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

ITA 7635/MUM/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9786 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-07-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 18-07-2017
• Assessment Year: 2013-2014
• Appeal Filed On: 29-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: W HASSAN
• Keywords: Business income; Transfer pricing; Double taxation relief; Permanent establishment
• Section: 143(3); 5(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL L , BENCH MUMBAI BEFORE SHRI R.C.SHARMA, AM & SHRI RAVISH SOOD , JM ITA NO. 7635 / MUM/20 1 6 ( ASSESSMENT YEAR : 2013 - 14 ) M/S. 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 EAST, MUMBAI 400 059 VS. DCIT 4(3)(2), MUMBAI PAN/GIR NO. AAACW6559R APPELLANT ) .. RESPONDENT ) ITA NO. 4877/ MUM/20 15 ( ASSESSMENT YEAR : 2012 - 13 ) DCIT 4(3)(2), MUMBAI VS. M/S. WARNER BROS. DISTRIBUTING INC., C/O. WARNER BROS. PICTURES (INDIA PVT. LTD., EROS CINEMA BUILDING, 42, M.K. ROAD, CHURCHGATE, MUMBAI - 20 PAN/GIR NO. AAACW6559R APPELLANT ) .. RESPONDENT ) CO NO. 103/ MUM/20 17 ( ASSESSMENT YEAR : 2012 - 13 ) M/S. WARNER BROS. DISTRIBUTING INC., C/O. WARNER BROS. PICTURES (INDIA PVT. LTD., 407/408, 4 TH FLOOR, WINDFALL, SAHAR PLAZA COMPLEX, ANDHERI KURLA ROAD, J.B. NAGAR, ANDHERI EAST, MUMBAI 400 059 VS. DCIT 4(3)(2), MUMBAI P AN/GIR NO. AAACW6559R APPELLANT ) .. RESPONDENT ) ITA NO. 4877/MUM/2015, 7635/MUM/2016 & CO NO. 103/ MUM/ 20 17 M/S. WARNER BROS. DISTRIBUTING INC. 2 ASSESSEE BY SHRI W. HASSAN REVENUE BY SHRI SAMUEL DARSE DATE OF HEARING 26 / 07 /201 7 DATE OF PRONOUNCEME NT 26 / 07 /201 7 / O R D E R PER BENCH: ITA NO.48 77/MUM /2015 & CO NO.103/MUM/2017 ASSESSMENT YEAR 2012 - 13 THIS IS AN APPEAL FILED BY THE REVENUE AND CROSS OBJECTION FILED BY THE ASSESSEE AGAINST THE ORDER OF AO U/S. 143(3) R.W.S. 1 4 4C (13) GIVING EFFECT TO THE ORD ER PASSED BY THE DRP U/S. 144C(5 ). 2. FOLLOWIN G GROUNDS HAVE BEEN TAKEN BY THE REVENUE: - A) 'WHETHER, ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP WAS CORRECT IN HOLDING THAT ROYALTY RECEIVED BY THE ASSESSEE FROM WARNER BROS PICTURE INDIA LTD IN PURSUANCE TO THE AGREEMENT FOR DISTRIBUTION AND EXHIBITION OF THE FILMS IN INDIA BEING BUSINESS PROFIT ATTRIBUTABLE TO THE PE OF THE ASSESSEE IN INDIA IS NOT TAXABLE AS IT IS NOT HIT BY RIGORS OF EXPLANATION 2(V) TO SECTION 9(L)(VI) OF THE INCOME TAX ACT, 1961?' B) ' WITHOUT PREJUDICE, WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP WAS CORRECT IN HOLDING THAT ROYALTY RECEIVED BY THE ASSESSEE IS NOT TAXABLE IN INDIA AS IT IS NOT HIT BY THE RIGORS