Page 1 of 72 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C : NEW DELHI BEFORE SHRI H.S.SIDHU, JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA No.1613/Del/2015 (Assessment Year: 2010-11) International Management ACIT, Group (UK) Ltd., Vs. International Taxation- Building 10-C, 18th Floor, 2(1)(1), Cyber City, Gurgaon 4 th Floor, E-2, Block, PAN:AABCI9309N Pratyaksh Kar Bhawan, Civic Centre, J. L. Nehru Marg (Appellant) (Respondent) ITA No.1646/Del/2015 (Assessment Year: 2010-11) ACIT, International Management International Taxation-2(1)(1), Vs. Group (UK) Ltd., 4th Floor, E-2, Block, Building 10-C, 18th Floor, Pratyaksh Kar Bhawan, Civic Cyber City, Gurgaon Centre, PAN: AABCI9309N J. L. Nehru Marg (Appellant) (Respondent) Assessee by : Sh. Ravi Sharma, Adv Sh. Mudit Sharma, CA Respondent by: Sh. Anuj Arora, CIT DR Date of Hearing 05/07/2016 Date of pronouncement 04/10/2016 ORDER PER PRASHANT MAHARISHI, A. M. 1. These are cross appeals filed against order of ACIT, [ hereinafter referred to as AO ] Circle-2(1) (1), New Delhi International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 2 of 72 dated 28.01.2015 for Assessment Year 2010-11 u/s 143(3) of Income tax Act [ hereinafter referred to as Act ] passed in pursuance of direction u/s 144C of Income Tax Act dated 21.11.2014 passed by Learned Dispute Resolution Panel [ hereinafter referred to as DRP ]. 2. assessee has raised following grounds of appeal:- 1. That in facts and circumstances of case and in law, order passed by ld Assistant Commissioner of Income Tax (AO) under section 143(3) read with section 144C (13) of Income Tax Act (the Act) assessing income of appellant at Rs. 117350220/- instead of return income of Rs. 32804655/- is bad in law. 2. That in facts and circumstances of case and in law Hon ble Dispute Resolution Panel (DRP) erred in not appreciating that once it is held that receipts from service outside India amounting to Rs. 237750181/- are to be taxed as business income then same is to be taxed to extent receipts are attributable to Permanent Establishment (PE) in India in view of provisions of Article 5 read with 7 of India UK Double Taxation Avoidance Agreement (DTAA of Tax Treaty) 3. That in facts and circumstances of case and in law, Hon ble DRP misinterpreted attribution law and grossly erred in not appreciating that attribution to PE has already been examined and verified by ld Transfer Pricing Officer (TPO) and same has been accepted by ld AO and accordingly, nothing more than that can be contributed to PE. 4. That even otherwise Hon ble DRP ought to have held receipts for activities carried outside India cannot be attributable to India PE as per sound cannons of tax jurisprudence. 5. That in facts and circumstances of case and in law, Hon ble DRP ought to have appreciated that income offered by appellant in India is on basis of transfer pricing report International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 3 of 72 capturing function assets and risk analysis and is in accordance with international principles of attribution which has been rightly accepted by revenue. 6. That in facts and circumstances of case and in law, ld AO as well as Hon ble DRP grossly erred in observing that in alternative/ on protective basis receipts amounting to Rs. 237750181/- would come within purview of fees for technical services (FTS) as per provisions of section 9(i)(vii) of Act as well as Article 13(4) of Tax Treaty. 7. That in facts and circumstances of case and in law, ld AO/ Honble DRP erred in not appreciating that case of appellant is covered by exclusion clause provided in section 9(i) (vii) (b) of Act and accordingly receipts cannot be taxed in India. 8. That in facts and circumstances of case and in law, ld AO/ Hon ble DRP grossly erred in not appreciating that source of income of Board of Control for Cricket in India (BCCI) from India Premier League 2009 even is outside India (in South Africa) and accordingly, payment made by BCCI to appellant is for purpose of making or earning income from source outside India which triggers exclusion clause as provided under section 9(i)(vii)(b) of Act. 9. That in facts and circumstances of case and in law ld AO/ Hon ble DRP grossly erred in misinterpreting principle of make available as per Article 13(4) (c) of India UK DTAA and accordingly, erred in holding that receipts of appellant satisfied make available principle and is to be taxed FTS under provisions of India UK DTAA. 10. That in facts and circumstances of case and in law, ld AQO/ Hon ble DRP erred in observing that in process of providing services, appellant has transferred technical knowledge, experience, skill know how or process and same International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 4 of 72 would remain with BCCI even after event of rendition of service is complete. 3. revenue has raised following grounds of appeal:- 1. Whether on facts and circumstances of case and in law, Ld. DRP was correct in holding that receipts for work done outside India will be governed by Article 7 and not by Article 13 of Double Taxation Avoidance Agreement even though such receipts pertain to services rendered outside India and have no nexus with PE? 2. Whether on facts & circumstance of case and in law, Ld. DRP was correct in holding that receipts for work done outside India should be assessed as 'FTS' on protective basis and not on substantive basis? 4. brief facts are that International Management Group UK Ltd. is tax resident of United Kingdom in terms of Article 4 of Indo-UK Double Taxation Avoidance Agreement. It is engaged in business of event management and talent representation activities in sports events such as golf, tennis, football etc. It primarily and its main activities are event creation, client representation and consultation. Board of Control for Cricket in India [hereinafter referred to as BCCI ] entered into Memorandum of Understanding for assistance in establishment, commercialization and operation of India Premier League in September 2007 [herein after referred to as International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 5 of 72 IPL ). first IPL event organized by Board of Control for Cricket in India in 2008 i.e. IPL 2008 was covered by this MOU. According to that MOU appellant company was appointed to provide services for period of 10 IPL events and subsequently, assessee/ appellant also entered into several separate agreements wherein terms and conditions with respect to subsequent IPL events was considered. Appellant was to provide services in relation to IPL 2009 which was scheduled to be held in India in April - May 2009, however, as event clashed with multi phased 2009 General Elections in India, this IPL 2009 was decided to hold outside India which was hosted in South Africa from April to May 2009. appellant deputed its employees as well as also appointed several other parties for undertaking on-ground implementation and event management and supervisions activities in India. appellant follows event based accounting for IPL event wherein revenue and expenditure related to that event are recognized in year in which event takes place. At time when decision was taken to shift IPL 2009 to South Africa, appellant has prepared for event in India and therefore, there was presence of staff as well as third parties connected International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 6 of 72 with that event on behalf of appellant in India. On announcement that event would be hosted in South Africa such third parties and employees moved out of India to South Africa but as length of stay of such staff etc. exceeded 90 days in 12 months period, according to assessee, it created service permanent establishment of appellant in India in terms of Article 5 (2) (k) of Indo-UK Double taxation Avoidance Agreement [hereinafter referred to as DTAA ]. Therefore, income of appellant was chargeable to tax in India as attributable to that permanent establishment [hereinafter referred to as PE ]. 5. assessee received gross receipt of Rs. 33,00,00,000/-from Board of control for Cricket in India on account of this agreement. Appellant filed its return of income attributing receipt of Rs. 92249819/- to permanent establishment of appellant conducting transfer pricing study based on FAR analysis. breakup of income declared by assessee in its return of income was with respect to expenditure incurred in India of Rs. 65159856/- and adding mark up thereto of 25% making it to Rs. 81449819/- and further adding thereto sum of Rs. 10800000/- attributable to permanent establishment International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 7 of 72 on account of commission of Citibank N.A. on account of sponsorship. Therefore from gross receipt attributable to PE of Rs. 92249819/-, deduction of expenses of Rs. 65159856/-was claimed and net profit of Rs. 32804660/- has been offered to tax at rate of 42.23% on net basis as per section 44DA of Income Tax Act 1961. Therefore in nutshell out of gross receipt of Rs. 33,00,00,000/- , appellant stated that only gross receipt of Rs. 92249819/- is attributable to Indian permanent establishment of assessee and consequent profit of Rs. 32804660/- is income of assessee under head business income chargeable to tax under provisions of section 44 DA of Income Tax Act 1961. 6. During course of assessment proceedings Ld. AO asked assessee about taxability of remaining receipt of Rs. 23,77,50,181/- (being Rs 33,00,00,000/- - Rs. 9,22,49,819/- ) stating that such balance amount is Fees for Technical Services [ hereinafter referred to as FTS ] considering fact that whole of receipt is taxable in India as services are rendered in India. Before Ld. assessing officer assessee submitted that as source of income of BCCI from IPL 2009 International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 8 of 72 event is event held outside India and therefore it was submitted that payment made by BCCI to assessee would fall under exceptions to clause (b) of section 9 (1) (vii) of Income Tax Act as it pertains to payments made by resident for income from source outside India and such payments cannot be taxed as fees for technical services under provisions of act as it does not deemed to accrue or arise in India. It was further submitted that receipt does not qualify as fees for technical services under article 13(4) ( c) of Indo UK DTAA as there is no make available of any technical knowledge, experience or skill or know-how or process by appellant to BCCI. It was further submitted that for IPL 2009 event, services have been rendered in United Kingdom, South Africa and India and income is required to be attributed based on functions performed in respective jurisdictions. It was further stated that work done in South Africa primarily pertains to activities carried out in connection with implementation of IPL 2009 event and for such activities carried out in India it is undisputed fact accepted by Ld. that assessee that assessee has service PE in India under article 5(2)(K) of International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 9 of 72 DTAA which is accepted by revenue. Further , fees for technical services covered by agreement is effectively connected with PE of appellant and therefore is chargeable to tax as business profits under article 7 of DTAA. Therefore, accordingly it is offered for taxation. It was further stated that Ld. TPO has also held that profits as are attributable to permanent establishment are rightly attributed to it, as there is no adjustment proposed. Therefore it was submitted that balance amount of Rs. 237750181/- is not chargeable to tax neither as Fees for Technical Services nor Business profits as per DTAA. 7. Ld. Assessing Officer stated that BCCI is Indian concern and its global income is chargeable to tax in India and merely because event has happened outside India due to change of venue it cannot change source of income of BCCI from India to outside India and therefore it was stated that claim of exception to provisions of section 9(1)(vii) (b) of act cannot be accepted. He further submitted that though applicability of Double Taxation Avoidance Agreement is not denied but term make available has not been defined and further benefit of protocol relied upon by appellant is International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 10 of 72 also misplaced . He further relied on ruling of advance authority in case of Shell India Markets Private Limited and submitted that BCCI would be able to equip itself to carry on IPL events subsequently and therefore in fact appellant has made available procedures, protocols ,the agreements etc for organizing Indian Premier league. He further stated that merely because services are being provided it is made available to assessee. According to Ld. AO it is difficult to accept contention of assessee for simple reason that merely assessee has been engaged on regular basis cannot be construed to mean that it does not enable BCCI adequate skill in case it desire to do so to organize independent event on its own basis without help of appellant .Therefore according to Ld. O it satisfies make available concept also and hence it is chargeable to tax as FTS. He further held that that though some of services are rendered outside India even though those were utilized in business of BCCI in India. He further submitted that these receipts cannot be said to be effectively connected to PE in India as per functions performed by appellant outside India and therefore they remain taxable in International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 11 of 72 India as they qualify as fees for technical services as per definition given in Income Tax Act and DTAA both . Hence, balance amount shall be chargeable to tax on gross basis under section 115A of Income Tax Act. Ld. O was of view that since income has not been characterized as business income it cannot go out of tax net for reason that they are effectively connected to permanent establishment of assessee. Based on above reasoning Ld. AO accepted business income shown in return of income filed by assessee at Rs. 32804660/- but made addition of Rs. 237750181/- , being balance receipt as fees for technical services and charged it at rate of Rs. 10.5575 % on gross basis. Thereby assessed income of assessee was determined at Rs. 270554841/- against returned income of Rs. 32804660/-in draft assessment order dated 24th of March 2014. 