Appeal Details
Counselvise Citation
[2015] 140 COUNSELVISE.COM (IT) 100749 (ITAT-MUMBAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
4 year(s) 8 month(s) 28 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
28-08-2015
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
L
Next Hearing Date
24-02-2015
Assessment Year
2006-2007
Appeal Filed On
30-11-2010
Judgement Text
M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD. ITA NO. 2870 /MUM/20 1 0 02 OTHERS GROUP APPEAL & A CO 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L , MUMBAI BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI GOPAL KEDIA , ACCOUNTANT MEMBER ITA NO. : 2870 /MUM/20 1 0 ( ASSESSMENT YEAR: 2005 - 0 6 ) DY. DIRECTOR O F INCOME TAX (INTERNATIONAL TAXATION) - 4(1), 133, SCINDIA HOUSE, BALLARD PIER, MUMBAI - 400 038 VS M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD., C/O. SRBC & ASSOCIATES LLP, 14 TH FLOOR, THE RUBY, 29, SENAPATI BAPAT MARG, DADAR (WEST), MUMBAI - 400 028 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI NARENDRA KUMAR RESPONDENT BY : SHRI PER C Y PARDIWALLA/ SHRI NISHANT THAKKAR CO NO. : 13 /MUM/20 11 ( ARISING OUT OF ITA NO. : 2870/MUM/2010 , AY 2005 - 06 ) ITA NO. : 2523 /MUM/20 10 ( ASSESSMENT YEAR: 2005 - 06 ) M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD., C/O. SRBC & ASSOCIATES LLP, DADAR (WEST), MUMBAI - 400 028 .: PAN: AA BCS 9229 H VS DY. DIRECT OR OF INCOME TAX (INTERNATIONAL TAXATION) - 4(1), 133, SCINDIA HOUSE, BALLARD PIER, MUMBAI - 400 038 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PER C Y PARDIWALLA/ SHRI NISHANT THAKKAR RESPOND ENT BY : SHRI NARENDRA KUMAR ITA NO. : 8272 /MUM/20 10 ( ASSESSMENT YEAR: 2006 - 07 ) M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD., C/O. SRBC & ASSOCIATES LLP, DADAR (WEST), MUMBAI - 400 028 .: PAN: AA BCS 9229 H VS DY. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) - 4(1), 133, SCINDIA HOUSE, BALLARD PIER, MUMBAI - 400 038 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI PER C Y PARDIWALLA/ SHRI NISHANT THAKKA R RESPONDENT BY : SHRI NARENDRA KUMAR M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD. ITA NO. 2870 /MUM/20 1 0 02 OTHERS GROUP APPEAL & A CO 2 /DATE OF HEARING : 2 4 - 08 - 201 5 / DATE OF PRONOUNCEMENT : 28 - 08 - 201 5 ORDER , . . : PER AMIT SHUKLA, J M : THE AFORESAID CROSS AP PEAL S HA VE BEEN FILED BY THE REVENUE AND THE ASSESSEE AGAINST IMPUGNED ORDER DATED 29 TH JANUARY, 2010 PASSED BY CIT(A) - 11, MUMBAI FOR THE ASSESSMENT YEAR 2005 - 06 ; AND FINAL ASSESSMENT ORDER DATED 01.10.2010 PASSED IN PURSUANCE OF DIRECTION GIVEN BY THE DR P U/S 144 C (5) AND FOR THE ASSESSMENT YEAR 2006 - 07. SINCE ISSUES INVOLVED ARE COMMON IN BOTH THE YEARS ARISING OUT OF THE IDENTICAL SET OF FACTS, THEREFORE, SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER FOR THE SAKE B REVITY. 2. WE WILL FIRST TAKE UP REVENUES APPEAL BEING ITA 2870/MUM/2010 FOR THE ASSESSMENT YEAR 2005 - 06 , VIDE WHICH , FOLLOWING GROUNDS HAVE BEEN RAISED : - 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APP RECIATING THAT THE ASSESSING OFFICER HAS CORRECTLY APPLIED RULE 10 TO ESTIMATE THE NET PROFIT FROM ADVERTISEMENT REVENUE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN NOT APPRECIATING THAT THE ASSESSING OFFICER HAS CORRECTLY TREATED THE DISTRIBUTION RECEIPT AS ROYALTY INCOME. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN DIRECTING TO DELETE THE INTEREST U/S 234B OF THE INCOME TAX ACT, 1961. 