Income of non-resident for production of television signals for broadcasting of cricket matches in India taxable as fees for technical services on gross basis
In brief
In a recent ruling in the case of Nimbus Sport International Pte Ltd.1 (the
“assessee”) (formerly World Sports Nimbus Pte. Ltd.), the Delhi Income-tax Appellate Tribunal (the “Tribunal”) pronounced as under :
• Payments made to a foreign company for the production of live television signals were in the nature of fees for technical services (“FTS”) and taxable in India;
1 Nimbus Sport International Pte. Ltd. v. DDIT [2011-TII-178-ITAT-DEL-INTL]
• Since the number of days of stay of the representatives of the foreign company in ‘furnishing services’ was less than the period specified under the Double Taxation Avoidance Agreement (the “tax treaty”), there cannot be a permanent establishment (“PE”) in India;
• Advertisement revenue, earned outside India from Indian customers, is not attributed to India and, in the absence of any PE, such revenue cannot be taxed in India; and
• The company is not liable for advance tax and interest under sections 234B and 234C of the Income-tax Act, 1961 (the “Act”), since the receipts of the
Sharing insights
News Alert
15 November, 2011
foreign company were liable for tax deduction at source, under the provisions of the Act.
Facts
• The assessee company was incorporated on 21 March, 2000 under the Singapore Companies Act. The assessee company is a tax resident in Singapore.
• The primary objective of the company is to engage in the business of sports coverage/production and/or distribution and/or events management and/or sponsorship.
• The assessee company is a 50:50 joint venture between two independent and unrelated companies i.e. Nimbus Communication Worldwide Ltd. (“NCWL”), a company incorporated in Mauritius under that country’s laws and World Sports Group Ltd., a company incorporated under the laws of British Virgin Islands. NCWL is the wholly owned subsidiary of Nimbus Communications Ltd. (“NCL”) which is itself a media and entertainment company established in India since 1987. In addition, the assessee company and NCL have two directors in common.
• As the lowest bidder in the face of an international bidding process, the assessee company entered into an agreement with Prasar Bharti (“PB”) – a broadcaster owned by the Government of India, for telecasting production of cricket events held during the period from February 2002 to October 2004.
• The assessee company was to produce, for broadcasting, live television signals of international quality which met PB’s specifications and which were of a quality acceptable to international broadcasters for coverage of international cricket events.
• The assessee company received advertisement revenue outside India from certain companies in India, for the telecasting of cricket matches held outside India.
• The assessing officer (“AO”) held that the assessee had a PE in India.
• The AO held that the income of the assessee was in the nature of ‘fees for technical services’. He taxed the gross receipts at 20 percent under section 44D read with section 115A of the Act.
• The AO also held that the advertisement revenue earned by the assessee company was liable to tax in India.
• The AO levied interest under sections 234B and 234C of the Act.
• The Commissioner of Income-tax (Appeals) (‘CIT (A)’) upheld the orders of the AO.
• The assessee filed an appeal before the Tribunal.
Issues before the Delhi Tribunal
• Whether the assessee company had a PE in India.
• Whether the gross receipts from PB, for the services rendered, should be treated as payments towards FTS/ business income.
• Whether the amount received outside India from Indian companies towards advertisement is taxable in India.
• Whether the interest levied under sections 234B and 234C of the Act by the AO was correct in law.
Issue 1: Whether the assessee company had a PE in India
Assessee’s contentions
• The only activity of the assessee company in India was to produce and supply live television signals of international quality meeting PB’s technical specifications as detailed in the terms of its agreement.
• This is a standard activity of a commercial nature with well known procedures for producing the TV feed and its live telecasting.
• All the activities were organised and controlled from Singapore. All important decisions to negotiate and conclude the agreement with PB were taken by the Board of Directors of the assessee company in Singapore. The management and control was vested in the Board of Directors.
• The resident Indian directors of the assessee company residing in India had no authority to sign the contract nor was he regularly acting on behalf of the assessee company.
• The residence or period of stay of director(s) is immaterial for the purpose of determining the residence or PE of a non-resident Company. In this regard, the assessee referred to the jurisdictional Delhi Tribunal’s decision in the case of Radha Rani Holdings (P) Ltd.2.
• The actual period of stay of the technical personnel alone was relevant in determining whether the period for ‘furnishing services’ was less than 90 days in each of the three fiscal years.
2 Radha Rani Holdings (P) Ltd. v. ADIT [2007] 110 TTJ 920 (Del)
Revenue’s contentions
• According to CIT(A), NCL shareholder of the assessee company, had an office in Mumbai, which was used for the purposes of rendering part of the technical services.
• The co-chairman and the director of the assessee company had an office at the business premises of NCL which was used for carrying out certain steps of rendering the technical services.
• The technical services were rendered by various individuals such as the co- chairman, technical crew, TV crew, programmer and engineers of PB and other supporting staff.
• The assessee had erroneously determined a 90 day duration of stay by taking into account the period of stay of the TV crew only. It had not taken into account the stay of the chairman, director of the assessee company, programmers and engineers of PB and other technical manpower.
• Since the total duration of stay comes to more than 90 days in each of the three years, the assessee had a service PE.
• None of the exclusionary clauses (d) and (e) as provided under Article 5(7) of tax treaty between India and Singapore is applicable. Hence, the assessee company had a PE in India in two forms namely, (a) fixed place of PE under Article 5(1) of the tax treaty, and, (b) service PE under Article 5(6) under the tax treaty.
Tribunal Ruling
• The fact that the contract was signed by the assessee at Singapore and all the activities relating to this contract were carried out from Singapore.
• There is no evidence that the management and control of the affairs of the assessee company were not situated in Singapore. The holding of one board meeting in India cannot lead to a conclusion that during the years under consideration, the control and management of the assessee’s affairs were situated only in India.
• The assessee’s activities in Singapore clearly demonstrate that the affairs of the assessee company were wholly carried out at Singapore.
• The residence of two non-resident Directors in India does not make the company a resident in India as held by the Delhi Bench of the Tribunal in the case of Radha Rani Holdings (P) Ltd., (above), which, we respectfully follow on this issue. Therefore, in view of these facts, we hold that the affairs of the assessee company were not carried out in India.
• The assessee company has provided sufficient evidence to substantiate that while furnishing the services in India, the stay of TV crew, programmer and engineers and the technical personnel did not exceed the maximum threshold of 90 days as required under the India-Singapore tax treaty.
• Thus, it cannot be held to have a fixed place or service PE in India for the years in question.
Issue 2: Whether the gross receipts from PB, for the services rendered, be treated as payments towards FTS/business income
Assessee’s contentions
• The services rendered by the assessee in producing the TV signal are technical in nature. However, by no means could it be regarded as ‘making available’
technical knowledge to PB.
• Under the agreement, the primary services to be rendered by the assessee were production of the feed. For any other service proposed to be rendered, training was ancillary to the primary service.
• The assessee company was merely rendering the service of producing TV signals in accordance with the specification provided by PB and did not ‘make available’ any technical knowledge. Accordingly, the income received by it is not taxable as ‘fees for technical services’ under para 4 of Article 12 of the tax treaty.
• Even for the sake of argument and without prejudice or in any way agreeing to this, if it is presumed that the amount received from PB are fees for technical services, they are liable to be taxed at the rate of 10 percent and not 20 percent as incorrectly suggested by the AO.
Revenue’s contentions
• The services of production and generation of live television signals were in the nature of technical services.
• The assessee company had made available to PB technical knowledge, experience, skill, know-how and processes which consisted of development and transfer of technical plans and designs relating to the production and generation of live television signals.
• Therefore, the consideration received from PB for rendering such technical services is in the nature of a FTS within the meaning of clauses (b) and (c) and paragraph (4) of Article 12 of tax treaty between India and Singapore as well as within the meaning of section 9(1)(vii) of the Act.
Tribunal Ruling
• To the facts of the assessee’s case, clauses (b) and (c) of Paragraph 4 of Article 12 0f the India-Singapore tax treaty were relevant.
• Services of production and generation of live television signals in terms of the agreement were in the nature of technical services.
• The assessee made available to PB the services which are based on technical knowledge, experience, skill, know-how and processes which also consisted of development and transfer to PB of technical plan and design relating to production and generation of live television signals.
• Income obtained by the assessee from the rendering of technical services for production and generation of live television signals was in the character of fee for technical services under both the IT Act and the tax treaty.
• The taxability of ‘fees for technical services’ is governed by paragraph 2 of Article 12 of the tax treaty and leviable at 10 percent of the gross receipts. .
Issue 3: Whether amount received outside India from Indian companies towards advertisement is taxable in India
Assessee’s contentions
• The income earned by the assessee company from advertisements from India did not represent any income that could accrue or arise in India because all the matches were played outside India in Sri Lanka.
• The live telecast was made from that country and not from India.
• There was, therefore, no source of income in India within the meaning of section 9(1) (i) of the Act.
• All the advertisements received from India were invoiced and payments received in Singapore.
• There was no agent or other fixed place for collecting advertisements and, as there was no PE in India, the amount was not taxable in any of the three years.
Revenue’s contentions
• The CIT(A) held that the advertisement income was taxable under section 9(1) of the Act as the source of income was in India.
• It was also taxable under Article 7(1) of the tax treaty between India and Singapore because the ‘assessee had carried out the core activities of advertisement business through fixed place PE in India’.
• Article 7(1) of tax treaty between India and Singapore has incorporated the principle of ‘force of attraction’ based on the UN Model.
Tribunal Ruling
• Since the assessee does not have a PE in India, the revenue collected by it for the matches played overseas and telecast overseas will not attract the theory of force of attraction for taxing them in India.
• The force of attraction cannot apply on an assumption that some percentage of the viewers may be Indian and the advertisement may have had some incremental value in India for the advertising companies.
• The dominant object of the payment by the Indian companies to the assessee’s Singapore office was to advertise their products on foreign territory in foreign cricket matches.
• Thus, the advertisement revenue has no attribution to India and, in the absence of any PE, this revenue cannot be taxed in India.
Issue 4: Whether interest levied under sections 234B and 234C of the Act by the AO was correct in law
Tribunal Ruling
• As the receipts of the assessee were liable for TDS, they will not be liable for advance tax and the interest will not be chargeable under these sections.
• This view was supported in the decision of the Delhi High Court in the case of Jacabs Civil Incorporated/Mitsubishi Corporation3.
3 DIT v. Jacabs Civil Incorporated/Mitsubishi Corporation [2011] 330 ITR 578 (Delhi)
Conclusion
The ruling of the Delhi Tribunal adds to the interpretation of FTS and ‘make available’ under the India-Singapore tax treaty.
Our Offices
For private circulation only Ahmedabad
President Plaza, 1st Floor
Plot No. 36, Opposite Muktidham Derasar Thaltej Cross Roads, S G Highway Ahmedabad 380054
Phone: +91 79 3091 7000
Bangalore
7th Floor, Tower “D” The Millenia 1 & 2 Murphy Road, Ulsoor Bangalore 560 008 Phone: +91 80 4079 7000
Bhubaneswar
IDCOL House, Sardar Patel Bhawan Block III, Ground Floor, Unit 2 Bhubaneswar 751009
Phone +91 674 2532 459 / 2530 370
Chennai
32, Khader Nawaz Khan Road Nungambakkam
Chennai 600 006 Phone: +91 44 4228 5000
Hyderabad
# 8-2-293/82/A/113A Road No.36, Jubilee Hills Hyderabad 500 034 Phone: +91 40 6624 6600
Kolkata
South City Pinnacle 4th Floor, Plot # X1/1
Block EP, Sector 5, Salt Lake Electronic Complex
Kolkata 700 091 Phone: +91 33 4404 1111
Mumbai
PwC House, Plot No.18/A Gurunanak Road (Station Road) Bandra (West)
Mumbai 400 050 Phone: +91 22 6689 1000
New Delhi / Gurgaon Building 10, 17th Floor Tower -C, DLF Cyber City Gurgaon 122002 Phone: +91 124 330 6000
Pune
GF-02, Tower C Panchshil Tech Park Don Bosco School Road Yerwada, Pune - 411 006 Phone: +91 20 4100 4444
For more information contact us at, [email protected]
The above information is a summary of recent developments and is not intended to be advice on any particular matter. PricewaterhouseCoopers expressly disclaims liability to any person in respect of anything done in reliance of the contents of these publications. Professional advice should be sought before taking action on any of the information contained in it. Without prior permission of PricewaterhouseCoopers, this Alert may not be quoted in whole or in part or otherwise referred to in any documents
©2011 PricewaterhouseCoopers. All rights reserved. "PwC", a registered trademark, refers to PricewaterhouseCoopers Private Limited (a limited company in India) or, as the context requires, other member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
