MTV Asia LDC v. DDIT ITA No. 3530/Mum/ 2006 (unreported) A.Ys.: 2002-03 to 2005-06. Dated: 31-1-2012 Before P. M. Jagtap (AM) & N. V. Vasudevan (JM) Counsel for taxpayer/revenue: A. V. Sonde/ Malathi Sridharan

Despite payment of arm’s-length remuneration to the agent, further profit could be attributable to the PE in India.

Facts:
The taxpayer was a company incorporated in Cayman Islands and conducted its business operations from Singapore. Singapore tax authority had issued tax residency certificate to the taxpayer confirming that its control and management was exercised from Singapore. During the relevant years, the taxpayer was conducting its entire TV channel activities for Asia-Pacific Region from Singapore.

During the course of assessment proceedings, the AO noted as follows.

• The taxpayer had appointed an Indian company (‘IndCo’) as its agent in India.

• IndCo was entitled to 15% commission on the gross advertisement revenue from India.

• The income of the taxpayer comprised only the advertising time sold by IndCo.

• IndCo also collected the payments and remitted them to Singapore.

The AO, therefore, held that the taxpayer had an agency PE in India. The AO further held that even if the taxpayer paid arm’s-length remuneration to the agent, further profits could be attributed to the agency PE. The AO, accordingly, attributed profits at 40, 30, 25 and 25% for the relevant years. The CIT(A) upheld the further attribution of profits, but reduced the quantum.

The issue before the Tribunal was about proper profit attribution to the PE in India. Held:

The Tribunal held as follows:

• The audit of the accounts of the taxpayer was completed subsequently. Further, the taxpayer had not maintained separate accounts for the Indian operations. Hence, application of Rule 10(i) read with Rule 10(iii) was proper.

• The tax computation filed by taxpayer with the Singapore tax authority in respect of its global operations reflected losses. Hence, margin attributed by the AO was on the higher side.

• Transponder charges and programme charges cannot be said to be only for Indian operations since the satellite footprint also covered neighbouring countries.

• The erstwhile CBDT Circular No. 742 of 1996 provided for presumptive taxation of 10% of the advertisement revenue of foreign telecasting companies as their income. Hence, even though the said Circular was withdrawn, as there was no change in the business model of the taxpayer, attribution of 10% of the advertisement revenue earned by the taxpayer from India was reasonable.