ASST CIT CEN CIR 3(2), MUMBAI V. MULTI SCREEN MEDIA P.LTD, MUMBAI

ITA 1237/MUM/2015

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7714 (ITAT-MUMBAI)
• Duration Of Justice: 6 year(s) 5 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-08-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: K
• Next Hearing Date: 05-01-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 03-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: M VIJAY KUMAR; G SUBRAMANYAM
• Keywords: Transfer pricing; International transaction; Set aside
• Section: 37(1); 73

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA (AM) & SHRI PAVAN KUMAR G ADALE (JM) I.T.A. NO. 1237/MUM/2015 (ASSESSMENT YEAR 2010-11) ACIT,CC - 3(2) ROOM NO.402, 4 TH FLOOR PRATHISHTA BHAWAN OLD C.G.O.BUILDING M.K.ROAD, MUMBAI-400 020 VS. MULTI SCREEN MEDIA PVT.LTD. INTERFACE BUILDING NO.7 4 TH FLOOR, MALAD LINK ROAD MALAD(WEST) MUMBAI-400 061 PAN : AABCS1728D ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI P E RCY PARDIWALA DEPARTMENT BY SHRI M.VIJAY KUMAR & SHRI G.SUBRAMANYAM DATE OF HEARING 18.08 .2021 DATE OF PRONOUNCEMENT 24 .08 .2021 O R D E R PER SHAMIM YAHYA (AM) :- THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF DISPUTES RESOLUTION PANEL (DRP)-IV, MUMBAI, DATED 19.12.2014 AND PERTAI NS TO ASSESSMENT YEAR 2010- 11. 2. THE GROUNDS OF APPEAL READ AS UNDER : 1. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW WHETHER THE DRP IS RIGHT IN HOLDING THAT THE BENEFITS OF ADVERTISEMENT AND SALE S PROMOTION EXPENDITURE DOES NOT ACCRUE TO THE CHANNEL COMPANY I.E. ASSESSEE'S AE AN D ONLY TO THE ASSESSEE COMPANY?' 2. 'ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW WHETHER THE DRP IS RIGHT IN RELYING ON THE RATIO OF THE HON'BLE BOMBAY HIGH COU RT IN STAR INDIA LTD. WITHOUT TAKING INTO CONSIDERATION THAT THE SLP AGAINST THE SAID HAS BEEN ADMITTED BY THE HON'BLE SUPREME COURT?' 3. THE APPELLANT CRAVES TO LEAVE TO ADD, TO AMEND A ND / OR TO ALTER ANY OF THE GROUNDS OF APPEAL, IF NEED BE. MULTI SCREEN MEDIA PVT.LTD. 2 4. THE APPELLANT, THEREFORE, PRAYS THAT ON THE GRO UNDS STATED ABOVE, THE ORDER OF THE DRP- IV, MUMBAI MAY BE SET ASIDE AND THAT OF THE ASSESSI NG OFFICER RESTORED. 