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2024 (2) TMI 518
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....neral Ground Gr.No.1-3 Gr.No.1-3 2 Rejection of the comparability analysis carried out by the Appellant Gr.No.4-6 Gr.No.4-6 3 Non application of PSM approved by the TPO for AE transaction to third party transaction Gr.No. 7 & 11 Gr.No.7 & 11 4 Application of certain TP principles Gr.No.8-10 Gr.No.8-10 5 Double taxation of India sourced revenue at the Arm's length rate determined by the TPO, i.e. 13.54% without considering the 50:50 split of revenues between STAR Ltd and Channel Companies as approved by the TPO Gr.No.12-14 Gr.No.12-14 6 Transfer of Channels (i.e. Vijay TV and STAR World) held liable to tax in India as Short Term Capital Gain by holding that the channel / assets of the channel are located in India Gr.No.15-16 Gr.No.15-16 7 Taxation of royalty income (income from transfer of content) at the rate of 42.23% instead of the applicable rate of 10.5575% on gross basis Gr.No.17 - 8 Short grant of credit of TDS amounting to Rs. 1,82,84,887 - - 9 Non grant of credit of advance tax amounting to Rs. 40,66,863 and short grant of credit of SA Tax amounting to Rs. 5,99,465 - - 1....
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....vailed by Channel Companies from Star Ltd in connection with sale of advertisement airtime, distribution of channels and syndication of content including services relating to pre-production, post production, playout, uplinking and transmission through transponder • Procurement of content by Channel Companies from Star India Private Limited ('SIPL') and Vijay Television Private Limited (' VTPL') • Availing of management services by Channel Companies from Star Ltd • Grant of license for distribution of channels by the Channel Companies to Star Den Media Services Private Limited ('Star Den') • Grant of license for the purpose of syndicating content in India by STEL to SIPL . Grant of license for mobile content b STEL to SIPL • Availing of support services for organizing an event by STEL from SIPL • Sale of advertisement spots to SIPL and Star Entertainment Media Private Limited. 5. The assessee has shown the transfer pricing analysis considering the transactions between the assessee and the following companies, viz. - 1. Star Television Asian Region Ltd (STAR Ltd) ....
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....e business not related to channel broadcasting was eliminated, since such transactions would qualify as extraordinary transactions. (iii) As per the arrangements entered into by the Channel Companies with Star Ltd, Star Ltd is entitled to a fee which is calculated so as to recover all the costs that are incurred by Star Ltd in respect of marketing advertisement airtime on Channels, distributing the Channels and syndicating the content telecasted on the Channels in addition to 50 percent of the overall profit on the Channel operations (which is calculated after considering the costs incurred by Channel Companies and the above costs of Star Ltd, as adjusted against the overall revenues from the Channels). (iv) Based on the above arrangements, the profits earned by Star Ltd and attributable to India revenues ought to be equal to the profits earned by the Channel Companies (subject to other non operating income earned by either of the Specified AEs). Accordingly, the total profits earned by the Channel Companies from India (as computed above) were also considered as profits earned by Star Ltd from India during the period April 1,2008 to March 31, 2009. ....
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....uded by the TPO are full-fledged entertainment broadcasters and functionally comparable to Star group and, therefore, should not be excluded. The TPO did not accept the submissions of the assessee and proceeded to arrive at the final set of comparables as listed below:- Sr. No Company name 2009 (net profit on revenue) 1. Broadcast Worldwide Ltd 7.13% 2. TV Today Network Ltd 11.97% 3. Zee Entertainment Enterprises Ltd (consolidated segmental) 21.18% 4. Zee News Ltd 15.66% 5. Maa Television Network Ltd 11.76% Total 13.54% 9. The average mean of comparable as computed by the TPO was 13.54% as against the consolidated profitability of 8.48% earned by the Assessee. To analyze whether the Assessee falls within + 5% safe limits the TPO prepared the below working with reference to the PLI of Operating Profit / Revenue. The working is as follows:- Particulars Star Group Plus 5 percent Minus 5 percent ALP Revenue 100 100 100 100 Cost 91.52 86.94 96.098 86.46 Profit 8.48 13.06 3.90 13.54 Profit as percentage of revenue 8.48% 13.06% 3.90% 13.54% ....
