCAST ING BUT NOT INCLUDING CONSIDERATION OF SALE, DISTRIBUTION OR EXHIBITION O F CINEMATOGRAPHIC FILMS. THEREFORE, JUST BECAUSE THE CONSIDERATION WAS EXCLU DED FROM THE DEFINITION 4 ITA NO.6479/MUM/2018 WARNER BROS DISTRIBUTING INC. ASSESSMENT YEAR-2014-15 OF ROYALTY AS PER EXPLANATION-2 TO SECTION 9(1)(VI) , THE SAME WOULD STILL BE DEEMED TO ACCRUE IN INDIA IN TERMS OF SECTION 9(1)( I) OF THE ACT. 3.3 FINALLY, A CONCLUSION WAS DRAWN AT PARA-12 THAT THE INCOME RECEIVED BY THE ASSESSEE ACCRUE OR ARISE IN INDIA U/S 5(2) O F THE ACT AND THEREFORE, TAXABLE IN INDIA. FURTHER, THE ASSESSEE ALSO HAVE B USINESS CONNECTION IN INDIA WITHIN THE MEANING OF SECTION 9(1)(I) OF THE ACT. SINCE AS PER INDIA- USA DOUBLE TAXATION AVOIDANCE TREATY (DTAA), BUSINE SS PROFITS COULD BE TAXABLE ONLY IN THE SOURCE STATE IF THERE EXIST A P ERMANENT ESTABLISHMENT. IT WAS OBSERVED THAT THE ASSESSEE WAS CARRYING OUT ENT IRE OPERATIONS OF DISTRIBUTION OF FILMS IN INDIA THROUGH WBPIPL WHICH WAS QUITE EVIDENT FROM THE CONTRACTUAL TERMS. THEREFORE, THE ASSESSEE HAS A DEPENDENT AGENT PE (DAPE) IN INDIA AND THE PROFITS ATTRIBUTABLE TO THE ACTIVITIES OF THE DAPE WOULD BE SUBJECT TO TAXATION IN INDIA UNDER THE HEA D BUSINESS PROFITS . THE ATTRIBUTION WAS ESTIMATED @65% OF REVENUE EARNED BY THE ASSESSEE AND ACCORDINGLY AN AMOUNT OF RS.16.16 CRORES WAS BROUGH T TO TAX AS BUSINESS PROFITS OF THE ASSESSEE IN DRAFT ASSESSMENT ORDER DATED 18/ 12/2017 WHICH WAS SUBJECTED TO OBJECTIONS BEFORE LD. DRP. 4. AGGRIEVED, THE ASSESSEE RAISED OBJECTIONS BEFORE LD. DRP, INTER-ALIA, BY DRAWING ATTENTION TO THE FACT THAT THIS ISSUE WA S COVERED BY THE ORDERS OF TRIBUNALS IN ASSESSEES OWN CASE IN EARLIER YEARS. HOWEVER, IT WAS OBSERVED THAT THE PROCEEDINGS BEFORE LD. DRP WERE C ONTINUATION OF ASSESSMENT PROCEEDINGS ONLY AND DRP WAS NOT AN APPE LLATE AUTHORITY AND THEREFORE, SINCE THE DEPARTMENT WAS UNDER APPEAL IN EARLIER YEARS BEFORE HONBLE BOMBAY HIGH COURT, THE VIEW OF LD.AO WAS TO BE UPHELD. 5 ITA NO.6479/MUM/2018 WARNER BROS DISTRIBUTING INC. ASSESSMENT YEAR-2014-15 RESULTANTLY, FINALLY ASSESSMENT ORDER WAS PASSED ON 04/10/2018, PURSUANT TO THE DIRECTIONS OF LD. DRP, ASSESSING THE INCOME AT RS.16.16 CRORES. AGGRIEVED, THE ASSESSEE IS UNDER APPEAL BEFORE US. 5. AS NOTED IN THE OPENING PARAGRAPHS, IT IS AN ADM ITTED POSITION THAT THE ISSUES STOOD SQUARELY COVERED IN ASSESSEES FAVOR B Y THE LEAD DECISION OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR AY 2006-07 , ITA NO. 3160/MUM/2010 & CO.NO.17/MUM/2011 DATED 30/12/2011 WHEREIN THE BENCH HAS CONCLUDED THE MATTER BY OBSERVING AS UNDE R: - 9) WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND EX AMINED 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) L TD 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) EX PLANATION 2 TO (V) EXCLUDES THE PAYMENT RECEIVED WITH REFERENCE TO SALE, DISTRIBUTION AND E XHIBITION OF CINEMATOGRAPHIC FILMS. THERE IS ALSO NO DISPUTE WITH REFERENCE TO THE PROV ISIONS 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 CO NSIDERATION 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 AMOUNT S. 