TaxTMI 
TaxTMI 
2019 (3) TMI 462
X X X X Extracts X X X X
X X X X Extracts X X X X
....el companies at global level. As stated by the Transfer Pricing Officer, the assessee is not a channel owner but is a service provider to group companies owning channels like Star Movies, Star World, Channel-V, Star Plus, Star Utsav, Star Gold, Star One, etc. Further, the channel companies had appointed the assessee as an agent to sell the advertisement air time on the channels, to distribute the channels in the territories where the channels are being broadcast and to procure syndication revenues in respect of the contents of the channels. In the relevant previous year the assessee has earned revenue from management fee and advertising fee. Of-course, it has also earned other income in the nature of royalty from various entities. It is stated that up to financial year 2007-08, the assessee and channel companies had a principle-to-principal relationship in respect of both advertising stream and distribution stream of income. However, in compliance to the guidelines issued by the Ministry of Information & Broadcasting, there was a change in the relationship and the channel companies with effect from 1st April 2008 and the assessee started operating as an agent of the channel compani....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ofits of all the channel companies was also considered as profits in the hands of the assessee. The Transfer Pricing Officer noticed that out of the global commission received by the assessee from the overseas merged entities, commission fee received towards the services rendered outside India was not offered to tax by the assessee in India and only the balance commission fee was offered to tax in India. As regards management fees, the assessee had offered it to tax by applying the ratio of the consolidated revenues earned by the channel companies from India to the consolidated global revenues of channel companies. Further, royalty income was offered in respect of royalty received for grant of license to use Star mark. Since, the global commission paid by the overseas merged entities to the assessee was claimed as deduction by SIPL in its return of income such global commission fee received by the assessee considered for the benchmarking of the overall profitability of the assessee and the channel companies. The consolidated profit computed as a percentage of total revenue earned by the channel companies from India during the 12 months period from April 2009 to March 2010, resulte....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the income of the assessee. Against the draft assessment order so passed the assessee raised objections before the DRP. 5. Before the DRP, as it appears, it was submitted by the assessee that since the transfer pricing adjustment of Rs. 24,79,34,418, represents agency commission fee towards services provided outside India, it is not chargeable to tax in India. It was submitted by the assessee, not only the services were provided outside India but the payment was also received outside India. Therefore, it cannot be treated as income either under section 7 or section 9 of the Act. In this context, the assessee also relied upon CBDT Circular no.23 dated 23rd July 1969 and Circular no.786, dated 7th February 2000. It was submitted, since the agency commission fee is not an income chargeable to tax under the provisions of the Act, it cannot be considered as an international transaction under section 92B(1) of the Act. Therefore, the Transfer Pricing Officer had no jurisdiction to take cognizance of such transactions and carry out adjustment. The DRP, however, did not find merit in the submissions of the assessee. They observed, though, for the purpose of benchmarking its transaction, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... be at arm's length price, hence, has not proposed any adjustment to the arm's length price. However, he submitted, the margin of 28.17% represents the global profit ratio of the assessee. He submitted, latching on to a mistake committed in Annexure-1 to the transfer pricing study report while mentioning "arm's length profit attributable to India", the Transfer Pricing Officer has actually considered the global profit of the assessee amounting to Rs. 252,59,62,559. He submitted, the income of Rs. 227,80,28,141, offered by the assessee represents the arm's length price profit attributable to India. In this context, he drew our attention to the computation of taxable income in India and the revised computation of consolidated net profit compared to the total India / Global Revenue earned by the assessee and the channel companies which forms part of the transfer pricing study report placed at Page-75 and 76 of the paper book. The learned Sr. Counsel submitted, the duty of the Transfer Pricing Officer as per the statutory provision is to determine the arm's length price of the international transaction. He submitted, it is not the duty of the Transfer Pricing Office....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mann.com 603; 12 Fox International Channel Asia Pacific Ltd. iii) CIT v/s Cushman and Wakefeild India P. Ltd., [2014] 46 taxmann.com 317; and iv) Dresser Rand India P. Ltd. v/s ACIT, [2011] 13 taxmann.com 82. 8. The learned Departmental Representative strongly relying upon the observations of the Transfer Pricing Officer and the DRP submitted that the Transfer Pricing Officer has made the adjustment only after considering assessee's own computation and has taken note of all the submissions made by the assessee. He submitted, the Transfer Pricing Officer is empowered under the Act to look into all the aspects for determining the arm's length price of the international transaction. 9. In rejoinder, the learned Sr. Counsel for the assessee submitted, while deciding assessee's appeal in ITA no.8683/Mum./ 2011, dated 2nd February 2016, the Tribunal has held that PSM will apply to India sourced income. Thus, he submitted, income earned / received for services rendered outside India cannot be brought to tax in India. 10. We have considered rival submissions and perused material on record. We have also applied our mind to the decisions relied upon. At the outset, it is necess....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y through or from any business connection in India. In other words, the DRP has held that section 9 of the Act can even bring to tax net income which does not accrue or arise in India but accrues or arises outside India. The DRP has also observed that Explanation to section 9(2) of the Act, inserted by Finance Act 2010, with retrospective effect from 1st June 1976, has widened the scope of section 9 of the Act to the extent that the income of non-resident shall be deemed to accrue or arise in India whether or not the non-resident has a residence or place of business or business connection in India or the non-resident has carried on business operation in India. 12. We are unable to accept the aforesaid reasoning of the DRP. If the provisions of section 9 of the Act is read as a whole, it would be very much clear that as per Explanation 1 to section 9(1)(i) of the Act, in case of an assessee whose business operations are not exclusively carried out in India, the amount of income which will be deemed to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India. Therefore, the income which is deemed to accrue or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e allowed for statistical purposes. 15. In ground no.4, the assessee has challenged the decision of the departmental authorities in bringing the royalty income to tax @ 42.23% instead of 21.115%. 16. Before the Assessing Officer, the assessee had contended that the royalty income being in the nature of other income cannot be taxed @ 42.23% by treating it as business profit. However, the Assessing Officer did not accept the claim of the assessee and taxed the royalty income @ 42.23%. 17. Challenging the aforesaid decision of the Assessing Officer though the assessee raised objections before the DRP, however, the DRP upheld the decision of the Assessing Officer. 18. The learned Sr. Counsel for the assessee submitted, while deciding identical issue in assessee's own case for assessment year 2007-08, the Tribunal in ITA no.8683/Mum./2011 & Ors. dated 2nd February 2016, has restored the issue to the Assessing Officer with certain directions. He submitted, the issue may be restored to the Assessing Officer with similar direction. 19. The learned Departmental Representative has not opposed the aforesaid submissions of the learned Sr. Counsel for the assessee. 20. Having considered r....