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2024 Supreme(Online)(ITAT) 633
INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH)
SHRI NAVEEN CHANDRA, ACJ, SHRI SAKTIJIT DEY, VP
Discovery Networks Asia Pacific Pte Ltd – Appellant
Versus
The A.C.I.T – Respondent
ITA No. 7631/DEL/2017 [A.Y. 2013-14] | ITA No. 908/DEL/2020 [A.Y. 2014-15] | ITA No. 909/DEL/2020 [A.Y. 2015-16]
For the Appellants/Petitioners: Shri Manuj Sabharwal, Adv, Shri Drona Negi, Adv, Shri Devrat Tiwari, Adv
For the Respondents: Shri Vijay B. Basanta, CIT-DR
Tax assessments of foreign broadcasting revenues should align with established Mutual Agreement Procedures (MAP) to ensure tax certainty and consistency across years, focusing on business income rather than royalty classifications.
Headnote:(A) Income-tax Act, 1961 - Sections 143(3), 144C, 271(1)(c) - India-Singapore Double Taxation Avoidance Agreement - Revenue assessments for taxability of advertisement and distribution income of foreign company - Appeals regarding taxation on grounds of arm's length basis and characterization of income as royalties or business profits were determined based on Mutual Agreement Procedures (MAP) and previous judgments affirming tax certainty. (Paras 1, 5, 31, 34, 43)
Facts of the case:
The appeals arise from income assessments of a foreign broadcasting company regarding advertisement and distribution revenues earned in India, with the Assessee claiming nil income in its tax returns. The tax authorities assessed revenues and applied a percentage, determining portions as taxable business income and royalties under the governing tax treaty. (Paras 5, 10, 11, 28)
Findings of Court:
The Tribunal found merit in the Assessee's reliance on MAP resolutions fostering consistency in taxation and determined that revenues were to be taxed according to principles established in prior agreements, despite differences in tax authority assessments. (Paras 30, 32, 31)
Issues: The primary issue was whether the income from advertisement and distribution was correctly treated as business income rather than royalties and whether the assessments by tax authorities adhered to principles of certainty and consistency established in MAP resolutions. (Paras 25, 31)
Ratio Decidendi: The court reiterated the necessity of maintaining tax certainty and consistency as paramount and observed that the income should reflect previous MAP resolutions and discussions involving both countries' tax authorities, establishing that the treatment of income must be uniform across assessment years. (Paras 28, 31, 32)
Result: Appeals allowed for the Assessee, with MAP resolutions determining taxation of revenue as business income. The Revenue’s appeals on penalties were dismissed. (Paras 34, 58)
| Table of Content |
|---|
| 1. introduction of the appeals and determination of jurisdiction. (Para 1 , 2) |
| 2. claim of nil income and arguments against ao's assessments. (Para 4 , 8) |
| 3. nature of revenue and classification as non-taxable royalties. (Para 5 , 10 , 11) |
| 4. appeals presented in accordance with map resolutions. (Para 12 , 14 , 16 , 19) |
| 5. judicial emphasis on consistency and certainty in tax assessments. (Para 25 , 29 , 30 , 31 , 32) |
| 6. final decision on appeal and conclusions drawn. (Para 33 , 58) |
ORDER
PER NAVEEN CHANDRA, ACCOUNTANT MEMBER:-
The above captioned appeal by the assessee is directed against the order dated 17.10.2017 pertaining to A.Ys. 2013-14 of ACIT, International Taxation, Circle 1(2)(2) u/s 144C(13)/143(3) and appeals of the Revenue are directed towards the order dated 31/10/2019 of CIT(A), Delhi-42 for A.Ys. 2014-15 and 2015-16, respectively.
2. The appeals and cross appeal pertaining to same assessee were heard together and are disposed of by this common order for the sake of convenience and brevity.
3. Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules.
ITA No. 7631/DEL/2017 [A.Y. 2013-14]
4. The grounds raised by the assessee read as under:
“1. That on the facts and in the circumstances of the case and in law, the order of Assistant Commissioner of Income Tax, Circle 1(2)(2), International Taxation, New Delhi ('Ld. AO') is bad both in law and on facts. The Ld. AO, based on surmises/ conjectures and in violation of the principles of natural justice, has grossly erred in assessing the income at INR 186,14,66,184 as against NIL income as per return.
Grounds relating to taxability of advertisement revenues
2. The Ld. AO and Ld. DRP have grossly erred in not appreciating that payment of an arm's length remuneration by the appellant to its Permanent Establishment ('PE') (le Discovery Communications India)
extinguishes the tax liability of the appellant in India.
2.1 That on the facts and circumstances of the case and in law, the Ld. AO and Ld DRP have grossly erred in holding a sum of INR 23,20,62,658 (being 15% of the gross advertisement revenues) attributable to PE.
2.2 That on the facts and in the circumstances of the case and in law, the Ld. AO and Ld DRP have erred in inferring that transfer pricing study and certification of the PE of appellant in India, for the subject AY, adequately captures Functions, Assets and Risk ('FAR') analysis of the PE.
2.3 That the Ld. AO and Ld DRP have erred in not following the transfer pricing order passed for AY 2013-14 by Ld. Transfer Pricing Officer ('TPO') wherein no adjustments were made in respect of the arm's length price received by appellant's PE in India..
2.4 The Ld. AO and Ld DRP have erred in not considering binding circulars issued by the Central Board of Direct Taxes and in not following judicial pronouncements by the Indian courts including that of Hon'ble Supreme Court in the case of DIT (International Taxation), Mumbai v. Morgan Stanley and Co. Inc. (292 ITR 416) wherein it was held that where a PE has been remunerated at an arm's length, no further attribution of profits can be done for such PE. Grounds relating to taxability of distribution revenues
3 That on the facts and circumstances of the case and in law, the Ld. AO and Ld DRP have erred in holding distribution revenues of INR 162,94,03,526, as royalty income of the appellant under the provisions of Explanation 2 to Section 9 (1)(vi) of the Income-tax Act, 1961 (the Act') and under Article 12(3) of the India Singapore Double Taxation Avoidance Agreement (Treaty)
3.1 That on the facts and circumstances of the case and in law, the Ld. AO has grossly erred in holding that alternatively 15% of the distribution revenues of INR 162,94,03,526 may be taxed as business income of PE of the appellant.
3.2 That the Ld. AO and Ld DRP have erred in not following the transfer pricing order p
