BBC Worldwide Ltd.,, v. DDIT, International Taxation,,

ITA 1188/DEL/2006 | 2000-2001
Pronouncement Date: 15-01-2010 | Result: Allowed

Appeal Details

RSA Number 118820114 RSA 2006
Bench Delhi
Appeal Number ITA 1188/DEL/2006
Duration Of Justice 3 year(s) 9 month(s) 5 day(s)
Appellant BBC Worldwide Ltd.,,
Respondent DDIT, International Taxation,,
Appeal Type Income Tax Appeal
Pronouncement Date 15-01-2010
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted H
Tribunal Order Date 15-01-2010
Date Of Final Hearing 08-09-2009
Next Hearing Date 08-09-2009
Assessment Year 2000-2001
Appeal Filed On 10-04-2006
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH H DELHI) BEFORE SHRI A.D. JAIN AND SHRI A.K. GARODIA ITA NO. 1188(DEL)06 ASSESSMENT YEAR: 2000-01 BBC WORLDWIDE LIMITED DY.DIRECTOR OF IN COME TAX C/O BSR & CO.GURGAON. V. CIR. 1(1) DTE.OF INTERNATIONAL TAXATION HARYANA-122 002. DRUM SHAP E BLDG. NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI ARVIND SONDE ADVOCATE RESPONDENT BY: S/SHRI ASHWANI KU MAR MAHAJAN CIT/DR & Y.K. KAKKAR SR. DR ORDER PER A.D. JAIN J.M. THIS IS ASSESSEES APPEAL FOR THE ASSESSMENT YEAR 2 000-01 AGAINST THE LD. CIT(A)S ORDER DATED 27.1.2006 CONFIRMING THE A OS ACTION IN HOLDING THAT THE ASSESSEE HAD A BUSINESS CONNECTION IN INDI A U/S 9 OF THE INCOME TAX ACT AND THAT M/S. BBC WORLDWIDE (INDIA)PVT.LIMITED (BWIPL FOR SHORT) WAS THE ASSESSEES PERMANENT ESTABLISHMENT IN INDIA . 2. THE BRIEF FACTS ARE THAT THE ASSESSEE COMPANY WA S INCORPORATED UNDER THE LAWS OF ENGLAND AND WALES. IT IS A PART OF THE BBC GROUP. DURING THE YEAR UNDER CONSIDERATION IT WAS OPERATING AS AN IN TERNATIONAL CONSUMER ITA NO. 1188(DEL)06 2 MEDIA COMPANY IN THE AREAS OF TELEVISION PUBLISHIN G AND PROGRAM LICENSING ETC. IT ALSO OPERATED THE BBC WORLD NEWS CHANNEL ( THE CHANNEL FOR SHORT) WHICH IS A STANDARD INTERNATIONAL CHANNEL A IRED IN THE ENGLISH LANGUAGE OPERATED BY THE ASSESSEE THROUGH A SEPARA TE DIVISION I.E. BBC WORLD DIVISION. THE ASSESSEE HAD AN INDIRECT SUBS IDIARY IN INDIA NAMELY BWIPL. THE ASSESSEE APPOINTED BWIPL AS ITS AUTHOR IZED AGENT IN INDIA UNDER AN AIRTIME SALES AGREEMENT DATED 15.9.2000 E FFECTIVE FROM 13.11.1998 FOR DOLLAR DENOMINATED DEALS TO SOLICI T ORDERS FOR THE SALE OF ADVERTISING AIRTIME ON THE CHANNEL AT THE RATES AND ON THE TERMS AND CONDITIONS PROVIDED BY THE ASSESSEE AND TO PASS ON SUCH ORDERS TO THE ASSESSEE FOR ACCEPTANCE AND CONFIRMATION. THE PAY MENT FROM THE INDIAN ADVERTISERS FOR AIRTIME SALES AND SPONSORSHIP WAS T O BE RECEIVED DIRECTLY BY THE ASSESSEE UNDER THIS AGREEMENT THROUGH EEFC A CCOUNT OR SPECIFIC RBI PERMISSION. IN CONSIDERATION FOR THE SERVICES PRO VIDED BY BWIPL IT WAS TO RECEIVE A 15% MARKETING COMMISSION OF THE ADVERTISE MENT REVENUES RECEIVED BY THE ASSESSEE FROM INDIAN ADVERTISERS. A SECOND AIRTIME SALES AGREEMENT DATED 1.2.1999 WAS ENTERED INTO BETWEEN T HE ASSESSEE AND BWIPL FOR RUPEE DENOMINATED DEALS FOR SOLICITING ORDERS F OR CHANNEL AIRTIME SALES AS UNDER THE FIRST AGREEMENT (SUPRA). THE SECOND AGREEMENT WAS EXECUTED SO AS TO ENABLE BWIPL TO COLLECT PAYMENTS FROM INDI AN ADVERTISERS ON SALES ITA NO. 1188(DEL)06 3 OF AIRTIME ON BEHALF OF THE ASSESSEE AND REMIT THE SAME TO THE ASSESSEE AFTER DEDUCTING ITS COMMISSION AT RATE OF 15%. WHILE FI LING ITS RETURN OF INCOME FOR THE YEAR UNDER CONSIDERATION IT DECLARED AN IN COME OF RUPEES NIL THE ASSESSEE CLAIMED THAT IT WOULD NOT BE TAXABLE IN IN DIA ON ITS AIRTIME SALES INCOME BEING BUSINESS PROFITS IN THE ABSENCE OF A PERMANENT ESTABLISHMENT IN INDIA. LATER THE RETURN OF INCOME WAS REVISED SO AS TO DISCLOSE AN INCOME OF RS. 81 86 735/- I.E. ROYALTY INCOME WHICH HAD INADVERTENTLY NOT BEEN SHOWN IN THE ORIGINAL RETURN. OTHER THAN THE SAID ROYALTY INCOME THE ASSESSEE STATED IT DID NOT HAVE ANY INCOME CHARG EABLE TO TAX IN INDIA. 3. THE AO OBSERVED THAT ACCORDING TO ITS OWN SUBMIS SIONS DURING THE YEAR THE PRIMARY ACTIVITY OF THE ASSESSEE IN INDI A WAS THAT OF SALE OF AIRTIME FOR THE CHANNEL; THAT THUS IT WAS CLEAR THAT THE A SSESSEE COMPANY WAS CARRYING OUT THE ACTIVITY OF AIRTIME SALE IN INDIA ; THAT THE ASSESSEE HAD A CLEAR AND DEFINITE BUSINESS CONNECTION IN INDIA INASMUCH AS THERE WAS A REAL AND INTIMATE RELATION BETWEEN THE BUSINESS ACTIVITIES C ARRIED ON OUTSIDE INDIA AND THE ACTIVITY OF SOLICITING SOURCING AND COLLECTIN G ADVERTISEMENT REVENUES FROM INDIA; THAT THE ADVERTISEMENT REVENUE RECEIVED IN INDIA IN RESPECT OF BBC WORLD CHANNEL WAS A BUSINESS RECEIPT IN THE HAN DS OF THE ASSESSEE ; THAT BWIPL WAS ACTING AS AN AGENT OF THE ASSESSEE COMPANY AND WAS RENDERING ALL SERVICES ON BEHALF OF THE ASSESSEE CO MPANY; THAT BWIPL I.E. ITA NO. 1188(DEL)06 4 THE INDIAN COMPANY PREPARED THE RATE-CARDS COLLECT ED THE ADVERTISEMENTS AND ADVERTISEMENT REVENUE FOR ONWARD REMITTANCE TO THE UK AFTER DEDUCTING ITS COMMISSION; AND THAT ALL THESE FUNCTIONS WERE U NDERTAKEN BY BWIPL IN INDIA ON BEHALF OF THE ASSESSEE COMPANY AND THE ADV ERTISEMENT REVENUES COLLECTED FROM INDIA WERE REMITTED TO THE ASSESSEE COMPANY. THE AO THEREFORE HELD THAT THE INCOME OF THE ASSESSEE COM PANY FROM THE ADVERTISEMENT REVENUES ACCRUED OR AROSE IN INDIA U /S 9(1) OF THE I.T. ACT. IT WAS HELD THAT BWIPL CONSTITUTED A BUSINESS CONNECTI ON OF THE ASSESSEE AS WELL AS A PERMANENT ESTABLISHMENT UNDER ARTICLE 5(4 )(A) AND ARTICLE 5(4)(C) OF THE DTAA BETWEEN INDIA AND THE UK. THE PROFITS OF THE ASSESSEE WERE ESTIMATED AT AN AD-HOC RATE OF 20% OF THE TOTAL ADV ERTISEMENT REVENUE ATTRIBUTED TO INDIA. 4. BEFORE THE LD. CIT(A) THE ASSESSEE CONTENDED T HAT THE OBLIGATION OF BWIPL TOWARDS THE ASSESSEE IN PURSUANCE OF THE A GREEMENT ENTERED INTO BETWEEN THEM WAS TO SOLICIT ORDERS FOR THE SALE OF ADVERTISEMENT AIRTIME/SPONSORSHIP ON THE BBC WORLD CHANNEL AT THE RATES AND ON THE TERMS AND CONDITIONS AS PROVIDED BY THE ASSESSEE TO PASS ON SUCH ORDERS TO THE ASSESSEE FOR ACCEPTANCE AND UNDER THE RUPEE AGREEME NT TO COLLECT ADVERTISEMENTS/SPONSORSHIP REVENUES FROM THE ADVERT ISERS/ADVERTISING AGENCIES AND TO REMIT THE NET PROCEEDS TO THE ASSES SEE AFTER DEDUCTING ITS ITA NO. 1188(DEL)06 5 AGREED COMMISSION; THAT UNDER THE AGREEMENT THE A SSESSEE RESERVED THE RIGHT TO REJECT ANY ORDER PASSED ON TO IT FOR ACCEP TANCE BY BWIPL WHICH WAS NOT AUTHORIZED TO CREATE OBLIGATION OF ANY KIND WH ETHER EXPRESS OR IMPLIED IN THE NAME OF OR ON BEHALF OF THE ASSESSEE; THAT I N CONSIDERATION BWIPL WAS PAID COMMISSION @ 15% ON THE AIRTIME SALES/SPON SORSHIP REVENUES GENERATED BY THE ASSESSEE FROM INDIA; THAT BWIPL W AS IN FACT MERELY CANVASSING FOR THE ORDERS FOR SALE OF AIRTIME PAYME NT ON THE CHANNEL FOR ITS PRINCIPAL; THAT THE ACTIVITIES OF BWIPL WERE OF SOL ICITING ORDERS RESULTING IN THE INDIAN ADVERTISERS MAKING OFFERS FOR AVAILING AIRTIME; THAT HOWEVER THE RIGHT TO ACCEPT OR REJECT THE ORDER LAY SOLELY WITH THE ASSESSEE; THAT THEREFORE NO BUSINESS CONNECTION WAS CONSTITUTED FOR THE ASSE SSEE IN INDIA; THAT SINCE THE ASSESSEE DID NOT HAVE ANY PLACE FOR BUSINESS I N INDIA WHETHER FIXED OR TEMPORARY THE CONDITIONS OF ARTICLE 5(1) OF THE TR EATY WERE NOT SATISFIED AND THERE WAS NO EXISTENCE OF ANY PERMANENT ESTABLISHME NT OF THE ASSESSEE IN INDIA; THAT ARTICLE 5(4)(A) OF THE TREATY WAS ATTRA CTED WHEN THE AGENT HAD OR WAS HABITUALLY EXERCISING AUTHORITY TO NEGOTIATE AN D ENTER INTO CONTRACTS ON BEHALF OF THE PRINCIPAL; THAT THE AGREEMENT FOR SAL E OF AIRTIME PROVIDED THAT BWIPL SHALL NOT REPRESENT THE ASSESSEE IN ANY MANN ER WHATSOEVER WHEREBY BWIPL WOULD BE CONFERRED ANY AUTHORITY TO BIND THE ASSESSEE; THAT IT WAS CLEAR AS PER THE AGREEMENT THAT ANY ACT OF BWIPL WH ICH WAS BEYOND ITS ITA NO. 1188(DEL)06 6 TERMS AND CONDITIONS WOULD NOT BE BINDING ON THE A SSESSEE; THAT AS PER THE TERMS OF THE AGREEMENT BWIPL HAD NO AUTHORITY TO ENTER INTO CONTRACTS ON BEHALF OF THE ASSESSEE; THAT BWIPL DID NOT EXERCISE SUCH AUTHORITY HABITUALLY OR OTHERWISE SINCE IT WAS ENGAGED IN SOLICITING ORDERS FOR SALE OF AIRTIME ON THE BBC WORLD CHANNEL AND WAS NOT ENGAGED IN ENTERI NG INTO/SIGNING OF CONTRACTS ON BEHALF OF THE ASSESSEE OR IN NEGOTIATI NG THE CONTRACTS; THAT THEREFORE NO PERMANENT ESTABLISHMENT WAS CONSTITUT ED FOR THE ASSESSEE IN INDIA; THAT THE CONTRACT FOR SALE OF AIRTIME WAS EN TERED INTO BY THE ASSESSEE WITH ADVERTISERS INVOICES WERE RAISED BY THE ASSES SEE ON THE ADVERTISERS THE TRANSMISSION REPORT WAS ISSUED BY THE ASSESSEE AND THE STORY-BOARD APPROVAL WAS GRANTED BY THE ASSESSEE WHICH ALL WERE APPAREN T FROM THE DOCUMENTARY MATERIAL PROVIDED BY BWIPL TO THE AO IN RESPONSE TO THE SUMMONS ISSUED U/S 131(1) OF THE ACT; THAT IT WAS THE ASSESSEE WHO HAD THE RIGHT TO APPROVE OR DISAPPROVE THE ADVERTISEMENT TO BE AIRED OR TO A MEND THE RATE-CARD OR REGULATE THE TRANSMISSION; THAT AS SUCH ARTICLE 5( 4)(A) OF THE TREATY WAS NOT ATTRACTED TO THE ASSESSEES CASE; THAT ARTICLE 5(4) (C) OF THE TREATY WAS ATTRACTED WHEN THE AGENT HABITUALLY SECURED ORDERS IN INDIA WHOLLY OR ALMOST WHOLLY IN PRINCIPLE; THAT IN THE ASSESSEES CASE THE ORDERS SOLICITED BY BWIPL WERE SUBJECT TO REJECTION BY THE ASSESSEE; TH AT THEREFORE THERE WAS NO ASSURANCE OR GUARANTEE TO THE PROSPECTIVE ADVERTISE RS THAT BWIPL HAD ITA NO. 1188(DEL)06 7 SOLICITED FROM THEM; THAT THE ADVERTISEMENT WOULD B E AT THE RATES AND ON THE TERMS AND CONDITIONS AS WERE ACCEPTED BY THE ASSESS EE; THAT AS SUCH THERE AROSE NO QUESTION OF BWIPL OBTAINING ANY SECURED O RDERS FOR THE ASSESSEE; THAT THERE WAS NO REPRESENTATION OF ANY KIND BY BWI PL TO THE ADVERTISERS TO THE EFFECT THAT IT HAD THE AUTHORITY TO ACCEPT THE ORDERS; THAT THIS BEING SO ARTICLE 5(4)(C) OF THE TREATY WAS ALSO NOT ATTRACTE D; THAT MERELY DUE TO THERE BEING BUSINESS TRANSACTIONS/DEALINGS BETWEEN THE HO LDING AND THE SUBSIDIARY COMPANY WOULD NOT MAKE A BUSINESS CONNECTION OR PER MANENT ESTABLISHMENT BETWEEN THE INDIAN COMPANY I.E. BWIPL AND THE AS SESSEE; AND THAT HENCE THERE WAS NO BUSINESS CONNECTION IN INDIA U/S 9(1) OF THE INCOME TAX ACT AND THE ASSESSEE DID NOT HAVE ANY PERMANENT ESTABLI SHMENT IN INDIA UNDER ARTICLE 5 OF THE TREATY. 5. THE LEARNED CIT(A) HOWEVER DID NOT AGREE WITH THE ARGUMENT OF THE ASSESSEE AND VIDE THE IMPUGNED ORDER IT WAS HELD T HAT THE ASSESSEE HAD A BUSINESS CONNECTION/PERMANENT ESTABLISHMENT IN INDI A. FURTHER THE LEARNED CIT(A) ESTIMATED THE PROFITS OF THE ASSESSEE @ 10% OF THE TOTAL ADVERTISEMENT REVENUE ALLOCABLE TO INDIA PLACING R ELIANCE ON CBDT CIRCULAR NO. 742 DATED 2.5.96. 6. CHALLENGING THE ORDER UNDER APPEAL THE LEARNED COUNSEL FOR THE ASSESSEE HAS CANVASSED THAT WITHOUT PREJUDICE TO TH E CONTENTION THAT THE ITA NO. 1188(DEL)06 8 ASSESSEE HAS NO BUSINESS CONNECTION OR PERMANENT ES TABLISHMENT IN INDIA ITS INDIAN AGENT I.E. BWIPL IS REMUNERATED ON AN ARM S LENGTH BUSINESS WHICH EXTINGUISHES ANY FURTHER TAX LIABILITY ON THE ASSES SEE; THAT BWIPL HAS BEEN REMUNERATED ON THE BASIS OF A FAIR TRANSFER PRICE A ND AS SUCH NOTHING FURTHER REMAINS TO BE TAXED IN INDIA; THAT THE DEPARTMENT H AS ITSELF AFTER EXAMINING THE AIRTIME SALES AGREEMENT (SUPRA) WHICH WERE EFF ECTIVE TILL NOVEMBER 2002 ACCEPTED THAT THE COMMISSION OF 15% TO BWIPL IS A FAIR TRANSFER PRICE FOR THE AIRTIME SALES ACTIVITY WHICH THE TAXING AUT HORITIES HAVE ALLEGED TO CONSTITUTE A PERMANENT ESTABLISHMENT OF THE ASSESSE E IN INDIA; THAT THE TRANSFER PRICING OFFICER IN THE TRANSFER PRICING O RDER OF BWIPL FOR ASSESSMENT YEAR 2002-03 (COPY PLACED ON RECORD) AC CEPTED THAT THE TRANSACTION WAS AT ARMS LENGTH PRICE; THAT THE COM MISSION PAID BY THE ASSESSEE TO BWIPL CONSTITUTED A FAIR TRANSFER PRICE WHICH GETS SUPPORTED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN S ET SATELLITE (SINGAPORE) PVT. LTD. V. DDIT 307 ITR 205 (BOM) F OR THE ASSESSMENT YEAR 1999-00 I.E. THE PERIOD BEFORE THE ENACTMENT OF T HE TRANSFER PRICING PROVISIONS IN THE I.T. ACT; THAT THEREIN THE CIT(A ) HAD OBSERVED THAT SET SATELLITE (SINGAPORE) PVT.LTD. (SUPRA) THE FOREIGN COMPANY HAD PAID SERVICE FEES @ 15% OF THE GROSS ADVERTISEMENT REVENUE TO IT S AGENT SET INDIA; THAT THE HONBLE HIGH COURT HELD THIS AMOUNT OF COMMISSI ON TO REPRESENT THE ITA NO. 1188(DEL)06 9 PRICE COMPUTED ON THE ARMS LENGTH PRINCIPLE; THAT I N GALILEO INTERNATIONAL INCORPORATION 114 TTJ 289(DEL) THE INDIAN COMPAN Y MADE BOOKINGS ON A COMPUTERIZED RESERVATION SYSTEM OF THE FOREIGN ASSE SSEE WHICH GENERATED INCOME FOR THE FOREIGN COMPANY; THAT IT WAS HELD TH AT THE INDIAN COMPANY WAS A DEPENDENT AGENT PERMANENT ESTABLISHMENT OF TH E FOREIGN COMPANY; THAT THE TRIBUNAL HELD THAT ONLY 15% OF THE REVENUE GENERATED FROM THE BOOKINGS MADE OUT OF INDIA WAS TAXABLE IN INDIA AND THE SAME PROPORTION HAD TO BE ACCEPTED WHILE COMPUTING PROFIT ATTRIBUTA BLE TO THE PERMANENT ESTABLISHMENT; THAT THE FINDINGS OF THE TRIBUNAL W ERE CONFIRMED BY THE HONBLE HIGH COURT IN DIT V. GALILEO INTERNATIONAL INCORPORATION (SUPRA); THAT IN CBDT CIRCULAR NO. 742 DATED 2.5.96 (SUPRA) IT HAS BEEN RECOGNIZED THAT THE ADVERTISING AGENT OF THE FOREIGN TELECASTI NG COMPANIES IN INDIA USUALLY RETAINS SERVICE CHARGES AT RATE OF 15% OR S O OF THE GROSS AMOUNT; THAT THIS CIRCULAR HAS BEEN TAKEN NOTE OF IN DIT V. MO RGAN STANLEY AND COMPANY INC. 292 ITR 416(SC) WHEREIN THE FOREIGN COMPANY WAS HELD TO HAVE A PERMANENT ESTABLISHMENT IN INDIA ON ACCOUNT OF CERTAIN EMPLOYEES DEPUTED TO THE INDIAN AFFILIATE COMPANY; THAT THE H ONBLE SUPREME COURT WAS CONSIDERING THE QUESTION AS TO WHETHER THE AAR WAS RIGHT IN RULING THAT ONCE THE TRANSFER PRICING ANALYSIS HAD BEEN UNDERT AKEN THERE WAS NO FURTHER NEED TO ATTRIBUTE PROFITS TO A PERMANENT ESTABLISHM ENT; THAT IT WAS HELD THAT ITA NO. 1188(DEL)06 10 WHERE THE TRANSACTIONS ARE HELD TO BE AT ARMS LENGT H THE RULING IS CORRECT IN PRINCIPLE PROVIDED THAT AN ASSOCIATED ENTERPRISE (T HAT ALSO CONSTITUTES A P.E.) IS REMUNERATED ON ARMS LENGTH BASIS TAKING INTO ACC OUNT ALL THE RISK-TAKING FUNCTIONS OF THE MULTINATIONAL ENTERPRISE AND THAT IN SUCH A CASE NOTHING FURTHER WOULD BE LEFT TO ATTRIBUTE TO THE P.E.; THA T EVEN THOUGH THE TRANSFER PRICING GUIDE LINES WERE NOT APPLICABLE TO THE ASSE SSEES CASE FOR THE YEAR UNDER CONSIDERATION THE RATIO LAID DOWN IN MORGAN STANLEY (SUPRA) IS FULLY APPLICABLE; THAT THE HONBLE BOMBAY HIGH COURT IN T HE CASE OF SET SATELLITE (SUPRA) FOR THE ASSESSMENT YEAR 1999-200 0 WAS EXAMINING THE ISSUE OF COMPUTING THE PROFIT OF THE FICTIONAL PER MANENT ESTABLISHMENT; THAT UNDISPUTEDLY IN THAT CASE THE ASSESSEE HAD A DEP ENDENT AGENT IN INDIA IN THE FORM OF SET INDIA (P) LTD. FOR CANVASSING ADVERTISE MENTS IN INDIA; THAT TAKING NOTE OF MORGAN STANLEY (SUPRA) IT WAS HEL D THAT IF THE CORRECT ARMS LENGTH PRICE WAS APPLIED AND PAID THEN NOTHIN G FURTHER WOULD BE LEFT TO BE TAXED IN THE HANDS OF THE FOREIGN ENTERPRISE; TH AT THE FACTS IN SET SATELLITE BEING SIMILAR TO THE FACTS IN THE CASE O F THE ASSESSEE AND BOTH CASES PERTAINING TO A PERIOD PRIOR TO THE TRANSFER PRICIN G REGIME SAID SET SATELLITE IS SQUARELY APPLICABLE; THAT WITHOUT PRE JUDICE TO THESE CONTENTIONS BBC WORLD DIVISION WHICH WAS RUNNING AND OPERATING THE CHANNEL BUSINESS IS INCURRING LOSSES; THAT IN CASE A PERMA NENT ESTABLISHMENT OF THE ITA NO. 1188(DEL)06 11 ASSESSEE IS FOUND TO EXIST IN INDIA EVEN THEN NO AD-HOC RATE ON TURN OVER CAN BE ARBITRARILY APPLIED TO DETERMINE PROFIT/LOSSES; THAT THE LD. CIT(A) WHILE PASSING THE IMPUGNED ORDER WRONGLY PLACED RELIANCE ON CBDT CIRCULAR NO 742 (SUPRA); THAT CBDT CIRCULAR NO. 742 WAS EXTENDE D BY CIRCULAR NO. 765 DATED 15.4.1998 AND WAS OPERATIONAL FOR THE YEAR UN DER CONSIDERATION; THAT FROM THIS LATER CIRCULAR IT COMES OUT THAT FOR IT TO BE APPLICABLE IT HAS TO BE ESTABLISHED THAT THE ASSESSEE IS A NON-RESIDENT FOR EIGN TELECASTING COMPANY AND IT DOES NOT HAVE A BRANCH OFFICE OR PERMANENT ESTABLISHMENT OR DOES NOT MAINTAIN COUNTRY-WISE ACCOUNTS OF ITS OPERATIONS; T HAT WHERE ANY OF THE ABOVE CONDITIONS IS NOT SATISFIED THE CIRCULAR DOE S NOT APPLY; THAT AS SUCH THE CIRCULAR WILL NOT APPLY WHERE THE ASSESSEE HAS EITHER A BRANCH OR A PERMANENT ESTABLISHMENT IN INDIA OR IT DID NOT MAIN TAIN COUNTRY-WISE ACCOUNTS; THAT DURING THE ASSESSMENT PROCEEDINGS T HE ASSESSEE HAD SUBMITTED THAT ITS INDIA ACCOUNTS ARE UNAUDITED AND BEFORE THE CIT(A) AN AUDITED COPY OF THE INDIAN ACCOUNTS OF THE ASSESSEE WERE SU BMITTED ; THAT BEFORE THE AO THE ASSESSEE HAD FILED ITS INDIA ACCOUNTS ALLO CATING TOTAL REVENUE AND EXPENSES TO INDIA ACTIVITY; THAT BEFORE THE CIT(A) THE ASSESSEE FILED AUDITED ACCOUNTS CONTAINING ALLOCATION OF REVENUE AND EXPEN SES OF INDIA ACTIVITIES; THAT THE CIT(A) REMANDED THESE ACCOUNTS OF THE AO THE ASSESSEE HAVING PREPARED ITS COUNTRY ACCOUNTS FOR THE OPERATIONS CA RRIED ON BY IT; THAT CBDT ITA NO. 1188(DEL)06 12 CIRCULAR NO. 742 (SUPRA) CANNOT HAVE ANY APPLICABIL ITY IN THE ASSESSEES CASE; THAT EVEN OTHERWISE CBDT CIRCULARS ARE NOT B INDING ON THE ASSESSEE FOR WHICH REASON TOO CBDT CIRCULAR NO. 742 (SUPRA) CANNOT BE INVOKED FOR ATTRIBUTING PROFIT/LOSS TO THE ALLEGED PERMANENT ES TABLISHMENT IN INDIA OVER AND ABOVE THE FAIR VALUE OF PROFIT ATTRIBUTED TO TH E SERVICE RENDERED BY BWIPL; AND THAT AS SUCH IN NO MANNER HAS ANY FURTH ER TAX LIABILITY FOR THE ASSESSEE HAS ACCRUED IN THE INCOME FOR THE YEAR UND ER CONSIDERATION. 7. THE LEARNED DR ON THE OTHER HAND BESIDES HEAVI LY RELYING ON THE IMPUGNED ORDER HAS SUBMITTED THAT IN THE CASE OF BW IPL THE TRANSFER PRICING ORDER IS THAT OF A DEPENDENT AGENT; THAT AS PER THE LEARNED CIT(A) I.E. THE OBSERVATIONS MADE IN PARA 3.6 OF THE IMPU GNED ORDER NO INDIA- SPECIFIC ACCOUNTS WERE NOT MAINTAINED BY THE ASSESS EE; THAT THE ASSESSEE DID HAVE A PERMANENT ESTABLISHMENT IN INDIA AND THE AVE RMENT THAT BWIPL WAS ONLY SOLICITING ORDERS IS ONLY A FAADE; THAT BWI PL HAVE ONLY A WHOLE SUBSIDIARY OF THE ASSESSEE AND THE SOLE ADVERTISEME NT CONCESSIONAIRE FOR THE AIR CHANNEL WAS DEPENDENT ON THE ASSESSEE FOR EARNI NG REVENUES IN INDIA; THAT AS PER FIPB APPROVAL BWIPL WERE VIRTUALLY CA RRYING OUT ALL ACTIVITIES OF SALES PROMOTION OF AIRTIME AND SPONSORSHIP IDE NTIFYING NEW CLIENTS POTENTIAL DISTRIBUTORS PUBLISHERS PRACTICES PROV IDING ADVERTISING SUPPORT SERVICES TO INDIAN ADVERTISERS ETC. IT CONSTITUTED A PERMANENT ESTABLISHMENT ITA NO. 1188(DEL)06 13 OF THE ASSESSEE IN INDIA; THAT THE EMPLOYEES OF BWI PL WERE SOLICITING ORDERS AND NEGOTIATING WITH THE ADVERTISERS ON A REGULAR B ASIS; THAT THE CONTRACTS FOR ADVERTISEMENT WERE BETWEEN THE ASSESSEE AND THE ADV ERTISER THE EMPLOYEES OF BWIPL APPENDED THEIR SIGNATURES ON BEHALF OF THE ASSESSEE; THAT THE ASSESSEE HAD SUBMITTED DIFFERENT SETS OF FIGURES OF ADVERTISEMENT REVENUE PROCURED IN INDIA THROUGH BWIPL AND PROCURED FROM I NDIAN OPERATORS AT DIFFERENT LOCATIONS. THE LEARNED DR HAS THUS AVER RED THAT CARRYING NO MERIT WHATSOEVER THE APPEAL OF THE ASSESSEE BE DISMISSED . 8. THE DEPARTMENT HAS ALSO FILED WRITTEN SUBMISSION S. IT HAS BEEN CONTENDED THAT IT IS WRONG TO SUGGEST THAT CBDT CIR CULAR NO.742 DATED 2.5.1996 HAS BEEN WRONGLY APPLIED ASSESSING THE PR OFITS ATTRIBUTABLE TO PE @ 10% OF THE GROSS PROFIT; THAT THE SAID CIRCULAR I S APPLICABLE WHERE THERE IS NO BRANCH OFFICE IN INDIA WHERE THERE IS NO PERMAN ENT ESTABLISHMENT IN INDIA OR WHERE THE ASSESSEE IS NOT MAINTAINING COUNTRY-WI SE ACCOUNTS; THAT THESE THREE CONDITIONS ARE MUTUALLY EXCLUSIVE AND IF ANY OF THEM EXISTS THE CIRCULAR BECOMES APPLICABLE; THAT IN THE PRESENT CASE THE A SSESSEE WAS NOT MAINTAINING COUNTRY-WISE ACCOUNTS; THAT THUS EVEN IF THE PE EXISTED IN INDIA THE CIRCULAR WAS APPLICABLE; THAT THIS BEING SO TH E SAID CIRCULAR HAS BEEN RIGHTLY APPLIED BY THE LEARNED CIT (APPEALS) AND HE COMPUTED PROFITS ATTRIBUTABLE TO PE @ 10% OF THE GROSS PROFITS; THAT IT HAS BEEN CONTENDED ON ITA NO. 1188(DEL)06 14 BEHALF OF THE ASSESSEE THAT THE DEPENDENT AGENT HAD BEEN REMUNERATED @ 15% OF GROSS RECEIPTS AND THAT THIS RATE IS IN LINE WITH THE AFORESAID CBDT CIRCULAR; THAT IT HAS BEEN CONTENDED THAT 15% RATE OF COMMISSION HAS BEEN HELD TO BE AT ARMS LENGTH PRICE IN THE CASE OF SE T SATELLITE SINGAPORE PTE. LTD. (SUPRA); THAT IT HAS ALSO BEEN SUBMITTED THAT SINCE THE DEPENDENT AGENT HEREIN HAS BEEN REMUNERATED ON ARMS LENGTH BASIS THE ASSESSMENT OF THE DEPENDENT AGENCY PE GETS EXTINGUISHED; THAT RELIANC E HAS BEEN PLACED ON THE TRANSFER PRICING OFFICERS ORDER IN THE CASE OF BBC WORLDWIDE (I) PVT. LTD. FOR ASSESSMENT YEAR 2002-03; THAT THESE CONDITIONS ARE NOT IN CONSONANCE WITH THE RATIO OF THE DECISION IN THE CASE OF MORG AN STANLEY (SUPRA); THAT THE ASSESSMENT OF THE DEPENDENT AGENCY PE GETS EXTI NGUISHED ONLY IF BOTH THE CONDITIONS ARE SATISFIED I.E. THE DEPENDENT A GENT HAS BEEN REMUNERATED ON ARMS LENGTH BASIS AND BY FAR (FUNCTIONS PERFORM ED ASSETS USED AND RISKS ASSUMED) ANALYSIS NOTHING MORE CAN BE ATTRIB UTED TO PE OVER AND ABOVE THE REMUNERATION PAID TO DEPENDENT AGENT; THA T IN THE ASSESSEES CASE NO FAR ANALYSIS HAS BEEN GOT DONE BY THE ASSESSEE T O PROVE THAT NOTHING MORE IS REQUIRED TO BE ATTRIBUTED TO THE PE; THAT N O SUCH CASE HAVING BEEN MADE OUT BY THE ASSESSEE DURING THE ASSESSMENT PROC EEDINGS NO FAR ANALYSIS WAS GOT DONE AT THAT STAGE ALSO; THAT THUS THERE IS NO WAY TO SATISFY THE CONDITIONS LAID DOWN IN MORGAN STANLEY (SUPRA ); THAT FROM THE TPOS ITA NO. 1188(DEL)06 