The assessee, a British company, was operating
as an international consumer media company in the areas of television,
publishing, programme licensing, etc. The assessee had appointed BBC
Worldwide (India) Pvt. Ltd. (ICO), its indirect subsidiary, as its
authorised agent in India under the Airtime Sales Agreement (ASA) to market
and procure orders for the sale of airtime on its news channel.
ICO was paid marketing commission at 15% of the
advertisement revenue received by the assessee from Indian customers.
The assessee claimed that it did not attract
tax liability in India in the absence of permanent establishment (PE) in
India and in any case there was no tax attribution possible as its agent was
remunerated at fair price.
The Assessing Officer rejected the contention
of the assessee and estimated 20% of the advertisement revenue as income
attributable to Dependant Agent PE of the taxpayer in India.
The CIT(A) upheld the order of the Assessing
Officer, but reduced the estimated attributable profits to 10%, based on the
CBDT Circular 742, dated 2nd May 19961.
Before the ITAT, the assessee contended
that :
(a) It did not have a business connection or PE
in India.
(b) In any case ICO was remunerated on fair
transfer price. In support of this, reliance was placed on own transfer
pricing order of the ICO for the subsequent year. Reliance was also placed
by the assessee on the decisions in the case of Set Satellite Singapore Pte
Limited (2008 TIOL 414 HC Mum.) and Galileo International Inc, (2007 TIOL
447 ITAT DEL) to support that payment of commission exhausted charge of
taxation in respect of dependant agent PE.
(c) The assessee also placed reliance on the
CBDT Circular No. 23 of 1969, which states that if the commission paid fully
represents the value of profit attributable to the services, it would prima
facie extinguish the assessment of the foreign principal.
(d) The assessee also contended that since
audited accounts were filed indicating the allocation of revenue and
expenses of the Indian activity, the CBDT’s Circular No. 742, which was
relied on by the Department, was not applicable.
