Justices S Muralidhar and Prathiba M Singh of Delhi High Court has deleted re-assessment proceedings against ESS Distribution initiated by the Income Tax department.
The Assessee, ESS Distribution is engaged in the business of distribution of sports and sports related television programmes broadcast by ESPN Star Sports, Singapore via Non-standard television, had entered into agreements with ESPN Software India Private Limited for distribution of the channels.
The department re-opened assessment against the assessee on the grounds that (i) the amount received by ESS Distribution from Scorpio, pursuant to the agreement entered into between them, was taxable under Section 9 (1) (i) of the Income Tax Act read with the relevant provisions of the DTAA and (ii) the assessee escaped tax on account of the subscription income received by it from ESPN Software India Pvt. Ltd.
Assessee maintained that since it is a tax resident of Mauritius, it is entitled to the protection under the India-Mauritius Double Taxation Avoidance Agreement. It contended that its revenue from distribution being business profit was, in terms of Article 7 (1) of the DTAA, cannot made taxable in India in the absence of a permanent establishment (PE) in India as per the provisions of the DTAA.
After perusing a computation of income and notes to computation filed by ESS Distribution in the original assessment proceeding, the Court noted that during the year in question ESS Distribution has not conducted any business with Scorpio and accordingly, there were no receipts from Scorpio. “Therefore, the said reason recorded for reopening the assessment was apparently invalid.”
Deleting the impugned order, the bench said that “There was no new material for the AO to come into the conclusion that any other income arose during the AY in question that was left out from consideration. There was no nexus between the reasons to believe that income has escaped assessment and any new tangible material placed on record before the AO. The reopening was, therefore, based on a mere change of opinion.”
Read the full text of the Judgment below.
