A foreign company was engaged in business of telecasting TV channels in India. Whether income from giving time slots to advertisers through its agents in India shall be taxable in India? The High Court clarified this in following case:

Case: Director of Income Tax vs. B4U International Holdings Ltd.   

Facts:

The assessee was a foreign company incorporated in Mauritius. It was engaged in telecasting of TV channels such as B4U Music, MCM etc. in India. The income from India includes collections from time slots given to advertisers from India through its agents.

The AO opined that affiliated entities of the assessee are basically an extension in India and constitute a permanent establishment of the assessee within the meaning of Article 5 of the Double Taxation Avoidance Agreement (DTAA).

On appeal, CIT (A) partly allowed the appeal in some cases and held that the entity in India cannot be treated as an independent agent of the assessee. Alternatively, and assuming that it could be treated as such if a dependent agent is paid remuneration at arm’s length, further proceedings cannot be taxed in India.

Aggrieved by the order of Tribunal, appeal was made to the High Court.

Held:

The assessee claimed that as it did not have a permanent establishment in India thus, it is not liable to tax in India under Article 7 of the DTAA between India and Mauritius. In addition, the agents of the assessee have marked the ad-time slots of the channels broadcasted by the assessee for which they have received remuneration on arm’s length basis.

As per revenue, B4U cannot be treated as dependent agent of the assessee. Assuming that it can be so treated, it has been remunerated at arm’s length.

The Court highlighted that the assessee carries out the entire activities from Mauritius and all the contracts were concluded in Mauritius. The only activity which is carried out in India is incidental or auxiliary in nature which is carried out in a routine manner as per the direction of the principal without application of mind and hence B4U was not a dependent agent.

Thus, it was held that where assessee’s agent does not have PE in India, income from them shall not be taxed in India. Hence, foreign companies working in India through agents not having authority to conclude shall not be considered as PE in India.

 ____________________________________________________________________________________________________