TaxTMI 
TaxTMI 
2023 (6) TMI 348
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....he Assessing Officer was justified in making transfer pricing adjustment anent to the international transaction of acquiring Bundle of Sport Broadcasting Rights, on the basis of deficiencies found by him in the valuation report submitted by the assessee?" 2. The assessee, who is the appellant, did not raise any objection to the question. However, the ld DR was not convinced. It will be seen infra that the question represents correct controversy between the parties as the transfer pricing adjustment in the international transaction under consideration has been made solely on the basis of deficiencies found in the valuation report submitted by the assessee. 3. Succinctly, the factual panorama of the case is that the assessee furnished revised return declaring total loss of Rs. 1334.14 crore. It also filed Form No.3CEB containing a list of international transactions, including, payment of Rs. 3075,24,15,714/- for acquiring Bundle of Sport Broadcasting Rights (BSB Rights) hitherto held by its US based Associated Enterprise (AE), namely, ESPN Star Sports Ltd. (ESS). The transaction of acquiring the BSB Rights (rights to broadcast through television/internet/mobile various sports event....
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.... been taken at Nil because, firstly, the agreements were for Finite period and secondly, during the Finite period also, the assessee was incurring losses. He, therefore, determined ALP of the international transaction at 411 USD million by taking ALP of Terminal Value at Nil; and ALP of Finite period at 411 USD million. This resulted into variation between actual consideration (1211 USD million) and ALP consideration (411 USD million) at 800 USD million, being, 66.06% [800(1211-411)/1211*100] of the actual consideration. The assessee had reported value of this international transaction for the A.Y. 2014-15 at Rs. 1013.26 crore. By applying 66.06% to the value of the transaction, the TPO proposed transfer pricing adjustment of Rs. 669.36 crore for the immediately preceding year. No succor was provided by the Dispute Resolution Panel (DRP), which culminated into making transfer pricing addition of the equal amount in the final assessment order passed by the AO for the A.Y. 2014-15. The Tribunal took note of the fact that the assessee submitted an expert's opinion as well as another valuation report before the DRP for the first time supporting its earlier valuation, which was again co....
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....anch office and headquarters in Singapore, has been engaged in the business of owning and operating sports channels in certain territories in Asia including India. The assessee and ESS (both related parties) entered into the Master Rights Agreement (MRA) dated 31.10.2013, under which the assessee agreed to purchase from ESS a bundle of broadcasting rights of sports events, such as, Cricket World cup, Championship league, T20 cricket, Formula-1 GP2 and Wimbledon etc. Prior to this, ESS was holding broadcasting rights for such sports events for certain number of years with a well defined year-wise consideration payable each year on the happening of the sports events and the assessee's sister concern, namely, Star Sports India Pvt. Ltd. (SSIPL) was involved in the sale of advertisement airtime and subscription of sports Channels in India when the broadcasting was done by the ESS. Almost simultaneous with the assessee entering into the MRA with ESS for purchase of bundle of rights on 31-10-2013, SSIPL got merged with the assessee w.e.f. 04-11-2013 vide High Court order dated 22-08-2014. With such acquisition of bundle of broadcasting rights from ESS and merger of SSIPL, the assessee be....
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....atches; and scheduled tour dates. For example, for the season 2012-13, 2013-14 and 2014-15, the relevant part is reproduced as under : Season Touring Team(s) Total Scheduled Matches Scheduled Tour Dates 12/13 South Africa 3 Tests November 2012 Sri Lanka 3 Tests December 2012-January 2013 Sri Lanka 5 ODIs Sri Lanka 2 Twenty20s West Indies 5 ODIs February 2013 13/14 England 5 Tests November 2013-January 2014 England 3 ODIs England 3 Twenty 20s 14/15 South Africa 5 ODIs November 2014 South Africa 3 Twenty 20s India 4 Tests December 2014- January 2015 India England 7 ODI Triangular Series January - February 2015 9. Item 2 of Schedule 3, with the heading 'The Matrix', has columns Date/tour; number of matches; value in US dollar. The details incorporated in respect of season 2012-13 to 2014-15 are reproduced as under : Date/Tour Number of Matches Value US$ 2012/13 South Africa Tour of Australia 3 Tests $1,680,000 Sri Lank....
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....Schedule 3 Item 1 - the Programmes) (d) There was fixed amount payable in respect of each event each year (Schedule 3 Item 2 - The Matrix) (e) The payment was linked with the events inasmuch as certain amount of the consideration for the sports events was to be paid 30 days prior to the commencement of such event and the remaining amount was to be paid within 30 days from the conclusion of each event (clause 9 of the agreement) 12. ESS entered into Master Rights Agreement (MRA) with the assessee on 31-10-2013 effective from 04-11-2013, whose copy is available at page 173 onwards of the paper book. The preamble clause A of this Agreement reads as under : "Pursuant to the contracts executed by ESS with third parties including, without limitation, several national and international governing bodies for various sporting events ("ISBs) such as Cricket Australia, Tennis Australia, English and Wales Cricket Board Limited, Football Association Premier League Limited etc., ESS is entitled to exploit media rights pertaining to various sporting events organized under the auspices of ISBs in the Designated Territory (as such term is defined hereinafter in this Agreement). ESS has offere....
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....herwise agreed by the Parties. SIPL undertakes to perform, discharge and observe all obligations and liabilities on the part of ESS under the novated Designated Rights Contracts which are to be performed, discharged or observed from the effective date of novation of such Designated Rights Contracts. 2.2.2 If the novation of a Designated Rights Contracts as contemplated under Clause 2.2.1 cannot be completed prior to the Effective Date, ESS shall continue to seek a novation, unless otherwise agreed in writing by the Parties, in which case pending a novation of such Designated Rights Contract in accordance with Clause 2.2.1 ESS shall be deemed to have sub-licensed the Designated Rights under such Designated Rights Contract to SIPL pursuant to Clause 2.3.1 below, subject to any consents and/or any other written document that may be required under any specific Designated Rights Contract to give effect to such sub-license. 16. This clause indicates that pursuant to the novation of the contracts, the assessee would become a direct Party to the Designated Right Contract replacing ESS and it "undertakes to perform, discharge and observe all obligations and liabilities on the part of ESS....
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....er date as may be agreed by the Parties in writing, subject however to any adjustments strictly in accordance with Clause 3.2. The Parties hereby agree and acknowledge that 95% (ninety five per cent) of the portion of the Agreed Consideration allocated by the Independent Valuer in the Independent Valuer's Report to those Sporting Events identified as "Live in Table 1 and Table 2 in the Schedule, is being paid by SIPL to ESS for the rights pertaining to Live Transmissions. For the avoidance of doubt the Agreed Consideration excludes, and SIPL shall be responsible for, any technical costs (including costs associated with down-linking and reception of satellite signal and retransmission) attributable to the delivery from the designated point of supply to SIPL's nominated facility of all live signals (including all audio, visual and audiovisual material and ancillary data and information) and recorded audio, visual and audiovisual material in either case relating to any Sporting Event to which the Designated Rights relate." "3.1.2. The Parties agree that they shall accept the Agreed Consideration as determined by the Independent Valuer in its written report ("Independent Valuer's Rep....
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....15 CLT20 - 118.31 465.14 - - - - 583.45 Cricket Australia 5.62 71.18 52.26 8.03 - - - 137.09 1,312.02 Discount - 9.5% (net of advances) -3.36 -32.01 -47.29 -1.18 -0.35 - - -84.19 Total 165.00 503.90 532.48 22.95 3.46 0.02 0.02 1,227.83 21. It emerges from the first table above that ESS purchased broadcasting rights from different third parties for a specific number of years at a price fixed in such agreements to be discharged separately for each year depending upon the number of sports events taking place in such year. The second table above deciphers the year-wise payments made by the assessee. For the year under consideration, ESS was otherwise required to pay 556.42 USD million to third parties in lieu of broadcasting rights purchased from them in earlier year. Now, pursuant to MRA, the assessee enjoyed the fruits of such broadcasting rights in a bundled manner and paid 503.90 USD million as a quid pro quo (at discounted price of 90.5%) partly to the third parties under the novated agreements and partly to E....
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....e New party in this Novation Agreement, it is hereby agreed by all the Parties to this Novation Agreement that the New Party shall become a party to the Agreement such that the New Party shall be deemed to replace the Original Party as a party to the Agreement on and from the Effective Date; and 26. The rights and obligations of the assessee, ESS and third party under the Novated Agreement have been given in clauses 2.2, 2.3 and 2.4. The rights and obligations of ESS as contained in clause 2.2 are as under : "The Original Party : (a) undertakes to perform, discharge and observe all obligations and liabilities on the part of the Original Party under the Agreement which fall to be performed, discharged or observed before the Effective Date; (b) agrees that the Continuing Party shall be entitled to all rights, powers, interests and benefits under the Agreement which would, but for this Novation Agreement, subsist in favour of or be exercisable by the Continuing Party before the Effective Date; and (c) releases the Continuing Party from its obligations towards the Original Party under the Agreement accruing before, on or after the Effective Date and discharges and releas....
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....rty on and after the Effective Date. in each case as if the New Party were named in the Agreement in place of the Original Party." 29. On going through the above Novated Agreement, it clearly transpires that the assessee substituted ESS in its original agreement with Cricket Australia, obtaining all the rights and agreed to discharge all the obligations of ESS with effect from the effective date. 30. On an analysis of the above three Agreements, we can sum up the international transaction of `Purchase of Bundle of Sport Broadcasting Rights' as a purchase on aggregate basis by the assessee from ESS for the remaining years - of distinct sports broadcasting rights acquired by ESS at a price settled separately in respect of each year covered therein from third parties in earlier years - at a consideration lower than what would have otherwise been paid by ESS for each such year. 31. Having seen the factual details at some length, we now advert to the transfer pricing adjustment made by the TPO. At this juncture, it is pertinent to note that as against the Comparable Uncontrolled Price (CUP) method applied as the most appropriate method for benchmarking this transaction in the immed....
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.... having regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such persons or such other relevant factors as the Board may prescribe. Five specific methods have been set out, namely, (a) comparable uncontrolled price method; (b) resale price method; (c) cost plus method; (d) profit split method; (e) transactional net margin method. Thereafter, another method is given in clause (f), namely, such other method as may be prescribed by the Board, which has since been prescribed in rule 10BA as `Other method'. Sub-section (2) of section 92C mandates that: `The most appropriate method referred to in sub-section (1) shall be applied, for determination of arm's length price, in the manner as may be prescribed'. On going through the prescription of sub-sections (1) and (2) of section 92C read with section 92, it gets highlighted that the legislature has used the word `shall' for determining the ALP under the most appropriate method and the most appropriate method is to be applied having regard to the nature of transaction or class of transaction etc. The crux is to apply the most appropriate method for determining the ALP hav....
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....e application of a different method as most appropriate, does not per se entitle the assessee or the TPO to make such a change conclusive. What we are talking at this stage is just about the right of the parties to plead for a change in the method earlier selected and nothing more than that. An argument for a change is a first step in the process of actually changing the most appropriate method, which has to be followed by an independent evaluation by the authority before whom the change is canvassed. Proceeding further, there can be another situation wherein neither the assessee nor the TPO applied the most appropriate method in the facts of the case and the assessment gets finalized on the basis of such an inappropriate method but with transfer pricing addition made on some different count. The Tribunal in such cases, while hearing the appeal on the transfer pricing addition, can direct to apply another method, which is really most appropriate in the facts and circumstances of the case. Our view is fortified by the judgment of the Hon'ble Delhi High Court in Pr. CIT Vs. Matrix Cellular International Services Pvt. Ltd. (2017) 100 CCH 0191 Delhi High Court. The facts of case are th....
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....e most appropriate method before the Tribunal. As such, it is held that no exception can be taken to the assessee pleading for the applicability of the CUP as the most appropriate method instead of the `Other method', which is just a first step in the process of approval of the most appropriate method by the Tribunal. 33.4. The ld. DR relied on rule 11 of the ITAT Rules, 1963 to contend that no ground of the CUP as the most appropriate method was taken by the assessee in the memorandum of appeal and, as such, it was disentitled to take up this issue before the Tribunal. We do not find much force in this contention. Rule 11 provides that: `The appellant shall not, except by leave of the Tribunal, urge or be heard in support of any ground not set forth in the memorandum of appeal'. However, the later part of the rule provides that: `the Tribunal, in deciding the appeal, shall not be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal under this rule'. This shows that the Tribunal has to see the substance of the matter before it and then decide it accordingly. However, there should be no violation of principles of natural justice anent to t....
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....ation of the ALP under the CUP method, which reads as under: "(a) comparable uncontrolled price method, by which,- (i) the price charged or paid for property transferred or services provided in a comparable uncontrolled transaction, or a number of such transactions, is identified; (ii) such price is adjusted to account for differences, if any, between the international transaction or the specified domestic transaction and the comparable uncontrolled transactions or between the enterprises entering into such transactions, which could materially affect the price in the open market; (iii) the adjusted price arrived at under sub-clause (ii) is taken to be an arm's length price in respect of the property transferred or services provided in the international transaction or the specified domestic transaction". 34.2. This method stipulates that, firstly, the price paid for property in a comparable uncontrolled transaction is identified. The term uncontrolled transaction has been defined in rule 10A(b) to mean : `a transaction between enterprises other than associated enterprises..'. So the price in an uncontrolled transaction is a price of some actual transaction between enter....
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....king into account the probable price also; and it uses exclusively the same as the comparable transaction as against the `other method' using both the same and similar transactions. The words `same' and `similar' have different ambits in terms of the degree of match between the international transaction to be benchmarked and the benchmark transaction. Whereas, the CUP method envisages a greater degree of match by considering only the same property in a comparable uncontrolled transaction, the `other method' gives a concession in this regard and settles with even lesser degree of match for choosing a benchmark property. 34.5. Though the Resale price method, Cost plus method and the TNMM also deploy the expression `same and similar' properties, but because of these methods being profit-based unlike the CUP and the `other method' being price-based, get placed at a different level. It thus transpires that there is a significant difference between the CUP and the `Other method' in terms of accurateness, tilting the balance in favor of the CUP method for a more rational ALP determination. Whereas the CUP is a precise and up-to-mark method considering only the price transacted and of the....
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....nation by considering the profit/price actually transacted. Quite logically, a good benchmark is established with an actual transacted price in a comparable uncontrolled situation, leaving any room to looking for a probable price that would have been transacted for same or similar property. Such a latter price is a step away from actual transacted price of the same property. These distinguishing features of the 'other method' in contrast to the five specific methods, keep the former at a lower pedestal in terms of accuracy of the ALP determination. Though the statute does not give priority to any method for selection as the most appropriate method, but the ambit of the 'other method' in contrast to the specific methods makes it a method of last resort because of its relatively lesser exactitude and meticulousness. The fortiori is that the `other method' should be considered as most appropriate only when none of the other five specific methods is found to be capable of application. 34.8. There is an indication to this effect in the Act also. The entire purpose of Chapter-X is to determine the income having regard to ALP. The term "arm's length price" has been defined in section....
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....assessee from ESS for the remaining years - of distinct sports broadcasting rights acquired by ESS at a price settled separately in respect of each year covered therein from third parties in earlier years - at a consideration lower than what would have otherwise been paid by ESS for each such year. 35.2. The ld. DR vehemently argued that the CUP method requires considering the benchmark price of the same property in a comparable uncontrolled situation. The comparable uncontrolled price of the rights for the A.Y. 2015-16 can only be a price actually transacted during the same period. He advanced his case by submitting that since ESS purchased the broadcasting rights in earlier years, including some rights in the year 2007, the price settled at that time, cannot constitute a comparable uncontrolled price for the transaction of the assessee purchasing such rights in the year under consideration, namely, the financial year 2014-15. 35.3. We have no dispute with the proposition propounded by the ld. DR and fully agree with it that the price of the broadcasting rights for the year 2007 cannot be a comparable uncontrolled price for the purchase of same broadcasting rights in the financi....
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....rd parties during the year under consideration had there been no MRA. Rather, the amount paid by the assessee and claimed as deduction is a discounted price of 90.5% of the amount that would have been paid by ESS in the current year, thereby indubitably constituting its ALP. This underlines the fallacy in the contention advanced on behalf of the Revenue on this count. 35.4. The ld. DR approached the case from a different angle and accentuated that the discount of 9.5% was not at ALP. We do not intend to dive into this argument for the raison d'etre that the assessee reported international transaction of purchase of bundle of broadcasting rights, whose value was determined by considering discount of 9.5%. What has been benchmarked is only the international transaction of purchase of bundle of rights. Neither the TPO nor the DRP has considered the discount as a separate international transaction. The transfer pricing addition is in the international transaction of purchase of broadcasting rights and there is not even a whisper in the order/direction of the TPO/DRP that the discount obtained by the assessee was not at ALP. 35.5. The ld. DR also emphasized on the fact that the broadc....
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....ould not withstand the challenge from IPL. Since the revenue from CLT20 substantially dipped over the period and eventually the assessee had to go out from this contract by cancelling the deal after paying a hefty amount of compensation in the succeeding year, the ld. DR contended that recognition of the price paid by the assessee in terms of agreement entered into by ESS with the third party sports broadcaster in the year 2007, did not represent the ALP in the year 2014 inasmuch as no independent prudent person would have purchased it at that price. 35.8. The argument of the ld. DR that the purchase of CLT20 rights was not at ALP as it did not represent its fair market value, in our considered opinion, is unfounded and not germane in the context of the ALP determination under the CUP method. It goes without saying that the concept of the ALP is different from the concept of `fair market value'. The latter represents the true value of particular goods or services, which in certain cases, may not be equal to the actually transacted price in a comparable uncontrolled situation. Whereas the fair market value is the true value of the property etc. on a given date, a bargained price ma....
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....100 USD million) it earned under agreement with ICC. This narration of fact is only to substantiate that the bundle of rights was a mixed kitty having premium rights as well. 35.10. At this stage, it is relevant to take note of the judgment of the Hon'ble Punjab and Haryana High Court in Knorr Bremse India Pvt. Ltd. Vs. ACIT (2016) 380 ITR 307 (P&H) which considered the question of aggregation of international transactions. Their Lordships laid down the principle of aggregation of international transactions by holding, inter alia, that a number of transactions which are priced differently but on the understanding that the pricing was dependent upon the assessee accepting or leaving all, need to be clubbed and taken as one international transaction, meaning thereby, that the premium in one should be set off against the loss in the other. 35.11. At the cost of repetition, we emphasize that the assessee purchased several broadcasting rights in a bundled manner. It had no choice of refusing a particular right from the bundle offered. In such a situation, all such rights need to be seen in unison and not distinctly. We are confronted with a case in which ESS agreed to sell and the ass....
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....ction of purchase of bundle of broadcasting rights by the assessee was at ALP under the CUP, being the most appropriate method. Though the CUP method contemplates considering the same property and its price in an uncontrolled situation, we have a classic case of not only the same property (broadcasting rights), but also the price of the same transaction (not even of a comparable uncontrolled transaction). Ordinarily, the CUP method contemplates two transactions, one, the international transaction and the other, some comparable uncontrolled transaction. In the present case, if we go with the technical argument of the non-availability of a comparable uncontrolled transaction in case of novated agreements, in that case, such transactions cease to be international transactions in the first place because of the same being between the assessee and the third parties sports bodies, not requiring any ALP determination. However, in case of substituted agreements between the assessee and ESS, the comparable uncontrolled transactions between ESS and third party sports bodies are available, which are at a price higher than the price between the assessee and ESS. 35.13. In view of the above dis....
