TaxTMI 
TaxTMI 
2024 (2) TMI 518
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....omparability 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 - - 10 Initiation of penalty proceedings under section 271(1)(c), 271A and 272B of the Act Gr. No.18-20 Gr. No.17-19 ITA 1814/Mu....
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.... 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) 2. Star International Movies Ltd (SIML) 3. Star Asian Movies Ltd (SAML) 4. Star Asian Region FZ LLP (SAR) 5. Channel V Networks Ltd - Partnership (Channel V) All the above companies are foreign companies and are engaged in the satellite....
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....ll 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. (v) The above profits earned by the Channel Companies and Star Ltd were consolidated to determine the total profits earned in respect of the India revenues for the 12 month period April 1. 2008 to March 31, 2009 vi) Since the profits earned by the Channel Companies and Star Ltd were consolidated, the co....
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....idated 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% 10. Accordingly, the TPO arrived at the TP adjustments as below:- Particulars INR Revenues 16,598,783,475 Profit at the rate of 13.54 percent 2,246,906,824 Profit at the rate of 8.48 percent 1,406,889,746 Adjustment amount 840,017,078 11. The TPO held that it would be appropriate to apportion 50% of the adjustment to Star Limited and 50% to channel companies and split the 50% amongst the channel companies as below to make an adjustment of Rs. 25,64,77,167/-:- Particulars Total - 50% of Rs. 840,017,078 STEL (INR) S....
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....rther, 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 due to write-off of bad debt, still this company cannot be excluded as a comparable since bad debts are operating in nature. In view of the aforesaid, we direct the Assessing Officer / Transfer Pricing Officer to include the aforesaid three companies as comparable and determine the arm's length price accordingly. These grounds are allowed." 14. The Ld.DR relied on the order of the lower authorities. 15. We heard the parties and perused the materials on record. In the case of the assessee, the Assessing Officer has excluded the above 3 comparables for the same reasons that those companies are loss....
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....v. 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 1095227617 NIL 128316111 1223543728 478662811 342592244 64810945 407403188 SARF 2854166988 -2.91 1804147631 NIL 1619109 1805766740 1198371171* 505614687 162263394 667878081 17. The Ld.AR in this regard submitted that the addition has been made purely on estimate basis and, therefore, cannot be sustained. The Ld.AR further submitted that the issue is covered by the decision of the co-ordinate bench in the case Star International Movies Ltd (supra) has considered the similar issue and has deleted the addition made by the Assessing Officer. The ld AR also submitted that the assessing officer in assessee's case has made the addition in similar as in the case of Star Internationa....
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....sfer 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 of such transaction to taxation in India for the reason that the channel is not an asset situated in India. The assessee submitted before the Assessing Officer that the said transactions is between the assessee and SIML being non residents and that the Star World business is situated outside India and, therefore, the sale of Star World is not taxable in India. The assessee further submitted that tax has been deducted at source on the payment of sale consideration and therefore the same cannot be treated as capital gains in the hands of the assessee. The Assessing Officer did not accept the submissions of the assessee and proceeded to treat the entire transaction value as short term capital gain taxable in India. The relevant observations of the assessing Officer is as ....
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....ers 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 assessee that "Star World channel business is situated outside India" is flawed. Therefore, the proceeds from sale of Star World Channel are linked to transfer of assets situated in India and accordingly, taxable in India. 18.3.6. ****** 18.3.7. Hence, from the above discussion it is dear that the Channel sale consists of transfer of assets like the Brand-name, goodwill, and certain items like contents and pre-ordered contracts and the rights over band and frequencies linked to the Indian skies and Indian approvals, sanctions, licenses and viewership. Further, on account of failure of the assesses to furnish the detailed working of asset value attributable to outside India and computation of the amounts of capital gains taxable in India, the entire consideration is treated a emanating from transfer of assets in India and being held as ....
