Income Tax Appellate Tribunal - Mumbai
Star India P. Ltd, Mumbai vs Asst Cit 16(1), Thane on 1 August, 2019
आयकर अपीलीय अधिकरण "J " न्यायपीठ मब
ुं ई में ।
IN THE INCOME TAX APPELLATE TRIBUNAL " J" BENCH, MUMBAI
श्री महावीर ससिंह, न्याययक सदस्य एविं श्री मनोज कुमार अग्रवाल, लेखा सदस्य के समक्ष ।
BEFORE SRI MAHAVIR SINGH, JM AND SRI MANOJ KUMAR AGGARWAL, AM
आयकर अपील सुं . / ITA No. 1901/Mum/2016
( यनर्ाा र ण वर्ा / Assessment Year 2011-12)
आयकर अपील सुं . / ITA No. 1048/Mum/2017
( यनर्ाा र ण वर्ा / Assessment Year 2012-13)
Star India Private Limited The Asst. Commissioner of
Star House, Urmi Estate, 95 Income Tax, Circle 16(1),
Ganpatrao Kadam Marg, Vs. Room No. 467, 4 t h floor,
Lower Parel (W ), Aayakar Bhavan, M.K. road,
Mumbai-400 013 Mumbai-400 020
(अपीलार्थी / Appellant) .. (प्रत्यर्थी/ Respondent)
स्र्थायी ले खा सुं . / PAN No. AAACN1335Q
आयकर अपील सुं . / ITA No. 1724/Mum/2016
( यनर्ाा र ण वर्ा / Assessment Year 2011-12)
The Asst. Commissioner of Star India Private Limited
Income Tax, Circle 16(1), Star House, Urmi Estate, 95
Room No. 467, 4 t h floor, Vs. Ganpatrao Kadam Marg,
Aayakar Bhavan, M.K. road, Lower Parel (W ),
Mumbai-400 020 Mumbai-400 013
(अपीलार्थी / Appellant) .. (प्रत्यर्थी/ Respondent)
अपीलार्थी की ओर से / Appellant by : S/shri Porus Kaka &
Divesh Chawla, ARs
प्रत्यर्थी की ओर से / Respondent by : S/shri Lalit Krishan Singh Dehiya
& Manish Kumar Singh, DRs
सन
ु वाई की तारीख / Date of hearing: 03.05.2019
घोर्णा की तारीख / Date of pronouncement : 01.08.2019
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I T A N o . 1 0 4 8 / Mu m / 2 0 1 7
ITAs No. 1724 & 1901/Mum/2016
आदे श / O R D E R
महावीर ससुंह, न्याययक सदस्य/
PER MAHAVIR SINGH, JM:
These appeals are arising out of the different orders of Dispute Resolution Panel-2, Mumbai [in short 'DRP'], in objection Nos. 142, 284 vide direction dated 29.11.2016, 14.12.2015. The Assessments were framed by the Asst. Commissioner of Income Tax, Circle-16(1), Mumbai (in short 'ACIT/AO') for the assessment years 2011-12 & 2012-13 vide order of different date 31.01.2017, 29.01.2016, under section 143(3) read with section 144C(13) of the Income Tax Act, 1961(hereinafter 'the Act).
2. The first issue raised by the assessee in AY 2011-12 in IT(TP)A No. 1901/Mum/2016 is as regards to AO mechanically seeking approval from the Commissioner of Income Tax (in short 'the CIT') and the CIT erred in mechanically granting approval to the AO for referring the case to the TPO merely on the fact that the transaction value exceeded INR 15 Crores to the Instruction issued by Central Board of Direct Tax. For this assessee raised Ground No.1. During the hearing, the assessee's counsel has pointed out that in view of the submissions on other grounds namely, comparables, it would not be necessary to argue on this ground. Despite the same, the Id. DR has preferred written submissions. But this issue is more of academic in nature, hence we leave it as it is and do not adjudicate.
3. The second issue raised by the assessee in AY 2011-12 in IT(TP)A No. 1901/Mum/2016 is as regards to international transactions of
3|Page I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 provision of support services for distribution of television channels and in relation to international transactions of provision of support services. The assessee has also raised the issue in relation to international transactions captured under the broadcasting segment for franchise channels. For this interconnected issue, the assessee had raised the following Ground Nos. 2 :-
"Ground number 2 have erred in rejecting the transfer pricing analysis undertaken, including comparable companies identified by the Appellant and considering certain other companies as comparable, thereby undertaking an enhancement of taxable income.
Your Appellant prays that the transfer pricing analysis undertaken by the Appellant should be accepted and accordingly, the action of the learned TPO should be held as had in law.
In relation to international transactions of provision of support services."
4. Brief facts, as explained by Ld Counsel, recorded by AO/TPO and DRP, are that the assessee was engaged as a sub-agent in the business of providing services for distribution of channels to Fox International Channels Asia Pacific Ltd (earlier known as Star Television Asian Region Ltd or "STAR Ltd"). STAR Ltd who was appointed as an agent by the overseas channel owning companies' ('Channel Companies) for the
4|Page I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 purpose of undertaking the distribution activity for their channels. (i.e. Star Plus, Star One, Star Utsav, Star World, Star Movies and Channel V). Under the distribution activity, SIPL was engaged in providing services in connection with the distribution of the Channels in India to STAR Ltd. In consideration to the above services rendered by SIPL, STAR Ltd remunerated by way of cost plus 10% mark-up."
5. It was explained that the functions performed by SIPL as sub-agent are as follows:
Advertisement & publicity of channels Collection of distribution fees Purchase of Integrated Receiver and Decoder (IRD) boxes Subscriber Management System
6. The assessee was characterized as a low-risk service provider. Ld Counsel referred to page nos. 59 to 61 of the assessee paper book for the FAR of the distribution segment. Based on the activities performed and functional analysis of SIPL for distribution of channels and pursuant to a detailed search process; SIPL adopted business support service providers as functionally comparable to its activities in its TP study. The comparable companies selected by SIPL in its study report were after undertaking a detailed search process and by applying quantitative filters. The entire documentation was stated to be done in accordance with section 92D of the Act read with Rule 10B of the Rules. For detailed search process on Prowess database, Ld Counsel referred page no 63 and page nos. 48 to 57 of the assessee paper book.
7. We noted that TPO did not dispute the functional Role or FAR analysis of the assessee but rejected the comparables selected in the TP
5|Page I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 Study without giving any reasons. The TPO picked cherry-picked without conducting any search process for the year under consideration. The DRP has upheld the order of the TPO.
8. We further noted that the TPO inserted his comparables but Ld Counsel for the assessee made contentions for exclusion of specific comparables (i.e. APITCO Limited and TSR Darashaw Limited) as to why these companies selected by the TPO as comparable ought to be rejected. The updated chart provided with reasons for rejecting the companies as comparables was filed before the Bench. It was contended that if the ITAT reject the above mentioned two comparables, the assessee shall fit within +/- 5% of the range, and hence the adjustment stands deleted, and the other comparables issues become academic. In light of the above, SIPL does not wish to press for the balance comparables for the statistical purpose for the year under consideration; however, reserves its right if required in future. Provision of services for distribution of television channels (adjustment value of ₹ 2,52,14,041/-). The ld. Counsel also explained in regard to provision of support services for distribution of channels (adjustment value of ₹ 9,32,822/-). He stated that during the year under consideration, the assessee had entered into an agreement with ESPN Star Sports (*ESS') for provision of support services in connection with distribution of ESPN and Star Sports channels. These services are similar to provision of services for distribution of channels by SIPL to STAR Ltd (refer to Part A above). Accordingly, SIPL had used the same set of business support service provider comparables for benchmarking this transaction in the TP study report. He contended that approach of TPO/DRP was the same and used similar set of comparable companies, which is considered for distribution of channels above. Therefore, it was contended that the above
6|Page I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 arguments shall equally apply to transaction of provision of support services for distribution off channels.
9. On the other hand, Ld CIT DR contended that though the assessee provides services for distribution of channels to Fox International Channels Asia Pacific Ltd (FICAPL) and to ESPN Star Sports (ESS) also, the TPO has made the adjustment only in respect of services provided to Star Ltd. The OP/OC of the assessee from this activity is claimed to be 10%. The assessee benchmarked these transactions against a set of 6 companies and incidentally the same set is used by the assessee to benchmark its activity of sale of advertising airtime also. The assessee had chosen unrelated concerns in the field of education, consultation, security service providers and concerns which are basically engaged in retail sector. These were clearly and functionally different from the activities of the assessee. Since the comparables of the assessee were not relevant (except IDC India Ltd) and since the assessee had not explained why the comparable set chosen for earlier years by the TPO did not figure in the assessee's TP study report. The TPO rejected the TP study report and took the set of comparables of AY 2010-11. (The DRP for AY 2010-I1 had approved the set in that year). The assessee has not given any other comparables. The AR has argued that the there are some Principal Concerns (not named) who have appointed Star Ltd as an agent for distribution of channels in India. Star Ltd has appointed the assessee as a sub-agent. The assessee, in turn, collects distribution fees from Star Den, another step down entity. The AR argues that the assessee undertakes advertisement and publicity of the channels in India, collects fee from Star Den, procures Integrated Receiver and Decoder (IRD) boxes for Star Den; and manages Subscriber Management System. The assets employed are IRD boxes, SMS and
7|Page I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 smart cards. The risks are claimed to the minimal as it operates on cost plus basis. However, it is apparent that the set of comparables chosen by the assessee do not have the same FAR.
10. He contended that the AR made submissions to dispute the inclusion of only two comparables by the TPO i.e. APITCO Ltd and TSR Darashaw Ltd. The arguments of the Revenue are therefore confined to these two concerns only. He narrated fact that as regards to APITCO Ltd. the AR has argued that this is a Government Company and has cited certain case law to claim that 100% Government owned companies should not be taken as comparable since they do not have a profit motive etc. This contention of the assessee is wrong. The company APITCO Ltd is jointly promoted by All India Financial Institutions like IDBI, IFCI, ICICI along with Government Corporations like APIDC, APSFC besides banks. Presently SIDBI is a main shareholder. Therefore, it is not correct to claim that this is a 100% Government Company having no profit element. All the case laws cited by the assessee are on 100% owned government companies. Further, the AR has referred to page 230 of the Assessee Paper Book to allege that the concern has a close connection with Government. However, page 230 is of no relevance. It only mentions that the company has issued Bank Guarantees to various Organizations including some government bodies as part of its business. The AR has also argued citing page 204 of the Assessee Paper Book that this company has a different work profile and it is engaged in developing business clusters. However, the facts are different. The company APITCO Ltd is involved in implementation of MSME Clusters in sub- sectors like engineering, food, textiles, traditional industries, handlooms & handicrafts but its activities involve primarily the preparation of Diagnostic Study Reports (DSRs), Detailed Project Reports (DPRs) for Common
8|Page I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 Facility Centers (CFCs), handholding & establishing Market & Financial linkages, training & capacity building, Technology Up-gradation, development of CFCs etc. It does not do physical development of industrial zones or building. The schedule II to its Profit & Loss Account (Page 225 of the Assessee Paper Book) mentioned the income streams in detail. It has no major assets (schedule 3 on page 222 of the Paper Book). Its services are, therefore, same as that of a Marketing and Support Service provider and the company is a valid comparable. The Revenue also relied on the decision of the Delhi High Court in the case of Chryscapital Investment Advisors (India) (P.) Ltd vs. DCIT [2015] 56 taxmann.com 417 (Delhi) wherein, it has been held that the mere fact that an entity makes high / extremely high profits does not, ipso facto, lead to its exclusion from list of comparables for purposes of determination of ALP.
