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

ITA 8627/MUM/2011

• Counselvise Citation: [2013] 120 COUNSELVISE.COM (IT) 1778 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 19-02-2013
• Assessment Year: 2008-2009
• Appeal Filed On: 21-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S HASAN
• Keywords: Business income; Double taxation relief; Rule of consistency; Permanent establishment
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI L BENCH MUMBAI BENCHES, MUMBAI BEFORE SHRI RAJENDRA SINGH, AM & SHRI VIJAY PAL RA O, JM ITA NO. 8627/MUM/2011 (ASST YEAR 2008-09) WARNER BROS DISTRIBUTING INC C/O WARNNER BROS PICTURES(INDIA) PVT LTD EROS CINEMA BUILDING 4 TH FLOOR 42 M K ROAD MUMBAI 400 020 VS THE ADDL DIRECTOR OF INCOME TAX(IT) RANGE 2, MUMBAI (APPELLANT) (RESPONDENT) PAN NO. AAACW6559R ASSESSEE BY SH S HASAN REVENUE BY SH NARENDER KUMAR DT.OF HEARING 19 TH FEB 2013 DT OF PRONOUNCEMENT 22 FEB 2013 PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST TH E ASSESSMENT ORDER DATED 24 TH OCT 2011 PASSED U/S 144C(13) R.W.S 143(3) OF THE I T ACT IN PURSUANT TO THE DIRECTIONS OF THE DRP U/S 144C (5) OF THE IT ACT DA TED 26.9.2011 FOR THE ASSESSMENT YEAR 2007-08. 2 THE ASSESSEE COMPANY IS TAX RESIDENCE OF USA AND IS ENGAGED IN THE DISTRIBUTION OF CINEMATOGRAPHIC FILMS. THE ASSESSEE HAS ENTERED INTO AN AGREEMENT WITH WARNER BROS PICTURES INDIA PVT LTD, WHICH IS A N INDIAN COMPANY FOR THE DISTRIBUTION OF THE CINEMATOGRAPHIC FILMS IN INDIA AND HAS RECEIVED ROYALTY AT SPECIFIED RATES. THE DISPUTE ARISES ON THE QUESTI ON WHETHER THE PAYMENT RECEIVED BY THE ASSESSEE FOR DISTRIBUTION OF CINEMATOGRAPHIC FILMS IN INDIA IS A ROYALTY RECEIPT AND IS NOT TAXABLE UNDER THE INCOME TAX ACT BY VIR TUE OF CLAUSE (V) OF EXPLANATION 2 ITA NO. 8627/M/2011 WARNER BROS DISTRIBUTING INC . 2 TO SECTION 9(1)(VI) OF THE IT ACT OR THE SAID RECEI PT IS BUSINESS INCOME OF THE ASSESSEE AND TAXABLE IN INDIA BEING THE PROFIT ATTRIBUTABLE TO PE IN INDIA AS HELD BY THE ASSESSING OFFICER. 3 WE HAVE HEARD THE LD AR AS WELL AS THE LD DR AND CONSIDERED THE RELEVANT MATERIAL ON RECORD. THE LD AR OF THE ASSESSEE HAS S UBMITTED THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED AND DECIDED BY THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 2006-07 AND 2007-08. THEREFORE, TH E ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THIS TRIBUNAL IN AS SESSEES OWN CASE. 3.1 ON THE OTHER HAND, THE LD DR HAS RELIED UPON TH E ORDERS OF THE AUTHORITIES BELOW. 