DDIT (I.T)-4(1), MUMBAI V. M/s. SET SATELLITE (SINGAPORE) PTE LTD.(NOW KNOWN AS MSM SATELLITE (SINGAPORE) PTE. LTD), MUMBAI

ITA 926/MUM/2009

• Counselvise Citation: [2010] 119 COUNSELVISE.COM (IT) 6104 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-12-2010
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 18-11-2010
• Assessment Year: misc
• Appeal Filed On: 11-02-2009
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SATBIR SINGH
• Keywords: Residential status; Double taxation relief

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E, MUMBAI BEFORE SHRI J. SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER. S.NO. I.T.A. NO. ASSTT. YEAR. 1 926/MUM/2009 2007-08 2 927/MUM/2009 2007-08 3 928/MUM/2009 2007-08 4 929/MUM/2009 2007-08. DY. DIRECTOR OF INCOME-TAX, M/S SET SATELLITE (SINGAPORE) PTE LTD. (IT)-4(1), MUMBAI. VS. (NOW KNOWN AS MSM SATELLITE (SINGAPORE) PTE LTD.), C/O M/S S.R. BATLIBOI & CO., 18 TH FLOOR, EXPRESS TOWERS, NARIMAN POINT, MUMBAI-21. PANAABCS9229H APPELLANT. RESPONDENT. S.NO. C.O. NO. ARISING OUT OF ASSTT. YEAR. ITA NO. 1 . 147/MUM/2009 926/MUM/2009 2007-08 2. 148/MUM/2009 927/MUM/2009 2007-08 3. 149/MUM/2009 928/MUM/2009 2007-08 4. 150/MUM/2009 929/MUM/2009 2007-08 SET SETELLITE (SINGAPORE) PTE LTD., DY. DIRECTOR OF INCOME-TAX (NOW KNOWN AS MSM SATELLITE VS. (IT)-4(1), (SINGAPORE) PTE LTD., MUMBAI. MUMBAI. CROSS OBJECTOR RESPONDENT. 2 DEPARTMENT BY : SHRI SATBIR SINGH. ASSESSEE BY : SHRI NIMESH VORA AND SHRI RAJAN R. VORA. O R D E R PER J. SUDHAKAR REDDY, A.M. : ALL THESE APPEALS FILED BY THE REVENUE ARE DIREC TED AGAINST SEPARATE AND IDENTICAL ORDERS OF THE CIT(APPEALS) XXXI, MUMBAI DATED 23-12-2008, WHEREIN THE FIRST APPELLATE AUTHORITY CONSIDERED THE APPEAL OF THE ASSESSEE, AGAINST AN ORDER PASSED U/S 195 DATED 28-04-2006 BY THE AO, REQUIR ING THE ASSESSEE TO DEDUCT TAX ON PAYMENTS MADE TO GLOBAL CRICKET CORPORATION PTE LTD. (HEREINAFTER CALLED GCC). 2. THE FACTS ARE BROUGHT OUT AT PARA 1 AND 1.1 OF T HE CIT(APPEALS) ORDER WHICH ARE EXTRACTED FOR READY REFERENCE : 1. M/S SET SATELLITE (SINGAPORE) PTE LTD. APPELL ANT IS A COMPANY INCORPORATED IN SINGAPORE AND ENGAGED IN THE BUSIN ESS OF ACQUIRING TELEVISION SERIES, MOTION PICTURES AND SPORTS EVENT S AND EXHIBITING THE SAME ON ITS TELEVISION CHANNELS FROM SINGAPORE. THE APP ELLANT ENTERED INTO AN AGREEMENT WITH GLOBAL CRICKET CORPORATION PTE LTD. (GCC), ALSO A TAX RESIDENT OF SINGAPORE WITHIN THE MEANING OF DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA AND SINGAPORE. THE APPELLANT OBTAINED RIGHT TO BROADCAST VARIOUS CRICKET MATCHES LIVE I N INDIA AND CERTAIN OTHER COUNTRIES AS PER THE AGREEMENT WITH GCC. THE APPELL ANT FILED APPLICATION U/S. 195 REQUESTING THE AO TO ISSUE WITHHOLDING TAX ORDER IN RESPECT OF PAYMENTS