The Financial Year 2023-24 is coming to an end in fortnight. The books of accounts of all entities are at the closing stage, and wherever a requirement arises, provision as required needs to be created. Let us analyze a recent ruling!
- CIT vs. ESPN Star Sports Mauritius (as well as ESPN Group): Delhi High Court
Issue
Whether a permanent establishment ("PE") is constituted for ESPN Star Sports Mauritius on account of a distribution agreement entered into with Indian entities or any other sort of PE is constituted under the act.
Facts
- ESPN star sports Mauritius ("assessee") and ESS distribution hold valid tax residency certificates based on the Double Taxation Avoidance Agreement ("DTAA") of India-Mauritius. Both entities are designated as distributors under the two agreements.
- The contention of the revenue was that the assessee had a fixed-place PE or dependent PE. Even subscription and distribution revenue is taxable as royalties. ITAT held that there constitutes no PE, but revenue filed an appeal with the high court.
Conclusion
- There is no PE for ESPN Mauritius in India from the distribution agreement entered with the Indian entities for the distribution of Star Sports and ESPN channels in India.
- Agrees with ITAT finding that there is no fixed place PE in India as no material was brought on record by the Revenue to suggest that the assessee has any kind of control over the business of ESPN India or that the premises of ESPN India have been given at the disposal of the assessee.
- Reliance was placed on engineering analysis to determine that there is no broadcasting right and no profit attribution in the absence of PE.
Interesting fact about this judgment
- There is no order passed by the Commissioner under Section 263 of the Income Tax Act.
Let us move on to a crucial topic. Advance ruling from an income tax and GST perspective.
GST perspective
The authority for advance rulings is constituted under GST law to attract foreign direct investment by ensuring certainty in taxation aspects of transactions. It helps reduce litigation and brings certainty to tax liability.
An advance ruling can be sought for the classification of goods or services, the applicability of notification issues under the provisions of the CGST Act, the determination of input tax credit, and the determination of time and place of supply. The interesting fact is that even if a person is not registered, he can seek an advance ruling to check whether registration has to be done. However, an advance ruling cannot be obtained on the place of supply.
The authority for advance ruling is an authority established under GST law. Any party can file an application with the AAR by depositing Rs 5,000 under the CGST-SGST Act. Any party aggrieved by AAR can file an appeal to AAAR (Appellate Authority for Advance Ruling) within 30 days from the date of the passing of the AAR order. The ruling promulgated by AAR is binding on the commissioner and underlying transaction parties.
The law has given AAR and AAAR the power to rectify the mistake within six months from the date of the order.
Income tax perspective
Section 245 of the Income Tax Act deals with advance rulings. Now the authorities have changed to the Board for Advance Ruling (BFAR). The ruling promulgated by BFAR does not pertain to or be binding only on that particular party's commissioner. Any party, whether a resident or non-resident, who has a tax liability of 100 crores or more can apply for BFAR. Sometimes the ruling promulgated by BFAR may be declared void. It should be noted that BFAR may even invoke or give judgment in areas like permanent establishment, the Most Favored Nation Clause, residential status issues, general anti-avoidance rules, and many complex litigative topics.
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