TaxTMI 
TaxTMI 
2018 (8) TMI 259
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.... passed by the Hon'ble Income Tax Appellate Tribunal ("ITAT") in the Appellant's own case for the same year as well as for Assessment Years 2007-08 and 2008-09 which are squarely applicable in the instant case as well, thus violating the principal of judicial discipline; 2.2 in conducting a fresh comparability analysis based on application of incorrect keywords and filters, in contradiction of the Hon'ble ITAT's direction in Appellant's own case thereby considering incorrect comparables, without providing any cogent reasons; 2.3 in failing to understand and appreciate the functions performed, assets employed and risks assumed by the Appellant and its Associated Enterprises, thereby comparing companies which are functionally incomparable vis-a-vis the distribution segment of the Appellant; 2.4 in rejecting functionally comparable companies (viz. Trijal Industries Limited and Svam Softwares Limited) which was considered by the Appellant based on the fresh search conducted by the Appellant in line with the Hon'ble ITAT's directions; and instead selecting functionally dissimilar companies; 2.5 in committing factual/ computational errors while calcula....
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.... channels and associated proprietary intangible assets of Turner Group. In the transfer pricing study report, following key functions and conduct of business have been enumerated which are as under:- "Sub distribution of distribution rights for Turner Group 'channels' . For the Turner Group channels in FY 2005-06, it received a 10% return on its operating expenses. Marketing of advertisement air time for the Turner Group 'channels' . For the Turner group channels, TIIPL is entitled to 15% of the net advertising revenue. Purchase of distribution and advertisement rights for HBO channel . For HBQ channel , TIIPL (for the subdistibution and marketing of advertisement airtime activity) would pay a fixed fee of USD 1,395,833 per month to HBO PP. * Provision of product and promotional licensing services for certain "cartoon characters". TIIPL is entitled to 40% of revenues col lected. * Provision of production services. TIIPL is entitled to a return of 10% on costs incurred toward this activity. 1.2.4 In conduct of its business, TIIPL engages in the following inter-company transactions with its Group Companies: * Part of subscription ....
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....y the assessee for the year under consideration and the most appropriate method adopted for bench marking, the same was as under:- S. No. Nature of transaction Method Amount (INR) 1. Distribution, Advertisement activity including HBO and sublicensing activity TNMM (PLI as OP/OR) 110,13,71,187/- 2. Product and Promotion Licensing Internal CUP 86,81,328/- 3. Production of Content TNMM (PLI as OP/OC) 4,71,97,889/- 4. Interest on ECB CUP 55,04,332/- 5. Cost Reimbursements CUP 10,47,19,876/- 5. The present proceedings are second round of proceedings in pursuance of direction given by the Tribunal vide order dated 20th May, 2016, wherein the matter was remanded back to the file of the TPO/AO for undertaking fresh comparability analysis for the distribution segment of the assessee. The main issue before the Tribunal was with respect to category/class of comparable that are to be selected for bench marking the distribution segment. The Tribunal held that only a distributor would be a valid comparable for the purpose of bench marking the distribution segment. The relevant observations of the Tribunal are at paragraph....
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.... assessee, namely, Trijal Industries Ltd. and Svam Softwares Ltd. on the ground of functional dissimilarity and persistent loss making. Finally, the set of ten comparable companies with average mean margin [based on PLI of operating profit/operating revenue] of 13.53% was selected by the TPO to bench mark the impugned segment and accordingly, an upward adjustment of Rs. 12,78,34,821/- was proposed. Apart from that further adjustment of Rs. 7,56,353/- was made on account of corporate tax issues. 7. Before the DRP, the assessee mainly objected to the selection of companies by the TPO which were engaged in the business of broadcasting and distribution of TV channels and exclusion of the two companies selected by the assessee which were engaged in software distribution. Certain error in computing the margin of companies was also raised along with denial of benefit of working capital adjustment. The DRP directed the TPO to verify the margins of the comparable companies and also granted the benefit of working capital adjustment to the assessee. However, the assessee's contention with respect to the inclusion/exclusion of comparables was rejected. Thus, from the stage of the DRP follow....
