Non-resident – Taxability in India – Article 5(1) of DTAA between Mauritius and India – Meaning of ‘permanent establishment’ – Company in Mauritius engaged in telecasting sports events – Agreement with Indian company for exhibition of telecasts in India – Finding that agreement was on principal-to-principal basis – Indian company did not constitute permanent establishment of foreign company – Income earned not assessable in India

12. CIT (International Taxation) vs. Taj TV Ltd. [2020]
425 ITR 141 (Bom) Date
of order: 6^th February, 2020 A.Ys.: 2004-05 and 2005-06

Non-resident
– Taxability in India – Article 5(1) of DTAA between Mauritius and India –
Meaning of ‘permanent establishment’ – Company in Mauritius engaged in telecasting
sports events – Agreement with Indian company for exhibition of telecasts in
India – Finding that agreement was on principal-to-principal basis – Indian
company did not constitute permanent establishment of foreign company – Income
earned not assessable in India

The assessee was a company
registered in Mauritius and was a tax resident of that country. The assessee
was engaged in telecasting a sports channel. The assessee had appointed ‘T’ as
its distributor to distribute the channel to cable systems for exhibition to
subscribers in India. In this connection, an agreement dated 1^st
March, 2002 was entered into between the assessee and ‘T’. The A.O. held that
the income earned in terms of the agreement was assessable in India.

The Commissioner (Appeals)
found that ‘T’ was not acting as an agent of the assessee but had obtained the
right of distribution of the channel for itself and, subsequently, had entered
into contracts with other parties in its own name in which the assessee was not
a party, that the distribution of the revenue between the assessee and ‘T’ was
in the ratio of 60:40 and the entire relationship was on principal–to-principal
basis. The Commissioner (Appeals) reversed the order of the A.O. The Tribunal
noted that this finding of the first appellate authority was corroborated by
the terms and conditions of the distribution agreement as well as the
sub-distributor agreement. The Tribunal held that none of the conditions as
stipulated in article 5(4) of the Double Taxation Avoidance Agreement was
applicable to constitute agency permanent establishment, because ‘T’ was acting
independently qua its
distribution rights and the entire agreement was on principal-to-principal
basis. Therefore, it held that the distribution income earned by the assessee
could not be taxed in India because ‘T’ did not constitute an agency permanent
establishment under the terms of article 5(4) of the DTAA.

On appeal by the Revenue,
the Bombay High Court upheld the decision of the Tribunal and held as under:

‘i)  Article 5 of the Double Taxation Avoidance
Agreement  entered into between India and
Mauritius defines “permanent establishment”. The sum and substance of paragraph
(4) of Article 5 is that a person acting in a Contracting State on behalf of an
enterprise of the other Contracting State shall be deemed to be a permanent
establishment of that enterprise in the first-mentioned Contracting State if he
habitually exercises in the first Contracting State an authority to conclude
contracts in the name of the enterprise and habitually maintains in the first
Contracting State a stock of goods or merchandise belonging to the enterprise
from which he regularly fulfils orders on behalf of the enterprise.

ii)  There was a concurrent finding of fact by the
Commissioner (Appeals) and the Tribunal. There was no evidence that the finding
of fact was perverse. Hence the income from distribution earned by the assessee
was not taxable in India.’