OF EXPLANATION 2(V) TO SECTION 9(L) (VI) WITHOUT APPRECIATING THAT THE SAME IS DULY COVERED BY THE SUBSTANTIVE PROVISIONS OF SECTION 5(2) AND THAT A SUBSTANTIVE PROVISION OF SECTION 5(2) WOULD HAVE PRECEDENCE OVER A DEEMING PROVISION SECTION 9.' C) 'WHETHER, ON THE FACTS AND IN THE CIR CUMSTANCES OF THE CASE AND IN LAW, THE HON'BLE DRP MUMBAI WAS CORRECT IN ITA NO. 4877/MUM/2015, 7635/MUM/2016 & CO NO. 103/ MUM/ 20 17 M/S. WARNER BROS. DISTRIBUTING INC. 3 COMING TO THE CONCLUSION THAT THE RESPONDENT DOES NOT HAVE PE IN INDIA BECAUSE THE INDIAN COMPANY THAT HAS OBTAINED THE RIGHT IS ACTING INDEPENDENTLY' D) 'THE APPELLANT PRAYS TH AT THE ORDER OF THE DRP BE SET ASIDE ON THE ABOVE GROUNDS AND THE DRAFT ORDER OF THE ASSESSING OFFICER BE RESTORED.' 3. AT THE OUTSET, LEARNED AR PLACED ON RECORD SERIES OF THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WHEREIN GROUNDS TAKEN BY THE REV ENUE HAVE BEEN DECIDED BY THE TRIBUNAL IN ASSESSEES FAVOUR. THE PRECISE OBSERVATION OF THE TRIBUNAL IN ITA NO. 1405/MUM/2014 DATED 27/10/2016 WAS AS UNDER: - 2. AT THE OUTSET, THE LD. COUNSEL FOR THE ASSESSEE, SHRI W HASAN, SUBMITTED THAT THE ISSUES RAISED IN THE REVENUES APPEAL ARE SQUARELY COVERED BY THE DECISIONS OF THIS TRIBUNAL IN ASSESSEES OWN CASE RIGHT FROM THE ASSESSMENT YEARS 2006 - 07 TO 2009 - 10. EXPLAINING THE BRIEF BACKGROUND, HE SUBMITTED THAT, ASSESSEE IS A NON - RESIDENT COMPANY INCORPORATED IN USA AND ONE OF ITS ACTIVITIES INCLUDES EXPORT OF FILMS FROM USA WHICH ARE EITHER PRODUCED BY ITS GROUP STUDIOS OR PRODUCED BY OTHER THIRD PARTIES. THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH WARNER BROS PICTURE (INDIA) PVT. LTD, AN INDIAN ENTITY, GRANTING DISTRIBUTION RIGHTS FOR CINEMATOGRAPHIC FILMS ON PAYMENT OF SPECIFIED ROYALTY. THE ASSESSEES CONTENTION WAS THAT THOUGH IT IS RECEIVING ROYALTY FROM THE INDIAN COMPANY BUT SAME IS ON ACC OUNT OF DISTRIBUTION OF CINEMATOGRAPHIC FILMS. SINCE CLAUSE (V) OF EXPLANATION 2 TO SECTION 9(1)(VI) EXCLUDES CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS FROM THE PURVIEW OF ROYALTY, THEREFORE, SUCH AN INC OME IS NOT TAXABLE UNDER THE INCOME - TAX ACT ALSO. THE ASSESSING OFFICERS CASE ON THE O THER HAND WAS THAT, INCOME OF THE ASSESSEE IS DIRECTLY ACCRUING OR ARISING IN INDIA FROM THE DISTRIBUTION OF THE FILMS IN THE CINEMA HALLS / TV CHANNELS ETC. IN INDIA, THEREFORE, BY VIRTUE OF SECTION 5 THE SAME IS TAXABLE IN INDIA IN THE HANDS OF THE ASSESSEE COMPANY. OTHERWISE ALSO, THE ASSESSEE HAS BUSINESS CONNECTION IN INDIA WITHIN THE SCOPE OF SECTION 9(1)(I). THUS, AS PER THE DEPARTMENT INCOME FR OM THE SALE OF DISTRIBUTION