WARNER BROS,. DISTRIBUTING INC., MUMBAI V. ADDL DIT (IT) R 2, MUMBAI

ITA 7553/MUM/2012

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 75688 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-03-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Assessment Year: 2009-2010
• Appeal Filed On: 21-12-2012
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KUMAR
• Assessee Lawyers: W HASAN
• Keywords: Business income; Double taxation relief; Permanent establishment
• Section: 143(3)

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH, MUMBAI . . , . , ! BEFORE SHRI I.P. BANSAL, JM AND RAJENDRA, AM ./ I.T.A. NO.7553/MUM/2012 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2009-10 WARNER BROS. DISTRIBUTING INC. C/O. WARNER BROS. PICTURES (INDIA) PVT. LTD. EROS CINEMA BUILDING, 4 TH FLOOR, 42, M. KARVE ROAD, MUMBAI 400 020. ' ' ' ' / VS. THE ADDL. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION), RANGE -2, SCINDIA HOUSE, BALLARD PIER, MUMBAI 400 038 $ ./ % ./ PAN/GIR NO. : AAACW 6559R ( $& / APPELLANT ) .. ( '($& / RESPONDENT ) APPELLANT BY : SHRI W.HASAN RESPONDENT BY : SHRI NARENDRA KUMAR ' ) *+ / DATE OF HEARING : 05/03/2014 ,-# ) *+ / DATE OF PRONOUNCEMENT : 05/03/2014 . / O R D E R PER I.P.BANSAL,J.M: THIS IS AN APPEAL FILED BY THE ASSESSEE. IT IS DIR ECTED AGAINST ASSESSMENT ORDER DATED 18/10/2012 PASSED UNDER SECTION 143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT, 1961 (THE ACT). THE GROUNDS OF APP EAL READ AS UNDER: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE ORDER DATED 18 OCT 2012, MADE UNDER SECTION 143(3) READ WITH SECTI ON 144C(13) FOR ASSESSMENT YEAR 2009-10 IS WRONG AND BAD IN LAW. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED ASSESSING OFFICER ERRED IN ASSESSING THE ROYALTY RE CEIVED BY THE APPELLANT FROM WARNER BROS. PICTURES (INDIA) PVT. LTD AS BUSINESS INCOME U/S 5(2)19(1) (I) OF THE INCOME-TAX ACT, 1961 PURSUANT TO THE DIRECTIONS GIV EN BY THE HONBLE DISPUTE ./ I.T.A. NO.7553/MUM/2012 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2009-10 2 RESOLUTION PANEL IL, MUMBAI VIDE THEIR ORDER DATED 03/09/2012 WHEN IN THE CASE OF WARNER BROS. PICTURES INC. (THE PREDECESSOR COMP ANY), FOR AY. 2006-07 THE CLAIM OF THE ASSESSEE THAT THE ROYALTY RECEIVED BY IT IS NOT TAXABLE EITHER UNDER THE INCOME-TAX ACT, 1961 OR INDIA - USA DTAA IS ACCEPTE D BY THE HONBLE ITAT, L BENCH, MUMBAI DISMISSING THE APPEAL OF THE DEPARTME NT VIDE THEIR ORDER DATED 30TH DECEMBER, 2011. (NOW FOR A.Y. 2007-08 THE CLAIM OF THE APPELLANT TH AT THE ROYALTY RECEIVED BY IT IS NOT TAXABLE EITHER UNDER THE INCOME-TAX ACT, 1961 OR IN DIA - USA DTAA IS ALSO ACCEPTED BY THE HONBLE (ITAT, I BENCH, MUMBAI VIDE THEIR ORDER DATED 10TH OCTOBER 2012) 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED ASSESSING OFFICER ERRED IN HOLDING