High court overrules tax tribunal in SET case

A division bench of the Bombay High Court has set aside the order of the Income Tax Appellate Tribunal (ITAT) in the case of Singapore-based Sony Entertainment Television (SET) Satellite.

SET, a telecasting company which is a tax resident in Singapore, had appointed SET India as an agent for marketing airtime slots in India. SET India constituted a dependent-agent permanent establishment (DAPE) under article 5(8) of the double tax avoidance agreement between India and Singapore. Based on guidelines contained in the Central Board of Direct Taxes’ circular 23, 1969, and circular 5, 2004, SET remunerated its India agent at an arm’s length price and contended that no additional revenue was attributable to India or subject to Indian taxation.

The ITAT tribunal had disagreed with SET’s assertion, ruling that that a foreign company with an Indian DAPE would continue to be liable for tax in India even after it remunerated the dependent agent at arm’s length. It ruled that the dependent agent and the DAPE were two different taxpayers, and the remuneration of the former at arm’s length did not extinguish the liability of the latter.

The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm that provides legal and tax counselling. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.