Income Tax Appellate Tribunal - Delhi
Bbc Worldwide Ltd, New Delhi vs Assessee on 15 January, 2010
1 ITA Nos. 2458&2459(Del)/2008
IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCH 'A' DELHI
BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL
ITA Nos. 2458 & 2459(Del)/2008
Assessment year: 2001-02 & 2003-04
BBC Worldwide Limited, Assistant Director of Income
C/o E-21, Hauz Khas Enclave, Vs. tax, Circle-1, Directorate of
New Delhi-110016. International Taxation,
New Delhi.
(Appellant) (Respondent)
Appellant by : Shri Arvind Sonde, C.A.
Respondent by : Shri Ashwani Mahajan, CIT, DR
ORDER
PER K.G. BANSAL : AM The appeal in ITA No. 2458(Del)/2008 requires determination of four questions, namely, whether- (i) the ld. CIT(Appeals) was right in holding that the assessee had the business connection and the Permanent Establishment (PE) in India; (ii) he was right in attributing profit to the PE as determined by him; (iii) he was right in taxing interest income @ 20% on gross basis against the rate of 15% prescribed under the relevant tax avoidance treaty; and (iv) he was right in charging interest u/s 234B on assessed income and not on the returned income?
2 ITA Nos. 2458&2459(Del)/2008
2. At the outset, it may be mentioned that the thrust of the argument of the ld. counsel for the assessee has been that since BBC Worldwide (India) Pvt. Ltd. (in short 'BWIPL') has been remunerated at arm's length by way of commission paid @ 15% of the advertising revenue generated in India, no income can be attributed to the PE in India, even if BWIPL is taken to be the PE of the assessee in India. Therefore, it has been argued that the question of existence or otherwise of the assessee's PE in India is only of academic interest. In order to support that the income attributed to the aforesaid PE in India is nil, reliance has been placed on the decision of the Tribunal in the case of the assessee in ITA No. 1188(Del)/2006 for assessment year 2000-01 dated 15.01.2010, a copy of which has been placed in the paper book at page numbers 129 to
157. It may further be mentioned that the ld. counsel was appraised that if there is no PE in India, the question of attributing any income to it would not arise and, therefore, it is the implicit inference of the aforesaid decision that there is the PE in India, it has been submitted that the question is nonetheless of academic interest only. When the ld. counsel was questioned as to whether grounds in this behalf may be treated as not pressed, it has been submitted that that is not the case. Therefore, we are faced with a piquant situation in which some grounds 3 ITA Nos. 2458&2459(Del)/2008 exist on record but the ld. counsel does not want the grounds to be decided.
2.1 In order to appreciate the controversy regarding existence or otherwise of assessee's PE in India, the facts mentioned by the ld. CIT(Appeals) may be reproduced here:-
"Appellant is a company incorporated under the laws of United Kingdom and is a tax resident of UK within the meaning of Article 4 of the Double Taxation Avoidance Agreement between India and UK ( in short DTAA). The appellant is wholly owned subsidiary of BBC Commercial Holdings Limited. It operates as an international consumer media company in the areas of television, publishing, product, licensing, internet and interactive. As part of its business activity, appellant runs and operates the BBC Worldwide International news and information channel (in short BBC World channel) under a separate division BBC World Division. During the financial years under consideration appellant primary source of revenue in India was from sale of airtime for the BBC World Channel i.e., appellant company was earning advertisement revenue in India. In order to sell airtime for BBC World channel, the appellant entered into an agreement with BBC Worldwide (India) Pvt. Ltd. (in short BWIPL) on 1st February, 1999. Under the agreement BWIPL was appointed as exclusive agent of appellant for soliciting orders for sale of airtime on BBC World channel, negotiating agreement and collection of advertisement revenue from Indian advertiser on behalf of appellant and remitting the same to the appellant. BWIPL was also engaged in marketing and distribution of BBC World Channel under another agreement. In consideration of the above services BWIPL was paid a commission of 15% of airtime sale/sponsorship generated by it for appellant. It is pertinent to mention here that w.e.f. 1.12.2002 the 4 ITA Nos. 2458&2459(Del)/2008 appellant transferred BBC World Division which operates BBC World Channel to another group company M/s BBC World Limited and above referred to agreement between the appellant and BWIPL was novated in favour of M/s BBC World Limited and w.e.f. 1.12.2002 BWIPL had started acting as agent of BBC World Limited."
2.2 It appears that field enquiries were made by the AO in financial year 2002-03, which were taken into consideration by the ld. CIT(Appeals). On the basis of the facts gathered in the enquiries, the following findings were recorded in the appellant order for assessment year 2000-01:-
(a) "BWIPL was under common management and control and was managed and controlled by subsidiary of the appellant;
(b) Appellant had provided financial support to BWIPL by advancing it huge loan; BWIPL was working wholly and exclusively for promoting business of appellant in India;
(c) BWIPL was habitually exercising in India an authority to negotiate and conclude advertisement contract with Indian advertiser on behalf of appellant;
(d) BWIPL habitually secured under wholly and exclusively for the appellant; and
(e) the source of advertisement revenue was located in India which was in form of Indian advertiser and viewership of BBC World Channel."
2.3 The ld. CIT(Appeals) was of the view that the facts are identical in this year. Therefore, on the basis of aforesaid facts and findings given in 5 ITA Nos. 2458&2459(Del)/2008 assessment year 2000-01, it was held that the assessee has "business connection in India".
2.4 In assessment year 2000-01, a finding was also given that BWIPL is financially and functionally dependent upon the assessee through which the assessee has performed its business activities in India on a regular basis. Therefore, it was held that in absence of any distinction in facts, the assessee has a dependent agent PE in India in this year also. We note here that this decision is in conformity with the decision of Hon'ble Bombay High Court in the case of Set Satellite (Singapore) Pvt. Ltd. (Infra), on which the assessee has relied heavily for the purpose of attribution of profits to the PE. Accordingly, grounds taken in this behalf are dismissed.
2.5 Since no argument has been advanced before us against the aforesaid findings of the ld. CIT(Appeals), we have no option but to hold that the assessee has business connection as well as a PE in India.
3. In respect of attribution of income to the PE, it has been submitted that the AO computed the profits at Rs. 73,37,196/-. The ld. 6 ITA Nos. 2458&2459(Del)/2008 CIT(Appeals) enhanced the profits to Rs. 86,31,995/- by returning a finding that the commission of Rs. 1,29,47,993/- paid to BWIPL should not have been reduced from the gross revenues generated from India. However, since the assessee remunerated the BWIPL at arm's length, the profits should have been taken at nil. As mentioned earlier, reliance has been placed on the decision by the Tribunal in the case of the assessee for assessment year 2000-01. The operative portions of this order are contained in paragraph numbers 9 to 25, which are reproduced below:-
"9. We have heard the parties and have perused the material on record. The facts are not in dispute. The question is as to whether the learned CIT (Appeals) has correctly assessed the assessee's profits attributable to the foreign enterprises PE in India @ 10% of the gross revenue receipts from India.
10. The assessee's case is that during the year under consideration, the assessee company, a part of the BBC Group, operated as an International Consumer Media Company in the areas of TV, publishing and program licencing , etc. It also operated the BBC World Channel ('the Channel') through a separate division, i.e., the BBC World Division. It had as its subsidiary in India, BWIPL. It appointed BWIPL as its authorized agent in India. This was under an airtime sales agreement dated 15.9.2000, effective from 13.11.1998. This agreement was for dollar denominated deals and was entered into to solicit orders for the sale of advertising airtime on the Channel. The rates and terms and conditions to govern such sale were provided by the assessee. The payment from the Indian advertisers for airtime sales and sponsorship was to be received directly by the assessee. This was to be through EEFC account or on specific RBI permission. For the services 7 ITA Nos. 2458&2459(Del)/2008 provided by BWIPL, it was to receive consideration of 15% marketing commission of the advertisement revenues received by the assessee from Indian advertisers. On 1.2.1999, the assessee and BWIPL executed another airtime sales agreement. This was for rupee denominated deals concerning soliciting orders for Channel airtime sales, as was the case under the aforementioned earlier agreement. This second agreement was executed so as to enable BWIPL to collect payment from Indian advertisers for sale of airtime on behalf of the assessee and to remit the same to the assessee. BWIPL was to be paid, again, commission @ 15%.
11. In the return of income filed for the year under consideration, the assessee showed income at rupees nil. It was claimed that the assessee would not be taxable in India on its income concerning airtime sales. The basis for such claim was that the airtime income sales was business profits of the assessee, since the assessee did not have a permanent establishment in India. Later on, the return was revised, disclosing an income of Rs.81,86,735/- representing certain royalty income which, as per the assessee remained from being shown in the original return of income. The assessee claimed not to have any other income chargeable to tax in India. In the Notes to the return filed, the assessee contended that no income accrued or arose to the assessee from any business connection in India, either under the Indian Income Tax Act or under the Treaty between India and UK; that even if BWIPL was considered to be a business connection/permanent establishment of the assessee in India, the commission paid to it constituted adequate compensation for its activities in India; that it was subject to tax in India and no further income of the assessee was liable to tax in India; that even otherwise, the sale of airtime in India having resulted in a net loss to the assessee, even if it were to be held that the assessee had a permanent establishment in India, there could be no taxable income; that the airtime sales activity of the assessee was a part of the activity of the BBC World Division which ran the Channel; that the BBC World Division having incurred losses worldwide during the year, there would be a loss even if any income or loss on a proportionate basis were to be held to be attributable 8 ITA Nos. 2458&2459(Del)/2008 to the assessee's Indian operations; and as such, the assessee would legally be entitled for carry forward of such loss for setting it off against future attributable profit. The assessee placed reliance on CBDT Circular No. 23 of 1969, according to which, if the agent's commission fully represents the value of profit attributable to its service, it should prima facie extinguish the assessment. An allocation statement was filed before the AO. This was regarding revenues and expenses attributable to India footprint. It showed a loss in the event a business connection/permanent establishment was found to exist.
12. By virtue of the assessment order dated 31.3.2003, the AO, rejecting the assessee's contention, held that BWIPL constituted the assessee's business connection as well as a permanent establishment under Articles 5(4)(a) and 5(4)(c) of the Indo-UK Treaty. The profits of the assessee were estimated at a rate of 20% of the total advertisement revenue attributable to India.
13. Before the ld. CIT(A), the assessee, inter alia, filed audited accounts of the revenues and expenses allocable to India footprint. However, vide order dated 27.1.2006, i.e., the impugned order, the ld. CIT(A) confirmed the assessment order. Placing reliance on CBDT Circular No. 742 datead 2.5.1996, the ld. CIT(A) further estimated the assessee's profits at the rate of 10% of the total advertisement revenues allocable to India.
14. Before us, however, the issue of business connection or permanent establishment was not addressed. The learned counsel for the assessee has, rather, stressed and dilated upon the assessee's stand that BWIPL has been remunerated on the basis of a fair transfer price, due to which, nothing further remains to be taxed in India. It has been argued that having examined the two aforementioned airtime sales agreements, the department has itself accepted that commission of 15% paid to BWIPL is a fair Transfer Price. Reference concerning this has been made to the Transfer Pricing Order for assessment year 2002-03 in the case of BWIPL. A copy thereof has been placed on record. In that order, the TPO accepted that the 9 ITA Nos. 2458&2459(Del)/2008 transaction was at arms length price. It was held that the CUP method selected by BWIPL for determining the arms length price of the commission income earned by it, was acceptable; that this was due to the fact that BWIPL had compared the rate of commission charged by it from BBCW with that charged by an uncontrolled party for similar services; that even otherwise, it was found that the rate of commission in the assessee's trade was fairly uniform and almost everyone was charging the same rate of commission in the sale of airtime on TV Channels and FM Channels; and that it was therefore, that the arm's length price determined by BWIPL was not being disturbed. The learned counsel for the assessee has also sought to place reliance on the decision of the Hon'ble Bombay High Court in the case of "SET Satellite (Singapore)Pvt. Ltd. v. DDIT", 307 ITR 205(Bom). In that case, commission of 15% of gross advertisement revenue paid by SET Singapore, the foreign company, to its agent, SET India, which agent was held to constitute SET Singapore's dependent agent permanent establishment, was held to represent price computed at arms length. The Hon'ble High Court held, inter alia, that it was clear from reading Article 7(1) of the Treaty, that the profits of an enterprise of the Contracting State shall be taxable only in that State, unless the enterprise carries on business in the other Contracting State through a permanent establishment constituted therein; that the profits of the enterprise may be taxed in the other State, but only so much of them, as are directly or indirectly attributable to that permanent establishment; that the expression used while determining the profits attributable to the permanent establishment, in Article 7(2) of the Treaty, is "estimated on a reasonable basis"; that the Treaty did not refer to arm's length payment; that it was Section 92 of the I.T. Act which contained the principles concerning income from international transactions on an arms length price; that these principles had been clarified by the Finance Act, 2001 and the Finance Act, 2002; that it was clear from the CIT(A)'s order, that SET Singapore had made payment to its permanent establishment on the arm's length principle; that a finding of fact had been recorded to the effect that SET Singapore had paid service fees @ 15% of the gross advertisement revenue to its agent SET India, for procuring 10 ITA Nos. 2458&2459(Del)/2008 advertisements during the year from April, 1998 to October, 1998; that CBDT Circular No. 742 recognized that the Indian agents of foreign telecasting companies generally retain 15% of the advertisement revenues of the service charges; that therefore, the said Circular also supported the stand that the payment of 15% service fee was payment at arms length; that the said amount of 15% had been reduced to 12.5% of the net advertisement revenue by virtue of a revised agreement entered into between the parties; and that simultaneously SET Singapore had also, vide an agreement, entitled SET India to enter into agreements to collect and retain all subscription revenue.
15. "Galileo International Incorporation", 114 TTJ 289 of the Delhi Bench of the Tribunal has also been relied on behalf of the assessee. Therein, the Indian company made booking on a computerized reservation system for the foreign assessee. This generated income for the foreign company. It was held that the Indian company was a dependent agent permanent establishment of the foreign company. Concerning attribution of profits for the permanent establishment, it was observed that only 15% of the revenue generated from the bookings made within India was taxable in India and it was this proportion which was to be adopted for computing profit attributable to the permanent establishment. The Hon'ble Delhi High Court confirmed the findings recorded by the Tribunal in "DIT v. Galileo International Incorporation" 224 CTR 251(Del), which has further been relied on.
16. Reliance has also been placed on CBDT Circular No. 742 (supra), which was relied on by the Hon'ble Bombay High Court in the case of "SET Satellite"(supra). Further, it has been contended that the commission paid by the assessee to BWIPL @ 15% being the value of profit attributable to the services rendered by BWIPL, further income from advertisement revenues ought not to be taxed in India. CBDT Circular No. 23 of 1969 has been relied on in this regard. As per this circular, where a non resident's sales to Indian customers are secured through the services of an agent in India, the assessment in India of the income arising out of the 11 ITA Nos. 2458&2459(Del)/2008 transaction will be limited to the amount of profit which is attributable to the agent's services, provided that non-resident's business activities in India are wholly channeled through its agent, the contracts to sell are made outside India and sales are made on a principle-to-principle basis. As per this circular, in the assessment of the amount of profits, allowance will be made for the expenses incurred, including the agent's commission, in making the sales and if the agent's commission fully represents the value of the profit attributable to his service, it should prima facie extinguish the assessment.
17. CBDT Circular No. 23 of 1969 (supra) is eloquently clear, providing that if the value of the profit attributable to the services rendered by the agent is fully represented by the commission paid, it should, prima facie extinguish the assessment. "DIT v. Morgan Stanley and Company Inc."(supra), as stated, has taken into consideration CBDT Circular No. 23 of 1969(supra). In that case, since certain employees had been deputed by the foreign company to the Indian affiliate company, the foreign company was held to have a permanent establishment in India. The AAR held that once the Transfer Pricing Analysis was undertaken, there was no further requirement to attribute profits to a permanent establishment. Adjudicating on the issue as to whether the action of the AAR in holding so was correct or not, the Hon'ble Supreme Court held, inter alia, that where the transaction was held to be at arms length, the ruling of the AAR was correct in principle, provided that an associated enterprise, which also constituted a permanent establishment, was remunerated on arm's length basis, taking into account all the risks-taking functions of multinational enterprises and that in such a case, nothing further would be left to attribute to the permanent establishment.
18. As contended , for the year under consideration, Transfer Pricing guide lines were not applicable. That being so, reliance on behalf of the assessee on "SET Satellite" (supra) cannot at all be said to be misplaced. Therein also, the assessment year being 1999-2000, the Transfer Pricing guide lines were not applicable, as they became applicable from the next year.12 ITA Nos. 2458&2459(Del)/2008
Pertinently, the Hon'ble Bombay High Court, in the case of "SET Satellite" (supra), has held that if the correct arms length price is applied and paid, nothing further would be left to be taxed in the hands of the foreign enterprice. "Morgan Stanley"
(supra) as well as CBDT Circular No. 23 (supra) were taken into consideration. The facts in the present case are found to be at parity with those present in "SET Satellite"(supra), to the extent noticed above. Both the cases concern years before the onset of the Transfer Pricing regime. As such, we hold that "SET Satellite"(supra) has rightly been relied on on behalf of the assessee and that it is directly applicable to the assessee's case.
19. Apropos the department's contention that the assessee has furnished different mutuals intrinsically irreconcilable statements before the authorities below, copies of these documents have been placed in the paper book filed by the assessee. These documents are :-
1. Consolidated annual audited accounts showing the losses suffered by the Channel;
2. The computation of loss as per Rule 10 (ii) of the I.T. Rules, 1962; and
3. Allocation statements of income and expenses of India Footprint.
20. As pointed out, it is seen that all these statements reflect a loss. It was the foreign exchange rate and India Footprint which gave rise to difference in the figures submitted before the taxing authorities.
21. So far as regards the department's assertion that CBDT Circular No. 742(supra) has wrongly been relied on, it is seen that CBDT Circular No. 765 dated 15.4.1998 extended Circular No. 742 (supra). As per CBDT Circular No. 742, it was needed to be established, for the applicability of the Circular, that the assessee or a non-resident foreign telecasting company and that it did not have a branch office or a permanent establishment or did not maintain countrywise accounts of its operations. The Circular would not apply in the event of any 13 ITA Nos. 2458&2459(Del)/2008 of the said conditions being not satisfied. All the conditions are not to be cumulatively satisfied so as to apply the Circular. In the assessee's case, the assessee had filed before the AO its country accounts for India, wherein the total revenues and expenses of the assessee were allocated to its India activity. A copy thereof has been placed before us. Before the CIT(A), the assessee also filed its audited accounts containing allocation of revenues and expenses to its India activity. A copy thereof has also been furnished before us. The learned CIT(A) remanded these to the AO. Therefore, evidently, CBDT Circular No. 742 (supra) does not apply.
22. Apropos reliance on the TPO's order in "BWIPL" (supra), it does not make a difference if the order of the TPO in that case was that of a dependent agent. The TPO had accepted that the transaction was at arms length price. It was observed that almost everyone in the assessee's line of business was charging the same rate of commission on the sale of airtime on TV Channels or FM Channels.
23. Further, the department has not been able to establish its assertion that the stand that BWIPL was merely soliciting orders for the assessee, was a mere facade. It has rather been shown to be otherwise, as discussed hereinabove.
24. "SET Satellite" (supra) and "Morgan Stanley" (supra), as deliberated upon in the preceding paragraphs are directly applicable in favour of the assessee and the department has not been able to successfully canvass as to why they should not be followed.
25. In view of the above, the case made out by the assessee is found to be justified. Its grievance is thus accepted." 3.1 In reply, the ld. CIT, DR referred to the logic and the decision of the Tribunal that payment at arm's length to the BWIPL exhausted the profits of the PE. It has been submitted that no transfer pricing study 14 ITA Nos. 2458&2459(Del)/2008 has been conducted in this year. Such a study had also not been conducted for assessment year 2002-03. The facts of other cases, relied upon by the Tribunal, to uphold the aforesaid logic, are not known and have not been brought on record. Therefore, it has been argued that profits of the PE have to be computed independent of the rate at which commission has been paid to the BWIPL.
4. We have considered the facts of the case and submissions made before us. The facts of the case for this year are identical with the facts of the case of assessment year 2002-03. The earlier decision that commission has been paid to the BWIPL at arm's length and such payment exhausts the profits, has been arrived at in absence of any transfer pricing study. Therefore, judicial discipline demands that a decision taken after debate and discussion should be followed even if there may be some argument not raised or considered in that order. Respectfully following the decision for assessment year 2002-03, it is held that the income attributed to the PE is nil in this case. Thus, the grounds taken in this behalf are allowed.
15 ITA Nos. 2458&2459(Del)/2008
5. Coming to the issue of rate of taxation of interest, the ld. counsel referred to the loan agreement between the assessee and BWIPL dated 20.9.2000, under which UK Pound 10 lakhs were lent to the assessee for a period of ten years and three months, with interest @ LIBOR plus 0.06% p.a. In view of the aforesaid, it has been submitted that it is a loan simpliciter. The Double Taxation Avoidance Agreement between United Kingdom of Great Britain and Northern Ireland with India provides for the levy of tax at 15% of gross amount of interest. Accordingly, it is urged that a direction may be issued to charge tax at 15% on the gross amount of interest. No particular argument was made by the ld. DR except that the rate of 15% is applicable in respect of interest on monies lent by the company to the BWIPL. We have considered the rival arguments in this matter. We find that the assessee has furnished a copy of loan agreement as well as interest account on External Commercial Borrowings (ECB for short). From the loan agreement, it is clear that UK Pound 10 lakhs were lent to the assessee at a certain rate of interest for a period of 10 years and 3 months re-payable in 12 quarterly installments starting from December, 2007. It is a case of lending of money. Therefore, the provision contained in the treaty is more beneficial to the assessee than the provision contained in Income-tax Act, 1961. In 16 ITA Nos. 2458&2459(Del)/2008 view of the provision contained in section 90(2), it is held that the assessee is liable to pay tax on gross amount of interest @ 15% thereof. Thus, the ground in this behalf is allowed.
6. Interest under section 234B has to be levied on the assessed income and not on the basis of returned income as mentioned in the grounds. In this connection, it is submitted that the whole of the income of the assessee is subject to tax deduction at source u/s 195 of the Act. Therefore, the advance-tax payable on the estimated income after considering the tax deductible at source amounts to nil. Although no argument was raised by any of the parties in this behalf, we are of the view that the ground is based upon sound logic when we consider the relevant provision for computing the liability of the assessee to pay advance-tax. Thus, the ground in this behalf is also allowed. It may however be mentioned that this decision does not absolve the payment from liability of interest, arising on account of failure to deduct tax or to deposit the same in treasury as per rules.
7. The appeal in ITA No. 2459(Del)/08 involves determination of only three questions as there is no ground regarding chargeability or otherwise of interest u/s 234B. The submissions of both the parties are 17 ITA Nos. 2458&2459(Del)/2008 the same as in ITA No. 2458(Del)/2008 in respect of question regarding business connection, PE and the rate of interest. In view thereof, the order in that appeal is made applicable in this appeal also.
8. The submissions in regard to attribution of profit to the PE are also the same. The only point added by the ld. DR is that transfer pricing study has been made in the case of BWIPL, placed in the paper book at page numbers 114 to 130. That assessee itself made adjustment in respect of transactions with the assessee, an associated enterprise. Our attention was drawn towards page no. 117, indicating these adjustments, which read as under:-
Sl. Name of Description Book value Value of Method no. AE Of Of Transactions used for transaction Transaction As computed determining by the the arm's assessee length price having regard to the arm's length price (Rs.) (Rs.)
1. BBC Providing 34,009,063 52,745,176 TNMM Worldwide market and Limited distribution support services
2. BBC World Providing 28,902,900 34,989,025 TNMM Limited market support services 18 ITA Nos. 2458&2459(Del)/2008
3. BBC World Providing 3,610,954 2,920,325 TNMM Distribution distribution Limited support services Total 6,65,22,917 9,06,54,526 8.1 The Transfer Pricing Officer enhanced the value of transactions, leading to further increase of Rs. 1,45,68,882/-. His findings are contained in paragraph 12.1, which is reproduced below:-
"12.1 However, BWIPL has incurred on operating loss of Rs. 32.60 millions therefore to earn Arm's Length profit BWIPL must enhance value of international transactions by 3,93,91,120/- (Rs. 3,26,00,000 + 67,91,120). BWIPL has already offered on additional sum of Rs. 2,48,22,238/- in its returns of income and balance 1,45,68,882/- is added to operating profit of the assessee. The total income of the assessee shall be increased by an amount of Rs. 1,45,68,882/- on account of difference between arm's length price of international transaction of sale of airtime and market support & distribution services. It is further clarified that the additional income is in addition to sum of Rs. 2,48,22,238/- already adjusted by BWIPL."
8.2 In the light of aforesaid facts, it has been submitted that the transactions of the assessee with BWIPL are not at arm's length. Therefore, the rationale adopted by the Tribunal in the case of the assessee for assessment year 2002-03 is not applicable to the facts of this year.
19 ITA Nos. 2458&2459(Del)/20088.3 The submissions of the ld. counsel are that the transfer pricing study was made in the case of the assessee also, which has been placed in the paper book at page numbers 131 and 132, in which no adverse inference has been drawn in respect of arm's length price both in respect of market support services and interest receivable on ECB. It is submitted that the report in the case of BWIPL is in the nature of a third party report. It has further been submitted that no case has been made out by lower authorities on the basis of that report and, therefore, the same cannot be considered now. In this connection, the attention of the ld. counsel was drawn towards the decision of Hon'ble Bombay High Court in the case of B.R. Bamsi Vs. CIT (1972) 83 ITR 223, in which it has inter-alia been held that the defendant can raise any other ground to support the order of the ld. CIT(Appeals). In reply, he drew our attention to the discussion on page 246 of the report where it is mentioned that if the ground succeeds, the only result would be that the appeal would fail. The acceptance of the ground would show that the entire assessment proceedings were invalid, but yet the Tribunal which hears that appeal would have no power to disturb or to set aside the order in favour of the appellant against which the appeal had been filed. 20 ITA Nos. 2458&2459(Del)/2008
9. We have considered the facts of the case and submissions made before us. It is seen that transfer pricing reports have been made by the TPO in the case of the assessee and the BWIPL. In the case of the assessee, the value of the transaction has been accepted. However, in the case of BWIPL, the value of the transactions with the assessee has been increased by the assessee itself and further increased by the Transfer Pricing Officer. That report has not been considered by the lower authorities. Coming to the issue as to whether that report can be taken into account now, the facts are that the report is on record in the paper book filed by the assessee. Therefore, no new fact is to be ascertained at this stage. Consequently, the revenue can rely on that report for the limited purpose of supporting the impugned order. However, the adjustment mentioned therein do not stand established qua the assessee, who has to be heard in respect of adjustments made by that assessee and further adjustments made by the TPO. Only then an informed decision can be taken in the matter.
9.1 The ld. counsel fairly submitted that circular no. 23 had been withdrawn in the month of October, 2009. However, such withdrawal shall operate prospectively and, therefore, the withdrawal has no impact on the 21 ITA Nos. 2458&2459(Del)/2008 assessment of this year. The assessee had also changed the method of remuneration payable to the BWIPL from 15% of the Indian revenues to cost + 10%. The remuneration so calculated exceeds the remuneration payable on the earlier basis. Thus, there is no justification for attributing any profit to the PE.
9.2 Having considered submissions from both the sides, we are of the view that the issue needs further examination in which both the reports will have to be considered. The argument regarding prospective withdrawal of the circular also needs examination. Therefore, we restore the matter to the file of the AO to consider the matter afresh after giving a reasonable opportunity of being heard to the assessee. The attribution of profit, if found necessary, shall be subject to limitation mentioned in the case of B.R.Bamsi (supra).
10. In the result:-
(i) Appeal in ITA No. 2458(Del)/2008 is partly allowed; and
(ii) Appeal in ITA No. 2459(Del)/2008 is treated as partly allowed.
This order was pronounced in the open court on 23 July, 2010.
Sd/- sd/-
(Rajpal Yadav) (K.G.Bansal)
Judicial Member Accountant Member
Date of order: 23rd July,2010.
SP Satia
22 ITA Nos. 2458&2459(Del)/2008
Copy of the order forwarded to:-
BBC Worldwide Ltd., New Delhi.
Asstt. Director of Income-tax, Circle 1(1),International Taxation, New Delhi.
CIT(A) CIT The DR, ITAT, New Delhi. Assistant Registrar.