THAT WARNER BROS . PICTURES (INDIA) PVT. LTD IS THE DEPENDENT AGENCY PERMANENT ESTABLISHMENT OF THE APP ELLANT PURSUANT TO THE DIRECTIONS GIVEN BY DISPUTE RESOLUTION PANEL -II, M UMBAI VIDE THEIR ORDER DATED 03/09/2012 IGNORING THE FINDINGS GIVEN BY THE HONB LE ITAT, I BENCH, MUMBAI IN THE CASE OF WARNER BROS. PICTURES INC. (THE PREDECE SSOR COMPANY), FOR ASSESSMENT YEAR 2006-07 VIDE THEIR ORDER DATED 30TH DECEMBER, 2011 THAT WARNER BROS. PICTURES (INDIA) PVT. LTD IS NOT THE DAPE OF THE AP PELLANT. (NOW FOR AY. 2007-08 THE CLAIM OF THE APPELLANT THA T WARNER BROS PICTURES (INDIA) PVT. LTD IS NOT THE DAPE OF THE APPELLANT IS ALSO A CCEPTED BY THE HONBLE ITAT, L BENCH, MUMBAI VIDE THEIR ORDER DATED 10TH OCTOBER 2 012) 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED ASSESSING OFFICER ERRED IN HOLDING THAT THE ROYALTY RECEIVED BY THE APPELLANT FROM WARNER BROS. PICTURES (INDIA) PVT. LTD IS TAXABLE I N INDIA PURSUANT TO THE DIRECTIONS GIVEN BY DISPUTE RESOLUTION PANEL II, MUMBAI VIDE T HEIR ORDER DATED 03/09/2012, EVEN THOUGH THE TPO HAS ACCEPTED THAT THE ROYALTY P AID BY WARNER BROS. PICTURES (INDIA) PVT. LTD TO THE APPELLANT IS AT ARMS LENGT H. 5. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE LEARNED ASSESSING OFFICER ERRED IN HOLDING THAT 65% WOULD B E THE PROFITS ATTRIBUTABLE TO THE ALLEGED DAPE IN INDIA WHICH AMOUNTS TO RS 2,16,25,7 21 PURSUANT TO THE DIRECTIONS GIVEN BY DISPUTE RESOLUTION PANEL -II MUMBAI VIDE T HEIR ORDER DATED 03/09/2012 WHEN COGENT EVIDENCE WAS PRODUCED BEFORE THE AO/DRP -II THAT DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE COMPANYS WORLD VI DE OPERATING LOSS FROM DISTRIBUTION OF FILMS IS 18.58%. 2. THE ASSESSEE IS A TAX RESIDENT OF USA AND IS EN GAGED IN THE DISTRIBUTION OF CINEMATOGRAPHIC FILMS. THE ASSESSEE ENTERED INTO AN AGREEMENT WITH WARNER BROS. PICTURES INTERNATIONAL, A DIVISION OF THE ASS ESSEE THROUGH A LETTER DATED 1/05/2006 AND THAT UNIT IS RECEIVING ROYALTY INCOME FROM INDIAN COMPANY ON ACCOUNT OF DISTRIBUTION OF FILM. THE SAME WAS TRE ATED TO BE ROYALTY AND TAXED ACCORDINGLY. THE ASSESSEE IS AGGRIEVED AND HENCE, HAS RAISED AFOREMENTIONED GROUNDS OF APPEAL. ./ I.T.A. NO.7553/MUM/2012 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2009-10 3 3. DURING THE COURSE OF HEARING IT WAS BROUGHT TO O UR NOTICE THAT THE SAME ISSUE INITIALLY AROSE IN ASSESSMENT YEAR 2006-07 AN D HAS BEEN DECIDED BY THE TRIBUNAL VIDE ITS ORDER DATED 30/12/2011 IN ITA NO. 3160/MUM/2010 AND C.O NO. 17/MUM/2011, WHEREBY THE APPEAL FILED BY THE R EVENUE WAS DISMISSED WITH THE FOLLOWING OBSERVATIONS. COPY OF THE ORDER IS FILED AT PAGES 149 TO 161 OF THE PAPER BOOK. 