4. ON THE FACTS AND IN TH E CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) ERRED IN HOLDING THAT PENALTY U/S 271B IS NOT LEVIABLE IGNORING THE FACT THAT NO PENALTY WAS LEVIED AS PER THE ASSESSMENT ORDER AND THAT THE SAME IS AN INDEPENDENT PROCEEDINGS. M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD. ITA NO. 2870 /MUM/20 1 0 02 OTHERS GROUP APPEAL & A CO 3 3 . AT THE OUTSET, LD. SENIOR COUNSEL , SHRI PER C Y PARDIWALLA , SUBMITTED BEFORE US THAT ALL THE ISSUES RAISED BY THE REVENUE ARE SQUARELY COVERED BY THE DECISION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE EARLIER YEARS, WHICH HAVE ALSO BEEN CONFIRMED BY THE HIGH COURT ALS O. 4. AS REGARDS ESTIMATE OF NET PROFIT F ROM ADVERTISEMENT REVENUE AS RAISED IN GROUND NO.1, HE SUBMITTED THAT TH I S ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE IN ALL THE EARLIER YEARS WHERE THE MATTER HAD TRAVELLED UPTO THE HIGH COURT . T HE HONBLE HIGH COURT IN AY 1999 - 2000 HAD DECIDED THIS ISSUE IN FAVOUR OF THE ASSESSEE , SINCE REPORTED IN 307 ITR 205. LD. DR, ALSO ADMITTED THAT SO FAR AS ISSUE RAISED IN GROUND NO. 1, THE SAME STANDS COVERED BY THE DECISION OF THE HONBLE HIGH COURT IN THE CASE O F THE ASSESSEE. 5. AFTER HEARING THE PARTIES AND ON PERUSAL OF THE IMPUGNED ORDER, WE FIND THAT THE LD. CIT(A) HAS RELIED UPON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF THE ASSESSEE WHICH IS NOW REPORTED IN 307 ITR 205. THE ASSESSEE IS A SINGAPORE BASED COMPANY AND ALSO THE TAX RESIDENT OF SINGAPORE. IT HAS ENTERED INTO AN AGREEMENT WITH M/S MULTI SCREEN MEDIA PRIVATE L IMITED (MSM) FOR CANVASSING OF AD AIRTIME FOR SET AND SET MAX. THE ASSESSEE HAD ALSO ENTERED INTO DISTRIBUTION AGREEME NT WITH MSM FOR DISTRIBUTION OF TV CHANNELS IN INDIA. THE ASSESSEES CASE WAS THAT SINCE IT DOES NOT HAVE A PERMANENT ESTABLISHMENT (PE) IN INDIA IN TERMS OF ARTICLE 5 OF INDIA SINGAPORE TREATY, THEREFORE, THE BUSINESS INCOME OF THE ASSESSEE IS NOT TAXABL E IN INDIA UNDER ARTICLE 7. THE ALTERNATIVE CLAIM WAS THAT EVEN IF IT W AS HELD THAT ASSESSEE HAS AN AGENCY PE IN INDIA, THEN ALSO THE REMUNERATION HAVE BEEN MADE AT ARMS LENGTH , HENCE NO FURTHER ADDITION OR INCOME CAN BE ATTRIBUTED. M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD. ITA NO. 2870 /MUM/20 1 0 02 OTHERS GROUP APPEAL & A CO 4 R EGARDING DISTRIBUTI ON REVENUE , RAISED VIDE GROUND NO. 2 THE SAME PLEA WAS TAKEN. HOWEVER, THE ASSESSING OFFICER TREATED THE MSM AS PE OF THE ASSESSEE IN INDIA FOR MARKETING A D AIR TIME AND ASSESSED 10% OF GROSS AD REVENUES AMOUNTING TO RS. 377,148,134/ - IN INDIA. REGARDING D ISTRIBUTION ACTIVITY, THE ASSESSING OFFICER TAXED IT AS ROYALTY INCOME UNDER ARTICLE 12 AND ACCORDINGLY , SAME WAS TAXED ON A GROSS BASIS @ 15%. 6. THE LD. CIT(A), AFTER DISCUSSING THE ENTIRE ISSUE AT LENGTH AND ALSO RELYING UPON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF THE ASSESSEE FOR THE ASSESSMENT YEAR 1999 - 2000 DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AFTER OBSERVING AND HOLDING AS UNDER : - I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT. THE BOMBAY HIGH COURT IN THE APPELLANT S CASE FOR AY 1999 - 2000 HAS HELD THAT ARMS LENGTH REMUNERATION TO MSM, THE DEPENDENT AGENT PE (DAPE) EXTINGUISHES THE TAX LIABILITY OF THE APPELLANT IN INDIA. WHILE COMING TO THE CONCLUSION, THE HIGH COURT HAD FOLLOWED THE DECISION OF THE SUPREME COURT I N THE CASE OF MORGAN STANLEY. THE SUPREME COURT IN MORGAN STANLEYS CASE AT PARA 33 OF THE RULING HAS HELD AS FOLLOW: AS REGARDS ATTRIBUTION OF FURTHER PROFITS TO THE PE OF MASCO WHERE THE TRANSACTION BETWEEN THE TWO ARE HELD TO BE AT ARMS LENGTH WE HO LD THAT THE RULING IS CORRECT IN PRINCIPLE PROVIDED THAT AN ASSOCIATED ENTERPRISE (THAT ALSO CONSTITUTES A PE) IS REMUNERATED ON ARMS LENGTH BASIS TAKING INTO ACCOUNT ALL THE RISK TAKING FUNCTIONS OF THE MULTINATIONAL ENTERPRISES. IN SUCH A CASE NOTHING F URTHER WOULD