TaxTMI 
TaxTMI 
2020 (7) TMI 494
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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; TPO Erred in characterizing the distribution fee paid be MSMD to its AE as Royalty. 4. Erred in characterizing the distribution fee paid/ payable by the appellant to its AE to be in the nature of Royalty. Rejection of economic analysis undertaken by the Appellant in its transfer pricing study report 5. Erred in not following the Appellant's own order for AY 2010-11 which was passed by the Hon'ble DRP accepting software distributors as appropriate comparable to benchmark the Appellant's international transactions inspite of there being no change in facts in A Y 2011-12. 6. Erred in rejecting the transfer pricing analysis undertaken by the Appellant under Section 92C of the Act and disregarding the fact that software distributor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....dice to the other grounds, should software distributors be rejected as comparables then local cable operators (LCO)/ multisystem is operators (MSO)/direct to home(DTH) companies can be considered as appropriate comparables. Short grant of tax deducted at source (TDS) 14. erred in short granting credit of taxes deducted at source of Rs. 362,81,929/- while computing the tax liability for the year; Penalty Proceedings 15. Erred in initiating penalty proceedings under Section 271 (1)(c) of the Act. 2. The assessee vide its application dated 19.06.2020, has raised following additional grounds of appeal; 16 - Deduction of education and secondary and higher education cess paid on the income-tax liability 1. The assessee submits that deduction shall be granted under the head "Profits and Gains from Business or Profession" with respect to education cess and secondary higher education cess levied on its income under the Act. 3. Brief facts of the case are that the assessee was a joint venture between Multi Screen Media Private Limited (MSMI) and Discovery Communications India (DCI) during the relevant Financial Year, the assessee wa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arable having low margin which suits the requirement of TP study. 7. However, during the Transfer Pricing assessment proceeding before the Transfer Pricing Officer (TPO), the assessee vide notice dated 13.09.2016 and 190.09.2016 was asked as to why the bench mark conducted by the assessee should not be rejected on the same basis as in the previous year. The assessee was also asked as to why the agreement based Royalty stat based search conducted by TPO should not be considered as comparable to benchmark the distribution fee paid by assessee to its AEs. The assessee was also show caused as to why the rate of subscription earned by the assessee from third party should be adopted. 8. In reply to the show cause the assessee explained that margin earned by MSMD from distribution of third party channel, the MSMD is involved in the distribution of channels to Local Cable Operators (LCO)/ Multi System Operator (MSO) and Direct to Home (DTH) operators. For this purpose, MSMD had contracted directly with its AEs distribution of its channel in India. Under the said distribution agreement, MSMD collects subscription revenues and remits 90% of the same to AEs while retaining the balanc....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ved upon the assessee. The assessee exercised its option for filing objection before the Dispute Resolution Panel (DRP). The ld. DRP affirm the action of TPO in rejecting the comparable selected by assessee to substantiate its benchmarking under TNMM. The DRP also affirmed the action of TPO in treating the payment of distribution fee as Royalty by taking view that there is no change in the facts as of in earlier years (AY 2012-13), wherein they have a affirmed the order of TPO. 12. On receipt of the direction of the DRP, the assessing officer passed the final assessment order dated 23.10.2017 under section 143(3) read with section 144C(13), in pursuance of direction of ld DRP, by making T.P. Adjustment to Rs. 513,79,71,070/-, (which later on reduced to Rs. 308,27,82,462/-). Further aggrieved, the assessee has filed this appeal before this Tribunal. 13. We have heard the submissions of learned Senior Counsel Sh. J.D. Mistry (ld. AR), of the assessee and the learned CIT-DR for the revenue. At the outset the learned Sr Counsel Mr. Mistry submits that the grounds of appeal related with the transfer pricing (TP) adjustment are covered in favour of assessee by the decision of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....015 held that distribution revenue is not Royalty income. The Hon'ble Bombay High Court in CIT Vs SET India Pvt Ltd (ITA No. 1347 of 2013) held that the distribution fee paid is not in the nature of royalty. Similar view was affirmed by Hon'ble Bombay High Court in CIT Vs MSM Satellite (Singapore) Pte Ltd (ITA No. 103 of 2017). Considering the decision of the Hon'ble Jurisdictional High Court and respectfully following the same, we are of the view that the payment of distribution fee cannot be termed as 'Royalty'. Since, we have held that distribution fee cannot be termed as 'Royalty' thus; discussion on the royalty agreement selected for comparability has become academic." 16. On the rejection of comparables, the learned AR of the assessee submits that the assessee selected four comparable to benchmark its transaction under TNMM method. The lower authorities rejected all four comparables. The learned AR for the assessee further submits that two comparable companies namely Avance and Sonata are common with the set of comparable with AY 2011-12, which have been held as engaged in software distribution activity and comparable with the assessee. Further, remaining two comp....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 was accepted in A.Y. 2020-11 by TPO himself in its order dated 29.01.2014. Further, financials of this comparable shown that this company has earned Rs. 584 Crore from distribution of software product out of total sales of Rs. 597 Crore, thus, earned 97.49% of its total revenue from software product (Page No. 224 of the Paper Book). SVAM Software was rejected by TPO on the ground that this comparable is engaged in software development, sale purchase of software and computer related hardware. The revenue of software is only Rs. 2 Crore against the total revenue of Rs. 20 Crore. From the financial of this company it is noted that entire income of Rs. 2.09 Crore is shown from sales (sale of product). Considering the nature and activities carried ou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rectification, however, no order has been passed by the assessing officer till now, therefore, the assessing officer be directed to expedite the order. Considering the submissions of the ld. AR for the assessee the assessing officer is directed to verify the TDS details and grant appropriate relief to the assessee after verifying the details as early as possible. 23. Ground No.15 relates to initiation of penalty u/s 271(1)(c). This ground of appeal is premature and needs no specific direction. 24. Ground No. 16 (additional ground of appeal) relates to deduction of education secondary and higher education cess. 25. The learned AR of the assessee submits that assessee has raised additional ground of appeal, with regard to deduction of education secondary and higher education cess paid on the income tax liability. The assessee while filing return of income for A.Y. 2013-14, had paid Education cess and Higher Education cess levied by virtue of the Finance Act, 2013. The Assessing officer after making the addition of Rs. 513,79,71,070/- in the final assessment order computed the Education Cess and Higher Education Cess at Rs. 5,14,11,761/- which was subsequently rectified vi....