MSM SATELLITE (SINGAPORE) PTE LTD, MUMBAI V. ADIT (IT) RG 4(1), MUMBAI

ITA 8748/MUM/2011

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 3495 (ITAT-MUMBAI)
• Duration Of Justice: 4 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-02-2016
• Appeal Filed By: Assessee
• Bench Allotted: L
• Next Hearing Date: 03-03-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 26-12-2011
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; Rule of consistency; Permanent establishment; Revised return
• Section: 244A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL L , BENCH MUMBAI BEFORE SHRI G.S.PANNU , AM & SHRI PAWAN SINGH , JM ./ ITA NO. 8748 / MUM/20 1 1 & ITA NO. 7639/MUM/2012 ( / ASSESSMENT YEAR S : 20 07 - 08 & 200 8 - 09 ) 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 - 400028, INDIA VS. ADIT(INTERNATIONAL TAXATION), RANG E - 4(1), MUMBAI ./ ./ PAN/GIR NO. : A ABCS 9229 H ( / APPELLANT ) .. ( / RESPONDENT ) /ASSESSEE BY : SHRI NISHANT THAKKAR /REVENUE BY : SHRI JASBIR CHOUHAN,CITDR / DATE OF H EARING : 16 / 0 9 /201 5 / DATE OF PRONOUNCEMENT 29/02 /201 6 / O R D E R PER PAWAN SINGH (JM ) : 1. BOTH THESE APPEAL S ARE FILED BY THE ASSESSEE AGAINST THE DIRECTION OF DISPUTES RESOLUTION PANEL - 1, MUMBAI , RELATING TO THE ASSESSM ENT YEAR 200 7 - 08 & 2008 - 09 . 2. SINCE SIMILAR GROUNDS HAVE BEEN RAISED BY THE ASSESSEE IN BOTH THE APPEALS, THEREFORE, BOTH THE APPEALS HAVE BEEN HEARD TOGETHER AND ARE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER. FOR THE SAKE OF CONVENIENCE, THE GROUNDS RAISED IN ITA NO. 8748/MUM/2011 ARE TAKEN FOR CONSIDERATION AND THE SAME ARE REPRODUCED HEREUNDER : - ITA NO. 8748/11 &7639/12 2 TAXABILITY OF ADVERTISEMENT REVENUES 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED ASSISTANT DIRECTOR OF INCOME TAX (INTERNATIONA L TAXATION), RANGE 4(1), MUMBAI ('AO') ERRED IN HOLDING, AND, FURTHER, THE HON'BLE DISPUTE RESOLUTION PANEL ('DRP') ERRED IN CONFIRMING, THAT THE APPELLANT HAS A BUSINESS CONNECTION IN INDIA. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN HOLDING, AND THE HON'BLE DRP ERRED IN CONFIRMING, THAT THE APPELLANT HAS A PERMANENT ESTABLISHMENT ('PE') IN INDIA IN TERMS OF ARTICLE 5 OF THE INDIA - SINGAPORE TAX TREATY (THE ''TREATY'). 3. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACT S AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO AND THE HON'BLE DRP ERRED IN NOT APPRECIATING THAT EVEN ASSUMING (WITHOUT ADMITTING) THAT THE APPELLANT HAS A PE IN INDIA, PAYMENT OF ARM'S LENGTH REMUNERATION TO MULTI SCREEN MEDIA PRIVATE LIMITED ('MSMI') IN RELATION TO THE MARKETING OF AIRTIME EXTINGUISHES THE TAX LIABILITY OF THE APPELLANT IN INDIA. 4. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN ESTIMATING, AND THE HON'BLE DRP ERRED IN CONFIRMING, THAT 10% OF THE ADVERTISEMENT REVENUES ARE TAXABLE IN INDIA EVEN THOUGH THE APPELLANT HAD SUFFERED LOSSES DURING THE YEAR. 5. WITHOUT PREJUDICE TO THE ABOVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO AND T HE HON'BLE DRP ERRED IN CONFIRMING THAT 10% OF THE GROSS ADVERTISEMENT REVENUES ARE TAXABLE IN INDIA INSTEAD OF 10% OF THE NET AD REVENUE RECEIVED BY THE APPELLANT (I.E., AFTER DEDUCTING SERVICE FEE DUE TO MSMI). TAXABILITY OF DISTRIBUTION REVENUES ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN HOLDING, AND THE HON'BLE D RP ERRED IN CONFIRMING, THAT THE DISTRIBUTION REVENUES ARE IN THE NATURE OF ROYALTY AND ASSESSING THEM AT 10% ON A GROSS BASIS UNDER ARTICLE 12 OF THE TR EATY. 7. WITHOUT PREJUDICE TO THE ABOVE, EVEN ASSUMING (WITHOUT ADMITTING) THAT THE DISTRIBUTION REVENUES ARE IN THE NATURE OF ROYALTY INCOME, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, WHERE IT IS HELD THAT THE APPELLANT HAS A PE IN INDIA IN RESPECT OF ITS BROADCASTING ACTIVITIES, THE LEARNED AO AND THE HON'BLE DRP ERRED IN NOT TREATING THE DISTRIBUTION REVENUES AS EFFECTIVELY CONNECTED WITH THE ALLEGED PE AND TAXING THE SAME ON A NET BASIS. FURTHER, THE LEARNED AO AND HON'BLE DRP OUGHT TO HAVE HELD THAT THE DISTRIBUTION REVENUES ARE NOT TAXABLE IN INDIA ON THE GROUND THAT ITA NO. 8748/11 &7639/12 3 MSMI HAS EARNED AN ARM'S LENGTH REMUNERATION IN RELATION TO DISTRIBUTION ACTIVITIES, WHICH EXTINGUISHES THE TAX LIABILITY OF THE APPELLANT IN INDIA, AND THAT NO INCOME IS TAXABLE IN INDIA AS THE APPELLANT HAD SUFFERED LOSSES DURING THE YEAR. TAXABILITY OF INTEREST RECEIVED UNDER SECTION 244A OF ACT 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN HOLDING, AND THE HON'BLE DRP ERRED IN CON FIRMING, THAT THE INTEREST RECEIVED UNDER SECTION 244A OF THE INCOME TAX ACT, 1961, OF INDIA (THE 'ACT') ON TAX REFUNDS FOR VARIOUS ASSESSMENT YEARS IS TAXABLE IN THE YEAR UNDER CONSIDERATION WITHOUT APPRECIATING THE FACT THAT THE SAME CANNOT BE SAID TO HA VE ACCRUED TO THE APPELLANT AS THE TAX LIABILITY FOR THOSE ASSESSMENT YEARS HAS NOT YET ATTAINED FINALITY. 9. WITHOUT PREJUDICE TO ABOVE, EVEN ASSUMING (WITHOUT ADMITTING) THAT INTEREST RECEIVED IS TAXABLE IN THE YEAR UNDER CONSIDERATION, ON THE FACTS AN D CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN HOLDING, AND THE HON'BLE DRP ERRED IN CONFIRMING, THAT THE INTEREST RECEIVED IS TAXABLE UNDER ARTICLE 11 (4) OF THE TREATY AND NOT UNDER ARTICLE 11 (2) OF THE TREATY ON THE BASIS THAT IT IS EF FECTIVELY CONNECTED WITH THE ALLEGED PE OF THE APPELLANT IN INDIA. 