M/S. NICKELODEON ASIA HOLDINGS PTE. LTD., MUMBAI v. DDIT (IT) RG 3(2), MUMBAI

ITA 2758/MUM/2007 | 2003-2004
Pronouncement Date: 16-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 275819914 RSA 2007
Assessee PAN AABCN3147K
Bench Mumbai
Appeal Number ITA 2758/MUM/2007
Duration Of Justice 4 year(s) 5 month(s) 6 day(s)
Appellant M/S. NICKELODEON ASIA HOLDINGS PTE. LTD., MUMBAI
Respondent DDIT (IT) RG 3(2), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 16-09-2011
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted L
Tribunal Order Date 16-09-2011
Date Of Final Hearing 10-10-2011
Next Hearing Date 10-10-2011
Assessment Year 2003-2004
Appeal Filed On 10-04-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL L BENCH : MUMBAI BEFORE SHRI R.S.PADVEKAR JUDICIAL MEMBER AND SHRI B.RAMAKOTAIAH ACCOUNTANT MEMBER ITA. NO. 3171/MUM/2010 ASSESSMENT YEAR 2004-200 5 ITA. NO. 3172/MUM/2010 ASSESSMENT YEAR 2005-200 6 DDIT (INTERNATIONAL TAXATION)4(2) MUMBAI. VS. NICKELDEON ASIA HOLDINGS PVT. LTD. MUMBAI 400 012 PAN AABCN3147K (APPELLANT) (RESPONDENT) ITA. NO. 2757/MUM/2007 ASSESSMENT YEAR 2002-2003 ITA. NO. 2758/MUM/2007 ASSESSMENT YEAR 2003-2004 ITA. NO. 3130/MUM/2010 ASSESSMENT YEAR 2004-2005 ITA. NO. 3131/MUM/2010 ASSESSMENT YEAR 2005-2006 NICKELDEON ASIA HOLDINGS PVT. LTD. MUMBAI 400 012 PAN AABCN3147K VS. DDIT (INTERNATIONAL TAXATION)4 (2) MUMBAI. (APPELLANT) (RESPONDENT) FOR REVENUE : SHRI JITENDRA YADAV (DR) FOR ASSESSEE : SHRI ARVIND V. SONDE DATE OF HEARING : 09-09-2011 DATE OF PRONOUNCEMENT : 16-09-2011 ORDER PER BENCH 1. THESE ARE APPEALS BY THE ASSESSEE AND REVENUE F OR THE ASSESSMENT YEARS 2002-2003 TO 2005-2006. THERE ARE FOUR ASSESSEES APPEALS AND TWO REVENUES APPEALS INVOLVING VARIOUS ISSUES. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE A SSESSEE- COMPANY VIZ. NICKELODEON ASIA HOLDINGS LTD. (NICK) IS A COMPANY INCORPORATED IN SINGAPORE AND IS A RESIDENT OF SING APORE FOR TAX PURPOSES. DURING THE PREVIOUS YEARS RELEVANT TO THE ASSESSMENT YEARS 2004-2005 AND 2005-2006 THE ASSESSEE WAS TELECASTI NG NICKELODEON CHANNEL IN INDIA. FURTHER NICK WAS TELECASTING CHAN NELS IN THE ASIA 2 PACIFIC REGION VIZ. INDIA JAPAN PHILIPPINES AND NORTH ASIA. NICK IS A PART OF THE MULTINATIONAL VIACOM GROUP OF UNITED ST ATES OF AMERICA. THE ASSESSEE-COMPANY (NICK) FILED ITS RETURN OF INC OME FOR ASSESSMENT YEAR 2004-2005 ON 1-11-2004 AND FOR ASSE SSMENT YEAR 2005-2006 ON 31-10-2005 DECLARING INCOME OF RS. NIL AND RS.4 07 503 RESPECTIVELY AND CLAIMED A REFUND OF RS .11 55 856/- FOR ASSESSMENT YEAR 2005-06 THE TAXES DEDUCTED AT SOURC E. SUBSEQUENTLY IT ALSO FILED A REVISED RETURN OF INCOME ON 12-12-2 006 FOR ASSESSMENT YEAR 2005-06 WHEREBY THE INCOME DECLARED AND REFUN D CLAIMED IN THE REVISED RETURN OF INCOME REMAINING UNCHANGED VIS-- VIS THE ORIGINAL RETURN OF INCOME. THE ASSESSEE-COMPANY CONTENDED IN ITS RETURN THAT THE ASSESSEE DID NOT HAVE A PERMANENT ESTABLISHMENT (PE) IN INDIA. THE ASSESSEE-COMPANY IS ALSO CONTENDED IN THE RETUR N THAT THE PROFITS ATTRIBUTABLE TO THE PE IF ANY HAVE ALREADY BEEN T AXED IN INDIA SINCE ARMS LENGTH CONSIDERATION HAS BEEN PAID TO ITS AGE NT IN INDIA. THE ASSESSEE-COMPANY IS ALSO OF THE VIEW THAT SINCE THE COMPANY INCURRED HEAVY LOSSES FROM ITS WORLDWIDE OPERATIONS ONLY LO SSES AND NOT PROFITS CAN BE ATTRIBUTED TO INDIA. 3. THE ASSESSING OFFICER IN ITS ORDER HAVE HELD TH AT VIACOM 18 MEDIA PVT. LTD. WILL CONSTITUTE A PE OF THE ASSE SSEE IN INDIA VIS-- VIS ITS ADVERTISING BUSINESS AND ATTRIBUTED 20% OF ITS ADVERTISEMENT REVENUES TO THE PE. FURTHER ASSESSING OFFICER HELD THAT THE DISTRIBUTION REVENUES EARNED BY THE ASSESSEE ARE IN THE NATURE OF ROYALTY INCOME TAXABLE UNDER THE TREATY @ 15% ON GR OSS BASIS. THE ASSESSING OFFICER ACCORDINGLY COMPUTED INCOME OF THE ASSESSEE FOR ASSESSMENT YEARS 2002-2003 AND 2003-2004. IN ADDITI ON TO THE ABOVE ISSUES ISSUE OF REOPENING OF ASSESSMENT UNDER SECT ION 147 OF THE I.T. ACT WAS ALSO INVOLVED IN ASSESSMENT YEARS 2004-2005 AND 2005-2006. FOR THE SAKE OF CLARITY THE GROUNDS RAISED IN ASSE SSMENT YEAR 2004- 2005 BY THE ASSESSEE ARE HEREWITH EXTRACTED : 3 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LEARNED CIT(A)-11 MUMBAI (THE LEARNED CIT(A) ) HAS ERRED IN UPHOLDING THE VALIDITY OF THE REASSESS MENT PROCEEDINGS UNDER SECTION 147 OF THE INCOME-TAX ACT 1961 (THE ACT). 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THAT THE APPELLANT HAS AN AGENCY PERMANENT ESTABLISHMENT (PE) IN INDIA UNDER ARTICLE 5 (8) OF THE INDIA-SI NGAPORE TAX TREATY. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT 10% OF THE ADVERTISING RECEIPTS EARNED BY THE APPELLANT ARE TA XABLE IN INDIA DESPITE THE FACT THAT THE APPELLANT DOES N OT HAVE ANY BUSINESS CONNECTION/PE IN INDIA. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING TH AT EVEN ASSUMING (WITHOUT ADMITTING) THAT THE APPELLAN T HAS A PE IN INDIA PAYMENT OF ARMS LENGTH REMUNERAT ION TO VIACOM 18 MEDIA PVT. LTD. IN RELATION TO MARKETI NG OF AIR-TIME EXTINGUISHES THE TAX LIABILITY OF THE APP ELLANT IN INDIA. 5. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LEARNED CIT(A) HAS ERRED IN APPLYING RULE 10 OF THE INCOME TAX RULES 1962 FOR ESTIMATING THE PROFIT OF THE APPELLANT FROM ITS BUSINESS OF SALE OF ADVERTISEMEN T TIME SLOTS IN INDIA. 6. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW EVEN ASSUMING (WITHOUT ADMITTING) THAT THE APPELLAN T HAS A PE IN INDIA AND RULE 10 IS APPLICABLE THE CI T(A) OUGHT TO HAVE HELD THAT NO PROFITS CAN BE ATTRIBUTA BLE IN VIEW OF THE OVERALL LOSS SITUATION OF THE APPELLANT AND ALSO IN LIGHT OF RULE 10 (II) OF THE RULES. 7. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE RATE OF 10% ADOPTED BY THE LEARNED CIT(A) WITH RESPECT TO TAXABILITY OF ADVERTISING REVENUES IS HA RSH 4 ARBITRARY AND INCONSISTENT WITH THE FINANCIAL STATE MENTS OF THE APPELLANT. 8. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THAT THE DISTRIBUTION REVENUES EARNED BY THE APPELLANT ARE TAXABLE IN INDIA. 9. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE LEARNED CIT(A) HAS ERRED IN UPHOLDING THAT THE DISTRIBUTION REVENUES EARNED BY THE APPELLANT ARE I N THE NATURE OF ROYALTY INCOME AND HENCE TAXABLE IN INDI A. 3.1. THE REVENUE IS CONTESTING THE ONLY ISSUE OF L EVY OF INTEREST UNDER SECTION 234B IN THE APPEALS FOR THE ASSESSMEN T YEAR 2004-2005 AND 2005-2006 WHICH WAS DELETED BY THE CIT(A). AT THE TIME OF HEARING THE ASSESSEE WITHDREW ALL THE GROUNDS RAISE D IN THE APPEAL NOS. 2757/MUM/2007 2758/MUM/2007 AND 3130 AND 3131/MUM/2010. THESE ISSUES RELATING TO VALIDITY OF RE-ASSESSMENT TAXATION OF ADVERTISEMENT AND DISTRIBUTION OF REVEN UE WERE WITHDRAWN BY STATING AS UNDER : THE ASSESSEE DOES NOT WISH TO PRESS ALL THE REMAIN ING GROUNDS I.E. ALL GROUNDS OTHER THAN THOSE MENTIONE D IN PARAGRAPHS 1 AND 2 ABOVE. THE GROUNDS NOT BEING PRE SSED ARE PRIMARILY IN RELATION TO TAXATION OF ADVERTISEMENT AND DISTRIBUTION REVENUES. THE ASSESSEE BELIEVES THAT IT DOES NOT HAVE A PERMA NENT ESTABLISHMENT (PE) IN INDIA AND THAT THE ADVERTIS EMENT AND DISTRIBUTION REVENUES EARNED BY IT ARE ACCORDINGLY NOT LIABLE TO TAX IN INDIA. FURTHER THE ASSESSEE BELIEVES THAT E VEN IF IT WAS REGARDED AS HAVING A PE IN INDIA SINCE IT HAS PAID ARMS LENGTH REMUNERATION TO ITS AGENT IN INDIA NO FURTH ER PROFITS CAN BE ATTRIBUTED TO THE ALLEGED PE. THE PROPOSITION IS SUPPORTED BY JUDGMENTS OF THE HONBLE SUPREME COURT OF INDIA IN THE CASE OF MORGAN STANLEY & CO. VS. DIT (2007) 292 ITR 416 AND OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SET SATELLITE (SINGAPORE) PVT. LTD. VS. DDIT (2008) 307 ITR 205 D IRECTLY ON 5 THE SAID SUBJECT. FURTHER WITHOUT PREJUDICE IN VI EW OF THE OVERALL LOSS INCURRED BY THE ASSESSEE THERE WOULD BE A LOSS AND NOT PROFIT ATTRIBUTABLE TO THE ALLEGED PE AND H ENCE NO LIABILITY TO TAX IN INDIA. HOWEVER SOLELY WITH A VIEW TO AVOID LONG-DRAWN LIT IGATION AND TO BRING AN EARLY FINALITY TO THE TAX LITIGATIO N IN INDIA PARTICULARLY HAVING REGARD TO THE FACT THAT NICK AS IA HAS CEASED TO DO BUSINESS IN INDIA NICK ASIA DOES NOT WISH TO PRESS THE REMAINING GROUNDS. 4. THE ASSESSEE RAISED ADDITIONAL GROUNDS IN ASSES SMENT YEARS 2002-2003 AND ASSESSMENT YEAR 2003-2004 WITH REFERENCE TO THE IMPOSITION OF INTEREST UNDER SECTIONS 234B AND 234D. DURING THE COURSE OF HEARING THE ASSESSEE-COMPANY WITHDREW TH E GROUND RELATING TO SECTION 234D. THEREFORE THE ONLY ISSUE LEFT WIT H FOR CONSIDERATION IN BOTH THE REVENUE APPEALS AS WELL AS IN ASSESSEES A PPEALS IS THE LEVY OF INTEREST UNDER SECTION 234B. THIS ISSUE WAS RAIS ED IN FOLLOWING GROUNDS : A.Y. RELEVANT GROUND NO. ASSESSEES/DEPARTMENTAL APPEAL 2002-03 GROUND 7 ASSESSEES APPEAL 2003-04 GROUND 7 ASSESSEES APPEAL 2004-05 GROUND 1 DEPARTMENTAL APPEAL 2005-06 GROUND 1 DEPARTMENTAL APPEAL 5. IT WAS THE SUBMISSION OF THE ASSESSEE THAT IT B EING A NON- RESIDENT AND ENTIRE INCOME IS SUBJECT TO DEDUCTION OF TAX AT SOURCE AS PER THE PROVISIONS OF SECTION 195 OF THE ACT THE A SSESSEE IS NOT LIABLE TO PAY ANY ADVANCE TAX AS PER THE PROVISIONS OF SEC TION 208 OF THE ACT AND CONSEQUENTLY NO INTEREST IS LEVIABLE UNDER SEC TION 234B OF THE ACT. THE ASSESSING OFFICER LEVIED THE INTEREST UNDE R SECTION 234B IN ASSESSMENT YEARS 2004-2005 AND 2005-2006 WHEREAS LE VY OF INTEREST IN ASSESSMENT YEARS 2002-2003 AND 2003-2004 IS NOT VERIFIABLE FROM 6 THE ASSESSMENT ORDER. THE LEARNED CIT(A) IN THE ASS ESSMENT YEARS 2004-2005 AND 2005-2006 CONSIDERED ASSESSEES SUBMI SSIONS AND RELYING ON THE FOLLOWING CASE LAW (1) DIT VS. NGC NETWORK ASIA LLC (2009) 222 CTR 85 (BOM.) (HC) (2) MOTOROLA INC. VS. DY. CIT (96 TTJ 1) (DELHI TRIBUNAL S.B.) (3) CIT VS. RHEINBRAUN ENGI NEERING AND WASSER GMBH (MUMBAI ITAT) (4) CIT V. SEDCO FOREX INTERNATI ONAL 264 ITR 320 (UTTARANCHAL HC) DELETED THE LEVY OF INTEREST UNDER SECTIONS 234B A ND 234C OF THE ACT. 6. THE REVENUE IS IN APPEAL WITH REFERENCE TO THE INTEREST UNDER SECTION 234B OF THE ACT WHEREAS ASSESSEE HAS RAISED ADDITIONAL GROUND IN OTHER TWO YEARS ON THE SAME ISSUE WHICH H OWEVER IS NOT CONTESTED BEFORE THE CIT(A) AS THERE IS NO DISCUSSI ON ON LEVY OF INTEREST IN THE ASSESSMENT YEAR AS SEEN FROM THE OR DER. IN THE COURSE OF PRESENT PROCEEDINGS THE LEARNED DR OBJECTED RAIS ING THE GROUND AS ADDITIONAL GROUND WHEN THE SAME WAS NOT SUBJECT MAT TER OF APPEAL BEFORE THE CIT(A). LEARNED COUNSEL HOWEVER SUBMIT TED THAT THE ASSESSEE BEING NON-RESIDENT AND ENTIRE INCOME BEING SUBJECTED TO TDS QUESTION OF LEVY OF INTEREST UNDER SECTION 234B DOE S NOT ARISE AND THUS BEING A LEGAL ISSUE THE ASSESSEE HAS RAISED AN ADDITIONAL GROUND AND SINCE THE ISSUE IS COVERED