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 CONSI DERED 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 CON NECTION 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 ARTICL E 12(2) AND NOT CONSIDERED THE AMOUNTS BUSINESS INCOME AS PER PE PROVISO. IT WAS T HE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE ASSESSEE HAVIN G BUSINESS CONNECTION, THE FINDINGS OF WHICH WAS GIVEN BY THE CIT (A), THE AMO UNT CANNOT BE EXCLUDED WITHOUT EXAMINING PE PROVISO PROVISIONS OF THE DTAA. IN T HIS REGARD THE LEARNED COUNSELS SUBMISSION THAT UNDER THE INCOME TAX ACT AS WELL 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 6 ITA NO.6479/MUM/2018 WARNER BROS DISTRIBUTING INC. ASSESSMENT YEAR-2014-15 IS NOT EXCLUSIVELY DEALING WITH THE ASSESSEE AND RE FERRED TO THE RECEIPTS FROM ANOTHER COMPANY 20TH CENTURY FOX TO SUBMIT THAT THE ASSESSE E IS ALSO DEALING WITH THE OTHER NON RESIDENT COMPANIES, SO ASSESSEE CANNOT BE CONSI DERED 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 CONN ECTION 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 TH E INDIAN COMPANY WHO OBTAINED THE RIGHTS IS ACTING INDEPENDENTLY, AGENCY PE PROVI SIONS ARE NOT APPLICABLE TO THE ASSESSEE COMPANY. THE ASSESSEE RELIED ON THE DECISI ON 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 BUSINE SS INCOME IN INDIA, WITHOUT A PE. AS THE ASSESSEE DOES NOT HAVE ANY PERMANENT ESTABLI SHMENT IN INDIA, THE INCOMES ARISING OUTSIDE INDIAN TERRITORIES CANNOT BE BROUGH T TO TAX. THEREFORE, THERE IS NO NEED TO DIFFER FROM THE FINDINGS OF THE CIT (A) AND ACCO RDINGLY THE REVENUE APPEAL IS DISMISSED. 12) IN THE CROSS OBJECTION, THE ASSESSEE IS CONTES TING 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 DECISI ONS OF THE GUJARAT AND MADRAS HIGH COURTS REFERRED (SUPRA). EVEN THOUGH THE CROSS OBJE CTION 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 ADJ UDICATION. THIS DECISION HAS SUBSEQUENTLY BEEN FOLLOWED BY VAR IOUS CO-ORDINATE BENCHES OF THE TRIBUNAL IN ASSESSEES OWN CASE IN S UBSEQUENT YEARS AS TABULATED ABOVE. FURTHER, IT IS QUITE EVIDENT THAT LD. DRP HAS DISMISSED ASSESSEES OBJECTIONS ONLY IN VIEW OF THE FACT THAT THE DEPARTMENT, IN EARLIER YEARS, WAS IN FURTHER APPEAL BEFORE HONBLE BOMBAY HIGH COURT. HOWEVER, NOTHING HAS BEEN BROUGHT ON RECORD TO ESTABLISH THA T THE AFORESAID RULINGS OF TRIBUNAL, AT PRESENT, ARE NOT APPLICABLE TO THE YEA R UNDER CONSIDERATION. NO DISTINGUISHING FACTS OR FEATURES COULD BE POINTED O UT BY REVENUE BEFORE US. THE TERMS OF THE AGREEMENT ARE FLOWING FROM EARLIER YEARS. THEREFORE, 7 ITA NO.6479/MUM/2018 WARNER BROS DISTRIBUTING INC. ASSESSMENT YEAR-2014-15 RESPECTFULLY FOLLOWING THE CONSISTENT VIEW OF THE T RIBUNAL, WE DELETE THE IMPUGNED ADDITIONS AND ALLOW ASSESSEES APPEAL. 6. RESULTANTLY, THE APPEAL STANDS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 14TH OCTOBER, 2019. SD/- SD/- (SAKTIJIT DEY) (MANOJ KUMAR AGGARWAL) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; DATED : 14/10/2019 SR.PS:-JAISY VARGHESE GH IH / COPY OF THE ORDER FORWARDED TO : 1. UX / THE APPELLANT 2. Z[UX / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. G HZ I , I , / DR, ITAT, MUMBAI 6. H JKL / GUARD FILE / BY ORDER, / (DY./ASSTT.REGISTRAR) , / ITAT, MUMBAI.