Section 9(1)(i) of Act – As appearance of non-resident celebrity for promotional event outside India was for the benefit of the business in India, there was significant business connection in India and hence appearance fee paid was taxable in India

6. [2020] 115 taxmann.com 386 (Mum.)(Trib.)

Volkswagen Finance (P) Ltd. vs. ITO

ITA No. 2195/Mum/2017

A.Y.: 2015-16

Date of order: 19^th March, 2020

Section 9(1)(i) of Act –
As appearance of non-resident celebrity for promotional event outside India was
for the benefit of the business in India, there was significant business
connection in India and hence appearance fee paid was taxable in India

FACTS

The assessee was an Indian
member-company of a global automobile group. It organised a promotion event in
Dubai jointly with another Indian member-company of the group for the launch of
a car in India. For this purpose, the assessee paid appearance fees to a
non-resident (NR) international celebrity outside India. In consideration, the
assessee and its group company had full rights to use all the event footage /
material / films / stills / interviews, etc. (event material) for its business
promotion.

The assessee contended before the A.O. that the event took place in
Dubai; the NR made his appearance in Dubai; the NR or his agent had not
undertaken any activity in India in relation to the appearance fee; and hence,
appearance fee could not be treated as accruing or arising in India, or deemed
to be accruing or arising in India. Therefore, the income was not taxable under
the Act. Consequently, no tax was required to be withheld. Accordingly, there
was no question of claiming any DTAA benefit.

But the A.O. held that the
payment was in the nature of royalty u/s 9(1)(vi) and further, Article 12 of
the India-USA DTAA also did not provide any relief. Hence, the assessee was
liable to withhold tax.

On appeal, the CIT(A)
confirmed the conclusion of the A.O. and further held that the sole purpose of
organising the event in Dubai was to avoid attracting section 9(1)(i) relating
to Business Connection in India. Being aggrieved, the assessee filed an appeal
before the Tribunal.

HELD

(i) The Tribunal relied upon the Supreme Court’s observations in the
R.D. Agarwal case⁴  to hold
that business connection is not only a tangible thing (like people, businesses,
etc.), but also a relationship. From the following facts it was apparent that
the event in Dubai and the business of the assessee in India had a
relationship.

(a) The event was India-centric and the benefits thereof were to accrue
to the assessee and its group company in India because the target audience was
in India.

(b) The assessee and its group company were permitted non-exclusive use
of the event material.

(c) Both the assessee and its group company had business operations only
in India.

(d) The claim of entire expenses of the event by the assessee and its
group company showed that they had treated the same as ‘wholly and
exclusively for the purposes of business’.

(ii) As a consequence of the relationship between the event in Dubai and
the business of the assessee in India, income had accrued to the NR. In this
case, the business connection was intangible since it was a ‘relationship’ and
not an object. However, it was a significant business connection without which
the appearance fee would not have been paid.

Accordingly, the NR had
business connection in India. Hence, the payment made to the NR was taxable in
India. Consequently, the assessee was required to withhold tax.

______________________________

3   Decision
does not mention particulars of circumstantial evidence provided by the
assessee for proving residency

4   (1965)
56 ITR 20 (SC)