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....sessment order. The statute itself provides several recourses against the drawbacks in the assessment order, such as, the Assessing officer rectifying his order u/s. 154 or reassessing the income u/s 147 of the Act. If the AO misses the bus, the Pr. CIT has the power to revise u/s 263 an assessment order which is erroneous and prejudicial to the interest of the revenue. Still further, the CIT(A) can enhance the assessment in an appeal before him. Thus, it is explicit that the powers to correct the mistakes of the AO in framing the assessment lie in the domain of the AO himself or the Pr.CIT or in certain cases with the CIT(A). The DR, in no case, can either set up a case different from that of the AO or point out mistakes therein to the Tribunal, thereby usurping the power statutorily vesting in other authorities. He has only to support the assessment order. 36.5. The argument of the ld. DR anent to the discount not at ALP is a glaring example of setting up a new case; and that of attempting to project difference in the value of the international transaction in Form No. 3CEB as finding fault with the TPO's action. Such attempts should be eschewed. 37. In the ultimate analysis, we....
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....epal, Bhutan, Pakistan and Sri Lanka and channel for entire world primarily in Hindi and in other Indian regional languages. Assessee has also entered into agreements for the purchase of advertisement airtime inventory and the right to distribute the channels on principal-to-principal basis. Assessee procures content related to these channels and offers revenue from the sale of advertisement airtime and the distribution of these channels. 3) For assessment year 2015 - 16, assessee filed its return of income on 28/11/2015 at a total loss of Rs. 13,690,503,399/- which was revised on 31/3/2017 at a loss of Rs. 13,344,059,469/-. 4) Assessee has entered into an international transaction with its associated enterprises wherein one transaction of acquisition of sports right under Master Rights Agreement was disclosed. The assessee had acquired bundled rights in respect of various sporting events from ESPN's Star sports (ESS) as per agreement known as Master Rights Agreement [ MRA] dated 31st day of October 2013 having effective date of 4thNovember 2013. 5) MRA states that ESS executed several contracts with third parties several national and international governing bodies f....
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.... instalment basis over a period of years starting from financial year 2014 to financial year 2019. 6) The designated right contracts are also tabulated in table 1 and table 2 of the schedule.Table 1 lists 21 contracts where designated right contracts anticipated to be novated. Out of US$ 1338 Million, agreements amounting to US $ 1011630729/- were novated. In Novation contracts , Assessee was to pay full contract amount [ as agreed by ESS originally] to sports Bodies and Assessee would be compensated by 9.5 % discounts by ESS . Table 2 listed contracts no 22 to 65 where in designated rights in designated rights contracts to be sublicensed by ESS to Assessee. Contracts worth US$ 326557549 were sub licensed. In sublicensed contracts , Assessee will pay its share to ESS and ESS will pay discount amount 9.5 % . Thus 90.5 % is to be paid by assessee and 9.5 % is to be paid by ESS to sports bodies. 7) In its statutory filing in Form No. 3CEB, assessee disclosed international transaction with ESPN Star sports, Singapore stating acquisition of sports rights paid or payable amounting to Rs. 371,091,181/- and another transaction of discount on acquisition of sports rights amounting t....
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....id by SIPL then the same is received as discount by SIPL from ESS. In respect of the right sublicense by ESS, SIPL makes payment to the assessee/FIC Singapore as per agreed rate under MRA. The transactions during the subject financial year are summarized as below:- Sr. No. Particulars Amount (in INR) 1 SIPL's payment to SBs under Novated contracts 2058,98,66,242 2 Discount received by SIPL from ESS /FIC Singapore 195,36,58,345 3 SIPLs payment to ESS/ FIUC Singapore under sub licensed rights 1211,62,07,817 The above amount is supported by a valuation report prepared by the independent valuer. Having regard to the nature of functions performed and the services provided,'other method' has been considered as the most appropriate method for applying the arm's-length principle. On the basis of the valuation report, it was concluded that the price of the above international transactions were at arm's length as provided under section 92C read with third proviso to section 92C (2) of the act and with rule 10 CA of the rules. Given that the 'other method' has been selected as the most appropriate method, the other methods ( CUP, RPM, CPM, PSM, TN....
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....scounted cash flow method and valued international transaction of US$ 1211 Million of Master Right Agreement by considering Finite Period valuation at US$ 663 Million and terminal value was determined at US$ 548 Million. 12) During the TP Assessment , ld. TPO found that there is inflation in cash flow during a finite period and there cannot be any terminal value when contracts are for a specified period and in such period also there is a loss or negative cash flow. Thus,ld. TPO found that consideration value is 38 % higher than its ALP. Accordingly , on a transaction price of US$ 1211 Million , Its ALP was determined at US $ 411 Million. Thus, in Rupee Terms, Adjustment of Rs 669.36 crores was made. 13) Before ld. DRP Assessee also submitted the valuation report prepared by another valuer Duff & Phelps dated 5/07/2018 who submitted its independent estimates of the Fair Market value of the subject rights transferred. It adopted amarket Approach as value of individual rights depends on the performance of the respective sporting event, industry performance, changes in consumer preferences, competition between sports broadcaster etc. Therefore, it was necessary to value certain major....