BE LEFT TO ATTRIBUTE TO THE PE. THE SITUATION WOULD BE DIFFERENT IF THE TRANSFER PRICING ANALYSIS DOES NOT ADEQUATELY REFLECT THE FUNCTIONS PERFORMED AND THE RISKS ASSUMED BY THE ENTERPRISE. IN SUCH A CASE, THERE WOULD M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD. ITA NO. 2870 /MUM/20 1 0 02 OTHERS GROUP APPEAL & A CO 5 BE NEED TO ATTRIBUTE PRO FITS TO THE PE FOR THOSE FUNCTION/RISKS THAT HAVE NOT BEEN CONSIDERED. IN THE LIGHT OF THE DECISION OF THE SUPREME COURT IT THUS BECOMES IMPORTANT TO DETERMINE WHETHER THE TRANSFER PRICING ANALYSIS APPROPRIATELY REFLECTS THE FUNCTIONS AND RISKS ASSUMED B Y THE ENTERPRISE. IN THIS REGARD, THE ASSESSING OFFICER IN HIS REMAND REPORT HAS STATED THAT THE DEPENDANT AGENT (DA) HAS A VERY LIMITED ROLE TO PLAY IN THE SALE OF ADVERTISEMENT TIME SLOT. ITS ACTIVITY IS SIMILAR TO AN AGENT. IT DOES NOT ISSUE INVOICES TO THE CUSTOMERS, IT HAS NO CONTROL OVER THE SALE PROCEEDS & RECEIVES A FIXED PERCENTAGE AS COMMISSION ON ACCOUNT OF ITS ACTIVITIES, WHICH MAY BE A CERTAIN PERCENTAGE OF THE TOTAL RECEIPTS. THE ENTIRE RISKS OF THE ACTIVITY ARE BORNE BY THE DAPE. THE ENTIRE F UNCTIONS ARE PERFORMED BY THE DAPE. THUS, ADVERTISEMENT ACTIVITY IS A BUSINESS OF THE NON - RESIDENT THAT WOULD BE TAXABLE IN THE PRESENCE OF A DAPE. AGAINST CONTENTIONS MADE BY THE ASSESSING OFFICER, THE APPELLANT HAS SUBMITTED THE BUSINESS OPERATIONS OF T HE APPELLANT (VIZ. ACQUIRING PROGRAMMING AND EXHIBITING/TRANSMITTING THE SAME ON TV CHANNELS) ARE CARRIED OUT ENTIRELY FROM SINGAPORE. THE APPELLANT HAS APPOINTED MSM AS AN AGENT TO MARKET THE ADVERTISEMENT AIRTIME SLOTS OF THE APPELLANTS TV CHANNELS IN I NDIA. THE PAYMENTS FROM ADVERTISERS ARE COLLECTED BY MSM AND REMITTED TO THE APPELLANT AFTER DEDUCTION OF ITS SERVICE FEE AND APPROPRIATE TAXES. ALL BUSINESS RISKS PERTAINING TO THE ADVERTISEMENT RECEIPTS ARE TAKEN BY AND BORNE BY THE APPELLANT. MSM, AS AN AGENT CARRIES OUT OF THE FUNCTIONS OF CANVASSING SALE OF AIRTIME AND COLLECTION AND REMITTANCE OF ADVERTISEMENT REVENUES TO THE APPELLANT. IT IS SUBMITTED THAT ORDER THAN THE FUNCTIONS CARRIED M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD. ITA NO. 2870 /MUM/20 1 0 02 OTHERS GROUP APPEAL & A CO 6 ON THE BY THE AGENT, I.E., MSM IN INDIA, NO OTHER FUNCTIONS OF THE APPELLANT ARE CARRIED ON IN INDIA. CONSIDERING THE MSM IS AN AGENT OF THE APPELLANT IN INDIA, THE APPELLANT SUBMITTED THAT FOR SUCH SERVICES PROVIDED BY MSM, THE APPELLANT PAYS AN ARMS LENGTH SERVICE FEE REMUNERATION TO MSM. THIS IS EVIDENCED BY THE TRANSFER PRICING ASSESSMENT ORDER FOR THE SUBJECT AY 2005 - 06 IN THE CASE OF MSM, WHEREIN THE TRANSFER PRICING OFFICER OF MSM, HAS HELD THAT ARMS LENGTH REMUNERATION HAS BEEN PAID BY THE APPELLANT TO MSM IN RESPECT OF ITS INTERNATIONAL TRANSACTIONS. I HA VE CONSIDERED THE SUBMISSIONS OF THE APPELLANT. IN MY VIEW THE RATIO LAID DOWN BY THE SUPREME COURT IN MORGAN STANLEYS CASE WHICH HAS BEEN FOLLOWED BY THE HIGH COURT IN THE APPELLANTS CASE FOR AY 1999 - 00 IS SQUARELY APPLICABLE IN THE PRESENT APPEAL BEFOR E ME FOR AY 2005 - 06. IN THE PRESENT CASE, THE CONTENTIONS OF THE ASSESSING OFFICER ARE NOT ACCEPTABLE THAT MSM AS A DEPENDENT AGENT DOES NOT CARRY OUT ANY ACTIVITY AND IT IS ONLY THE DEPENDANT AGENT PE WHICH IS RESPONSIBLE FOR ALL THE FUNCTIONS IN INDIA. I T IS SEEN THAT OTHER THAN THE FUNCTIONS CARRIED ON BY THE AGENT, I.E. MSM IN INDIA, NO OTHER FUNCTIONS OF THE APPELLANT ARE CARRIED ON IN INDIA. FURTHER, IT HAS ALREADY BEEN ESTABLISHED BEFORE THE TRANSFER PRICING OFFICERS THAT THE APPELLANT HAS PAID AN A RMS LENGTH FEE TO MSM, THE DEPENDENT AGENT PE. THIS IS SUPPORTED BY THE TRANSFER PRICING ANALYSIS AND THE ORDERS PASSED