DUE TO GCC WITHOUT DEDUCTION OF TAX AT SOU RCE. THE AO HAS HELD THAT THE PAYMENT TO BE MADE BY THE APPELLANT TO GCC ARE IN NATURE OF 3 ROYALTY WITHIN THE MEANING OF SEC. 9 OF THE INCOM E-TAX ACT AND ALSO WITHIN THE MEANING OF ARTICLE 12 OF THE DTAA. 1.1 THE APPELLANT HAS DENIED HIS LIABILITY ON THE G ROUNDS THAT THE INCOME TO GCC IS NOT TAXABLE IN INDIA AND NO TAX IS REQUIR ED TO BE DEDUCTED AT SOURCE. THE AR HAS SUBMITTED DETAILED ARGUMENTS IN RESPECT OF APPLICATION OF SEC. 195 AND ACCRUAL OF INCOME TO GCC IN INDIA, PAYMENT NOT BEING ROYALTY WITHIN THE MEANING OF ARTICLE 12 OF THE D TAA AND SEC. 9(1)(VI) OF THE INCOME-TAX ACT. 3. THE AOS OBSERVATIONS ARE AT PAGE 2 OF THE ORDER U/S 195 OF THE ACT WHICH ARE EXTRACTED FOR READY REFERENCE : IT IS OBSERVED THAT IN RESPECT OF PAST PAYMENTS MADE TO GCC, AN ORDER U/S 201 OF THE I.T. ACT DATED 19.02.2004 HAS BEEN PASSED, WHEREIN, INTER ALIA, IT WAS HELD THAT THE BENEFITS OF THE IN DIA-SINGAPORE TAX TREATY (THE TREATY) WOULD NOT BE AVAILABLE TO GCC IN VIE W OF ARTICLE 24, SINCE THE PAYMENTS RECEIVED BY GCC ARE NOT RECEIVED IN SINGAP ORE. FURTHER, VIDE THE SAID ORDER, THE PAYMENTS TO GCC WERE SUBJECT TO TAX ON NET BASIS UNDER THE I.T. ACT. THE PROFIT MARGIN OF GCC WAS ESTIMATED AT 15%, WHICH WAS SUBJECT TO TAX AT NORMAL RATES, APPLICABLE TO FOREI GN COMPANIES. IN THIS CONNECTION, THE ASSESSEE HAS FURNISHED BEFO RE ME A LETTER FROM GCC, WHICH STATES THAT GCC HAS INCLUDED THE PAYMENT S RECEIVED FROM THE ASSESSEE IN COMPUTING ITS TAX LIABILITIES IN SINGAP ORE BASED ON THE SAME, THE ASSESSEE HAS CONTENDED THAT ARTICLE 24 OF THE TREA TY SHOULD NOT BE APPLICABLE. FOR THE DETAILED REASONS MENTIONED IN THE ORDER U/S 201 OF THE I.T. ACT DATED 19.02.2004, THE PAYMENTS TO GCC HAD BEEN HELD TO BE TAXABLE IN INDIA. HOWEVER, FOR THE SAKE OF BREVITY, THE SAME ARE NOT REPRODUCED HERE. AS ALREADY HELD IN THE SAID ORDER U/S 201 OF THE I.T. ACT, THE PAYMENTS TO GCC ARE, INTER ALIA, IN CONSIDERATION FOR RIGHT TO USE A COPYRIGHT. ACCORDINGLY, THE SAID PAYMENTS WOULD BE COVERED UNDER THE DEFINI TION OF ROYALTIES UNDER ARTICLE 12(3) OF THE TREATY. FURTHER, THE SAI D ROYALTIES WOULD ARISE IN INDIA UNDER ARTICLE 12(7) OF THE TREATY, DUE TO THE FOLLOWING REASONS: 4 (I) AS HELD IN PAST ASSESSMENTS OF THE ASSESSEE, IT HAS A PE IN INDIA IN THE FORM OF SET INDIA PVT. LTD. (II) THE REVENUES EARNED BY THE ASSESSEE IN RESPECT OF T HE TELECASTING OF CRICKET MATCHES (THE RIGHTS WHEREOF HAS BEEN PROCURED FROM GCC) WOULD BE TAXABLE IN INDIA IN THE HANDS OF ITS PE. THE PAYMENTS MADE BY THE ASSESSEE TO GCC FO R SUCH RIGHTS WOULD HAVE TO BE CONSIDERED AS AN EXPENSE AG AINST THIS INCOME. SINCE THE PAYMENTS TO GCC ARE IN CONNECTION WITH THE PE AND ARE BORNE BY THE PE, I HOLD THAT THE ROYALTY PAYABLE BY THE ASSESSEE TO GCC ARISES IN INDIA UNDER ARTICLE 1 2(7) OF THE TREATY. FOLLOWING THE EARLIER ORDER U/S 201 OF THE I.T. ACT , I HOLD THE PAYMENTS TO GCC TO BE TAXABLE ON A NET BASIS UNDER THE I.T. ACT. THE PROFITABILITY RATIO IN RESPECT OF THE PAYMENTS RECE IVED BY GCC WAS ESTIMATED TO BE AT 15% IN THE ORDER U/S 201. THE SA ME RATIO IS ADOPTED EVEN FOR THIS WITHHOLDING TAX APPLICATION. THE INCO ME OF GCC WOULD BE TAXABLE @ 41.82%. ALSO, SINCE THE TAX ON THE PAY MENTS TO GCC IS TO BE BORNE BY THE ASSESSEE, APPROPRIATE GROSSING U P WOULD HAVE TO BE MADE. THE EFFECTIVE WITHHOLDING TAX RATE ON PAYMENT S TO GCC IS DETERMINED AS UNDER : AMOUNT PAYABLE (SAY) RS. 100 DEEMED PROFIT OF GCC @ 15% RS. 15 TAX @ 41.82% RS.6.27 TAX TO BE WITHHELD AFTER GROSSING UP RS.10.78 EFFECTIVE WITHHOLDING TAX RATE ON PAYMENTS TO GCC RS.10.78 4. THE FIRST APPELLATE AUTHORITY AT PARA 3.7 HELD A S FOLLOWS : 3.7 AFTER CONSIDERATION OF THE APPELLANTS ARGUME NTS AND THE PERUSAL OF MY PREDECESSORS ORDER, AND ALSO PERUSAL OF THE EXT RACT OF THE ORDER OF CIT(A)XXI, FOR A.Y. 02-03 IN THE CASE OF GCC, I AM OF THE OPINION THAT THE PAYMENT MADE BY THE APPELLANT TO GCC CANNOT BE TERM ED AS ACCRUING OR ARISING IN INDIA TO GCC ON ACCOUNT OF ARTICLE 12(7) OF THE DTAA. 5 ACCORDINGLY IT IS HELD THAT THE AO WAS NOT JUSTIFIE D IN DIRECTING THE APPELLANT TO DEDUCT TAX AT SOURCE. APPEAL IS THEREFORE ALLOWE D. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE US. 5. WE HAVE HEARD MR. SATBIR SINGH, LEARNED DR AND M R. RAJAN VORA, LEARNED COUNSEL FOR THE ASSESSEE. 6. BOTH PARTIES AGREED THAT THE ISSUE IN QUESTION S TANDS COVERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE BY A DECISION OF L -BENCH OF THE TRIBUNAL IN ITA NO. 7349/MUM/2004, 7574/MUM/2004 AND OTHERS, ORDER DATED 25 TH JUNE, 2010 WHEREIN AT PARAS 17 AND 18 IT IS HELD AS FOLLOWS : 17. WE HEARD BOTH THE PARTIES. WE FIND NO INFIRMIT Y IN THE ORDER OF THE LD. CIT(A). THE PAYMENT MADE BY THE ASSESSEE TO GCC CAN NOT BE SAID TO ARISE IN INDIA UNDER ARTICLE 12(7) OF THE TREATY SINCE TH E PAYER (I.E. ASSESSEE) IS NOT A RESIDENT OF INDIA. AS PER THE FIRST LIMB OF A RTICLE 12(7) OF THE TREATY, ROYALTIES CANNOT ARISE IN INDIA, SINCE THE PAYER IS NOT A RESIDENT OF INDIA. SUCH ROYALTIES UNDER THE FIRST LIMB OF ARTICLE 12(7) OF THE TREATY ARISE IN SINGAPORE SINCE THE PAYER (I.E. THE ASSESSEE) IS A RESIDENT O F SINGAPORE. THE SECOND LIMP OF ARTICLE 12(7) OF THE TREATY DEALS WITH A SCENARI O WHERE THE PAYMENTS ARE MADE BY A NON-RESIDENT, WHERE SUCH NON-RESIDENT HAS A PE IN INDIA. HOWEVER, A MERE EXISTENCE OF A PE IN INDIA CANNOT L EAD TO A CONCLUSION THAT ROYALTIES ARISE IN INDIA. IN ADDITION TO THE EXISTE NCE OF PE, FOR ROYALTIES TO ARISE IN INDIA UNDER ARTICLE 12(7) OF THE TREATY, I T IS ESSENTIAL THAT LIABILITY TO PAY SUCH ROYALTIES HAS BEEN INCURRED IN CONNECTION WITH AND IS BORNE BY THE PE OF THE PAYER IN INDIA. 18. BASED ON AN ANALOGY FROM PARAGRAPH 26 AND 27 OF THE OECD COMMENTARY ON ARTICLE 11, IT IS CLEARLY EVIDENT THA T FOR ROYALTIES TO ARISE IN INDIA, AN EXISTENCE OF AN ECONOMIC LINK BETWEEN THE LIABILITY FOR PAYMENT OF SUCH ROYALTIES AND PE IS NECESSARY. HOWEVER, IN THE PRESENT CASE THERE IS NO ECONOMIC LINK BETWEEN THE PAYMENT OF ROYALTIES AND THE ALLEGED PE OF THE 6 ASSESSEE IN INDIA (I.E. SET INDIA), THE ECONOMIC LI NK IS ENTIRELY WITH THE ASSESSEES HEAD OFFICE IN SINGAPORE. THUS, THE PAYM ENTS TO GCC CANNOT BE SAID TO HAVE BEEN INCURRED IN CONNECTION WITH THE APPELLANTS PE IN INDIA (I.E. SET INDIA). FURTHER, THE ALLEGED PE IN INDIA (I.E. SET INDIA) WAS ALSO NOT INVOLVED IN ANY WAY WITH THE ACQUISITION OF THE RIGHT TO BROADCAST THE CRICKET MATCHES, NOR DID THE PE BEAR THE COST OF PA YMENTS TO GCC. THUS THE PAYMENTS TO GCC CANNOT BE SAID TO HAVE BEEN BORNE BY THE ASSESSEES PE IN INDIA (I.E. SET INDIA). AT PARA 20 AND 21 THE TRIBUNAL HELD AS FOLLOWS : 20. FIRSTLY THE PAYER IS NOT A RESIDENT OF INDIA. SECONDLY THE LIABILITY TO PAY SUCH ROYALTY HAS NOT BEEN INCURRED IN CONNECTION WI TH AND DOES NOT BORNE BY THE PE OF THE PAYER IN INDIA. THEREFORE THERE BEING NO ECONOMIC LINK BETWEEN THE PAYMENT OF ROYALTY AND SET INDIA HENCE THE ROYALTY DOES NOT ARISE IN INDIA HAVING REGARD TO THE PROVISIONS OF A RTICLE 12(7) OF THE TREATY. HENCE EVEN IF IT IS ASSUMED THAT THE PAYMENT FOR BR OADCASTING CRICKET CONSTITUTES ROYALTY, IN OUR OPINION SUCH ROYALTY DO ES NOT ARISE IN INDIA WITHIN THE MEANING OF PROVISIONS OF ARTICLE 12(7) O F THE TAX TREATY AND HENCE THE SECOND GROUND NO. 3 RAISED BY THE REVENUE IS DISMISSED. 21. IN VIEW OF OUR DECISION RENDERED ABOVE ON THE M AIN ISSUE, OTHER GROUNDS RAISED IN REVENUES APPEAL AND ASSESSEES A PPEAL HAVE BECOME ONLY ACADEMIC AND WE DO NOT DEEM IT EXPEDIENT TO ADJUDIC ATE UPON THE SAME. 7. AS AGREED BETWEEN BOTH THE PARTIES, WE RESPECTFU LLY FOLLOW THE COORDINATE BENCH DECISION ON THIS ISSUE AND UPHOLD THE ORDERS OF THE CIT(APPEALS) IN ALL THESE CASES. 8. COMING TO THE CROSS OBJECTIONS, MR. RAJAN VORA, LEARNED COUNSEL FOR THE ASSESSEE FAIRLY SUBMITTED THAT THIS WOULD BECOME AC ADEMIC IN CASE THIS ISSUE IS 7 DECIDED IN FAVOUR OF THE ASSESSEE. IN VIEW OF THE A BOVE SUBMISSION, WE DISMISS ALL THE CROSS OBJECTIONS. 9. IN THE RESULT, ALL THE APPEALS FILED BY THE REVE NUE AS WELL AS THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD DECEMBER, 2010. SD/- SD/- (V. DURGA RAO) (J. SUDHAKAR REDDY) JUDICIAL MEMBER. ACCO UNTANT MEMBER MUMBAI, DATED: 3 RD DEC., 2010. WAKODE COPY TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. DR, E-BENCH (TRUE COPY) BY ORDER ASSTT. REGISTRAR, ITAT, MUMBAI B ENCHES, M UMBAI.