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....f sports rights in comparison of actual profit and loss with the projected financials, the coordinate bench in paragraph number 31 restored the issue to the assessing officer to ascertain the correctness of assessee's valuation reports by getting the valuation done through its own expert. This order was challenged by assessee before the honourable Bombay High Court. 18) For assessment year 2015-16, the learned transfer pricing officer passed order under section 92CA (3) of the act on 31/10/2018 holding that the direction of the learned dispute resolution panel for assessment year 2014 - 15 is applicable to the current year also. During the transfer pricing assessment proceedings, the statement of Shri Santosh Naga officer of Duff & Phelps was also recorded on 11/10/2018. Ld. TPO rejected the new Valuation report, expert opinion and actualization report, he concluded that new valuation reports submitted by the assessee.Accordingly, the total amount of international transaction reported in form No 3CEB of Rs. 30,752,415,714/-, its ALP determined at Rs. 10,437,369,893/- and thereby adjustment of Rs. 20,315,045,821/- was made. 19) In objection before the learned Dis....
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....rmined by adopting the Most Appropriate Method with regard to the nature of transaction or class of transaction or class of associated persons or functions performed by such person. Rule 10 C of The Income Tax Rules 1962 provides what is the most appropriate method. It is the method which is best suited to the facts and circumstances of each international transaction, and which provides the most reliable measure of an arm's-length price in relation to the international transaction. 24) Rule 10C (1) provides that Most Appropriate method should be selected :- i. Best Suitedto the facts and circumstances of the of particulars international transaction ii. Which provides the most reliable measure of an Arm's length price of that transaction 25) Rule 10C (2) of IT Rules prescribes several facts required to be considered in selection of The Most Appropriate Method as under:- (2) In selecting the most appropriate method as specified in sub-rule (1), the following factors shall be taken into account, namely:- (a) the nature and class of the international transaction (b) the class or classes of associated enterprises entering into the transaction and the functions performed by t....
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....that during the journey of determining Arm's length price , MAM already considered is not appropriate , one can resile from the most appropriate method adopted in its transfer pricing study report with a caveat that provided the earlier method selected by the assessee or for that matter any assessing authority or appellate authority, does not fulfil the requirement of rule 10 C (2) of the rules and new MAM selected fulfils it. Thereafter, once again the whole exerciseof determination of arm's-length price according to that method, which is now selected as MAM , confirming to rule 10 C (2) must be carried out.However,the onus is very high on the party which resiles from MAM originally selected. It has to demonstrate why original selection of MAM is faulty and how the new MAM selected is The Most Appropriate conforming with standards laid down in Rule 10C. Therefore, there is no bar to any of the parties in concluding the most appropriate method by reselling the earlier method selected by it, if it is confirming to the requirement of rule 10C (2) of The Income Tax Rules. Thus, to that extent I agree with the view expressed. 28) The next question that arises is what could be the most....
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....are being sold by ESS to the assessee have been purchased for a finite period of time from different international sports bodies for which it had to pay an amount of US dollar 1338 million. The assessee obtained these rights at a price of US dollar 1211 million, therefore, since the payment made / to be made to third-party [ sports bodies ] is more than the payment made to the associated enterprises for the same set of rights, Therefore CUPexists and hence CUP is MAM. The claim of the assessee defending the CUP method is that it is paying less than the third-party cost in the hands of ESS Singapore. 31) Therefore, now it needs to be examined whether the CUP method passes the test of the most appropriate method in this case. 32) Actual delineation of transaction is the most important factor in arriving at MAM. The fact shows that property transferred in this case is'designated rights' as described in the Master Rights Agreement. ESS was having certain rights acquired by it through contracts executed with third parties such as international governing bodies for various sporting events such as cricket Australia, tennis Australia, England and Wales Cricket Board, football Association....
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.... ESS prior to the effective date for sporting events post effective date to various sports bodies pursuance to various contract. According to that US dollar 4,21,90,545 already paid by ESS which should be further reimbursed to ESS by assessee under certain circumstances in terms of clause 3.2.4 of the agreement. Accordingly, in some of the contracts the novation agreement was entered into where the assessee stepped into the shoes of ESS with respect to the rights and liabilities of that contract for the remaining period. By this novation agreement, all the continuing parties i.e., sports bodies etc. have released the original party i.e., ESS from all its obligations under the agreement accruing on or after the effective date. Therefore, it is apparent that the assessee undertakes to fulfil all risk and to earn reward of these contracts as per these novation agreement or sublicenses according to master rights agreement.Thus, the assessee has stepped into the shoes of ESS so far as all the liabilities of the various contracts entered into a as well as reward of those contracts. 33) Therefore, it is apparent that the amount paid by the assessee to various sports bodies is an integral....
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....identically or very similar to the property transacted by associated enterprises. Therefore, the question that would arise is whether an independent party would have purchased these bundles of sports rights at the price which is paid by the assessee to ESS. The further question that would arise is whether in fact any transaction between the two independent parties would have fructified on similar or same terms, at the time of executing MRA, as have been entered into by assessee with its associated enterprises i.e., ESS. If yes, then there would have been a comparable uncontrolled transaction for applicability of CUP. 37) It is interesting to note that it's valuer DH consultants who prepared the valuation report for determining the consideration of the agreement of Master Rights Agreement between the assessee and ESS discarded reproduction cost method as well as replacement cost method. Thes twomethods are similar to the CUP method. Valuer adopted an income approach to determine what is the correct valuation at which these rights can be transferred. Thus, the valuer at first instance also did not consider that there is a comparable uncontrolled transaction instances available to va....