BY THE LEARNED TPO IN THE CASE OF BOTH THE APPELLANT AS PAYER AND OF MSM AS THE RECEIVER OF THE FEES. FURTHER , THE ORDERS OF THE TR ANSFER PRICING OFFICERS HAVE BEEN ACCEPTED BY THE AO AS WELL. TH U S, IT IS AN UNDISPUTED FACT THAT THE APPELLANT HAS REMUNERATED MSM ON AN ARMS LENGTH BASIS FOR THE MARKETING ACTIVITIES CARRIED ON BY MSM ON BEHALF OF THE APPELLANT. M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD. ITA NO. 2870 /MUM/20 1 0 02 OTHERS GROUP APPEAL & A CO 7 ACCORDINGLY, SINCE THE FACTS FOR AY 2005 - 06 IN RESPECT OF THE MARKETING OF AD AIRTIME BY MSM ON BEHALF OF THE APPELLANT ARE NO DIFFERENT FROM THOSE IN AY 1999 - 00, IT IS HELD THAT THE DECISION OF THE HONBLE MUMBAI HIGH COURT IN THE APPELLANTS OWN CASE FOR AY 1999 - 00 SHOULD APPL Y IN AY 2005 - 06 AS WELL. FURTHER, IT IS ALSO NOTED THAT MY PREDECESSOR HAS, IN THE APPEAL FILED BY THE APPELLANT FOR AY 2004 - 05, CONSIDERED THE DECISION OF THE BOMBAY HIGH COURT IN THE APPELLANTS CASE AND HELD THAT ADVERTISEMENT REVENUES EARNED BY THE APP ELLANT ARE NOT TA X ABLE IN INDIA SINCE THE APPELLANT HAS ALREADY REMUNERATED ITS ALLEGED AGENT, MSM AT ARMS LENGTH. ACCORDINGLY, I HOLD THAT THE FACTS AND THE ISSUE IN THE PRESENT CASE IS SQUARELY COVERED BY THE DECISION OF THE BOMBAY HIGH COURT IN CASE OF THE APPELLANT FOR AY 1999 - 2000 AND ACCORDINGLY THE APPELLANT IS NOT TA X ABLE IN INDIA IN RESPECT OF ADVERTISEMENT REVENUES. AS REGARDS THE OTHER GROUNDS RAISED IN POINT 2.1 TO 2.7 TO GROUND 2, BY THE APPELLANT IN RESPECT OF TAXABILITY OF AD REVENUES FROM ITS OWN CHANNEL, SINCE IT HAS ALREADY BEEN HELD THAT BASED ON THE SUPREME COURT DECISION OF MORGAN STANLEY AND BOMBAY HIGH COURT IN APPELLANTS CASE FOR AY 1999 - 00, PAYMENT OF ARMS LENGTH REMUNERATION TO MSM EXTINGUISHES THE APPELLANTS TAX LIABILITY IN I NDIA, THE SAID GROUNDS BECOME INFRUCTUOUS AND DO NOT NEED FURTHER EXAMINATION. 7. REGARDING DISTRIBUTION REVENUE ALSO, THE LD. CIT(A), THOUGH DISCUSSED THE ISSUE IN DETAIL THAT IT IS NOT ROYALTY , DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE, FOLL OWING THE PAST HISTORY OF THE ASSESSEE FROM ASSESSMENT YEAR 1999 - 2000 TO 2004 - 05 , WHEREIN THIS ISSUE WAS DECIDED IN FAVOUR OF THE ASSES SE E . T HE RELEVANT OBSERVATION AND FINDING OF THE CIT(A) IS AS UNDER : - M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD. ITA NO. 2870 /MUM/20 1 0 02 OTHERS GROUP APPEAL & A CO 8 I FIND CONSIDERABLE MERIT IN THE ARGUMENTS PUT F ORTH BY THE APPELLANT THAT SUBSCRIPTION INCOME IS IN THE NATURE OF BUSINESS INCOME AND NOT ROYALTY. FURTHER, I HAVE ALSO NOTED THAT IN THE PAST, FOR AY 1999 - 00, AY 2000 - 01, AY 2002 - 03, THE AO WHILE COMPLETING THE ASSESSMENT HAD HELD DISTRIBUTION INCOME T O BE IN THE NATURE OF ROYALTY. ON APPEAL, IT IS SEEN THAT FOR THE ABOVE MENTIONED YEARS, MY PREDECESSORS HAS TAXED DISTRIBUTION REVENUES AS BUSINESS INCOME. IN RESPECT FOR AY 2003 - 04 AND AY 2004 - 05, THE AO HAD ALSO ASSESSED DISTRIBUTION REVENUES AS BUSIN ESS INCOME. THIS TREATMENT OF THE AO WAS ALSO UPHELD BY THE CIT(A) FOR THE SAID TWO YEARS. IN VIEW OF THE SAME, WHEN THERE HAS BEEN ABSOLUTELY NO CHANGE IN THE FACTS OF THE DISTRIBUTION ACTIVITY OF THE APPELLANT FOR AY 2005 - 06 VIS - - VIS THE EARLIER YEARS, I AM NOT TO AGREE WITH THE POSITION OF THE AO TO TAX DISTRIBUTION REVENUES DIFFERENTLY FOR AY 2005 - 06. IN VIEW OF THE ABOVE, I AM OF THE OPINION THAT DISTRIBUTION REVENUES ARE NOT IN THE NATURE OF ROYALTY INCOME UNDER THE ACT OR THE TREATY. ACCORDINGLY, AS HAS BEEN HELD IN THE EARLIER ASSESSMENTS AND APPELLATE PROCEEDINGS IN THE CASE OF THE APPELLANT , DISTRIBUTION REVENUES EARNED BY THE APPELLANT ARE TAXABLE AS BUSINESS INCOME IN THE HANDS OF