BY THE HONBLE BOMBA Y HIGH COURT IN THE CASE OF DIT VS. NGC NETWORK ASIA LLC (2009) 222 CTR 85 (BOM.) (HC) THERE IS NO MERIT IN REVENUES CONTENTION. IT WAS FURTHER SUBMITTED THAT ASSESSEE INTEND TO SETTLE THE LEGAL MATTERS ONCE FOR ALL AND SO EVEN THOUGH THEY HAVE GOOD CASE FOR CONTESTI NG THE APPEALS THEY HAVE WITHDRAWN ALL THE OTHER GROUNDS AND SO WI TH REFERENCE TO THE LEVY OF INTEREST UNDER SECTION 234B NECESSARY DIRECTION CAN BE GIVEN TO SETTLE THE MATTERS. 7. WE HAVE CONSIDERED THE ISSUE AS FAR AS THE LEVY OF INTEREST UNDER SECTION 234B IS CONCERNED. THIS ISSUE IS DIRE CTLY COVERED BY THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF DIT VS. NGC NETWORK ASIA LLC (2009) 222 CTR 85 (BOM.) (HC). AS RIGHTLY POINTED OUT BY THE CIT(A) THE ISSUE IS AGAINST THE REVENU E. NO INTEREST CAN BE 7 LEVIED UNDER SECTION 234B WHEN THE INCOMES ARE COVE RED BY THE PROVISIONS OF TDS AND THERE IS NO LIABILITY TO ADVA NCE TAX ONCE THE INCOMES ARE COVERED BY THE TDS. IN VIEW OF THIS WE SEE NO REASON TO INTERFERE WITH THE ORDERS OF THE CIT(A) IN ASSESSME NT YEARS 2004-2005 AND 2005-2006 AND ACCORDINGLY THE REVENUE APPEALS A RE DISMISSED. 8. WITH REFERENCE TO THE ADDITIONAL GROUND(7) RAIS ED BY THE ASSESSEE ON LEVY OF INTEREST U/S 234B IN AY 2002-03 AND 2003-04 CONSIDERING THAT ASSESSEE WITHDREW ALL THE OTHER GR OUNDS WITH REFERENCE TO THE MERITS OF THE ISSUES IN ORDER TO S ETTLE MATTERS IN INDIA CONSIDERING THE SPECIAL REQUEST AND WITHOUT MAKING IT AS A PRECEDENT WE ADMIT THE ADDITIONAL GROUND AND DIREC T THE ASSESSING OFFICER NOT TO LEVY ANY INTEREST UNDER SECTION 234B FOLLOWING THE PRINCIPLES LAID DOWN BY THE HONBLE BOMBAY HIGH COU RT IN THE ABOVE REFERRED CASE OF DIT VS. NGC NETWORK ASIA LLC (2009 ) 222 CTR 85 (BOM.) (HC). THEREFORE GROUNDS TO THAT EXTENT RAIS ED BY THE ASSESSEE IN AY 2002-03 AND 2003-04 ARE CONSIDERED AS ALLOWED . 9. IN THE RESULT ASSESSEES APPEALS FOR THE ASSES SMENT YEARS 2002-2003 2003-2004 ARE PARTLY ALLOWED ASSESSEES APPEALS FOR ASSESSMENT YEARS 2004-2005 AND 2005-2006 ARE ALLOWE D TO BE WITHDRAWN AND REVENUE APPEALS ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16-09-2011. SD/- SD/- (R.S.PADVEKAR) (B.RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATE 16 TH SEPTEMBER 2011 VBP/- 8 COPY TO 1. DY.DIRECTOR OF INCOME TAX (IT)-4(2) R.NO.11 GR. FLOOR SCINDIA HOUSE BALLARD PIER MUMBAI 400 038. 2. NICKELDEON ASIA HOLDINGS PTE. LTD. C/O. VIACOM 1 8 MEDIA PVT. LTD. 36B DR.R.K.SHIRODKAR MARG PAREL (E) MUMBAI 400 012 PAN AABCN3147K 3. CIT(A)-11 MUMBAI 4. DIT-(INTL. TAXATION) MUMBAI 5. DR L BENCH 6. GUARD FILE (TRUE COPY) BY ORDER ASST. REGISTRAR ITAT MUMBAI BENCHES MUMBAI.