OF CINEMA FILMS IS TO BE TREATED AS BUSINESS PROFITS WHICH SHOULD BE TAXED IN THE HANDS OF THE ASSESSEE COMPANY. THE ASSESSING OFFICER AFTER GOING THROUGH THE VARIOUS CLAUSES OF THE AGREEMENT ALSO CAME TO TH E CONCLUSION THAT, ASSESSEE EVEN HAS A DEPENDENT AGENCY PE IN INDIA IN THE FORM OF WARNER BROS PICTURE INDIA PVT. LTD, ACCORDINGLY, HE DETERMINED THE TAXABLE INCOME OF THE ASSESSEE @ 65% OF THE INCOME RECEIVED BY THE ASSESSEE FROM INDIA. HE HAD ALSO RE JECTED THE ASSESSEES ITA NO. 4877/MUM/2015, 7635/MUM/2016 & CO NO. 103/ MUM/ 20 17 M/S. WARNER BROS. DISTRIBUTING INC. 4 CONTENTION THAT THE ROYALTY RECEIVED BY THE ASSESSEE CANNOT BE SUBJECTED TO TAX AS THE SAME HAS BEEN REMUNERATED AT ARMS LENGTH PRICE (ALP). THE LD. DRP AFTER REFERRING AND FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSE ES OWN CASE RIGHT FROM THE ASSESSMENT YEARS 2006 - 07 TO 2008 - 09 HAS ALLOWED THE ASSESSEES APPEAL, HOLDING THAT ITS INCOME IS NOT TAXABLE IN INDIA. ACCORDINGLY, THE APPEAL OF THE REVENUE SHOULD BE DISMISSED FOLLOWING EARLIER YEARS PRECEDENT, WHEREIN, IT HAS BEEN HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE FROM THE INDIAN COMPANY IS NOT TAXABLE EITHER UNDER THE DOMESTIC LAW OR UNDER THE DTAA. 3. THE LD. DR ADMITTED THAT THIS ISSUE HAS BEEN DECIDED BY THE TRIBUNAL IN FAVOUR OF THE ASSESSEE IN EARLIER YEARS. HOWEVER, HE STRONGLY RELIED UPON THE ORDER OF THE ASSESSING OFFICER. 4. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND ON THE PERUSAL OF THE IMPUGNED ORDER OF THE DRP, WE FIND THAT THE ASSESSEES CLAIM THAT THE ROYALTY RECEIVED BY IT F ROM THE INDIAN ENTITY, WARNER BROS PICTURE INDIA PVT. LTD WAS NEITHER TAXABLE IN INDIA UNDER THE INCOME - TAX ACT AS THE CONSIDERATION FOR THE SALE, DISTRIBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS HAVE BEEN CATEGORICALLY EXCLUDED FROM TH E PURVIEW OF ROYALTY UNDER SECTION 9(1)(VI) READ WITH CLAUSE (V), NOR UNDER THE TERMS OF ARTICLE 12 OF INDO - US DTAA. THIS CLAIM OF THE ASSESSEE HAS BEEN ACCEPTED BY THE LD. CIT (A) IN THE AY 2006 - 07 AND IN THE SECOND APPEAL FILED BY THE REVENUE BEFORE THE TRIBUNAL, THE ORDER OF THE LD. CIT (A) HAS BEEN CONFIRMED. THE NON - TAXABILITY OF ROYALTY INCOME IN INDIA HAS BEEN ACCEPTED IN THE SUCCEEDING ASSESSMENT YEARS 2007 - 08, 2008 - 09 AND 2009 - 10 AND ALLOWED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL. ASSE SSEES DETAILED SUBMISSIONS ON MERITS AS WELL AS BASED ON EARLIER YEARS PRECEDENCE HAS BEEN INCORPORATED AND DEALT IN DRPS ORDER IN PARA 3.2 FROM PAGES 4 TO 7. THE LD. DRP AFTER CONSIDERING THE ENTIRE SUBMISSIONS AND ENTIRE GAMUT OF FACTS H AVE DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE AFTER OBSERVING AND HOLDING AS UNDER: - 3.3.1WE HAVE GONE THROUGH THE ORDER OF THE AO AND SUBMISSIONS OF THE ASSESSEE. IT IS SEEN THAT THE SIMILAR ISSUE WAS BEFORE THE PREDECESSOR DRP FOR THE AY 2007 - 08 AND 2008 - 09 AND DRP HAS REJECTED THE CLAIM OF THE ASSESSEE. 3.3.2 . WE HAVE ALSO SEEN THAT IN THE AY 2006 - 07, THE ASSESSEE HAD CLAIMED THAT THE ROYALTY RECEIVED BY IT FROM WBPIPL WAS NOT TAXABLE IN INDIA EITHER UN DER THE INCOME TAX ACT OR UNDER INDIA - USA DTAA. DURING THE ASSESSMENT PROCEEDINGS, THE AO DID NOT ACCEPT THE CLAIM OF THE ASSESSEE AND ASSESSED T HE ROYALTY @ 15% UNDER INDIA - USA DTAA. AGAINST THE SAID ORDER OF THE AO, THE ASSESSEE FILED APPE AL TO CIT (A). THE CIT (A) HAS HELD THAT THE ROYALTY RECEIVED BY THE ASSESSEE FROM WBPIPL IS NOT TAXABLE EITHER UNDER THE INCOME TAX ACT OR THE DTAA. AGAINST THE SAID ORDER OF THE CIT (A), THE DEPARTMENT HAD FILED APPEAL TO THE ITAT. THE HONBLE I TAT, L BENCH, MUMBAI VIDE ITS ORDER DATED 30THDECEMBER, 2011 IN ITA NO.3160/MUM/2010 HAS CONFIRMED THE ORDER OF THE CIT(A) HOLDING THAT THE ROYALTY RECEIVED BY THE ASSESSEE (WBPI) FROM WBPIPL IS NOT TAXABLE IN INDIA EITHER UNDER THE INCOME TAX ACT OR IND IA - USA DTAA. ITA NO. 4877/MUM/2015, 7635/MUM/2016 & CO NO. 103/ MUM/ 20 17 M/S. WARNER BROS. DISTRIBUTING INC. 5 3.3.3 IN AY 2007 - 08 AND 2008 - 09 THE AO HAD ASSESSED THE SAID ROYALTY AS BUSINESS INCOME U/S 143(3) R.W.S 144C(13). AGAINST THE SAID ORDER OF THE AO THE ASSESSEE HAD FILED APPEAL TO HONBLE ITAT, MUMBAI. THE HONBLE ITAT L BENCH, MUMBAI HAS ALLOWED THE APPEAL OF THE ASSESSEE FOR BOTH THE YEARS HOLDING THAT THE ROYALTY RECEIVED BY THE ASSESSEE FROM WBPIPL IS NOT TAXABLE IN INDIA. 3.3.4 . AS PER THE PROVISIONS OF THE DTAA, THE BUSINESS INCOME OF THE ASSE SSEE CANNOT BE TAXED IN INDIA IN THE ABSENCE OF PE. THE AO, AFTER GOING THROUGH THE VARIOUS CLAUSES OF AGREEMENT, HAS HELD THAT THE ASSESSEE HAS A DEPENDENT AGENT PERMANENT ESTABLISHMENT (DAPE) IN INDIA IN THE FORM OF WBPIPL. THE QUESTION WHETHER THE INDIAN COMPANY, NAMELY, WBPIPL IS THE PE OF THE ASSESSEE COMPANY OR NOT CAME UP FOR CONSIDERATION DIRECTLY IN AY 2006 - 07 IN ITA NO. 60/MUM/2010. AFTER CONSIDERING THE DETAILED ARGUMENTS OF THE LEARNED CIT (DR) THE HONBLE L BENCH HELD THAT WBPIPL IS NOT THE PE OF THE ASSESSEE COMPANY IN INDIA. THE FINDINGS OF THE HONBLE BENCH ARE QUOTED HEREUNDER: 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 ACCE PTED BY THE ASSESSING OFFICER 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 EXECUTED WITHOUT EX AMINING PE PROVISO PROVISIONS OF 