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....reliable and accurate adjustment if there is any difference. Thus, the CUP method was rejected by the valuer who was requested by both the parties to determine the sale consideration. Had there been a CUP available to the value, it is unusual for such an expert who has valued the consideration itself in the master rights agreement, would have rejected it straightway. Therefore, the CUP method was not found to be the "appropriate method" , leave aside 'the most appropriate Method' in the opinion of such an expert. The valuer authoritatively and exhaustively negatived applicability of CUP method. 39) Now coming to the valuation methodology of another valuer of the assessee i.e. Duff & Phelps as per their communication dated 5 July 2018 placed at page number 866 onwards of paper book of assessee has clearly stated thatit has given their opinion on the valuation offered by the assessee as well as considered by the revenue, that given the attributes of the subject rights, market transaction approach was deemed more relevant. The market transaction approach is used to estimate fair market value by analyzing comparable transactions or asking prices for comparable assets. The process is e....
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....uld be noted that the subject rights consist of individual broadcasting rights that were negotiated between knowledgeable, willing parties in an arm's-length transaction. Thus, the transaction price closest in time to the valuation date (referred to herein as Negotiated contract price) for each of the individual rights of the subject rights was good evidence of its respective value. However, in many cases, the subject rights were negotiated as a part of long-term deal (the Negotiated contract date) that occurred a few years before the valuation date. Thus, it was necessary, when using the negotiated contract price for each right, to make a valuation adjustment to reflect changes in the market for such rights during the time period between the Negotiated contract date and the valuation date. In general, our research showed that most broadcasting rights exhibited a significant increase in value over time, but there were exceptions." 40) This itself shows that in case of long-term contracts entered into by the assessee in case of five major rights consisting of a significant proportion of the total value of the subject rights have undergone significant changes because of market condi....
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....57 of the report. 42) Thus, it is apparent that market factors have played a big role during the period such rights were acquired by ESS and when it is transferred to Assessee. 43) The valuer has also,on page number 60 of the report stated that. "Due to the diversity of the various assets that are part of the portfolio, the riskiness or volatility of the portfolio would be significantly lower than that of the individual assets. It further states that the subject asset is a bundle of rights and not an individual right. The economic attributes of a bundle of various rights are very different from that of the individual right and hence valuing this in aggregate would yield a different value, from that of valuing them individually and summing the total. In addition, the portfolio has a mix of unique rights spanning across different sports, different time periods, different formats (bilateral, sporting leagues, multinational tournaments etc.,), geographies, nature of rights (broadcasting, digital rights, composites etc.) and finding comparable bundle of rights to the value subject using the market approach was not possible. Hence, we have valued the assets individually." We failed....
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....on changes and whether the historical data is right or not for valuation of such complicated designated rights. Thus, it clearly indicates that the Price for historical right agreed upon by the ESS at a different point of time cannot be substituted as CUP price for determination of arm's-length price of the international transaction of sale of such rights to the assessee at a later point of time.If we do that, we are absolutely ignoring the market factors, and various other factors which the experts have reiterated time and again in the assessment proceedings of the assessee itself, fails the applicability of CUP method. . And thus, we are bypassing the basic provisions of transfer pricing analysis of determination of arm's-length price of an international transaction. This shows that there is no CUPavailable, but the only approach is to value this bundle of sports rights by adopting 'other method'. 46) Now we consider expert report of Prof Israel Shaked - the Michel Shaked Group- where he analyzed and reviewed rights valuation report prepared by DHC consultants private limited dated 5 November 2013 and also considered T P assessment order for assessment year 2014 - 15. [ page no.....
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.... i.e., designated sports rights, have been purchased/transacted between independent parties. Even the valuer shows price could be higher or lower than agreed consideration due to several factors. 49) On the issue, whether the fees or payments made by assessee to the various sports bodies, which ESS would have paid in case this master rights agreement would not have been executed between ESS and the assessee could be a valid CUP, we disagree with the same. The CUP method compares the price charged for property transferred in a controlled transaction to the price charged for property transferred in a comparable uncontrolled transaction in comparable circumstances. If there is any difference between the two prices, clearly indicates that the conditions of the commercial and financial relations of the associated enterprises are not at arm's-length and that the price in the uncontrolled transaction may need to be substituted for the price in controlled transaction. As in this case, there is no evidence available that there is a price charged by independent parties in a comparable uncontrolled transaction in comparable circumstances.We emphatically state that there is no evidence availa....
