Animal Planet, New Delhi vs Department Of Income Tax

Asstt. Director of Income Tax, vs Animal Planet, Circle 1(1), One Discovery Place, New Delhi. Silver Spring MD, USA C/o RSM & Co., 77-B, 3rd Floor, IFFCO Road, Sector-18, Gurgaon

C.O. No.441/Del/2012 (In I.T.A.No.4840/Del/2012) Assessment Year : 2004-05

C.O. No.442/Del/2012 (In I.T.A.No.4841/Del/2012) Assessment Year : 2006-07

Animal Planet (Asia) LLC vs ADIT, Circle 1(1), C/o Kapil Goel Adv. Intl. Taxation, New Delhi. F-26/124, Sector 7, Rohini, Delhi-110085 (PAN: AADCA3886G) (Appellant) (Respondent) Appellant by: Smt. A. Misra, CIT DR Respondent by :Shri Kapil Goel, Adv. Date of Hearing: 24.2.2015 Date of pronouncement:

1 ITA No.4840/Del/2012 Asstt.Year: 2004-05

ORDER

PER CHANDRA MOHAN GARG, JUDICIAL MEMBER

The above captioned appeals of the revenue and cross objections of the

assessee have been filed against the order of the CIT(A)-XI, New Delhi both

dated 19.6.2012 in Appeal No. 57 and 58/10-11 for AY 2004-05 and 2006-07

respectively. The assessee has raised the similarly worded grounds in both the

appeals which read as under:-

"1. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that only 10% of Subscription Revenues are taxable as business income against the entire such revenues taxed by the AO as Royalty, without considering that every assessment year is an independent year and further, MAP resolution applies only to the particular entity and for the particular assessment year, which is covered by such resolution.

2. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in holding that interest u/s 234B is not chargeable in the assessee's case, by relying upon the decision of Hon'ble High Court of Delhi in the case of Jacob Civil Incorporated, without appreciating that the levy of interest 234B is mandatory as held in the case of CIT Vs Anjum M.H. Ghaswala & Others 252 ITR 1 (SC)."

2. Briefly stated the facts giving rise to these appeals are that the assessee

had filed its return of income for AY 2004-05 on 31.4.2004 declaring at nil

income and assessment was finalized at an income of Rs. 6,00,31,583/-. The

assessee filed its return of income for AY 2006-07 on 12.12.2006 declaring an

2 ITA No.4840/Del/2012 Asstt.Year: 2004-05

income of Rs.74,07,404 and this case was subsequently selected for scrutiny. It

is also pertinent to note that the assessee is a non-resident company incorporated

under the laws of Delaware, USA and during the financial years under

consideration, the assessee was engaged in the business of broadcasting Animal

Planet Channel over the entire Asia region including India. Discovery

Communications India (DCIN) is a company incorporated in India, under the

provisions of the Companies Act, 1956 with whom the assessee company had

entered into an Advertising Sales Representation Agreement appointing the

DCIN as its exclusive advertising sales representative in India for the purpose of

marketing the channel. The consideration for the services rendered under the

aforesaid agreement, the assessee paid DCIN commission @15% of the ad sales

revenue. By way of a Distribution License Agreement dated 4.1.1999, the

assessee granted distribution rights for the channel to DCIN and DCIN was also

granted right to the subscription revenue income arising therefrom against the

said distribution rights. The assessee company, being a tax resident of USA in

terms of Article 4 of the Indo US Double Taxation Avoidance Treaty, filed its

return of income. It is also pertinent to note that the assessee, in the past, had

not filed its return of income till AY 2001-02 by applying the ratio of the

Circular No. 742 issued by the CBDT which required a foreign telecasting

company (FTC) not having Permanent Establishment (PE) in India (within the

meaning of the relevant Treaty) to compute its income based on the method

prescribed therein. Accordingly, since the assessee being an FTC neither had a 3 ITA No.4840/Del/2012 Asstt.Year: 2004-05

PE nor it maintained country-wise accounts of its operations in India.

Therefore, the aforesaid Circular No. 742 was applicable to the assessee as per

contentions of the appellant.

3. Subsequently, Circular No. 742 was withdrawn w.e.f. 31.3.2001 and

Circular No. 6/2001 dated 5.3.2001 was made effective for taxation of FTC in

India wherein FTC is a resident of a country with whom India has a Treaty, its

business income, including receipts from advertisements can be taxed only if it

has a PE in India. For AY 2004-05, the AO issued notice u/s 143(2) to the

assessee for detailed examination and in response to that requisite information

and necessary applications were submitted from time to time. Finally, the AO

completed assessment for AY 2004-05 at the total income of Rs.6,00,31,583. In

the similar line, the AO finalised the assessment for AY 2006-07 on 19.12.2008

determining the total income of assessee company at Rs.7,05,80,097. The AO

in both the years made additions to the returned income inter alia on the

following grounds:-

" * DCIN forms a dependent agent PE of the applicant In India (under treaty).

• The appellant is not entitled to the treaty benefits. • A sum of Rs. 1,78,924/- (being 101'0 of the gross advertisement revenues) was treated as taxable income in the hands of the appellant.

• A sum of Rs. 5,98,39,242/- (being subscription revenue income of DCIN) was treated as royalty income of the appellant under the provisions of clause (v) of Explanation 2 to Sec. 9(1)(vi) of the Act and under Article 12(3)(a) of the Treaty.

4 ITA No.4840/Del/2012 Asstt.Year: 2004-05 • In addition the AO also levied interest u/s 234B of the Act amounting to Rs. 39,50,424/-."

4. Being aggrieved by the above assessment orders, the asessee preferred

appeals before the CIT(A) which were partly allowed on both the grounds as

reproduced hereinabove.

Ground No.1

5. Apropos ground no. 1, ld. DR submitted that the CIT(A) has erred in

holding that only 10% of Subscription Revenues are taxable as business income

against the entire such revenues taxed by the AO as Royalty, without

considering that every assessment year is an independent year and further, MAP

resolution applies only to the particular entity and for the particular assessment

year, which is covered by such resolution.

6. Ld. DR drawing our attention towards para 7 at page 11 of the assessment

order submitted that the AO adjudicated the issue of taxability of subscription

income after considering the agreement between assessee and DCIN. The DR

further submitted that the AO was right in holding that the consideration paid by

the assessee company to DCIN is covered by the provisions of clause (v) of

Explanation 2 to section 9(1)(vi) of the Act and rightly taxed the same at 20%

of gross basis as per provisions of the Act. Ld. AR also contended that the

consideration paid by the assessee company is also covered by the royalty as

5 ITA No.4840/Del/2012 Asstt.Year: 2004-05

given in Article 12(3) of the tax Treaty between India and USA. Therefore,

action of the AO was quite justified and was based on cogent reasons.

7. Ld. DR further contended that the CIT(A) while dealing with ground no.

3 and 4 of the assessee wrongly computed that the assessee is an PE in India and

both the advertisement and subscription constitute business income of the

assessee in India and that 10% of the business income be treated as taxable

income in the hands of the assessee in India. Ld. DR pointed out that the

CIT(A) misunderstood and misinterpreted the provisions of the Act while

granting relief for the assessee, therefore, the impugned order of the CIT(A)

may be set aside by restoring that of the AO.

8. Replying to the above, ld. Counsel for assessee firstly has drawn our

attention towards para no. 2.2.1 and 2.2.2 of the statement of facts submitted

before the CIT(A) during the first appellate proceedings and submitted that as

per licence agreement between assessee and DCIN after collecting subscription

revenue from the cable operator as a right to retain the same and in turn, the

DCIN would incur necessary costs for the promotion of the channel and

specially when the entire subscription revenues were duly offered to tax by the

DCIN in its return of income filed till date, then the conclusion of the CIT(A)

was right in treating both the entitlement and subscription revenue as business

income of the assessee in India. Ld. Counsel of the assessee has also placed

reliance on the decision of Hon'ble Supreme Court in the case of Radha

6 ITA No.4840/Del/2012 Asstt.Year: 2004-05

Swami Satsang 193 ITR 321 (SC) and another decision reported as 358 ITR

295 (SC) wherein it has been held that the revenue authorities are duty bound to

follow the rule of consistency, unless and until there is substantial change in the

facts and circumstances or law position in the subsequent years in taking a

different or deviated stand. Ld. Counsel of the assessee further placed copies of

the assessment order for AY 2008-09 dated 5.10.2011 assessment order for AY

2009-10 dated 27.11.2011 and assessment order for AY 2010-11 dated

26.2.2014 and submitted that the advertisement and distribution revenues have

been consistently taxed by the department @10%, therefore, for the assessment

years under consideration in these appeals, revenue is not allowed to charge the

same at 20% or any other higher rate.

9. On careful consideration of above submissions, we note that the issue has

been decided in favour of the assessee by the CIT(A) for AY 2004-05 with

following observations and conclusion:-

"Ground No.III & IV: These grounds are in respect of taxability of advertisement revenues & subscription revenues. Discovery Asia LLC ('DALLC') (earlier known as Discovery Asia Inc.), one of the appellant's group company had earlier invoked the provisions of Article 27 of Treaty relating to Mutual Agreement Procedure ('MAP') for AY 2000-01 and AY 2001-02. A MAP resolution dated January 02, 2006 was thereafter issued for AYs 2000-01 and AY 2001-02. Under the aforesaid MAP resolution, the competent authorities of both India and US had agreed that 10 percent of distribution and advertisement revenues earned by DALLC or DAI from India should be taxable in India, being profits attributable to the dependent agent PE in form of DCIN in India.

7 ITA No.4840/Del/2012 Asstt.Year: 2004-05 The assessment proceedings in the appellant's case for ay 2003-04 had been completed on the basis of the MAP resolution of the group company i.e. DAI wherein after holding DCIN to be PE of the appellant in India, the Advertisement and Subscription revenues were taxed as business income and thereafter, 10% of the such revenues were treated as taxable income of the Appellant in India. Thereafter the order for AY 2007-08 was as per the order of the DRP dated 30/09/2010 whereby it was held that:-

"Before DRP the assessee has filed a letter dated August 20,2010, wherein it is explained that in the case of a group entity, Discovery Asia Inc, USA ('OAI'). The Competent Authorities of India and US agreed that OAI has a dependent agent PE in India in the form of DCIN. It was resolved that the income of dAI from Advertisement revenues and Subscription revenues be taxed under Article 7 of the Treaty i.e as Business income. The two competent authorities then agreed to computation of DAI's income @ 10% of Gross Advertisement and Subscription revenues. Copy of the MAP resolution dated January 2,2006 has been filed.

The assessee then submitted that without prejudice to it's various contentions outlined in the DRP application of February 19,2010, to buy peace and to put an end to litigation, it is submitted that this can be resolved in spirit of DAI MAP resolution wherein advertisement and subscription revenues were treated as business income and 10% of Gross Advertisement and Subscription revenues were treated as taxable income in India.

Now as we have already concurred with the AO's conclusion that DCIN constitutes the assessee's PE in India for both Advertisement and Subscription revenue, in line with the above MAP order, we hold that both advertisement and subscription revenues constitute assessee's business income and that 10% of the gross advertisement and subscription revenues be treated as taxable income of the assessee in India."

Further, even for the years under appeal, the appellant has submitted that without prejudice to it's various contentions on non-taxability of Advertisement and subscription revenues in India, including inter-alia that no 8 ITA No.4840/Del/2012 Asstt.Year: 2004-05

PE exists/payment of arms length remuneration to DCIN extinguishes any further tax liability of the assessee in India, to buy peace and to put an end to litigation, this could be resolved in spirit of DAI MAP resolution (concluded between the two Competent Authorities) and the order of the DRP wherein Advertisement and Subscription revenues were treated as business income and 10'10 of Advertisement and Subscription revenues were treated as taxable income in India.

On the basis of the above position, on examination of the documents placed on record by the appellant, and to ensure consistency of assessment over the years, by following the basis of taxability of the Advertisement and Subscription revenues in the other relevant years, I hold that the Appellant has a PE in India, both Advertisement and Subscription revenues constitute business income of the Appellant in India and that 10% of the Advertisement and Subscription revenues be treated as taxable income of the appellant in India. This ground is ruled partly in favour of the appellant."

10. In view of above, we are inclined to hold that the CIT(A) was right in

granting relief for the assessee and in holding that to ensure the consistency of

assessment over the years, by following the basis of taxability of the

advertisement and subscription revenue constitute business income of the

assessee in India and 10% of the advertisement and subscription revenue itself

to be treated as taxable income of the assessee in India. We also note that the

DRP in the order dated 30.9.2010 for AY 2007-08 for the subsequent

assessment year has also adjudicated the issue on the same line which has been

followed by the CIT(A) in the impugned orders. Accordingly, we are unable to

see any perversity, infirmity or any other valid reason to interfere with the

orders of the CIT(A) on this issue and we uphold the conclusion of the CIT(A)

9 ITA No.4840/Del/2012 Asstt.Year: 2004-05

based on justified reasoning in accordance with the provisions of the Act.

Therefore, ground no. 1 of the revenue in both the appeals being devoid of

merits is dismissed.

Ground no.2 of the revenue

11. Apropos ground no.2, ld. DR contended that the Ld. CIT(A) has erred in

holding that interest u/s 234B is not chargeable in the assessee's case, by relying

upon the decision of Hon'ble High Court of Delhi in the case of Jacob Civil

Incorporated, without appreciating that the levy of interest 234B is mandatory

as held in the case of CIT Vs Anjum M.H. Ghaswala & Others (supra).

12. Replying to the above, ld. Counsel of the assessee placing reliance on the

decision of ITAT "C" Bench dated 16.7.2013 in ITA No.6049/Del/2010 and

other appeals in the case of ADIT vs G.E. Energy Parts Inc. to which one of us

(C.M.Garg, JM) was a party, submitted that the CIT(A) followed binding

decision of Hon'ble Jurisdictional High Court of Delhi in the case of Jacabs

Civil Incorporated (supra) wherein the Jurisdictional High Court of Delhi has

also considered the ratio of decision of Hon'ble Apex Court in the case of CIT

Vs Anjum M.H. Ghaswala & Others (supra). In the case of Jacabs Civil

Incorporated (supra) speaking for the Jurisdictional High Court of Delhi, their

lordships answered the question in favour of the assessee by holding that the

Tribunal has rightly held that the assessee was not liable to pay any interest u/s

10 ITA No.4840/Del/2012 Asstt.Year: 2004-05

234B of the Act for the failure to pay dividend as per provisions of section 208

and 209 of the Act.

13. On careful consideration of above rival submissions, we note that the

CIT(A) has decided the issue in favour of the assessee with following

conclusion:-

"Regarding u/s 234B of the Act, the appellant has submitted that the appellant is a non-resident and tax was deductible u/s 195 of the Act on the income of the appellant and, therefore it was not required to deposit any advance tax and consequently interest u/s 234B is not leviable in the appellant's case. The appellant has relied upon various authorities as under:-

i) DIT v Jacabs Civil Incorporated, Mitsubishi Corporation and Ors 330 ITR 578 (Delhi).

ii) DIT v Ericsson AB (ITA No.504/2007)(Delhi High Court);

iii) DIT v NBGC Network Asia (222 CTR 86 )(Mum.);

iv) CIT v Sedco Forex International Drilling Co. Ltd 264 ITR 320 (Uttranchal);

v) CIT v Madras Fertilizers Limited (149 ITR

703)(Mad)

vi) Rheinbraun Engineering & Wasser GmbH (1915/Bom/96).

vii) Asia Satellite Ltd (85 ITD 478)(Del).

In view of various High Courts decisions including Jurisdictional High Court on the issue, I hold that interest u/s 234B is not leviable in case of appellant being non- resident when its entire income is subject to TDS u/s 195. This ground is therefore ruled in favour of the appellant. "

11 ITA No.4840/Del/2012 Asstt.Year: 2004-05

14. In view of above, respectfully following the decision of Jurisdictional

High Court of Delhi in the case of DIT v Jacabs Civil Incorporated and the

decision of ITAT "C" Bench Delhi in the case of ADIT vs G.E. Energy Parts

Inc., we are inclined to hold that the CIT(A) was right in holding that the

interest u/s 234B of the Act is not leviable in the case of the assessee being non-

resident when its entire income is subject to TDS u/s 195 of the Act. Hence, we

are unable to see any valid reason to interfere with the conclusion of the CIT(A)

on this issue and we uphold the same. Accordingly, ground no. 2 in both the

appeals of the revenue being devoid of merits is also dismissed.

C.O. No. 441 and 442/Del/2012 for AY 2004-05 and 2006-07

15. By the earlier part of this order, we have dismissed the appeals of the

revenue upholding the order of the CIT(A) on both the grounds. Ld. Counsel of

the assessee fairly accepted that the assessee has filed cross objections to

support the order of the CIT(A) which granted relief for the assessee and if

revenue does not succeed in this appeal, then the assessee is not interested to

press its cross objections and we dismiss the same as not pressed.

16. In the result, the appeals of the revenue as well as cross objections of the

assessee for both the assessment years are dismissed.

12 ITA No.4840/Del/2012 Asstt.Year: 2004-05

Order pronounced in the open court on 25.03.2015.

Sd/- Sd/-

(N.K. SAINI) (CHANDRAMOHAN GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER

DT. 25th MARCH 2015 'GS'

Copy forwarded to:-

1. Appellant 2. Respondent 3. C.I.T.(A) 4. C.I.T. 5. DR By Order

Asstt.Registrar

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