8. Against this draft order of Ld. AO , appellant preferred its objection before Hon ble Dispute Resolution Panel who vide its direction dated 11th Nov. 2014 held that receipt of Rs 237750184/- is chargeable to tax u/s 9 (1) (vii) (b) of Income Tax Act and also FTS under DTAA. Ld. DRP further International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 12 of 72 directed that such receipt should be attributed to permanent establishment and be taxed on net basis. It gave direction for taxing sum as FTS on protective basis and considering above sum as business income on substantive basis. Based on above direction final assessment order under section 143 (3) of Income Tax Act dated 27/01/2015 was framed and computed total income of assessee by making addition of Rs. 84545561/- being profits on proportionate basis chargeable to tax over and above returned income of appellant of Rs. 32804655/-. Consequently, total income was assessed at Rs. 117350216/- on substantive basis. Ld. assessing officer further computed income of appellant alternatively treating nature of receipt of Rs. 237750181/- as fees for technical services considering nature of services being rendered by assessee and upheld by Ld. DRP. Therefore, he computed income of appellant at Rs. 270554840/- considering receipt of Rs. 237750181/- as fees for technical services over and about returned income of assessee of Rs. 32804660/- on protective basis. International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 13 of 72 9. above order of Ld. AO incorporating direction of Ld. DRP is challenged by both parties. Against assessment order under section 143 (3) assessee has filed appeal against addition of Rs. 84545561 being profit on above mentioned gross receipt of Rs. 237750181/- as further profits attributed to permanent establishment of appellant and also against protective assessment of sum of Rs 237750181/- as fees for technical services. Revenue has also filed appeal against order of Ld. DRP challenging that that such income of Rs. 237750181/-is chargeable to tax under article 7 and not under article 13 of Double Taxation Avoidance Agreement even though such receipts pertain to services rendered outside India and have no nexus with permanent establishment. Further, revenue is also challenging directions given by Ld. DRP holding that receipts for work done outside India should be assessed as fees for technical services on substantive basis. 10. Firstly, we take up appeal of assessee. Ground No. 1 of appeal is general in nature, no specific arguments have been advanced before us, and therefore we dismiss ground No. 1. International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 14 of 72 11. Ground No. 2, 3, 4 and 5 of appeal of assessee are against charging of Rs. 237750181/- as business income. ground No. 3 of appeal is against further attribution of income to permanent establishment of assessee even though attribution has been verified by Ld. Transfer pricing officer and accepted at arm s length. Therefore nothing more should be attributed to permanent establishment. Ground No. 5 of appeal of assessee is that when Ld. TPO has held that income attributable to permanent establishment is at arm s length and is proper which is based on proper FAR analysis then that should have been accepted and no further attribution of profit should have been made to permanent establishment of appellant. 12. Before us Ld. authorized representative vehemently argued that according to article 5 (2) (K) of Double Taxation Avoidance Agreement it is provided that service permanent establishment will be constituted only for those services which are not having receipt as fees for technical services or royalty and therefore according to him once service permanent establishment is constituted of appellant in India there cannot be any further attribution or for International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 15 of 72 chargeability with respect to fees for technical services as both are mutually exclusive. He further submitted that it is undisputed by revenue that appellant has service permanent establishment in India. 13. He further submitted that that once contract is effectively connected to permanent establishment then taxability would be governed by article 7 of Double Taxation Avoidance Agreement and article 13 would not be applicable. He further submitted that contract entered into by assessee is effectively connected to permanent establishment since for said contract assessee has created permanent establishment in India in current year for IPL 2009 even then for future events in subsequent year. Further as per article 7 of DTAA income as is attributable to PE can only be taxed in India. He further stated that out of total receipt of Rs. 33 crores receipt of Rs. 9.22 crores is attributed to permanent establishment under article 7 of DTAA applying Transactional net marginal method (TNMM) based on FAR analysis and activities carried out in India therefore balance of Rs. 23.77 crores pertains to work done outside India and is not International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 16 of 72 taxable in India as per provisions of article 13 and article 7 of DTAA. For this proposition he relied on decision of Hon ble Supreme Court in case of Ishikawajima Harima Heavy industries limited (288 ITR 408). It was further submitted that that once portion of FTS attributed to permanent establishment as business profit than balance fees cannot be taxed in hands of assessee as fees for technical services. For this he relied upon decision of Mumbai tribunal in case of Nippon Kaiji Kyokoi (2011 TII 115 ITAT MUM INTL ). He further submitted that above legal position was also accepted by Ld. AO in assessment year for immediately preceding assessment year and receipts for work done outside India was not taxed as fees for technical services by Ld. AO. Therefore, it was submitted that instant year tax department has changed its own stand and has sought to tax remaining receipt for work done outside India as fees for technical services without any cogent reason. He further stated that that Ld. DRP has accepted that when there is permanent establishment in India of appellant then receipts can be taxed only as business income and not as fees for technical International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 17 of 72 services. He further stated that Ld. DRP has made patent error by holding that receipt for services done outside India should be taxed as business income in hands of PE, which is not envisaged by Double Taxation Avoidance Agreement. He further relied on decision of Special bench in case of Clifford chance wherein it has been held that work performed outside India cannot be attributed to permanent establishment in India. 14. ground No. 6, 9 and 10 of appeal of assessee is against taxability of sum of Rs. 237750181/- as fees for technical services applying provisions of article 13 of India UK Double Taxation Avoidance Agreement. For this Ld. authorized representative submitted that services rendered by appellant do not make available technical know-how skills etc to enable board of control for Cricket in India and hence consideration paid by BCCI to appellant does not qualify as fees for technical services in terms of definition provided under article 13 (4) (c ) of Double Taxation Avoidance Agreement. He further submitted that though mere concept make available has not been defined in Double Taxation Avoidance Agreement however term has International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 18 of 72 been explained by way of example in protocol to India US Double Taxation Avoidance Agreement wherein it is stated that technology will be considered made available only when person acquiring same is enable to apply technology. Further fact that provisions of service may require technical input by person providing service does not mean that technical knowledge skill etc are made available to person purchasing services within meaning of paragraph 4 (b) and similarly use of product which embodies technology shall not be considered to make technology available. In his arguments, main thrust was that that BCCI has entered into this agreement for 9 subsequent events to be conducted of IPL and therefore had these technical expertise been obtained by BCCI there was no need to award contract to appellant for such long substantial period. He submitted that services provided by appellant are of highly specialized nature and do not make available technical know-how, skill etc to BCCI. He relied on decision of coordinate bench in case of NQA quality systems registrar Ltd versus Deputy Commissioner of Income Tax (2005) 2 SOT 249 (Delhi). He further referred to several International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 19 of 72 decisions on make available concept. He further relied on decision of Hon ble Delhi High Court in case of Guy Carpenter and company 346 ITR 504 on this concept. He further submitted that reliance by Ld. AO on decision of Supreme Court of India in case of Oberoi Hotels India private limited and on decision of authority of advance ruling are misplaced for reason that Hon ble Supreme Court considered applicability of section 80 -O of Income Tax Act and further decision of authority of advance ruling has been set aside by Hon ble jurisdictional High Court and is no longer sustainable in law. 15. On issue that proceeds of Rs. 237750181/- will not fall under exception provided in section 9(1) (vii) (b) of Income Tax Act Ld. authorized representative submitted that for applicability of this clause service should have been utilized in India whereas in present case service have been utilized by BCCI in South Africa and accordingly source of income for BCCI is outside India and hence exceptions provided under section 9(1)(vii) (b) of income tax act shall apply and accordingly income shall not be International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 20 of 72 chargeable to tax in India under section 9 (1) of Income Tax Act. 16. In response to this ld. Departmental representative submitted that that assessee has received sum of Rs. 33 crores out of which it says that only 9 crores is effectively connected to permanent establishment of assessee and then balance Rs. 27 crores should fall back into definition of fees for technical services. He submitted that full amount of Rs. 33 crore is arising out of contract of assessee from BCCI which is fees for technical services and out of that only 9 crores are stated that they are related to permanent establishment of assessee and thus covered by article 7 of Double Taxation Avoidance Agreement then balance 23 crores still remains as fees for technical services. He submitted that there is no provision in law that balance of Rs. 23 crores shall go untaxed though it arises with respect to contract with BCCI. He further submitted that this argument gets support from decision of coordinate bench in case of DDIT versus J.C Bamford Excavators limited 43 Taxmann.com 343 (Delhi). He submitted that when para 6 of article 13 comes into operation, income which is fees for International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 21 of 72 royalty and technical services takes character of business income and is then governed by article 7. if there is difference between amount considered under article 13 then what is chargeable to tax under article 7 then balance amounts is still chargeable to tax under article 13 of DTAA. According to him balance of Rs. 23 crores shall be chargeable to tax as fees for technical services since assessee himself says that amount of Rs. 33 crores is fees for technical services out of which Rs. 9 crores is falling within provisions of article 13(6) of act therefore obviously balance amount of Rs. 23 crores is chargeable to tax as fees for technical services. He further submitted that whatever is covered under article 13 (6) that amount only changes characteristics from fees for technical services to royalty and balance shall always remain as fees for technical services chargeable to tax. He further submitted that it is not mandate of law as well as Double Taxation Avoidance Agreement that full sum which is fees for technical services, moment it is found to be Effectively connected to Permanent Establishment, article 13 (6) of DTAA triggers, even International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 22 of 72 if small amount is charged to tax under article 7 of DTAA , balance amount is not to be taxed. 17. He further referred to audited accounts of company referring to page No. 47 of paper book which is profit and loss account for year ended 31st of March 2010 where in this amount is stated to be fees for technical services. He further referred to note No. 3 attached to annual accounts of company wherein above receipt has been classified as fees for technical services. It is mentioned in note that appellant has entered into contract for service for establishment of commercialization of operation of Indian Premier league 2009 initially scheduled to be held in India but eventually hosted in South Africa. As part of execution of same certain activities related to on- ground implementation and sourcing official partnership deals with sponsors were undertaken in India by assignees of appellant pursuant to which appellant is deemed to have permanent establishment India in terms of provisions of Double taxation Avoidance agreement. Further, it has been mentioned that it has apportioned fees for technical services amounting to Rs. 92249819/- to permanent establishment International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 23 of 72 based on professional expert advice benchmarked on basis of TNMM. Therefore, his contention was that service income that is arising from above contract is classified by assessee himself as fees for technical services. 18. With respect to make available concept argument of appellant it was submitted that as per para No. 4 of agreement between BCCI and appellant dated 24th of September 2009 appellant during representation period shall provide services which is significant portion of service constitutes service provided to BCCI from outside India using IMGs international expertise and resources. It is further mentioned in para 4.1 of that agreement that based on research and advise by BCCI appellant shall continue to advise and assist BCCI in connection with structure of league, league rules and regulations, franchisee agreements , any necessary franchisee regulation, legal implementation budget and media rights agreements. Further, as per para No. 4.2, appellant shall provide ongoing preparation and negotiations with respect to contracts as well as rights agreement and any other contracts with right holders. It is further submitted that appellant is providing development of International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 24 of 72 best practices match Day guidelines for franchisee and supervision in respect of their execution. It is further that appellant will also advise and assist in connection with rules and regulation relating to registration, trading and auction of players, hospitality guidelines in relation to league, provision of legal handbooks, advise and assist in connection with player contracts, management of annual player trading window and assist in creation or development of new intellectual properties relating to league and all such properties created will be sole property of Board of control for Cricket in India. Appellant shall also provide by bringing in global best practices in building and evaluating sporting properties and related aspects. He further referred to clause No. 6 of agreement which talks about consideration being paid to appellant of Rs 33 crores as payment, which is related to consideration for IPL 2009. In view of this, he submitted that all these are written documents and therefore they are made available to BCCI. It is further submitted that all intellectual property rights also belong to BCCI and therefore nothing is left with appellant. By citing all these clauses of agreement, he International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 25 of 72 submitted that recipient has to be enabled and it is not necessary that he should use it all this documents, which makes BCCI able to host subsequent IPL events without even help of appellant. He referred to clauses of services and submitted that all these documents etc can definitely help recipient of service to hold such kind of sporting events in future. In view of this, he submitted that make available concept is satisfied and therefore full receipt of Rs. 33 crores is fees for technical services based on accounting records of assessee as well as also by agreement entered into by appellant with BCCI. He further referred to para No. 4 of agreement, which says that significant portion of services constitutes services provided to BCCI from outside India using IMGs international expertise and resources. Thus, it shows that those significant activities have been performed outside India and they do not have any concern with permanent establishment of appellant in India. In view of this he submitted that whatever is attributed to permanent establishment in India is business income of assessee and balance amount which constitute significant activities which are being International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 26 of 72 carried out by appellant from outside India and services are also performed from outside India to appellant which are consumed in India constitute over and above what is attributed to person permanent establishment as fees for technical services. 19. He further referred to page number 5 of assessment order where details of services performed by head office from UK of appellant are submitted. According to those substantial activities, listed 17 in numbers have been performed by head office of appellant from outside India and UK and in which there is no role of permanent establishment of appellant. He referred to such services wherein it is mentioned that head office continued to advise and assist BCCI in conducting research in respect of and making recommendation to BCCI and appropriate structure for all aspects of IPL, preparation of television production specifications, formulating policies procedure and work plan relating to running of event in India including setting out logistics, manpower etc requirements along with IMG India PE. He further submitted that except services stated at para No. 4, 5, 6, 10, 13, 14 all other services are being provided separately by UK office to International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 27 of 72 BCCI in which there is no role of Indian permanent establishment of appellant. Therefore there has to be some amount of income which requires to be attributed to such activities carried out by head office which has no connection with income which is attributed to permanent establishment. Therefore he submitted that there is much more which should be charged to tax in India over and above whatever is attributed by appellant himself to permanent establishment of appellant in India. Therefore he assailed that argument of appellant that if amount is attributed to PE there is no further attribution which is required to be done in case of appellant. He submitted that for all services other than those mentioned above which are specifically listed at page No. 5 of assessment order only 5 to 6 activities are required to be carried out with assistance of permanent establishment whereas balance activities are required to be carried out by appellant from outside India independently. He further stated that even in those 5 to 6 activities also role of permanent establishment is very minimal. Therefore his argument was that that claim of assessee that no further income is required to be assessed as International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 28 of 72 fees for technical services in hands of appellant over and above whatever is attributed to permanent establishment of appellant deserves to be rejected. He submitted that there is no consideration, which has been offered by assessee for those services, which is being charged to BCCI performed by appellant from UK, which falls in to definition of FTS as per Income Tax Act and also DTAA. 20. He further referred to para No. 8 of assessment order and stated that balance gross receipt has been charged to tax over and above what is being offered by appellant as business income proportionately amounting in all to Rs. 84545561/- and alternatively on protective basis full consideration of Rs. 237750181/- which has not been considered by appellant as fees for technical services on protective basis. Therefore, he submitted that in view of agreement between assessee and BCCI looking at services, which has been performed by appellant outside India without even help of permanent establishment of assessee, shall be charged to tax as fees for technical services only. He further referred to para No. 10 of assessment order at page No. 23 to support his contention. In International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 29 of 72 way, he supported order of Ld. assessing officer stating that balance sum of Rs. 237750181/- is fees for technical services only. 21. He further submitted that beyond Rs. 9 crores offered by appellant as gross receipt out of which profit is offered for taxation explanation to section 9 of Income Tax Act applies and therefore it is chargeable to tax under Income Tax Act 1961 as fees for technical services. 22. On report of transfer pricing officer where in appellant stated that no further amount is required to be attributed to permanent establishment of appellant it is stated that functions, assets and risk which been considered by TPO does not include independent services offered by appellant without even help of permanent establishment of assessee cannot be said to be have been considered by Ld. Transfer Pricing Officer. He therefore submitted that argument of appellant that as Ld. TPO has considered international transaction at arm s length does not have any relevance with respect to taxability of balance sum over and above Rs. 9 crores. International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 30 of 72 23. He further submitted that there cannot be overemphasis on MOU between India and USA Double Taxation Avoidance Agreement. He further referred to para No. 5.2 to 5.4 of order of Ld. DRP wherein it has been held that in order to fall within exceptions provided under section 9 (1) (vii) (b) that it is source of income which needs to be considered and not receipt which should be situated outside India. In present case, he submitted that that in order to get benefit of exception it is necessary for taxpayer to show that technical services were utilized in business carried outside India by payer. He therefore submitted that source of income of appellant resides in India and merely because event has been held outside India in South Africa sources of receipt is irrelevant. He stated that source of such income is BCCI who is hosting IPL event and is residing in India. 24. He further referred to para No. 7.5 of agreement of appellant with BCCI which speaks that BCCI has appointed appellant on exclusive basis to provide host broadcaster television production services in respect of league and each match for period of further 5 consecutive seasons International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 31 of 72 commencing with 2010 season on same terms and condition as set out in television production agreements entered into by BCCI with appellant in respect of 2009 season. He submitted that no such agreement is produced by assessee before Ld. AO or before TPO or before Ld. DRP and not even before tribunal. Therefore, consideration for these services without looking at agreement cannot be decided. He submitted that assessee has failed to produce such agreement before all authorities. 25. He further referred to page No. 76 to 79 of paper book, which is part of transfer pricing study report prepared by assessee for financial year 2009 2010 with respect to appellant s Indian permanent establishment. He submitted that functions performed by Permanent establishment stated at para No. 4.4 wherein in para No. 1 shows functions performed by appellant from its UK office and further functions performed by its Indian be are two different set of functions in transfer pricing analysis carried out by assessee. There is no income offered by appellant on income attributable to such functions performed by foreign office or head office of appellant from United Kingdom. He International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 32 of 72 therefore submitted that transfer-pricing officer s order is with respect to functions performed by Indian PE and not with respect to functions performed by IMG UK that is appellant s head office in United Kingdom. In view of above he submitted that order of Ld. AO charging balance sum as fees for technical service is correct interpretation based on agreement entered into by appellant with BCCI. 26. He further relied up on decision of Hon ble Delhi High Court in case of CIT vs. Jansampark advertising and marketing private limited [ 56 Taxmann.com 286] to support his contention that it is also obligation of 1st appellate authority, and indeed of tribunal, to have ensured that effective Inquiry was carried out, particularly in face of allegation of revenue that agreements have not been submitted by assessee as stated in para No. 7.5 of agreement and assessee may be directed to produce all such agreements to determine correct nature of income of appellant. 27. On subsequent date of hearing clarification was sought from parties with respect to services rendered by International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 33 of 72 permanent establishment of assessee and services which are rendered by head office of assessee which are directly provided to appellant and how they are effectively connected with PE of assesse, whether issue of Rs. 23.77 crores was available before Ld. transfer pricing officer while framing order on aspect of arms length price, further evidences were sought regarding details of services rendered by United Kingdom company to examine make available concept and taxability or otherwise as per Indo UK DTAA of Rs 23.77 Crores . 28. In response to this Ld. authorized representative submitted detailed reply dated 30 /06/2016. With respect to query that how services rendered by UK company to BCCI were effectively connected with PE in India with respect to services rendered by PE and services rendered by UK company directly on account of service agreement, appellant submitted relying upon Philip Becker s Treatise on double taxation convention, that provisions of article 13 (1) and (2) are not applicable if beneficial owner of royalty, fees for technical services is permanent establishment in another country and right property or contract in respect of which International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 34 of 72 royalties or fees for technical services are paid is effectively connected with permanent establishment. In such situation provisions of article 7 shall apply. Applying above conditions it was submitted that source of revenue for appellant is only one contract, which is contract with BCCI for IPL 2009 and subsequent IPL events. Therefore according to him contract in all circumstances is effectively connected with permanent establishment and therefore only article 7 is applicable and such situation is inescapable. He further submitted that this conclusion has been accepted by Ld. DRP and revenue is not in appeal contesting same. Accordingly he submitted that receipt on account of alleged fees for technical services even if it is to be taxed can be taxed only as business income and not otherwise. Further as per attribution of income to permanent establishment is concerned that had already been accepted by revenue. With respect to fact about receipt of Rs. 23.77 crore whether it was available before Ld. TPO he submitted that total receipt from BCCI for IPL 2009 event amounting to Rs. 33 crore was available before him and he asked specifically about total receipt vide notice dated 29/11/2013. Before him International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 35 of 72 appellant has submitted details for such billing along with copy of invoices. He therefore submitted that full detail of receipt of Rs. 33 crore was available with Ld. TPO and he considered it while framing order under section 92 CA (3) of Income Tax Act. With regard to evidence of services performed by United Kingdom office it was submitted that that such services performed does not result in to fees for technical services in view of restrictive definition provided under article 13 (4) (C) of Double Taxation Avoidance Agreement. He further referred to various services and explained that they do not constitute fees for technical services as make available concept fails. He further submitted that had technical know-how skill etc were made available to BCCI it would not have given any contract to assessee for 9 subsequent IPL events commencing from IPL 2009 event , therefore, that itself suggests that there is no satisfaction of make available concept in services rendered by UK head office of appellant. On query from bench about status of subsequent assessment years he submitted that in subsequent years also revenue has taken similar stand where over and above International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 36 of 72 attribution of profits to permanent establishment accepted by Ld. TPO , Ld. AO has taxed balance receipt taxable as fees for technical services. He further added that these issues are pending with various authorities. 29. In rejoinder to submission dated 30/06/2016 of appellant, Ld. Departmental Representative submitted that admittedly Ld. TPO has held that no further income is required to be attributed to PE and Ld. assessing officer has accepted by not attributing any further income to permanent establishment of appellant. However he has taken such balance portion as fees for technical services therefore contention of of appellant that once transaction with PE is held to be at arm s length no further income can be charged to tax on account of fees for technical services is devoid of any merit. He further referred to clause No. 4.1 of service agreement where significant services constituting advice provided to BCCI from outside India using IMGs international expertise and resources. Therefore he submitted that this clearly indicates that at least some of services provided were not effectively connected with permanent establishment but would still be chargeable to tax in International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 37 of 72 view of expiration under section 9 (2). He further submitted that it is not duty of Ld. Transfer pricing officer to tax fees for technical services but it is duty of Ld. AO to frame assessment which Ld. assessing officer has done by taxing balance amount as fees for technical services. He further submitted that with respect to classification of fees for technical services that service agreement emphatically states that report, guidelines, rules, regulations, agreements, best practices, advice, schedule, structure, manual, budget, contracts, handbook, systems and specification will be developed by appellant and would be left behind by assessee with BCCI. He further submitted that this is apart from video recording of entire event as well as interaction of IMG staff with BCCI functionaries is also given to BCCI. In view of this he submitted that it is clear indication of make available of all services performed by IMG UK to BCCI. With respect to argument of Ld. that authorized representative that if services have been made available to BCCI then why such agreement has been extended for further 9 years for subsequent events, he submitted that it is because of marketing skills of IMG International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 38 of 72 and it has nothing to do with change in IPL format in subsequent years. In any way he submitted that this does not impact taxability of present sum in current year. With regard to application of article 7 to exclusion of article 13 of Double Taxation Avoidance Agreement, he submitted that there is no bar on simultaneous application of article 7 and article 13 of DTAA , but off course there cannot be double taxation of same receipt under two articles and that is not case here. He submitted that what is attributable to permanent establishment and chargeable to tax under article 7 will get benefit of deduction of expenses whereas in case of article 13 it is chargeable to tax on grass basis. In view of above he vehemently supported order of ld AO. 30. We have carefully considered rival contentions and perused relevant material placed before us. We have also considered various judicial pronouncements cited by parties before us. short controversy involved in present case is that appellant company has received Rs. 33 crores as remuneration in terms of contract entered into with Board of control for Cricket in India (BCCI). Out of which assessee has contended International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 39 of 72 that gross receipt of Rs. 92249819/-has already been offered for taxation claiming it attributable to its permanent establishment in India with respect to functions and activities carried out by its permanent establishment in India. Accordingly appellant offered resultant income as business income of Rs 32804660/- after deducting expenses there from. However dispute between appellant and revenue is that whether sum of balance receipt from that contract amounting to Rs. 2 3775 0181/- shall be chargeable to tax in India at all. If same is chargeable to tax it would be considered as business income of appellant and subsequently whether proportionate expenditure would be allowable from that or not. further controversy thereto is that whether such sum is chargeable to tax as fees for technical services or not with respect to Indian tax laws as well as Double Taxation Avoidance Agreement entered into between India and UK. stand of assessee is that income arising from that contract is chargeable to tax as fees for technical services as per Indian tax laws as well as per Double Taxation Avoidance Agreement as per article 13 of that agreement. Further as appellant is carrying on business in India through its International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 40 of 72 permanent establishment therefore by virtue of provisions of article 13 (6) income, which is effectively connected with permanent establishment, shall be governed by article 7 i.e. Business profits of Double Taxation Avoidance Agreement. According to assessee gross receipt of Rs. 9 224 9819/- is income attributable to permanent establishment in India and therefore shall be governed by provisions of article 7 of Double Taxation Avoidance Agreement and expenses there from would be granted as deduction and balance amount shall be chargeable to tax in India. It is contention of assessee that balance amount being difference between Rs. 33 crores and Rs. 9.22 crores shall not be chargeable to tax in India because Indian permanent establishment has been appropriately remunerated and transactions between Indian PE and appellants are considered to be arm s length by Ld. transfer pricing officer therefore now nothing is required to be offered by appellant for taxation thereby saying that balance amount of Rs. 23775 0181/- is not chargeable to tax. Further it is also contention of assessee that according to article 13 of Double Taxation Avoidance Agreement which provides for make available International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 41 of 72 clause for taxation of fees for technical services which in present case according to appellant is not satisfied balance amount shall not be chargeable to tax in India as fees for technical services. Against this claim of revenue is that such amount shall be chargeable to tax as fees for technical services as under article 7 only Rs. 9.22 crores have been held to be attributable to activities of permanent establishment and balance sum of Rs. 23.77 crores still remains fees for technical services and it is further submitted that it satisfies make available test and hence same is chargeable to tax under article 13 of Double Taxation Avoidance Agreement. 31. basic edifice of controversy is based on 2 documents entered into between board of control for Cricket in India as well as appellant. 1st is memorandum of understanding between 2 parties dated 13/09/2007 and service agreement dated 24/09/2009. According to memorandum of understanding it has been agreed between parties that appellant shall provide services by conducting research in respect of appropriate structure for IPL and make cut recommendations to BCCI. Further appellant International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 42 of 72 shall provide appropriate presentation documentation in research on various presentations to be made based upon which BCCI will decide upon most appropriate structure for IPL under advice from appellant. BCCI has required appellant to prepare documentation being Constitution of IPL, authority of governing Council of IPL, structure of tournament, IPL tournament rules and regulations, franchisee tender document, franchisee agreement and any necessary franchisee regulations and IPL implementation budget. In addition to that appellant was also required to develop right management process in respect of commercial rights and assets of any kind arising out of IPL which are owned by BCCI, it was in respect of those rights, repression and execution of marketing strategies, management of franchisee tender process, management of sale process in respect of those rights and preparation and negotiation of contracts with various parties. It was further required to prepare television production specifications and development of best practice match Day guidelines for media and franchisee and further advice and assistance in connection International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 43 of 72 with development of any will relevant stadium and Finance which may be necessary in connection therewith. 32. In terms of above memorandum of understanding entered into between 2 parties service agreement was entered into on 24th of September 2009. terms and conditions agreed upon as per memorandum of understanding were as under:- IMG Services IMG has been appointed on sole and exclusive basis to provide following services in connection with IPL (the "Services"). 1.1 IMG shall conduct research in respect of appropriate structure' for IPL und make recommendations to BCCI accordingly (it being acknowledged that final, decisions in respect thereof are BCCI'"s). 1.2 IMG shall research and provide appropriate presentation documentation in respect of following: (a) meetings in Singapore on 2na and 3"1 September 2007. (b) JPL presentation and press conference which is scheduled to take place in New Delhi on 13 September (Including preparation of marketing collateral and press packs in association with BCCI's PR. agency); and (c) any other appropriate events. 1.3 Once BCCI has decided upon most appropriate structure for IPL under advice from IMG, 3MG shall conduct research into and prepare following IPL foundation documentation in connection with it including: (a) constitution of IPL; (b) authority of Governing Council of IPL (c) structure of tournament; (d) IPL tournament rules and regulations (e) franchise tender document (f) franchise agreement and any necessary franchise regulations (g) IPL implementation budget 1.4 In addition to matters referred to in paragraph 1.1 to 1.3 above IMG shall carry out/ provide (as appropriate) following: (a) development of rights management process in respect of commercial rights and assets of any kind arising out of IPL including, without limitation Franchise rights Media rights Sponsorship rights Official suppliership rights Licensing and merchandising rights International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 44 of 72 Stadium signage rights Together Rights (b) advice in respect of those of Rights which may be 100% owned centrally and division of Rights between BCC1 and Franchisees; (c) preparation and execution of marketing strategies for: Franchise tender media Rights sponsorship Rights official supplier Rights licensing Rights any other Rights (d) management of Franchise tender process; (e) management of sales processes in respect of rights; (f) preparation and negotiation of contracts with successful Franchisees sponsors media all other entities which acquire or may be interested in any of rights such contracts being for purposes of this MOU, '"Rights' Agreements-' and all income of any kind generated therefrom being income (g) implementation and management of centrally controlled/ owned Rights on behalf of relevant third parties sponsors etc (h) preparation of television production specification; (i) development of best practice match day guides and supervision in respect of execution; (j) development of best practice match day media guidelines and supervision in respect of their execution (k) advice and assistance in connection with development of any relevant stadia and.' finance which may be necessary in connection with therewith 33. Firstly, we examine various clauses of agreement entered into by assessee with BCCI. BCCI entered into agreement on 24/09/2009 with appellant which is company incorporated in England and having its registered office there as preferred agent and representative to advise and assist in exploitation of rights and in provision of services throughout territory during representation International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 45 of 72 period commencing from January 2009 and on date of conclusion of 9th complete session thereafter. Therefore in nutshell BCCI has entered into contract with appellant for holding IPL from January 2009 and subsequent 9 season of IPL. By virtue of this agreement appellant was granted right and authority to assist BCCI in exploiting rights during representation period including without limitation making arrangements for agreements in respect of rights provided that IMG does not have power to bind or commit BCCI to any agreement or arrangement relating to those rights. obligation of IMG was to provide services set out in clause No. 4.1 and 4.2 of service agreement and it is acknowledged between parties that significant portion of services constitutes advice provided to BCCI from outside India using appellant s international expertise and resources. Precisely obligation of appellant are as under:- 4. IMG's Obligations IMG shall during Representation Period provide services set out in Clauses 4.1 and 4.2 (the "Services") it being acknowledged that significant proportion of Services constitutes advice provided to BCCI from outside India using IMG s international expertise and resources. International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 46 of 72 4.1 Having carried out research and advised BCCI in connection with with formation and governance of League and IPL, IMG shall continue to advise and assist BCCI in connection with, following: (a) structure of League; (b) League rules and regulations; (c) Franchise agreements and any necessary franchise regulations: (d) League implementation budget; and (c) Media Rights agreements. i 4.2 addition to matters referred to in Clause 4.1 above, IMG shall continue its work in carrying out or providing (as appropriate) following; (a) ongoing execution of management in respect of Rights of BCCI and advice in connection therewith including, without limitation:; (i) Franchise Rights; (ii) Media Rights; (iii) sponsorship rights; (iv) official suppliership rights; (v) licensing and merchandising rights; (vi) stadium signagc rights; and (vii) any other rights in relation to League that may come-up for leverage by BCCI in future (b) preparation and execution of marketing strategies for and advice in connection with: : (i) any ongoing tender process in respect of Franchise Rights; (ii) Media Rights; and (iii) commercial Rights; (c) advice and assistance in management of any future Franchise tender .process; (d) advice and assistance in management ,of sales processes in respect of Rights; , (e) ongoing preparation and negotiation, subject to final decision of BCCI, of (i) contracts with successful Franchisees; (ii) Rights Agreements and any other contracts with Rights Holders; (f) implementation and management of sale and delivery of Rights to Rights Holders; (g) preparation of television production specification provided IMG Media is not bidder for this service; (h) development of best practice match day guidelines for Franchisees and supervision in respect of their execution (i) development of best practice match day media guidelines and supervision in respect of their execution; (j) advice and assistance in connection with development of any relevant stadia and finance which may be necessary in connection therewith and, jf requested, introduction to BCCI of third parties who are involved In redevelopment of stadia; (k) advice and assistance in connection with rules and regulations relating to registration, trading and auction of flayers; (1) creation of and advice and assistance with "look and feel" elements in relation to BCCI Marks generally and, in particular, at any relevant Stadia; International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 47 of 72 (m) provision of hospitality guidelines in relation to League and implementation of hospitality in latter "case in latter case in manner to be mutually discussed and agreed; (n) provision of League handbook; (o) advice and assistance in connection with Player contracts; (p) establishment and maintenance of player registration system (q) management of annual Player trading window; (r) provision of requisite manpower that is required to carry Out such activities as are within IMG's control in connection with successful naming of League and Matches including provision of CUIH staffed, office to do same, at sole cost of MG; (s) hiring of whatever resources are required to fully perform IMGs obligations under this Agreement at sole cost of IMG; (t) advice and assistance in connection with Anti Doping and WADA Compliance Regulations; (u) assistance in creation / development of new intellectual properties relating to league. All such properties created will be sole prop of BCCI (v) carrying out research in consultation with BCCI each year to ascertain un improvements in various areas of management and execution of League (w) development of strategic brand framework for BCCI and marriage brand IPL working with BCCI team; (x) bringing-in global best practices in building and evaluating sporting properties and related aspects; (y) delivering post event report at end of each season and be subject to review on performance and delivery of services rendered to BCCI. 34. obligations set out in above paragraph has been further assigned between UK office of appellant and Indian permanent establishment as set out in transfer pricing study report produced by assessee before revenue as under:- 4.4. Functions performed 4.4.1. Functions performed by IMG UK entire contract negotiation, pricing discussions, finalization of terms, etc., with BCCI were undertaken by IMG UK. As mentioned earlier, IMG UK was awarded contract because of vast knowledge and experience of IMG UK, which has been developed by UK entity over years as result of working on similar assignments in field of sports (including cricket) prior to International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 48 of 72 this contract. IMG UK possessed all necessary technical skills, expertise, know-how and related intangibles for purpose of executing BCCI contract. Further, execution of entire contract is responsibility of IMG UK. IMG UK's team is involved in all of activities/ responsibilities entrusted upon IMG UK under contract and were responsible for performing/ managing contract on end to end basis. IMG UK was responsible for conceptualization, strategy formulation, development of framework for IPL event, etc from UK. To this end, activities undertaken by UK team from completely outside of India include: 1. Conducting research in respect of, and making recommendations to BCCI on, appropriate structure for all aspects of IPL 2. Preparation of core/ key strategic framework for IPL, including: constitution of IPL, devising structure of tournament, creation of sporting model to be adopted for IPL, devising/ suggesting investment model (or franchisee, creation of media and sponsorship rights, key decisions relating to event (like how many cities to be involved, no of matches), etc. 3. Preparation of IPL foundation documents, including: rules and regulations, franchisee tender documents, franchisee agreements, franchisee regulations, IPL implementation budget, drafting tender documents relating to media and sponsorship rights, etc. 4. Assistance in respect of development of and advise relating to commercial rights management process with respect to franchise rights, media rights, sponsorship rights, licensing and merchandising rights, stadium signage rights, official vendor rights etc. 5. Formulation/ preparation of marketing strategies for franchise tender 6. Formulation/ preparation of marketing strategies for media rights, sponsorship rights, official supplier rights, licensing rights, etc. 7. Formulation of policies/ procedures and work plan relating to management of franchise tender process in India 8. Formulation of policies/ procedures and work plan relating to management of sales process in respect of various aforementioned rights in India 9. Preparation of and offshore assistance in negotiation of contracts with sponsors, media, successful franchisees etc. 10. Preparation of television production specifications 11. Formulating policies/ procedures and work plan relating to running of event in India, including setting out logistics, manpower etc. Requirements along with IMG India PE 12. Development of best practice match day guidelines for franchisees and for IPL along with IMG India PE 13. Development of best practice match day media guidelines along with IMG India PE 14. Undertaking offshore market/ industry analysis and supervision of research activities undertaken in India for identification of prospective sponsors along with IMG India PE 15. Advice and assistance in connection with rules and regulations relating to registration, auction and trading of Players 16. Development of strategic brand framework for BCCI and managing brand IPL along with BCCI team 17. Creation of look and feel elements in relation to BCCI Marks generally and, in particular, at any relevant Stadia 18. Creation of League handbook along with IMG India PE 19. Advice and assistance in connection with Player contracts International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 49 of 72 20. Establishment and maintenance of Player registration system 21. Creation of IPL match schedule along with IMG India PE 22. Advice and assistance in connection with Anti-Doping and WADA Compliance Regulations along with IMG India PE 23. Development assistance in creation of new intellectual properties relating to League 24. Carrying out research in consultation with BCCI to ascertain improvements in various areas of management and execution of League 25. Bringing-in global best practices in building and evaluating sporting properties and related aspects 26. Delivering post event report at end of each season 27. Preparation of marketing collaterals, press packs and appropriate presentation documentation for meetings/ events conducted in this regard Accordingly, conceptualization, strategy formulation, core process and know-how development, creation of framework for IPL, etc was done by IMG UK from UK. Further, it must be noted that all contractual risks and obligations relating to contract vest with IMG UK, which assumed entrepreneur role and responsibilities pertaining to contract. team in IMG UK working for IPL contract comprised of highly skilled senior personnel with significant knowledge and experience. Over years, learn in UK has developed significant expertise by working on similar contracts in past and is well acknowledged in Industry for its experience/ knowledge in assisting clients in management of sports/ cricket events. 4,4.2, Functions performed by IMG India PE As part of execution of contract, certain set of activities were required to be undertaken in India. Accordingly, some of discussions/ negotiation processes between BCCI and various other parties (like franchises, sponsors, media partners, etc.) happened in India since 2009 event was scheduled to take place in India. For this purpose, IMG UK employees came to India from time to time for short term visits. Further, few freelancers were appointed/ engaged by IMG UK for undertaking on- ground implementation and related supervision activities in India. However, for reasons explained earlier in report, event was finally hosted/ held in South Africa. announcement of event location shifting from India to South Africa was made on March24, 2009, till which time on ground preparations for event were being done in India. Accordingly, for 2009 event, IMG India PE was involved in performing following activities: 1) Undertaking market/ industry research to assist IMG UK in identification of prospective franchisees and sponsors in India; 2) Providing liaison/ co-ordination support in dealing with client/ BCCI, media partners, sponsors, franchisees etc. in India; 3) Functional Analysis 4) Along with BCCI, attending meetings with sponsors for execution of marketing strategies (developed by IMG UK) relating to sponsorship rights, official supplier rights, licensing rights, etc.; 5) Assistance in negotiation of contracts with sponsors, media, successful franchisees etc., by way of presence in joint meetings along with BCCI; International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 50 of 72 6) Implementation and management of work plan relating to running of event, including arranging for and management of logistics, manpower etc. requirements based on policies/ procedures set out in framework documents developed by IMG UK; 7) Based on framework developed by IMG UK, development of best practice match day guidelines for franchisees media, etc; 8) Based on overall framework developed by IMG UK, providing on- ground advise relating to implementation of look and (eel elements In relation to BCCI Marks generally and, in particular, at any relevant Stadia, etc. based on approvals from IMG UK; 9) Along with IMG UK, development/ customization of League Handbook and discussions with BCCI thereafter for finalizing same; 10) Along with IMG UK, development of IPL match schedule and discussions with BCCI thereafter for finalizing same; 11) Assistance in connection with ensuring compliance by BCCI with Anti- Doping and WADA Compliance Regulations; 12) Carrying out analysts in consultation with BCCI to ascertain improvements in various areas of execution of League; 13) Assist BCCI in management of brand IPL by way of discussions with BCCI team; 14) Assistance in preparation of hospitality guidelines in relation to League and implementation of hospitality; 15) Delivering post event report at end of event; and 16) Management and supervision of activities undertaken by IMG India Branch: activities undertaken by Branch include: liaison/ co-ordination support in dealing with client/ BCCI, media partners, sponsors, franchisees, player auction process, etc. in India; organizing implementation of event in India viz. coordinating with various third parties in India to ensure that facilities/ arrangements at match locations are in line with desired IMG UK guidelines; providing/ managing logistics, manpower support in India relating to running of event and undertaking related administrative support activities, assistance in negotiation of contracts with sponsors, media, successful franchisees etc.; undertaking market/ industry research to assist IMG UK in identification of prospective sponsors in India. logistic activities essentially involved making arrangements for travel bookings, room bookings, commuting of IMG staff, etc. As mentioned earlier, IMG UK/ IMG India PE sub contracted certain routine services relating to on-ground implementation/ running of event to IMC India Branch. IMG India PE was involved in/ responsible for overseeing and managing liaisoning and implementation support activities undertaken by IMC India Branch. All these aforesaid activities were undertaken by IMG India PE under framework, guidelines and policies prepared by IMG UK (from outside India). Any significant divergence or variation from framework required specific approval from Project leader, who was based in UK. Further, it must be noted that all activities were undertaken in India purely as sub contracted support service to IMG UK and India was not responsible for its services to end client/ BCCI. Functional Analysis International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 51 of 72 4.4.3. Functions performed by deputed employees/ appointed freelancers in -South Africa Post announcement of fact that 2009 IPL event would be hosted in South Africa, UK employees and freelancers appointed/ engaged by IMG UK moved out to South Africa. Such employees and freelancers appointed/ engaged by IMG UK for undertaking event implementation and related activities in South Africa were involved in undertaking on-ground implementation and related supervision activities in connection with event held in South Africa. Accordingly, for 2009 event, following activities were undertaken in South Africa. 