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Tax Publishers ESPN Star Sports Mauritius SNC et Compagnie v. ACIT [ITA Nos. 3760 & 4542/Del/2016, dt. 22-10-2020] : 2020 TaxPub(DT) 4473 (Del.-Trib.) If agent is remunerated at Arm's length price does it absolve further attribution of profits in the hands of the Permanent Establishment (PE) of the non-resident *Facts:* Assessee was a non-resident company in the business of selling advertising space/time slots to its Indian arm ESPN India. Besides this the Indian company did produce and distribute exclusively the airtimes and other sports programmes of the assessee. None of the sale of the time slots/airtimes occurred in India. The revenue read that the assessee had a Dependent Agency PE (DAPE) by virtue of its exclusivity of dealing and contract conclusion in India under Article 5(4) of the Indo-Mauritius DTAA. Accordingly, attribution of income was done at 30% of the profits in the hands of the assessee. It was the plea of the assessee that their relationship with the Indian arm was on principal to principal basis besides that, if the Indian agent is remunerated at ALP then further attribution is not possible even if a PE were to be read. The Commissioner (Appeals) confirmed the attribution at 50% instead of the 30% of the assessing officer. On higher appeal -- Held in favour of the assessee that if the agent is remunerated at ALP then there can be no further attribution possible in the hands of the non-resident even if a PE were to be read. The ITAT did not get into the issue of whether the assessee had a PE in India or otherwise as the counter plea of ALP remuneration absolves attribution of income was found to be in line with various judgments. The TPO also held based on the FAR that the Indian entity was remunerated at ALP with no disturbance to the amounts paid to the assessee. This worked to the advantage of the assessee. The Profit level indicator was held to be 17% vis-a-vis normal agency commission of 10% thus the ALP was established as well factually. *Applied:* DCIT(IT) v. Morgan Stanley & Co. Inc. (2007) 292 ITR 416 (SC) : 2007 TaxPub(DT) 1354 (SC) Honda Motors Co. Ltd. v. ADIT in Civil Appeal Nos. 2833 to 2840 of 2018, judgment dated 14-3-2018, reported in (2018) 92 taxmann.com 353 (SC) : 2018 TaxPub(DT) 2086 (SC) Asstt. DIT v. E-Funds IT Solutions Inc. (2017) 86 taxmann.com 240 (SC) : (2017) 251 Taxman 280 (SC) : (2017) 399 ITR 34 (SC) : 2017 TaxPub(DT) 4562 (SC) BBC Worldwide Limited (2011) 203 Taxman 54 (Del.-HC) : 2012 TaxPub(DT) 0799 (Del-HC) *Editorial Note:* The issue here is, if there is an exclusivity of an agency business with its non-resident AE then by default the reading of the revenue is a DAPE. To counter the DAPE the non-resident has to manifest that its dealings with the resident was on principal to principal basis by undertaking a FAR to show that they would have dealt the business in a similar way even with third parties, thus the relationship was of an Independent agent instead of a DAPE. Then the FAR will need to translate into a sufficient ALP in the hands of the Indian agent which obviates further attribution of the non-resident. TP provisions assume fundamental importance in such cases and a robust documentation is a sine qua non to manifest the ALP.

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ESPN Star Sports Mauritius SNC et Compagnie v. ACIT [ITA Nos. 3760 & 4542/Del/2016, dt. 22-10-2020] : 2020 TaxPub(DT) 4473 (Del.-Trib.)

If agent is remunerated at Arm's length price does it absolve further attribution of profits in the hands of the Permanent Establishment (PE) of the non-resident

Facts:

Assessee was a non-resident company in the business of selling advertising space/time slots to its Indian arm ESPN India. Besides this the Indian company did produce and distribute exclusively the airtimes and other sports programmes of the assessee. None of the sale of the time slots/airtimes occurred in India. The revenue read that the assessee had a Dependent Agency PE (DAPE) by virtue of its exclusivity of dealing and contract conclusion in India under Article 5(4) of the Indo-Mauritius DTAA. Accordingly, attribution of income was done at 30% of the profits in the hands of the assessee. It was the plea of the assessee that their relationship with the Indian arm was on principal to principal basis besides that, if the Indian agent is remunerated at ALP then further attribution is not possible even if a PE were to be read. The Commissioner (Appeals) confirmed the attribution at 50% instead of the 30% of the assessing officer. On higher appeal --

Held in favour of the assessee that if the agent is remunerated at ALP then there can be no further attribution possible in the hands of the non-resident even if a PE were to be read. The ITAT did not get into the issue of whether the assessee had a PE in India or otherwise as the counter plea of ALP remuneration absolves attribution of income was found to be in line with various judgments.

The TPO also held based on the FAR that the Indian entity was remunerated at ALP with no disturbance to the amounts paid to the assessee. This worked to the advantage of the assessee. The Profit level indicator was held to be 17% vis-a-vis normal agency commission of 10% thus the ALP was established as well factually.

Applied:

DCIT(IT) v. Morgan Stanley & Co. Inc. (2007) 292 ITR 416 (SC) : 2007 TaxPub(DT) 1354 (SC)

Honda Motors Co. Ltd. v. ADIT in Civil Appeal Nos. 2833 to 2840 of 2018, judgment dated 14-3-2018, reported in (2018) 92 taxmann.com 353 (SC) : 2018 TaxPub(DT) 2086 (SC)

Asstt. DIT v. E-Funds IT Solutions Inc. (2017) 86 taxmann.com 240 (SC) : (2017) 251 Taxman 280 (SC) : (2017) 399 ITR 34 (SC) : 2017 TaxPub(DT) 4562 (SC)

BBC Worldwide Limited (2011) 203 Taxman 54 (Del.-HC) : 2012 TaxPub(DT) 0799 (Del-HC)

Editorial Note: The issue here is, if there is an exclusivity of an agency business with its non-resident AE then by default the reading of the revenue is a DAPE. To counter the DAPE the non-resident has to manifest that its dealings with the resident was on principal to principal basis by undertaking a FAR to show that they would have dealt the business in a similar way even with third parties, thus the relationship was of an Independent agent instead of a DAPE. Then the FAR will need to translate into a sufficient ALP in the hands of the Indian agent which obviates further attribution of the non-resident. TP provisions assume fundamental importance in such cases and a robust documentation is a sine qua non to manifest the ALP.