Advertisement revenue received by SET Satellite not taxable in India

MUMBAI. Bombay High Court vide a ruling dated 22nd August AIT-2008-297-HC has set aside ITAT Ruling AIT-2007-163-ITAT and held that advertisement revenue received by the SET Satellite (Singapore) Pte Ltd are not taxable in India as long as the DTAA and the Circular No. 23 of 1969 stands.

HC has held as under:

(1) Considering the CBTD Circular No. 742 it would be fair and reasonable that the taxable income is computed at 10% of the gross profits.  In the instant case in so far as marketing services are concerned by the arm’s length principle what has been paid is more than 10% as can be seen from the order of CIT(A).  This was not disputed by the Revenue in its Appeal before the ITAT.

(2) The only contention advanced and which found favour with the Tribunal was that the advertisement revenue received by the assessee was also income liable to tax in India.  The CIT(A) relied upon Circular No. 23 of 1969.  That Circular read with Article 7(1) would result in holding that advertisement revenue received by the appellant are not taxable in India as long as the treaty and the Circular stands.

Appeal filed by the Appellant herein is allowed and the order of the ITAT is set aside.  Merely because tax on income was paid for some assessment years would not estop the assesses from contending that its income is not liable to tax.  The order CIT is restored except to the extent that it has said that it cannot interfere because the Appellant had paid the tax.  That part is set aside.

The Facts were as under:

                According to the Appellant it is a resident of Singapore and has business activities in India. The Appellant through its dependent agent in the form of SET India (P) Limited, is carrying on marketing activities in India for advertisement slots by canvassing advertisements in India. It filed its return of income on 30th December, 1999 declaring its income at Nil. .On 5th March, 2001 they filed revised return of income declaring business income of Rs.13,58,43.976/-. Along with the return it was submitted that it did not have any tax liability in India as it did not have a permanent establishment and that its dependent agent was remunerated on an arm’s length basis. As this income from various activities had been assessed to tax in the hands of SET India, could not be further assessment of income in the hands of the Appellant on account of the said activities. Reliance was placed on Circular No.23 dated July, 23, 1969 issued by the CBDT. Whilst filing revised return on March 5, 2001 it computed its taxable income at Rs.13,58,43,976/-as per the formula prescribed in the CBTD Circular No.742 without prejudice to its contention that they do not have any income which is taxable in India.  Whilst filing its revised returns it was its contention  that  there was no income which was assessable to tax in  India. The Assessment Officer by his order dated 20th March, 2002 assessed the Assessee’s income which included income from marketing fees as also advertisement collected from India and further the subscription fees received from cable operators of its depended agent. Consequent to this order, as there was no deduction at source it imposed interest under Section 234A, 234B and 234C of the Income Tax Act. The Appellant being aggrieved preferred an Appeal before the Commissioner of Income Tax.

                The Appellant Authority, held that distribution rights it was held is a commercial right which is distinct and different from a copyright and consequently there was no question to payment of royalty as had been held by the A.O. and the income belong to SET India which cannot be subject to tax in the hands of the Appellants. Accordingly, the A.O. was directed to delete the portion of Rs. 1,27,89,154/- earned by Set India while computing the taxable income of the Appellant.

In Appeal, Assessee Appellants have raised the following questions of law:­

“(a).                Whether the activities of the non-independent agent under para 8 of Article 5 Would be treated as the activities of the “deemed” permanent establishment and thereby the amount taxable under para 2 of Article 7 in respect of the deemed permanent establishment would be the income attributable in these activities?

(b)   Whether-having taxed the agent on the fair value of the, activities in India, the same could be taxed all over again in the hands of the assessee as being income attributable to the deemed permanent establishment?

(c)   Whether the assessee is debarred from contending in appeal that there was no income liable to tax as a matter of law solely on account of the fact that, it had at some stage surrendered on ad hoc basis, a sum for taxation as being liable to tax in India, without prejudice to its claim that its income is not liable to tax in India.

(Click here for full text of Ruling AIT-2008-297-HC)

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(Source: Allindiantaxes)


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