The Supreme Court has issued notice to Sony Entertainment Television Satellite (Singapore) Pte Ltd on a petition seeking to tax profits of the Indian operations of the foreign entity through a dependent agent (SET India Pvt Ltd).
A Bench headed by Justice SH Kapadia has issued notice to SET (Singapore) Pte Ltd on a petition filed by the Income Tax Department challenging the Bombay High Court’s order which said that the fact that tax on income was paid for some assessment years does not negate the foreign entity’s contention that its income is not taxable.
The department submitted that the authorities had arrived at the profits that may be taxable in India, adding the high court was not correct in holding that in view of the CBDT circular of July 23, 1969, advertisement revenues of the assessee were not liable to be taxed in India.
According to the department, the dependent agent (SET India) and the department agent permanent establishment (Singapore company) were separate entities with regard to activities in India.
While SET India is taxable in India, the foreign firm is to be taxed in this country under Article 7 of the Double Taxation Avoidance Agreement between India and Singapore in respect of the profits attributable to the permanent establishment, the petition stated.
Citing the apex court ruling in the Morgan Stanley case, where the “two point taxation” was affirmed, the department said that the host country had taxation rights over the dependent agent in respect of income earned in India and over the foreign entity in respect of the profits attributable to its PE here.
Besides, it said that the Morgan Stanley ruling had also clarified that the income of a foreign entity will be taxable in India and further profits can be attributed to it regarding the functions performed, assets used and risks assumed.