M/S. INTERNATIONAL GLOBAL NETWORSK BV, v. THE ADIT (I.T)3(1),

ITA 9174/MUM/2004 | 2001-2002
Pronouncement Date: 21-05-2010 | Result: Partly Allowed

Appeal Details

RSA Number 917419914 RSA 2004
Assessee PAN EMBER2004P
Bench Mumbai
Appeal Number ITA 9174/MUM/2004
Duration Of Justice 5 year(s) 5 month(s) 5 day(s)
Appellant M/S. INTERNATIONAL GLOBAL NETWORSK BV,
Respondent THE ADIT (I.T)3(1),
Appeal Type Income Tax Appeal
Pronouncement Date 21-05-2010
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted L
Tribunal Order Date 21-05-2010
Assessment Year 2001-2002
Appeal Filed On 16-12-2004
Judgment Text
ITA NO. 9174 /MUM/04 ASSESSMENT YEAR 2001 - 02 PAGE 1 OF 5 / IN THE INCOME TAX APPELLATE TRIBU NAL MUMBAI L BENCH MUMBAI BEFORE SHRI PRAMOD KUMAR ( ACCOUNTANT MEMBER) AND SHRI R S PADVEKAR ( JUDICIAL MEMBER) ITA NO. 9174/MUM/04 ASSESSMENT YEAR 2001 - 02 INTERNATIONAL GLOBAL NETWORK BV (FORMERLY SATELLITE TEL EVISION ASIA REGION ADVERTISING SALES BV) .APPELLANT C/O S R BATLIBOI & CO. 18 TH FLOOR EXPRESS TOWERS NARIMAN POINT MUMBAI 400 021 VS. ASSISTANT DIRECTOR OF INCOME TAX - INTERNATI ONAL TAXATION 3 (1) MUMBAI . RESPONDENT SCINDIA HOUS E BALLARD PIER MUMBAI 400 001 APPELLANT BY : SHRI PORUS KAKA RESPONDENT BY : SHRI AJIT KUMAR SINHA O R D E R PER PRAMOD KUMAR: 1. THIS IS AN APPEAL FILED BY THE ASSESSEE AND IS DIRECTED AGAINST THE ORDER DATED 15 TH SEP TEMBER 2004 PASSED BY THE CIT(A) IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2001 - 02. ITA NO. 9174 /MUM/04 ASSESSMENT YEAR 2001 - 02 PAGE 2 OF 5 2. GRIEVANCES RAISED BY THE ASSESSEE ARE AS FOLLOWS: GROUND NO. 1 THE LEARNED CIT(A) HAS ERRED IN HOLDING THA T THE APPELLANT IS A CONDUIT FOR SATELLITE TELEVISION ASIAN REGION LIMITED ( STAR LTD. ). GROUND NO. 2 THE LEARNED CIT(A) HAS ERRED IN HOLDING THAT THE STAR INDIA PVT LTD IS A DEPENDENT AGENT OF STAR LIMITED. GROUND NO. 3 HAVING HELD IN GROUND NO. 1 OF APPEAL THAT THE APPELLANT IS A CONDUIT OF STAR LTD THE LEARNED CIT(A) HAS NOT CONSIDERED IT RELEVANT TO ADJUDICATE ON THE BALANCE GROUNDS OF APPEAL AS DETAILED BELOW: (I) CONCLUDING THAT THE APPELLANT HAS A PERMANENT ESTABLISHMENT IN INDIA UNDER TH E DOUBLE TAXATION AVOIDANCE AGREEMENT EXECUTED BETWEEN INDIA AND THE NETHERLANDS ( NETHERLANDS TREATY ); (II) WITHOUT PREJUDICE TO THE ABOVE CONCLUDING THAT THE APPELLANT IS NOT ELIGIBLE TO BE TAXED AS PER THE PROVISIONS OF CIRCULAR 742 ISSUED BY THE CEN TRAL BOARD OF DIRECT TAXES; (III) WITHOUT PREJUDICE TO THE ABOVE COMPUTING THE TAXABLE PROFITS OF THE APPELLANT ON ADHOC BASIS; AND (IV) LEVYING INTEREST UNDER SECTIONS 234B AND 234C OF THE ACT. 3. LEARNED REPRESENTATIVES THAT WHATEVER BE THE OUTCOME OF ASSESSEE S APPEAL FOR THE ASSESSMENT YEAR 1998 - 99 THE SAME WILL APPLY HERE AS WELL. VIDE OUR ORDER OF EVEN DATE WE HAVE PARTLY ALLOWED THE SAID APPEAL BY INTER ALIA OBSERVING AS FOLLOWS: 6. THE BASIC CASE OF THE REVENUE IN OUR HUMBLE UNDERSTANDI NG IS ITA NO. 9174 /MUM/04 ASSESSMENT YEAR 2001 - 02 PAGE 3 OF 5 THAT THE ASSESSEE BEFORE US IS USED AS A COMMERCIALLY IRRELEVANT IN INTERMEDIATE ENTITY WHICH ARE USUALLY REFERRED TO PE BLOCKER SO AS TO RESTRICT TAX EXPOSURE OF THE STAR LIMITED IN INDIA. IT IS ON THIS BASIS THAT THE ASSESSING OFFICER HAS COME TO THE CONCLUSION THAT THE REAL TAXABILITY OF ADVERTISING REVENUES MUST LIE IN THE HANDS OF THE STAR LIMITED. AS A COROLLARY TO THIS ACCORDING TO THE ASSESSING OFFICER THE SAID INCOME CANNOT BE TAXED IN THE HANDS OF THIS ASSESSEE. THE CASE OF THE REVEN UE THUS HINGES ON ITS PERCEPTION THAT THE STAR LTD IS DERIVING TAX ADVANTAGE BY INSERTING THE ASSESSEE COMPANY AS A LINK IN CHAIN OF ENTITIES TO GET THE ADVERTISING REVENUES. THIS PERCEPTION IS HOWEVER CLEARLY ERRONEOUS. AS HELD BY HON BLE BOMBAY HIGH C OURT IN THE CASE OF SET SATELLITE (SINGAPORE) PTE LTD VS DDIT (307 ITR 205) IN TERMS OF CBDT CIRCULAR NO. 23 WHERE A NON RESIDENT S SALE TO INDIAN CUSTOMERS ARE SECURED THROUGH AN AGENT THE ASSESSMENT IN INDIA OF THE INCOME ARISING FROM THE SAID TRANS ACTION WILL BE RESTRICTED TO AMOUNT OF PROFIT WHICH IS ATTRIBUTABLE TO THE AGENTS SERVICES. NO DOUBT THIS CIRCULAR IS NOW WITHDRAWN WITH EFFECT FROM 22 ND OCTOBER 2009 BUT A WITHDRAWAL OF THE CIRCULAR AS IS THE SETTLED LEGAL POSITION IS ONLY PROSPECTIVE IN NATURE. IN THE RELEVANT PERIOD THE CIRCULAR WAS VERY MUCH IN FORCE AND CANNOT BE IGNORED. NOW WHETHER THE ADVERTISING REVENUES ARE TAXED IN THE HANDS OF THE ASSESSEE COMPANY OR IN THE HANDS OF THE STAR LIMITED THERE IS NO DISPUTE THAT THE ADVERTISIN G REVENUES ARE GENERATED THROUGH THE COMMISSION AGENT I.E. STAR INDIA PVT LTD AND THAT THE COMMISSION AGENT HAS BEEN PAID A FAIR REMUNERATION FOR ITS SERVICES. THAT INCOME IS ALREADY TAXED IN THE HANDS OF THE STAR INDIA PVT LTD AND IN TERMS OF THE CIRCUL AR 23 TAXABILITY IN RESPECT OF SUCH SALES CANNOT EXTEND BEYOND THAT INCOME. IN VIEW OF THE LEGAL POSITION AS IT NOW STANDS NOW THERE IS NO TAX ADVANTAGE IN ROUTING THE REVENUES THROUGH THE ASSESSEE COMPANY. 7. IN ANY CASE WE HAVE ALSO NOTICED THAT TH E ASSESSEE COMPANY WAS FORMED NOT ONLY FOR PROCURING ADVERTISING BUSINESS FROM INDIA BUT ALSO FROM OTHER COUNTRIES. IT IS THUS CLEAR THAT THE ASSESSEE GROUP CHOSE TO CENTRALIZE THE SALE OPERATIONS TO THE ASSESSEE COMPANY ON A GLOBAL BASIS AND IT WAS NOT D RIVEN BY INDIAN TAX CONSIDERATIONS ALONE. LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO ADDRESSED US AT LENGTH ON COMMERCIAL JUSTIFICATION OF ROUTING THE ADVERTISING SALES BUSINESS THROUGH THIS COMPANY WHICH INCLUDED TRADE DISPUTES SETTLEMENTS OF STAR LIMIT ED WITH ITS FORMER ASSOCIATE MEDISCOPE WHICH WAS APPOINTED EXCLUSIVE AGENT FOR SOME PART AND NON EXCLUSIVE AGENT FOR OTHER PART OF THE BUSINESS IN INDIA AND WHICH IS WAY THE ASSESSEE COMPANY HAD TO BE BROUGHT TO THE PICTURE. COPIES OF DOCUMENTS EVIDENCI NG THESE DISPUTES AND THEIR SETTLEMENTS WERE ALSO FILED BEFORE US. LEARNED DEPARTMENTAL REPRESENTATIVE COULD NOT POINT OUT ANY REASONS AS TO WHY ALL THESE ITA NO. 9174 /MUM/04 ASSESSMENT YEAR 2001 - 02 PAGE 4 OF 5 COMMERCIAL JUSTIFICATIONS CAN BE IGNORED. 8. BASED ON THE MATERIAL BEFORE US IN THE CASE OF THIS CASE THERE IS NO GOOD REASON THUS TO DISREGARD THE EXISTENCE OF THE ASSESSEE COMPANY AND PROCEED TO TAX THE ENTIRE ADVERTISING REVENUE IN THE HANDS OF ITS PARENT COMPANY. IT IS DIFFICULT TO UNDERSTAND THE REASONING ADOPTED BY THE CIT(A) WHO HAS OBSERVED THAT GIVEN THE FACTS OF CASE IT WOULD BE MORE APPROPRIATE TO TAX THE INCOME IN THE HANDS OF THE STAR LIMITED. HE EXERCISED A CHOICE WHICH WAS NOT AVAILABLE TO HIM. WHAT IS TO BE TAXED IN THE HANDS OF STAR LIMITED IS TO BE DECIDED WHEN THE ASSESSMENT OF STAR LIMITED IS FINALIZED AND HOW CAN ANY FINDING BE GIVEN AGAINST STAR LIMITED WITHOUT EVEN HEARING THE SAID ASSESSEE. THE COURSE OF ACTION ADOPTED BY THE CIT (A) IN TAXING THE INCOME IN THE HANDS OF THE STAR HONG KONG RATHER THAN DOING SO IN THE HANDS OF THE ASSESSEE DOES NOT MEET OUR APPROVAL. HAVING SAID SO HOWEVER WE MAY HASTEN TO ADD THAT THIS DECISION WILL HAVE NO BEARING ON THE QUESTION AS TO WHETHER THE STAR LIMITED WILL BE TAXABLE IN RESPECT OF THESE INCOMES DIRECTLY AS WE DO NOT WANT TO BE SEEN AS PRE - EMPTING THE DECISION IN THE CASE OF STAR LIMITED. THAT IS A QUESTION WHICH CAN BE DECIDED AFTER TAKING INTO ACCOUNT MATERIAL ON RECORDS IN THAT CASE AND AFTER HEARING THE STAR LIMITED NO IS IT ANY OF OUR CONCERN TO GIVE THAT FINDING. THE SUBJ ECT MATTER OF APPEAL BEFORE US MUST BE RESTRICTED TO THE APPEAL BEFORE US AND WE SHOULD BE CAREFUL IN BEING WITHIN THESE LIMITS. ALL WE CAN SAY IS THAT ON THE BASIS OF MATERIAL PRODUCED BEFORE US IN THE CASE OF THIS ASSESSEE THERE IS NO GOOD REASON TO C OME TO THE CONCLUSION THAT THE INCOME FROM SALE REVENUES OF ADVERTISING TIME DOES NOT BELONG TO THE ASSESSEE. WE LEAVE IT AT THAT. 9. FOR THE REASONS SET OUT ABOVE WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER WAS NOT QUITE JUSTIFIED IN TAXIN G THE INCOME FROM ADVERTISING TIME SALES IN INDIA COULD NOT BE TAXED IN THE HANDS OF THE ASSESSEE. HE OUGHT TO HAVE TAXED THE SAME IN THE HANDS OF THE ASSESSEE COMPANY. 10. AS REGARDS THE OTHER ISSUES RAISED IN THIS APPEAL WE HAVE NOTICED THAT THE CIT(A) HAS NOT REALLY ADJUDICATED UPON THE SAME. WE THEREFORE REMIT THE MATTER TO THE FILE OF THE CIT(A) FOR FRESH ADJUDICATION ON THE SPECIFIC GRIEVANCES RAISED BY THE ASSESSEE ON THE QUANTIFICATION OF TAXABILITY OF INCOME AND OTHER CONSEQUENCES. 4. WE SEE NO REASONS TO TAKE ANY OTHER VIEW OF THE MATTER THAN THE VIEW ITA NO. 9174 /MUM/04 ASSESSMENT YEAR 2001 - 02 PAGE 5 OF 5 SO TAKEN BY US IN ASSESSEE S OWN CASE FOR ONE OF THE PRECEDING YEARS. RESPECTFULLY FOLLOWING THE SAME WE PARTLY UPHOLD THE GRIEVANCE OF THE ASSESSEE IN THE MATTER INDICATED ABOVE AND REMIT THE MATTER TO THE FILE OF THE CIT(A) FOR FRESH ADJUDICATION ON SOME OF THE POINTS. THE OBSERVATIONS MADE IN OUR ORDER FOR THE ASSESSMENT YEAR 1998 - 99 WILL APPLY MUTATIS MUTUNDI FOR THIS ASSESSMENT YEAR AS WELL. 5. IN THE RESULT THE APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON __ TH DAY OF MAY 2010. (R S PADVEKAR) (PRAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; ____ TH DAY OF MAY 2009 COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) MUMBAI 4. COMMISSIONER ( APPEALS) MUMBAI 5. DEPARTMENTAL REPRESENTATIVE L BENCH ITAT MUMBAI 6. GUARD FILE TRUE COPY BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI