THE DDIT (IT)-2(1), MUMBAI v. M/S. SET SATELLITE (SINGAPORE) PTE. LTD, MUMBAI

ITA 3913/MUM/2007 | 2003-2004
Pronouncement Date: 13-04-2010 | Result: Dismissed

Appeal Details

RSA Number 391319914 RSA 2007
Assessee PAN AABCS9229H
Bench Mumbai
Appeal Number ITA 3913/MUM/2007
Duration Of Justice 2 year(s) 10 month(s) 25 day(s)
Appellant THE DDIT (IT)-2(1), MUMBAI
Respondent M/S. SET SATELLITE (SINGAPORE) PTE. LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 13-04-2010
Appeal Filed By Department
Order Result Dismissed
Bench Allotted L
Tribunal Order Date 13-04-2010
Date Of Final Hearing 24-03-2010
Next Hearing Date 24-03-2010
Assessment Year 2003-2004
Appeal Filed On 18-05-2007
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL 'L' BENCH MUMBAI BEFORE SHRI D.K. AGARWAL JUDICIAL MEMBER AND SHRI B. RAMAKOTAIAH ACCOUNTANT MEMBER ITA NO. 3913/MUM/2007 (ASSESSMENT YEAR: 2003-04) DDIT (INTERNATIONAL TAXATION) 2(1) M/S. SET SATELLI TE (SINGAPORE) PTE. LTD. ROOM NO. 120 1ST FLOOR C/O RSM & CO AMBIT RSM HOUS E SCINDIA HOUSE BALLARD ESTATE VS. SENAPATI BAPAT MARG N.M. ROAD MUMBAI 400020 LOWER PAREL MUMBAI 40001 3 PAN - AABCS 9229 H PAN - AABCS 9229 H APPELLANT RESPONDENT CO NO. 250/MUM/2007 (ASSESSMENT YEAR: 2003-04) M/S. SET SATELLITE (SINGAPORE) PTE. LTD. DDIT (INTERNATIONAL TAXATION) 2(1) C/O RSM & CO AMBIT RSM HOUSE ROOM NO. 120 1ST FLOO R SENAPATI BAPAT MARG VS. SCINDIA HOUSE BALLARD ESTATE LOWER PAREL MUMBAI 400013 N.M. ROAD MUMBAI 40002 0 PAN - AABCS 9229 H PAN - AABCS 9229 H CROSS OBJECTOR APPELLANT IN APPEAL APPELLANT BY: SHRI NARENDER SINGH RESPONDENT BY: SHRI P.J. PARDIWALLA O R D E R PER B. RAMAKOTAIAH A.M. THIS APPEAL BY THE REVENUE IS AGAINST THE ORDER OF THE CIT(A) XXXI MUMBAI DATED 31.01.2007 2. THE ASSESSEE IS A FOREIGN COMPANY ENGAGED IN THE B USINESS OF ACQUIRING TELEVISION PROGRAMMES AND MOTION PICTURES AND EXHIBITING/TRANSMITTING THE SAME ON SONY ENTERTAINM ENT TELEVISION FROM SINGAPORE. THE ASSESSEE IS A TAX RESIDENT OF SING APORE IN TERMS OF ARTICLE 4 OF THE TAX TREATY BETWEEN INDIA AND SINGAPORE (THE TREATY). THE ASSESSEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR ON NOVEMBER 29 2000 DECLARING TOTAL INCOME AT NIL AS PER THE FORMULA PR ESCRIBED IN CIRCULAR NO. 742 PROVIDING GUIDELINES TO ASSESSING OFFICER FOR C OMPUTING TAX LIABILITY OF FOREIGN TELECASTING COMPANIES. IN THE LETTER FURNIS HED ALONG WITH THE RETURN ITA NO. 3913 & CO NO. 250/MUM/2007 M/S. SET SATELLITE (SINGAPORE) PTE. LTD. 2 IT WAS STATED THAT THE ASSESSEE DID NOT HAVE ANY TA X LIABILITY IN INDIA IN TERMS OF THE DETAILED SUBMISSION MADE DURING THE AS SESSMENT PROCEEDINGS FOR A.YS. 1996-97 AND 1997-98. ACCORDING TO THE ASS ESSEE THE BUSINESS OPERATIONS OF THE ASSESSEE (VIZ. ACQUIRING PROGRAMM ES/MOVIES AND EXHIBITING/TRANSMITTING THE SAME ON TV CHANNELS) AR E CARRIED OUT FROM THE SINGAPORE. THE ONLY ACTIVITIES CARRIED OUT IN INDIA ARE THE MARKETING ACTIVITIES THROUGH SET INDIA PRIVATE LIMITED (SET I NDIA). FOR THESE SERVICES THE ASSESSEE PAYS AN ARMS LENGTH SERVICE FEE TO SE T INDIA. ACCORDING TO THE ASSESSEE AS PER EXPLANATION (A) TO SECTION 9(1)(I) OF THE I.T. ACT IN CASES WHERE ALL THE BUSINESS OPERATIONS ARE NOT CARRIED O UT IN INDIA ONLY SUCH PART OF THE INCOME AS IS REASONABLY ATTRIBUTABLE TO THE INDIAN OPERATIONS SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. FURTHE R AS PER ARTICLE 7(1) OF THE TREATY DEALING WITH BUSINESS PROFITS ONLY SO MUCH OF PROFITS OF AN ENTERPRISES AS ARE DIRECTLY OR INDIRECTLY ATTRIBUTA BLE TO ITS PE IN INDIA CAN BE TAXABLE IN INDIA. THUS BOTH UNDER THE ACT AND THE TREATY ONLY INCOME ATTRIBUTABLE TO THE ASSESSEES INDIAN OPERATIONS (V IZ. MARKETING OF THE AD TIME SLOTS) CAN BE TAXED IN INDIA. FURTHER PLEA OF THE ASSESSEE WAS THAT SET INDIA IS APPOINTED BY THE ASSESSEE TO MARKET THE AD TIME SLOTS IN INDIA. THE ASSESSEE PAYS AN ARMS LENGTH SERVICE FEE TO SET IN DIA FOR THE MARKETING SERVICES RENDERED BY IT TO THE ASSESSEE. PAYMENT OF SUCH ARMS LENGTH SERVICE FEE EXTINGUISHES THE ASSESSEES TAX LIABILITY IN IN DIA. ACCORDING TO THE ASSESSEE THE ABOVE CONTENTION ALSO FINDS SUPPORT F ROM CIRCULAR NO. 23 WHICH STATES THAT IF THE AGENTS COMMISSION FULLY R EPRESENTS THE VALUE OF THE PROFIT ATTRIBUTABLE TO HIS SERVICE IT SHOULD PRIMA FACIE EXTINGUISH THE ASSESSMENT OF THE PRINCIPAL. ACCORDING TO THE ASSES SEE THE ABOVE CONTENTION HAS ALSO BEEN ACCEPTED INTERNATIONALLY. THE PROTOCO L TO THE AUSTRIA-GERMANY TREATY GOES A STEP FURTHER TO SUGGEST THAT WHERE TH E DEPENDENT AGENT IS PAID AN ARMS LENGTH COMMISSION HE IS NOT EVEN REGARDED AS A PE OF THE PRINCIPAL AND THEREFORE NO PROFITS OF THE PRINCIPAL ARE LIABL E TO TAX IN THE COUNTRY OF THE DEPENDENT AGENT. THUS BASED ON ALL THE ABOVE THE A SSESSEE CONTENDED THAT NO TAX LIABILITY ARISES IN INDIA IN THE HANDS OF TH E ASSESSEE VIS--VIS THE AD REVENUES EARNED BY IT. ITA NO. 3913 & CO NO. 250/MUM/2007 M/S. SET SATELLITE (SINGAPORE) PTE. LTD. 3 3. THE BASIS ON WHICH THE ASSESSEE DECLARED ITS IN COME WAS AS PER THE CBDT CIRCULAR NO. 742. THE ASSESSEE HAD DECLARED IT S INCOME AT 10% OF THE RECEIPTS FROM ADVERTISEMENT IN OWN CHANNELS OF RS.4 97 154 262/- AND 10% OF THE RECEIPTS PERTAINING TO ADVERTISEMENT IN THIR D PARTY CHANNELS TOTALLING TO RS.17 838 573/-. 4. THE ASSESSING OFFICER HOWEVER HELD THAT ADVER TISEMENT REVENUE EARNED BY THE ASSESSEE IS TAXABLE IN INDIA AS BUSINESS INC OME. THE ASSESSING OFFICER THUS BROUGHT TO TAX THE ADVERTISEMENT REVEN UE AFTER DEDUCTING COMMISSION DUE TO ADVERTISEMENT AGENCIES AND SERVIC E FEES DUE TO SET INDIA. 5. ON APPEAL BY THE ASSESSEE CIT(A) ACCEPTED THE P LEA AS PUT FORTH BY THE ASSESSEE WHICH WAS TO THE EFFECT THAT SERVICE FEE PAID BY THE ASSESSEE TO SET INDIA FOR MARKETING OF AIRTIME IS ON ARMS LENG TH BASIS AND THAT SUCH ARMS LENGTH REMUNERATION EXTINGUISHES TAX LIABILITY OF THE ASSESSEE IN INDIA VIS--VIS THE ADVERTISEMENT REVENUE. IN THIS REGARD CIT(A) REFERRED TO HIS OWN ORDER IN A.Y. 1999-2000; WHEREIN HE HAD TAKEN T HE VERY SAME VIEW IN ASSESSEES OWN CASE. THE CIT(A) HOWEVER HELD THAT SINCE THE ASSESSEE ITSELF OFFERED INCOME TO TAX IN THE RETURN OF INCOME FOLLO WING THE RATIO OF CIRCULAR NO. 742 THE ASSESSING OFFICER WAS JUSTIFIED IN BRI NGING INCOME SO OFFERED TO TAX. 6. AGGRIEVED BY THE ACTION OF CIT(A) IN UPHOLDING THE CLAIM OF THE ASSESSEE THAT THERE IS NO TAX LIABILITY ON THE ADVERTISEMENT REVENUE RECEIVED BY IT FROM INDIA THE REVENUE HAS PREFERRED APPEAL BEFORE THE TRIBUNAL. AGGRIEVED BY THE ACTION OF THE CIT(A) HOLDING THAT SINCE THE ASS ESSEE HAD OFFERED INCOME TO TAX FOLLOWING THE RATIO OF CIRCULAR NO. 742 TH E ASSESSING OFFICER WAS JUSTIFIED IN BRINGING INCOME SO OFFERED TO TAX THE ASSESSEE HAS PREFERRED THE PRESENT CROSS OBJECTION BEFORE THE TRIBUNAL. 7. AT THE TIME OF HEARING OF THESE APPEALS IT WAS BRO UGHT TO OUR NOTICE THAT IN ASSESSMENT YEARS 1999-2000 & 2000-01 IDENT ICAL ISSUE HAD COME UP FOR CONSIDERATION BEFORE THE TRIBUNAL; AND THE T RIBUNAL HAD REVERSED THE ORDERS OF CIT(A) AND HELD THAT THE ADVERTISEMENT RE VENUE RECEIVED BY THE ASSESSEE IN INDIA ARE TAXABLE IN INDIA. AS AGAINST THE AFORESAID ORDER OF ITAT ITA NO. 3913 & CO NO. 250/MUM/2007 M/S. SET SATELLITE (SINGAPORE) PTE. LTD. 4 (SINCE REPORTED AS DDIT VS. SET SATELLITE (SINGAPOR E) PVT. LTD. 106 ITD 175 (MUM)) THE ASSESSEE HAD PREFERRED THE APPEAL BEFOR E THE HON'BLE HIGH COURT OF BOMBAY; AND HON'BLE BOMBAY HIGH COURT WAS PLEASE D TO RESTORE THE ORDER OF CIT(A) IN A.Y. 1990-2000. HON'BLE HIGH COU RT HELD THAT MERELY BECAUSE TAX ON INCOME WAS PAID FOR SOME ASSESSMENT YEARS WOULD NOT ESTOP THE ASSESSEE FROM CONTENDING THAT ITS INCOME IS NOT LIABLE TO TAX. HON'BLE COURT UPHELD THE VIEW OF CIT(A) THAT SINCE THE ASSE SSEE PAID SERVICE FEE TO SET INDIA FOR MARKETING OF AIRTIME ON AN ARMS LENG TH BASIS SUCH PAYMENT EXTINGUISHES TAX LIABILITY OF THE ASSESSEE IN INDIA VIS--VIS THE ADVERTISEMENT REVENUE. IT WAS FURTHER SUBMITTED THAT EVENTHOUGH T HE CIRCULAR NO. 23 HAS BEEN WITHDRAWN THE RATIONALE IS SAME AND THE 15% C OMMISSION IS CONSIDERED AS ARMS LENGTH PRICE. IT IS ALSO FURTHER SUBMITTED THAT THERE IS A FINDING THAT THE ASSESSEE HAS NO PE IN INDIA AND TH E PAYMENT OF COMMISSION WAS ACCEPTED AS ARMS LENGTH PRICE IN SUBSEQUENT Y EARS AND HENCE THERE IS NO MERIT IN REVENUE APPEAL. SINCE THE FACTS AND CI RCUMSTANCES IN THE PRESENT ASSESSMENT YEAR ARE IDENTICAL RESPECTFULLY FOLLOWING THE DECISION OF HON'BLE HIGH COURT WE DISMISS APPEAL OF THE REVENU E. 8. CROSS OBJECTION OF THE ASSESSEE IS PURELY SUPPORTI VE AND IN VIEW OF THE DISMISSAL OF THE REVENUES APPEAL CROSS OBJECTION IS ALSO DISMISSED. 9. IN THE RESULT BOTH THE APPEAL AND CROSS OBJECTION ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 13TH APRIL 2010. SD. SD. (D.K. AGARWAL) (B. RAMAKOTAIAH) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI DATED: 13 TH APRIL 2010 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) XXXI MUMBAI 4. THE DIT (INTERNATINAL TAXATION) MUMBAI 5. THE DR L BENCH ITAT MUMBAI BY ORDER //TRUE COPY// ASSISTANT REGISTRAR ITAT MUMBAI BENCHES MUMBAI