3. BRIEF FACTS ON THIS ISSUE ARE AS UNDER:- MULTI SCREEN MEDIA PVT.LTD. (MSMI) IS ENGAGED IN T HE BUSINESS OF PRODUCTION, ACQUISITION AND SALE OF TELEVISION PROGRAMMES, MARK ETING OF AIR TIME SLOTS OF TELEVISION CHANNELS TO INDIAN ADVERTISERS AND DISTRIBUTION OF TELEVISION CHANNELS. DURING THE YEAR MSMI HAD BEEN APPOINTED BY MSM SATELLITE (SINGAPORE ) PTE.LTD. [MSMS/AE] AS AN AGENT FOR CANVASSING SALE OF AIRTIME OF CHANNELS OW NED BY MSMS. THE INTERNATIONAL TRANSACTIONS OF THE MSMI WITH ITS AE AS SERVICE PRO VIDER IS FOR MARKETING OF AIR TIME AND DISTRIBUTION OF MSMS CHANNELS IN INDIA FOR WHICH IT GOT REMUNERATION. ON THE IMPUGNED ISSUE THE AO NOTED THAT ASSESSEE COMPANY HAS DEBIT ED AMOUNTS TOWARDS ADVERTISEMENT AND SALES PROMOTION EXPENSES AMOUNTING TO RS. 131,9 7,89,686/-. THE BREAK-UP OF THE SAID ADVERTISEMENT AND SALES PROMOTION EXPENSES ALO NG WITH PARTY-WISE DETAILS WAS GIVEN BY THE ASSESSEE VIDE LETTER DATED 18 FEBRUARY 2014. SUCH EXPENSES WERE INCURRED TOWARDS ADVERTISEMENT BY WAY OF HOARDINGS, ROAD SHOWS, CONF ERENCES, THROUGH TELEVISION CHANNELS AND PUBLICATIONS ETC. 5. AO NOTED ASSESSEES SUBMISSION AS UNDER, ON A OS QUERY ABOUT ALLOWABILITY OF THE SAID EXPENDITURE. 3.2 THE ASSESSEE HAS MADE DETAILED SUBMISSION IN THIS REGARD VIDE ITS SUBMISSION DATED 18 FEBRUARY 2014. IN ITS SUBMISSIONS, THE ASS ESSEE HAS BROADLY CONTENDED AS FOLLOWS: I. IN THE AGE OF MULTIPLE CHANNELS, IN ORDER TO KE EP ITS SUBSCRIBER BASE INTACT AND KEEP THE VIEWERS CONSTANTLY INTERESTED, IT IS IMPORTANT FOR THE ASSESSEE TO CONNECT WITH THE VIEWERS THROUGH VARIOUS MEDIUM LIKE HOARDINGS, ROAD SHOWS, ADVERTISEMENTS ON PRINT AND CABLE MEDIA. . II. THE EXPENSES HAVE BEEN INCURRED WHOLLY AND EXC LUSIVELY FOR THE PURPOSE OF BUSINESS AND ARE ELIGIBLE FOR DEDUCTION UNDER SECTION 37(1) OF T HE ACT. III. THE EXPENDITURE ON ADVERTISEMENT AND SALES PRO MOTION ASSISTS MSM IN ITS DISTRIBUTION BUSINESS AND ALSO HELPS MSM IN DEVELOP ING CONTENT IN LINE WITH VIEWERSHIP PREFERENCES. THIS, IN TURN, HELPS TO INC REASE THE SUBSCRIPTION REVENUES OR AT LEAST MAINTAIN THE LEVEL OF SUBSCRIPTION REVENUE EA RNED BY MSM. MULTI SCREEN MEDIA PVT.LTD. 3 IV. ADVERTISEMENT AND SALES PROMOTION LEADS TO BETT ER CHANNEL RECALL IN THE MINDS OF VIEWERS RESULTING IN HIGHER VIEWERSHIP OF THE CHANN ELS. HIGHER VIEWERSHIP GIVES THE CHANNEL BETTER RATINGS WHICH IN TURN RESULTS IN BET TER ADVERTISING PROSPECTS FOR MSM GENERATING HIGHER ADVERTISEMENT REVENUES WHICH HELP S IT TO EARN HIGHER SERVICE FEE. ACCORDINGLY, IT IS ESSENTIAL FOR MSM TO INCUR THE A FORESAID EXPENSES WITH AN ENDEAVOR TO INCREASE ITS OWN INCOME BY WAY OF DISTRIBUTION R EVENUES AND SERVICE FEE. V. HIGHER THE DISTRIBUTION REVENUES EARNED BY MSM, HIGHER ARE ITS REVENUE SHARE FROM THE DISTRIBUTION ACTIVITY. ACCORDINGLY, THE EXPENSE S AND EFFORTS INVESTED BY MSM TO GARNER MORE LOYALTY AND VIEWERSHIP FOR THE CHANNELS THROUGH EFFECTIVE ADVERTISEMENT AND SAFES PROMOTION HELP MSM TO INCREASE OR AT THE LEAST MAINTAIN ITS DISTRIBUTION REVENUES. VI. THE HON'BLE SUPREME COURT IN THE CASE OF SASOON J. DAVID & CO. -LTD. (1979) (10 CTR 383) (118 ITR 261) HAS HELD THAT NO DISALLOWANC E COULD BE MADE ON THE GROUND THAT INCURRING OF EXPENDITURE WAS NOT NECESSARY FOR THE ASSESSEE OR THAT IT BENEFITED A THIRD PARTY IS NOT A GROUND ON WHICH THE EXPENSES C AN BE DISALLOWED IN THE HANDS OF THE ASSESSEE CONCERN. VII. THAT THE ISSUE UNDER CONSIDERATION IS COVERED IN THE FAVOUR OF ASSESSEE IN ITS OWN CASE FOR A Y 2005-06, WHEREIN THE ITAT PASSED AN OR DER THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF HON'BLE BOMBAY HIGH COUR T IN THE CASE OF STAR INDIA PVT. LTD., AND ACCORDINGLY DECIDED THE ISSUE IN FAVOUR O F MSM, THEREBY DIRECTING THE ASSESSING OFFICER TO ALLOW THE ADVERTISING AND SALE S PROMOTION EXPENDITURE TO MSM. ''VIII. THAT THE ISSUE UNDER CONSIDERATION IS COVER ED IN THE FAVOUR OF' ASSESSEE AS PER THE MUMBAI TRIBUNAL DECISIONS IN THE CASE OF STAR I NDIA PVT LTD, NGC NETWORK (INDIA) PVT. LTD. AND VIACOML8 MEDIA PVT LTD. FURTH ER, THE BOMBAY HIGH COURT HAS REJECTED THE INCOME TAX DEPARTMENT'S APPEAL IN THE CASE OF STAR INDIA AND VIACOM 18. 6. HOWEVER, AO REJECTED THE SAME AND HELD AS UNDER :- 3.3 THE AFORESAID SUBMISSIONS OF THE ASSESSEE HAV E BEEN CONSIDERED. HOWEVER THE SAME ARE NOT FOUND TO BE ACCEPTABLE SINCE THE DEPAR TMENT HAS FILED AN APPEAL BEFORE THE HON'BLE BOMBAY HIGH COURT AGAINST THE ISSUE DEC IDED BY MUMBAI ITAT IN ASSESSEE'S FAVOUR. ALSO, IT IS NOTED THAT THE SPECIAL LEAVE PETITION FILED BY THE REVENUE IN THE SUPREME COURT AGAINST THE ORDER OF T HE HIGH COURT IN THE CASE OF STAR INDIA PVT LTD (SUPRA) HAS BEEN ADMITTED . 3.4 TWO MAJOR SOURCE OF REVENUE FOR THE PRINCIPAL ARE ADVERTISEMENT SALE AND DISTRIBUTION REVENUE. WHILE THE PRINCIPAL COMPENSAT ED THE ASSESSEE COMPANY IN ADVERTISEMENT, PROCUREMENT AND IN DISTRIBUTION BUSI NESS, THE SUBSTANTIAL REVENUE EARNED BY THE ASSESSEE IS ON ACCOUNT OF THE MARK-UP WHICH IT HAS HAD ON SUPPLY OF CONTENT. IN THIS REGARD, IT IS NOTED THAT AN OVERAL L TRANSACTIONS NET MARGIN METHOD IS MULTI SCREEN MEDIA PVT.LTD. 4 TO BE KEPT IN VIEW WHILE DECIDING WHAT PERCENTAGE OF EXPENDITURE CAN BE ALLOWED IN THE HANDS OF THE ASSESSEE CONCERN OUT OF THE TOTAL EXPENDITURE DEBITED. CONSIDERING THE DOMINANT NATURE OF REVENUE RECEIPT FROM CONTENT SUPPLIED AND TAKING A LIBERAL STAND POINT, AS DONE IN EARLIER ASSESSMENT YEARS, T HE ASSESSEE IS ALLOWED 18.75% OF THE TOTAL ADVERTISEMENT AND PROMOTION. THIS IS TREATED AS FAIR AND JUST WITH RESPECT TO THE REVENUE EXPENSES AND PROFIT MARGIN OF THE ASSESSEE FOR AY 2010-11. OUT OF THE TOTAL EXPENSES OF RS 131,97,89,686, 18.75% OF THE SAME AM OUNTING TO RS 24,74,60,566/- IS ALLOWED IN THE HANDS OF ASSESSEE COMPANY UNDER SECT ION 37(1) OF THE ACT. THE BALANCE AMOUNT OF RS 107,23,29,120/- IS HELD AS EXP ENDITURE OF THE CHANNEL PRINCIPAL AND DISALLOWED IN THE HANDS OF THE ASSESSEE CONCERN . IT IS ORDERED ACCORDINGLY. 7. THE ASSESSEE MADE FOLLOWING SUBMISSIONS MADE B EFORE THE LD. DRP FOLLOWING KEY SUBMISSIONS WERE MADE BEFORE THE PANE L : EXPENDITURE ON ADVERTISEMENT AND SALES PROMOTI ON INCURRED BY THE ASSESSEE WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF ITS BUSIN ESS AND HENCE ALLOWABLE UNDER SECTION 37(1) OF THE ACT. FOLLOWING WILL SUPPORT TH IS - USE OF MEDIUMS SUCH AS HOARDINGS, ROAD SHOWS, ADV ERTISEMENTS ON PRINT AND CABLE MEDIA HELPS TO MAINTAIN SUBSCRIBER BASE INTACT AND KEEP THE VIEWERS CONSTANTLY INTERESTED . - GARNERING MORE LOYALTY AND VIEWERSHIP FOR THE CHANNELS THROUGH EFFECTIVE ADVERTISEMENT AND SALES PROMOTION HELPS TO INCREASE OR AT THE LEAST ' MAINTAIN ITS DISTRIBUTION AND ADVERTISEMENT REVENUES. THIS IN TU RN RESULTS IN HIGHER SUBSCRIPTION INCOME AND SERVICE FEE EARNED BY THE ASSESSEE. - CONTRACTUAL OBLIGATION TO INCUR ALL LOCAL MARK ETING EXPENSES. - TRANSFER PRICING OFFICER (TPO) HAS FOUND THAT THE INTERNATIONAL TRANSACTIONS PERTAINING TO MARKETING AND DISTRIBUTION SEGMENT TO BE AT ARM'S LENGTH EXCEPT FOR ADJUSTMENTS MADE IN RESPECT OF BUSINESS RESTRUCTURI NG AND EXTENDING INORDINATELY LONG PERIOD OF CREDIT. 8. THE DRP FOUND THAT THE ISSUE IS COVERED IN FAVO UR OF THE ASSESSEE BY DECISION OF HONBLE BOMBAY HIGH COURT IN STAR INDIA PVT.LTD. 103 ITD 73 . THE DRP HELD AS UNDER:- 9.3. IT IS SEEN THAT THOUGH THE ASSESSEE CITED T HE DECISION IN ITS OWN APPEAL BEFORE ITAT ON THIS ISSUE FOR AY 2005-06 -ITA NO 4686/MUM/ 2010 DATED 20/03/2013, THE ASSESSING OFFICER HAS NOT ACCEPTED IT. THE ASSESSIN G OFFICER DID NOT ACCEPT THE MULTI SCREEN MEDIA PVT.LTD. 5 CONTENTION ON THE GROUNDS THAT THOUGH THE HONBLE I TAT HAS HELD THAT THE FACTS IN THIS CASE ARE SIMILAR TO THE FACTS IN THE CASE OF STAR I NDIA PVT. LTD, IN WHICH CASE THE DECISION OF THE HONBLE ITAT MUMBAI WAS UPHELD BY T HE HONBLE BOMBAY HIGH COURT, SLP HAS BEEN FILED BY THE DEPARTMENT IN THE CASE OF STAR INDIA PVT LTD AG AINST THE DECISION REFERRED TO. IT IS SEEN FROM THE COPY OF THE ORDER IN THE ASSESSEE'S OWN CASE FOR AY 2005-06 THAT THE HON'BLE ITAT HAS ADJUD ICATED THIS ISSUE AT LENGTH IN PARA 3 TO 11, THE FACT IN THE CASE OF THE ASSESSEE HAS