Income Tax Appellate Tribunal - Mumbai
Media Content & Communications ... vs Assessee on 1 April, 2013
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "K", MUMBAI
BEFORE SHRI RAJENDRA SINGH, ACCOUNTANT MEMBER
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
ITA No. 1138/Mum/2011
(Assessment year: 2006-07)
M/s. Media Content and Vs Assistant Commissioner of
Communications Services Income-tax, Circle 6(3),
(India) Private Limited, Mumbai
Mahesh Patira & Co,
209-A, Rizvi Chambers -1,
Hill Road, Bandra (West),
Mumbai -400 050
PAN: AADCM 0507 A
(Appellant) (Respondent)
Appellant by : Shri Sanjay Parikh
Respondent by : Shri Ajeet Kumar Jain
Date of Hearing :01-04-2013
Date of Pronouncement :05-04-2013
ORDER
PER VIVEK VARMA, JM:
The appeal is filed by the assessee against the order of Dispute Resolution Panel (DRP), u/s 144C(5) of the Income Tax Act, 1961, dated 09.08.2010, wherein the assessee has raised the following grounds:
"1. The Learned Assistant Commissioner of Income Tax, Circle 6(3), Mumbai ('AO') and the Hon'ble Dispute Resolution Panel ('DRP') erred in making an adjustment to the arm's length price to the extent of Rs. 82,78,760/-.
2. Adjustments made by the learned Assistant Commissioner of Income Tax, Transfer Pricing -II), Mumbai ('TPO'), confirmed mechanically:
On the facts and in the circumstances of the case and in law, the learned AO and the learned TPO have erred in proposing and the Hon'ble DRP has erred in upholding the order passed by the learned TPO under Section 92CA(3) of the Act, and thereby confirming the adjustment of Rs. 82,78,760/- made by the learned TPO without any further enquiries to satisfy whether the said adjustment was warranted in law and on the facts of the case, in light of the provisions of Section 92C(4) of the Act read with Section 92C(3) of the Act.
3. Conditions and circumstances under which adjustments under Section 92C(3) of the Act is permissible:
2 M/s. Media Content & Communications Services (India) Private Limited ITA No. 1138/Mum/2011 On the facts and in the circumstances of the case and in law, the learned AO and the learned TPO have erred in proposing and the Hon'ble DRP has erred in not appreciating that in respect of the international transactions, none of the conditions set out in Section 92C(3) of the Act are satisfied and therefore, as per the appellant it is incorrect to disregard the transfer pricing analysis carried out by the Appellant and to re-determine the arm's length price.
4. The appellant contends that the Ld. TPO had not applied a consistent yardstick while proposing the impugned transfer pricing adjustment and in determining the arm's length price of the transaction. Further such an approach is repugnant to Rule 1OB(1)(a) of the Rules.
The appellant further contends that the Ld. TPO has made the comparability by being guided by bare figures without appreciating underlying economics of the transaction.
5. The Appellant based on above grounds, respectfully submits that the transfer pricing disallowance of Rs. 82,78,760/- is erroneous, wrong and therefore be set aside.
6. The appellant further craves, to consider each of the above grounds of appeal without prejudice to each other and to add, alter, amend, delete or withdraw all or any of the Grounds of Appeal herein and to submit such statements, documents and papers as may be considered necessary either at or before the appeal hearing.
2. The solitary issue involved in the appeal is downsliding adjustment of ALP of Rs. 82,78,760/- made by the TPO and sustained by the DRP.
3. The facts of the case are , "2.1.1 M/s Media Content & Communications Services (India) Pvt. Ltd., the assessee company is a 'Joint Venture (74:26) between ABP Private Limited, part of the ABP Group and STAR News Broadcasting Limited, wholly-owned subsidiary of the STAR Group.
2.1.2. Assessee Company is engaged in the business of providing various services like collecting, gathering and collating television news content and supplying the same to its customers in India and Overseas. The functions on day to day basis involve.
• Recording and collating news content by various Journalists and procuring the same from outside parties.
• After collating the news material it is processed by the technical team by using special broadcasting equipments to make the news content worthy for transmission and broadcasting.
• Post processing the news content is presented by the editorial team on the news channels broadcasted by the Assessee Company. 2.1.3. Assessee Company entered into the business of television broadcasting, pursuant to the permission received from the "Ministry of Information & broadcasting, Government of India" on 7 January, 2004 for uplinking of "STAR News" channel after fulfilling all the conditions on 1 March, 2004. At present the assessee Company is the broadcaster of the following News Channels --
• Star News - 24x7 Hindi News Channel
• Star Ananda - 24x7 Bengali News Channel
• Star Majha - 24x7 Marathi News Channel
3 M/s. Media Content & Communications
Services (India) Private Limited
ITA No. 1138/Mum/2011
2.1.4. During the year under consideration assessee has entered into following transactions with its group / affiliate enterprises:
Name of the Nature of Transaction Value of Intl' Associated Transaction Enterprise (INR) Star Television Royalty Payments for use Production Limited of Brand name STAR 8,925,006 (Country of Residence - British Virgin Island) Satellite Television Service availed -Optical Asian Region fiber link services and 1,601,212 Limited digital services (Country of Advertisement Services Residence - availed - Ad-space 100,022,760 Hong Kong) purchased on Star Plus Channel Asian Services provided -
Broadcasting FZ- Television Content 24,537,639
LLC Syndication
(Country of
Residence - Dubai)
2.2. Benchmarking of International Transaction - Advertisement Services Availed:
2.2.1. Assessee Company purchased ad-space on the Star Plus Channel through an agreement dated September 19, 2003 entered into with Star India Pvt. Ltd. being the marketing and collection agent for Satellite Television Asian Region (AE) in relation to advertisement sales for the satellite televisions broadcasted by AE in India. 2.2.2. Assessee Company was desirous on incurring routine advertisement and publicity expenditure to promote the programs that are aired on its newly launched STAR NEWS channel. For this purpose the assessee was willing to spend a target amount over period of time. Accordingly the assessee selected STAR PLUS channel for its promotional activity and entered into advertisement agreement with SIPL for a term of 10 years. As per the agreement, assessee was to pay the aggregate of the target amounts as set out therein for each year during the term of the agreement. Further as per the agreement assessee was to utilise the target amounts as per the rates mentioned in the table below:
Slot Timing of the slot Rates per
30 seconds
airtime (INR)
Prime Between 8.00 PM 1,80,000
time to 2.00PM
Non Between 12.00 AM 60,000
prime to 8.00PM
time
2.2.3. The number and timing of prime and non prime time slots to be aired was to be at the assessee's discretion. By implication it was upon the assessee to decide what combination of prime and non prime time slots would facilitate it to derive maximum benefit for the payment to be made as per the agreement.
4 M/s. Media Content & Communications Services (India) Private Limited ITA No. 1138/Mum/2011 2.2.4. During the period in consideration AE had charged third parties for placing advertisements on Star Plus channel. In the above scenario, the internal comparables were available to benchmark the advertisement transaction. Hence, Comparable Uncontrolled Price method was considered to be the most appropriate method to compute the arm's length price of the transaction and AE was considered as tested party for this purpose.
2.2.5. For the purpose of determining whether the price for purchase of ad-
spots from AE Es at arm's length, the average rates charged by AE to third parties for ad-space on Star Plus for prime time and non prime time spots were considered. And the average rate charged to third parties has been applied to the prime time and non prime time slot mix availed by the assessee. An analysis of the same is as follows:
Slot No. of Rate paid for the Amount as per
30 sec. slot by
slots Assessee Third Assessee Third party
utilized (INR) party (INR) (INR)
(INR)
Prime time 4448 180,000 248,850 80,062,000 110,692,000
Non prime 3327 60,000 35,115 19,960,000 11,682,000
time
Total 7775 10,00,22,00 12,23,74,000
0
2.2.6. On application of the rates charged to third parties the arm's length price of the above transaction with AE. is Rs. 122,374,000. Since the price paid by the assessee is less than the arm's length price, the transaction entered into with AE for purchase of ad-space meets the arm's length test under CUP method."
4. On the above facts, the AO referred the case to TPO, who after deliberation observed, "During the F.Y. 2005-06 assessee has purchased "ad-space" for advertising and promoting the Star News Channel on the Star Plus Channel in pursuance to the agreement dated 19.09.2003 entered into with M/s. Star India Private Limited (Country of residence: India) for a period of 10 years. M/s. Star India Private Limited acts as a marketing and collection agent for A.E. M/s. Satellite Television Asian Region Limited. According the assessee has paid Rs. 10,00,22,760/- to its AE towards the purchase of "ad-space" for advertisement. Assessee has adopted CUP method for determining the ALP of the above transaction and AE has been considered as tested party for the purpose of this transaction. The assessee, vide its letter dated 14.10.2009, had submitted the details of advertisement services changed by the AE to the assessee and to third party, as under:
S. Slot No. of Rate paid for the Amount as per
No. 30 sec. slot by
slots Assessee Third Assessee Third party
utilized (INR) party (INR) (INR)
(INR)
1 Prime time 444.8 180,000 248,8509 8,00,62,000 11,06,92,000
2 Non prime 332.7 60,000 35,115 1,99,60,000 1,16,82,000
time
Total 777.5 10,00,22,000 12,23,74,000
5 M/s. Media Content & Communications
Services (India) Private Limited
ITA No. 1138/Mum/2011
Thus, from the above,. it is clear that the AE has charged higher rates of advertising charges from the assessee with respect o the non-prime time slots, in comparison to the third parties. Therefore, the transaction is not at ALP. In view of above, the ALP of the payment of advertising service charges paid to the AE is determined, by adoption the rate of Rs.35.115 per 30 sec non prime time slots as was sold by the AE to third parties, as under:
S. Particulars As per ALP
No. associate determined
(Form 3CEB) by
department
1 Prime Time Advertisement charges 8,00,62,000 8,00,62,000
2 Non Prime Time Advertisement charges 1,99,60,000 1,16,82,000
3 Total Advertisement cost shown by assessee 10,00,22,760 9,17,44,000
4 Arm Length value of transaction to AE 9,17,44,000
5 International transaction value 10,00,22,760
6 Difference/adjustment to be made (4-5) 82,78,760
Accordingly, the ALP of the international transaction is determined at Rs. 9,17,44,000/- as against Rs. 10,00,22,760/- shown by the assessee. Therefore, the necessary adjustment in the ALP comes to Rs. 82,78,760/- (Rs. 9,17,44,000 - Rs. 10,00,22,760/-) and computed the adjustment of Rs. 82,78,760/- (Rs. 10,00,22,760 - Rs. 9,17,44,000).
5. The assessee approached the DRP, who vide order u/s 144C(5) sustained the adjustment made by the TPO u/s 92CA(3).
6. The assessee is now aggrieved by the order of the DRP in before the ITAT.
7. The AR, explaining the case of the assessee pointed out that the assessee had purchased additional space in the Star News Channel being telecast by Star TV Network. He submitted that there are two time slots being called as prime time and non prime time slots. Non prime time slot is from 12 midnight to 7.59 p.m. and prime time slot is from 8 p.m. to 11.59 p.m. Accordingly, the rates for per 30 second ad time are Rs. 180,000/- at prime time duration and Rs. 60,000/- at non prime time slot. He submitted that the area of dispute in the adjustment made is on the non prime time advertisement revenue.
6 M/s. Media Content & Communications Services (India) Private Limited ITA No. 1138/Mum/2011
8. From the detail extracted by the TPO in the order shown that the assessee in paying much higher amount for ad space, compared to the third party payment, which were at Rs. 35,115/-. The AR, on the query from the Bench as to why the higher payments at non prime time, the AR replied that the assessee is paying for the ad space which are targeted by Star TV at Rs. 15,10,22,365/-. The assessee to reach the target had to pay more at the non-prime time. The AR submitted that in any case the assessee had paid much less then third party payments, which in aggregate were at Rs. 12,23,74,000/- as against Rs. 10,00,22,000/- paid by the assessee. The AR, therefore, submitted that since the overall outgoing is less, no adjustment is called for.
9. The AR placed reliance on the decision of Atul Ltd. vs ACIT, reported in 80 DTR 210 (Ahm) (copy placed on record), wherein the coordinate Bench at Para 5.20 observed, "There are certain situations, where it is almost impracticable to determine the price of each individual product or an independent transaction. There is a situation, wherein a product link each product in intricately connected with each other, so that it is impracticable to determine the price a single commodity in a linked products comprising the line of product. In such a situation, the aggregation is required". The AR similarly placed reliance on the decision of ACIT vs UE Trade Corporation (India) (P) Ltd., reported in 50 DTR 379 (Del) (Copy placed on record).
10. The AR, submitted that neither the TPO nor the DRP took into account the details and submissions placed by the assessee.
11. The AR, relied on a number of decisions, wherein the coordinate Benches had held that since the order of DRP was non speaking, as it was here in the instant case, the issue must be restored to the DRP for a fresh adjudication:
7 M/s. Media Content & Communications Services (India) Private Limited ITA No. 1138/Mum/2011 Cited Decision Covered Case 136 ITD 46 ACIT vs Agility Logistics (P.) Ltd. 134 ITD 546 Evaluserve.com(P) Ltd. vs ITO(Delhi) 16 ITR (TRI) 481 ILJIN Automotive (P) Ltd. vs ACIT (Chennai) 149 ITD 171 Ford India (P) Ltd. vs. DCIT(LTPU)(Chennai)
12. The DR on the other hand strongly objected to the submission made by the AR that the issue be restored to the file of the DRP for fresh adjudication, because, as such there is no ground of this grievance in the GOA before the ITAT and secondly the DRP had given adequate time for representation before it to the assessee company, which the assessee failed to utilize. The DR, therefore, submitted that there cannot be any reason which could lead to the unreasonability of the order.
13. On the facts, the DR pointed out that, as referred to by the AR, the agreement refer to the rate card, which supports two types of slots, i.e. prime time slot and non prime time slot. Hence, on the very basis, the issue in question pertains to two different products, i.e. prime time and non prime time. Hence, they could not be clubbed. To substantiate that different time slots were in fact different products, the DR then referred to the expressions used in the relevant sections, i.e., 92(1) and 92C(1) and Rules 10A(d) and 10B(1), which reads as under:
"Section 92(1) Any income arising from an international transaction shall be computed having regard to the arm's length price.
Explanation.--For the removal of doubts, it is hereby clarified that the allowance for any expense or interest arising from an international transaction shall also be determined having regard to the arm's length price.
Section 92C (1) The arm's length price in relation to an international transaction or specified domestic transaction shall be determined by any of the following methods, being the most appropriate method, having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant 8 M/s. Media Content & Communications Services (India) Private Limited ITA No. 1138/Mum/2011 factors as the Board may prescribe, namely :-- (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method; (f) such other method as may be prescribed by the Board.
Rule 10A. For the purposes of this rule and rules 10B to 10E,--
(a) ...
(b) ...
(c) ...;
(d) "transaction" includes a number of closely linked transactions.
Rule 10B(1): For the purpose of sub-section (2) of section 92C, the arm's length price in relation to an international transaction shall be determined by any of the following methods, being the most appropriate method, in the following manner, namely":-
15. The DR pointed out that the assessee is paying for different time slots and hence are different products which are evident from the provisions of the Act, read with relevant Rules. He further submitted that till this stage, the assessee, per se, has not been able to justify as to why there arose the need for payment of higher amount for ad space in non prime time slot, as compared to third party payments.
16. The DR, referring to the case of Atul Ltd. (supra) and UE(supra) submitted that, "The controversy in respect of the demand of the assessee to aggregate all the transactions has also been addressed by the Tribunal in a cited decision of Asstt. CIT vs. UE Trade Corporation (India) (P) Ltd. (supra), wherein vide para 4.2, it was held as under:
"4.2 The second ground is that the position should be seen as a whole with respect to all the transactions and not only with respect to the disputed transactions. In other words, if transfer pricing study is made for all the transactions, the variation made by the AO would be of insignificant amount warranting no addition. On the other hand, the case of the learned Departmental Representative is that purchases by way of import do not constitute a series of connected transactions, but each transaction is a separate transaction. Therefore, the AO was right in examining each transaction separately for this purpose. It is seen that the assessee has not been able to bring anything on record that various purchases were a part of pre-arranged scheme or agreement so as to constitute a part of the indivisible transactions of purchase. Accordingly, it is held that the AO was within his right to evaluate each transaction separately."
In the light of the above discussion and respectfully following the precedents cited, we hereby reject the pleading of learned Authorised Representative through which it was demanded to aggregate the entire transactions with the AE for the whole year."
9 M/s. Media Content & Communications Services (India) Private Limited ITA No. 1138/Mum/2011
17. The DR, thereafter, responding to the application of FAR concept, submitted that it is applicable on TNMM and other basis, but not on CUP basis, which has been based by the assessee. The DR, therefore, submitted that FAR analysis has no relevance in the given set of circumstances.
18. The DR, concluding the arguments submitted that on facts, the agreement does not make any mention for off-set in the price paid to the other products and hence the orders of the TPO and DRP does not indicate any infirmity.
19. The AR in the rejoinder, reiterated his submissions.
20. We have heard the arguments in detail and perused the material placed on record. We do not find anywhere either in the agreement or in the submissions made before the revenue authorities that the assessee had to pay more in non prime time slot to off-set the deficit of revenue transferred to Star TV in prime time slots.
21. From the rate card (Appeal papers, page 45), the assessee had to make the payment of Rs. 15,10,22,365/- in the financial year, against which the assessee was able to make the payments of Rs. 10,00,22,000/- only. Except for a clause prescribing an interest @ 9% on shortfall, there are no penalty clauses, which could create pressure or insinuate the assessee to fall back on non prime time slots to recover the shortfalls in payment to be made as per agreed rate card. Since the agreement is also silent, we do not accept that the assessee could utilize the basket of ad-slots and aggregate the same for achieving the target. We cannot accept the submissions of the AR that the aggregation could be allowed because, the payments were being made for same channel and same functions, i.e. ad-space, the 10 M/s. Media Content & Communications Services (India) Private Limited ITA No. 1138/Mum/2011 difference between them only being prime time slot and non prime time slot.
22. Since there was no justification for higher payment made by the assessee as compared to the third party payments, the adjustment as suggested by the TPO and sustained by the DRP, according to us is fair and reasonable and does not call for any disturbance, which we sustain.
23. The appeal, thus filed by the assessee is dismissed. Order pronounced in the open Court on 05th April, 2013.
Sd/- Sd/-
(RAJENDRA SINGH) (VIVEK VARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai: 05th April, 2013
Copy to:
1) The Appellant
2) The Respondent
3) The DRP/ CIT (A)-Concerned _____, Mumbai.
4) The CIT/DIT -Concerned _________, Mumbai.
5) The DR, "K" Bench Mumbai.
6) Copy to Guard File.
By Order
/ / True Copy / /
Asst. Registrar,
ITAT, Mumbai
*Chavan