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 ASSESSEE AND INDIAN COMPANY TO WHOM LICENSE WAS GRAN TED BY THE 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 10 TH CENTURY FOX TO SUBMIT THAT THE ASSESSEE IS ALSO DEALING W ITH THE OTHER NON RESIDENT COMPANIES, SO ASSESSEE CANNOT BE CONSIDERED 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 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 ISHIKAWAJAMA 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. THE FINDING OF THE ITA NO. 4877/MUM/2015, 7635/MUM/2016 & CO NO. 103/ MUM/ 20 17 M/S. WARNER BROS. DISTRIBUTING INC. 6 HONBLE L BENCH HAS BEEN FOLLOWED IN THE SUBSEQUENT TWO APPEALS VIZ. ITA NO.8734/MUM/2 010 FOR AY 2007 - 08 AND ITA NO.8627/MUM/2011 FOR AY 2008 - 09. 3.3.5 . THUS, IT IS CLEAR THAT THE VERY ISSUE OF EXISTENCE OF PE IN INDIA HAS BEEN CONSIDERED BY THE HONBLE ITAT. THE INCOME OF THE ASSESSEE COMPANY DOES NOT QUALIFY FOR THE DEFI NITION OF ROYALTY IN TERM OF INCOME TAX ACT 1961. THE AO HIMSELF HAS ACCEPTED IN THE ASSESSMENT ORDER THAT THE INCOME OF THE ASSESSEE CANNOT BE TAXED AS ROYALTY. ONCE THE INCOME OF THE ASSESSEE COMPANY DOES NOT QUALIFY UNDER THE DEFINITION OF ROYAL TY, THE INCOME HAS TO BE HELD AS BUSINESS INCOME. THE BUSINESS INCOME CANNOT BE TAXED IN THE ABSENCE OF PE IN INDIA. WE HAVE SEEN THAT THE HONBLE ITAT HAS CATEGORICALLY HELD THAT THE WBPIPL IS NOT THE PE OF THE ASSESSEE COMPANY. 3.3.6 . T HUS, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE ITAT IN THE ASSESSEES OWN CASE, WE ARE OF THE VIEW THAT THE INCOME OF THE ASSESSEE IS NOT TAXABLE IN INDIA AND WE DIRECT THE AO TO DELETE THE ADDITION PROPOSED ON THIS ACCOUNT. SINCE, THE AFORESAID DECISION OF THE LD. DRP IS BASED ON FINDING ARRIVED AT BY THE TRIBUNAL IN EARLIER YEARS, THEREFORE, CONSISTENT WITH THE JUDICIAL PRECEDENCE AND VIEW TAKEN IN EARLIER YEARS WHICH IS APPLICABLE ON THE FACTS OF THE PRESENT YEAR ALS O, THEREFORE, WITHOUT TAKING ANY DEVIATION WE AFFIRM THE ORDER OF THE LD. DRP. ACCORDINGLY, GROUND RAISED BY THE REVENUE IS DISMISSED. 5.IN THE RESULT, APPEAL OF THE REVENUE STANDS DISMISSED. 4. LEARNED DR FAIRLY CONCEDED THAT TRIBUNAL HAS CONSISTENTLY DE CIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. 5. RESPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE, WE DO NOT FIND ANY MERIT IN THE ORDER PASSED BY DRP / AO . 6. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED. 7. WITH REGARD TO THE SIM ILAR CROSS OBJECTION RAISED BY THE ASSESSEE IN THE A.Y.2011 - 12, THE FINDING OF TRIBUNAL IN ITS ORDER DATED 05/03/2014 WAS AS UNDER: - I T HAS BEEN ADMITTED BY BOTH THE PARTIES THAT, IF REVENUES APPEAL IS BEING DISMISSED, THEN GROUNDS RAISED IN THE CROSS OB JECTION WILL BECOME PURELY ACADEMIC. SINCE WE HAVE ALREADY DISMISSED THE REVENUES APPEAL, THEREFORE, THE ISSUES RAISED IN THE CROSS OBJECTIONS ARE KEPT OPEN AND SAME IS NOT ADJUDICATED AS IT WOULD PURELY ACADEMIC EXERCISE. ITA NO. 4877/MUM/2015, 7635/MUM/2016 & CO NO. 103/ MUM/ 20 17 M/S. WARNER BROS. DISTRIBUTING INC. 7 ACCORDINGLY, CROSS OBJECTION RAI SED BY THE ASSESSEE IS DISMISSED AS INFRUCTUOUS. 8. THE OBJECTION RAISED DURING THE YEAR UNDER CONSIDERATION ARE EXACTLY SAME WHICH WAS RAISED BY ASSESSEE IN THE A.Y. 2010 - 11. RESPECTFULLY FOLLOWING THE OBSERVATION OF THE TRIBUNAL, WE DISMISS THE CROSS O BJECTION RAISED AS INFRUCTUOUS. 9. IN THE RESULT, APPEAL OF THE REVENUE AS WELL AS CROSS OBJECTION STAND DISMISSED. ITA NO. 7635/MUM/2016 (A.Y.2013 - 14) 10. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF AO U/S.143(3) R.W.S. 144C OF THE IT ACT FOR THE A.Y. 2013 - 14. THE GROUND S RAISED BY THE ASSESSE E ARE EXACTLY THE SAME WHICH HAVE BEEN DEALT BY US HEREINABOVE IN THE A.Y. 2012 - 13 AND WHEREIN DRP HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE SAME GROUND HAS BEEN DECIDED BY THE TRIBUNAL IN SERIES OF ORDER AS OBSERVED ABOVE. HOWEVER, DURING THE YEAR UNDER CONSIDERATION, THE DRP HAS DISMISSED THE GROUND RAISED BY THE ASSESSEE BY OBSERVING AS UNDER: - 6.1. THE DRP HAS NOTED THAT ALL THE ABOVE GROUNDS OR OBJECTION HAVE BEEN A MATTER OF' DISPUTE IN THE EARLIER YEARS BEFORE T HE HONORABLE ITAT MUMBA. THE HON 'BL E ITAT MURNBAI HAS GIVEN RELIEF TO THE ASSESSEE COMPANY ON THESE ISSUES THROUGH VARIOUS ORDERS PASSED FOR ASSESSMENT YEAR 2006 - 07. ASSESSMENT YE AR 20()7 - OS, ASSESSMENT Y CAR 2008 - 09 AND ASSE SSMENT YEAR 200 9 - 10. THE L)RP HAS FURTHER NOTED THAT THE REVENUE HAS FILED AN APPEAL AGAINST THE ORDER OF THE HON'BL E I TAT. MUMBAI BEFORE T HE HONBL E BOMBAY H IGH COURT. THE DOCUMENTS PLACED BEFORE THE DRP REVEALS THAT FOR THE ASSESSMENT YEAR 2006 - 07. THE FO LLOWING SUBSTANTIAL QUESTIONS OF LAW HAS BEEN ADMITTED BY THE HON 'BLE BOMBAY HIGH COURT: - ITA NO. 4877/MUM/2015, 7635/MUM/2016 & CO NO. 103/ MUM/ 20 17 M/S. WARNER BROS. DISTRIBUTING INC. 8 (A) WHETHER, ON THE FACTS AND ILL THE CIRCUMSTANCES OF THE CASE AND ILL LAW THE TRIBUNAL IS CORRECT IN HOLDING THAT ROYALTY RECEI VED BY THE ASSESSEE FROM WBPIPL IN PURSUANCE TO THE AGREEMENT FOR DISTRIBUTION OF THEATRICAL MOVIES IN INDIA IS NOT TAXABLE IN INDIA AS IT IS NOT HIT BY RIGORS OF EXPLANA TION J(V) TO SECTION 9(L)(VI)? (B ) WHETHER. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL I S CORRECT IN HOLDING THAT ROYALTY RECEIVED H)' THE ASSESSEE FROM WBPIP I IN PURSUANCE TO THE AGREEMENT FOR DISTRIBUTION (IF' THEATRICAL MOVIES IN INDIA IS NOT TAXABLE IN INDIA AS IT IS NOT HI T BY RIGORS OF EXPLANATION 2(IV) TO SECTION 9(1)(VI) WITHOUT APPRE CIATING THAT THE SAME IS COVERED BY THE PROVISIONS OF SECTION 9( 1 ) ( I) AND THAT THESE TWO SECTIONS ARE INDEPENDENT AND EXCLUSIVE TO EACH OTHER AND HAVE INDEPENDENT APPLICATIONS? ( C ) WITHOUT PREJUDICE WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE INCOME TAX APPELLATE TRIBUNAL IS CORRECT IN HOLDING THAT ROYALTY RECEIVED BY THE ASSESSEE IS NOT TAXABLE IN INDIA AS IT IS NOT HIT BY THE RIGORS OF EXPLANATION 2(V) TO SECTION 9(1)(VI) WITHOUT APPRECIATING THAT THE SAME IS DULY COVERED B Y THE SUBSTANTIVE PROVISIONS OF SECTION 5(2) AND THAT A SUBSTANTIVE PROVISION SECTION [ 5(2) ] WOULD HAVE PRECEDENCE OVER A DEEMING PROVISION (SECTION 9) .. 6,2 ALSO, FOR THE ASSESSMENT YEAR 2007 - 0 8 , THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW HAS BEEN ADRN ITTED BY THE HON'BLE BOMBAY H IGH COURT: - '(I) WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW , THE INCOME TAX APPELLATE TRIBUNAL IS CORRECT IN HOLDING THAT ROYALTY RECEIVED B Y THE RESPONDENT FROM WARNER BROS PICTURES INDIA LTD. IN P URSUANCE OF AN AGREEMENT FOR DISTRIBUTION AND EXHIBITION OF FILMS IN INDIA BEING BUSINESS PRO/ITS ATTRIBUTABLE TO THE PE OF' THE RESPONDENT IS NOT TAXABLE AS IT IS NOT HIT B Y THE RIGOURS OF EXPLANATION 2(V) TO SECTION 9(1)(VI ) OF THE INCOME FOX ACT, 1961? (II) WITHOUT PREJUDICE TO THE ABOVE QUESTION , WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW , THE TRIBUNAL WAS CORRECT IN HOLDING THAT ROYALTY RECEIVED BY THE RESPONDENT IS NOT TAXABLE IN INDIA AS IT IS TO HIT BY THE RIGOURS OF EXPL ANATION 2(V) TO SECTION 991) (VI) WITHOUT APPRECIATING THAT THE SAME IS DULY COVERED BY THE SUBSTANTIVE PROVISIONS OF SECTION 5(2), THAT ITA NO. 4877/MUM/2015, 7635/MUM/2016 & CO NO. 103/ MUM/ 20 17 M/S. WARNER BROS. DISTRIBUTING INC. 9 WOULD HAVE PRECEDENCE OVER (I DEEMING PRO VISIONS, NAMELY, SECTION 9(1)(VI) ? (III) WHETHER ON THE F ACTS AND IN THE CIR CUMSTANCES OF THE CASE AND IN LAW, THE TRIBUNAL WAS CORRECT IN COMING TO THE CONCLUSI ON THAT THE RESPONDENT DOES NOT HAVE A PE I LL INDIA BECAUSE THE INDIAN COMPANY T HAT HAS OBTAINED THE RIGHT IS ACTING INDEPENDENTLY . 6.3 THE ABOVE DISCUSSION MAKES IT CL EAR THAT ALL THE ISSUES ARE BEING CONTESTED BY THE REVENUE B EFORE T HE HON'BLE BOMBAY HIGH COURT. IT I S PERTINENT TO NOTE THAT THE DRP IS A CONTINUATION OF THE ASSESSMENT PROCEEDINGS AS IT IS ONLY THE DRAFT ASSESSMENT ORDER WHICH IS BEING CHALLENGED BEFORE IT. THE FINAL ASSE SSMENT ORDER IS YET TO BE PASSED BY THE ASSESSING OFFICER. HENCE, THE DRP IS NOT AN APPELLATE AUTHORITY BUT IS A CONTINUATION OF THE ASSESSMENT PROCEEDINGS . A SIMILAR VIEW HAS BEEN ECHOED BY THE DIVISION BENCH OF THE H ON'BL E BOMBAY H IGH C OURT WHILE DECIDING THE WRIT PETITION FILED BY V ODAFONE INDIA SERVICES PVT. LT D. VS UNION OF INDIA AND OTHERS WHEREIN THE FOLLOWING OBSERVATION WITH REGARDS TO DRI) HAS BEEN MADE : - 'THE PROCEEDING BEFORE THE DRP IS NOT AN APPEAL PROCEEDING BU T A CORRECT ING MECHANISM IN THE NATURE OF A SECOND LOOK AT THE PROPOSED ASSESSMENT ORDER BY HIG H FUNCTIONARIES OF THE REVENUE KEEPING IN MIND THE INTEREST OF THE ASSESSEE. I T IS A CONTINUATION OF THE ASSESSMENT PROCEEDINGS T ILL SUCH TIME A FINAL ORDER OF ASSESSMENT W HICH IS APPEALABLE IS PASSED BY THE ASSESSING OFFICER. THIS ALSO FINDS SUPPORT FRONT SECTION 14 4C (6), WHICH ENABLES THE DR P TO COLLECT EVIDENCE OR CAUSE ANY ENQUIRY TO BE MADE BEFORE GIVING DIRECTIONS TO THE ASSESSING OFFICER UNDER SECTION 144C(5 . THE DRP PROCEDURE CAN ONLY BE INITIATED BY AN ASSESSEE OBJECTING T O THE DRAFT ASSESSMENT ORDER. THIS WOULD ENABLE CORRECTION IN THE PROPOSED ORDER (DRAF T ASSESSMENT ORDER) BEFORE A FINAL ASSESSMENT ORDER IS PASSED. THEREFORE , W E ARE OF THE VIEW THAT IN THE PRESE NT FACTS THIS ISSUE COULD HE AGITAT ED HE/ORE AND RECTIFIED BY THE DR P.' 6.4 WITH DUE RESPECT TO THE ORDER OF THE H ON BLE ITAT, IN ORDER TO JUST KEEP THE ISSUE ALIVE AND TO PROTECT THE INTEREST OF REVENUE, THE DRP IS OR THE CONSIDERED OPINION THAT THE GRO UNDS OF OBJECTIONS RAISED BY THE ASSESSEE COMPANY NEEDS TO BE REJECTED. ACCORDINGLY , THE GROUND OR OBJECTION NO. 2.3.4 & 5 AR E DECIDED IN FAVOUR OF REVENUE AND AGAINST THE ASSESSEE COMPANY. ITA NO. 4877/MUM/2015, 7635/MUM/2016 & CO NO. 103/ MUM/ 20 17 M/S. WARNER BROS. DISTRIBUTING INC. 10 11. IT IS CLEAR FROM THE ABOVE THAT DRP HAS JUST DISMISSED THE A SSESSEES APPEAL IN VIEW OF THE FACT THAT IN EARLIER YEAR, THE DEPARTMENT IS IN APPEAL AGAINST THE ORDER PASSED BY TRIBUNAL . HOWEVER, THE DRP HAS NOT DISCUSSED THE ISSUE ON MERIT WHY ASSESSEES CLAIM IS NOT SUSTAINABLE. KEEPING IN VIEW THE ORDER OF THE TRI BUNAL IN ASSESSEES OWN CASE IN THE EARLIER YEARS AS DISCUSSED ABOVE, WE DO NOT FIND ANY MERIT IN THE ORDER PASSED BY THE DRP. 12. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 26 / 07 /2017 S D/ - ( RAVISH SOOD ) S D/ - ( R.C.SHARMA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED 26 /07 /201 7 KARUNA SR. PS COPY OF THE ORDER FORWARDED TO : BY ORDER, ( ASSTT. REGISTRAR) ITAT, MUMBAI 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY//