TaxTMI 
TaxTMI 
2020 (3) TMI 781
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.... of Tribunal dated 28.07.2017 and restored the matter back to the Tribunal for fresh adjudication. The Hon'ble High Court also directed to decide the characterization of distribution fee i.e. Royalty or not. 3. Accordingly, as per the direction of Hon'ble High Court the appeal was heard afresh. The assessee has raised following grounds of appeal: General Ground 1. erred in assessing the total income of the Appellant at Rs. 344,89,29,574 against Rs. 47,26,78,397 as computed by the Appellant in its return of income; Transfer Pricing Grounds 2. erred in making a transfer pricing adjustment of Rs. 297,62,51,177 to the total income of the Appellant on the premise that the international transactions entered by the Appellant with its associated enterprises ('AES') were not at arm's length; Reference made to the Transfer Pricing Officer 3. erred in referring the Appellant's case to the Learned Transfer Pricing Officer ('TPO') under Section 92CA(I) of the Act, without satisfying the conditions specified therein; Rejection of economic analysis undertaken by the Appellant in its transfer pricing study re....
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....tered into in different geographies (ie other than India) hence the economic and commercial circumstances under which they are entered would be different from the distribution agreement entered into by MSMD; Internal comparability 12. erred in observing that third party channels distributed by the Appellant in FY 2010-11 are comparable to AE channels distributed by the Appellant during the year without appreciating that they are not comparable; 13. without prejudice to the above, erred in not appreciating that while software distributors are appropriate comparables, internal comparables are suitable over the royalty agreements selected by the Hon'ble DRP/ learned TPO to benchmark the Appellant's international transactions; 14. without prejudice to the above, erred in making a transfer pricing adjustment using royalty agreements as CUP after observing that margin earned by the Appellant from third party channels distributed during the year are comparable to benchmark the Appellant's international transactions; 15. erred in observing that operating profit to operating cost is determined at 1.3 9% and 5.84% for AEs and Non-AEs s....
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....n levying interest of Rs. 54,84,11,706 under Section 234B of the Act; 27. without prejudice to the above, erred in computing interest under Section 234B at Rs. 54,84,11,718 instead of Rs. 54,04,96,711; Penalty Proceedings 28. erred in initiating penalty proceedings under Section 271 (1)(c) of the Act. 4. Brief facts of the case are that the assessee is a joint venture between Multi Screen Media Private Limited (now known as Sony Pictures Networks India Private Limited and Discovery Communications India) during the relevant Financial Year, the assessee was engaged in the business of distribution of channels to Local Cable Operators ('LCOs'), Multi System Operators ('MSOs') and Direct to Home ('DTH') operators. The assessee while filing return of income reported international transaction with its Associate Enterprises (AE) of distribution fee. The assessee in Form 3CEB, reported international transaction of license fee paid/payable for distribution of Television Channels in the following manner: Sr. No. Description of transaction Name and address of the AE Total amt. paid or payable in the transaction As per Books of Account (INR) Method ....
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....as to why the software distribution search carried out about the assessee should not be rejected. It was confronted that as to why the Royalty-stat database should not be selected for the purpose of benchmarking the transaction of "distribution fees". The TPO recorded that no reply was filed by assessee. The TPO also took his view that "distribution fees" was in the nature of Royalty and Royalty agreements found in the Royalty-Stat Database were better functionally comparable to the assessee than the comparables selected by assessee. The assessee was also show-caused to disclose the rate charge with 3rd party channel Via Com 18 India Pvt. Ltd., ND Television Ltd. and T.P. Today Network for distribution activity and that why the same rate should not be applied. 9. The TPO recorded that no reply was received from assessee. However, in assessee's reply dated 11.11.2015 the assessee stated that MSMD has to pay guarantee fee to the channel operator in addition to revenue. But under the distributor agreement with its AEs MSMD is not required to pay any minimum guarantee fees. The assessee is exclusive channel distribution for its AE channels and there is no internal CUP available. ....
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....e productions, or other events, on a subscription basis through a cable television system, initially to subscribers in San Bernarndino, California. 50.00% Average 37.36% 11. The TPO made the adjustment in the following manner: "The adjustment amount in the case of assessee is worked out as under: Particulars Amount (Rs.) Distribution fees payout @ 90% of total revenues (A) 5,739,503,019 Distribution fees payout @ 37.36% of total revenues - arm's length payout (B) 2,382,531,491 Payout in excess of arm's length (A-B) 3,356,971,528 12. Thus, the TPO suggested adjustment of Rs. 335,69,71,528/- on account of distribution fee to its AE. On receipt of report of TPO, the Assessing Officer passed the draft assessment order under section 143(3) r.w.s. 144C(1) dated 27.02.2015. The copy of draft assessment order was served upon the assessee. The assessee exercised its option for filing objection before the Dispute Resolution Panel (DRP). During the hearing before the DRP, the assessee furnished the details of 3rd party channel distributor and urged that due to insufficient time, the assessee could not furnish the same before the TPO. The Net Mar....
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.... for distribution of AE channels. In support of his first contention, the ld. AR of the assessee submits that the distribution agreements entered by assessee only grants the right to distribute the channel owned by the AE over various platforms namely Cable, DTH and other digital platforms. The assessee only acts as an intermediary between the Broadcaster and the ultimate customer who views the channel. The assessee neither any right in the content that is broadcasted over the channel nor any right to make any changes in the content to be broadcasted on the channel. The assessee simply acts as a distributor and distributes the channel to various LCOs/MSOs/DTH operators in the chain who in turn distribute it further to the ultimate viewer. Thus, the distribution fees paid by the assessee cannot be termed as "Royalty" within the meaning of section 9(1)(vi) by making the payment it does not acquire any right to use any copyright or rights relating to the content that is broadcasted on the channel. 17. The ld. AR of the assessee further submits that "distribution fees" is not in the nature of Royalty has been upheld by Tribunal and affirmed by Hon'ble Bombay High Court in the hands ....
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....ITA No. 1204/Del/2018 dt. 18.06.2018, • Turner International India Private Limited vs DCIT (ITA No. 218/Del/2017 & ITA No. 1069/Del/2014) dt. 01.01.2019 and • Turner International India Private Limited vs DCIT [2019] 101 taxmann.com 446 (Del Trib.) dt. 08.10.2018. 21. On the other hand the ld. DR for the revenue supported the order of lower authorities. The ld. DR further submits that in its TPSR the assessee contended that that no direct comparable companies are available for channel distributor result. In absence of details no benchmarking was possible. The TPO has no option but to go to search Royalty stat data for searching comparable. The decision of High Court in NGC Network (India) Pvt Ltd (supra) is based on different facts and the ratio of order in that case is not applicable on the facts of this case. While examining the comparability functionality has to be seen predominantly. 22. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities. The first issue for our consideration is whether the 'distribution fee' is in the nature of 'Royalty' or not. Before us the ld. AR for the assessee ....
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....tment proceeding rejected Avance on the ground that this companies is engaged in software trading, sales of hardware and other services and no segmental information is available. DRP upheld the action of on the basis of order for A.Y. 2010-11.Before Tribunal, the assessee has placed on record the financial statement of Avance. Perusal of financial statement reveals that this company has earned Rs. 140 Crore from sale of software out of total sales of Rs. 176 Crore. This company has approximately 80% of its income from software product. Thus, segmental information as placed before us is available at (Page No. 204 to 205 of Paper Book). Further, while rejecting Empower, the TPO held that this company is engaged in selling of hardware and no segmental are available. From the financial statement placed before Tribunal at (Page No. 207 to 219 of the Paper Book) As per discussion available on Page No. 22 of Annual Report of this comparable (Page No. 209) the company has earned more than 80% of its revenue from software sales. Similarly, Sonata was rejected by TPO by taking view that this company is engaged in software trading, consultancy services. We have noted that this comparable w....