Assessees ESPN Star Sports activities Mauritius S.N.C ET Compagnie and ESS Distribution (Mauritius) S.N.C. ET. Compagnie entered into agreements with ESPN Star Sports activities (the distributor) and ESPN Software program India (the distributor) for the distribution of Star Sports activities and ESPN channels in India.
The tax authorities had held that the assessees had a hard and fast place PE in India or a dependent agent PE by advantage of the distribution agreements with the Indian entities. The subscription and distribution income was thought of taxable as royalties. The Delhi ITAT, nonetheless, reversed the findings on royalty and PE.
PE means a hard and fast place of work by way of which the enterprise of the enterprise is wholly or partly carried on. It features a place of administration, a department, workplace, manufacturing facility, or workshop.
The ITAT had discovered that the Indian entities stood conferred with an unbiased proper to enter into contracts with cable operators for channel distribution and that ESS Distribution (Mauritius) was not aware of these agreements. The Indian entities bore related distribution prices and bills by way of these agreements.
The Delhi Excessive Court docket noticed that the contract stipulations pointed in the direction of a manifest absence of a proper having been conferred or an authority granted to conclude contracts within the identify of ESS Distribution (Mauritius).
“The agreements unequivocally set up that ESS Distribution (Mauritius) is in no method related with the contracts executed by the Indian entities with cable operators and different intermediaries. Even the suitable to provoke authorized motion by the latter is accessible to be exercised solely towards the Indian entities,” the HC acknowledged in its 27-page order on Friday.
It added that since there was no PE, the difficulty of revenue attribution wouldn’t come up.
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The distribution revenues paid by the Indian entities to ESPN Mauritius had been held to not be within the nature of royalty beneath the India-Mauritius tax treaty by the ITAT. The Excessive Court docket has upheld this view, stating that there was no switch of copyright from ESS Distribution (Mauritius) to the Indian entities.
“As is clear from a studying of the settlement situations, there was no switch of copyright. The settlement that ESS Distribution (Mauritius) got here to execute conferred no proper with respect to copyright upon the Indian entities,” the order mentioned.
The Excessive Court docket relied upon the Supreme Court docket choice in Engineering Evaluation Centre of Excellence Personal versus Commissioner of Earnings Tax and One other, which recognised the excellence between broadcasting rights and copyright.
“The Excessive Court docket’s ruling doesn’t come as a shock after the detailed order by the tribunal. Nevertheless, the ruling does function a reminder for the tax division to rethink its technique in relation to tax assessments and scrutiny. Within the current case, the tax division was not capable of adduce any proof to assist its arguments,” mentioned Ashish Sodhani, Companion, Parakram Authorized.
The tax division is prone to attraction the order of the Excessive Court docket earlier than the Supreme Court docket.
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