11. As regards to TSR Darashaw Ltd Ld CIT DR argued that the AR has argued that this company is an entrepreneur and not an agent. This argument of the assessee is not relevant because the assessee is also an entrepreneur. What has to be seen is the nature of activities performed. The company is a Marketing & Support Service Provider only. He stated that the AR has claimed that in the Information given under Part IV of Schedule VI to the Companies Act, 1956 (page 263 of the Assessee Paper Book) in the Final Accounts of the Company mentioned the Generic Name of the Principal Service of the Company as a "Registrar and Share Transfer Agents". This argument is basically unacceptable since the generic description given at the time of incorporation of company is not determinative of the profile of the company and the nature of its activities in the year under consideration. This company provides documentation services which are akin to the
9|Page I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 services rendered by the assessee of subscriber management system. Besides TSR Darashaw Ltd has earning from Record Management, Payroll business which are Support Service Activities. He further argued that the AR has also argued that the company has made a Provision for Diminution of value of assets which is taken to suggest that the FAR of the company is different. However, the Director's Report at page 235 of the Paper Book Paper Book mentioned that this diminution is only on capital account due to reduction in value of investments of the company in the shares of Ankur Drugs Ltd and Vijay Shanthi Builders Ltd. This expense has in fact reduced the profit of the company for comparability purposes and technically it should have been ignored by the TPO and higher profit margins should have been computed by him.
12. We have heard the rival contentions and gone through the facts and circumstances of the case. We have gone through the arguments of the both the sides and noted that as per web site of APTICO is owned by a Public Sector undertakings. As per director's report for AY 2011-12, the Revenue of APTICO is influenced by Govt. Procedures and budget allocation. We also notice that the share holding is by public sector undertakings and the support received by the government and its public sector share holders in the functioning of APTICO. For practical purposes it is a Government company. Even, the company is not functionally comparable as per the Director's of the Company and Schedules to the profit and loss account. It can be seen that the company generates revenue from services such as cluster development, project development services, entrepreneurship development and training, asset reconstruction and management services, micro enterprises development, tourism and research studies, skill development, energy and environment management related services. APTICO also offers wide 10 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 range of consulting services in the nature of project identification, project counseling, pre feasibility reports, detailed project feasibility reports, infrastructure planning, market assessment, expansion, diversification and turn around strategies, skill development, project appraisals, asset valuation, HRD intervention, capacity building, etc. These services provided by the APTICO are in the nature of high end consultancy / project related services and hence APTICO cannot be compare as comparable to support to service providers. Even, company has not provided for any segmental break up for the income earned from various revenue streams as it is not clear from its audited accounts. Further, APTICO receives subsidy from central and state financial institutions for certain assignments. In view of the above reasons, we are of the considered view that APTICO cannot be considered as comparable to the assessee and we direct the AO to exclude this company from the list of comparables.
13. As regards to TSR Darashaw Limited, we noted that this company is a registrar and transfer agent and also engaged in provision of pay roll services. We have gone through the annual report Schedule 'J' and as per note 7 revenue recognition of this company provides share registry and transfer services, depository services, record management, pay roll and provident fund management and corporate fixed deposit management services. We also noted from the directors report that this company has completed implementation of a new global pay roll ERP application called RAMCO pay roll business which will enable it to withstand competition and service clients in the overseas market. Accordingly, we are of the view that TSR Darashaw is a registrar and share transfer agent, who has also forayed into pay roll business as in house software development and cannot be compared as a sub agent as 11 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 the functions are wholly different. Accordingly, we direct the AO to exclude this from comparable to support service provider like SIPL. We direct the AO accordingly. This issue of assessee's appeal is allowed.
14. The next common issue in this appeal of assessee for AY 2011-12 in IT(TP)A No. 1901/Mum/2016 is as regards to international transaction captured under the broadcasting segment for franchise channels and international transaction undertaken by merged entities respectively. For this assessee has raised following ground Nos. 3 & 4: -
"Ground number 3 have erred in rejecting the transfer pricing undertaken, including comparable companies identified by the Appellant and considering certain other companies as comparable, thereby undertaking an enhancement of taxable income.
Your Appellant prays that the transfer pricing analysis undertaken by the Appellant should be accepted and accordingly, the action of the Iearned TPO should be held as had in law.
In relation to international transactions captured under the broadcasting segment for Franchise channels Ground number 4 have erred in rejecting transfer pricing analysis undertaken, including the comparable 12 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 companies identified by the Appellant, thereby undertaking an enhancement of taxable income.
Your Appellant prays that the transfer pricing analysis undertaken by the Appellant should be accepted and accordingly, the action of the learned ITO should be held as bad in law.
In relation to international transactions undertaken by the Merged Entities."
15. Brief facts are that during the year under consideration SIML and V Partnership had entered into a franchise agreement with the assessee from 01.10.2010. Under the said agreement, SIML and V Partnership have granted the assessee an exclusive franchise right to broadcast ('Broadcasting Rights') Star World, Star Movies and Channel [V] channels ('Franchise Channels') in India, Bangladesh, Nepal, Bhutan, Pakistan and Sri Lanka ('Specified Territories'). The assessee has earned advertisement and distribution revenues from broadcasting of these Franchise Channels in the Specified Territories. The international transactions entered by the assessee were obtaining franchise rights, availing content procurement services and procurement of content from its AEs. Consequent to this agreement, the assessee has undertaken the economic analysis. The assessee in the TP study report for the AY 2011- 12 has aggregated the above international transactions, adopting Transaction Net Margin Method (TNMM) as the Most Appropriate Method ('MAM') and comparing the margins earned by the assessee under the broadcasting segment of franchise channels with the margins earned by 13 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 external comparable companies engaged in similar activities (i.e. companies engaged primarily in television broadcasting).
16. The TPO did not dispute the FAR analysis neither search process nor the final list of comparable companies. However, out of total nine comparables, the TPO rejected four comparable companies accepted by the assessee in its TP Study Report. The TPO rejected one comparable company stating reasons of consistent loss-making with accumulated losses; one comparable company due to consistent loss-making; one comparable company due to functionally not similar; and one comparable company due to high related party transaction. The DRP upheld the said action of the TPO. Aggrieved, assessee came in appeal before Tribunal.
17. The assessee has made contentions for comparables as to why the companies rejected by the TPO ought to be considered and accordingly to be included as comparable. The arguments to accept the companies as comparables are argued by the learned Counsel for the assessee in detail. He argued and raised objection for comparable companies in broadcasting segment in regard to UTV Software Communication Limited, which is in television segment. It was contended that UTV is an India based integrated media company engaged in broadcasting of television channels, television content production and has developed into a media an entertainment company. It operates in the segments of television, movies, games and interactive segments. The details are given in assessee's paper book pages are 570 to 573 and page No. 616. The television business segment includes broadcasting of four specialty genre channels i.e. UTV Action, UTV World Movies, UTV Movies and UTV Bindas. It also operates production of television content, airtime sales and dubbing services. UTV is engaged in the business of 14 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 broadcasting of channels, and thus, for the purpose of benchmarking the "Television" segment from the consolidated financials of UTV has been considered by the assessee. The assessee is also engaged in broadcasting of similar entertainment channels like Star Plus, Star Utsav, Star Movies, Star Gold, Chanel V, etc., owns dubbing studios, procures contents and over the years it is also engaged in production of television content for one of the channel company. Hence, the 'television segment' of UTV is to be considered appropriate segment as comparable to that of SIPL's broadcasting segment. The learned Counsel stated that in AY 2003-04 SIPL was only an agent procuring content for its AEs. It was neither a broadcaster nor was the content producer as is the case today, i.e. from AY 2011-12 onwards SIPL is engaged as broadcaster of channels i.e. Star Plus, Star Gold, Channel V, etc. In AY 2003-04, the international transaction being benchmarked was not from channels owned/ franchised by SIPL as in the year under consideration. In the present year, SIPL procures and produces content for its own broadcasting business similar to UTV and hence, the assessee submitted that UTV is a comparable company and to be accepted.
18. The next comparable argued by the learned counsel is as regards to TPO rejected IBN 18 stating that the comparable company is consistent loss making company with accumulated losses and no dispute on functional comparability. In this regard the learned Counsel stated that the "Broadcasting and Content" segment from the consolidated financials has earned operating profit in the year under consideration i.e. FY 2010- 11 relevant to AY 2011-12. According to him, it is not a consistent/ persistent loss making entity at operating level for broadcasting segment. The learned Counsel drew our attention to a table of the segmental profitability of the company over the period for FY 2007-08 to FY 2010- 15 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 11, which is enclosed in assessee's paper book Page No. 872B. The consolidated financial results are also on page No. 776 of the assessee's paper book. The learned Counsel for the assessee also drew our attention to operating margins from FY 2007-08 to FY 2010-11 and a table capturing the segmental profitability of the company for the relevant year is provided at page No. 872B of the paper book, which read as under: -
Particulars Financial year (Amounts in INR) 2007-08 2008-09 2009-10 2010-11 Operating Profit/ 2.23% 32.30% 12.77% 4.33% operating revenue (OP/ OR) (%)
19. Hence, the learned Counsel for the assessee stated that the company has earned operating profits in the year under consideration in one out of three preceding previous years. Thus, it is evident that IBN 18 is not a consistent loss-making company. Finally, he argued that functionally comparable companies should not be rejected unless they are persistent loss making.
20. The next comparable argued by the learned counsel for the assessee is as regards to Raj Television Network. He stated that TPO/ DRP rejected Raj on the basis that it is consistent loss making company and not disputed on functional comparability. He argued that the profit and loss account of the company is provided in page no 866 of the assessee paper book. He stated that the said company has earned income from broadcasting activities. The learned Counsel stated that there is no issue that Raj's Broadcasting segment is comparable to the assessee. He further brought the facts on record that Raj has earned operating profits in FY 2007-08 and 2008-09 and hence not a consistent
16 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 loss making company. The working of the operating profitability of the company was referred as under which is given at pages 872A of assessee's paper book as under: -
Particulars Financial year (Amounts in INR) 2007-08 2008-09 2009-10 2010-11 Operating Profit/ 31.93 1.27 36.15 21.00 operating revenue (OP/ OR) (%) Based on the above working, he argued that the company has earned operating profits in two out of three previous years. Thus, it is evident that Raj is not a consistent loss making company. He contradicted Ld CIT DR's argument that the Departmental Representative during the course of hearing made new arguments for registration of the comparable that were not contested by the TPO that the company is not comparable because it is also involved in movie productions and distribution business in the same broadcasting segment. He argued that the Departmental Representative is not allowed to travel beyond the order of the TPO and the AO, to make out some different case. Hence, it was urged that Raj should be considered as a comparable company to broadcasting segment of SIPL.
21. In regards to Broadcasting segment for merged entities (adjustment value of Rs. 62,108,738), Ld Counsel stated the facts that during the year under consideration, pursuant to merger of three channel companies (i.e. STEL, SAML and SAR) with SIPL being effective from April 2009/May 2009 respectively, effectively 2 months' transactions were being reflected as transaction undertaken by assessee. Based on functional and risk profile of the transactions undertaken by merged channel companies TNMM was selected as the most appropriate method. Since these transactions were entered into by SIPL in the
17 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 capacity of a broadcaster, the transactions of merged entities were benchmarked using same set of comparable companies as identified above for broadcasting of franchise Channels. Therefore, the above arguments shall equally apply to broadcasting segment of merged entities also.
22. On the other hand, the learned CIT DR argued that the assessee had obtained exclusive franchise right to exploit certain TV channels of SIML and V Partnership in the territory of India, Nepal. Bhutan etc. (India Territory). The assessee pays 4% of the revenues to the AEs. Then the assessee has also appointed SIML as an intermediary between the assessee and the third parties from whom certain content is procured. The assessee also gets content from the libraries of SIML and TCF. Thus the assessee procures franchise rights/content/services in its capacity of a broadcaster. The assessee had claimed that in respect of these streams clubbed together, it earned a margin on cost at 15.02%. The TPO rejected four comparables of the assessee and determined the margin on cost in the case of the remaining comparables at 28.42%. He contended that the assessee before ITAT now has only contested the rejection of three comparables by the TPO i.e. UTV Software Communications Ltd; IBN 18 Broadcast Ltd and Raj Television. The assessee accepted the rejection of Raj Television as a comparable.
23. As regards to UTV Software Communications Ltd he stated that the TPO has rejected this concern on account of it having a different revenue stream. This company is into animation programming, dubbing and home video sales which are different activities than those of the assessee. He contested the arguments of LD AR that this company is essentially a broadcaster and has claimed that the TV segment is a 18 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 broadcast segment. The claims of the AR are not accepted. It is a fact that UTV is not a broadcaster in a true sense for the purposes of comparability. This company has a TV Segment (page 617 of the Assessee Paper Book) but this segment is not of broadcasting. In this connection Ld CIT DR invited our attention to Page 562 of the Assessee Paper Book (Annual Accounts of UTV) which mention that the TV segment comprise of four main functions:
"(i) Production of TV Content. This is not done at all by the present assessee. UTV produces TV shows on commission business and this is pan of its TV segment. However, the assessee is not involved in any content production at all.
(ii) Airtime sales
(iii) Dubbing. This is not done by the assessee at all. Page 570 of the paper hook mentions that the company UTV in its TV segment includes dubbing revenues. It dubs channels of Disney, National Geographic.
The History Channel, ND'FV Good Times, UTV Bindass, UTV Action etc. through a talent bank of over 500 voices.
(iv) Broadcasting of four specialty genre channels. This is also a content production activity, which is distinct from the activity of the assessee."
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24. Thus, the claim of the assessee that UTV should be considered as a comparable is misplaced. The DRP on page 17 of its Order had also noted that UTV does not have any independent broadcasting segment.
25. As regards to IBN 18 Broadcast Ltd Ld CIT DR argued that the assessee had considered the broadcasting segment of this company as a comparable. The TPO had rejected the same due to consistent loss making by the company (see page 676 of Paper Rook which is the standalone result of the company as part of the Director's report). Also see page 726. He contradicted the argument of Ld AR that the Broadcasting Segment of TV18 at Page 776 can be taken for comparison and this segment has a profit. The AR also mentions that prior to FY 20 10-11 TV 18 was not having any Segment Reporting and admits that the company was running into continuous losses. The assessee has given a comparative chart at Page 872B of the Assessee Paper Book. The contentions of the assessee are wrong and cannot be accepted. The standalone account of TV 18 show continuous losses. The AR wants the ITAT to take the Segment Reporting (Page 776 of Assessee Paper Rook) but this page has segmental reporting of the consolidated accounts of TV 18 and includes the accounts of all its subsidiaries and Joint Ventures like RVT Media Pvt. Ltd (consolidated): IBN 18 Media & Software Ltd (Jagran TV): IBN Mauritius Ltd: IBN Lokmat News Pvt. Ltd and Viacom 18 Media Pvt. Ltd (Colors channel) (pages 679 & 765 of Assessee Paper Book). The inclusion of all these broadcasting companies' accounts further make the argument of the assessee totally irrelevant. Besides TV 18 has a RPT of over 37%, which makes it unfit for comparability. It has been held by the Mumbai ITAT in the case of Capgemini India (P.) Ltd. Vs. ACIT (2013) 33 taxmann.com 5 (Mumbai-Trib.) that consolidated results which include profit from different jurisdictions having different geographical and 20 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 marketing conditions are not to be taken into consideration while making a comparability analysis. Therefore, it was argued that the ITAT has been taking a consistent stand that persistent loss making companies or companies failing RPT filter cannot be taken as a comparable. Some decisions in this regard are the case of ITO vs. CRM Services India (P.) ltd [2011] 14 taxmann.com 96 (Delhi); DCIT vs. Willis Processing Services (India) (P.) Ltd [2014] 51 taxmann.com 459 (Mumbai -Trib.) etc. In the case of Curam Software International (P.) Ltd. Vs. ITO [2013] 37 taxmann.com 141 (Bangalore - Trib.) it has been held that while selecting a comparable RPT filter has to be on standalone basis and not on a consolidated basis.
26. As regards to Raj Television Network Ltd, Ld CIT DR stated that the TPO had rejected this company on account of being a continuous loss making company. (page 860 of Assessee Paper Book). The AR claimed that it is not a continuous loss making company and that in FY 2008-09 it had a minor profit of 1.27% though it is in loss since then. (page 872A of Assessee Paper Book). Further the company is not comparable because it is also involved in movie production and distribution business in the same broadcasting segment (Page 847-848 of Assessee Paper Book). Therefore, this company was rightly rejected by the TPO/DRP. He also referred to assessee's own case the ITAT had recently held that since comparables selected by TPO were content developers and, thus, there exited functional difference impugned addition made to ALP was to be set aside. The citation is Star India (P.) Ltd vs. ACIT [2016] 70 taxmann.com 272 (Mumbai - Trib.).
27. We have heard rival contentions and gone through facts and circumstances of the case. We noted that this comparable companies in 21 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 broadcasting segment in regard to UTV Software Communication Limited, which is in television segment is an India based integrated media company engaged in broadcasting of television channels, television content production and has developed into a media as an entertainment company. It operates in the segments of television, movies, games and interactive segments. The details are given in assessee's paper book pages are 570 to 573 and page No. 616. We are in agreement with the argument of the learned counsel that the television business segment includes broadcasting of four specialty genre channels i.e. UTV Action, UTV World Movies, UTV Movies and UTV Bindas. It also operates production of television content, airtime sales and dubbing services. UTV is engaged in the business of broadcasting of channels, and thus, for the purpose of benchmarking the "Television" segment from the consolidated financials of UTV has been considered by the assessee. The assessee is also engaged in broadcasting of similar entertainment channels like Star Plus, Star Utsav, Star Movies, Star Gold, Chanel V, etc., owns dubbing studios, procures contents and over the years it is also engaged in production of television content for one of the channel company. Hence, the 'television segment' of UTV is to be considered appropriate segment as comparable to that of SIPL's broadcasting segment. We also noted that in AY 2003-04 SIPL was only an agent procuring content for its AEs. It was neither a broadcaster nor was the content producer as is the case today, i.e. from AY 2011-12 onwards SIPL is engaged as broadcaster of channels i.e. Star Plus, Star Gold, Channel V, etc. In AY 2003-04, the international transaction being benchmarked was not from channels owned/ franchised by SIPL as in the year under consideration. In the present year, SIPL procures and produces content for its own 22 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 broadcasting business similar to UTV and hence, UTV is a comparable company and to be accepted. We direct the AO/ TPO accordingly.
28. As regards to next comparable rejected by TPO i.e. IBN 18 stating that the comparable company is consistent loss making company with accumulated losses and no dispute on functional comparability. We noted that the "Broadcasting and Content" segment from the consolidated financials has earned operating profit in the year under consideration i.e. FY 2010-11 relevant to AY 2011-12 and moreover, it is not a consistent/ persistent loss making entity at operating level for broadcasting segment. We have gone through the facts and gone through the table of the segmental profitability of the company over the period for FY 2007-08 to FY 2010-11, which is enclosed in assessee's paper book Page No. 872B. The consolidated financial results are also on page No. 776 of the assessee's paper book. The learned Counsel for the assessee also drew our attention to operating margins from FY 2007-08 to FY 2010-11 and a table capturing the segmental profitability of the company for the relevant year is provided at page No. 872B of the paper book. From these facts it is clear that the company has earned operating profits in the year under consideration in one out of three preceding previous years. Thus, it is evident that IBN 18 is not a consistent loss-making company. In view of these facts, we are of the view that functionally comparable companies should not be rejected unless they are persistent loss making as in the present case. Hence, we direct the AO / TPO to include this as comparable i.e. IBN 18 Broadcasting Ltd.
29. We have considered this comparable i.e. Raj Television Network and noted that TPO/ DRP rejected Raj on the basis that it is consistent loss making company and not disputed on functional comparability. We 23 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 noted this fact from the profit and loss account of the company as provided in page no 866 of the assessee paper book. The said company has earned income from broadcasting activities and there is no issue that Raj's Broadcasting segment is comparable to the assessee. Another fact brought on record that Raj has earned operating profits in FY 2007-08 and 2008-09 and hence not a consistent loss making company. The working of the operating profitability of the company was referred as under which is given at pages 872A of assessee's paper book. Based on the working given in the chart at assessee's paper book page 872A, we noted that the company has earned operating profits in two out of three previous years. Thus, it is evident that Raj is not a consistent loss making company. The learned Counsel for the assessee also contradicted Ld CIT DR's argument that the Departmental Representative during the course of hearing made new arguments for registration of the comparable that were not contested by the TPO that the company is not comparable because it is also involved in movie productions and distribution business in the same broadcasting segment. In view of these facts, we are of the view that Raj Television Network Limited should be considered as a comparable company to broadcasting segment of SIPL. We direct the AO accordingly.
30. This next issue of assessee's appeal for AY 2012-13 in ITA No. 1048/Mum/2017 is as regards to international transaction captured under the broadcasting segment for franchise channels and international transaction undertaken by merged entities respectively. For this assessee has raised following ground Nos. 2 to 5 as under: -
"Ground No. 224 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 Have erred in rejecting transfer pricing analysis undertaken, including the comparable companies identified by the Appellant, thereby undertaking an enhancement of taxable income.
Your appellant prays that the transfer pricing analysis undertaken by the Appellant should be accepted and accordingly, the action of the learned Transfer Pricing Officer should be held as bad in law.
Ground No. 3Have erred in rejecting comparable companies by incorrect applying the following filters:
Accumulated losses;
Loss during the year;
Extraordinary events (like amalgamation, merger, de-merger etc.) Functional comparability;
Related party filter Your appellant prays that the following filters are not applicable and therefore the comparables selected by the Appellant and the transfer pricing analysis undertaken by the Appellant should be accepted and accordingly, the action 25 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 of the learned Transfer Pricing Officer should be held as bad in law.Ground No. 4
Have erred in computing the ALP in respect of the international transactions as computed by the Appellant by ignoring the provisions of the Rule 10B(4) of the Income-tax Rules, 1962 ('Rules'), which authorizes usage of multiple year data of the comparable companies for the purpose of determination of the ALP under section 92F of the Act.
Your Appellant prays that multiple year data should be considered for the purpose of benchmarking the international transactions of the Appellant with its Associated Enterprises ('AEs') and the approach adopted by the learned Transfer Pricing Officer should be rejected.
Ground No. 5Have erred in considering the financial results/ data of the comparable companies which are not in existence in the public domain at the time of determination of the arm's length price as is mandate under section 92F of the Act.
26 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 Your Appellant prays that the data considered by the Appellant in determination of the Arm's length price should be considered for the purpose of benchmarking the international transactions of the Appellant with its AEs and the approach adopted by the learned Transfer Pricing Officer should be rejected."
31. We find that this issue is already taken into consideration vide paras 14 to 29 of this order for earlier assessment year i.e. AY 2011-12. The Ld. Counsel for the assessee as well Ld. DR also not argued because the issue is same and facts and circumstances are also same. The facts and circumstances are exactly identical in the present appeals on this issue, hence, taking a consistent view, we allow this issue of assessee's appeal in this year also.
32. The next issue in this appeal of assessee for AY 2011-12 in IT(TP)A No. 1901/Mum/2016 is as regards to international transaction of availing of management services (adjustment value of Rs.3,56,38,917/-). For this assessee had raised the following ground No. 5: -
"Ground number 5 have erred in rejecting transfer pricing analysis undertaken, including the comparable companies identified by the Appellant, thereby undertaking an enhancement of taxable income.
Your Appellant prays that the transfer pricing analysis undertaken by the Appellant should be 27 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 accepted and accordingly, the action of the learned TPO should be held as had in law.
In relation to international transaction of availing of management services."
33. Brief facts leading to the above issue are that STAR Ltd. a Group company, based in Hong Kong had over a period of time more than 15 years developed and built a team of resources that include appropriately qualified personnel capable of undertaking corporate management and administrative services ('management services'). Since the Channel Companies, amongst others, required such services for the benefit of their own business, they have approached STAR Ltd to provide management services in consideration for service fees, and hence such services are not duplicative in nature. The five Channel Companies of STAR group are as follows:
"STAR Television Entertainment Limited ('STEU) - 'Star Pitts' channel;
STAR Asian Movies Limited ('SAML') -'Star Gold' channel:
STAR Asia Region F"Z LLC ('SARF') - 'Star One' and 'Star Utsav' channels;
STAR international Movies Limited ('SIMI.') -
'Star World' and 'Star Movies' channels; Channel V Music Networks Partnership Limited
-'Channel V"
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34. The summary of the merger of channel companies with the assessee was explained by Ld Counsel that assessee along with STEL, SAML and SARF applied the scheme of merger with the Bombay High Court under section :39k and :394 of the Companies Act, 1956 to be effective from 01.04.2009. The Bombay High Court approved the scheme of merger vide his order dated 18.02. 2010. Post-approval from Bombay High Court and subsequent to approval from respective foreign country statutory compliances, on 30.04.2010 - SARF and as on 31.05.2010, STEL as well as SAML; (hereinafter referred as 'Merged Entities') merged into assessee with effect from 01.04. 2009. Post-merger in AY 2011-12, the assessee turned into broadcaster for these channels erstwhile owned by these Merged Entities (i.e. Star Plus, Star One, Star Cold and Star Utsav). During AY 2011-12, the assessee carried on the distribution activity for the merged entities till 30.04.2010 in case of STAR and 31.05.2010 in case of STEL and SAML. Prior to the merger, STAR Ltd charged a service fee of cost plus 5% mark-up for the provision of management services to the Channel Companies. During AY 2011-12 the merged entities have paid a combined service fee of Rs. 35,638,917 as consideration for availing services from STAR Ltd.
35. As the effective date of merger was 01.04.2009 Star Ltd had charged services fee of cost plus 5% mark up for the provisions of management services to the channel companies for the entire Assessment year 2009-10. Star Ltd was paid a services fees of ₹ 372,670,363/-. The TPO and AO have accepted the fee in the hands of the assessee to be at arm's length price. The nature of services rendered by STAR Ltd are as under:
Human resources 29 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 Finance and accounting Legal services Administration services The nature of above mentioned services does not tantamount to shareholding functions. Refer page no 878 of the assessee paper book for the details of management services availed by channel companies.
The transactions were benchmarked in the study report of the channel companies, and assessee considered the TP study of the channel companies, as the High court approved the scheme of merger in the year 2010 and accordingly the assessee perused the benchmarking study of channel companies for benchmarking the management fee transaction. Further, for benchmarking the said transaction STAR Ltd has been considered as the tested party. Considering the functional and risk profile of the transaction and examining the available comparable data, TNMM using Net Operating Profit Margin based on cost as the Profit Level Indicator ("PLI"), was selected to be the most appropriate methodology.
36. The TPO held that SIPL had not demonstrated the cost allocated commensurate with benefits derived to justify the payment on arm's length and determined the ALP to be 'NIL'. The DRP upheld the said action of the learned TPO. The assessee contended that the Channel Companies are availing management services from STAR Ltd since July 2005. Ld Counsel referred to agreement between STAR Ltd and SIMI, which is available on page 873 of the assessee paper hook. Therefore, it can be observed that the management charges were paid to STAR Ltd by Channel companies in prior years also and were accepted in the hands of STAR Ltd till AY 2011-12 and neither in the hands of Channel companies till AY 2010-11 who were making the payment of management services to STAR Ltd.
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37. Ld Counsel again explained that pursuant to merger of three channel companies (i.e. STEL, SAML and SAR) with SlPL being effective from April 2010 / May 2010 respectively (with effect from 01.04.2009), effectively 2 months management charges have been paid by SIPL for the merged entities for the year under consideration and for complete 12 months for the AY 2010- 11. During AY 2010-11 such management services were availed by channel companies - STEL SAML, and STAR. However, given that STEL, SAML and STAR being merged with the assessee (w.e.f. 01.04.2009), the transactions are undertaken by the merged entities were reflected as transactions undertaken by the assessee in the AY 2010-I1. The assessee argued that the TPO did not dispute the management fee transaction during the TP proceedings of AY 2010-11 and the management fee transaction of merged entities with STAR Ltd was accepted to be at ALP. It was further stated that for the previous assessment years, the transactions of STAR Ltd and channel companies (pail of Star group companies) were being assessed by TPO's in the respective assessment years. The transaction of management charges has been accepted to be at arm's length during the assessment proceedings of STAR Ltd. in AY 2011-12 and all previous assessment proceedings of channel companies as well as in STAR Ltd.
38. Hence, the above activities are management and administration activities undertaken for STAR Ltd and the channel companies as accepted by the TPO over the years. It was explained that STAR Ltd has identified a pool of general and administration costs which were incurred for the purpose of providing management services to the channel companies and for STAR Ltd's own business. The portion of G & A costs were charged to channel companies at a mark-up of 5% as management fees. The management fee is allocated to each channel companies in the 31 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 proportion of revenues generated by individual channel companies to the consolidated revenues of all the channel companies taken together. At the time of hearing the calculation for monthly invoice of the management fees paid to STAR Ltd. was sought and the details were filed vide Annexure 5. Ld Counsel explained that TPO in its order stated that the assessee has not provided details of personnel involved, their timesheets but the details called for by TPO were not relevant as the management costs were allocated in the ratio of Revenue, which is an accepted methodology internationally and in several judicial precedents. The assessee placed its reliance on the following decision wherein allocation of management charges based on sales revenue were accepted as appropriate cost allocation methodology. The decision of Co-ordinate bench in the case of N LC Nalco (India) Ltd. vs. DCIT - [2016] 71 taxmann.com 57 was referred. The relevant extract is reproduced below:
"28. In the instant case, the main allegation of CIT(A) was that the intra-group service charge was calculated at a fixed percentage of sales of assessee, irrespective of which services were actually received by assessee or whether any services were received by it or not. He tried to relate the intra-group service charge paid by assessee to Nalco Pacific to the specific services rendered by Nalco Pacific to assessee, which constitute direct-charge method as provided by the OECD Guidelines. But, Nalco Pacific, having been a group service centre for Nalco Asia Pacific group companies including assessee, did not render same/similar services
32 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 to third parties (i.e. independent customers) during the relevant financial year and hence, Nalco Pacific, did not have the ability to demonstrate a separate basis for the charge by recording the work done and costs expended in fulfilling its third party contracts. Hence, in view of this, we are of the view that the application of direct-charge method, as desired by CIT(A), was not feasible for Nalco Pacific that rendered services only to the group companies. The only alternative pricing arrangement available to Nalco Pacific was indirect-charge method. Ld. Counsel referred to page no. 190 and 191 of the assessee's paper book, wherein 11 cost centre were engaged in rendering intra-group services to 14 group companies located in Australia, New Zealand, China, Malaysia, Taiwan, South Korea, Thailand, Japan, Philippines, Indonesia and India (i.e. the assessee) and the costs incurred by the respective cost centre were allocated to the group companies based on percentage of sales agreed between Nalco Pacific and the group companies. For instance, the assessee, under the agreement, agreed a net remittance to Nalco Pacific for the intra-group services up to a maximum of 2% of net sales for each calendar year. This method of allocation has been approved by the OECD Guidelines.
33 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 Accordingly, the second ground of CIT(A) that the intra-group service charge under the agreement between the assessee and Nalco Pacific was fixed not with reference to any particular service and the intra-group service charge was calculated at a fixed percentage of sales of assessee, irrespective of which services were actually received by assessee or whether any services were received by it or not, has no leg to stand."
39. The assessee also placed its reliance on OECD guidelines wherein the guidelines acknowledge that turnover is an appropriate method (i.e. indirect charge method) to allocate the intra-group service charges. Relevant extract is reproduced below for reference: -
"the allocation should be based on an appropriate measure of the usage of the service that is also easy to verify example turnover, stuff employed, or an (Activity bused key such as orders processed." Page 328 of the OECD TP Guidelines - Chapter on intra Group services.
40. The assessee also argued that there is no intention to shift profits and to explain this it stated that the recipient AK (STAR Ltd) had been regularly assessed to tax in India and had duly offered this income to tax in India even for AY 2011-12. Therefore, the question of India tax base erosion does not arise as contended by the TPO.
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41. It is well-established principle that commercial expediency / business rationale of a particular expenditure incurred by an assessee for smooth functioning and furtherance of its business is the prerogative of the assessee. The reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the Revenue authorities. It was argued that the TPO cannot question the commercial viability of the expenses incurred by the assessee for its own business. The commercial viability of the expenses incurred by the assessee which were necessary to carry on the business cannot be questioned. Even the transactions of management charges have always been accepted to be at arm's length in the previous assessment proceedings of the channel companies and STAR Ltd., then on account of mere merger of channel companies with SIPI. Rest the nature of transactions remaining the same the arm's length price of management charge cannot be considered to be at 'Nil'.
42. Ld CIT DR argued that as per the TP Study Report, (given at page 89 of Assessee Paper Book), prior to the effective date of merger, the concerns namely STAR, STEL and SAML had availed certain management services from Star Ltd and that these transactions have been captured separately in the TP documentation maintained in the case of these three concerns. This has not been provided in the assessee's TP Study Report. The TPO noted that the TP Study of Star Ltd simply mentions that it has decided to charge cost plus 5% to India as management service charges but the TP Study does not provide the nature of the management services provided, the time sheets, the benefit derived etc. The TPO has given detailed reasons on pages 11-22 of his Order holding the ALP of such unknown services to be Nil. The DRP has exhaustively dealt with the matter in pages 21-28 of its Order. The same 35 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 is relied on. Further the argument of the assessee that the AO cannot question the benefit derived by the assessee is also misplaced. The Delhi High Court in the case of CIT vs. Cushman & Weikfield (India) Pvt. Ltd (2014) 46 taxmann.com 317 (Delhi) has held that this can be done. In the present case the DRP has also applied itself to the issue and held against the assessee. The Management Services Agreement relied upon by the assessee (refer Pages 873 of the assessee paper Book) is of no assistance. This agreement between entities under their old names in fact mentions that the Management Service Agreement stands terminated effective June 2005. However, the Agreement mentions that Star shall henceforth provide Corporate Management and Administrative Services only in lieu of the Service Fee. These services are Shareholder functions and are not commercial services. After the merger of the three concerns with the assessee, it is not proved that even these shareholder functions were required to be continued. Further it is to be noted that the payment for Management Services expenses have been apportioned on basis of own agreement and not on the basis of actual services rendered. In a similar case the Bangalore ITAT in the ease of Gemplus India P Ltd vs. ACT (2010) 3 taxmann.com 755 (Bangalore-Trib.) has held that it was imperative on part of the assessee to establish that the payments were made commensurate to volume and quality on services and that such costs were comparable. Hence, he urged for upholding of TPO/DRP.
43. We have heard rival contentions and gone through the facts and circumstances on this issue of international transaction of availing of management services. We have noted the arguments of both the sides. We noted from the facts of the case that the above activities are management and administration activities undertaken for STAR Ltd and the channel companies as accepted by the TPO over the years. The 36 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 STAR Ltd has identified a pool of general and administration costs which were incurred for the purpose of providing management services to the channel companies and for STAR Ltd's own business and the portion of G & A costs were charged to channel companies at a mark-up of 5% as management fees. The management fee is allocated to each channel companies in the proportion of revenues generated by individual channel companies to the consolidated revenues of all the channel companies taken together. At the time of hearing the calculation for monthly invoice of the management fees paid to STAR Ltd. was sought and the details were filed vide Annexure 5. We noted from the information submitted by the assessee in its paper book and the fact that the management costs were allocated in the ratio of Revenue, which is an accepted methodology internationally and in several judicial precedents. The assessee placed its reliance on the decisions, which we have already discussed in the arguments of both the sides above, wherein allocation of management charges based on sales revenue were accepted as appropriate cost allocation methodology.
44. Another aspect also favour assessee that there is no intention to shift profits and to explain this it stated that the recipient AE (STAR Ltd) had been regularly assessed to tax in India and had duly offered this income to tax in India even for AY 2011-12. Therefore, the question of India tax base erosion does not arise as noted by the TPO. Another aspect is that even on the Principle of commercial expediency / business rationale of a particular expenditure incurred by an assessee for smooth functioning and furtherance of its business is the prerogative of the assessee. The reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the Revenue authorities. We are of the view that the TPO cannot question the commercial viability 37 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 of the expenses incurred by the assessee for its own business and the commercial viability of the expenses incurred by the assessee which were necessary to carry on the business cannot be questioned. Even the transactions of management charges have always been accepted to be at arm's length in the previous assessment proceedings of the channel companies and STAR Ltd., then on account of mere merger of channel companies with SIPI. Hence, we are of the view that the value taken by assessee of this transaction is correct. Hence, we direct the AO/ TPO accordingly.
45. The next issue in this appeal of assessee for AY 2011-12 in IT(TP)A No. 1901/Mum/2016 is in relation to international transaction of payment of brand license fees. For this assessee has raised the following Ground No.6 & 7: -
"Ground number 6 have erred in determining the arm's length price in respect of the international transaction of avail' 'of management services by the Appellant from its Associated Enterprise ('AE') at Rs Nil by:
• Not providing an opportunity of being heard and rejecting the transfer pricing analysis undertaken by the Appellant including the comparable companies identified by the Appellant;
38 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 • Not considering that Appellant has supported the claims with appropriate evidences; and • Challenging the commercial rationale and expediency of availing such services by the Appellant.
Your Appellant prays that the transfer pricing analysis undertaken by the Appellant should be accepted and accordingly, the transfer pricing adjustment should be held as bad in law and thereby deleted.
Ground number 7 have erred in considering the arm's length price of the international transaction relating to the payment of brand licensing - fees to be Rs Nil by:
• Rejecting the transfer pricing analysis undertaken by the Appellant including the third party comparable data identified by the Appellant;
• Not considering that Appellant has supported the claims with appropriate evidences including the valuation report by an independent valuer; and 39 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 • Challenging the commercial rationale and expediency of expenses incurred by the Appellant for its business.
Your Appellant prays that the transfer pricing analysis undertaken by the Appellant should be accepted and the Appellant should be allowed a deduction for the brand licensing lees paid to AE and accordingly, the transfer pricing adjustment should be held as had in law and thereby deleted."
46. Brief facts relating to the issue of adjustment in relation to international transaction of payment of brand license fees by disallowance of depreciation (adjustment value of ₹ 41,19,46,313/-) are that prior to the merger of the overseas channel companies [STEL. SAM L SAR -'merged entities] into the assessee, both STAR Ltd and Channel companies operated as entrepreneurs vis-a-vis the television business of the group with each entity contributing through their respective responsibilities and roles, towards earning of the subscription and the advertisement sales revenue from India. The channel companies owned an extensive inventory of content to be broadcasted. STAR Ltd, on the other hand, was an aggregator and distributor of channels and relied on the reputation of 'STAR' brand (which it develops) and its technical capabilities to effectively broadcast channels and negotiate favorable terms with distribution platforms. During these years, the assessee acted as an agent for the channel companies and rendered services in connection with these channels. Pursuant to the merger, the ownership of the channels held by the Merged Entities (i.e. Star Plus, Star Utsav, Star 40 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 One and Star Gold) moved to the assessee, and effectively, the assessee became the broadcaster of these channels. However, to broadcast them under the STAR brand and logo, the assessee had to obtain a license to use the brand.
47. During AY 2011-12 SlPL was a broadcaster, in order to be able to carry on it's broadcasting business under the STAR brand it sought a license for the brand name and design of the channels featuring the Star marks and Star Corporate mark. Accordingly, during AY 2011-12, STAR Ltd, granted SIPL, all right to use the Channel marks and Star corporate marks solely to be incorporated or contained in the applicable Channels for the Indian Territory. SIPI had obtained license to use the Star Mark for Iump sum consideration of USD 36.02 million (i.e. Rs 1624 million). The consideration for the payment towards brand license was determined based on valuation of the brand by an independent valuer and the said payment towards brand license was capitalized in the books of accounts and depreciation was claimed under the Act only on year basis. The payment for the said consideration was also subjected to RBI approvals. Further, it would be relevant to note that the department has taxed the entire amount received by Star Ltd from the assessee in AY 2011-12.
48. In the light of the above facts the TPO determined the arm's length price of brand licensing fees to be at NIL and disallowed the entire amount of depreciation claim on the brand license for the year under consideration. The DRP upheld the above observations of the TPO.
49. Ld Counsel for the assessee contended that prior to SIPL becoming a broadcaster, SIPL was acting as an agent for selling advertisements on Channels owned by the Channel companies and 41 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 rendered services in connection with of the channels owned by the said companies. SIPL was not a broadcaster of the channels and hence did not require a license of the brand to carry on broadcasting business. The channel companies owned all inventory of content to be broadcasted and had benefit of various channel brands which were distinct from the "STAR" name and logo (the benefits of which solely accrued to STAR Ltd. STAR Ltd, on the other hand, was all and distributor of channels and relied on reputation of 'STAR' brand (which it develops) and its technical capabilities to effectively broadcast channels and negotiate favorable terms with distribution platforms. As part of this business arrangement, STAR Ltd was remunerated 50% of the profits for its functions performed, risks undertaken and assets ('FAR) employed (including Star brand name). Channel companies, similarly, were held to be entitled to 50% of the broadcasting revenue for their ownership of content, etc. the Star marks and Star Corporate mark. Accordingly, during AY 2011-12, STAR ltd granted SIPL all right to use the Channel marks and Star corporate marks solely to be incorporated or contained in the applicable Channels for the Indian Territory. SIPI had obtained license to use the Star Mark for Iump sum consideration of USD 36.02 million (i.e. Rs 1624 million).
50. We noted that the assessee placed reliance on the case law in case of N L C Nalco (India) Ltd. vs. DCIT - [2016] 71 taxmann.com 57 (Kolkata Tribunal) wherein 'NIL' arm's length price as determined by TPO was disregarded and royalty paid @ 2% of net sales, approved by RBI under the automatic approval scheme was considered to be at arm's length. The relevant extract is reproduced below for easy reference:
"In the instant case, TPO was authorised to determine, by order in writing, the arm's length 42 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 price of an international transaction in accordance with section 92C(3). The TPO mentioned in his order that during the course of hearing in response to notice issued under section 92CA(2), assessee had attended the office of the TPO from time to time and filed details as requisitioned by the TPO which were placed on records. The TPO had examined the details filed by assessee and based on such examination, he held in his order that the pricing of the aforesaid agreements was justified by assessee on the basis of the TNMM. The TPO did not make any adverse comments in his order upon the arm's length analysis carried out by assessee under the TNMM as per section 92C read with rule 10B. Accordingly, it is felt that TPO made proper enquiry and applied his mind to the details brought on record by assessee. He had agreed with the assessee that the international transactions covered by the TNMM analysis (including the intra-group service charge paid/payable to NP) adhered to the arm's length principle in Transfer Pricing Regulation.
Another fact relating to this issue is that the Commissioner (Appeals) confirmed the addition without considering that the aforesaid payments were approved by the Reserve Bank of India. In 43 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 the instant case assessee made application to the General Manager, Exchange Control Department, Reserve Bank of India. In the aforesaid application, assessee explained the scope of services receivable from NP under the aforesaid agreement, the benefits to be received by it from entering into the aforesaid agreement with NP and the maximum amounts to be remitted as consultancy charge to NP under the aforesaid agreement. In reply, the RBI intimated their "in-principle" approval for remittance of consultancy charge to NP at the rate of 2 per cent of net sales for the calendar year 2001. In view of this, the payment made to NP at the rate of 2 per cent of net sales, having been the rate of consultancy charge approved by the RBI, are at arm's length price. Accordingly, the addition is deleted and this issue of assessee's appeals is allowed. [Para 29]"
51. Further Ld Counsel argued that the TPO/ DRP in their orders have not challenged the approach/ methodology adopted by the assessee in determining the value of the consideration to be made in connection with the licensing of brand. Against the TOP's contention that the lump sum payment was an afterthought to remit money out of India, the assessee contended that the external third party valuer was appointed as soon as the High court order approving the scheme of merger of channel companies was approved. On review of publicly available data, the assessee has identified various third-party franchise rates and brand 44 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 licensing agreements in the Media & Entertainment industry, which can be used to draw a reference for the case of the assessee including Network 18 Media & Investments Ltd, which distributes TV channels MW, VI-11 and Nickelodeon in India pays an effective license fee of 6.53% of its revenue. (This can be verified from page 913 to 917 of the factual paper book of assessee for AY 2012-13). Even TV 18 Broadcast Ltd., which distributes channel CNBC-TVi8 and CNN-IBN, pays an effective franchise fee of 5.14% of its revenue to a third-party entity (This can be verified from page no 918 to 920 of the factual paper book of assessee for AY 2012-13) and Playboy Entertainment Group, Inc. receives a brand royalty of 2.5% of the net sales earned by a joint venture - The Playboy Japan Inc. set up to operate a subscriber based television channel in Japan (Refer page 921 to 925 of the factual paper book for AY 2012-13)
52. He further explained from the facts that the effective rate of brand license fees for the next 4 years which shows the reasonableness of the amounts vis the revenues taxed in India. In fact, the amounts paid by the assessee way below than the automatic approval limit sanctioned by the RBI of 5% vide press note no 8 (2009 series). For the year under consideration, the depreciation on the brand license fee as per financial statements is Rs 166.08 million as against the total revenue of Rs 27,041.74 million. The effective rate of expenses for brand license fee is 0.61% is significantly lower than the average of above external effective royalty pay-out rates of 4.72%. Accordingly, considering the above external reference points, 0.61% license fee paid should be considered to be at arm's length.
53. Further, he explained that there is no erosion of base of profits taxable in India for the reason that the entire amount of brand license fee 45 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 paid by the assessee to STAR Ltd has taxed in the hands of STAR Ltd for ÀY 2011-12, in the first year itself. Copy of the final assessment order of STAR Ltd for AY 2011-12 is enclosed in assessee paper book. Even, jurisdiction of the TPO is limited in determining arm's length price and not commercial expediency and without this payment it could not have carried on the business under the Star brand. It was contended that the TPO cannot challenge the business decision made by the assessee and its rationale for making a payment to acquire the exclusive right to use the Star' mark, and its jurisdiction is only limited to determining the arm's length price ('ALP) of the transaction. It is well-established principle that commercial expediency / business rationale of a particular expenditure incurred by an assessee for smooth functioning and furtherance of its business is the prerogative of the assessee. The reasonableness of the expenditure has to be judged from the point of view of the businessman and not of the Revenue authorities. TPO could not question the commercial viability of the expenses incurred by the assessee for its own business. The commercial viability of the expenses incurred, which were necessary to early on the business cannot be questioned. This has been decided by Hon'ble Delhi High Court in the case of CIT vs. EKL Appliances Limited (2012) 24 taxmann.com 199 (Delhi), ruling in favor of the Assessee has observed the following: -
"21. The position emerging from the above decisions is that it is not necessary for the assessee to show that any legitimate expenditure incurred by him was also incurred out of necessity. It is also not necessary for the assessee to show that any expenditure incurred by him for the purpose of business carried on by
46 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 him has actually resulted in profit or income either in the same year or in any of the subsequent years. The only condition is that the expenditure should have been incurred "wholly and exclusively" for the purpose of business and nothing more. It is this principle that inter alia finds expression in the OECD guidelines, in the paragraphs which we have quoted above.
22. Even Rule 10B(1)(a) does not authorise disallowance of any expenditure on the ground that it was not necessary or prudent for the assessee to have incurred the same or that in the view of the Revenue the expenditure was unremunerated or that in view of the continued losses suffered by the assessee in his business, he could have fared better had he not incurred such expenditure. These are irrelevant considerations for the purpose of Rule 10B.
Whether or not to enter into the transaction is for the assessee to decide. The quantum of expenditure can no doubt be examined by the TPO as per law but in judging the allowability thereof as business expenditure, he has no authority to disallow the entire expenditure or a part thereof on the ground that the assessee has suffered continuous losses. The financial health of assessee can never be a criterion to judge allowability of an expense; there is 47 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 certainly no authority for that. What the TPO has done in the present case is to hold that the assessee ought not to have entered into the agreement to pay royalty/brand fee, because it has been suffering losses continuously. So long as the expenditure or payment has been demonstrated to have been incurred or laid out for the purposes of business, it is no concern of the TPO to disallow the same on any extraneous reasoning. As provided in the OECD guidelines, he is expected to examine the international transaction as he actually finds the same and then make suitable adjustment but a wholesale disallowance of the expenditure, particularly on the grounds which have been given by the TPO is not contemplated or authorised.
54. Ld CIT DR on the other hand, argued that it is to be kept in view that the registered owner of the Brand or the Star Mark is STPL, and not Star Ltd. The assessee has claimed to make payment to Star Ltd only. This makes the payment an internal and mutually benefitting exercise only. Secondly the agreement has been backdated. It was entered into on 30.03.2011 and made effective from 01.06.2010 which is irregular. Thirdly, STPL can still use the Star Mark without breaching the agreement between the assessee and Star Ltd, which proves that the claim of exclusivity is bogus. Fourthly, STPL is not even required to take anybody's consent before using the brand. Fifthly the TPO has given detailed reasons as to why the valuer's report has no basis (see page 78) 48 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 of the TPO Order. Sixthly the assessee had been in business since long and had been performing the same services as a sub-agent and it was never required to pay any such amounts. Therefore, the ploy of brand license fee is only a means to get funds out to the AE. The TPO has also gone into the business practices and has observed that the viewers are more careful about the content and not the brand. Seventhly, the TV channel market is ever growing and new entrants come on the basis of their strength of content and not for brand. A case in point is the manner in which the Republic TV has captured a significant market in last year. Eighthly the AR has stressed a lot upon the incomes and turnovers of later years to justify the agreement but what is of concern is whether at the time of entering into the agreement the same considerations were available or not. Later events cannot be used to justify a past irregularity. It is simply fortuitous. Ninthly the assessee was made responsible for promoting the brand which goes against the rationale of making the payment in the first place. The DRP has also rejected the arguments of the assessee at pages 30-31 of its Order, which is also relied on.
55. During the course of the hearing the DR has argued that in earlier years Star Ltd was charged 50% of its income as brand royalty and this was claimed as evidence that the brand licensing fee is justified. However, the attention of the ITAT was invited to the establish that 50% that the treatment of an amount in the hand of another person is not determinative of the allowability of an expense in the hands of the first person. This can be explained with the help of various examples as will he done orally. The reliance placed by the assessee on the TPO order of Star Ltd for AY 2008-09 (Sr. No. 30 of paper book for AY 2012-13) to claim 50% share under the Profit Split Method is not appropriate. There is no evidence that the 50% share was for brand value. This figure was only 49 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 of a Profit Split and nothing else. The TPO also simply accepted the share suo moto given by the Star Ltd and this cannot be called a proof for allowability of payment for Brand Licensing by the assessee to Star Ltd in this current year under consideration. The assessee has no explanation for the basic logic that if there had been no merger of the three channels with Star Ltd, would they be paying Brand License fee in their own cases? They were never paying the same and merely because these companies had merged with the assessee cannot be a trigger to hold that the assessee is required to pay Brand License fees after so many years of operation in India and after building the brand also, if it can be argued like this. The merged companies had a right to use the Star Brand and this cannot be claimed to have been taken away from them after the merger. The assessee has placed a lot of reliance on the RBI approval for payment of Brand License fee. This argument is futile as it is an established law that the RBI is not concerned with the taxability or allowability of income/ deductions from the point of view of the Act. Therefore, such an argument cannot be accepted. The SC has also held that RBI does not govern Income Tax Proceedings in the case of Southern Technologies Ltd. Vs. JCIT (2010) 87 taxman 346 (SC). There are several such judgements.
56. It is also a moot point as to what rights have been obtained by the assessee from Star Ltd. Can it assign the rights to a third party or not? Does it have an interest in the brand now? There is no transfer of the rights also. Normally royalty or license fee is never a percentage of cost or value of the intangible. It is always linked to its impact on the performance of the recipient company. This is not the case here because the present agreement is a colorable device. Without prejudice and as an alternative it can argued that the license fee be calculated for each year 50 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 and allowed as a proportion every year. The valuation presumes maintenance functions by the assessee in India. The cost of such maintenance is also ad hoc.
57. After hearing both the sides, we noted that the consideration for the payment towards brand license was determined based on valuation of the brand by an independent valuer and the said payment towards brand license was capitalized in the books of accounts and depreciation was claimed under the Act only on yearly basis. The payment for the said consideration was also subjected to RBI approvals. Further, it would be relevant to note that the department has taxed the entire amount received by Star Ltd from the assessee in AY 2011-12. The TPO also accepted this FAR analysis between STAR Ltd and Channel companies in it is order for STAR Ltd for AY 2008-09 which was considered as appropriate while upholding the profit split of 50:50 mechanisms as appropriate on basis of the same. The said order of the TPO forms part of the legal paper book (refer case law at Sr. no. 30 of legal paper book of assessee for ÀY 2012-13). After considering the FAR analysis, the TPO concluded and accepted profit split of (50:50 i.e. profit split of 50% to channel companies and 50% to Star Ltd) at page 13 of the order (refer case law at sr. no. : 30 of legal paper book for ÀY 2012-13).
58. In light of the said observations of the TPO, the remuneration (50%) of the profits taxed in the hands of STAR Ltd included remuneration for the brands, etc. The TPO in it is order for STAR Ltd for AY 2008-09 has observed that over a period of time STAR Ltd. has nurtured and invested significantly in the creation anti promotion of the STAR brand including the logo, along with Channel name in form of Star Cropped box / Star logo. Therefore, it said that STAR Ltd has developed 51 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 the brand and is the economic owner of the STAR Ltd. Even, the Tribunal in the case of assessee's sister concern for AY 2008-09 in ITA No. 7680/Mum/2012 has approved this FAR analysis of the Transfer Pricing Officer.
59. We noted that the channel companies, i.e. STEL, SAML, SAR, which were owners of various channel at the time of merger, merged with SIPL who then carried on broadcasting business under its own umbrella. The STAR brand, however, continued with STAR Ltd. Thus, the STAR brand which was earlier utilized by the channel companies as part of their arrangements did not form part of the merger since the same was owned by STAR Ltd. Thus, in order to be able to earn from broadcasting business using STAR brand, SIN, had to enter into a license agreement with STAR Ltd. In the current assessment year, the entire profits of the broadcasting business of the channel companies, i.e. STEL SAML and SAR was assessed by the department in SIPL's hands, unlike in the past years wherein it was assessed on the agency commission received. This income represented around 80% of the assessee's revenue taxed in India. Further, having acquired the channel company's business, the assessee could not carry on the business under the "STAR" brand nor earn the revenue, taxed by the department, without payment of license fees. It was contended that the affiliation to the 'STAR' name is a significant driver in the Indian television market and in the revenue earning potential of the channels, on account of the fact that the brand 'STAR' has a reputation for quality. Any new channel which is introduced in the market with the Star affiliation suffers lesser entry constraints as compared to other channels, significantly reducing the possible gestation cycle for the channel. The association of a channel with 'STAR' assists in offering channels to the cable operators as a bouquet. Also, the use of a 52 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 common brand makes marketing exercise more feasible and effective. Thus, SIPL's channels are able to attract loyal Star customers and thereby garner higher Television Rating Points ('TRPs'). Higher TRPs enable the assessee to attract better prices from the sale of its advertisement airtime.
60. The brand is the communication interface between the consumers and the products. Facing the constantly evolving Television market and increasing consumer demands, the STAR brand has achieved a position of reliability and credibility in the market over the period. Thus, without this payment, it cannot be possible for SIPL to carry on the business. Further, where SIPL were to decide that the channels that came within its ownership shall he treated as completely new channels and broadcasted with a new look and re- branding approach, the same would not have come without a substantial additional cost and effort. Not only would the assessee be needed to expend money but would also need to develop new strategies for promoting its channel, creating awareness amongst viewers and work towards achieving brand loyalty and credibility. Thus, since SIPL could not run its operations without the Star brand, it entered into a licensing arrangement for 10 years.
61. We also noted that the approval of the RIB to brand license fee was taken and for the purpose of making lump sum payment to STAR Ltd, had determined the total value of brand license to be of USD : 36.02 million for the use of STAR mark for a tenure of two years on the basis of a valuation by third party valuer. SIPL, intended to pay the above payment in six installments. Considering the deferral in the payments, an interest component was considered to the overall value based on which the total value was determined to of USD 36.95 million. After 53 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 consideration, the reserve bank refused to permit the assessee to pay the amount of US$ 36.95 Million and only approved all of USD 36.02 Million thereby excluding any interest on the value of brand license fees was approved basis the letter dated 01.08.2011 received by Deutsche Bank AG (authorized representative) from the Reserve Bank of India (RBI') providing approval for the payment of USD 36.02 million to be made by SIPI to STAR Ltd subject to non-payment of interest component. Once the payments including the amount have been approved by the competent authority (RBI), that had specifically considered the value of the brand license, fees paid for the STAR Mark and there cannot be any disallowance of expenses by the TPO that the assessee has not gained any benefits. In view of the above, we are of the view that no disallowance shall be made and we direct the AO / TPO accordingly.
62. This next issue of assessee's appeal for AY 2012-13 in ITA No. 1048/Mum/2017 is in relation to international transaction of payment of brand license fees. For this assessee has raised the following Ground No.6 to 8 as under: -
"Ground No. 6During the assessment proceedings for AY 2011-12, the learned DRP/ AO/ Transfer Pricing Officer had erred in considering the ALP of the international transaction relating to the payment of brand licensing fees to be INR Nil, without appreciating the facts of the case by:
Rejecting the transfer pricing analysis undertaken by the Appellant including the third 54 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 party comparable data identified by the Appellant;
Not considering that Appellant has supported the claims with appropriate evidences including the valuation report by an independent valuer; and Challenging the commercial rationale and expediency of expenses incurred by the Appellant for its business.
The learned DRP/ AO/ Transfer Pricing Officer in AY 2012-13 have erred in disallowing the depreciation claim of INR 32,76,58,611/- for the current year on the brand license fees without fresh application of mind.
Your appellant prays that the transfer pricing analysis undertaken by the Appellant should be accepted and the Appellant should be allowed a depreciation claim for the current year on the brand license fees paid to AE and hence, the action of the learned Transfer Pricing Officer should be held as bad in law and thereby adjustment should be deleted.
Ground Number 7 The learned Transfer Pricing Officer during the year under consideration has erred in exceeding the jurisdiction in determining the transaction at 55 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 NIL taking the view that the Appellant did not derive any benefits from payment of brand licensing fees.
Ground No. 8The learned Transfer Pricing Officer, during the year under consideration, has erred in exceeding his jurisprudence by disallowing depreciation, which is under the purview of the learned Assessing Officer."
63. We find that this issue is already taken into consideration vide paras 45 to 61 of this order for earlier assessment year i.e. AY 2011-12. The Ld. Counsel for the assessee as well Ld. DR also not argued because the issue is same and facts and circumstances are also same. The facts and circumstances are exactly identical in the present appeals on this issue, hence, taking a consistent view, we allow this issue of assessee's appeal in this year also.
64. The next issue in this appeal of assessee for AY 2011-12 in IT(TP)A No. 1901/Mum/2016is as regards to corporate ground raised on the issue of disallowance of expenses relatable to exempt income by invoking the provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (hereinafter the Rules). For this assessee has raised the following ground No. 10: -
"Ground number 10
a) have erred in making a disallowance under Section 14A read with Rule 8D ignoring 56 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 the fact that assessee' owned funds are far in excess of value of investments which could potentially yield tax exempt income.
b) have erred in making a disallowance of Rs 33,01,755 under Section 14A without recording a specific finding as to how
assessee's claim of no disallowance under Section 14A is incorrect on facts.
c) have erred in making a disallowance of Its 33,01,755 under Section 14A after ignoring the fact that no tax exempt income has been earned during the year by the Appellant.
d) have erred by ignoring the fact that assessee's investments are strategic investments in subsidiaries, associate
companies and joint ventures meant for long term capital appreciation thus not subject to the prescription of Section 14A.
e) have erred in making a disallowance under Section 14A after ignoring the fact that there is no direct and immediate nexus between expenses and investments which could potentially yield tax-exempt income.
57 | P a g e
I T A N o . 1 0 4 8 / Mu m / 2 0 1 7
ITAs No. 1724 & 1901/Mum/2016
f) have erred in not appreciating that the
Appellant has not incurred any expenditure for earning exempt income.
g) without prejudice to above, for the computation of disallowance under Section 14A of the Act, have erred in considering the value of all investments which are eligible for earning tax free income instead of the investments made during financial year (hereinafter referred to as FY') 2004-05 and thereafter, as the Appellant has availed interest bearing loan for the first time in FY 2004-05.
h) without prejudice to above, have erred in considering the value of net current assets (i.e. current assets minus current liabilities) while computing the total assets under Rule 8D of the Rules.
i) without prejudice to above, have erred in making a disallowance under Section 14A of the Act in respect of interest expenses without appreciating the fact inter-alia, that only owned funds and not any borrowed funds have been utilized by the Appellant for the purpose of making investments.
Your Appellant prays that the disallowance under Section 14A read with Rule 8D of the 58 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 Rules amounting to Rs 38,01,755 should be deleted."
65. The learned Counsel for the assessee stated that the assessee has not earned any exempt income and hence, no disallowance can be made by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules. This fact is noted by AO in its order and the contentions of the assessee were also before AO as well as before DRP. We note that this issue is squarely covered by the decision of Hon'ble Bombay High Court, Nagpur Bench in the case of Pr. CIT vs. Ballarpur Industries Limited in Income Tax Appeal No. 51 of 2016, wherein this issue has been considered and finally following the judgment of Hon'ble Delhi High Court in the case of Cheminvest Limited vs. CIT (2015) 378 ITR 33 (Delhi) held as under: -
"On hearing the learned Counsel for the Department and on a perusal of the impugned orders, it appears that both the Authorities have recorded a clear finding of fact that there was no exempt income earned by the assessee. While holding so, the Authorities relied on the judgment of the Delhi High Court in Income Tax Appeal No. 749/2014, which holds that the expression "does not form part of the total income" in Section 14A of the Income Tax Act, 1961 envisages that there should be an actual receipt of the income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. The Income Tax Appellate Tribunal held that the provisions of 59 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 Section 14A of the Income Tax Act, 1961 would not apply to the facts of this case as no exempt income was received or receivable during the relevant previous year. It is not the case of the Assessing Officer that any actual income was received by the assessee and the same was includible in the total income. In the facts of the case, the Authorities held that since the investments made by the assessee in the sister concerns were not the actual income received by the assessee, they could not have been included in the total income."
66. This fact is noted by the AO on page 13 para 8.1 of the assessment order stating, "During the year under consideration, SIPL has not earned any exempt income, which is evident from the computation of income." Once there is no exempt income, the issue is squarely covered by the decision of Hon'ble Bombay High Court in the case of Ballarpur Industries Limited (supra). Respectfully following the Hon'ble Jurisdictional High Court, we direct the AO/ TPO to delete this addition.
67. The next issue in this appeal of assessee for AY 2011-12 in IT(TP)A No. 1901/Mum/2016 is against the order of AO/ DRP not allowing deduction of property tax reimbursed to Precision Components Private Limited. For this assessee raised the following ground No. 11: -
"Ground number 11 have erred in not allowing deduction for property tax amounting to Rs 27,67,124 reimbursed to Precision Components Private Limited (hereinafter referred to as 'PCPL').
60 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 Your appellant prays that the property tax reimbursed to PCPL is business expenditure and the same should be allowed as a deduction under section 37(1) of the Act while computing the taxable income for subject AY."
The learned DR heavily relied on the order of AO/DRP in this connection.
68. We have heard the rival contentions and gone through the facts and circumstances of the case. We noted from the arguments of the both the sides, that this issue is covered by the decision of assessee's own case for AY 2006-07 in ITA No. 4818/Mum/2010 vide order dated 01.04.2016, wherein Tribunal has already remanded the matter back to the file of the AO by observing as under: -
"7. According, to this issue the matter of controversy is that whether, the learned CIT(A) has erred in upholding the disallowance of Rs.30,63,248/- represented the expenditure incurred by the Appellant in respect of reimbursement of property taxes to Precision Component(P) Ltd.(PCPL). It is argued by the assessee that in accordance with the letter dated 01.04.2001 to the PCPL, the assessee company was under obligation to pay that property tax and the said tax was paid. Therefore, the expenditure to the tune of Rs.30,63,248/- is required to be allowed. The learned A.O. recorded the findings that in view 61 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 of the clause 4 of the agreement dated 01.04.2001 the liability was with the licensor i.e. PCPL and PCPL was under obligation to pay the tax. Therefore, this expenditure was not found to be justified and disallowed the same. There should not be any dispute that the issue relating to payment of rent is normally decided between the land lord and tenant. Though the agreement has fastened the liability about payment of property tax upon the land lord, yet the fact remains that the assessee has reimbursed its property tax which was contrary to the term of license agreement. Under normal circumstances, such kind of violation of agreement does not happen. However, the assessee has drawn support from a letter claimed to have been signed by the assessee and the land lord, which states that the assessee here in should reimburse the property tax.
We notice that the monthly rent paid by the assessee was Rs.1,16,000/-. However, the property tax reimbursed by the assessee works out to Rs.30,63,248/-, which works out to about 26 months of rent. This proportion appears to be highly disproportionate and beyond human conduct and probabilities. A tenant, under normal circumstances would not agree to bear 62 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 such a high cost. Hence there appears to be merit in view taken by tax authorities. However, we notice that they have taken adverse view without conducting any enquiry.
The learned A.R. contended the reimbursement of property tax partakes the character of rent only. There is merit in its said contention also. Hence, what is required to be seen is as to whether to aggregate amount of rent plus reimbursements compares well with the earlier years payment. If it does not compare well, then it is the duty of the assessee to justify the payment.
In view of the above, this issue required fresh examination at the end of Assessing Officer. Accordingly, we set aside the order of learned CIT(A) on this issue and restore this issue to the file of Assessing Officer for fresh examination."
69. Respectfully following the same, we set aside the order of lower authorities and restore the matter back to the file of the AO for afresh adjudication, this issue of assessee's appeal is allowed for statistical purposes.
70. This next issue of assessee's appeal for AY 2012-13 in ITA No. 1048/Mum/2017 is against the order of AO/ DRP not allowing deduction of property tax reimbursed to Precision Components Private Limited. For this assessee raised the following ground No. 11 :-
63 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 "Ground Number 11 have erred in not allowing deduction for property tax amounting to ₹ 27,66,898 reimbursed to PCPL.
Your appellant prays that the property tax reimbursed to PCPL is business expenditure and the same should be allowed as a deduction under section 37(1) of the Act while computing the taxable income for subject AY."
71. We find that this issue is already taken into consideration vide paras 67 to 69 of this order for earlier assessment year i.e. AY 2011-12. The Ld. Counsel for the assessee as well Ld. DR also not argued because the issue is same and facts and circumstances are also same. The facts and circumstances are exactly identical in the present appeals on this issue, hence, taking a consistent view, we allow this issue of assessee's appeal in this year also.
72. The next issue in this appeal of assessee for AY 2011-12 in IT(TP)A No. 1901/Mum/2016 is against the order of AO/ DRP in not allowing depreciation in relation to computer software held as capital in nature in earlier years. For this assessee has raised the following ground No. 12: -
"Ground number 12 have erred in non-grant of depreciation amounting to Rs 56,12,259 in respect of the expenditure held as capital in nature incurred in 64 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 relation to the computer software in earlier years.
Your Appellant prays that depreciation in relation to the computer software amounting to Rs 56,12,259 should he allowed as a deduction."
73. We noted that the DRP has already directed the AO to verify records and grant depreciation on opening WDV of software expenses earlier held as capital expenditure. We find no infirmity in the directions and AO can allow depreciation accordingly.
74. This next issue of assessee's appeal for AY 2012-13 in ITA No. 1048/Mum/2017 is against the order of AO/ DRP in not allowing depreciation in relation to computer software held as capital in nature in earlier years. For this assessee has raised the following ground No. 13 as under: -
"Ground No 13 Without prejudice to the above, have erred in non-grant of depreciation amounting to ₹ 4,48,08,542/- in respect of the expenditure held as capital in nature incurred during the year and in relation to the computer software in earlier (opening balance)."
75. We find that this issue is already taken into consideration vide paras 72 & 73 of this order for earlier assessment year i.e. AY 2011-12. The Ld. Counsel for the assessee as well Ld. DR also not argued 65 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 because the issue is same and facts and circumstances are also same. The facts and circumstances are exactly identical in the present appeals on this issue, hence, taking a consistent view, we allow this issue of assessee's appeal in this year also.
76. The next issue in this appeal of assessee for AY 2011-12 in IT(TP)A No. 1901/Mum/2016 is against the order of DRP not allowing depreciation on cumulative addition made to lease hold improvements in earlier years. For this assessee has raised following ground No. 13 as under: -
"Ground number 13 have erred in not allowing depreciation on cumulative additions made to leasehold improvements in earlier years TP 10% of Rs 3,70,54,570.
Your Appellant prays to please direct the learned AO to allow depreciation of Rs 37,05,457 on cumulative additions made to leasehold requirements in earlier years while computing taxable income.
77. We noted that the DRP has already directed the AO to verify from records whether in earlier years the additions made to leasehold agreements have been capitalized or not and in case the same is capitalized, allow depreciation accordingly. We find no infirmity in the directions. Hence, we direct the AO accordingly.
66 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016
78. This next issue of assessee's appeal for AY 2012-13 in ITA No. 1048/Mum/2017 against the order of DRP not allowing depreciation on cumulative addition made to lease hold improvements in earlier years. For this assessee has raised following ground No. 23 as under: -
"23. Have erred in not allowing depreciation on cumulative additions made to leasehold improvements in earlier years @10% of ₹ 33,34,911/-.
Your appellant prays to please direct the learned AO to allow depreciation of Rs. 33,34,911 on cumulative additions made to leasehold requirement in earlier years while computing taxable income."
79. We find that this issue is already taken into consideration vide paras 76 & 77 of this order for earlier assessment year i.e. AY 2011-12. The Ld. Counsel for the assessee as well Ld. DR also not argued because the issue is same and facts and circumstances are also same. The facts and circumstances are exactly identical in the present appeals on this issue, hence, taking a consistent view, we allow this issue of assessee's appeal in this year also
80. The first issue in this appeal of Revenue's for AY 2011-12 in ITA No. 1724/Mum/2016 is as regards to allowability of depreciation of computer peripherals. For this Revenue has raised the following ground No.1: -
67 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 "1. On the facts and circumstances of the case and in law, whether the Hon'ble DRP was justified in directing to allow depreciation @ 60% on printers and scanners instead @ 15%?
81. We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the devices like Printer, scanner etc. are devices which are connected to the computer and are used for performing functions of the computer viz. storage, processing etc. Hence, the same form part of the block of assets under the head computer and accordingly, are eligible for depreciation at the rate of 60%. We noted that this issue is squarely covered in assessee's own case for AY 2006-07 in ITA No. 4818/Mum/2010 vide order dated 01.04.2016, wherein the Tribunal held in Para 10 as under: -
"10. The revenue has raised an objection on account of allowance of depreciation @ 60% on computer peripherals like rack, printer, port, routers, cord etc. This controversy has been decided by the Tribunal in case filed as DCIT Vs. Datacraft India Ltd. cited as (2011)9 ITR (Trib) 712 (Mumbai)(SB) and by the Hon'ble High Court of Delhi while the deciding the case of CIT Vs. BSES Rajdhani Powers Ltd. The plea which has been taken by the revenue is that the depreciation which has been allowed @ 60% and the value of the paper and other materials, is higher but the matter has been considered by the learned CIT(A) who allowed the same on the 68 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 basis of the assessment held in the year of 2003-04, 2004-05 and 2005-06. We find no reason to interfere with the order passed by the learned CIT(A). Hence, the plea of the revenue is hereby declined."
82. Respectfully following Tribunal's decision in assessee's own case, we are of the view that the DRP has rightly directed the AO to allow depreciation at the rate of 60% on computer peripherals. This issue of Revenue's appeal is dismissed.
83. This next issue of assessee's appeal for AY 2012-13 in ITA No. 1048/Mum/2017 is as regards to allowability of depreciation of computer peripherals. For this assessee has raised the following grounds No.8&9: -
"Ground No. 9Have erred in not allowing depreciation at the rate of 60% on computer peripherals (i.e. printer, scanner, etc._ Your appellant prays that depreciation at the rate of 60% should be allowed on computer peripherals (i.e. Printer, Scanner, etc.) Ground No. 10 Have erred in not appreciating that all items (i.e. printer, scanner, etc) which form a part or are connected or related to the computer are to be 69 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 treated as computer and eligible for depreciation at the rate of 60%.
Your appellant prays that the above form a part or are connected or related to the computer are to be treated as computer and eligible for depreciation at the rate of 60%."
84. We find that this issue is already taken into consideration vide paras 80 to 81 of this order for earlier assessment year i.e. AY 2011-12 in revenue's appeal. The facts and circumstances are exactly identical in the present appeals on this issue, hence, taking a consistent view, we allow this issue of assessee's appeal in this year also
85. The next issue in this appeal of Revenue's for AY 2011-12 in ITA No. 1724/Mum/2016 is as regards to allowability of software expenses. For this, Revenue has raised the following ground No. 2: -
"2. On the facts and circumstances of the case and in law, whether the Hon'ble DRP was justified in directing to hold the 'Software expenses' claimed by the assessee as revenue in nature instead of capital as held in the assessment order?
86. We have heard the rival contentions and gone through the facts and circumstances of the case. We noted that the DRP has accepted the software expenses as revenue in nature amounting to ₹ 5,91,18,868/- by following earlier years precedence vide Para 16.2.2 as under: -
70 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 "16.2.2 The facts in the year under consideration remain unchanged, following the decision of our predecessor the expenditure of ₹ 1.42 crores incurred for acquisition of software is held to be revenue in nature. As held by the DRP in the proceeding year, expenditure incurred on account of AMCs, maintenance and annual charges can anyway not be categorized as expenditure for acquisition of software. To conclude, the entire expenditure of Rs. 5.91 crores incurred by the assessee is held to be revenue in nature. Accordingly, the AO is directed to allow the same in this entity."
87. We find no infirmity in the order of the DRP and hence, we confirm the same. This issue of Revenue's appeal is dismissed.
88. This next issue of assessee's appeal for AY 2012-13 in ITA No. 1048/Mum/2017 is as regards to allowability of software expenses. For this, assessee has raised the following ground No. 12: -
"Ground No 12 Have erred in not allowing a deduction in respect of the expenditure incurred in relation to computer software amounting to ₹ 9,40,82,972/- as revenue in nature.
Your appellant prays that the expenditure incurred on computer software amounting to ₹ 71 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 9,40,82,972/- should be allowed as revenue expenditure while computing total taxable income."
89. We find that this issue is already taken into consideration vide paras 85 to 87 of this order for earlier assessment year i.e. AY 2011-12 of revenue's appeal. The Ld. Counsel for the assessee as well Ld. DR also not argued because the issue is same and facts and circumstances are also same. The facts and circumstances are exactly identical in the present appeals on this issue, hence, taking a consistent view, we allow this issue of assessee's appeal in this year also.
90. The next issue in this appeal of Revenue's for AY 2011-12 in ITA No. 1724/Mum/2016 is as regards to DRP deleting the disallowance of Channel Placement Fee expenses. For this, Revenue has raised the following ground No. 3: -
"3. On the facts and circumstances of the case and in law, whether the Hon'ble DRP was justified in directing to delete the disallowance u/s. 40(a)(ia) rws 194J of 'Channel Placement Fees' whereas the Hon'ble ITAT, 'L' Bench, in its order dated 28.03.20 14 in the case of ADIT- (I7)2(2), Mumbai Vs. Viacom 18 Media Pvt. Ltd.
answered in the affirmative, the following questions of law raised by the Department -
i) Whether definition of term 'process in Explanation 6 to section 9(1)(vi), by way of retrospective amendment is 72 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 Clarificatory in nature and did not amend definition of 'royalty' per se- Held, yes;
and
ii) Whether payments made for use/ right to use of 'process' are 'royalty' in terms of the Income-tax Act, 1961- Held Yes."
91. We have heard the rival contentions on this issue and gone through the facts and circumstances of the case. We noted that the DRP has considered this issue and following assessee's own case of co- ordinate Bench of this Tribunal for AY 2009-10 deleted the disallowance by observing in Para 19.4.1 and 19.4.2 as under: -
"19.4.1 The DRP has considered the submissions of the assessee. It has been brought to the notice of DRP that Hon'ble Mumbai Tribunal in assessee's own case for AY 2009-10 (ITA No. 1414/Mum/2014 and CO No. 72/Mum/2014) has held that there is no requirement to withhold tax at source while making payments of channel placement fees to cable operators/ multi system operators and that with reference to order under section 201(1) and 201 (1A) also the Hon'ble Mumbai Tribunal has decided the channel placement issue in favour of the assessee, been for AY 208-09 and AY 2009-10 (ITA No. 699 & 700/Mum/2012 and CO No. 22/Mum/2012), by upholding the CIT(A) 73 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 order that the assessee has rightly deducted tax at source under Section 194C of the Act and therefore it should not be treated as an assessee in default under the provisions of Section 201 of the Act.
19.4.2 considering that the issue is squarely covered in favor of the assessee in its own case by the decisions of the Hon'ble Tribunal, the AO is directed not to subject the channel placement fees of ₹ 1,55,30,10,174/- to disallowance under section 40(a)(ia) of the Act."
92. Since, the issue is covered in earlier years' decision for AY 2009- 10 in ITA No. 1414/Mum/2014, we find no infirmity in the order of CIT(A). Hence, this issue of Revenue's appeal is dismissed.
93. This next issue of assessee's appeal for AY 2012-13 in ITA No. 1048/Mum/2017 is as regards to deleting the disallowance of Channel Placement Fee expenses. For this assessee has raised following ground Nos. 14 to 21 as under: -
"Ground No 14 Have erred in holding payment of channel placement fees/ carriage fee as process royalty within the meaning of explanation 6 to Section 9(1)(vi) of the Act.
Your appellant prays that payment of channel placement fees/ carriage fees is not in the 74 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 nature of the process fees is not in the nature of process royalty as per Explanation 6 to Section 9(1)(vi) of the Act Ground Number 15 Have erred in making disallowance under section 40(a)(ia) of the Act of the entire channel placement fees paid by the Appellant amounting to ₹ 1,98,63,08,113/- by holding that the payment is subject to tax deduction at source under section 194J of the Act without appreciating the act that the appellant has correctly deducted tax at source under section 194C of the Act.
Your appellant prays that payment of channel placement fees/ carriage fees is not liable to tax.
Ground number 16 Have erred in not appreciating the submission of the Appellant that no disallowance under section 40(a)(ia) of the Act can be made in respect of channel placement fees/ carriage fees by holding the same as royalty in light of the retrospective amendment to the provisions of Section 9(1)(vi) of the Act.
Your appellant prays that payment of channel placement fees/ carriage fees is not in the 75 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 nature of process royalty basis retrospective amendment to Section 9(1)(vi) of the act.
Ground Number 17 Have erred in not appreciating that the
disallwonce under section 40(a)(Ia) of the Act cannot be made in case of alleged short deduction of tax deducted at source (TDS).
Your appellant prays that no disallowance under section 40(a)(ia) of the Act can be made in case of short deduction of TDS.
Ground No. 18 have erred in appreciating that the disallowance under section 40(a)(ia) of the Act should not be made where the taxes so deductible but not deducted by the payer are directly paid by the payee.
Your appellant prays that disallowance (if any) under section 40(a)(ia) of the Act should not be made where taxes are directly paid by the payee.Ground No. 19
Without prejudice to above, have erred in not appreciating that the disallowance under Section 40(a)(ia) of the Act should be restricted to the amount outstanding (payable) at the end 76 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 of the captioned AY and not the amount paid during the captioned AY.Ground No. 20
Without prejudice to above, have erred in not appreciating the fact that the disallowance under section 40(a)(ia) of the Act if any, should be proportionately reduced to the extent of compliance by the assessee.
Your appellant prays that disallowance (if any) should be proportionately reduced to the extent of compliance by the appellant.
Ground No. 21.
Without prejudice to the above, erred in to appreciating that disallowance on account of channel placement fees under section 40(a)(ia) of the act should be restricted to 30% of the amount of channel placement fees/ carriage fees/ Your appellant prays that disallowance (if any) should be restricted to 30% of channel placement fees/ carriage fees."
94. We find that this issue is already taken into consideration vide paras 90 to 92 of this order for earlier assessment year i.e. AY 2011-12 of Revenue's appeal. The Ld. Counsel for the assessee as well Ld. DR also 77 | P a g e I T A N o . 1 0 4 8 / Mu m / 2 0 1 7 ITAs No. 1724 & 1901/Mum/2016 not argued because the issue is same and facts and circumstances are also same. The facts and circumstances are exactly identical in the present appeals on this issue, hence, taking a consistent view, we allow this issue of assessee's appeal in this year also.
95. In the result, the appeals of the assessee are partly allowed as indicated above and appeal of the Revenue is dismissed.
Order pronounced in the open court on 01.08.2019.
Sd/- Sd/-
(मनोज कुमार अग्रवाल / MANOJ KUMAR AGGARWAL) (महावीर ससिंह /MAHAVIR SINGH)
(लेखा सदस्य / ACCOUNTANT MEMBER) (न्याययक सदस्य/ JUDICIAL MEMBER)
मुिंबई, ददनािंक/ Mumbai, Dated: 01.08.2019 सदीप सरकार, व.यिजी सधिव / Sudip Sarkar, Sr.PS आदे श की प्रयिसलपप अग्रेपिि/Copy of the Order forwarded to :
1. अपीलार्थी / The Appellant
2. प्रत्यर्थी / The Respondent.
3. आयकर आयुक्त(अपील) / The CIT(A)
4. आयकर आयक् ु त / CIT
5. ववभागीय प्रयतयनधर्, आयकर अपीलीय अधर्करण, मुिंबई / DR, ITAT, Mumbai
6. गार्ा फाईल / Guard file.
आदे शािसार/ BY ORDER, सत्यावपत प्रयत //True Copy// उप/सहायक पुंजीकार (Asstt. Registrar) आयकर अपीलीय अधिकरण, मिंुबई / ITAT, Mumbai