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....controlled transaction is a transaction between two independent parties that is comparable to the controlled transactions under examination. In this case the amount paid by the assessee to various sports bodies on happening of sports events is an offshoot of and directly springs from Master Rights Agreement by buying the obligation of ESS for payment to the sports bodies.Therefore,what an assessee pays to the various sports bodies is the liability for such payment, which directly springs from the obligation acquired by the assessee from entering into Master Rights Agreement. It is not the case that assessee has obtained the right to broadcast sports events directly from the sports bodies in contemporaneous time and has made payment for such rights.what assessee has paid to the sports bodies is merely discharge of the liability of ESS towards those sports bodies. There is no evidence of any transaction that any independent party would have taken such an obligation of payment to sports bodies. Therefore, payment made by the assessee to the various sports bodies is an irrelevant consideration in determining the arm's-length price of the international transaction of purchase of bundle ....
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....s and also evils pervaded in sports too. 55) It was under these circumstances various experts opined viz:- i. expert opinion of prof. Shaked , who has given ample evidence with empirical studies, ii. valuation report of Duff& Phelps also gives many instances of significant changes in the market conditions, iii. valuation report of DHC consultants Ltd also states significant changes in the market conditions and iv. actualization report of BDO LLP substantiates that the projections and actual reality has changed in assessee's own case. Further, such market changes have shown to have either increased or decreased the value of each sporting right. Leading valuer Duff & Phelps also has made valuation on the basis ofa lower and higher range of values clearly proves that the CUP method is not the most appropriate method as it ignores the changes in the market conditions. 56) Even if the assessee does not know what the commercial rationale of the rights when acquired by the ESS which assessee acquired through MRA, how it can say that price paid based on that commercial rationale is the CUP. It is very pertinent to refer para no 14.3 of the directionsof DRP page no 110 of 115 whic....
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....e method in this case for this reason also. 59) Central Board of Direct Taxes has notified the "other method" as per rule 10 AB of The Income Tax Rules, 1962 on 23 May 2012 with effect from 1 April 2012. It provides:- 10AB. For the purposes of clause (f) of sub-section (1) of section 92C, the other method for determination of the arm's length price in relation to an international transaction 91[or a specified domestic transaction] shall be any method which takes into account the price which has been charged or paid, or would have been charged or paid, for the same or similar uncontrolled transaction, with or between non-associated enterprises, under similar circumstances, considering all the relevant facts.] 60) It is introduced for the determination of arm's-length price which would otherwise not be possible as per the traditional comparable uncontrolled price method. Therefore, this method was introduced wherein generally use of CUP method fails as the most appropriate method. As it is evident that CUP method refers to the price charged or paid, whereas 'other method" also includes the price which would have been charged or paid or it also considers the price proposed to ....
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.... where the transfer pricing is of complex assets such as the designated rights covered as intangible rights therein. This method applies where traditional methods of transfer pricing fail and in fact serves as the "savior". Thus,"other method" of determination of arm's-length price of international transaction is neither inferior nor superior to other methods but helps the assessee and taxpayers in substantiating the arm's-length price of an international transaction in certain specified situations where other traditional methods does not support the case. In the present case, the sale of bundle of sports broadcasting rights is also a unique transaction where other traditional methods fail, therefore, the most appropriate method in this case is other method. 64) Therefore, according to us, the CUP Method is not The Most Appropriate Method, but the "other method" is The Most Appropriate Method in the transaction under consideration for determination of arm's-length price of international transaction of sale of bundle of sports broadcasting rights, and accordingly, we hold. 65) At this stage I do not want to emphasize the various factors and values that have undergone changes with ....
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...., I find myself in agreement with both my learned brothers that the assessee, in principle, can resile from the most appropriate method as was adopted in the TPSR, provided that the new method confirms to the requirement of Rule 10C(2) of the Incometax Rules, 1962. Moreover, this Tribunal being the last fact finding authority is duty bound to ascertain the correct facts, nature & class of transactions, the FAR analysis, reliability of data and thereafter arrive at the Most Appropriate Method to benchmark the impugned international transaction, which may resile from the Method adopted by the assessee in the TPSR. 3. In view of the above principle, the next aspect is to ascertain the Most Appropriate Method in the given facts of the present case. I find myself in agreement with the principles discussed by the Ld. VP at Paras 34.2 to 34.8 of his order, viz., the mandate of 'CUP Method' follows that the benchmark price is the actually transacted price in a comparable uncontrolled situation and the benchmark property is the same property transferred, whereas the 'other method' covers the price transacted or the price that would have been transacted under same or similar uncontrolled co....
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..... Undeniably to apply CUP, product comparability is of paramount importance and the uncontrolled price has to be ascertained which was based on same or similar terms during the same time period, market conditions as prevailing during the period when the assessee transacted with the AE. In the given facts, it is not in dispute that ESS had contracted these liabilities in prior years when the prevailing market conditions, time period etc. were materially different than the date on which the MSA was entered into with the assessee. Hence, it was indeed relevant to ascertain the comparable uncontrolled price which an independent party would have paid to acquire the designated rights during the relevant period when the assessee entered into the MSA with ESS. 7. I agree with the Ld. AM that the Independent Valuer i.e. M/s DH Consultants Pvt Ltd who had arrived at the consideration of USD 1210.65 million had himself discarded the cost approach and rather followed the income approach to arrive at the consideration. The Independent Valuer had categorically observed that the value of various rights were determined by ESS based on the market conditions, surrounding circumstances existing at t....