BEEN HELD TO BE SIMILAR TO STAR INDIA LTD. , A THIRD MEMBER DECISION REPORTED IN 10 3 ITD 73. THE REVENUES APPEAL IN STAR INDIA LTD. WAS DISMISSED BY THE HON'BLE BOMBAY HIGH COURT IN ITA NO 165/2009 DATED 24/03/2009. IN THE ORDER IN PARA 9 A ND 10, THE HON'BLE ITAT HAVE COMPARED AND HELD THE FACTS IN THE CASE OF STAR IND IA PVT LTD. TO BE SIMILAR TO THAT IN THE CASE OF ASSESSEE. FACTS FOR THE PRESENT YEAR AR E SUBSTANTIALLY SIMILAR TO THE PRECEDING YEARS. HENCE THE AO IS DIRECTED TO ALLOW THE ENTIRE EXPENDITURE CLAIMED AS ADVERTISEMENT AND SALES PROMOTION EXPENDITURE. 9.4. BEFORE PARTING, IT IS NOTED THAT IT IS NOT CLE AR WHETHER THE TPO HAS CONSIDERED THE BENEFIT ARISING TO AE ON ACCOUNT OF VERY LARGE ADVE RTISEMENT AND PROMOTION EXPENSES INCURRED BY THE ASSESSEE, THE CONTRIBUTION TO THE I NTANGIBLE LEGALLY OWNED BY AE, AND WHETHER THE ASSESSEE HAS BEEN ADEQUATELY BEEN COMPE NSATED FOR IT. AT LEAST THERE IS NO EXPLICIT MENTION OF ANY SUCH EXAMINATION IN THE ORDER. NO VIEW IS EXPRESSED ON THIS ASPECT, THOUGH IT FORMS A LIMB OF THE ARGUMENT OF ASSESSEE, SINCE SUCH DETAILS ARE NOT ON RECORD. 9. AGAINST THE ABOVE ORDER REVENUE IS IN APPEAL B EFORE US. 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE RECORD. AS IT IS EVIDENT FROM THE GROUNDS OF APPEAL ITSELF, THE CONTENTION OF THE REV ENUE IS THAT HONBLE BOMBAY HIGH COURT DECISION IN STAR INDIA PVT.LTD. HAS NOT BEEN ACCEPTED BY THE REVENUE AND SLP AGAINST THE SAME HAS BEEN ADMITTED BY HONBLE SUPRE ME COURT. AO HAS ALSO NOTED THAT, ASSESSEE PLEA OF ITAT DECISION IN ASSESSEES OWN CASE IS NOT ACCEPTABLE AS THE SAME HAS BEEN CHALLENGED BEFORE HONBLE HIGH COURT. HAVING HEARD BOTH THE PARTIES AND PERUSED THE RECORDS, WE FIND THAT FILING SLP AG AINST THE HONBLE JURISDICTIONAL HIGH COURT DECISION DOES NOT IN ANY MANNER REDUCE T HE VALUE OF THE PRECEDENT. NOTHING HAS BEEN SHOWN BEFORE US, AS TO WHY THE SAI D DECISION IS NOT TO BE FOLLOWED ON FACTS AND CIRCUMSTANCES OF THE CASE. MOREOVER, A S NOTED BY LD.DRP IN ASSESSEES OWN CASE FOR AY 2005-06 ITAT HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. MULTI SCREEN MEDIA PVT.LTD. 6 ACCORDINGLY, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE LD.DRP AND HENCE, WE UPHOLD THE SAME. 11. IN THE RESULT, THIS APPEAL BY THE REVENUE STA ND DISMISSED. PRONOUNCED IN THE OPEN COURT ON 24.08.2021 SD/- SD/- (PAVAN KUMAR GADALE) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTAN T MEMBER MUMBAI; DATED : 24 /08/2021 SR.PS. THIRUMALESH COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// ( ASSISTANT REGISTRAR) ITAT, MUMBAI