THE APPELLANT. AS PER ARTICLE 7 OF THE TREATY, DISTRIBUTION RE VENUES BEING IN THE NATURE OF BUSINESS INCOME WOULD BE TAXABLE IN INDIA IF THE APPELLANT HAS A PE IN INDIA IN RESPECT OF THE DISTRIBUTION BUSINESS. IN CONNECTION WITH THE ABOVE, THE AO IN HIS ASSESSMENT ORDER DATED DECEMBER 29, 2008 FOR AY 2005 - 06, IN REL ATION TO THE TAXABILITY OF DISTRIBUTION REVENUES IN THE HANDS OF THE APPELLANT, HAS HELD THAT THE APPELLANT DOES NOT HAVE A PE IN INDIA. HOWEVER, ON PERUSAL OF THE ASSESSMENT ORDERS AS WELL M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD. ITA NO. 2870 /MUM/20 1 0 02 OTHERS GROUP APPEAL & A CO 9 AS THE ORDERS OF MY PREDECESSORS IN EARLIER YEARS, I.E. FOR 2003 - 0 4 AND AY 2004 - 05, I HAVE NOTED THAT ON IDENTICAL FACTS PERTAINING TO THE DISTRIBUTION BUSINESS OF THE APPELLANT, IT HAS BEEN HELD THAT THE APPELLANT HAS A PE IN INDIA IN THE FORM OF MSM, FOR THE DISTRIBUTION BUSINESS AS WELL. ACCORDINGLY, IN VIEW OF THE FA CT THAT THE FUNDAMENTAL ASPECT RELATING TO THE DISTRIBUTION BUSINESS CARRIED OUT BETWEEN THE APPELLANT AND MSM IN INDIA HAS NOT CHANGED OVER EARLIER YEARS. I FIND NO MERIT IN THE CONTENTION OF THE AO THAT FOR DISTRIBUTION ACTIVITY, THE APPELLANT HAS NO PE IN INDIA. THUS, IN VIEW OF THE ABOVE DISCUSSION, I AM OF THE OPINION THAT EVEN FOR DISTRIBUTION BUSINESS THE APPELLANT HAS A DAPE IN INDIA IN THE FORM OF MSM. IN THIS CONTEXT, THE APPELLANT HAS SUBMITTED THAT SINCE IT HAS REMUNERATED MSM FOR THE DISTRIBUT ION ACTIVITY ON AN ARMS LENGTH BASIS (AS EVIDENCED BY THE ORDER OF THE TRANSFER PRICING OFFICER FOR AY 2005 - 06), ITS CASE IS COVERED BY THE DECISION OF THE MUMBAI HIGH COURT IN ITS OWN CASE FOR AY 1999 - 00 WHEREIN IT HAS BEEN HELD THAT PAYMENT OF ARMS LEN GTH REMUNERATION TO MSM EXTINGUISHES THE TAX LIABILITY OF THE APPELLANT IN INDIA. ACCORDINGLY, IT HAS BEEN SUBMITTED THAT DISTRIBUTION REVENUES EARNED BY THE APPELLANT FOR AY 2005 - 06 SHOULD NOT BE LIABLE TO TAX IN INDIA. AS DISCUSSED IN MY ORDER AT PAR 3. 3 IN RELATION TO THE TAXABILITY OF ADVERTISEMENT REVENUE, IN VIEW OF PARA 33 OF THE SUPREME COURT DECISION IN THE CASE OF MORGAN STANLEY, IT IS ALSO IMPORTANT TO DETERMINE WHETHER THE TRANSFER PRICING ANALYSIS APPROPRIATELY REFLECTS THE FUNCTIONS AND RISKS ASSUMED BY THE ENTERPRISE. THE AO IN HIS REMAND REPORT HAS DISCUSSED THE ACTIVITIES CARRIED OUT BY THE APPELLANT AND THE DA I.E. MSM IN INDIA IN RELATION TO THE DISTRIBUTION BUSINESS. M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD. ITA NO. 2870 /MUM/20 1 0 02 OTHERS GROUP APPEAL & A CO 10 THE AO HAS OBSERVED THAT THE DAPE HAS NOT ROLE TO PLAY IN THE DISTRIBUT ION ACTIVITY UNDERTAKEN BY THE DA. FURTHER , THE AO HAS OBSERVED THAT THE APPELLANT IN SINGAPORE HAS A LIMITED FUNCTION TO THE EXTENT THAT IT UPLOADS THE SIGNAL FROM SINGAPORE AND IN RETURN RECEIVES A FIXED SUM FROM THE DA ON ACCOUNT OF SUBSCRIPTION. IN TH IS CONTEXT THE APPELLANT HAS SUBMITTED IN RESPECT OF ITS DISTRIBUTION ACTIVITY, THE APPELLANT IS ENGAGED IN THE BUSINESS OF ACQUISITION OF AUDIOVISUAL PROGRAMMES INCLUDING FILMS, FORMATION AND OPERATION OF CABLE AND SATELLITE TELEVISION CHANNELS AND THE MA RKETING AND DISTRIBUTION OF SUCH CHANNELS . THE UP LINKING OPERATIONS OF THE APPELLANT ARE CARRIED OUT FROM SINGAPORE. IN ORDER TO EARN DISTRIBUTION REVENUES, THE APPELLANT HAS APPOINTED MSM AS THE SOLE DISTRIBUTOR OF ITS CHANNELS IN INDIA FOR AN AGREED CON SIDERATION OF 75% OF THE SUBSCRIPTION REVENUES RECEIVED BY MSM. THE APPELLANT HAS SUBMITTED THAT SINCE IT HAS REMUNERATED MSM FOR THE DISTRIBUTION ACTIVITY ON AN ARMS LENGTH BASIS (AS EVIDENCED BY THE ORDER OF THE TRANSFER PRICING OFFICER FOR AY 2005 - 06), ITS CASE IS COVERED BY THE