10. WITHOUT PREJUDICE TO ABOVE, EVEN ASSUMING (WITHOUT ADMITTING) THAT THE INTEREST RECEIVED UNDER SECTION 244A OF THE ACT IS EFFECTIVELY CONNECTED WITH THE APPELLANT'S ALLEGED PE IN INDI A, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO AND THE HON'BLE DRP OUGHT TO HAVE HELD THAT THE INTEREST INCOME IS NOT TAXABLE IN THE HANDS OF THE APPELLANT AS THE APPELLANT HAD SUFFERED LOSSES DURING THE YEAR. 11. WITHOUT PREJUD ICE TO ABOVE, EVEN ASSUMING (WITHOUT ADMITTING) THAT THE INTEREST RECEIVED UNDER SECTION 244A OF THE ACT IS EFFECTIVELY CONNECTED WITH THE APPELLANT'S ALLEGED PE IN INDIA, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO AND THE HON'BL E DRP ERRED IN NOT APPRECIATING THAT ONLY SO MUCH OF THE INTEREST INCOME THAT IS ATTRIBUTABLE TO THE ALLEGED PE OF THE APPELLANT IN RESPECT OF ADVERTISEMENT REVENUES SHOULD BE TAXED UNDER ARTICLE 11 (4) OF THE TREATY AND THE BALANCE INTEREST INCOME SHOULD BE TAXED UNDER ARTICLE 11 (2) OF THE TREATY. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED AO ERRED IN NOT GRANTING ADDITIONAL TDS CREDIT OF RS. 76,209,382 CLAIMED WITH RESPECT TO THE REVISED RETURN OF INCOME FILED ON MARCH 27, 2009, TDS CREDIT OF RS. 2,215,682 CLAIMED WITH RESPECT TO THE LETTER DATED MARCH 29, 2010 AND TDS CREDIT OF RS. 115,910 CLAIMED WITH RESPECT TO THE LETTER DATED NOVEMBER 22, 2010, IGNORING THE SPECIFIC DIRECTIONS GIVEN BY HON'BLE DRP IN THIS REGARD. ITA NO. 8748/11 &7639/12 4 3. IN BRI EF THE FACTS OF THE CASE ARE THAT M/S MSM SATELLITE (SINGAPORE) PTE LTD. IS A COMPANY INCORPORATED IN SINGAPORE AND HAS BEEN STATED TO BE A TAX RESIDENT OF SINGAPORE. THE ASSESSEE IS A MEDIA COMPANY AND IS ENGAGED IN THE TELECASTING OF CHANNEL BY THE NAME OF SET & SET MAX, PIX AND SAB OVER THE INDIAN SUBCONTINENT. THE ASSESSEE FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 43,233,216/ - FOR THE ASSESSMENT YEAR 2007 - 08 AND RS. 336,956,516/ - FOR THE ASSESSMENT YEAR 2008 - 09. THE CASE OF THE ASSESSEE FO R BOTH THE ASSESSMENT YEAR UNDER CONSIDERATION WERE SELECTED FOR SCRUTINY AND THE AO MADE A DRAFT ORDER U/S.144C OF THE ACT, WHICH WAS FORWARDED TO THE ASSESSEE AND THE ASSESSEE FILED ITS OBJECTIONS ALONG WITH FORM NO. 35A IN RESPECT OF VARIOUS ADDITIONS MA DE BY THE AO IN THE DRAFT ORDER. THE MATTER WAS REFERRED TO THE DISPUTE RESOLUTION PANEL (IN SHORT DRP), MUMBAI AND THE DRP CONFIRMED THE ACTION OF THE AO. NOW, THE ASSESSEE IS IN APPEALS BEFORE US FOR BOTH THE ASSESSMENT YEARS UNDER CONSIDERATION. 4. LD. AR, AT THE OUTSET, PLACED ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE DATED 28 - 8 - 2015, PASSED IN ITA NO. 2523 /MUM/2010, FOR THE ASSESSMENT YEARS 2005 - 06 AND SUBMITTED THAT THE ALL THE ISSUES RAISED IN THE PRESENT APPEALS ARE SQUARELY COVERED BY THE DECISI ON OF THE TRIBUNAL IN THE AFORESAID ORDER, WHICH HAVE ALSO BEEN CONFIRMED BY THE HON BLE HIGH COURT ALSO. 5. PER CONTRA, LD. DR FAIRLY AGREED TO THE SUBMISSION MADE BY THE LD. AR IN THIS REGARD. ITA NO. 8748/11 &7639/12 5 6. WE HAVE PERUSED THE RECORD AND GIVEN OUR THOUGHTFUL CONSID ERATION TO THE SUBMISSIONS ADVANCED AT THE HANDS OF LEARNED COUNSEL FOR THE ASSESSEE AND LEARNED DR FOR THE REVENUE AS WELL AS GONE THROUGH THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE PREVIOUS YEARS. WE FIND THAT ALL THE THREE ISSUES I.E. TAX ABILITY OF ADVERTISEMENT REVENUE, TAXABILITY ON DISTRIBUTION REVENUE AND TAXABILITY OF INTEREST RECEIVED U/S.244A HAVE BEEN DECIDED BY THE TRIBUNAL IN ITS ORDER DATED 28 - 8 - 2015, PASSED IN ITA NO.2870/MUM/2010 AND ITA NO.2523/MUM/2010. 6.1 IN REGARD TO TAX ABILITY OF ADVERTISEMENT REVENUE, THE TRIBUNAL IN ITS ORDER DATED 28 - 8 - 2015 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL IN THIS REGARD ARE AS UNDER : - 11. AFTER CONSIDERING THE RIVAL C ONTENTION AND ABOVE FACTS, WE FIND THAT, SO FAR AS THE ISSUE RELATING TO ADDITION ON ACCOUNT OF ADVERTISEMENT REVENUE AND DISTRIBUTION REVENUE THE SAME STANDS DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL, WHICH HAS BEEN AFFIRMED BY THE HONBLE HIG H 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. 6.2 IN REGARD TO TAXABILITY ON DISTRIBUTION REVENUE, THE TRIBUNAL HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVAN T OBSERVATIONS OF THE TRIBUNAL ARE AS UNDER : - 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 THE ASSESSEE BY HOL DING THAT THE SAME IS NOT TAXABLE ON THE GROUND THAT IT HAS BEEN PAID AT ARMS LENGTH PRICE, THEREFORE, THIS GROUND BECOMES PURELY ACADEMIC. ITA NO. 8748/11 &7639/12 6 6. 3 IN REGARD TO TAXABILITY OF INTEREST RECEIVED U/S.244A TAXABILITY ON DISTRIBUTION REVENUE, THE TRIBUNAL HAS D ECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT OBSERVATIONS OF THE TRIBUNAL ARE AS UNDER : - 16. AS REGARDS THE ISSUE RELATING TO TAXABILITY OF INTEREST RECEIVED U/S 244A, IT IS ADMITTED THAT, 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) 618 (DELHI)(SB). ACCORDINGLY, WE HOLD THAT SO FAR AS THE I SSUE 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 244A, THE SAME ARE TREATED AS INFRUCTUOUS. 7. RE SPECTFULLY FOLLOWING THE ORDER OF THE TRIBUNAL DATED 28 - 8 - 2015, AND KEEPING IN VIEW THE PRINCIPLE OF CONSISTENCY, WE ALLOW BOTH THE APPEALS OF THE ASSESSEE. 8 . IN THE RESULT, BOTH APPEAL S OF ASSESSEE ARE ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 29 / 02 /2016 . SD/ - ( G.S.PANNU ) SD/ - ( PAWAN SINGH ) / ACCOUNTANT MEMBER / JUDICIAL MEMBER MUMBAI ; DATED 29/02 /2016 . . /PKM , . / PS ITA NO. 8748/11 &7639/12 7 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, / ( ASSTT. REGISTRAR) , / ITAT, MUMBAI 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A), M UMBAI. 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE. //TRUE COPY//