4 HAVING CONSIDERED THE RIVAL SUBMISSIONS AND CAREF ULLY PERUSAL OF THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT THE DISPUTE FOR TH E ASSESSMENT YEAR UNDER CONSIDERATION IS IDENTICAL AS IT WAS INVOLVED FOR T HE ASSESSMENT YEARS 2006-07 AND 2007-08. THIS TRIBUNAL HAS FRAMED THE ISSUE IN PAR A 3 AS UNDER: 3 THE ASSESSEE HAS RAISED VARIOUS GROUNDS IN THIS A PPEAL. HOWEVER, THE ONLY EFFECTIVE AND MAIN ISSUE ARISES FOR OUR CONSIDERA TION AND ADJUDICATION IS WHETHER THE ROYALTY RECEIVED BY THE ASSESSEE IS ASSES SABLE TO TAX IN INDIA BEING BUSINESS PROFIT ATTRIBUTABLE TO THE PE OF THE ASSESSEE IN INDIA. 4.1 THUS, IT IS CLEAR THAT THE ISSUE IS IDENTICAL A S IN THE ASSESSMENT YEAR UNDER CONSIDERATION. ITA NO. 8627/M/2011 WARNER BROS DISTRIBUTING INC . 3 4.2 WE FURTHER NOTE THAT THE TRIBUNAL HAS DECIDED T HE ISSUE FOR THE ASSESSMENT YEAR 2007-08 IN ITA NO.8734/MUM/2010 VIDE ORDER 10 TH OCT 2012 IN PARAS 5 & 6 AS UNDER: 5 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD. THOUGH, FOR THE ASSESSMENT YEAR 2 006-07, THE ASSESSING OFFICER HAS NOT EXAMINED THE ASPECT OF PE BECAUSE OF THE ROYALTY INCOME WAS ASSESSED BY THE ASSESSING OFFICER BY APPLYING T HE PROVISIONS OF DTAA; HOWEVER, ALTERNATIVE PLEA WAS TAKEN BY THE LD DR THA T THE COMMISSIONER OF INCOME TAX(APPEALS) HAS NOT CONSIDERED THE PROVISION S OF SEC 5 OF THE ACT AND ARTICLE 7 OF THE TREATY, WHICH HAS BEEN REFERRED BY THIS TRIBUNAL IN PARA 7 AS UNDER: 7) LEARNED DEPARTMENTAL REPRESENTATIVE REFERRING TO VA RIOUS FINDINGS OF THE CIT (A) SUBMITTED THAT THE CIT (A) ERRED IN NOT CON SIDERING THE PROVISIONS OF SECTION 5 OF THE ACT AND ARTICLE 7 OF READY WHILE DEL ETING THE ABOVE AS HE HAS HELD THAT THERE IS AS BUSINESS CONNECTION AND A CCORDINGLY THE INCOME IS TAXABLE UNDER THE INDIAN INCOME TAX ACT SEC. 9(1)(I) R.W.S SECTION 5 (2). 5.1 THUS, IT IS CLEAR THAT FOR THE ASSESSMENT YEAR 200 6-07, THE ISSUE OF BUSINESS INCOME AND PE WAS RAISED BEFORE THE TRIBUNA L. HOWEVER, THE TRIBUNAL HAS CONCURRED WITH THE VIEW OF THE COMMISSIONER OF IN COME TAX(APPEALS) AND HELD THAT THE AMOUNT RECEIVED BY THE ASSESSEE C ANNOT BE CONSIDERED AS ROYALTY AS WAS DONE BY THE ASSESSING OFFICER BY INVO KING THE PROVISIONS OF SEC. 12(2) OF THE DTAA FOR TAXING THE AMOUNT. 5.2 THE TRIBUNAL HAS FURTHER HELD IN PARAS 10 & 11 AS UNDER: 10 THE ISSUE CAN BE EXAMINED IN ANOTHER DIMENSION WH ETHER THE AMOUNT IS TAXABLE UNDER THE INDIAN INCOME TAX ACT I N INDIA IF NOT AS ROYALTY, BUT AS BUSINESS INCOME. THE CIT (A) FINDING IS THAT ASSESSEE HAS A BUSINESS CONNECTION IN INDIA. HOWEVER, HE CONSIDE RED THAT THERE IS NO PE TO THE ASSESSEE, THE FACT OF WHICH WAS ALSO ACCE PTED BY THE ASSESSING OFFICER AS HE HAS INVOKED ONLY 3 ARTICLE 1 2(2) AND NOT CONSIDERED THE AMOUNTS BUSINESS INCOME AS PER PE PROV ISO. IT WAS THE CONTENTION OF THE LEARNED DEPARTMENTAL REPRESENTATIVE THAT THE ASSESSEE HAVING BUSINESS CONNECTION, THE FINDINGS O F WHICH WAS GIVEN BY THE CIT (A), THE AMOUNT CANNOT BE EXCLUDED WITHO UT EXAMINING PE PROVISO PROVISIONS OF