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....s can be classified as persistent loss making companies. In various decisions it has been held that unless the company declares loss consistently for three consecutive assessment years, it cannot be considered as a persistent loss making company. In this context, we may refer to the decision of the Tribunal in Goldman Sachs India Securities Pvt. Ltd. (supra). The other decisions cited by the learned Sr. Counsel for the assessee also support this view. It is further relevant to observe, in assessee's own case for the assessment year 2008-09, the Tribunal has accepted Jain Studios Ltd. as a comparable. Further, the Transfer Pricing Officer himself has accepted Television 18 India Ltd., as a comparable in assessment years 2007-08 and 2008-09. That being the case, both, Jain Studios Ltd. and Television 18 India Ltd., should not be rejected as a comparable. Insofar as Raj Television Network Ltd. is concerned, undisputedly, the profit margin shown by the company in the assessment year 2007-08 and 2008-09 is substantially high. Though, in the impugned assessment year, the profit margin has fallen drastically, the company has still shown profit of 1.04%. Even if the fall in profit rate is ....
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....determined at a reasonable percentage of turnover and in this regard relied on the findings given by DRP in assessee's own case for AY 2007-08. Accordingly, the Assessing Officer estimated the profitability of non AE transactions at 28% and for AE transactions, applied the rate of 13.54% as determined by the TPO. The taxable income as worked out by the Assessing Officer in the hands of the assessee is as given below that resulted in the overall addition of Rs. 238,64,48,179 which is split between the AE and non-AE transactions:- Entity Indian Revenues Profitabiltiy Non-A.E. Adv. Revenues Non-A.E. Adv. Revenues Non-A.E. Syndication Revenues Total Non- Associated Enterprises Total A.E. Total Non A.E. @28% Total A.E. @13.54% Total Indian Income 1 2 3 4 5 6 7=4+5+6 8=2-7 9=7x28% 10=8x13.54% 11=9+10 STEL 10136005721 4.96 7685743846 NIL 18495464 7704239310 2431766411 2157187007 329261172 2386448179 SIML 1292907615 12.27 775293699 NIL NIL 775293699 517613916 217082236 70084924 287167160 SAML 1702206539 8.56 109....
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....essing Officer. Grounds are allowed. 20. We notice that in assessee's case also the assessing officer has relied on the directions of the DRP for AY 2007-08 (refer page 27 para 15 of draft assessment order) in order to estimate the profit on the non-AE transactions. The facts in assessee's case for the year under consideration being identical, respectfully following the above decision of the Tribunal, we delete the addition made by the Assessing Officer. 21. In view of our decision with regard to the TP adjustment as above, the Ground Nos. 8 to 10 raised by the assessee with regard to the application of certain TP principles have become academic and does not warrant separate adjudication. 22. Ground No. 15 & 16 pertain to taxability of income from transfer of channel as short term capital gains. During the year under consideration, the assessee has transferred channel i.e. Star World 24 hour English channel to another sister concern 'Star International Movies Ltd (SIML) vide business agreement dated 28/02/2009 for a consideration of Rs. 42,55,32,513/-. The assessee transferred the business as a going concern to SIML. The assessee did not offer the gain arising out ....
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....red advertisements from customers, as procured through the parent company; (vi) All the above activities in respect of the 'channel' are present in India out of which the channel-holding company (the assessee) has earned Revenue. (vii) The telecasting business, is a continuous and flowing process, the entire activities have been carried out by the assessee under the arrangement in Ire a termed as 'Channel'. Hence, there is clear cut nexus of the transferred asset to India and strong business connection of the asset to India due to very nature of the asset and its ability to continually and regularly generate income from India. The basic elements of the assets being brand name, logo, goodwill, contents, permits, licenses, approvals, pre-existing agreements. customer base (Advertisements), viewers base etc. Hence, such asset being a "Channel" can be held to be located in India. Further, on account of the peculiar nature of the channel business, there would be insignificant/nil physical assets located outside India in respect of the asset block under the category "Channel". In view of the above, the very basic premises of the assesse....
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....ociated with a business]-[or a right to manufacture, produce or process any article or thing] for right to cany on any business], tenancy rights, stage carriage permits or loom hours,- (i) in the case of acquisition .of such asset by the .assesses by purchase- from a previous owner, means the amount of the purchase price;- and (ii) in any other case [not being a case falling under sub-clauses (i) to (iv) of sub-section (1) of section 491 shall be taken to be nil: 18.3.9. In fact, taking cue from provisions of Section 55(2)(a), the assessee itself has considered the cost of acquisition of such self-generated asset as 'Nil' for the purpose of undertaking TDS. Accordingly, as claimed by the assessee in submissions dated. 12.03.2013, vide Point No. 7 and dated. 18.03.2013, vide Point No. 9, the assessee itself has withheld taxes on the entire receipt of Rs. 42,55,32,513/-as its 'capital gains'. 18.3.10. In view of the above discussion, the goodwill, brand name, ' trademark, sanctions, approvals, licenses, viewership, clientele, etc. of the transferred 'channel' pertaining to India constitute an intangible asset situated in....
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....so submitted that in the case of intangible asset, the situs of the intangible asset is to be determined based on the location of the owner of such intangible asset. The Ld.AR in this regard further submitted that the Hon'ble Delhi High Court in the case of Cub Pty Ltd (2016) 71 taxmann.com 315 has considered a similar issue regarding the situs of the intangible asset and taxability of consideration received on transfer of such asset in India in the hands of non-resident and held that situs of intangible asset shall be at the location of the owner. The ld AR further submitted that in the said case the intangibles relating to a brand was exploited in India and even under such circumstances, the Hon'ble Court has held the intangible assets to be situated outside India since the ownership lies outside India. The Ld.AR accordingly submitted that assessee's case is in a better position that the Channel viewing is not restricted to India but is across the globe. Therefore, the ratio laid down by the Hon'ble Delhi High Court is squarely applicable in assessee's case. To substantiate the claim that the ownership of the channel asset being 'Star World' is outside India, the Ld.AR drew our a....
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....ection 9(1)(i) since the transaction does not involve transfer of any share or interest in the company but an intangible asset being the Star World Channel. Therefore before proceeding further we will look at the provisions of section 9(1)(i) which is relevant to assessee's case that read as under - 9.(1)The following incomes shall be deemed to accrue or arise in India; (i) All income accruing or arising whether directly or indirectly through or from any business connection in India or through or from any asset or source of income in India or through the transfer of a capital asset situated in India; Explanation 5 - For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India: 27. Explanation 5 was added to section 9(1)(i) in the Act by the Finance Act, 2012, with retrospective effect from 01.04.1962 which provides that such shares/interest sha....
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....case of shares, where the share derives, directly or indirectly, its value substantially from assets located in India, it did so. There is no such provision with regard to intangible assets, such as trademarks, brands, logos, i.e., intellectual property rights. Therefore, the well accepted principle of 'mobilia sequuntur personam' would have to be followed. The situs of the owner of an intangible asset would be the closest approximation of the situs of an intangible asset. This is an internationally accepted rule, unless it is altered by local legislation. Since there is no such alteration in the Indian context, we would agree with the submissions made on behalf of the petitioner that the situs of the trademarks and intellectual property rights, which were assigned pursuant to the ISPA, would not be in India. This is so because the owner thereof was not located in India at the time of the transaction. 21. As a consequence of the foregoing discussion, the view taken by the AAR on question (1), which was placed before the AAR, cannot be accepted and the answer to the said question would be that the income accruing to the petitioner from the transfer of its right, tit....
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.... the assets owned by the company or entity, as the case may be. Though we have already stated that Explanation 5 does not cover intangible assets, in our considered view even otherwise, for the asset to be treated as situated in India the conditions mentioned in explanation 6 needs to established. In the given case the assessing officer, did not called for any valuation report to analyse whether the value of viewership in India being intangible asset is included in the valuation and price paid for the transaction is substantially derived due to the viewership in India. Though there may be merit in the argument that viewership in India affects the valuation / purchase price of the transaction, we are not in a position to concur with the said contention of the revenue in the absence of any concrete material brought on record to prove the claim that the substantial value of the channel is derived from assets located in India. We further notice that the Hon'ble Delhi High Court in the case of Asia Satellite Telecommunications Co Ltd (supra) has held that merely because the footprint area includes India and the programmers by ultimate consumers/viewers are watching the programs in India....
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.... regard to the application of certain TP principles have become academic and does not warrant separate adjudication. 35. Ground No. 15 & 16 pertain to taxability of income from transfer of channel as short term capital gains. During the year under consideration, the assessee (SARF) a resident of Hong Kong has transferred channel i.e. STAR Vijay channel to another sister concern "Vijay Television Private Limited (VTPL) vide business agreement dated 06/01/2009 for a consideration of Rs. 59,10,50,000/-. By the said agreement, SARF transferred (i) Programs, (ii) Vijay name (iii) Goodwill and (iv) Future revenue for international distribution and advertisement. SARF offered to tax an income towards sale of contents (programs) as Royalty and paid tax thereon. However SARF did not offer to tax the income earned in to the same of Brand, Goodwill and revenue contracts in respect of STAR Vijay channel for the reason that these intangibles are not an asset situated in India. The assessee submitted before the Assessing Officer that the business of the channels namely broadcasting of television channels was carried on from outside of India and the assets transferred are global intangible ass....