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NGC Network Asia LLC v. JDIT [Mumbai ITAT]
ITA No. 7994 of 2011 & 7631 of 2012
Date of Decision: December 16, 2015
Facts of the Case
NGC Network Asia LLC (‘NGC Asia’), a US based company, was engaged in broadcasting of National Geographic channel and Fox International Channel.
It had sold the entire ‘advertisement air time’ of its channels for a lump sum consideration to its associated enterprise in India, namely, NGC Network (India) Private Limited (‘NGC India’).
Assessee was of the view that income received by it from sale of ‘advertisement air time’ was not taxable in India as ‘advertisement air time’ would amount to ‘goods’ which was transferred to NGC India on principal to principal basis.
Therefore, NGC India could not treated as its Permanent Establishment (PE) and, accordingly, business income from selling of ‘advertisement air time’ could not taxed in India.
The Appellate Tribunal held that one of the main characteristics of “goods” is that it should be capable of being “consumed” or “used” independently by the buyer thereof.
Albeit, the ‘advertisement air time’ might be capable of being transferred, but the same could not be consumed/used by the buyer without the assistance from the assessee by way of telecasting the same in the television channels.
Thus, the concept of purchase and sale of goods, could not be applied to the facts of the instant case. Accordingly, NGC India was only enabling the assessee to procure the advertisements for telecasting them.
hence, the NGC India could not be considered as selling advertisement airtime independent of the assessee.
Therefore, NGC India could not be considered to be “an independent principal/agent” of assessee.
The Tribunal further held that NGC India habitually exercises in India an authority to conclude contracts on behalf of the assessee and the same would be binding on the assessee, since it had agreed to broadcast the advertisements procured by NGC India.
Thus, NGC India should be classified as “dependent agent” of the assessee in terms of Article 5(4)(a) of the India-US DTAA and, accordingly, business income from selling of ‘advertisement air time’ had to be attributed to assessee’s PE in India.
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