THE DTAA. IN THIS REGARD THE LE ARNED COUNSELS SUBMISSION THAT UNDER THE INCOME TAX ACT AS WELL AS UNDER THE PROVISIONS OF DTAA THE TRANSACTION BETWEEN THE ASSES SEE AND INDIAN COMPANY TO WHOM LICENSE WAS GRANTED BY VIRTUE OF THE AGREEMENT CANNOT BE CONSIDERED AS AGENCY PE AS THE INDIAN ASSE SSEE IS NOT EXCLUSIVELY DEALING WITH THE ASSESSEE AND REFERRED TO THE RECEIPTS FROM ANOTHER COMPANY 20 TH CENTURY FOX TO SUBMIT THAT THE ASSESSEE IS ALSO DEALING WITH THE NON RESIDENT COMPANIES, SO ASSESSE E CANNOT BE CONSIDERED AS AGENCY PE WITHIN THE DEFINITION OF PER MANENT ESTABLISHMENT. ITA NO. 8627/M/2011 WARNER BROS DISTRIBUTING INC . 4 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 TH E 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. SINC E THE INDIAN COMPANY WHO OBTAINED THE RIGHTS IS ACTING INDEPENDE NTLY, AGENCY PE PROVISIONS ARE NOT APPLICABLE TO THE ASSESSEE COMPAN Y. THE ASSESSEE RELIED ON THE DECISION OF ISHIKAWAJMA-HARIMA HEAVY I NDUSTRIES 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 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. 5.3 IT IS CLEAR FROM THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 2006-07 THAT THE TRIBUNAL HAS GIVEN A FINDING ON THE POINT THAT THE ASSESSEE DOES NOT HAVE ANY PE IN INDIA BECAUSE THE INDIAN COMPANY WHO OBTAINED THE RIGHTS IS ACTING INDEPENDENTLY. THEREFORE, AGENCY PE PROVISION S ARE NOT APPLICABLE TO THE ASSESSEE COMPANY. SINCE THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE,; THEREFORE, BY FOLLOWIN G THE ORDER OF THE TRIBUNAL, WE HOLD THAT THE ASSESSEE HAS NO PE IN INDIA AND AC CORDINGLY, THE AMOUNT RECEIVED UNDER THE AGREEMENT OF DISTRIBUTION IS NOT TAX ABLE IN INDIA. 6 THE OTHER ISSUES RAISED BY THE ASSESSEE IN THIS A PPEAL ARE CONSEQUENTIAL AND ACCORDINGLY BECOME INFRUCTUOUS. 4.3 WHEN THE FACTS AND CIRCUMSTANCES ARE IDENTICAL FOR THE ASSESSMENT YEAR 2007-08 AS WELL AS ASSESSMENT YEAR UNDER CONSIDERAT ION, THEREFORE, IN VIEW OF THE DECISION OF THE TRIBUNAL IN ASSESSES OWN CASE FOR THE ASSESSMENT YEAR 2007-08 (SUPRA) AND TO MAINTAIN THE RULE OF CONSISTENCY, WE HOLD THAT THE ASSESSEE HAS NO PE IN INDIA AND THEREFORE, THE AMOUNT RECEIVED UNDER T HE AGREEMENT OF DISTRIBUTION IS NOT TAXABLE IN INDIA. 5 SINCE THE OTHER ISSUES RAISED BY THE ASSESSEE IN THIS APPEAL ARE CONSEQUENTIAL TO THE MAIN ISSUE AND THEREFORE, THE SAME BECOME IN FRUCTUOUS. ITA NO. 8627/M/2011 WARNER BROS DISTRIBUTING INC . 5 6 IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE I S ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 22 ND , DAY OF FEB 2013. SD/- S D/- ( RAJE NDRA SINGH ) ACCOUNTANT MEMBER ( VIJAY PAL RAO ) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 22 FEB 2013 RAJ* COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI