2013 (7) TMI 691 - AT - Income Tax

Tribunal affirms CIT(A) decision on arm's length price for film rights export, dismissing Revenue's appeal

Deputy Commissioner of Income Tax Versus M/s Sahara India Mass Communication Ltd.

The Tribunal upheld the CIT(A)'s decision to delete the adjustment in the arm's length price for the export of exhibition rights of Hindi feature films. ... Whether CIT(A) has erred in deleting the addition made by the AO on account of adjustment in respect of arm's length price - the effort put in by the assessee for producing television serial or acquisition of television serial as per its own specifications and guidelines is much more than the acquisition of the exhibition rights of Hindi feature films which are already produced by others - more markup in the case of transfer of television software is justified as compared to transfer of exhibition rights of Hindi feature films - the TPO has not given any other comparable or reason for applying the markup of 15% on cost of Hindi feature films except that the assessee itself has applied markup of 15% in respect of transfer of television right - more markup in the case of transfer of television software is justified as compared to transfer of exhibition rights of Hindi feature films – appeal decided in favour of revenue. Issues:1. Adjustment in the arm's length price of export of exhibition rights of Hindi feature films.2. Justification of applying different markups for television software export and exhibition rights of Hindi feature films.Analysis:1. The case involved a dispute regarding the adjustment of Rs. 13,50,000 made by the Assessing Officer on account of the arm's length price of the export of exhibition rights of Hindi feature films. The Tribunal noted that the export price of television software and exhibition rights of Hindi feature films were determined with different markups. The Revenue contended that since the nature of both exports was similar, the same markup should apply. However, the CIT(A) had deleted the addition, leading to the Revenue's appeal.2. During the hearing, the Revenue argued that the markups for television software and feature films should be the same as they were similar in nature. Conversely, the assessee's counsel highlighted fundamental differences between the two, emphasizing the efforts involved and ownership rights. The Tribunal observed that the CIT(A) had considered these differences and found the markup of 10% on feature films to be reasonable due to the limited rights acquired by the assessee. The Tribunal agreed that the efforts for television software were more substantial, justifying a higher markup.3. The Tribunal upheld the CIT(A)'s decision, emphasizing the qualitative differences between the rights of television software and feature films. It noted that the assessee had full ownership of television programs, whereas feature film rights were acquired from third parties with limited exhibition rights. The Tribunal agreed that the markup difference was justified based on the rights held by the assessee over the programs. It concluded that the CIT(A)'s reasoning was sound, considering the effort disparity between producing television software and acquiring feature film rights.4. Ultimately, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decision to delete the addition in the arm's length price adjustment for the export of exhibition rights of Hindi feature films. The Tribunal found no fault in the CIT(A)'s order, supporting the qualitative and effort-based justifications for applying different markups. The decision was pronounced on 12th July 2013.