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....arate benchmarking of these transactions was found to be at arm's length during the first round of assessment proceedings. He also pointed out that the DRP had sought for a remand report from the TPO in respect of assessee's contention and the TPO in his remand report himself stated that it is the AEs who are playing crucial role of planning and determining channel contents and he himself clarified that assessee is not engaged in planning channel content as has been contended by the TPO in his transfer pricing order. Thus, TPO in his impugned order has erred in stating that assessee had aggregated distribution transaction with production services. Again, the remand report was sought from the TPO by the DRP, who furnished an alternative analysis wherein companies engaged as software distributors were searched. However, the DRP held them to be inappropriate comparables and as a result, the additional comparables furnished by the TPO in his remand report has been rejected by the learned DRP. Thus, he submitted that for bench marking the distribution segment only the distributors are appropriate comparables for bench marking the impugned international transaction and this was the direc....
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....India Limited 2. Zee Entertainment Enterprises Limited ("ZEEL") (OP/OR 7.77% and Adjusted OP/OR 4.54%) * Functionally dissimilar and channel owner (ZEEL is a Television, Media arc Entertainment Company, which owns the popular Zee series of channels viz. Zee TV, Zee Classic, Zee Cinema, Zee Action, Zee News etc.; and ZEEL is also a brand owner. 3. Zee Media Corporation Ltd. ("ZMCL") (OP/OR 9.2% and Adjusted OP/OR 4.23%)' * ZMCL is a part of the Essel group and operates a news channel and is engaged - content creation; * ZMCL is engaged mainly in the business of broadcasting of news, current affairs and regional entertainment satellite television channels uplinked from India: * Functionally different (operates a news channel); and * Full-fledged Channel Company which owns and operates various entertainment channels (TV channel - Zee News, Zee Business, Zee 24 Taas, Zee Punjabi. Zee Marathi, Zee Bangla, Zee Gujarati, Zee Telugu and Zee Kannada). 4. Malayalam Communications Limited ("Malayalam") (OP/OR 10.86% and Adjusted OP/OR -2.67%) * Functionally different and chann....
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.... to before us. From the stage of the DRP, ten comparables have been selected with an average mean of 11.95% and based on such comparables adjustment of Rs. 10,07,35,464/- has been made in the distribution segment. The details of these comparable companies with this average margin have already been incorporated above. Out of the said comparable companies, seven comparables have been sought to be excluded by the assessee which are channel and contents owners who are full-fledged channel companies who owned and operate various TV channels and undertake content creation on their own. The Tribunal in assessee's own case for the Assessment Year 2007-08 and 2008-09 and also in Assessment Year 2006-07 have held that Satellite TV channels and cable network operators have significantly different operating models and provide earning model and once the Tribunal has held that such channel/content owner companies should not be included for the purpose of comparability analysis, then there is no reason why the TPO is again selecting such companies for the purpose of benchmarking the ALP of the assessee's distribution segment. Before us, the learned counsel has already clarified on the basis of ma....
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....bunal has held that the companies engaged in distribution of software are also good comparables for benchmarking the distribution of TV channel companies. Further, in the subsequent years the DRP as well as the TPO have also accepted software distributors as a good comparable, therefore, it was contended that these two companies which are engaged in the software distribution should also be included. Even if Svam Software Ltd. which is a persistently loss company is removed, then it was submitted that Trijal Industries Ltd. should be accepted. 13. In so far as the aforesaid contention of the learned counsel that Software Distribution Company should be accepted, we agree in principle that such companies can be taken for comparability analysis, when there are no direct comparable dealing with distribution of satellite channels are available. Such an acceptability of software distribution companies in the case of distribution of TV channels has found favour by the co-ordinate bench in the case of NGC India Pvt. Ltd. (supra). Thus, we hold that software companies can also be included for the purpose of comparability analysis, because in assessee's own case for the subsequent years su....