DECISION OF THE MUMBAI HIGH COURT IN ITS OWN CASE FOR AY 1999 - 00. I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT. IN MY VIEW THE RATIO LAID DOWN BY THE SUPREME COURT IN MORGAN STANLEYS CASE WHICH HAS BEEN FOLLOWED BY THE HIGH COURT IN THE APPELLANTS CASE FOR AY 1999 - 00 IS SQUARELY APPLICABLE IN THE PRESENT APPEAL BEFORE ME FOR AY 2005 - 06. IN THE PRESENT CASE, THE CONTENTIONS OF THE ASSESSING OFFICER ARE NOT ACCEPTABLE AS IT IS SEEN THAT OTHER THEN THE FUNCTIONS CARRIED ON BY THE AGENT, I.E., MSM IN INDIA, NO OTHER FUNCTIONS OF THE APPELL A NT ARE CARRIED ON IN INDIA. FURTHER, IT HAS ALREADY BEEN ESTABLISHED BEFORE THE TRANSFER PRICING OFFICERS THAT THE M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD. ITA NO. 2870 /MUM/20 1 0 02 OTHERS GROUP APPEAL & A CO 11 APPELLANT HAS PAID AN ARMS LENGTH FEE TO MSM, THE DEPENDENT AGENT PE. TH IS IS SUPPORTED BY THE TRANSFER PRICING ANALYSIS AND THE ORDERS PASSED BY THE LEARNED TPO IN THE CASE OF BOTH THE APPELLANT AS PRAYER AND OF MSM AS THE RECEIVER OF THE FEES. FURTHER , THE ORDERS OF THE TRANSFER PRICING OFFICERS HAVE BEEN ACCEPTED BY THE AO AS WELL. THUS, IT IS AN UNDISPUTED FACT THAT THE APPELLANT HAS REMUNERATED MSM ON AN ARMS LENGTH BASIS FOR THE DISTRIBUTION ACTIVITIES CARRIED ON BY MSM ON BEHALF OF THE APPELLANT. FURTHER, IT IS ALSO NOTED THAT MY PREDECESSOR, IN THE APPEAL FILED BY THE APPELLANT FOR AY 2004 - 05, HAS HELD THAT BASED ON THE ORDER OF THE H I GH COURT IN THE APPELLANTS OWN CASE FOR AY 1999 - 00, SINCE MSM HAS ALREADY OFFERED ITS SHARE OF DISTRIBUTION REVENUES TO TAX IN INDIA, NOTHING FURTHER REMAINS TO BE TAXED IN INDIA IN T HE HANDS OF THE APPELLANT IN RESPECT OF THE DISTRIBUTION REVENUES. 8. BEFORE US, THE LD. SENIOR COUNSEL, SHRI PARDIWALLA , SUBMITTED THAT BOTH THE ISSUES ARE COVERED NOT ONLY BY THE DECISION OF HONBLE BOMBAY HIGH COURT FOR THE ASSESSMENT YEAR 1999 - 200 0 BUT ALSO BY THE VARIOUS DECISIONS OF THE TRIBUNAL FOR SUBSEQUENT YEARS , WHICH TOO HAVE BEEN UPHELD BY THE HIGH COURT IN TH OS E YEARS. HE ALSO POINTED OUT THE RELEVANT OBSERVATIONS GIVEN IN THE SAID ORDER S PLACED IN THE P APER B OOK . 9. ON THE OTHER HAND, LD. DR , THOUGH ACCEPTED THAT SO FAR AS THE ISSUE RELATING TO GROUND NO. 1, THE SAME IS SQUARELY COVERED, HOWEVER, SO FAR AS ISSUE RELATING TO ROYALTY IS CONCERNED, HE SUBMITTED THAT NO PROPER FINDING HAVE BEEN GIVEN IN THE EARLIER YEARS BY ANY OF THE AUT HORITIES . FURTHER , NOW THE ISSUE OF ROYALTY HAS TO BE EXAMINED AFRESH. 10. IN THE REJOINDER, THE LD. SENIOR COUNSEL SUBMITTED THAT IN THE EARLIER YEARS THIS ISSUE WAS NOT ONLY DECIDED IN FAVOUR OF THE M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD. ITA NO. 2870 /MUM/20 1 0 02 OTHERS GROUP APPEAL & A CO 12 ASSESSEE BUT IN THE APPEAL FILED BEFORE THE HIGH CO URT, THE REVENUE HAS NOT CHALLENGED THIS ISSUE. HENCE, THE ISSUE OF TREATI NG THEIR DISTRIBUTION RECEIPTS AS ROYALTY INCOME STANDS DECIDED IN FAVOUR OF THE ASSESSEE, WHICH HAS ATTAINED FINALITY. HE FURTHER POINTED OUT THAT IN THE CASE OF SET INDIA PVT . LTD, THE TRIBUNAL VIDE ORDER DATED 25.04.2012 IN ITA NO. 4372/MUM/2004 HAVE DECIDED THIS ISSUE BY HOLDING THAT DISTRIBUTION FEE IS NOT IN THE NATURE OF ROYALTY BUT IN THE NATURE OF BUSINESS INCOME . FURTHER, THE TRIBUNAL IN AY 2002 - 03 IN ASSESSEES OWN CA SE HAS UPHELD THE FINDING OF THE CIT(A) THAT THE SAME HAS TO BE TREATED AS BUSINESS INCOME. 