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) 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 S ECTION 9(I)(VI) EXPLANATION 2 TO (V) EXCLUDES THE PAYMENT RECEIVED WITH REFERENCE TO SAL E, DISTRIBUTION AND EXHIBITION OF CINEMATOGRAPHIC FILMS. THERE IS ALSO NO DISPUTE W ITH REFERENCE TO THE PROVISIONS OF DTAA ENTERED INTO BY INDIA WITH USA, NOTIFIED ON 20 TH DECEMBER, 1990, THAT THE TERM ROYALTY USED IN THE ARTICLE 12 DOES NOT INCLUD E PAYMENT OF ANY GAIN RECEIVED AS CONSIDERATION FOR THE USE OF ANY COPYRIGHT OR LI TERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPHIC FILMS OR WORK ON FILMS, T APE OR OTHER MEANS OF PRODUCTION FOR USE IN CONNECTION WITH RADIO OR TV. BROADCASTIN G. IN VIEW OF THIS SPECIFIC PROVISIONS, THE AMOUNT RECEIVED BY THE ASSESSEE CAN NOT BE CONSIDERED AS ROYALTY AS WAS DONE BY THE ASSESSING OFFICER WHILE INVOKING TH E ARTICLE 12(2) OF THE DT 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 T HIS 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 PR OVISO. IT WAS THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE AS SESSEE 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 COUNSELS SUBMISSION THAT UNDER THE INCOME TAX ACT AS WELL AS UNDER THE PROVISIONS OF DTAA THE TRANSACTION BETWEEN THE ASSE SSEE 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 EXCLUSIVEL Y DEALING WITH THE ASSESSEE AND REFERRED TO THE RECEIPTS FROM ANOTHER COMPANY 2 0 TH CENTURY FOX TO SUBMIT THAT THE ASSESSEE IS ALSO DEALING WITH THE OTHER NON RE SIDENT COMPANIES, SO ASSESSEE CANNOT BE CONSIDERED AS AGENCY PE WITHIN THE DEFIN ITION OF PERMANENT ESTABLISHMENT. 11. WE HAVE EXAMINED THIS ASPECT ALSO. AS RIGHTLY H ELD 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 CONNECTIO N CAN ONLY BE TAXED TO THE EXTENT ./ I.T.A. NO.7553/MUM/2012 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2009-10 4 OF THE ACTIVITIES ATTRIBUTED TO PERMANENT ESTABLISH MENT. IN THIS CASE, THE ASSESSEE DOES NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. SINCE THE INDIAN COMPANY WHO OBTAINED THE RIGHTS IS ACTING INDEPENDENTLY, AG ENCY PE PROVISIONS ARE NOT APPLICABLE TO THE ASSESSEE COMPANY. THE ASSESSEE RE LIED ON THE DECISION OF ISHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD VS. DIRECTO R OF INCOME TAX 2007-(158)- TAXMAN 0259-SC THAT INCOMES ARISING TO A NON-RESIDE NT CANNOT BE TAXED AS BUSINESS INCOME IN INDIA, WITHOUT A PE. AS THE ASSE SSEE DOES NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA, THE INCOMES ARISI NG OUTSIDE INDIAN TERRITORIES CANNOT BE BROUGHT TO TAX. THEREFORE, THERE IS NO NE ED TO DIFFER FROM THE FINDINGS OF THE CIT (A) AND ACCORDINGLY THE REVENUE APPEAL IS D ISMISSED. THE AFOREMENTIONED ORDER WAS ALSO FOLLOWED BY THE TRIBUNAL VIDE ITS ORDER DATED 10/10/2012 IN RESPECT OF ASSESSMENT YEAR 2007-08. THE REFERENCE IN THIS REGARD CAN BE MADE TO THE ORDER OF THE TRIBUNAL, IN ITA NO.8734/MUM/2010, COPY OF WHICH IS PLACED AT PAGES 162 TO 167 OF THE PAPER BOOK. THUS IT WAS PLEADED BY LD. AR THAT THE APPEAL FILED BY THE ASS ESSEE SHOULD BE ALLOWED. 4. LD. DR DID NOT DISPUTE THAT THE FACTS RELATING T O AFOREMENTIONED ASSESSMENT YEARS AND THE YEAR UNDER CONSIDERATION W ERE SIMILAR. HOWEVER, HE RELIED UPON THE ASSESSMENT ORDER. 5. IN VIEW OF THE ABOVE SITUATION, AFTER HEARING BO TH THE PARTIES, RESPECTFULLY FOLLOWING THE AFOREMENTIONED DECISION OF THE TRIBUN AL IN ASSESSEES OWN CASE WE HOLD THAT INCOME ARISING TO THE ASSESSEE CANNOT B E TAXED AS ROYALTY WITHIN THE MEANING OF INCOME TAX ACT OR DTAA AND IT ALSO CAN NOT BE TAXED IN THE HANDS OF THE ASSESSEE AS BUSINESS INCOME AS ASSESSEE DOE S NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. 5.1 BEFORE PARTING, WE MAY MENTION HERE THAT AFORE MENTIONED ORDER OF TRIBUNAL IN RESPECT OF ASSESSMENT YEAR 2006-07 WAS REFERRED BY THE ASSESSEE BEFORE DRP. HOWEVER, DRP HAS NOT ACCEPTED SUCH C LAIM OF THE ASSESSEE ON THE GROUND THAT THE ISSUE BEFORE THE TRIBUNAL WAS ONLY IN RESPECT OF SECTION 9(1)(VI) OF THE ACT AND THE ISSUE REGARDING ITS TAXABILITY AS BUSINESS INCOME WAS NOT DECIDED ELABORATELY AND IT WAS ONLY IN RESPECT OF ADDITIONAL GROUND PREFERRED BY THE REVENUE. IT IS ALSO MENTIONED IN THE ORDER TH AT DEPARTMENT HAS FILED AN ./ I.T.A. NO.7553/MUM/2012 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2009-10 5 APPEAL BEFORE THE HONBLE HIGH COURT AGAINST THE O RDER OF THE TRIBUNAL. HOWEVER, FROM THE OBSERVATIONS OF THE TRIBUNAL, W HICH ARE REPRODUCED ABOVE, IT IS CLEAR THAT TRIBUNAL HAS EXTENSIVELY CONSIDERED THIS ISSUE AND THE ISSUE HAS BEEN DECIDED IN DETAIL BY THE TRIBUNAL THAT THE RE CEIPTS OF THE ASSESSEE CANNOT ALSO BE TAXED AS BUSINESS INCOME IN INDIA AS ASSES SEE DOES NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. THEREFORE, THE O BSERVATIONS OF DRP TO THAT EXTENT ARE CONTRARY TO THE ORDER OF THE TRIBUNAL. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED IN THE MANNER AFORESAID. ORDER PRONOUNCED IN THE OPEN COURT ON 05/03/2014 . . ) ,-# / 0'1 05/03/2014 - ) 2 SD/- SD/- (RAJENDRA) . . (I.P.BANSAL) /ACCOUNTANT MEMBER /JUDICIAL MEMBER MUMBAI; 0' DATED 05/03/2014 . ' . .VM , SR. PS . . . . ) )) ) '*3 '*3 '*3 '*3 43#* 43#* 43#* 43#* / COPY OF THE ORDER FORWARDED TO : 1. $& / THE APPELLANT 2. '($& / THE RESPONDENT. 3. 5 ( ) / THE CIT(A)- 4. 5 / CIT 5. 362 '*' , , / DR, ITAT, MUMBAI 6. 27 8 / GUARD FILE. .' .' .' .' / BY ORDER, (3* '* //TRUE COPY// 9 99 9 / : : : : (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI ./ I.T.A. NO.7553/MUM/2012 ( ' ' ' ' # # # # / ASSESSMENT YEAR : 2009-10 6 DETAILS DATE INITIALS DESIGNATION 1 DRAFT DICTATED ON 05/03/2014 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 05/03/2014 SR.PS/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7. FILE SENT TO THE BENCH CLERK SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER