ESPN Star Sports Mauritius SNC et Compagnie v.
ACIT [ITA Nos. 3760 & 4542/Del/2016, dt. 22-10-2020] : 2020 TaxPub(DT) 4473
(Del.-Trib.)
If agent is remunerated at Arm's length price does it
absolve further attribution of profits in the hands of the Permanent
Establishment (PE) of the non-resident
Facts:
Assessee was a non-resident company in the business of
selling advertising space/time slots to its Indian arm ESPN India. Besides this
the Indian company did produce and distribute exclusively the airtimes and
other sports programmes of the assessee. None of the sale of the time
slots/airtimes occurred in India. The revenue read that the assessee had a
Dependent Agency PE (DAPE) by virtue of its exclusivity of dealing and contract
conclusion in India under Article 5(4) of the Indo-Mauritius DTAA. Accordingly,
attribution of income was done at 30% of the profits in the hands of the
assessee. It was the plea of the assessee that their relationship with the
Indian arm was on principal to principal basis besides that, if the Indian
agent is remunerated at ALP then further attribution is not possible even if a
PE were to be read. The Commissioner (Appeals) confirmed the attribution at 50%
instead of the 30% of the assessing officer. On higher appeal --
Held in favour of the assessee that if the agent is
remunerated at ALP then there can be no further attribution possible in the
hands of the non-resident even if a PE were to be read. The ITAT did not get
into the issue of whether the assessee had a PE in India or otherwise as the
counter plea of ALP remuneration absolves attribution of income was found to be
in line with various judgments.
The TPO also held based on the FAR that the Indian entity
was remunerated at ALP with no disturbance to the amounts paid to the assessee.
This worked to the advantage of the assessee. The Profit level indicator was
held to be 17% vis-a-vis normal agency commission of 10% thus the ALP was
established as well factually.
Applied:
DCIT(IT) v. Morgan Stanley & Co. Inc. (2007) 292 ITR
416 (SC) : 2007 TaxPub(DT) 1354 (SC)
Honda Motors Co. Ltd. v. ADIT in Civil Appeal Nos. 2833
to 2840 of 2018, judgment dated 14-3-2018, reported
in (2018) 92 taxmann.com 353 (SC) : 2018 TaxPub(DT) 2086 (SC)
Asstt. DIT v. E-Funds IT Solutions Inc. (2017) 86 taxmann.com
240 (SC) : (2017) 251 Taxman 280 (SC) : (2017) 399 ITR 34 (SC) : 2017
TaxPub(DT) 4562 (SC)
BBC Worldwide Limited (2011) 203 Taxman 54 (Del.-HC) :
2012 TaxPub(DT) 0799 (Del-HC)
Editorial Note: The
issue here is, if there is an exclusivity of an agency business with its
non-resident AE then by default the reading of the revenue is a DAPE. To
counter the DAPE the non-resident has to manifest that its dealings with the
resident was on principal to principal basis by undertaking a FAR to show that
they would have dealt the business in a similar way even with third parties,
thus the relationship was of an Independent agent instead of a DAPE. Then the
FAR will need to translate into a sufficient ALP in the hands of the Indian
agent which obviates further attribution of the non-resident. TP provisions
assume fundamental importance in such cases and a robust documentation is a sine
qua non to manifest the ALP.