By Geeta Jani | Dhishat B. Mehta
Chartered Accountants
2.
TS-84-ITAT-2019 (Mum) Fox International
Channel Asia Pacific Ltd. vs. DCIT A.Y.: 2010-11 Date of Order: 15th
February, 2019
Section 5(2), read with section 9, of the
Act – Agency commission received by non resident outside India, for services
rendered outside India, is not taxable in India.
FACTS
Taxpayer, a company resident in Hong Kong,
was a part of a group of companies, and was engaged in distribution of
satellite television channels and sale of advertisement air time for the
channel companies at global level.
During the year under consideration, Taxpayer
received income in the nature of agency commission for distribution of
television channels and sale of advertisement air time as an agent of the
channel companies. Having noted that the Taxpayer has entered into an
international transaction with its associated enterprises (AEs), AO made a
reference to the Transfer Pricing Officer (TPO) for the determination of the
arm’s length price (ALP).
The TPO while computing ALP noted that out
of the global commission received by the Taxpayer from the overseas channel
companies, commission fee received towards the services rendered outside India
was not offered to tax in India and only the commission fees for services
rendered within India was offered to tax in India. The TPO held that the entire
income including for services rendered outside India was taxable in India and
hence made transfer pricing adjustment to the total income of the Taxpayer. In
pursuance to the ALP determined by the TPO, the AO passed a draft assessment
order adding the transfer pricing adjustment to the income of the Taxpayer.
Aggrieved, Taxpayer appealed before the
Dispute Resolution Panel (DRP) and contended that agency commission received in
respect of services rendered outside India, and received outside India, is not
taxable in India u/s. 5 and 9 of the Act.
However, DRP rejected the Taxpayer’s
contention and held that by virtue of Explanation to section 9(2), entire
income is deemed to accrue or arise in India whether or not the non-resident
has a residence or place of business or business connection in India or the
non-resident has carried on business operations in India. Accordingly, DRP
upheld the adjustment made to the ALP by the TPO.
Aggrieved, Taxpayer appealed before the
Tribunal.
HELD
- The conclusion of the DRP
that section 9 being a deeming provision can bring to tax any income which
accrues or arises outside India, is incorrect.
- As per Explanation 1 to
section 9(1)(i), a non-resident whose business operations are not exclusively
carried out in India, only such part of the income as is reasonably
attributable to the operations carried out in India, is deemed to accrue or
arise in India. Thus, on a complete reading of the provisions of section 9 of
the Act, only such income which has a territorial nexus is deemed to accrue or
arise in India.
- Moreover, provisions of Explanation to section 9(2)1 of the Act, is not applicable to the agency
commission earned by the Taxpayer.
- It is a well settled position
of law that agency commission paid to non-resident agents outside India, for
services rendered outside India, is not taxable in India. Thus, agency
commission paid to Taxpayer outside India, for services rendered outside India,
is not taxable in India.
