International Taxation

CA. Hinesh Doshi, CA. Jhankhana Thakkar

M/s. ATL Media Limited. vs. Deputy Director of Income Tax, Circle-1(1)(2), International Taxation, Mumbai [TS-83-ITAT-2024(Mum)] dated 2nd January, 2024

Facts:

  • Assessee, a British Virgin Island (BVI) based Company, engaged in the business of telecasting satellite channels, earned income from two streams, i.e. advertisement and subscription.

  • Assessee, appointed Zee Telefilms Ltd. (ZTL) as agent for advertising/marketing and El- Zee Televisions Ltd. (El-Zee) was appointed as exclusive distributor, for distribution of rights of the satellite channels broadcasted by the Assessee in India.

  • As per the aforesaid agreement, ZTL was compensated by way of commission @ 8.5% of the advertisement tariff and El-Zee was allowed to retain 20% of subscription fee as commission.

  • Assesse filed NIL return for AY 2002-03 but during assessment the revenue made addition of 15% of the advertisement revenue at Rs. 6.09 Cr and held the subscription income from pay channels to be royalty and made addition of 20% on the same.

  • Aggrieved, the assessee filed an appeal with the ITAT.

Issue:

  • Whether BVI company will be taxable for advertisement and subscription income even though their business connection are remunerated at ALP?

Held:

  • ITAT noted assessee’s contention that the advertisement and subscription income is not taxable in India as business income, as all operations of the assessee are carried outside India and the assessee has no business connections in India.

  • ITAT considered assessee’s argument that Article-7(1) of the DTAA which states that the profit of an enterprise will be taxable only to the extent as is attributable to the permanent establishment which is similar to with clause (a) of explanation 1 of section 9(1)(i) of the Act.

  • Relying on jurisdictional HC judgment in SET Satellite (Singapore) and co-ordinate bench ruling in case of assessee’s group company, Asia Today Ltd, wherein it was held that where the overseas entity has remunerated PE in India at arm’s length nothing further is liable to be taxed in the hands of non-resident entity.

  • On the issue of treatment of subscription receipts as business income and not royalty, ITAT observed that the Distribution agreement neither allows the distributor to use its copyright nor has given any right to use the copyright and that the subscription is collected from the customers for the use of facility of viewing television channels, thus held the subscription income to be purely business income. Relying on Jurisdictional HC judgment in MSM Satellite (Singapore), wherein it was held that distribution receipt is not in the nature of royalty income.

  • Thus, ITAT ruled in the favour of the assessee.

Mr Devi Dayal vs. Deputy/Assistant Commissioner of Income Tax, International Taxation, Haryana [TS-78-ITAT-2024(DEL)] dated 18th January, 2024

Facts:

  • Assessee, a non-resident, was deputed by an Indian employer to work in Vienna, Austria.

  • Assessee received salary and compensation in Vienna. For AY 2016-17, assessee filed his return declaring income of Rs.9.76 Lacs.

  • Assessee was subject to reassessment proceedings on the ground that the Assessee did not disclose various allowances amounting to Rs.21.81 Lacs received in his return of income.

  • Revenue made an addition on account of salary and allowances as the Assessee did not furnish TRC.

  • Aggrieved, the assessee filed an appeal with the ITAT.

Issue:

  • Whether non resident deputed by Indian employer will be taxable for allowances on services rendered abroad?

Held:

  • ITAT analysed sec 9(1)(ii) and observed that the income earned under head Salaries is taxable in India “if it is earned” in India and the Explanation makes it clear that ‘salaries earned in India’ means services rendered in India.

  • ITAT opined that “Since, the assessee has rendered services outside India, the salary cannot be taxable in India.”

  • ITAT relied on Section 5 dealing with scope of total income , Section 15 dealing with computation and chargeability thereof and Section 9 dealing with income arising or accruing in India and holds, “no taxability arises on the salary/allowances received by the assessee since the assessee is a non-resident and has rendered services outside India”

  • Thus, ITAT ruled in the favour of the assessee.

M/s. Comstar Mauritius Limited vs. Commissioner of Income Tax, Circle-4(2)(1), International Taxation, Mumbai [TS-24-ITAT-2024(Mum)] dated 11th January, 2024

Facts:

  • Assessee, a Mauritius-based Company, filed its return of income for AY 2018-19, declaring nil income and claiming refund of tax deduction at source of ₹71.37 Cr.

  • AO completed scrutiny assessment by granting relief to the assessee on capital gain of Rs 724.17 crore from sale of equity shares under Article 13 of India Mauritius DTAA.

  • Subsequently, CIT observed that equity shares were of the Indian company which were acquired in holding the assessment to be erroneous and passed revisionary order under section 263 stating that no enquiries were conducted regarding the same.

  • Aggrieved, the assessee filed an appeal with the ITAT.

Issue:

  • Whether capital gain will be exempt for shares which were acquired before 2017?

Held:

  • ITAT opined that the AO passed the assessment order granting Assessee the benefit of Article 13 after making due enquires and the same is in accordance with the CBDT press release dt. Aug 29, 2016, expressly providing for grandfathering of investment prior to Apr 1, 2017, i.e. the same shall not be subject to capital gain tax in India.

  • Relying on SC judgment in Azadi Bachao Andolan upholding CBDT Circular No. 682 dt.Mar 30, 1994 and CBDT Circular No.789 dt. Apr 13, 2000, providing that the tax residency certificate shall constitute a sufficient evidence for status of residency and beneficial ownership for applying the DTAA.

  • ITAT held that “the assessment order passed by the learned Assessing Officer granting benefit of Article 13 to the assessee on shares acquired prior to 1st April 2017, is after making due enquires and further same is also made in accordance with the press release of Central Board of Direct Taxes, hence, cannot be considered to be erroneous insofar as it is prejudicial to the interest of the Revenue.”

  • Thus, ITAT ruled in the favour of the assessee.