Wednesday, November 25, 2015

Mumbai ITAT denies to treat news distributor of 'Reuters' as its PE in India


a)  The assessee was a tax resident of UK and it had worldwide business of providing news and financial information distributed through Reuters Global Network. In India, the assessee entered into distribution agreement with RIPL for distribution of news and information service. The assessee had also deputed one, 'S', as Bureau Chief of Bombay and he was in India during the relevant financial year.

b)  In the course of assessment, the Assessing Officer held that RIPL was to be treated as PE of assessee in India under Article 5(5) and also as service PE under India -UK DTAA.

c)  Thereafter, the AO taxed the entire 'distribution fee' on gross basis at the rate of 20 per cent under section 44D, read with section 115A. The DRP set aside objections raised by assessee.

The ITAT held in favour of assessee as under:

1)  The character of an Agent under Article 5(4) which can be said to be dependent is that the commercial activities of the agent for the enterprise are subject to instructions or comprehensive control and it does not bear the entrepreneur risk. The qualified character of the agency is authorization to act on behalf of somebody else so much as to conclude the contracts. Here in this case, there was no such terms which could be borne out from the distribution agreement that RIPL was only acting on behalf of 'Reuters' or was in kind of dependent agent. It was completely an independent entity and the relationship between the assessee and RIPL was on principal-to-principal basis

2)  Even under Para 5 of Article 5 of India-UK DTAA, the foremost condition is that the activities of such an agent are devoted wholly or almost wholly on behalf of the enterprise. Herein activities of RIPL could not be said to be devoted wholly or almost wholly on behalf of the assessee as it was entering into contracts with the subscribers in India on independent basis and on principal-to-principal for earning and generating its revenues. It was not the case here that it was completely or wholly doing activity for 'Reuters' and earning income wholly from 'Reuters' only. Thus, the conditions laid down in Article 5(5) also does not fulfill.

3) Now coming to the second limb of the controversy as to whether there is a service PE within the scope and ambit of Article 5(2)(k)? There was no furnishing of services by the Bureau Chief to the RIPL which lead to earning of a distribution fee to the assessee. As per terms of agreement, the assessee was merely delivering Reuters services to the distributors. The Bureau Chief was only acting as a Chief reporter and Text Correspondent in India in the field of collection and dissemination of news.Thus, it cannot be held that the News Bureau Chief constitute a service PE in India. Accordingly, distribution fee received by assessee was not taxable as it did not have PE in India. - REUTERS LTD. v. DY. CIT(INTERNATIONAL TAXATION) [2015] 63 115 (Mumbai - Trib.)