The capital gains, on the sale dating back seven years, amount to about Rs 1,800 crore.
In March, the Income Tax Appellate Tribunal (ITAT), while allowing a plea filed by ZEE’s step-down subsidiary, observed it has no permanent establishment, thus entitling it to avail the treaty benefit applicable under the Double Taxation Avoidance Agreement (DTAA). It further said that gains arising on alienation of property would be chargeable to tax only in the state of residence of the alienator – in this case in Mauritius.
Gains of about Rs 1,790 crore “on the sale of the sports broadcasting undertaking by the assessee is not chargeable to tax in India,” the ITAT had held.
A permanent establishment under I-T parlance means having a presence in the form of a fixed place or service based outside the company’s state of residence.
Section 260 A of the income tax act allows the department to file an appeal before a high court within whose territorial jurisdiction the assessing officer is located.In October 2016, the deputy commissioner of income tax, international tax circle, Mumbai had issued a certificate authorising the step-down subsidiary, Taj TV to pay Rs 2,267 crores to Aqua Holding Investment, a Mauritius company linked to Sony. This was after the company disclosed that during FY17, it had disposed of its global sports broadcasting business to Aqua Holding by way of a slump sale.On August 31, 2016, an agreement was entered into by ZEE as the seller and Sony Pictures Network India as the purchaser.
The IT department has argued that ZEE is not a service provider to Taj TV as the play-out agreement of 2017 is entered more than eight months after the acquisition of the sports broadcasting business by Sony.
Taj TV had contended that it had only received certain services from Taj TV India in respect of advertisement and distribution and from ZEE for play-out services. All these entities are mere service providers and paid according to the contracts.
The ITAT had held that the IT’s addition toward play-out facilities was an afterthought. “It is to be noted that ZEE is carrying out play-out facilities …for many other broadcasters. It is not for this year but for the past several years, ZEE is providing the service of play-out stations,” the tribunal bench had ruled.
The tribunal also held the tax department failed to prove the twin test of determining a permanent establishment, as it couldn’t provide evidence that the Indian entity had habitually exercised the authority to conclude contracts.
