Article 5 and 7 of India-Netherlands DTAA – Independent agent acting in its ordinary course of business and procuring ad time to be broadcasted on TV channels without an authority to legally bind the Taxpayer does not constitute DAPE of the taxpayer. Also, no further attribution to DAPE if agent is remunerated at ALP.

1.       TS-340-ITAT-2017(Mum)

International Global Networks BV vs. ADIT

A.Ys: 1998-99 to 2004-05,

Date of Order: 26^th July, 2017

Facts

Taxpayer, a Netherlands company, was a wholly owned
subsidiary of FCo, a Hong Kong Company. FCo was ultimately held by another
company Foreign Company (FCo1). Taxpayer had an exclusive right for sale of
advertising time (ad time) in India on the channel owned by FCo Group. Taxpayer
engaged ICo, an Indian entity of the group, to procure business from Indian
advertisers in return for a commission of 15% of the gross advertisement
receipts from India.

AO held that the Taxpayer was merely a conduit and the
advertisement income belonged to FCo. The AO however assessed the whole of ad
time fees the income in the hands of the Taxpayer on protective basis.

Aggrieved by the order of AO, taxpayer appealed before CIT(A)
who concluded that the Taxpayer had a Permanent Establishment in India in the
form of ICo being its dependent agent.

Taxpayer argued that (a) ICo did not have power to conclude
contracts on behalf of the Taxpayer; (b) ICo carried on the activities for
Taxpayer in the ordinary course of ICo’s business;(c) ICo was engaged in
various business activities like undertaking agency activities,
producing/procuring and supplying program and acting as a licensee in India in
respect of other parties. Accordingly, ICo was economically independent of the
Taxpayer; (d) Consequently, ICo did not qualify as a dependent agent PE (DAPE)
of the Taxpayer in India; (e) In any case, since the remuneration paid to ICo
was at arm’s length, it did not warrant any further attribution, to Permanent
Establishment (PE).

Aggrieved, Taxpayer appealed before the Tribunal.

Held

–   The Tribunal noted that agreement between
Taxpayer and ICo, indicated as follows:

•    ICo had to solicit the advertisement at the
rates fixed by the Taxpayer.

•    ICo could not enter into agreement with any
client independently. Even after the agreement, Taxpayer was the final
authority to decide the fate of the advertisement.

•    ICo was to receive fixed percentage of
invoiced amount as commission.

•    ICo was free to carry out any other business
and as observed earlier did carry out other business.

•    ICo had no right to bind the Taxpayer into
any legal obligation.

–   The Tribunal ruled that ICo did not create a
DAPE for the Taxpayer in India for the following reasons:

•    ICo was not economically dependent on the
Taxpayer, as it was engaged in various business activities like undertaking
agency activities, producing/procuring and supplying program and acting as a
licensee in India in respect of other parties.

•    ICo was an independent agent acting in its
ordinary course of business and its activities were not wholly or exclusively
devoted to the Taxpayer.

•    Activities of ICo are no different from
other agents of foreign telecasting companies operating in India.

–   Also, commission of 15% paid to ICo was as
per the standard norms prevalent in the industry and it was also accepted to be
at  ALP by the tax authorities in the TP
assessment of the Taxpayer. Thus, the transaction between the parties were at
ALP. Even otherwise, since the payment was at ALP, there was no need of further
attribution in the hands of Taxpayer. Reliance was placed on Bombay HC ruling
in the case of Set Satellite (Singapore) Pte. Ltd. vs. DDIT(IT) [307 ITR
205] and CIT vs. BBC Worldwide Ltd. [35 DTR 257]