Outsourcing of Work to Indian Co. Not to Give Rise to Fixed Place PE if it Only Renders Support Services | HC

Case Details: CIT v. ESPN Star Sports Mauritius S.N. CET Compagnie - [2024] 160 taxmann.com 389 (Delhi)

Judiciary and Counsel Details

• • Yashwant Varma & Purushaindra Kumar Kaurav, JJ.
  • Porus Kaka, Sr. Adv. Ashok Mathur, Divesh Chawla, Saurabh Jain, Manpreet Kaur Bhalla & Ms Sandy Sharma, Advs. for the Appellant. & Others.
  • Ruchir Bhatia & Ms Deeksha Gupta, Adv. for the Respondent. & Others.

Facts of the Case

The assessee, ESPN Star Sports, was engaged in the business of distribution of television channels in India. The assessee executed an agreement with an Indian entity pertaining to the distribution of Star Sports and ESPN channels in India. Such an Indian entity was engaged in the business of acquiring airtime from the assessee and allotting it to various Indian advertising agencies.

The Assessing Officer contended the Indian entity to be a fixed place i.e, Permanent Establishment (PE) of the assessee as per Article 5 of the India- Mauritius DTAA and in the alternative by virtue of distribution agreements, the Indian entity could be treated as Dependent Agent PE (DAPE).

On appeal, CIT(A) upheld the order of AO. Disagreeing with the order, the Tribunal allowed the assessee’s appeal. Subsequently, the matter reached the Delhi High Court.

High Court Held

The High Court held that the case of a DAPE was raised in the backdrop of Article 12(4)(i) of the India-Mauritius DTAA. However, the contract stipulations would unerringly point towards a manifest absence of a right having been conferred or an authority granted to conclude contracts.

The Indian entities stood conferred with an independent right to enter into contracts with cable operators for channel distribution and the assessee was not privy to those agreements. In terms of those agreements, it was the Indian entities which bore associated distribution costs and expenses. The agreements unequivocally establish that the assessee was in no manner connected with the contracts executed by the Indian entities with cable operators and other intermediaries. Even the right to initiate legal action by the latter is available to be exercised only against the Indian entities.

The Indian company only renders support services which enable the assessee in turn to render services to their clients abroad, this outsourcing of work to India would not give rise to a fixed place PE. Accordingly, the appeal was dismissed.