TaxTMI 
TaxTMI 
2019 (3) TMI 460
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....nsfer pricing adjustment. For this Revenue has raised the following ground No. 1: - "1. On the facts and in the circumstances of the case and in law, the IA. CIT(A) Mumbai has erred in directing the A.O. to delete the transfer pricing adjustment of Rs. 7,33,23,877/- made to the content segment of the assessee on the ground that broadcasting companies were to be excluded and Creative Eye Ltd is to be included in the TPO set of comparables thus changing the Arm's Length adopted by the AO." 3. Briefly stated facts are that the assessee company is engaged in the export of entertainment programs/concern, acting as advertising agent in India for MTVA LDC, Singapore (MTVA) and Nickelodeon Asia Pte Ltd., Singapore (NICKA), Distribution of channels of MTVA and NICKA, Licensing and merchandising. In regard to the first issue of export of contents segment and transfer pricing adjustment made by the TPO while computing the Arms Length Price of International transaction of export of contents at Rs. 59,36,86,881/- as against the transaction disclosed by assessee at Rs. 52,03,63,004/- and thereby made adjustment of Rs. 7,33,23,877/-. The assessee submitted before the AO that it produces t....
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....essed on this ground are (I) Whether TV broadcasting and Media Content are functionally one and the same. (ii) Whether it was fair and proper to exclude Creative Eye Ltd. which is Media Content Company but has suffered a loss this year. 4.5 Broadcasting and content are two different sets of business. Content means production of programs whereas Broadcasting includes up linking and down linking of the channels so that the ultimate viewer is able to watch the content on Television. The above is also supported from the codes allotted in Prowess database i.e. Broadcasting has been allotted NIC code (NIC code 92200) whereas the NIC code of entertainment content provider is 92490. The appellant is in the content business whereby it produces programs which are sold to its AEs. The AEs are in the broadcasting business whereby they uplink channels and provide down linking facilities so that the programs can be ultimately viewed by the television viewer. 4.6 The Broadcaster incurs much larger investments, employs huge assets and assumes tremendous risk whereas a content provider does not perform same functions and assets employed and risks taken are meagre. As such both cannot....
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....owing activities: 1) Develop the show's elements, consisting of the concept, the characters, the crew and cast. 2) Get the scripts approved from Broadcaster and then start Pre- production which includes storyboarding, construction of sets, props, and costumes, casting guest stars, budgeting, acquiring resources like lighting, special effects, stunts, etc. 3) Filming of the episodes, adding visual and digital video effects to the film of the TV program and assembling the completed show in digital format. 4) After production, the show is handed over to the broadcaster. 1) Continuous monitoring of the viewing tastes of the audience and aligning the TV programme accordingly. 2) Conceptualizing T.V. programs on the basis of point no.1 above. 3) Directing the content producer to execute the production of the programs conceptualized in 2 above. 4) Broadcasting (i.e. Uplinking/ Downlinking) the content produced by the content producer and making available the service signals to the cable operators via satellite so that the content can be ultimately viewed by the television viewers 2. Assts A Tangible assets Necessary assets required to produce the T.V. Programs l....
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....isk of loss of goodwill if viewers do not received good picture quality. Continuously reviewing the existing system of operation and has to upgrade any change in technology from time to time. 6) Pricing risk: In many areas some cable operators enjoy a local monopoly status leading to non-standard pricing for the consumers. 8. We have gone through the distinction brought out by the CIT(A) and now assessee's Counsel before us between the broadcasting company and content producer which are functionally different. This is clear from the FAR analysis of content producer and broadcasting companies that functionally these are two different entities. Hence, we are of the view that the media content and TV broadcasting are totally dissimilar activities except the only linkage is that of media content is made only for the purpose of broadcasting on the TV channels. Production of media content is one of the functions of the assessee while broadcasting is the function of its AE and hence, due to functional divide & due to this aspect, this is the prime reason for entering into international transaction by the assessee with its AE. Hence, the activity of producing content and broadcas....
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....rtunately contributed to the losses of the company. However, rejecting company simply because it is loss making is not the right approach. If a company is functionally similar the outcome of the function, either profit or loss; cannot be used as rejection criteria. CEL is a company which is into similar business as that of the appellant's content segment. It is observed from the Annual Report that its turnover has increased from Rs. 11.01 crores in FY 2003-04 to Rs. 17.30 crores this year. The reason for its loss is failure of its 3D plus movie "Abara Ka Dabra" produced during the year. Otherwise the company was making profits in the earlier years as well as subsequent years. Form the accounts, it is observed that it has positive net worth also. The various judicial pronouncements discussed above, also uphold this position. Further, the rulings (Quark System (P) Ltd./ Sony India) have specifically accepted loss making companies as comparables, if they pass the FAR test. Since, Creative Eye is in the segment of the content provider, it is otherwise eligible to be included. It is utopian to conclude that business always generate profits. Risks are inherent to any enterprise. 4.8 T....
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....s against the order of CIT(A) deleting the Transfer Pricing adjustment made by TPO / AO on account of income from distribution i.e. distribution Revenue (payment segment). For this Revenue has raised the following ground No. 2: - "2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the A.O. to delete the adjustment of Rs. 4,47,43,612/- made to the distribution revenue (payment) segment of the assessee by holding that CUP method has been rightly adopted by the assessee and the TPO erred in adopting TNMM method." 14. Briefly stated facts are that the assessee has adopted the CUP method in regard to distribution of Revenue (payments to the AEs'), for comparing between assessee's share of Revenue with that of AE and with that of Sub distributors. The AO / TPO while computing the Arms Length Price of the International Transaction for distribution of revenue, computed the ALP at Rs. 25,43,149/- as against determined by assessee at Rs. 4,72,86,761/-. Thereby, the TPO made adjustment of ALP at Rs. 4,47,43,612/-. The TPO adopted the TNMM as against the CUP applied by assessee for making this TP adjustment. Aggrieved, assessee preferred the ....
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....analysis of the five "factors determining comparability" described in the OECD guidelines in respect of the Arms Length Principle. These are characteristics of property or services. - Functional Analysis - Contractual Analysis - Economic circumstances - Business Strategies The TPO has ignored the famous relating to Economic Circumstances and Business strategies. The fact that the appellant is showing better results every subsequent year makes these facts extremely relevant. 5.14 I have also analysed the submission made by the appellant and am of the view that since CUP, a direct method was available in the case of the appellant the TPO should have used the same instead of applying the TNMM method. Further, conducting a search on the internet based on the words 'Cable TV Operator' while testing the distribution segment of the appellant is, not a correct approach. The appellant has established that its transactions with AEs are at arms' length by relyingon CUP method and has also justified its losses in the distributions business. 5.15 Accordingly, the AO is hereby directed to delete the adjustment of Rs. 4,47,43,612/- made to the distribution revenue segment of ....
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....le operators or the subscribers as their share of revenue. For the 50% of the Revenue is the share of the assessee from which it has to incur various distribution costs in India. There are two type of sharing of distribution revenue i.e. the first set of sub distributors i.e. Set Discovery Limited and assessee is in the ratio of 31.60 and 68.40. Similarly, the distribution ratio between Zee Turner Limited and the assessee is 37.50 and 62.50 respectively. Whereas, as per distribution agreement sharing arrangement with distribution i.e. between the assessee and MTV and Nickelodeon i.e. broadcasters 5:50 which is remained the same. We find that the assessee while making transfer pricing study under Cup Method, which is direct method available to the assessee and assessee has used the proper and scientific data which is available for comparison. But the TPO applied TNMM method for computing Arms Length Price without any basis just on the basis of search conducted on Google and comparing the data with cable TV operators. In our view, the assessee is consistently following the CUP method for benchmarking the transaction with its AE's and for which scientific and correct data is available....
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.... 86,43,476/-." Aggrieved, Revenue came in appeal before Tribunal. 20. We find that as per agreement between the assessee and his AE in respect of advertising sale agency, it keeps 15% of gross sale revenue and for this income, the assessee bears the normal advertising and sales promotion costs. Further, in case of certain major marketing costs incurred by it at the instances of its AE it is entitled to reimbursement of the same. During the financial year, the assessee incurred certain major advertisement and sales promotion costs amounting to Rs. 86,43,476/- on behalf of its AE Nickelodeon the same was reimbursed by Nickelodeon as per terms of agreement. In regard to export of contents to its AE, the assessee receives advance payment from the associate enterprises based on estimates and final payment was received based on invoices within 30 days. For the advertisement and distribution, the assessee gives credit period of around 30 to 90 days to its customers and the payment to be made to the AE which made only after the same are received from the customers. But the assessee has not availed any specific manpower for this purpose and existing manpower of the assessee has carried o....
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....ctivities was engaged in program export business and learned AO had disallowed some portion of advertisement expense. The Mumbai Tribunal has upheld the claim of assessee company and allowed entire expenditure incurred by the assessee company for advertisement and sales promotion." Aggrieved, now Revenue came in appeal before Tribunal. 23. Before us, the learned Counsel for the assessee stated that the issue is squarely covered by Tribunal's decision in assessee's own case vide order in ITA No. 5057/Mum/07 for AY 2003-04 dated 04.12.2010, wherein Tribunal vide Para 8 observed as under:- "8. We have considered rival submissions. It is not in dispute that expenditures disallowed by the Assessing Officer were expenses incurred for promoting MTV channel. Thus, nature of expenditure being one for promoting MTV channel is not disputed. It is also not in dispute that as per the terms of the agreement between the assessee and MTVA and NICK, the assessee will not get any reimbursement of advertisement and sales promotion cost. The stand of the assessee is that by promoting brand MTV, there will be increased viewership, which will result in increase in advertising revenue. If the advert....