1. Assistance in respect of development of and advise relating on commercial rights management process relating to media rights, sponsorship rights, licensing and merchandising rights, stadium signage rights, official suppliership rights etc.; 2. Formulating policies/ procedures and work plan relating to running of event including setting out logistics, manpower etc. requirements; 3. Assistance in implementation and management of rights on behalf of third parties; 4. Assistance In development of best practice match -day guidelines for franchisees and for IPL and match day media guidelines; 5. Providing liaison/ co-ordination support in dealing with (he client/ BCCI, media partners, sponsors, franchisees etc. in South Africa; 6. Organizing implementation of event i.e., coordinating with various third parties in South Africa to ensure that facilities/ arrangements at match locations are in line with desired IMG UK guidelines; 7. Managing logistics and manpower support relating to running of event; 8. Supervising whether match day guidelines for franchisees and match day media guidelines prepared by IMG UK/ BCCI are being followed during match/ event; 9. Advise and assistance with implementation of "took and fee!" elements in relation to BCCI Marks generally and, in particular, at any relevant Stadia; 10. Along with IMG UK, development/ customization of League handbook and creation of IPL match schedule; 11. Assistance in connection with Anti-Doping and WADA Compliance Regulations: 12. Development of strategic brand framework for BCCI and manage brand IPL working with BCCI team, 13. Dealing with Stadia authorities and vendors/ suppliers, etc for management and implementation of accreditation system relating to entry/ exit of players, franchisees etc into stadia, etc; and 14. Assistance in preparation of hospitality guidelines in relation to league and implementation of hospitality. 35. Based on above FAR analysis of Indian permanent establishment of assessee, Ld. TPO passed order under section 92CA (3) on 31/12/2013 wherein he has examined transfer pricing documentation of assessee with respect to fees for technical services amounting to Rs. 92249819/- , event management expenses of Rs. 11909828/- and reimbursement International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 52 of 72 of expenses of Rs. 53430529/- totaling in all to Rs. 157590176/- pertaining to transaction entered into with its associated enterprise i.e. IMG, United Kingdom and IMG USA applying transactional net margin method for determining arm s length price and has held that as stated in prior year order, article 13 of India UK Treaty read with article 7 of treaty states that if assessee constitutes service PE, profits are attributable to PE are to be taxed in other contracting states that is in India. This implies that profits of PE are rightly attributable to it should be taxed in India. He further held that after going through facts and information submitted by assessee during course of assessment proceedings, it is noted that facts and circumstances of IPL 2009 event are different from IPL 2008 event since IPL 2009 took place in South Africa unlike previous IPL event 2008 which was hosted in India during April to June 2008. On basis of above facts no adverse inference was drawn towards amount of revenue of Rs. 92249819/- attributable to Indian permanent establishment. Therefore, on reading transfer-pricing officer s order it is apparent that according to him no further profit is required to be attributed to permanent establishment of assessee. However these attribution of profit is undisputedly based on functions performed by permanent establishment of assessee, assets employed by permanent establishment in performing those functions and risk assumed by it while performing those functions. However it is to be noted that over and above those functions performed by permanent establishment of International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 53 of 72 appellant in India there are certain functions which have been performed from its head office from outside India by appellant which are not at all connected with permanent establishment of appellant in India. Appellant has submitted that it has permanent establishment of India as it is deputed some of its employees and also appointed third-party freelancers for undertaking on- ground implementation and related event management and supervision activities in India which has created permanent establishment as threshold limit of 90 days has exceeded and therefore it constitutes service permanent establishment in India according to Indo UK Double Taxation Avoidance Agreement. Based on this premises which has been accepted by revenue has resulted into exercise of attribution of profit to permanent establishment and taxation of income of appellant to that extent on net basis after deduction of expenses. It is interesting to note that in present case there is only service PE which has come into existence only because of on- ground implementation and related event management and supervision activities in India by deputation of staff and appointing third parties. It does not talk about services which have been rendered by IMG UK directly from head office to board of control for Cricket in India. On specific query by bench that how services rendered by United Kingdom company to BCCI were effectively connected with permanent establishment in India appellant has given answer stating that contract is in all circumstances is effectively connected with permanent establishment and International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 54 of 72 therefore conclusion that instant case only article 7 will apply. Ld. appellant further stated that effective connection has to be read in relation to contract and not in relation to services rendered and during year assessee has only one contract entered into by appellant with BCCI for IPL 2009 event and due to that contract only service PE is coming into existence and therefore whole contract has been effectively connected with permanent establishment. appellant has further submitted that in case if bench is of view that balance consideration is not attributable to permanent establishment for services rendered by appellant and it is in nature of fees for technical services as per provisions of article 13 (4) ( c) , then also because of PE receipts would be taxed as business income under article 7 of Tax treaty. Admittedly appellant is UK resident and without any doubt provisions of Income Tax Act or provisions of Double Taxation Avoidance Agreement whichever is more beneficial to assessee shall be applied for determining tax liability of assessee in India. In view of this undoubtedly appellant is entitled to benefit of Indo UK Double Taxation Avoidance Agreement. Therefore To examine this argument of Ld. appellant we would like to examine provisions of article 13 of Indo UK DTAA which are as under:- ARTICLE 13 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in Contracting State and paid to resident of other Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also be taxed in Contracting State in which they arise and according to law of that State; but if International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 55 of 72 beneficial owner of royalties or fees for technical services is resident of other Contracting State, tax so charged shall not exceed : (a) in case of royalties within paragraph 3(a) of this Articles, and fees for technical services within paragraphs 4(a) and (c) of this Article, (i) during first five years for which this Convention has effect ; (aa) 15 per cent of gross amount of such royalties or fees for technical services when payer of royalties or fees for technical services is Government of first- mentioned Contracting State or political sub-division of that State, and (bb) 20 per cent of gross amount of such royalties or fees for technical services in all other cases; and (ii) during subsequent years, 15 per cent of gross amount of such royalties or fees for technical services; and (b) in case of royalties within paragraph 3(b) of this Article and fees for technical services defined in paragraph 4(b) of this Article, 10 per cent of gross amount of such royalties and fees for technical services. 3. For purposes of this Article, term "royalties" means : (a) payments of any kind received as consideration for use of, or right to use, any copyright of literary, artistic or scientific work, including cinematography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for use of, or right to use, any industrial, commercial or scientific equipment, other than income derived by enterprise of Contracting State from operation of ships or aircraft in international traffic. 4. For purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, term "fees for technical services" means payments of any kind of any person in consideration for rendering of any technical or consultancy services (including provision of services of technical or other personnel) which : (a) are ancillary and subsidiary to application or enjoyment of right, property or information for which payment described in paragraph 3(a) of this article is received ; or (b) are ancillary and subsidiary to enjoyment of property for which payment described in paragraph 3(b) of this Article is received ; or (c) make available technical knowledge, experience, skill know-how or processes, or consist of development and transfer of technical plan or technical design. 5. definition of fees for technical services in paragraph 4 of this Article shall not include amounts paid : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to sale of property, other than property described in paragraph 3(a) of this Article; (b) for services that are ancillary and subsidiary to rental of ships, aircraft, containers or other equipment used in connection with operation of ships, or aircraft in international traffic; International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 56 of 72 (c) for teaching in or by educational institutions ; (d) for services for private use of individual or individuals making payment ; or (e) to employee of person making payments or to any individual or partnership for professional services as defined in Article 15 (Independent personal services) of this Convention. 6. provisions of paragraphs 1 and 2 of this Article shall not apply if beneficial owner of royalties or fees for technical services, being resident of Contracting State, carries on business in other Contracting State in which royalties or fees for technical services arise through permanent establishment situated therein, or performs in that other State independent personal services from fixed base situated therein, and right, property or contract in respect of which royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, provisions of Article 7 (Business profits) or Article 15 (Independent personal services) of this Convention, as case may be, shall apply. 7. Royalties and fees for technical services shall be deemed to arise in Contracting State where payer is that State itself, political sub-division, local authority or resident of that State. Where, however, person paying royalties or fees for technical services, whether he is resident of Contracting State or not, has in Contracting State permanent establishment or fixed base in connection with which obligation to make payments was incurred and payments are borned by that permanent establishment or fixed base then royalties or fees for technical services shall be deemed to arise in Contracting State in which permanent establishment or fixed base is situated. 8. Where, owing to special relationship between payer and beneficial owner or between both of them and some other person, amount of royalties or fees for technical services paid exceeds for whatever reason amount which would have been paid in absence of such relationship, provisions of this Article shall apply only to last-mentioned amount. In that case, excess part of payments shall remain taxable according to law of each Contracting State, due regard being had to other provisions of this Convention. 