No permanent establishment here means no attribution of profit: ITAT

Shishir Sinha New Delhi | Updated on October 26, 2021

The appellant argued that assessing officer erred in the assessment which said that appellant has a PE in the form of Star Sports India Private Limited

The Delhi bench of Income Tax Appellate Tribunal has held that without a permanent establishment (PE) in India, profit will not be attributable to the asessee. Experts say such a ruling will provide much needed relief to multinational companies.

The appellant, ESPN Star Sports Mauritius, is a partnership firm established under the laws of Mauritius and is engaged in the business of selling advertisement time and programme sponsorship from Mauritius in connection with the programming via non-standard television on ESPN, Star Sports and Start Cricket programming services. ESPN Software India, a company incorporated under the laws of India is engaged in the business of acquiring Ad time from assessee and allotting it to various Indian advertisers and advertising agencies in India.

First appeal

It was submitted that the sale of ad time by assessee to ESPN India is outside India and the assessee also receives the sale consideration outside India. The assessee does not have any office in India nor does it have any agency or operation in India. It argued that assessing officer erred in the assessment which said that appellant has a PE in the form of Star Sports India Private Limited (SSIPL) under the double taxation avoidance agreement entered between India and Mauritius (DTAA).

It was noted that the assessing officer proceeded by attribution of profit to PE and attributed 30 per cent of the gross advertising revenue to an attribution of ₹103.32 crore. This was upheld at the first level of appeal, the Commissioner of Income Tax (Appeal).

Existing precedent

After going through the facts and hearing, the bench took note of the past history of the assessee and relied upon ruling by the Supreme Court in the in the case of E-funds IT Solutions Inc. The Apex Court had said that for a fixed place PE, there must exist a fixed place of business in India, which is at the disposal of the US companies, through which they carry on their own business.

Accordingly, the bench held that the assessee has no business connection in India in terms of Income Tax Act and has no PE under India Mauritius DTAA.

“Since we have held that there is no PE, we are of the considered view that there cannot be any attribution of profit,” it said.

Well-settled principles

Commenting on the ruling, Om Rajpurohit, Director (Direct & International TAX) with AMRG & Associates, said that the Delhi ITAT has once again upheld the well-settled principles which states that “mere interaction or cross transactions between the Indian subsidiary company will not automatically become a ground for constituting a Permanent Establishment (PE) of foreign entity since the former’s business activities are independent in nature and taxable separately in India” and “once the transactions between the related parties are at arm length price, no additional profit can be attributed to foreign entity’s income”.

Further, “in order to constitute a PE in India the disposal test (means the foreign company must have a right to use the Indian premises for their own business purpose) needs to be satisfied and the foreign entity must also provide services to the customers in India,” he said.

Published on October 26, 2021

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