Mumbai: Sony Entertainment Television (Satellite), Singapore, is not liable to pay income tax in India on revenue generated in India and sent to it in Singapore by its agent, SET India - now called Multi Screen Media (MSM) - the Bombay high court ruled in an appeal filed by the company.

SET has a permanent establishment in India and is regularly filing returns, according to the company's counsel. However, he said, if transfer pricing of the permanent establishment is done then the parent company is not liable to be assessed separately in India.

The counsel also cited the Supreme Court judgment in Morgan Stanley case to drive home the point.

SET India was originally set up to source advertising for AXN - a channel owned by SET Singapore. Hence SET India paid tax only on the commission earned in India.

SET India, sent Rs138 crore to Singapore in the financial year 1999-2000, after deducting its commission percentage. Although SET India paid the income-tax due on its earnings, SET Singapore did not pay any.

The income-tax authorities sent a notice to SET Singapore, asking them to pay Rs13.8 crore in tax. The company challenged the demand before the income-tax appellate but lost, and moved the high court in appeal since.

The Income Tax Appellate Tribunal, however, ruled that whether one carries on the business directly or through a dependent agent, the profit attributable to such business continues to be taxable in the source country.

The Bombay high court upheld SET Singapore's contention that it was not liable to pay tax as it was a foreign entity paying market rate remuneration to the permanent establishment.

Counsel for the income-tax department, Beni Chatterji, said, ''Transfer pricing in respect of permanent establishment of SET Satellite has not been done and, therefore, the SC judgment in Morgan Stanley was not applicable in this case."

The high court bench comprising Justices F I Rebello and R S Mohite, however, accepted Salve's contention and ruled in favour of SET.