1 1 . AFTER CONSIDERING THE RIVAL CONTENTION AND ABOVE FACTS, WE FIND THAT , SO FAR AS THE ISSUE RELATING TO ADDITION ON ACCOUNT OF ADVERTISEMENT REVENUE AND DIS TRIBUTION REVENUE THE SAME STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL, WHICH HAS BEEN AFFIRMED BY THE HONBLE HIGH COURT IN AY 1999 - 2000 AND ALSO IN SUBSEQUENT YEARS. AS REGARDS THE ISSUE OF DISTRIBUTION RECEIPTS TREATED AS ROYALTY INCOME , WE FIND THAT THIS HAS BEEN TREATED AS BUSINESS INCOME AND SUCH A FINDING OR CONCLUSION NOW HAVE ATTAINED FINALITY, AS POINTED OUT BY THE LD. SENIOR COUNSEL. THUS, FINDING OF THE CIT(A) ON BOTH THE ISSUES ARE AFFIRMED AND GROUND NO. 1 & 2 ARE DISMISSED. 1 2 . AS REGARD THE ISSUE RELATING TO GROUND NO. 3 ON ACCOUNT OF DELETION OF INTEREST U/S 234B, THE LD. SENIOR COUNSEL, SHRI PARDIWALLA , SUBMITTED THAT THIS ISSUE HAS NOW BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HONBLE HIGH COURT IN THE CASE OF ASSESS EE IN THE ASSESSMENT YEAR 1997 - 98 & 1998 - 99 , WHEREIN THE HONBLE HIGH COURT HAS FOLLOWED THE DECISION OF DIT VS NGC NETWORK ASIA LLC, REPORTED IN 313 ITR 187 ( BO M). ACCORDINGLY, GROUND NO. 3 RAISED BY THE REVENUE STANDS DISMISSED. M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD. ITA NO. 2870 /MUM/20 1 0 02 OTHERS GROUP APPEAL & A CO 13 1 3 . REGARDING GROUND NO. 4, IT HAS BEEN AGREED BY BOTH THE PARTIES THAT THIS GROUND IS PURELY ACADEMIC, ACCORDINGLY THE SAME IS DISMISSED AS SUCH. ITA NO. : 2523/MUM/2010 , ASSESSEES APPEAL : AY 2005 - 06 1 4 . IN THIS APPEAL, THE ASSESSEE HAS RAISED F OLLOWING GROUNDS: - TAXABILIT Y OF DISTRIBUTION REVENUES 1. ERRED IN ENHANCING THE ASSESSMENT BY HOLDING THAT THE APPELLANT HAS A DEPENDANT AGENT PE IN INDIA IN THE FORM OF MULTI SCREEN MEDIA PRIVATE LIMITED IN RESPECT OF DISTRIBUTION REVENUES WITHOUT APPRECIATING THAT, AFTER ANALYZING THE FACTS OF THE CASE, THE LEARNED DDIT HAD HELD THAT THE APPELLANT DOES NOT HAVE A DEPENDENT AGENT FE IN INDIA IN RESPECT OF THE DISTRIBUTION REVENUES. TAXABILITY OF THE INTEREST RECEIVED UNDER SECTION 244A OF THE ACT 2. ERRED IN ENHANCING THE ASSESSMENT BY HOLDING THAT THE APPELLANT HAS A DEPENDANT AGENT PE IN INDIA IN THE FORM OF MULTI SCREEN MEDIA PRIVATE LIMITED IN RESPECT OF DISTRIBUTION REVENUES WITHOUT APPRECIATING THAT, AFTER ANALYZING THE FACTS OF THE CASE, THE LEARNED DDIT HAD HELD THAT THE APPEL LANT DOES NOT HAVE A DEPENDENT AGENT FE IN INDIA IN RESPECT OF THE DISTRIBUTION REVENUES. 3. WITHOUT PREJUDICE TO ABOVE, EVEN ASSUMING THAT INTEREST RECEIVED IS TAXABLE FOR THE YEAR UNDER CONSIDERATION, ERRED IN CONFIRMING TAXATION OF INTEREST RECEIVED UND ER SECTION 244PT THE ACT UNDER ARTICLE 11(4) OF THE INDIA - SINGAPORE TREATY (THE 'TREATY'), ON THE BASIS THAT THE INTEREST RECEIVED IS EFFECTIVELY CONNECTED WITH THE ALLEGED FE OF THE APPELLANT IN INDIA AS AGAINST CLAIM OF THE APPELLANT THAT SAME IS NOT CON NECTED WITH THE ALLEGED FE AND HENCE IT IS TAXABLE UNDER ARTICLE 11(2) OF THE TREATY. 4. WITHOUT PREJUDICE TO ABOVE, EVEN ASSUMING THAT INTEREST RECEIVED IS TAXABLE FOR THE YEAR UNDER CONSIDERATION, FAILED TO APPRECIATE THAT ONCE TAXABILITY OF THE DEPENDENT AGENT FE IS EXTINGUISHED, INTEREST RECEIVED UNDER SECTION 244A IT CANNOT BE TREATED AS EFFECTIVELY CONNECTED WITH THE ALLEGED FE. 5. WITHOUT PREJUDICE TO ABOVE, EVEN ASSUMING THAT THE INTEREST RECEIVED UNDER SECTION 244A IS EFFECTIVELY CONNECTED WITH THE A PPELLANT'S PE IN INDIA, THEN SO MUCH OF THE INTEREST THAT IS ATTRIBUTABLE TO THE ALLEGED DEPENDENT AGENT PE SHOULD ONLY BE TAXED UNDER ARTICLE 11(4) AND BALANCE INTEREST SHOULD BE TAXED UNDER ARTICLE 11(2) OF THE TREATY. M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD. ITA NO. 2870 /MUM/20 1 0 02 OTHERS GROUP APPEAL & A CO 14 THE APPELLANT CRAVES TO CONSIDER EACH OF THE ABOVE GROUNDS OF AP P EAL WITHOUT PREJUDICE TO EACH OTHER AND CRAVES LEAVE TO ADD, ALTER, DELETE OR MODIFY ALL OR ANY OF THE ABOVE GROUNDS OF APPEAL . MAINLY, TWO ISSUES HA VE BEEN RAISED IN THE ASSESSEES APPEAL, FIRSTLY , TAXABILITY OF DISTRIBUT ION REVENUE , AND OTHER TAXABILITY OF INTEREST RECEIVED U/S 244A. 15. AS REGARDS GROUND NO. 1, IT HAS BEEN ADMITTED BY BOTH THE PARTIES THAT THIS ISSUE IS SIMILAR TO GROUND NO. 2 AS RAISED BY THE DEPARTMENT. SINCE THIS ISSUE HAS BEEN DECIDED IN FAVOUR OF T HE ASSESSEE BY HOLDING THAT THE SAME IS NOT TAXABLE ON THE GROUND THAT IT HAS BEEN PAID AT ARMS LENGTH PRICE, THEREFORE, THIS GROUND BECOMES PURELY ACADEMIC. 