Article 5(5) and 5(2)(k) of India-UK DTAA – income from distribution of
news and financial information products was not taxable in India in the
absence of dependent agent PE, and service PE under India-UK DTAA ?
Facts: The Taxpayer was a UK tax resident engaged in the business of
providing worldwide news and financial information products (“Reuter
Products”). The Taxpayer entered into three agreements with its Indian
Subsidiary (“ICo”) – License Agreement, Product Distribution Agreement
and Distributor Agreement (“DA”) – for independent distribution of
Reuter Products to Indian subscribers. In terms of DA, the Taxpayer
provided Reuter Products to ICo, which independently distributed it to
Indian subscribers.
While there was no dispute on the first two
agreements, in respect of DA, the Tax Authoroty held that the Taxpayer
had a PE in India in the form of ICo, as it was dedicated for the
business of the Taxpayer; and secondly, the Taxpayer had also deputed
its own employee as Bureau Chief during the relevant period, for
rendering services to ICo on its behalf. Accordingly, the entire
distribution fee was taxable on gross basis @20% u/s. 44D r.w. section
115A.
Held:
On Agency PE
Having regard to the following facts, the Tribunal held that ICo did not constitute agency PE of the Taxpayer.
- Perusal
of DA showed that ICo did not have any authority to negotiate or
conclude contracts which would bind the Taxpayer nor to act as an agent
of the Taxpayer qua distribution to Indian subscribers.
- Perusal
of contract between ICo and Indian subscribers showed that it was an
independent principal-toprincipal arrangement and ICo had initiated
litigation for recovery of debts from Indian subscribers.
- Any news and material supplied by ICo to the Taxpayer was on principal-to-principal basis.
- Income of ICo from subscription fee was far in excess of service fee.
- Under DA, ICo had not earned any commission.
- ICo
was not subject to instructions or comprehensive control of the
Taxpayer. It was bearing the business risk and was not acting only on
behalf of the Taxpayer. Further, it was not “wholly or almost wholly”
dependent on the Taxpayer in any manner since it was independently
earning subscription fees, which were far in excess of service fees
earned from the Taxpayer.
On Service PE
The
employee deputed by the Taxpayer was only acting as chief reporter and
text correspondent in India in the field of collection and dissemination
of news. There is no furnishing of services by the employee to ICo and
the employee had no role in providing Reuter Products to ICo, which
earned distribution fee. Thus Taxpayer did not trigger Service PE in
India.
Accordingly, distribution fee earned by the Taxpayer in India was not taxable in India.