15 ORDER IN BBC WORLDWIDE (I) PVT. LTD. (SUPRA) IT IS EVIDENT THAT THE FAR ANALYSIS GOT DONE IN THAT CASE RESULTED IN ADDITION AL INCOME OF RS.3.60 CRORES; THAT THIS SHOWS THAT PAYMENTS MADE TO THE D EPENDENT AGENT DID NOT MEET THE TEST OF TRANSFER PRICING ANALYSIS; THAT IT IS EVIDENT THAT ASSESSEE DID NOT FURNISH ANY INFORMATION ABOUT STATUS OF APPEAL FILED IF ANY IN THE CASE OF BBC WORLDWIDE (I) PVT. LTD.; THAT IF SUCH AN EXE RCISE HAD BEEN CARRIED OUT IN THE PRESENT CASE THE PAYMENT MADE TO THE DE PENDENT AGENT WOULD HAVE REVEALED ITS CHARACTER AS TO ITS ARMS LENGTH PRICE STATUS; THAT THE ASSESSEE HAS WRONGLY EQUATED THE ASSESSMENT OF THE INDIAN AGENT WITH THE ASSESSMENT OF THE DEPENDENT AGENCY PE; THAT THE IND IAN AGENT AND THE DEPENDENT AGENCY PE ARE TWO SEPARATELY ASSESSABLE E NTITIES; THAT THE INDIAN AGENT IS ASSESSABLE WITH REFERENCE TO INCOMES RECEI VED BY IT FROM THE FOREIGN ENTERPRISE AND ANY OTHER INCOME WHICH IT MIGHT HAVE EARNED; THAT THIS ASSESSMENT WILL BE IN STATUS OF RESIDENT AND AS PER THE DOMESTIC TAX LAW; THAT THE FOREIGN ENTERPRISE IS TAXABLE IN INDIA AS A DEP ENDENT AGENCY PE WITH REFERENCE TO PROFITS WHICH ARE ATTRIBUTABLE TO INDI AN PE; THAT THIS ASSESSMENT WOULD BE IN THE STATUS OF NON-RESIDENT AND AS PER T HE ARTICLE 7 OF INDO-UK TREATY WHEREUNDER ASSESSABLE INCOME IS TO BE ON F AR ANALYSIS; THAT PERTINENTLY THE COMMISSION PAID BY THE FOREIGN ENT ERPRISE TO THE INDIAN AGENT IS INCOME QUA THE ASSESSMENT OF THE INDIAN AG ENT; THAT ON THE OTHER ITA NO. 1188(DEL)06 16 HAND THIS IS EXPENDITURE IN THE ASSESSMENT OF THE DEPENDENT AGENCY PE; THAT THIS DUAL ASSESSMENT STATUS OF THE INDIAN AGENT HAS BEEN CLARIFIED IN THE DECISION OF THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF SET SATELLITE SINGAPORE PTE. LTD. (106 ITD 175 (MUM.); THAT IT I S THUS OBVIOUS THAT INCOME ASSESSABLE IN THE HANDS OF THE FOREIGN ENTER PRISE AS A DEPENDENT AGENCY PE IS DIFFERENT FROM THE INCOME ASSESSABLE I N THE HANDS OF THE INDIAN AGENT; THAT IN MORGAN STANLEY (SUPRA) IT HAS BEE N OBSERVED THAT IF THE INDIAN AGENT IS REMUNERATED ON ARMS LENGTH PRICE B ASIS THERE CAN BE A SITUATION THAT SAME AMOUNT IS TAXABLE IN THE HANDS OF BOTH THE INDIAN AGENT AND THE DEPENDENT AGENCY PE AND THE SAME AMOUNT WIL L BE ALLOWABLE AS EXPENDITURE IN THE ASSESSMENT OF THE DEPENDENT AGEN CY PE; THAT THE ASSESSABLE INCOME IN THE HANDS OF THE DEPENDENT AGE NCY PE BECOMES NIL; THAT THUS THE ASSESSMENT OF THE DEPENDENT AGENCY PE GETS EXTINGUISHED; THAT HOWEVER IN MORGAN STANLEY (SUPRA) IT HAS ALSO B EEN OBSERVED THAT THERE CAN BE A SITUATION THAT WHERE AFTER FAR ANALYSIS SOME ADDITIONAL INCOME NEEDS TO BE ATTRIBUTABLE TO THE PE OF THE FOREIGN E NTERPRISE AND IN THAT SITUATION THE ASSESSMENT OF THE DEPENDENT AGENCY W OULD NOT GET EXTINGUISHED; THAT UNDISPUTEDLY IN THE PRESENT CAS E THE ASSESSEE IS NOT MAINTAINING INDIA SPECIFIC ACCOUNTS AS RIGHTLY OBS ERVED BY THE LEARNED CIT (APPEALS); THAT IT WAS ALSO SO STATED BEFORE THE AS SESSING OFFICER DURING THE ITA NO. 1188(DEL)06 17 ASSESSMENT PROCEEDINGS AS NOTED BY THE LEARNED CIT (APPEALS) TOO THAT THE QUESTION ARISING IS AS TO HOW TO COMPUTE PROFITS AT TRIBUTABLE TO THE DEPENDENT AGENCY PE IN INDIA IN SUCH A SITUATION; THAT THE AS SESSEE HAS GIVEN DIFFERENT SETS OF FIGURES OF RECEIPTS AND EXPENDITURE ON DIF FERENT OCCASIONS BEFORE THE ASSESSING OFFICER AND THE CIT (APPEALS) AS IS AVAI LABLE FROM THEIR RESPECTIVE ORDERS; THAT THE ASSESSEE WANTS TO CLAIM THE EXPENSES RELATABLE TO AIRING OVER THE INDIAN SUB-CONTINENT BUT DOES NOT WANT TO INCLUDE THE CORRESPONDING REVENUE RELATABLE TO THE SAME; THAT E VIDENTLY THE ASSESSEE ITSELF IS NOT SURE ABOUT THE FIGURE OF REVENUE ATTR IBUTABLE TO THE INDIAN OPERATIONS; THAT THE ALLEGED AUDITED STATEMENT FURN ISHED BY THE ASSESSEE IS NOT AT ALL RELEVANT OR SIGNIFICANT IN VIEW OF THE COMME NTS MADE BY AUDITORS THEMSELVES THEREIN; THAT IT WAS IN THESE CIRCUMSTAN CES THAT THE ASSESSING AUTHORITIES WERE LEFT WITH NO OPTION OTHER THAN TO RESORT TO ESTIMATION OF PROFITS ATTRIBUTABLE TO THE PE IN INDIA AS PER RUL E 10(I) OF THE INCOME TAX RULES 1962; THAT AS SUCH THE LEARNED CIT (APPEALS ) HAS CORRECTLY ASSESSED THE PROFITS ATTRIBUTABLE TO THE FOREIGN ENTERPRISE PE IN INDIA @ 10% OF GROSS REVENUE RECEIPTS FROM INDIA; AND THAT IN THIS VIEW OF THE MATTER THE ASSESSEES APPEAL BE DISMISSED. 9. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE M ATERIAL ON RECORD. THE FACTS ARE NOT IN DISPUTE. THE QUESTION IS AS T O WHETHER THE LEARNED CIT ITA NO. 1188(DEL)06 18 (APPEALS) HAS CORRECTLY ASSESSED THE ASSESSEES PRO FITS ATTRIBUTABLE TO THE FOREIGN ENTERPRISES PE IN INDIA @ 10% OF THE GROSS REVENUE RECEIPTS FROM INDIA. 10. THE ASSESSEES CASE IS THAT DURING THE YEAR UN DER CONSIDERATION THE ASSESSEE COMPANY A PART OF THE BBC GROUP OPERATE D AS AN INTERNATIONAL CONSUMER MEDIA COMPANY IN THE AREAS OF TV PUBLISHI NG AND PROGRAM LICENCING ETC. IT ALSO OPERATED THE BBC WORLD CHANNEL (THE CHANNEL) THROUGH A SEPARATE DIVISION I.E. THE BBC WORLD DI VISION. IT HAD AS ITS SUBSIDIARY IN INDIA BWIPL. IT APPOINTED BWIPL AS ITS AUTHORIZED AGENT IN INDIA. THIS WAS UNDER AN AIRTIME SALES AGREEMENT DATED 15.9.2000 EFFECTIVE FROM 13.11.1998. THIS AGREEMENT WAS FOR DOLLAR DE NOMINATED DEALS AND WAS ENTERED INTO TO SOLICIT ORDERS FOR THE SALE OF ADVERTISING AIRTIME ON THE CHANNEL. THE RATES AND TERMS AND CONDITIONS TO G OVERN SUCH SALE WERE PROVIDED BY THE ASSESSEE. THE PAYMENT FROM THE IND IAN ADVERTISERS FOR AIRTIME SALES AND SPONSORSHIP WAS TO BE RECEIVED DI RECTLY BY THE ASSESSEE. THIS WAS TO BE THROUGH EEFC ACCOUNT OR ON SPECIFIC RBI PERMISSION. FOR THE SERVICES PROVIDED BY BWIPL IT WAS TO RECEIVE C ONSIDERATION OF 15% MARKETING COMMISSION OF THE ADVERTISEMENT REVENUES RECEIVED BY THE ASSESSEE FROM INDIAN ADVERTISERS. ON 1.2.1999 TH E ASSESSEE AND BWIPL EXECUTED ANOTHER AIRTIME SALES AGREEMENT. THIS WA S FOR RUPEE DENOMINATED ITA NO. 1188(DEL)06 19 DEALS CONCERNING SOLICITING ORDERS FOR CHANNEL AIR TIME SALES AS WAS THE CASE UNDER THE AFOREMENTIONED EARLIER AGREEMENT. THIS SECOND AGREEMENT WAS EXECUTED SO AS TO ENABLE BWIPL TO COLLECT PAYMENT F ROM INDIAN ADVERTISERS FOR SALE OF AIRTIME ON BEHALF OF THE ASSESSEE AND T O REMIT THE SAME TO THE ASSESSEE. BWIPL WAS TO BE PAID AGAIN COMMISSION @ 15%. 11. IN THE RETURN OF INCOME FILED FOR THE YEAR UNDE R CONSIDERATION THE ASSESSEE SHOWED INCOME AT RUPEES NIL. IT WAS CLAIM ED THAT THE ASSESSEE WOULD NOT BE TAXABLE IN INDIA ON ITS INCOME CONCERN ING AIRTIME SALES. THE BASIS FOR SUCH CLAIM WAS THAT THE AIRTIME INCOME SA LES WAS BUSINESS PROFITS OF THE ASSESSEE SINCE THE ASSESSEE DID NOT HAVE A PER MANENT ESTABLISHMENT IN INDIA. LATER ON THE RETURN WAS REVISED DISCLOSI NG AN INCOME OF RS.81 86 735/- REPRESENTING CERTAIN ROYALTY INCOME WHICH AS PER THE ASSESSEE REMAINED FROM BEING SHOWN IN THE ORIGINAL RETURN OF INCOME. THE ASSESSEE CLAIMED NOT TO HAVE ANY OTHER INCOME CHARG EABLE TO TAX IN INDIA. IN THE NOTES TO THE RETURN FILED THE ASSESSEE CONTEND ED THAT NO INCOME ACCRUED OR AROSE TO THE ASSESSEE FROM ANY BUSINESS CONNECTI ON IN INDIA EITHER UNDER THE INDIAN INCOME TAX ACT OR UNDER THE TREATY BETWE EN INDIA AND UK; THAT EVEN IF BWIPL WAS CONSIDERED TO BE A BUSINESS CONNE CTION/PERMANENT ESTABLISHMENT OF THE ASSESSEE IN INDIA THE COMMISS ION PAID TO IT CONSTITUTED ADEQUATE COMPENSATION FOR ITS ACTIVITIES IN INDIA; THAT IT WAS SUBJECT TO TAX IN ITA NO. 1188(DEL)06 20 INDIA AND NO FURTHER INCOME OF THE ASSESSEE WAS LIA BLE TO TAX IN INDIA; THAT EVEN OTHERWISE THE SALE OF AIRTIME IN INDIA HAVING RESULTED IN A NET LOSS TO THE ASSESSEE EVEN IF IT WERE TO BE HELD THAT THE A SSESSEE HAD A PERMANENT ESTABLISHMENT IN INDIA THERE COULD BE NO TAXABLE I NCOME; THAT THE AIRTIME SALES ACTIVITY OF THE ASSESSEE WAS A PART OF THE AC TIVITY OF THE BBC WORLD DIVISION WHICH RAN THE CHANNEL; THAT THE BBC WORLD DIVISION HAVING INCURRED LOSSES WORLDWIDE DURING THE YEAR THERE W OULD BE A LOSS EVEN IF ANY INCOME OR LOSS ON A PROPORTIONATE BASIS WERE TO BE HELD TO BE ATTRIBUTABLE TO THE ASSESSEES INDIAN OPERATIONS; AND AS SUCH THE ASSESSEE WOULD LEGALLY BE ENTITLED FOR CARRY FORWARD OF SUCH LOSS FOR SETTING IT OFF AGAINST FUTURE ATTRIBUTABLE PROFIT. THE ASSESSEE PLACED RELIANCE ON CBDT CIRCULAR NO. 23 OF 1969 ACCORDING TO WHICH IF THE AGENTS COMMISS ION FULLY REPRESENTS THE VALUE OF PROFIT ATTRIBUTABLE TO ITS SERVICE IT SHO ULD PRIMA FACIE EXTINGUISH THE ASSESSMENT. AN ALLOCATION STATEMENT WAS FILED BEF ORE THE AO. THIS WAS REGARDING REVENUES AND EXPENSES ATTRIBUTABLE TO IND IA FOOTPRINT. IT SHOWED A LOSS IN THE EVENT A BUSINESS CONNECTION/PERMANENT E STABLISHMENT WAS FOUND TO EXIST. 12. BY VIRTUE OF THE ASSESSMENT ORDER DATED 31.3.20 03 THE AO REJECTING THE ASSESSEES CONTENTION HELD THAT BWIPL CONSTITU TED THE ASSESSEES BUSINESS CONNECTION AS WELL AS A PERMANENT ESTABLIS HMENT UNDER ARTICLES ITA NO. 1188(DEL)06 21 5(4)(A) AND 5(4)(C) OF THE INDO-UK TREATY. THE PR OFITS OF THE ASSESSEE WERE ESTIMATED AT A RATE OF 20% OF THE TOTAL ADVERTISEME NT REVENUE ATTRIBUTABLE TO INDIA. 13. BEFORE THE LD. CIT(A) THE ASSESSEE INTER ALIA FILED AUDITED ACCOUNTS OF THE REVENUES AND EXPENSES ALLOCABLE TO INDIA FOO TPRINT. HOWEVER VIDE ORDER DATED 27.1.2006 I.E. THE IMPUGNED ORDER TH E LD. CIT(A) CONFIRMED THE ASSESSMENT ORDER. PLACING RELIANCE ON CBDT CI RCULAR NO. 742 DATEAD 2.5.1996 THE LD. CIT(A) FURTHER ESTIMATED THE ASSE SSEES PROFITS AT THE RATE OF 10% OF THE TOTAL ADVERTISEMENT REVENUES ALLOCABLE T O INDIA. 14. BEFORE US HOWEVER THE ISSUE OF BUSINESS CONNE CTION OR PERMANENT ESTABLISHMENT WAS NOT ADDRESSED. THE LEARNED COUN SEL FOR THE ASSESSEE HAS RATHER STRESSED AND DILATED UPON THE ASSESSEES ST AND THAT BWIPL HAS BEEN REMUNERATED ON THE BASIS OF A FAIR TRANSFER PRICE DUE TO WHICH NOTHING FURTHER REMAINS TO BE TAXED IN INDIA. IT HAS BEEN ARGUED THAT HAVING EXAMINED THE TWO AFOREMENTIONED AIRTIME SALES AGRE EMENTS THE DEPARTMENT HAS ITSELF ACCEPTED THAT COMMISSION OF 15% PAID TO BWIPL IS A FAIR TRANSFER PRICE. REFERENCE CONCERNING THIS HAS BEEN MADE TO THE TRANSFER PRICING ORDER FOR ASSESSMENT YEAR 2002-03 IN THE CASE OF BW IPL. A COPY THEREOF HAS BEEN PLACED ON RECORD. IN THAT ORDER THE TPO ACCEPTED THAT THE TRANSACTION WAS AT ARMS LENGTH PRICE. IT WAS HELD THAT THE CUP METHOD ITA NO. 1188(DEL)06 22 SELECTED BY BWIPL FOR DETERMINING THE ARMS LENGTH PRICE OF THE COMMISSION INCOME EARNED BY IT WAS ACCEPTABLE; THA T THIS WAS DUE TO THE FACT THAT BWIPL HAD COMPARED THE RATE OF COMMISSION CHARGED BY IT FROM BBCW WITH THAT CHARGED BY AN UNCONTROLLED PARTY FOR SIMILAR SERVICES; THAT EVEN OTHERWISE IT WAS FOUND THAT THE RATE OF COMMI SSION IN THE ASSESSEES TRADE WAS FAIRLY UNIFORM AND ALMOST EVERYONE WAS CH ARGING THE SAME RATE OF COMMISSION IN THE SALE OF AIRTIME ON TV CHANNELS AN D FM CHANNELS; AND THAT IT WAS THEREFORE THAT THE ARMS LENGTH PRICE DETERMINED BY BWIPL WAS NOT BEING DISTURBED. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO SOUGHT TO PLACE RELIANCE ON THE DECISION OF THE HONBLE BOMB AY HIGH COURT IN THE CASE OF SET SATELLITE (SINGAPORE)PVT. LTD. V. DDIT 307 ITR 205(BOM). IN THAT CASE COMMISSION OF 15% OF GROSS ADVERTISEM ENT REVENUE PAID BY SET SINGAPORE THE FOREIGN COMPANY TO ITS AGENT SET INDIA WHICH AGENT WAS HELD TO CONSTITUTE SET SINGAPORES DEPENDENT AG ENT PERMANENT ESTABLISHMENT WAS HELD TO REPRESENT PRICE COMPUTED AT ARMS LENGTH. THE HONBLE HIGH COURT HELD INTER ALIA THAT IT WAS CL EAR FROM READING ARTICLE 7(1) OF THE TREATY THAT THE PROFITS OF AN ENTERPRI SE OF THE CONTRACTING STATE SHALL BE TAXABLE ONLY IN THAT STATE UNLESS THE E NTERPRISE CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLISHMENT CONSTITUTED THEREIN; THAT THE PROFITS OF THE ENTERPRISE MAY BE TAXED IN THE OTHER STATE BUT ITA NO. 1188(DEL)06 23 ONLY SO MUCH OF THEM AS ARE DIRECTLY OR INDIRECTLY ATTRIBUTABLE TO THAT PERMANENT ESTABLISHMENT; THAT THE EXPRESSION USED WHILE DETERMINING THE PROFITS ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT IN ARTICLE 7(2) OF THE TREATY IS ESTIMATED ON A REASONABLE BASIS; THAT THE TREATY DID NOT REFER TO ARMS LENGTH PAYMENT; THAT IT WAS SECTION 92 OF TH E I.T. ACT WHICH CONTAINED THE PRINCIPLES CONCERNING INCOME FROM INT ERNATIONAL TRANSACTIONS ON AN ARMS LENGTH PRICE; THAT THESE PRINCIPLES HAD BEEN CLARIFIED BY THE FINANCE ACT 2001 AND THE FINANCE ACT 2002; THAT I T WAS CLEAR FROM THE CIT(A)S ORDER THAT SET SINGAPORE HAD MADE PAYMENT TO ITS PERMANENT ESTABLISHMENT ON THE ARMS LENGTH PRINCIPLE; THAT A FINDING OF FACT HAD BEEN RECORDED TO THE EFFECT THAT SET SINGAPORE HAD PAID SERVICE FEES @ 15% OF THE GROSS ADVERTISEMENT REVENUE TO ITS AGENT SET IN DIA FOR PROCURING ADVERTISEMENTS DURING THE YEAR FROM APRIL 1998 TO OCTOBER 1998; THAT CBDT CIRCULAR NO. 742 RECOGNIZED THAT THE INDIAN A GENTS OF FOREIGN TELECASTING COMPANIES GENERALLY RETAIN 15% OF THE ADVERTISEMENT REVENUES OF THE SERVICE CHARGES; THAT THEREFORE THE SAID CI RCULAR ALSO SUPPORTED THE STAND THAT THE PAYMENT OF 15% SERVICE FEE WAS PAYME NT AT ARMS LENGTH; THAT THE SAID AMOUNT OF 15% HAD BEEN REDUCED TO 12.5% OF THE NET ADVERTISEMENT REVENUE BY VIRTUE OF A REVISED AGREEMENT ENTERED IN TO BETWEEN THE PARTIES; AND THAT SIMULTANEOUSLY SET SINGAPORE HAD ALSO VI DE AN AGREEMENT ITA NO. 1188(DEL)06 24 ENTITLED SET INDIA TO ENTER INTO AGREEMENTS TO COLL ECT AND RETAIN ALL SUBSCRIPTION REVENUE. 15. GALILEO INTERNATIONAL INCORPORATION 114 TTJ 289 OF THE DELHI BENCH OF THE TRIBUNAL HAS ALSO BEEN RELIED ON BEHAL F OF THE ASSESSEE. THEREIN THE INDIAN COMPANY MADE BOOKING ON A COMPU TERIZED RESERVATION SYSTEM FOR THE FOREIGN ASSESSEE. THIS GENERATED I NCOME FOR THE FOREIGN COMPANY. IT WAS HELD THAT THE INDIAN COMPANY WAS A DEPENDENT AGENT PERMANENT ESTABLISHMENT OF THE FOREIGN COMPANY. C ONCERNING ATTRIBUTION OF PROFITS FOR THE PERMANENT ESTABLISHMENT IT WAS OBS ERVED THAT ONLY 15% OF THE REVENUE GENERATED FROM THE BOOKINGS MADE WITHIN IND IA WAS TAXABLE IN INDIA AND IT WAS THIS PROPORTION WHICH WAS TO BE ADOPTED FOR COMPUTING PROFIT ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT. THE HONBLE DELHI HIGH COURT CONFIRMED THE FINDINGS RECORDED BY THE TRIBUNAL IN DIT V. GALILEO INTERNATIONAL INCORPORATION 224 CTR 251(DEL) WHIC H HAS FURTHER BEEN RELIED ON. 16. RELIANCE HAS ALSO BEEN PLACED ON CBDT CIRCULAR NO. 742 (SUPRA) WHICH WAS RELIED ON BY THE HONBLE BOMBAY HIGH COUR T IN THE CASE OF SET SATELLITE(SUPRA). FURTHER IT HAS BEEN CONTENDED THAT THE COMMISSION PAID BY THE ASSESSEE TO BWIPL @ 15% BEING THE VALUE OF P ROFIT ATTRIBUTABLE TO THE SERVICES RENDERED BY BWIPL FURTHER INCOME FROM ADVERTISEMENT ITA NO. 1188(DEL)06 25 REVENUES OUGHT NOT TO BE TAXED IN INDIA. CBDT CIRC ULAR NO. 23 OF 1969 HAS BEEN RELIED ON IN THIS REGARD. AS PER THIS CIRCULA R WHERE A NON RESIDENTS SALES TO INDIAN CUSTOMERS ARE SECURED THROUGH THE S ERVICES OF AN AGENT IN INDIA THE ASSESSMENT IN INDIA OF THE INCOME ARISIN G OUT OF THE TRANSACTION WILL BE LIMITED TO THE AMOUNT OF PROFIT WHICH IS AT TRIBUTABLE TO THE AGENTS SERVICES PROVIDED THAT NON-RESIDENTS BUSINESS ACT IVITIES IN INDIA ARE WHOLLY CHANNELED THROUGH ITS AGENT THE CONTRACTS TO SELL ARE MADE OUTSIDE INDIA AND SALES ARE MADE ON A PRINCIPLE-TO-PRINCIPLE BASIS. AS PER THIS CIRCULAR IN THE ASSESSMENT OF THE AMOUNT OF PROFITS ALLOWANCE WILL BE MADE FOR THE EXPENSES INCURRED INCLUDING THE AGENTS COMMISSION IN MAKING THE SALES AND IF THE AGENTS COMMISSION FULLY REPRESENTS THE VALUE OF THE PROFIT ATTRIBUTABLE TO HIS SERVICE IT SHOULD PRIMA FACIE EXTINGUISH THE ASSESSMENT. 17. CBDT CIRCULAR NO. 23 OF 1969 (SUPRA) IS ELOQUEN TLY CLEAR PROVIDING THAT IF THE VALUE OF THE PROFIT ATTRIBUTABLE TO THE SERVICES RENDERED BY THE AGENT IS FULLY REPRESENTED BY THE COMMISSION PAID IT SHOULD PRIMA FACIE EXTINGUISH THE ASSESSMENT. DIT V. MORGAN STANLE Y AND COMPANY INC.(SUPRA) AS STATED HAS TAKEN INTO CONSIDERATI ON CBDT CIRCULAR NO. 23 OF 1969(SUPRA). IN THAT CASE SINCE CERTAIN EMPLOY EES HAD BEEN DEPUTED BY THE FOREIGN COMPANY TO THE INDIAN AFFILIATE COMPANY THE FOREIGN COMPANY WAS HELD TO HAVE A PERMANENT ESTABLISHMENT IN INDIA . THE AAR HELD THAT ITA NO. 1188(DEL)06 26 ONCE THE TRANSFER PRICING ANALYSIS WAS UNDERTAKEN THERE WAS NO FURTHER REQUIREMENT TO ATTRIBUTE PROFITS TO A PERMANENT EST ABLISHMENT. ADJUDICATING ON THE ISSUE AS TO WHETHER THE ACTION OF THE AAR IN HOLDING SO WAS CORRECT OR NOT THE HONBLE SUPREME COURT HELD INTER ALIA TH AT WHERE THE TRANSACTION WAS HELD TO BE AT ARMS LENGTH THE RULING OF THE AA R WAS CORRECT IN PRINCIPLE PROVIDED THAT AN ASSOCIATED ENTERPRISE WHICH ALSO CONSTITUTED A PERMANENT ESTABLISHMENT WAS REMUNERATED ON ARMS LENGTH BASI S TAKING INTO ACCOUNT ALL THE RISKSTAKING FUNCTIONS OF MULTINATIONAL ENT ERPRISES AND THAT IN SUCH A CASE NOTHING FURTHER WOULD BE LEFT TO ATTRIBUTE TO THE PERMANENT ESTABLISHMENT. 18. AS CONTENDED FOR THE YEAR UNDER CONSIDERATION TRANSFER PRICING GUIDE LINES WERE NOT APPLICABLE. THAT BEING SO R ELIANCE ON BEHALF OF THE ASSESSEE ON SET SATELLITE (SUPRA) CANNOT AT ALL B E SAID TO BE MISPLACED. THEREIN ALSO THE ASSESSMENT YEAR BEING 1999-2000 THE TRANSFER PRICING GUIDE LINES WERE NOT APPLICABLE AS THEY BECAME AP PLICABLE FROM THE NEXT YEAR. PERTINENTLY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SET SATELLITE (SUPRA) HAS HELD THAT IF THE CORRECT AR MS LENGTH PRICE IS APPLIED AND PAID NOTHING FURTHER WOULD BE LEFT TO BE TAXED IN THE HANDS OF THE FOREIGN ENTERPRICE. MORGAN STANLEY (SUPRA) AS WELL AS C BDT CIRCULAR NO. 23 (SUPRA) WERE TAKEN INTO CONSIDERATION. THE FACTS IN THE PRESENT CASE ARE ITA NO. 1188(DEL)06 27 FOUND TO BE AT PARITY WITH THOSE PRESENT IN SET SA TELLITE(SUPRA) TO THE EXTENT NOTICED ABOVE. BOTH THE CASES CONCERN YEAR S BEFORE THE ONSET OF THE TRANSFER PRICING REGIME. AS SUCH WE HOLD THAT S ET SATELLITE(SUPRA) HAS RIGHTLY BEEN RELIED ON ON BEHALF OF THE ASSESSEE AN D THAT IT IS DIRECTLY APPLICABLE TO THE ASSESSEES CASE. 19. APROPOS THE DEPARTMENTS CONTENTION THAT THE AS SESSEE HAS FURNISHED DIFFERENT MUTUALS INTRINSICALLY IRRECONCILABLE STAT EMENTS BEFORE THE AUTHORITIES BELOW COPIES OF THESE DOCUMENTS HAVE BEEN PLACED I N THE PAPER BOOK FILED BY THE ASSESSEE. THESE DOCUMENTS ARE :- 1. CONSOLIDATED ANNUAL AUDITED ACCOUNTS SHOWING THE LO SSES SUFFERED BY THE CHANNEL; 2. THE COMPUTATION OF LOSS AS PER RULE 10 (II) OF THE I.T. RULES 1962; AND 3. ALLOCATION STATEMENTS OF INCOME AND EXPENSES OF IND IA FOOTPRINT. 20. AS POINTED OUT IT IS SEEN THAT ALL THESE STATE MENTS REFLECT A LOSS. IT WAS THE FOREIGN EXCHANGE RATE AND INDIA FOOTPRINT WHICH GAVE RISE TO DIFFERENCE IN THE FIGURES SUBMITTED BEFORE THE TAXING AUTHORIT IES. 21. SO FAR AS REGARDS THE DEPARTMENTS ASSERTION TH AT CBDT CIRCULAR NO. 742(SUPRA) HAS WRONGLY BEEN RELIED ON IT IS SEEN T HAT CBDT CIRCULAR NO. 765 DATED 15.4.1998 EXTENDED CIRCULAR NO. 742 (SUPR A). AS PER CBDT ITA NO. 1188(DEL)06 28 CIRCULAR NO. 742 IT WAS NEEDED TO BE ESTABLISHED FOR THE APPLICABILITY OF THE CIRCULAR THAT THE ASSESSEE OR A NON-RESIDENT FOREI GN TELECASTING COMPANY AND THAT IT DID NOT HAVE A BRANCH OFFICE OR A PERMANENT ESTABLISHMENT OR DID NOT MAINTAIN COUNTRYWISE ACCOUNTS OF ITS OPERATIONS. THE CIRCULAR WOULD NOT APPLY IN THE EVENT OF ANY OF THE SAID CONDITIONS BE ING NOT SATISFIED. ALL THE CONDITIONS ARE NOT TO BE CUMULATIVELY SATISFIED SO AS TO APPLY THE CIRCULAR. IN THE ASSESSEES CASE THE ASSESSEE HAD FILED BEFORE THE AO ITS COUNTRY ACCOUNTS FOR INDIA WHEREIN THE TOTAL REVENUES AND EXPENSES OF THE ASSESSEE WERE ALLOCATED TO ITS INDIA ACTIVITY. A COPY THEREOF H AS BEEN PLACED BEFORE US. BEFORE THE CIT(A) THE ASSESSEE ALSO FILED ITS AUDI TED ACCOUNTS CONTAINING ALLOCATION OF REVENUES AND EXPENSES TO ITS INDIA AC TIVITY. A COPY THEREOF HAS ALSO BEEN FURNISHED BEFORE US. THE LEARNED CIT(A) REMANDED THESE TO THE AO. THEREFORE EVIDENTLY CBDT CIRCULAR NO. 742 (SUPRA) DOES NOT APPLY. 22. APROPOS RELIANCE ON THE TPOS ORDER IN BWIPL (SUPRA) IT DOES NOT MAKE A DIFFERENCE IF THE ORDER OF THE TPO IN THAT C ASE WAS THAT OF A DEPENDENT AGENT. THE TPO HAD ACCEPTED THAT THE TR ANSACTION WAS AT ARMS LENGTH PRICE. IT WAS OBSERVED THAT ALMOST EVERYONE IN THE ASSESSEES LINE OF BUSINESS WAS CHARGING THE SAME RATE OF COMMISSION O N THE SALE OF AIRTIME ON TV CHANNELS OR FM CHANNELS. ITA NO. 1188(DEL)06 29 23. FURTHER THE DEPARTMENT HAS NOT BEEN ABLE TO ES TABLISH ITS ASSERTION THAT THE STAND THAT BWIPL WAS MERELY SOLICITING ORDERS F OR THE ASSESSEE WAS A MERE FACADE. IT HAS RATHER BEEN SHOWN TO BE OTHERW ISE AS DISCUSSED HEREINABOVE. 24. SET SATELLITE (SUPRA) AND MORGAN STANLEY (S UPRA) AS DELIBERATED UPON IN THE PRECEDING PARAGRAPHS ARE DIRECTLY APPLI CABLE IN FAVOUR OF THE ASSESSEE AND THE DEPARTMENT HAS NOT BEEN ABLE TO SU CCESSFULLY CANVASS AS TO WHY THEY SHOULD NOT BE FOLLOWED. 25. IN VIEW OF THE ABOVE THE CASE MADE OUT BY THE ASSESSEE IS FOUND TO BE JUSTIFIED. ITS GRIEVANCE IS THUS ACCEPTED. 26. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED AS INDICATED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.01.2010. (A.K. GARODIA) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 15.01.2010 *RM COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR TRUE COPY DEPUTY REGISTRAR