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....ins'. 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 India akin to those envisaged u/section 55(2)(a) of the Income Tax Act, 1961. Since such are self-generated assets, the cost of acquisition is taken to be 'Nil'. Therefore the entire Sale Consideration Rs. 42,55,32,5137- is treated as Short-term capital gain in the hands of the assessee." 23. The Ld.DRP upheld the addition for the reason that the assets such as brand name, logo, goodwill, contents, terms, licenses, approval, customer base, viewers base are all located in India and, therefore, the asset cannot be held to be located outside India. 24. The Ld.AR submitted that the transfer of Star World Channel happened between assessee and Star International Movies Ltd both being non-resident and that in the case of non residents, the liability to pay tax arises on the income derived by him which received or deemed to be received in India or which accrues or arises in India or which accrues or arises or is deemed to acc....
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....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 attention to the guidelines issued by the Ministry of information and Broadcasting of India, which requires a foreign taxing company, i.e. the channel which is uplinked from outside India to obtain down linking license in India and accordingly, down linking license were obtained by the assessee to operate Star World channel in India. This would, according to the Ld.AR, evidence that the channel is owned and uplinked from outside India and, therefore, the ownership of the intangible asset is outside India. 25. The ld DR on the other hand vehemently argued that Explanation 5 to section 9(1)(i) would be applicable in assessee's case the assessee derives its value in the form of viewership substantially from India. The ld DR further submitted that even otherwise the income earned would fall within section 9(1)(i) itself and that in the case of intangible assets the situs need not always be where the owner is present. 26. We heard t....
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....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 shall be deemed to be situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India. With the insertion of the said explanation the legislature has brought in clarity with respect to the situs of the capital asset being share or interest in a company by stating that if the share or interest derives, directly or indirectly, its value substantially from the assets located in India is shall be treated as an asset situated in India. However there is no such specific provision with regard to the situs of intangible assets, such as trademarks, brands, logos, etc. We in this regard notice that the Hon'ble Delhi High Court in the case of Cub Pty Ltd (supra) has considered the issue of situs of the capital asset being intangible asset i.e. when it shall be deemed to be situated in India and held that - 19. The issue of situs of an intangible asset, such as the intellectual property rights in....
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....n 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, title or interest in and to the trademarks in Foster's brand intellectual property is not taxable in India under the Income Tax Act, 1961. That being the case, question (2), which was posed before the AAR, would not arise. 28. The Hon'ble High Court by following the principle of 'mobilia sequuntur personam' which means "movables follow the law of the person" and accordingly held that the situs of the owner of an intangible asset would be the closest approximation of the situs of an intangible asset. In the issue under consideration it is an undisputed fact that the asset transferred i.e. Star World Channel is an intangible asset. From the perusal of the down linking license obtained by the assessee from Ministry of information and Broadcasting of India to operate Star World channel in India, it is also established that the ownership of the Star World channel is outside India. Given this, when the ratio laid down by the Hon'ble Delhi High Court in the above case ....
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....se 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, even when they are uplinked and relayed outside India, would not mean that the assessee is carrying out its business operations in India. Applying the said ratio to the issue under consideration, we are of the view that the Star World Channel having viewership India generation income cannot be a reason for holding that the channel is an asset situated in India. Therefore on this count also the addition made is not tenable. 30. Ground No.17 to 19 The assessee is contending the initiation of penalty proceedings through these grounds. The issue is premature not warranting any adjudication. ITA 1813/Mum/2014 - Star Asian Region FZ LLP (SARF) 31. The grounds of appeal raised by SARF (assessee in this case) in assessment year 2009-10 are tabulated in the earlier part of this order, from which it is clear that all the issues arising in the case of the SARF are similar to the ground raised in the case of STEL except taxation of 'royalty income (Ground No.17). Considering the fact that ....
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.... 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 assets not specific to Indian business. The Assessing Officer did not accept the submissions of the assessee and proceeded to treat the entire transaction value as short term capital gain taxable in India. The DRP upheld the addition made by the Assessing Officer. 36. We have while adjudicating the issue of transfer of STAR World channel by STEL to SIML held that for an intangible asset the situs is where the owner of the asset is situated and since the STAR World is owned by STEL who is a non resident the intangible asset being the channel is not a capital asset situated in India and accordingly the gain on transfer of such asset is not taxable in India. (refer para 26 to 28 of this order). Reliance in this regard is placed on the decision of the Hon'ble Delhi High Court in the case of Cub Pty Ltd (supra). Applying the ratio of the decision of the Hon'ble High Court to the case of the present assessee (SARF), in our considered view that the situs of STAR Vijay channel, an intangible asset ....