16. AS REGARDS THE ISSUE RELATING TO TAXABILITY OF INTEREST RECEIVED U/S 244A, IT IS ADMITTED TH AT, SO FAR AS TAXABILITY OF INTEREST U/S 244 IS CONCERNED, UNDER ARTICLE 11(4) OF INDIA SINGAPORE TREATY, THE SAME IS NOW COVERED BY THE DECISION OF THE HONBLE SPECIAL BENCH IN THE CASE OF ACIT VS CLOUGH ENGINEERING LTD, REPORTED IN [2011] 09 ITR (TRIB) 6 18 (DEL HI )(SB) . A CCORDINGLY, WE HOLD THAT SO FAR AS THE ISSUE OF TAXABILITY OF INTEREST U/S 244A IN THE HANDS OF THE ASSESSEE, WE DECIDE THE SAME IN FAVOUR OF THE ASSESSEE AFTER FOLLOWING THE RATIO LAID DOWN BY THE HONBLE SPECIAL BENCH IN THE CASE OF ACIT V CLOUGH ENGINEERING LTD ( SUPRA ). HOWEVER GROUND RAISED, VIDE GROUND NO. 2, 4 AND 5 REGARDING TAXABILITY OF INTEREST U/S 2 4 4A, THE SAME ARE TREATED AS INFRUCTUOUS. CO NO. 113/MUM/2011 : ASSESSEES CO : ARISING OUT OF ITA 2870/MUM/2010, AY 2005 - 06 17. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE GROUNDS RAISED IN THE CROSS OBJECTION RELATING TO TAXABILITY OF ADVERTISEMENT REVENUE AND DISTRIBUTION REVENUE WILL BECOME PURELY ACADEMIC , IN VIEW OF THE FINDING AND CONCLUSIONS GIVEN IN THE DEPARTMENTAL M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD. ITA NO. 2870 /MUM/20 1 0 02 OTHERS GROUP APPEAL & A CO 15 AP PEAL. ACCORDINGLY, THE CROSS OBJECTION OF THE ASSESSEE STANDS DISMISSED AS INFRUCTUOUS. 18. IN THE RESULT, ASSESSEES CROSS OBJECTION STANDS DISMISSED. ITA 8272/MUM/201 0, ASSESSEES APPEAL : AY 2006 - 07 19. IN TH IS YEAR THE ISSUES WHICH ARE ARISING OU T OF DIRECTION GIVEN BY THE DRP, ARE MAINLY FOLLOWING : - FIRSTLY ; TAXABILITY OF ADVERTISEMENT REVENUE; SECONDLY ; TAXABILITY ON DISTRIBUTION REVENUE; THIRDLY ; TAXABILITY OF INTEREST RECEIVED U/S 244A ; AND LASTLY, NON - GRANT OF TDS CREDIT AMOUNTING TO RS. 26,16,619/ - . 20. SO FAR AS FIRS T THREE ISSUES ARE CONCERNED, THE SAME ARE SIMILAR TO THE GROUND S RAISED IN AY 2005 - 06, THEREFORE, IN VIEW OF THE FINDING GIVEN THEREIN IN FOREGOING PARAS , WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. 21. AS REGARDS NON - GRANT OF TDS CREDIT, WE FIND THAT DRP HAS GIVEN DIRECTION TO THE ASSESSING OFFICER , HOWEVER IN THE FINAL ASSESSMENT ORDER ASSESSING OFFICER HAS NOT DONE SO. ACCORDINGLY, WE DIRECT THE ASSESSING OFFICER TO GIVE CREDIT O F TDS AMOUNTING TO RS. 26,16,615/ - AFTER VERIFICATION OF RECORDS. ACCORDINGLY, APPEAL OF THE ASSESSEE FOR AY 2006 - 07 FILED BY THE ASSESSEE IS TREATED AS ALLOWED. M/S MSM SATELLITE (SINGAPORE) PTE LTD. (FORMERLY KNOWN AS SET SATELLITE (SINGAPORE) PTE LTD. ITA NO. 2870 /MUM/20 1 0 02 OTHERS GROUP APPEAL & A CO 16 22 . IN THE RESULT, APPEAL OF THE REVENUE FOR AY 2005 - 06 AND CROSS OBJECTIO N OF THE AS SESSEE ARE DISMISSED, WHEREAS THE APPEAL S OF THE ASSESSE E FOR AY 2005 - 06 AND 2006 - 07 ARE TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST , 2015. SD/ - SD/ - ( GOPAL KEDIA ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 28 TH AUGUST , 2015 / COPY TO: - 1) / THE APPELLANT. 2) / THE RESPONDENT. 3) THE CIT (A) - 11 , MUMBAI . 4) THE DIT(INT. TAX.)/ CI T CONCERNED_____ MUMBAI . 5) , , / THE D.R. L BENCH, MUMBAI. 6) \ COPY TO GUARD FILE. / BY ORDER / / TRUE COPY / / / , DY. / ASS TT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS
