Advertisement and distribution revenue of Singaporean company taxable in India as business profits.

By | January 27, 2025
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Advertisement and distribution revenue of Singaporean company taxable in India as business profits.

I. Taxation of Advertisement and Distribution Revenue (Assessment Year 2013-14)

  • Facts: A Singaporean company broadcasting television programmes in India appointed an Indian agent to sell commercial airtime and distribute channels. The assessee received advertisement and distribution revenue from this agent and claimed it was not taxable in India.
  • Issue: Whether the advertisement and distribution revenue should be taxed as business profits in India, considering similar income was taxed in earlier and subsequent years under Mutual Agreement Procedure (MAP) resolutions and a similar case under the India-US DTAA.
  • Decision: YES. The court held that due to no change in the factual matrix and business operations, the principle of tax certainty and consistency applied. Therefore, the revenue was taxable as business profits in India for the relevant assessment year.

II. Penalty for Inaccurate Particulars of Income (Assessment Years 2014-15 and 2015-16)

  • Facts: The assessee filed a nil return, considering the advertisement and distribution revenue as non-taxable. The Assessing Officer imposed a penalty under section 271(1)(c) of the Income-tax Act, 1961 for furnishing inaccurate particulars of income.
  • Issues:
    • Whether mere non-filing of an appeal in a quantum matter automatically leads to a penalty under section 271(1)(c).
    • Whether an addition made based on a difference of opinion, when the assessee has disclosed all facts, can lead to a penalty under section 271(1)(c).
  • Decisions:
    • NO, non-filing of an appeal does not automatically lead to a penalty.
    • NO, additions made based on a difference of opinion, when all facts are disclosed, cannot lead to a penalty.

The court found that the assessee had disclosed all material facts and was merely contesting the taxability of the revenue. The penalty was set aside as it was based on a difference of opinion and not on any concealment or misrepresentation of facts.

Key Takeaways:

  • Tax Certainty and Consistency: Tax authorities should strive for consistency in tax treatment, especially when there are no changes in the facts or business operations.
  • Penalties and Difference of Opinion: Penalties should not be imposed merely because the assessee’s interpretation of tax laws differs from that of the tax authorities, especially when there is full disclosure of facts.
  • DTAA and MAP: Double Taxation Avoidance Agreements (DTAA) and MAP resolutions play a crucial role in resolving cross-border taxation issues and ensuring tax certainty for multinational companies.

This case provides valuable insights into the principles of tax certainty, consistency, and the application of penalties under Indian tax law. It also highlights the importance of DTAAs and MAP in resolving international tax disputes.

IN THE ITAT DELHI BENCH ‘D’
Discovery Networks Asia Pacific Pte Ltd.
v.
A.C.I.T
SAKTIJIT DEY, Vice president
and Naveen Chandra, Accountant member
IT Appeal No. 7631 (DEL) of 2017, 908 and 909 (DEL) of 2020
[Assessment Year 2013-14 to 2015-16]
DECEMBER  31, 2024
Manuj Sabharwal, Drona Negi and Devrat Tiwari, Advs for the Appellant. Vijay B. Basanta, CIT-DR for the Respondent.
ORDER
Naveen Chandra, Accountant Member. – The above captioned appeal by the assessee is directed against the order dated 17.10.2017 pertaining to A.Ys. 2013-14 of ACIT, International Taxation, Circle 1(2)(2) u/s 144C(13)/143(3) and appeals of the Revenue are directed towards the order dated 31/10/2019 of CIT(A), Delhi-42 for A.Ys. 2014-15 and 2015-16, respectively.
2. The appeals and cross appeal pertaining to same assessee were heard together and are disposed of by this common order for the sake of convenience and brevity.
3. Representatives of both the sides were heard at length. Case records carefully perused. Relevant documentary evidence brought on record duly considered in light of Rule 18(6) of the ITAT Rules.
ITA No. 7631/DEL/2017 [A.Y. 2013-14]
4. The grounds raised by the assessee read as under:
“1. That on the facts and in the circumstances of the case and in law, the order of Assistant Commissioner of Income Tax, Circle 1(2)(2), International Taxation, New Delhi (‘Ld. AO’) is bad both in law and on facts. The Ld. AO, based on surmises/ conjectures and in violation of the principles of natural justice, has grossly erred in assessing the income at INR 186,14,66,184 as against NIL income as per return.
Grounds relating to taxability of advertisement revenues
2. The Ld. AO and Ld. DRP have grossly erred in not appreciating that payment of an arm’s length remuneration by the appellant to its Permanent Establishment (‘PE’) (le Discovery Communications India) extinguishes the tax liability of the appellant in India.
2.1 That on the facts and circumstances of the case and in law, the Ld. AO and Ld DRP have grossly erred in holding a sum of INR 23,20,62,658 (being 15% of the gross advertisement revenues) attributable to PE.
2.2 That on the facts and in the circumstances of the case and in law, the Ld. AO and Ld DRP have erred in inferring that transfer pricing study and certification of the PE of appellant in India, for the subject AY, adequately captures Functions, Assets and Risk (‘FAR’) analysis of the PE.
2.3 That the Ld. AO and Ld DRP have erred in not following the transfer pricing order passed for AY 2013-14 by Ld. Transfer Pricing Officer (‘TPO’) wherein no adjustments were made in respect of the arm’s length price received by appellant’s PE in India..
2.4 The Ld. AO and Ld DRP have erred in not considering binding circulars issued by the Central Board of Direct Taxes and in not following judicial pronouncements by the Indian courts including that of Hon’ble Supreme Court in the case of DIT (International Taxation), Mumbai v. Morgan Stanley and Co. Inc  ([2007]292 ITR 416 (SC)) wherein it was held that where a PE has been remunerated at an arm’s length, no further attribution of profits can be done for such PE.
Grounds relating to taxability of distribution revenues
3 That on the facts and circumstances of the case and in law, the Ld. AO and Ld DRP have erred in holding distribution revenues of INR 162,94,03,526, as royalty income of the appellant under the provisions of Explanation 2 to Section 9(1)(vi) of the Income-tax Act, 1961 (the Act’) and under Article 12(3) of the India Singapore Double Taxation Avoidance Agreement (Treaty)
3.1 That on the facts and circumstances of the case and in law, the Ld. AO has grossly erred in holding that alternatively 15% of the distribution revenues of INR 162,94,03,526 may be taxed as business income of PE of the appellant.
3.2 That the Ld. AO and Ld DRP have erred in not following the transfer pricing order passed for AY 2013-14 by Ld. TPO wherein no adjustments were made in respect of the arm’s length price received by appellant’s PE in India.
3.3 The Ld. AO and Ld DRP have erred in not considering the binding circulars issued by the Central Board of Direct Taxes and in not considering the judicial pronouncements by the Indian courts including that of Hon’ble Supreme Court in the case of DIT (International Taxation), Mumbai v. Morgan Stanley and Co. Inc. ([2007] 292 ITR 416 (SC)) wherein it was held that where a PE has been remunerated at an arm’s length, no further attribution of profits can be done for such PE.
3.4 Without prejudice, the Ld. AO erred in holding that distribution revenues of INR 162,94,03,526 are taxable on gross basis @ 15%, instead of rate of 10% as prescribed under India-Singapore tax treaty.
Miscellaneous grounds
4. Without prejudice to the above, the Ld. AO and the Hon’ble DRP have erred on the facts and circumstances of the case and in law, in not following the Mutual Agreement Procedure (‘MAP’) Resolution dated August 24, 2017 reached for Assessment Years 2004-05 to 2012-13 in case of appellant’s group company Discovery Asia LLC.
Levy of Interest under Section 234A, 2348, 234C, 234D and 244A of the Act
5.1 The Ld. AD erred in levying and the Hon’ble DRP erred in confirming the interest under section 234B of the Act as all receipts of the assessee were subject to deduction of tax at source and hence the provisions of Section 234B are not applicable in this case.
5.2 The Ld. AO erred in levying interest under Section 234A of the Act.
Initiation of penalty proceedings under Section 271(1)(c) of the Act
5. That on the facts and circumstances of the case and in law, the Ld. AO has erred in proposing to initiate penalty proceedings under section 271(1)(c) of the Act.
Grant of credit for taxes deducted at source (‘TDS’)
6. That on the facts and circumstances of the case and in law, the Ld. AO has erred in granting TDS credit amounting to only INR 121,264,507 as against INR 165,660,362 claimed by the appellant in its revised return of income.”
5. Briefly stated, the facts of the case are that Discovery Networks Asia Pacific Pte Ltd [DNAP for short] is a tax resident company of Singapore within the meaning of Article 4 of the India-Singapore Double Taxation Avoidance Agreement (‘the Treaty’). It is engaged in the business of broadcasting television programmes through linear channels inter alia under the names Discovery Channel, TLC, Discovery Science, Discovery Turbo, discovery Channel Tamil, Discovery Kids, Animal Planet and Discovery HD World (herein after referred to as the channels) in certain regions around the world including India. The assessee is governed by provisions of the T reaty to the extent they are more beneficial to it viz a viz the provisions of the Act.
6. Discovery Communications India (DCIN) is a company incorporated in India and is engaged in the business of distributing the Channels in India through its sub-distributors and selling commercial airtime on the Channels, broadcasting television programmes through linear channels. In accordance with the policy guidelines of Ministry of Information and Broadcasting (‘MIB’) for down linking of television channels in India, DNAP entered into an Agency Agreement (effective from April 01, 2012) with Discovery communications India (‘DCIN’) whereby, inter-alia, it appointed DCIN as an agent for the sale of advertisement airtime and for distribution of the channels in India.
7. DNAP has commenced its operations in India with effect from April 01, 2012. The above business of sale of commercial airtime and distribution of the Channels, for the period prior to April 01, 2012, was carried on by DNAP’s predecessor company i.e., Discovery Asia LLC (“DALLC”). Subsequently, the said business operations were discontinued by DALLC and DNAP entered into a new agreement with DCIN with effect from April 01, 2012 whereby, inter- alia, it has appointed DCIN as an agent for the sale of commercial airtime and distribution of the Channels in India. As per aforesaid agreement, DCIN retained 40 percent of revenues earned from subscription sales and 15 percent of revenues earned from sale of advertisement inventory for the channels in India as an arm’s length consideration for services rendered to DNAP.
8. The assessee, during the year under consideration, has received Rs 1,54,70,84,391/- as advertisement revenue and Rs 1,62,94,03,526/-as distribution revenue. The assessee however, has filed ROI on 29.11.2013 for AY 2013-14 declaring nil income. The assessee in its return of income has claimed that the above advertisement revenue of Rs 1,54,70,84,391/- and distribution revenue of Rs 1,62,94,03,526/- is not taxable in India. It has also claimed that it has PE in India.
9. For F.Y 2012-13, the assessee has carried out its business from Singapore under the name DNAP with PAN: AAECD1880C. In the earlier years, the assessment of the Indian Operations of Discovery Asia LLC (DALLC) i.e for AY’s 2004-2005 to 2012-13 have been completed u/s 143(3)/ 144C holding that the DALLC has a PE in India in the form of DCIN. The assessments for AY 2000-01 and AY 2001-02 have been decided under MAP by the Competent Authorities of India & USA wherein it has been agreed that the assessee had a DAPE in the form of Discovery India. Even in AY 2002-03 and AY 2003-04, it has been held that DALLC has a DAPE in India in the form of Discovery India.
10. In the course of assessment proceedings for the impugned year, it was submitted that distribution revenues earned by DNAP from India do not qualify as ‘Royalties’ as defined under Article 12(3) of the Treaty and therefore these revenues cannot alternatively be taxed as ‘Royalties’ in India. This is because DCIN has only received a Broadcasting Reproduction Right (‘BRR’) from DNAP and not a copyright. A BRR is a separate and distinct right as recognized under the Copyright Act and hence cannot be called a copyright. Additionally, payments by DCIN to DNAP for distribution of the channels cannot be said to be for the use of any patent, trademark, design or model, plan, secret formula or process or for information concerning industrial, commercial or scientific experience.
11. The Assessing Officer, however, held that as the assessee has an agency PE in India in the form of Dependent Agent and has earned “business income” in the form of advertisement revenue and distribution revenue, 15% of gross revenues from sale of advertisement airtime of Rs. 1,54,70,84,391 would be taxable business profits of the assessee in India.
12. With respect to whether the distribution revenue is in the nature of Royalty, the AO rejected the claim of the assessee that no further profits can be attributed to the PE when the agent has been remunerated at arm’s length. The AO held that when the agent is treated as dependent agent in view of various functions it performs on behalf of the non-resident, further attribution of profits has to be made for the additional functions performed by it for the non-resident and for the assets and risk of the non-resident relating to the functions performed on its behalf by the dependent agent enterprise. The AO accordingly, taxed the receipts as follows:
(a)15% of gross revenues from sale of Advertisement airtime of Rs. 1,54,70,84,391/- i.e. Rs. 23,20,62,658/-are held to be taxable business profits of the assessee in India.
(b)The Distribution revenues of Rs. 1,62,94,03,526/- earned during the previous year relevant to AY 2013-14 are taxable as Royalty @ 15% on gross basis as per India-Singapore DTAA. The AO, later rectified the percentage of gross distribution revenues from 15% to 10%.
(c)Without prejudice to the findings above, the AO also held that the Distribution revenue can also be taxed as business income. The profit attributable to the permanent establishment of the assessee is computed @15% of gross subscription revenue collected by DCIN of Rs. 1,62,94,03,526/-.
13. Aggrieved, the assessee is before us.
14. At the outset, the Id. counsel for the assessee requested us to decide the subject appeal for A.Y 2013-14 on the ground no. 4 i.e., the ground taken without prejudice, i.e., in consonance with the position adopted in the recently signed MAP resolution dated January 09, 2024 in assessee’s own case, wherein it has been agreed that 10% of the net advertisement and distribution revenues received by DNAP from India (i.e., post DCIN’s share) shall be taxed as business profits of DNAP in India. The assessee made the above request with a view to achieve tax certainty in India and to avoid further litigation for subject AY. In this regard, the assessee submitted that there has been no change in the factual matrix/business operations of DNAP for AY 2013-14 vis-a-vis the AYs covered under the above MAP Resolution (ie. AY 2014-15 and A.Y 2015-16) and the same has also been explicitly mentioned by the Ld. AO in the final assessment orders passed for AY 2014-15 and AY 201516.
15. The ld AR further drew our attention to DNAP’s group companies wherein taxability of similar transactions pertaining to sale of advertisement airtime on channels and distribution of channels has been evaluated and agreed upon by the CA India and CA of United States of America in the case of Turner Broadcasting System Asia Pacific Inc (TBSAP”) for AY 2001-02 to AY 2004-05 and Cable News Network, Inc. (CNN’) for AY 2003-04 (copy of MAP resolution of TBSAP and CNN has been enclosed on page 60 of the Paperbook-Vol II). In this regard, similar to DNAP’S MAP resolution discussed above, it has also been agreed that 10% of the net advertising and distribution fees (pertaining to channels) received by TBSAP and CNN are to be attributed to their PE in India (ie., Warner Media India Private Limited (WMIPL)).
16. In view of the above, the assessee requested us to replicate DNAP’S MAP Resolution in the present appeal. In this regard, the assessee invited our attention to the orders passed by the co-ordinate bench of ITAT in the case of TBSAP wherein it has replicated the above MAP Resolution of TBSAP for a block of A.Ys (AY 2009-10 to AY 2017-18 and AV 2020-21 and AY 2021-22). Further, it is stated that the Hon’ble High Court of Delhi has, while dismissing Revenue’s appeal against the ITAT order held that distribution revenues received by TBSAP from WMIPL are to be taxed in line with its erstwhile MAP resolution.
17. The Id AR further stated that even in the case of CNN, its MAP Resolution has been replicated by the Hon’ble ITAT for AY 2004-05, AY 2008-09 to AY 2011-12, AY 2013-14, AY 2014-15 and AY 2016-17. Further, the ld. counsel for the assessee submitted that in the assessee’s own case for AY 2014-15 to AY 2018-19, the Assessing Officer has followed the MAP Resolution agreed in the case of DNAP’s predecessor company (ie. DALLC). Accordingly, considering that a MAP Resolution has now been agreed for DNAP itself, the assessee requested us to replicate the same for the subject AY. In this regard, the assessee invited our attention to the judgment of co-ordinate bench of ITAT in case of assessee’s group company, ADIT v. Animal Planet (Asia) LLC [I.T.A.No.4840/Del/2012 and I.T.A. No. 4841/Del/2012 (Delhi). The ld AR relied on the decision of the Hon’ble Supreme Court in the case of PCIT v. Maruti Suzuki India Ltd. [2019] 416 ITR 613 (SC) for the proposition of tax certainty and consistency.
18. The ld AR also placed reliance on the following judicial precedents as well wherein the ITAT has replicated MAP/APA positions:
(a)Principal Commissioner of Income Tax-10 v. J.P. Morgan Services India (P.) Ltd. [2019] (Bombay);
(b)CGI Information System & Management Consultants (P.) Ltd v. DCIT [2017]  (Bangalore – Trib.) ; and
(c)Colt Technology Services (1) (P.) Ltd. v. DCIT [2022]  (Delhi – Trib.).
19. The ld AR further, without prejudice to above request for replication of MAP position to subject A.Y, also submitted to decide the said appeal on the basis of technical submission supporting NIL taxability claim in Revised ROI filed for the subject AY. The ld counsel of the assessee submitted that distribution revenues received by DNAP from distribution of the channels in India are not taxable as Royalties under Article 12 of the Treaty and are in the nature of business income relying on the decisions of the Hon’ble High Court (‘HC’) of Delhi in the case of CIT International Taxation v. ESPN Star Sports (Mauritius) SNC et Compagnie [TS- 173-HC-2024 (DEL HC)] and the Hon’ble HC of Bombay in the case of CIT v. MSM Satellite (Singapore) Pte. Ltd [2019] (Bombay HC).
20. The AR of the assessee submitted that DCIN has only received a Broadcasting Reproduction Right (‘BRR’) from DNAP and not a Copyright. A BRR is a separate and distinct right as recognized under the Copyright Act, 1957 and hence cannot be called a Copyright. Further, even where it is assumed that there is an element of Copyright in the distribution of the Channels, what at best can be said to be transferred by DNAP to DCIN is the right to distribute a copyrighted product being the Channels operated by DNAP or the content in the Channels. This shall be significantly different from the transfer of the Copyright itself being an intangible and incorporeal right in the nature of a privilege, which is quite independent of the material substance being the Channels.
21. The ld AR argued that the transfer of a copyrighted product being the Channels or the content in the Channels does not itself entail parting of copyright of the Channels or the content in those Channels by DNAP and relied on the Hon’ble Supreme Court (‘SC’) of India in the case of Engineering Analysis Centre of Excellence (P.) Ltd [2021] 432 ITR 471 (SC) which pertained to use of the software. The ld AR of the assessee accordingly submits that distribution revenues received by DNAP are not in the nature of Royalty and are rather business income under the Treaty.
22. As regards DCIN remunerated by DNAP on arms-length basis, the ld AR of the assessee submitted that it has been alleged by the DRP as well as the Assessing Officer that functions, assets and risks undertaken by DNAP’s DAPE (i.e., DCIN) have not been considered by the Ld. TPO and accordingly, further attribution of profits has been made by the Ld. AO in the final assessment order to DNAP’s DAPE (i.e. DCIN) in India. In this regard, the assessee invited our attention to the UAPA signed for DCIN wherein complete functions, assets and risks undertaken by DCIN with respect to aforementioned transactions pertaining to sale of commercial airtime and distribution of the Channels with DNAP in India have been analyzed in detail and an arms-length methodology has been agreed upon.
23. The ld AR finally submitted that even where DCIN constitutes a DAPE of DNAP in India, no further business profits (pertaining to advertisement and distribution revenues) should be attributed to such a DAPE where it has already been compensated on an arms-length basis and relied on the Hon’ble SC of India in the case of Director of Incometax (International Taxation) v. Morgan Stanley & Co. [2007]  292 ITR 416 (SC) and ADIT-1 v. E-funds IT Solutions Inc. [2017] 399 ITR 34 (SC).
24. Per contra, the DR forcefully submitted that the MAP resolution applies only to the particular entity and for the particular year which is covered by such resolution. The ld DR however, did not controvert nor made any substantial disagreement with regard to the factual matrix of the case in hand with respect to the AO having assessed the assessee’s income on the basis of MAP of DALLC in AYs 2004-05 to 2012-13 & AYs 2017-18 to 2018-19 and on the basis of MAP with DNAP for AYs 2014-15 to 2016-17 and AYs 2020-21 to 2021-22. Further for AY 2019-20, which was not picked up for scrutiny, the assessee itself offered income as per MAP of DALLC.
25. We have heard the rival submissions and have perused the relevant material on record. Having heard the rival submission we find that the facts of the case shows that from A.Y 2004-05 till A.Y 2020-21, except for A.Y 2013-14, taxation of the assessee’s business in India is on the basis of MAP either with DALLC or with itself. We find that there is no dispute that the factual matrix and business operations of DNAP for AY 2013-14 vis-a-vis the AYs covered under the above MAP Resolution (ie. AY 2014-15 and A.Y 2015-16) remains the same. The Ld. AO himself accepted this in the final assessment orders passed for AY 2014-15 and AY 2015-16.
26. We acknowledge that in the Income tax Act, the principle of res-judicata does not apply yet the concept of tax certainty and consistency are paramount principles for consideration for taxation. The Hon’ble Supreme Court has emphasized the principles of certainty and consistency in the case of PCIT v. Maruti Suzuki India Ltd. [2019]  416 ITR 613 (SC) as under:
“34. We find no reason to take a different view. There is a value which the court must abide by in promoting the interest of certainty in tax litigation. The view which has been taken by this Court in relation to the respondent for AY 2011-12 must, in our view be adopted in respect of the present appeal which relates to AY 2012-13. Not doing so will only result in uncertainty and displacement of settled expectations. There is a significant value which must attach to observing the requirement of consistency and certainty. Individual affairs are conducted and business decisions are made in the expectation of consistency, uniformity and certainty. To detract from those principles is neither expedient nor desirable.”
27. We find that in the case of the assessee, the competent authorities of India and USA, in earlier years, have examined the facts of the case and issues involved, and have arrived at the resolution (MAP) for taxation of income of Discovery Asia Inc. (DNAP) in terms of Section 90 of the Income-tax Act, 1961 read with Article 27 of the India-USA DTAA dated 24.08.2017 and Rule 44H of the Income-tax rules, 1962 as follows:
(i)10% of advertising revenues will be taxable in the hands of Discovery Asia Inc. taxed @40% and
(ii)Net Distribution revenues taxed in the hands of Discovery Asia Inc. @10% + surcharge and Cess.
28. Similarly, for subsequent years, as per India-Singapore MAP dated 09.01.2024, the taxation was provided as under:
(i)10% of net advertising revenues and Net Distribution revenues will be taxable as business profit in the hands of Discovery Asia Inc. taxed @40% + surcharge and Cess.
29. Following the principle of tax certainty and consistency, especially when there is no change in factual matrix and business operations of assessee in the year under consideration, compared to earlier and subsequent years, we are of the considered view that the taxation of assessee’s revenue may be based on the resolution as per MAP in the impugned AY 2013-14 as well. We are fortified in our view by the decision of coordinate Bench of Delhi in the assessee’s group company namely ADIT v. Animal Planet (Asia) LLC [I.T.A.No. 4840/ Del/2012 and I.T.A. No. 4841/Del/2012 (Delhi) which held as under:
“10….We are inclined to hold that the CIT(A) was right in granting relief for the assessee and in holding that to ensure the consistency of assessment over the years, by following the basis of taxability of the advertisement and subscription revenue constitute business income of the assessee in India and 10% of the advertisement and subscription revenue itself to be treated as taxable income of the assessee in India…”
30. We also note that the similar plea of adopting the earlier resolution in MAP for subsequent years, have been granted by the coordinate bench of ITAT in the case of another assessee i.e., Turner Broadcasting System Asia Pacific Inc (TBSAP”). This decision has been accepted by the Hon’ble High Court of Delhi which while dismissing Revenue’s appeal against the said ITAT order, held that distribution revenues received by TBSAP from WMIPL are to be taxed in line with its erstwhile MAP resolution.
31. In view of the above, we are inclined to hold that though there is merit in the ld DR arguments that MAP resolution applies to the particular assessee for particular year, taxation of business profit of the assessee in line with MAP would bring tax certainty as well as consistency, for both the Revenue and the assessee, in making assessment. We find that the Revenue itself has accepted the taxation of assessee receipts of Advertisement and Distribution on the basis of MAP resolutions in earlier as well as the subsequent years. We therefore are of the view that there should be tax certainty in the assessment of the assessee in the impugned assessment year for assessing the income of the assessee in a consistent manner. Since the issue pertain to AY 2013-14 and the assessee itself has adopted/accepted MAP resolution of DALLC of 24.08.2017, for AYs 2004-05 to 2012-13 and AYs 2017-18 to 2019-20, following the principle of certainty and consistency, we direct that the income of the assessee (DNAP) for the impugned AY be taxed as per resolution of MAP of DALLC i.e.,
(i)10% of gross advertising revenues to be taxed @40% and
(ii)Net Distribution revenues to be taxed @10% + surcharge and Cess.
This ground of appeal no 4 is accordingly decided in favour of the assessee.
32. The assessee has also furnished alternate technical arguments with respect to non-taxability of Advertising and Distribution receipts in grounds 1 to 3 and is sub-grounds. Since the issues of taxability of Advertising and Distribution receipts have been decided on the basis of MAP resolutions between the Competent Authorities of India and USA and India and Singapore, the said technical arguments no longer survives and are rendered infructuous. Grounds 1 to 3 and is subgrounds are decided accordingly.
33. As a result, the appeal of the assessee is partly allowed.
ITA Nos. 908 and 909/DEL/2020
A.Ys 2014-15 and 2015-16
34. These are Revenue’s appeals against deletion of penalty u/s 271(1)(c) for AY 2014-15 and 2015-16. The brief facts of the case are that the assessee filed nil return for AY 2014-15 and AY 2015-16 considering the advertisement and distribution revenue received by it from India, as non-taxable. The AO held that 10% of gross advertising revenues will be taxable in the hands of Discovery Asia Inc. @ 40% plus applicable surcharge and Cess and the Net Distribution revenues will be taxed in the hands of Discovery Asia Inc. as Royalty @ 10% + surcharge and Cess.
35. The AO simultaneously initiated the penalty proceedings u/s 271(1)(c) for furnishing of inaccurate particulars and subsequently levied penalty of Rs 20,35,08,060/-.
36. Aggrieved, the assessee approached the CIT(A) who deleted the penalty.
37. Aggrieved, the revenue is before us for the impugned AYs.
38. The ld DR of the Revenue, submitted that the AO levied the penalty u/s 271(1)(c) on account of the fact that the assessee furnished inaccurate particulars of income.
39. With respect to ground no 3, the ld DR vehemently stated that the CIT(A) did not follow Hon’ble Supreme Court (‘SC’) decision in case of MAK Data (P) Ltd. v. CIT [2013]  358 ITR 593 (SC) wherein it was held that even a voluntary disclosure does not release the assessee from the mischief of penal proceedings under section 271(1)(c) of the Act.
40. With respect to Ground 4, the Id DR argued that the assessee itself admitted additions made in the assessment order and penalty cannot be evaded on the premise that assessee is not contesting the matter further to buy peace and avoid litigation. In regard to Ground 5, the Ld. DR submitted that law does not provide for any provision when resolution in case of group company leads to non-levy of penalty. With respect to the Ground 6, the Ld. DR stated that the CIT(A) did not follow the decision of Hon’ble High Court of Delhi in case of Commissioner of Income-tax v. Zoom Communication (P.) Ltd [2010] 1 327 ITR 510 (Delhi) wherein HC has given a categorical finding that the claim made by the assessee needs to be bond fide and if the claim besides being incorrect in law, is malafide, penalty provisions gets attracted.
41. Per contra, the ld AR of the assessee distinguished the case of MAK Data (supra) stating that the surrender of income in that case was not voluntary and was made in view of detection made by the Assessing Officer in the search conducted in sister concern of the assessee. The Court specifically noted that the surrender was not voluntary. It is the say of the ld AR that in the instant case, the assessee has made full and true disclosure of facts in the assessment as well as the MAP proceedings. It was argued that nowhere it has been alleged that information/facts furnished by the assessee is inaccurate or concealed. It is vehemently submitted that the additions were made on account of difference of opinion.
42. On the issue that assessee did not file appeal, the ld AR stated that the assessee vide its letter dated December 18, 2018 requested the Ld. AO that in a scenario where the Ld. AO passes the draft assessment order for the subject AY on the same basis as revised final assessment order dated December 14, 2018 for AY 2014-15, no objections shall be filed by the respondent before Hon’ble DRP, nor any appeal shall be preferred with Hon’ble CIT(A) against the final assessment order to avoid protracted litigation and buy peace of mind.
43. The ld AR further argued that it has been held by various courts that mere non-filing of appeal in quantum matter would not ipso-facto lead to an automatic levy of penalty under section 271(1)(c) of the Act. Reliance in this regard is placed on the judgement of Hon’ble SC in the case of Sir Shadi Lal Sugar & General Mills Ltd. V. CIT (SC) and Hon’ble HC of Karnataka in case of CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565 (Karnataka).
44. The Id AR, on the issue of no provision in law when resolution in case of group company leading to non-levy of penalty, stated that the issue/additions involved in the subject AY are capable of more than one opinion and are a debatable question of law. The ld AR relied on the decision of the Hon’ble SC of India in the case of Director of Income-tax (International Taxation) v. Morgan Stanley & Co. [2007] 292 ITR 416 (SC) and ADIT- 1 v. E-funds IT Solutions Inc. [2017]  399 ITR 34 (SC) which have held that where PE is adequately remunerated at arms-length price, no further profits can be attributed to the assessee. It is submitted that in the instant case, DCIN constitutes a DAPE of DNAP, but the TPO has accepted that it has been adequately remunerated at arms-length price.
45. The ld AR stated that its arguments that revenues received by DNAP from distribution of the Channels in India are not taxable as Royalties under Article 12 of the Treaty and are in the nature of business income has been upheld by various Courts of India including the Hon’ble HC of Delhi in the case of CIT International Taxation v. ESPN Star Sports (Mauritius) SNC et Compagnie [TS- 173-HC-2024 (DEL HC)] and Hon’ble HC of Bombay in the case of CIT v. MSM Satellite (Singapore) Pte. Ltd [2019] ([2019] (Bombay HC). It is the say of the Id AR that the assessee was therefore, of the bona fide view and adopted a NIL taxability position on the basis of the above rulings. The ld AR submitted that the assessee agreed for replication of DALLC’s MAP resolution only to buy peace and avoid protracted litigation and not because it principally agrees with the same.
46. The ld AR stated that without prejudice to the above, the pursuant to conclusion of MAP proceedings in case of Respondent’s predecessor company i.e., DALLC, the Ld. AO passed orders giving effect to the said MAP resolution for AY 2004-05 to AY 2012-13 in case of DALLC on December 29, 2017. However, no penalty proceedings were initiated in DALLC’s case which is exactly similar to the instant case of assessee.
47. The ld AR further drew our attention to the penalty order dated August 30, 2019 wherein the Ld. AO has stated that AY 2015-16 is not covered by a MAP resolution. The Ld. AR stated that the AO has misconceived the same as the subject AY is now covered by a MAP resolution dated January 09, 2024, and hence the order of Ld. AO would be treated to have become infructuous due to the operation of MAP resolution dated January 09, 2024. The ld AR further emphasized that it had suo-moto opted for a MAP resolution with the CA of India and Singapore where it disclosed all material facts and information during the MAP proceedings as well as assessment proceedings substantiating the position adopted by it in its RoI.
48. The ld AR also distinguished the facts of the Zoom Communications (supra) where the Hon’ble HC held that disallowance of income tax paid is not a debatable issue and is entirely unsustainable in law. The court held that as long as the assessee has not concealed any material fact or any factual information given by him has not been found to be incorrect, he will not be liable to imposition of penalty under section 271(1)(c), even if claim made by him is unsustainable in law, provided that he either substantiates explanation offered by him or explanation, even if not substantiated, is found to be bona fide. The ld AR stated that in that case, the Court found that the claim of the assessee that due to oversight the amount of income tax paid was not added back, is incorrect in law and without any basis, hence sustained the penalty.
49. The ld AR further stated that the facts of assessee’s case are clearly distinguishable from the above, as in the instant case, the claim made by the assessee is based on judicial precedents (including the judgements of Hon’ble SC on the issues of attribution and royalty and the assesse has offered a bona fide explanation in respect of the position taken in the RoI. The ld AR reiterated that it has also been held by various courts that upon disclosure of facts before the Ld. AO, imposition of penalty is not justifiable. Reliance in this regard is place on judgement of Hon’ble HC of Delhi in case of CIT v. Nath Bros Exim International Ltd. [2007] 288 ITR 670 (Delhi) and Hon’ble HC of Delhi in case of Devsons (P) Ltd v. CIT [2010]  329 ITR 483 (Delhi) and the Hon’ble Supreme Court in case of CIT v. Reliance Petroproducts (P) Ltd [2010] 322 ITR 158 (SC).
50. We have heard the rival submissions and have carefully perused the orders of the authorities below. After hearing the rival submission, we find the ground no. 1 and 2 are general in nature. The facts of the substantive ground no 3 to 6 revolves around levy of penalty on the ground that the assessee has neither disclosed correct income nor gave accurate particulars of his income. We find from the penalty order that the penalty was levied because the AO held that the assessee did not revise its ROI for AY 2016-17 even post DALLC’s MAP resolution which shows its intention to evade taxes; that the assessee did not file of appeal before the Hon’ble ITAT in the quantum matter which does not indicate that inaccurate particulars were not filed when the Rol was filed; ROI of AY 2017-18 and AY 2018-19 was revised after penalty show cause notices were issued for AY 2014-15 and AY 2015-16; Deletion of penalty by Hon’ble CIT(A)-42 in AY 2008-09 in case of DALLC (i.e., assessee’s predecessor company) cannot be treated at par with the instant case since DALLC’s case was covered under MAP and finally the assessee failed to offer a bona-fide explanation and has furnished inaccurate particulars of income. The AO held that had the case not been selected for scrutiny assessment, the income would have remained untaxed.
51. From the conspectus of facts as discussed above, we are of the considered view that the assessee has truly and fully disclosed all the material facts of its receipts of advertisement and distribution activities. The assessee was merely contesting the taxability of such receipts as ‘Royalty’ or ‘business income’. We find the basis of such a stand of the assessee are the judicial precedents and legal interpretation of ‘Royalty’ in decisions of the Hon’ble HC of Delhi in the case of CIT International Taxation v. ESPN Star Sports (Mauritius) SNC et Co mpagnie (supra) and Hon’ble HC of Bombay in the case of CIT v. MSM Satellite (Singapore) Pte. Ltd (supra).
52. We also find that the AO has not questioned the genuineness or adequacy of revenue received by the assessee. The penalty imposed is merely on the basis of additions made by the AO in the assessment order. The AO has adopted a view which is different from the view taken by the assesse on the same set of facts which can only be termed as difference of opinion. There were judgements such as Director of Income-tax (International Taxation) v. Morgan Stanley & Co. (supar) and ADIT- 1 v. E-funds IT Solutions Inc. (supra) which interpreted such receipts as not taxable. We therefore hold that when the assessee has disclosed all facts, addition made on difference of opinion can not lead to levy of penalty u/s 271(1)(c). We get support from the decision of the Hon’ble HC of Delhi in case of CIT v. Nath Bros Exim International Ltd. [2007] 288 ITR 670 (Delhi) wherein it was held as under:
“5. What is required to be considered is whether there was any enquiry that was required to be made by the Assessing Officer before concluding that the assessee had furnished inaccurate or false particulars. In this case, we are of the view that no such enquiry was required to be made but there was only the need for application of the law. On the legal position, the Assessing Officer was not satisfied and did not agree with the assessee but that by itself is not a ground to invoke the penalty provision of the statute…
53. We fully endorse the reliance placed by the CIT(A) on the decision of the hon’ble Supreme Court in the case of CIT v. Reliance Petroproducts (P) Ltd [2010] 322 ITR 158 (SC) wherein it has held that “mere making of a claim which is not sustainable in law will not amount to furnishing of inaccurate particulars and that the legislature does not intend to impose penalty on every assessee whose claim is rejected by the assessing officer”. We are also aligned with the view of the CIT(A) that the instant case is only a case of wrong claim by the assessee. There is no incorrect or false reporting of income or expenditure except for the fact that the AO considered it to be a case of claim which is not in accordance with the provisions of the Act. We find that the explanation offered by the assessee are bonafide that it adopted nil taxability position on the basis of judicial precedents.
54. We are also fortified in our view from the decision of the coordinate bench in the case of Raytheon Company ITA No. 1391/DEL/2023 wherein, on similar facts, it has been held as under:
“The assessee has disclosed all material facts during the assessment as well as MAP proceedings and has not concealed any particulars of income. It is only a difference of opinion as to whether there exists PE in India for assessee or not. There is no conclusive proof that the assessee has PE in India. It is only an assumption that the assessee has PE in India and by way of deeming fiction, the profits were attributed for such assumed PE by the authorities in the MAP proceedings.
We hold that there is no concealment of income or furnishing inaccurate particulars of such income by the assessee.”
55. We also agree with the CIT(A) that mere non-filing of appeal in quantum matter would not ipso-facto lead to an automatic levy of penalty under section 271(1)(c) of the Act. A view which is supported by the judgement of Hon’ble SC in the case of Sir Shadi Lal Sugar & General Mills Ltd. V. CIT (supra) wherein it has been held that:
” 14……from agreeing to additions, it does not follow that the amount agreed to be added was concealed. There may be 101 reasons for such admissions.”.
56. Similarly, the Hon’ble Karnataka High Court in the case of CIT v. Manjunatha Cotton & Ginning Factory [2013] 359 ITR 565 (Karnataka) observed that:
“(K) Even if the assessee has not challenged the order of assessment levying tax and interest and has paid tax and interest that by itself would not be sufficient for the authorities either to initiate penalty proceedings or impose penalty, unless it is discernible from the assessment order that, it is on account of such unearthing or enquiry concluded by authorities it has resulted in payment of such tax or such tax liability came to be admitted and if not it would have escaped from tax net and as opined by the Assessing Officer in the assessment order”
57. We also endorse the submission of the Id AR that the decision of the Supreme Court in the case of MAK Data (supra) and Delhi Court in the case of Zoom Communications (supra) are distinguishable as they are based on different set of facts. We agree with the distinction elaborated by the AR and the same is not reproduced for the sake of brevity. To reiterate, the assessee has disclosed complete facts with respect to aforesaid receipts in the submissions filed during the course of assessment proceedings. We further find that the Assessment Order nowhere lays down that the information/details were not filed and/or the Company failed to offer any explanation in respect to claim made. We also find that the issues pertaining to taxability of the assesse revenue have different judicial views. We are satisfied that the explanation offered by the assessee are bona-fide and based on judicial precedents. Moreover, the taxability for the subject AYs has been recently resolved through MAP resolution agreed between the CA of India and Singapore and no mention of imposition of penalty has been made in aforesaid MAP resolution. Subsequently, the Assessing Officer passed an order giving effect to the MAP resolution wherein no mention of penalty has been made. In view of the above discussion, we hold that under the given facts and circumstances, no penalty can be imposed in the instant case under section 271(1)(c) of the Act on account of furnishing inaccurate particulars of income. Accordingly, we find no reasons to interfere with the decision of the CIT(A) and delete the penalty u/s 271(1)(c). The grounds 3 to 6 are allowed.
58. In the result:
ITA No. 7631/DEL/2017 – Appeal of assessee is partly allowed.
ITA No. 908/DEL/2020 – Appeal of Revenue is dismissed.
ITA No. 909/DEL/2020 – Appeal of Revenue is dismissed.