Case nº AAR No. 610 of 2003 of Authority for Advance Rulings, February 07, 2005 (case In Re: Speciality Magazines (P) Ltd. Vs)

JudgeFor CIT: Yashwant Y. Chavan, Adv.
PresidentSyed Shah Mohammed Quadri, J. (Chairman) and K.D. Singh, Member
Resolution DateFebruary 07, 2005


Syed Shah Mohammed Quadri, J. (Chairman)

  1. In this application under Section 245Q(1) of the Income-tax Act, 1961 (for short the 'Act'), M/s Speciality Magazines (P) Ltd. (SMPL), an Indian company, is the applicant. SMPL is an advertisement concessionaire of M/s The Economist Newspaper Limited (TENL), which is a company registered in the United Kingdom (U.K.) and is carrying on business of publishing magazines from London. TENL is a non-resident company and does not have a PE in India. As an advertisement concessionaire for TENL in India, SMPL gets 15 per cent commission on gross value of the invoices raised outside India directly on the Indian advertisers by TENL. The advertisement cost is payable in US dollars according to the invoices raised by TENL either by draft or by wire transfer. To enable the Indian advertisers including Government undertakings and to secure international market, TENL extended the facility of payment of advertisement charges in Indian currency. Under an agreement which is to be concluded between them, TENL proposes to authorize SMPL to collect the advertisement charges from Indian advertisers in Indian currency and remit the same in foreign currency (US dollars) to TENL. On these facts, SMPL seeks advance rulings of the Authority on the following questions:

    (1) Whether Speciality Magazines (P) Ltd. (resident) collecting advertisement charges from Indian advertisers towards cost of advertisements in overseas publications, such collections being in Indian currency, converting to foreign currency and remitting the same to The Economist Newspaper Ltd. (nonresident) tantamount to income deemed to accrue or arise in India under Section 9 of the IT Act, 1961, to the non-resident?

    (2) If income is deemed to accrue or arise in India under Sections 9 of the IT Act, 1961, to The Economist Newspapers Ltd. (non-resident), then what is the withholding rate of tax to be adopted by Speciality Magazines (P) Ltd. (resident)?

    (3) Whether the Indian advertiser should deduct income-tax at source while making payment to Speciality Magazines Ltd., the advertising concessionaire for The Economist Newspaper Ltd. in India, such payment being in Indian rupees and against invoices raised by The Economist Newspaper Ltd. towards advertisement charges?

    (4) Whether Speciality Magazines (P) Ltd., the advertising concessionaire for The Economist Newspaper Ltd., should deduct income-tax at source while making "remittance" of Indian rupee collections to The Economist Newspaper Ltd.?

  2. The CIT, Bangalore-III, offered his comments to the application of SMPL. It is stated that SMPL is not an independent agent of TENL, a non-resident, within the meaning of second proviso to Expln. 2 of Section 9 of the Act, therefore, TENL will be deemed to have business connection in India and its income is assessable to income-tax under Section 9(1)(i) r/w Section 5(2) of the Act. From the terms of the agreement between SMPL and TENL it is clear that there exists business connection between them. SMPL renders all services of the TENL and records disclose that it has earned Rs. 2,68,961 in the year ending 2000, Rs. 21,65,645 in 2001 and Rs. 36,44,137 in 2002. These figures establish that the agreement is exclusive. The CIT treated the transaction as one between a non-resident and the Indian advertiser through Indian company in the nature of advertising contract and stated that the tax has to be deducted under Section 194C on the gross amount of the bill,

  3. In its rejoinder, SMPL stated that it cannot accept orders for advertisement but takes orders subject to confirmation and acceptance by TENL which has the right to accept or decline to publish the advertisement. It is added that SMPL is also holding advertisement concessionaire contract with Media Representation International, New Delhi, for territorial representation in Southern States of India for the following publications:

    (a) National Geographic group of publications

    (b) North Star Travel Media, U.S.A.

    (c) Euro Sports Television Network based in Europe

    (d) Fortune, Time Inc., U.S.A.

    In June, 2003, it has procured advertisement for Fortune magazines from Infosys Technology Ltd., Bangalore. It is asserted that SMPL is not a dependent agent of TENL but has enjoyed an independent status and that it cannot be treated as a representative assessee of the non-resident.

  4. Number of opportunities were given to the applicant to represent its case by granting adjournments as prayed for from time to time. However, counsel for the applicant expressed his inability to represent the case of the applicant on the last day of hearing and requested that the application might be considered on the basis of written submissions filed by it. It is urged in the written submissions that SMPL is not the agent of the Economist group alone and that it is also the agent of Media Representation International, New Delhi, for Travel Weekly' published by REED group, Fortune published by the Time Inc. group New York, as well as territorial representative of Media Representation International, New Delhi, for south India. It receives commission in Indian currency from the principal agent and from the Economist group in foreign currency. SMPL also represents National Geographic group of publication, North Star Travel Media and European Television Network. Therefore, SMPL cannot be treated as an exclusive agent of Economic group. It is submitted that the mode of receipt of commission in Indian currency or foreign currency is not the decisive fact to consider the application of Clause 5 of the DTAA, therefore, it cannot be treated that it is working wholly or almost wholly for TENL. SMPL placed reliance on ruling of this Authority in Al Nisr Publishing, In re, ruling dt. 29th Oct., 1997 in AAR No. 358 of 1997 [(1999) 105 Taxman 308 (AAR)].

  5. Mr. Yashwant Y. Chavan who appears for the CIT has contended that from the records of the last 4 years, it is evident that foreign earnings of the applicant are only from TENL, therefore, the applicant is a dependent agent. It is further contended that about 78 per cent of the income of the SMPL is from TENL group and that SMPL secures orders wholly or almost wholly for the Economist group. Relying on the annexure, it is submitted that 100 per cent of the applicant's foreign business is with TENL group only...

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