9. provisions of this Article shall not apply if it was main purposes or one of main purposes of any person concerned with creation or assignment of rights in respect of which royalties or fees for technical services are paid to take advantage of this Article by means of that creation or assignment. [Underline supplied by us] 36. On perusing above article of Double Taxation Avoidance Agreement it is apparent that if fees for technical services are effectively connected with permanent establishment of appellant in India then provisions of article 13 (6) shall be applicable to assessee. In that case provisions of article 7 of Double Taxation Avoidance Agreement shall apply to that income. International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 57 of 72 37. Provision of article 7 of DTAA provides as under :- ARTICLE 7 BUSINESS PROFITS 1. profits of enterprise of Contracting State shall be taxable only in that State unless enterprise carries on business in other Contracting State through permanent, establishment situated therein. If enterprise carries on business as aforesaid, profits of enter price may be taxed in other State but only so much of them as is directly or indirectly attributable to that permanent establishment. 2. Where enterprise of Contracting State carries on business in other Contracting State through permanent establishment situated therein, profits which that permanent establishment might be expected to make if it were distinct and separate enterprise engaged in same or similar activities under same or similar conditions and dealing wholly independently with enterprise of which it is permanent establishment shall be treated for purposes of paragraph 1 of this Article as being profits directly attributable to that permanent establishment. 3. Where permanent establishment takes active part in negotiating, concluding or fulfilling contracts entered into by enterprise, then, notwithstanding that other parts of enterprise have also participated in those transactions, that proportion of profits of enterprise arising out of those contracts which contribution of permanent establishment to those transactions bears to that of enterprise as whole shall be treated for purpose of paragraph 1 of this Article as being profits indirectly attributable to that permanent establishment. 4. Insofar as it has been customary in Contracting State according to its law to determine profits to be attributed to permanent establishment on basis of apportionment of total profits of enterprise to its various parts, nothing in paragraphs 1and 2 of this Article shall preclude that Contracting State from determining profits to be taxed by such apportionment as may be necessary; method of apportionment adopted shall, however, be such that result shall be in accordance with principles laid down in this Article. 5. Subject to paragraphs 6 and 7 of this Article, in determination of profits of permanent establishment, there shall be allowed as deduction expenses which are incurred for purposes of business of permanent establishment, including executive and general administrative expenses so incurred, whether in State in which permanent establishment is situated or elsewhere, which are allowed under provisions of and subject to limitations of domestic law of Contracting State in which permanent establishment is situated. 6. Where law of Contracting State in which permanent establishment is situated imposes restriction on amount of executive and general administrative expenses which may be allowed, and restriction it relaxed or overridden by any Convention between that Contracting State and third State which is member of Organisation for Economic Cooperation and Development or State in comparable stage of development, and that Convention enters into force, after date of entry into force of this Convention, competent authority of that Contracting State shall notify competent authority of other Contracting State of terms of relevant paragraph in Convention with that third state International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 58 of 72 immediately after entry into force of that Convention and, if competent authority of other Contracting State so requests, provisions of this Convention shall be amended by protocol to reflect such terms. 7. Paragraph 5 of this Article shall not apply to amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by permanent establishment to head office of enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for use of patents or other rights, to by way of commission, for specific services performed or for management, or, except in case of banking enterprise, by way of interest on monies lent to permanent establishment; nor shall account be taken in determination of profits of permanent establishment of amounts charged (otherwise than towards reimbursement of actual expenses) by permanent establishment of head office of enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for use of patents or other rights, or any way of commission, for specific services performed or for management, or, except in case of banking enterprise, by way of interest on monies lent to be head office of enterprise or any of its other offices. 8. No profits shall be attributed to permanent establishment by reason of mere purchase by that permanent establishment of goods or merchandise for enterprise. 9. Where profits include items of income which are dealt with separately in other Articles of this convention, then provisions of those Articles shall not be affected by provisions of this Article. 38. Now issue arises is whether whole contract is effectively connected with permanent establishment or part of services are effectively connected with permanent establishment. On reading of above two agreements and transfer pricing study report submitted by assessee, more specifically at para number 4.4.2 are functions performed by permanent establishment of appellant in India and para number 4.4.1 shows what are functions performed by IMG UK. It is further mentioned in transfer pricing study report that certain routine services relating to on ground implementation and running of event was subcontracted to IMC India branch. IMG India PE was involved in/responsible for overseeing and managing liasonsing and implementation support activities undertake taken by IMC India branch. It is also important to note that International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 59 of 72 how this functions were performed it was stated in transfer pricing study report of appellant that IMG UK employees came to India from time to time for short-term visits. Further few freelancers were appointed/engaged by IMG UK for undertaking on- ground implementation and related supervision activities in India. As these functions performed, assessee has claimed that it has created service PE in India and therefore income should be chargeable to tax according to article 7 of Double Taxation Avoidance Agreement. Therefore according to us above agreements and memorandum of understanding has two limb one with respect to performance of activities performed by permanent establishment in India and another limb deals with respect to performance of services by IMG UK directly for which India PE has nothing to do. Admittedly issue is concerned with respect to fees for technical services. It is also admitted position that while effective connection of royalties with permanent establishment has to be evaluated by applying assets test , and for purpose of fees for technical services activity test or functional test should be applied as held in case of Nippon Kaiji Kyokoi V ITO 47 SOT 41 (Mum). Therefore to effectively connect whole income with PE, contending party i.e. assessee, should establish that PE is engaged in performance of all those services or should be involved in actual rendering of such services, or (2) it should arise as result of activities of PE, or (3) PE should, at least, facilitate, assist or aid in performance of such services irrespective of other activities PE performs. International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 60 of 72 Therefore according to article 7, for attribution of profits to permanent establishment activity carried out by permanent establishment is important and to that extent only profits can be attributed to that particular permanent establishment. However if there are other activities, which are also incorporated in agreement, which are not at all carried on with help of, or through, or by, or under control, or under supervision of permanent establishment such activities and income arising there from cannot be said to be effectively connected with permanent establishment and article 7 cannot be applied to those services. In present case certain activities are carried out by appellant which are not even concerned with functioning of permanent establishment therefore in our view only activities which are performed by permanent establishment are effectively connected with permanent establishment and activities which are not carried on by permanent establishment but are carried out by head office of appellant are not effectively connected with permanent establishment. We are also of view that term effectively connected should not be understood to mean opposite of legally connected but rather something in sense of really connected . Therefore activities mentioned in contract should be connected to permanent establishment not only in form but also in substance. It is also interesting to note that permanent establishment of assessee has been admitted by appellant only because of reason that some of employees of appellant came to India from time to time for International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 61 of 72 short visit and further certain freelancers were appointed for undertaking own ground implementation related supervision activities in India. Therefore according to us there are minimum activities performed by PE of appellant in India. Hence just performing such minimum activities it cannot be said that whole of revenue of Rs. 33 crores involved in contract is effectively connected with activities of permanent establishment in India. Hence we reject contention of assessee that whole of revenue involved in contract should be considered as effectively connected with permanent establishment of appellant. We also give one more reason may be hypothetical one which supports our view. Supposedly contract of Rs. 100 crore is awarded to overseas entity for rendering of management services and if such overseas entity establishes permanent establishment by just deputing its staff for more than 90 days, it creates service permanent establishment of that for entity in India. On basis of minimum activities performed by that particular staff which is deputed in India 10% of gross receipt say 10 crores is attributed to permanent establishment and after claiming deduction of expenses there from of say 60% of income attributed , assessee offered balance amount as profit of permanent establishment for taxation. In transfer pricing study report, based on FAR analysis such attribution of profit is considered to be at arm s length by assessee and as well as by transfer pricing officer, it cannot be said that balance sum of Rs. 90 crores cannot be taxed in India as whole International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 62 of 72 contract was effectively connected with permanent establishment created by petitioner of some staff for performing some of activities and crossing threshold duration. We do not subscribe to such view and we are also of view that such is case of assessee before us. 39. Further now coming to interplay between article 7 and article 13 of Double Taxation Avoidance Agreement gives insight that first there has to be existence of permanent establishment through which business is carried out and further existence of effective connection between such PE and rights properties and contracts in respect of which fees for technical services are paid. That would mean that only such fees for technical services are excluded from scope of article 13 (6) as are attributable to permanent establishment of assessee through which business is carried on by appellant. Therefore according to us taxability under article 13 shifts to taxability of article 7 only in respect of fees for technical services which are attributable to PE in question. Therefore article 13 (6) of Double Taxation Avoidance Agreement shall apply only to extent of activities carried on by appellant through its permanent establishment. In view of this we are of view that activities carried out by appellant which are not at all connected with activities of permanent establishment are not covered by article 7 or 15 of Double Taxation Avoidance Agreement between India and United Kingdom and same shall remain as fees for technical services under article 13 only. Therefore natural corollary that International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 63 of 72 follows is that whatever is income excluded by applicability of article 13 (6) and goes back to article 7 is same amount. 40. Our this view is also supported by provision of article 13 (6) of DTAA which provides as under :- (6) . provisions of paragraphs 1 and 2 of this Article shall not apply if beneficial owner of royalties or fees for technical services, being resident of Contracting State, carries on business in other Contracting State in which royalties or fees for technical services arise through permanent establishment situated therein, or performs in that other State independent personal services from fixed base situated therein, and right, property or contract in respect of which royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, provisions of Article 7 (Business profits) or Article 15 (Independent personal services) of this Convention, as case may be, shall apply. [Underline supplied by us] 41. on reading of above article it is apparent that provisions of paragraph 1 and 2 of this article shall not apply if beneficial owner of royalty fees for technical service, being resident of contracting state, carries on business in other contracting State in which royalties or fees for technical services arise through permanent establishment situated therein, and right property or contract in respect of which royalty fees for technical services are paid is effectively connected with that permanent establishment or fixed base. Then only provisions of article 7 related to business profit shall apply. Therefore above article provides for twin conditions , (1) that royalty or fees for technical services International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 64 of 72 should arise through permanent establishment situated in other State and (2) right property or contract in respect of royalty or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In present case benches raised specific query that how activities carried on by UK office of appellant are arise through permanent establishment and how contract is effectively connected with such permanent establishment. Ld. authorized representative responded by submitting that it is with respect to contract which should be effectively connected to permanent establishment or fixed base. However with respect to evidence of activities carried on by overseas head office of appellant and how they are connected or arising through permanent establishment has not been responded to. Despite this we have pursued relevant activities performed by foreign office of appellant as well as permanent establishment of appellant. We are of view that activities carried on by foreign office of assessee are not at all arising through permanent establishment of appellant in India. Therefore one of condition of about twin conditions also failed in case of appellant. Once again we would like to reiterate that for purpose of applicability of article 13 (6) with respect to fees for technical services one has to apply activity test of permanent establishment in source country is held by coordinate bench in case of Nippon Kaiji Koyokoi V ITO ( supra). International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 65 of 72 42. Therefore we reject contention of assessee that out of 33 crores Rs. 9 crores are effectively connected with permanent establishment of appellant, balance 22 crores cannot be taxed in India under article 13 as fees for technical services. Our one more reasons for holding such view is that according to us there is no distinction between two phrases used into two different articles of Double Taxation Avoidance Agreement. These two phrases are (1) attributable to in article 7 of Double Taxation Avoidance Agreement, and (2) effectively connected with in article 13 (6) Double Taxation Avoidance Agreement, because Indo US DTAA uses same term attributable to in place of effectively connected with in article 12(6) of that agreement as under:- 6. provisions of paragraphs 1 and 2 shall not apply if beneficial owner of royalties or fees for included services, being resident of Contracting State, carries on business in other Contracting State, in which royalties or fees for included services arise, through permanent establishment situated therein, or performs in that other State independent personal services from fixed base situated therein, and royalties or fees for included services are attributable to such permanent establishment or fixed base. In such case provisions of Article 7 (Business Profits) or Article 15 (Independent Personal Services), as case may be shall apply. [underline supplied by us] Therefore, in present case, according to us, out of total receipt of Rs. 33 crores receipt of Rs. 92249819/- which is attributable to permanent establishment in India and balance sum of Rs. 237750181/- shall be chargeable as fees for technical services under article 13 of DTAA. 43. Now next contention raised by appellant is that as there is no make available test satisfied in case of services International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 66 of 72 provided by appellant, hence, according to article 13 (4) which defines fees for technical services means payments of any kind of any person in consideration for rendering of any technical or consultancy services which make available technical knowledge, experience, skill know-how or processes, or consist of development and transfer of technical plan technical design. According to assessee as clause C of article 13 (4) is not satisfied balance cannot be charged to tax as fees for technical services. In present case services are already described in previous paragraphs and there cannot be two opinion about that that mere provision of services or technical services is not sufficient, it is essential that services should be make Available technical knowledge, experience, skill, know-how or process. expression make available has far-reaching significance since it limits scope of technical and consultancy services. Generally this expression make available is used in sense of one person supplying or transferring or imparting technical knowledge or skill or technology to another and technology is considered made available only when services receiver is enabled to absorb and apply technology contained therein. If services do not have any technical knowledge fees paid for it do not fall within meaning of fees for technical services as per article 13 of India UK DTAA.. services receiver is able to make use of technical knowledge etc by himself in his business or for his own benefit and without recourse to service provider in future and for this purpose transmission of technical knowledge, experience, skill, etc from International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 67 of 72 service provider to services CP is necessary. In other words technical knowledge, experience, skill etc must remain with service recipient even after rendering of services has come to end and services receiver is at liberty to use technical knowledge skill know-how and processes in his own right. In present case assessee has hired for conducting research in respect of appropriate structure for IPL and makes recommendation to BCCI accordingly. It is required to provide Constitution of IPL, authority of governing Council , structure of IPL, tournament rules and regulation ,the franchisee tender document ,the franchisee agreement, necessary franchisee regulation and IPL implementation budget. According to para No. 9 of agreement that intellectual property rights remains with board of control for Cricket in India. Even before us Ld. authorized representative could not point out that why make available test has not been satisfied in this even by providing all rules and regulations of IPL, standard operating procedures of matches, copies of franchisee agreement, various documentation/ contracts etc which shall remain with BCCI. Therefore in present case according to us BCCI is enabled to absorb and apply information and advice provided by appellant to it for conducting such sporting events. According to us when all this documentation and material is provided to BCCI it is able to use such know-how and documentation generated from provision of services of appellant independent of services of appellant in future. It is too na ve to say that in absence of International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 68 of 72 IMG services BCCI on its own IPL tournament cannot hold. Merely because BCCI has entered into contract for conducting further 9 events does not lead to conclusion that information documentation, agreements, contracts etc cannot be said to be made available to appellant. In fact according to us it is. In view of this we reject contention of appellant that sum of Rs. 237750181/-cannot be taxed as fees for technical services as it does not satisfy make available condition provided in article 13(4) 9c ) of DTAA. 44. We would also like to state that appellant has relied on decision of Hon ble Delhi High Court in case of Guy Carpenter V DIT 346 ITR 504. According to us that decision does not support case of assessee as it was related to intermediary. 45. Appellant has further relied upon decision of Nippon kaiji Koyokoi V ITO ( supra) of coordinate bench. We have perused that decision and we found that in that particular case permanent establishment of appellant was providing some services with respect to earning of head office and therefore facts of that case are different. In present case services of head office which are directly provided from United Kingdom are no way related to services of permanent establishment of appellant. In view of this we reject contention of assessee that issue is covered by above decision of coordinate bench. In view of this we also disagree with direction of Ld. Dispute resolution panel to Ld. assessing officer to assess fees for technical services International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 69 of 72 as business income on substantive basis by applying formula of gross receipts with respect to expenditure. 46. Further with respect to ground No. 7 and 8 of appeal of appellant saying that receipt of Rs 237750181/-fall under exception provided under section 9(1) (vii) (b) of Income tax act as services have been rendered outside India and income is generated in hands of BCCI outside India. provisions of section 9 (1) ( vii) are as under :- . (vii) income by way of fees for technical services55 payable by (a) Government ; or (b) person who is resident, except where fees are payable in respect of services utilised in business or profession carried on by such person55 outside India or for purposes of making or earning any income from any source outside India55 ; or (c) person who is non-resident, where fees are payable in respect of services utilised in business or profession carried on by such person in India56 or for purposes of making or earning any income from any source in India : 48. According to provisions of section 9 (1) of Income tax Act income by way of fees for technical services payable by person who is resident to non-resident shall be deemed to accrue or arise in India and shall be chargeable to tax u/s 5 of Income Tax Act in hands of non-resident. claim of appellant is that receipt of Rs. 237750181/- falls within exception provided under clause (b) of above section which says that where fees for technical services are payable in respect of services utilized in business or profession carried on by such person outside India or for purpose of making or earning any income from any source outside India, it shall not be considered as fees for technical services as income deemed to accrue or arise in India in terms of provisions of section 9(1) International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 70 of 72 (vii) (b) of Income Tax Act. main reason to say so by appellant is that IPL 2009 event has been held outside India and therefore BCCI has utilized those services outside India and therefore they fall into exception and cannot be taxed in India. We have carefully considered rival contentions and reject contention of appellant for reason that to fall within exception assessee must be carrying out business outside India and such services must be utilized in that business by person who is resident in India and who pays income by way of fees for technical services to non- resident. It is established fact that BCCI is carrying on business in India and not outside India. Further source of income of BCCI is in India and not outside India. Merely because event is performed outside India it cannot be said that source of income of BCCI is not in India. Therefore according to us income of appellant of Rs. 237055181/- is chargeable to tax as fees for technical services under section 9 (1) (vii) of Income Tax Act as Fees for technical services. 49. In view of above facts and circumstances we adjudicate appeal of assessee as under: a. with respect to ground No. 2, 3,4,5 and 6 of appeal of assessee we hold that that receipts from services rendered outside India of Rs. 237750181/- are chargeable to tax as Fees for Technical Services in terms of Article 13(4) (c) as it makes available technology to recipient of services and further provisions of article 13(6) of Indo UK Double Taxation Avoidance Agreement does not apply to this sum, as it does not International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 71 of 72 arise through and also not effectively corrected with permanent establishment of appellant. b. With respect to ground No. 7 and 8 of appeal we hold that income of Rs 237750181/-is chargeable to tax under section 9 (1) (vii) (b) of Income Tax Act as fees for technical services and it does not fall into exception thereof. c. With respect to ground No. 9 of appeal we hold that receipt of appellant satisfies make available test as provided under article 13 (4) ( c) of India UK DTAA as fees for technical services. 50. In result appeal No. 1613/Del/2015 for assessment year 2010 11 filed by appellant is dismissed. 51. Now we come to appeal of revenue in ITA No 1646/Del/2015 and we decide grounds of appeal for reasons given above as under:- a) we allow ground No. 1 of appeal of revenue holding that that balance receipt of Rs. 237750181/-shall be governed by provisions of article 13 of Double Taxation Avoidance Agreement as fees for technical services as it is not arising through and not effectively connected with permanent establishment of appellant in India. b) With respect to ground No. 2 we hold that receipt from work done outside India of Rs. 237750181/-is International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 Page 72 of 72 assessable as fees for technical services on substantive basis. 52. In result appeal filed by revenue in ITA No 1646/Del/2015 Russell, he borrowed tutorial is allowed. 53. Order pronounced in open court on 04 /10/2016. -Sd/- -Sd/- (H.S.SIDHU) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated: 04/10/2016 K Keot Copy forwarded to 1. Applicant 2. Respondent 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, New Delhi International Management Group (UK) Limited V ACIT ITA No 1613/Del/2015 Y 2010-11 ACIT v International Management Group (UK) Limited ITA No 1676/Del/2015 Y 2010-11 International Management Group (UK) Ltd. v. ACIT, International Taxation- 2(1)(1)