Facts
MTV Asia LDC (the taxpayer) is a company incorporated in Cayman Island. It conducts its business operation from Singapore and is a tax resident of Singapore.
The taxpayer had appointed its Indian group company, MTV India (P) Ltd. (MTV India) as its advertising agent in India for promoting and selling advertising time of MTV channels. MTV India was entitled to 15% commission of the gross advertisement revenue secured for the taxpayer.
For the years under consideration i.e. assessment years (AY) 2002-03 to 2005-06, the taxpayer conducted its entire television channel activities for Asia Pacific Region including India from Singapore.
The Assessing Officer (AO) observed that the source of income of the taxpayer was only from selling of advertising time which were sold by MTV India and thus held that the taxpayer had permanent establishment (PE) in India in the form of an agency PE.
The AO further held that even if the taxpayer paid arm‟s length remuneration to MTV India, further profits could be attributed to the PE in India being the „Source Country‟.
For AY 2002-03, 2003-04, 2004-05 and 2005-06, he attributed profits at 40%, 30%, 25% and 25% of the revenue generated from Indian operations respectively to the Indian PE. The Commissioner of Income tax (Appeals) [CIT (A)] while upholding that further profits could be attributable to PE, reduced the profits attributable to the PE to 25%, 10%, 10% and Nil respectively.
Issues before the Income-tax Appellate Tribunal (ITAT)
What would be the amount of profit attributable to the PE of the taxpayer in India?
Observations and Ruling of the ITAT
The taxpayer did not provide any documentary evidence to substantiate various expenses incurred as well as no separate books of accounts were maintained for Indian operations. Therefore, application of Rule 10 of the Income-tax Rules 1962 prescribing computation of income on reasonable basis in case of non-resident is justifiable.
Copies of tax computations filed with Singapore tax authorities reflect substantial losses to the taxpayer in respect of Global Operations. Therefore, margin applied by the AO are high.
The transponder charges and programme charges constitute 95.88% of the revenue. This allocation cannot be said to have been from Indian operations only.
The purchase of programmes for telecasting cannot be said to have not been viewed in other countries where the Channel was being telecasted. It was also possible that these programmes could have been used for telecast in other countries. Similarly, the use of transponder charges as the footprint covers other neighboring countries.
The erstwhile circular no. 742 of 1996 issued by the CBDT provided for presumptive taxation for foreign telecasting companies by considering 10% of the advertisement revenue from India meant for remittance abroad as its income.
Conclusion
For the AYs under consideration, 10% of the advertisement revenue earned by the taxpayer in India would be a fair and reasonable income attributable to its PE in India.
Source: MTV Asia LDC.,ITA Nos. 3530/Mum/2006 and others, order dated 31 January 2012
MTV Asia LDC (the taxpayer) is a company incorporated in Cayman Island. It conducts its business operation from Singapore and is a tax resident of Singapore.
The taxpayer had appointed its Indian group company, MTV India (P) Ltd. (MTV India) as its advertising agent in India for promoting and selling advertising time of MTV channels. MTV India was entitled to 15% commission of the gross advertisement revenue secured for the taxpayer.
For the years under consideration i.e. assessment years (AY) 2002-03 to 2005-06, the taxpayer conducted its entire television channel activities for Asia Pacific Region including India from Singapore.
The Assessing Officer (AO) observed that the source of income of the taxpayer was only from selling of advertising time which were sold by MTV India and thus held that the taxpayer had permanent establishment (PE) in India in the form of an agency PE.
The AO further held that even if the taxpayer paid arm‟s length remuneration to MTV India, further profits could be attributed to the PE in India being the „Source Country‟.
For AY 2002-03, 2003-04, 2004-05 and 2005-06, he attributed profits at 40%, 30%, 25% and 25% of the revenue generated from Indian operations respectively to the Indian PE. The Commissioner of Income tax (Appeals) [CIT (A)] while upholding that further profits could be attributable to PE, reduced the profits attributable to the PE to 25%, 10%, 10% and Nil respectively.
Issues before the Income-tax Appellate Tribunal (ITAT)
What would be the amount of profit attributable to the PE of the taxpayer in India?
Observations and Ruling of the ITAT
The taxpayer did not provide any documentary evidence to substantiate various expenses incurred as well as no separate books of accounts were maintained for Indian operations. Therefore, application of Rule 10 of the Income-tax Rules 1962 prescribing computation of income on reasonable basis in case of non-resident is justifiable.
Copies of tax computations filed with Singapore tax authorities reflect substantial losses to the taxpayer in respect of Global Operations. Therefore, margin applied by the AO are high.
The transponder charges and programme charges constitute 95.88% of the revenue. This allocation cannot be said to have been from Indian operations only.
The purchase of programmes for telecasting cannot be said to have not been viewed in other countries where the Channel was being telecasted. It was also possible that these programmes could have been used for telecast in other countries. Similarly, the use of transponder charges as the footprint covers other neighboring countries.
The erstwhile circular no. 742 of 1996 issued by the CBDT provided for presumptive taxation for foreign telecasting companies by considering 10% of the advertisement revenue from India meant for remittance abroad as its income.
Conclusion
For the AYs under consideration, 10% of the advertisement revenue earned by the taxpayer in India would be a fair and reasonable income attributable to its PE in India.
Source: MTV Asia LDC.,ITA Nos. 3530/Mum/2006 and others, order dated 31 January 2012
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