STAR DEN MEDIA SERVICES P.LTD, MUMBAI V. ASST CIT RG 11(1), MUMBAI

ITA 2113/MUM/2014

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 6259 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: K
• Assessment Year: 2009-2010
• Appeal Filed On: 27-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VODHAL RAJ SINGH
• Keywords: Transfer pricing; International transaction
• Section: 201

Judgement Text

T HE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI SHAMIM YAHYA ( A M) & SHRI PAWAN SINGH (JM) I.T.A. NO. 2113 /MUM/ 201 4 (ASSESSMENT YEAR 20 09 - 10 ) I.T.A. NO. 1829/MUM/2015 (ASSESSMENT YEAR 2010 - 11) STAR DEN MEDIA SERVICES PVT. LTD. STAR HOUSE, URMI ESTATE 95 GANPATRAO KADAM MARG, LOWER PAREL WEST MUMBAI - 400 013. PAN : AACCD7658Q V S . ACIT RANGE - 11(1) AAYAKAR BHAVAN M.K. ROAD MUMBAI - 400 020. ( APPELLANT ) ( RESPONDENT ) ASSESSEE BY SHRI PORUS KAKA & SHRI DIVESH CHAWLA DEPARTMENT BY SHRI VODHALRAJ SINGH DATE OF HEARING 26.11.2019 DATE OF PRONOUNCEMENT 05 . 0 2 . 20 20 O R D E R PER SHAMIM YAHYA (AM) : - THESE ARE APPEALS BY THE ASSESSEE AGAINST RESPECTIVE ORDERS OF THE ASSESSING OFFICER PASSED BY THE ASSESSING OFFICER PURSUAN T TO DIRECTION OF LEARNED DISPUTE RESOLUTION PANEL (DRP) FOR A.Y. 2009 - 10 & 2010 - 11 RESPECTIVELY. 2. SINCE THE ISSUES ARE COMMON AND CONNECTED AND APPEALS WERE HEARD TOGETHER THESE ARE BEING CONSOLIDATED AND DISPOSED OF BY THIS COMMON ORDER. 3. THE C OMMO N ISSUE RAISED IS THAT THE TRANSFER PRICING OFFICER (TPO) ERRED IN TRANSFER PRICING ADJUSTMENT OF RS. 429,611,231/ - FOR A.Y. 2009 - 10 AND RS. 2,88,54,506 FOR A.Y. 2010 - 11. SINCE THE FACTS ARE IDENTICAL WE ARE REFERRING TO THE FACTS AND FIGURES FOR A.Y. 2009 - 10. 4. BRIEF FACTS OF THE CASE ARE AS UNDER : - STAR DEN MEDIA SERVICES PVT. LTD. 2 THE ASSESSEE, STAR DEN MEDIA SERVICES PVT. LTD. (HEREINAFTER REFERRED TO AS STAR DEN) IS A JOINT VENTURE (HEREINAFTER REFERRED TO AS JV) BETWEEN STAR INDIA PVT. LTD. REFERRED TO AS 'SIPL') AND DEN NETW ORKS LIMITED (HEREINAFTER REFERRED TO AS 'DEN'). SIPL AND DEN ENTERED INTO THE JV TO LEVERAGE ON THE CAPABILITIES OF BOTH ENTITIES AND TO ESTABLISH A PLATFORM FOR DISTRIBUTING TELEVISION CHANNELS IN INDIA. THE JV AGREEMENT WAS ENTERED INTO WITH EFFECT FROM JANUARY 2008. STAR DEN HAS OBTAINED LICENSES TO DISTRIBUTE TELEVISION CHANNELS OWNED BY ITS ASSOCIATED ENTERPRISES (HEREINAFTER REFERRED TO AS 'AES') AND BY THIRD PARTIES. IT IS RELEVANT TO POINT OUT THAT THIS WORK HAD EARLIER BEEN CARRIED OUT BY STAR IND IA PVT . LTD., TILL THE END OF THE EARLIER FINANCIAL YEAR. 5. DETAILS OF INTERNATIONAL TRANSACTIONS : - T HE ASSESSEE HAS REPORTED THE FOLLOWING INTERNATIONAL TRANSACTIONS IN ITS FORM 3CEB: - SR.NO. N ATU RE OF TRANSACTION AE VALUE O F TRANSACTION METHOD USED 1. OBTAINING LICENSE FOR DISTRIBUTION OF CHANNELS STAR TELEVISION ENTERTAINMENT LIMITED CSTEL') 2,297,915,891 TNMM STAR ASIAN MOVIES LTD ('SAML') 470,593,717 STAR INTERNATIONAL MOVIES LIMITED ('SIML') 508,146, 970 CHANNEL [V] MUSIC NETWORKS LIMITED PARTNERSHIP ('CHANNEL V) 35 9, 348 ,944 STAR ASIA REGION FZ LLC CSAR ') 1,031,505,393 FOX INTERNATIONAL CHANNELS (US) INC ('FIC') 211,888,339 NGC NETWORK ASIA LLC ('NGC ASIA') 371,263,251 2. PROVISION OF SERVICES IN RELATION TO DISTRIBUTION OF CHANNELS IN SRI LANKA AND BANG LADESH ASIAN BROADCASTING, FZ - LLC (AB) 4,647,985 TNMM 6. DETERMINATION OF ALP : - STAR DEN MEDIA SERVICES PVT. LTD. 3 THE ASSESSEE HAS AGGREGATED THE INTERNATIONAL TRANSACTION RELATING TO PROVISION OF SERVICES IN RELATION TO DISTRIBUTION OF CHANNELS, WITH THE TRANSACTION PERTAINING TO OBTAINING LICENSE FOR DISTRIBUTION OF CHANNELS FOR BENCHMARKING PURPOSES. THE ASSESSEE, IN ITS TRANSFER PRICING REPORT, HAS DOCUMENTED THAT THE TWO INTERNATIONAL TRANSA CTIONS ENTERED INTO BY STAR DEN, ARE SIMILAR IN NATURE WITH MINOR VARIATIONS IN THE TERMS OF THEIR ARRANGEMENT. THE ASSESSEE CLAIMS THAT SINCE THE FUNCTIONS PERFORMED AND THE NATURE OF EFFORTS EXPENDED FOR BOTH TRANSACTIONS ARE SIMILAR, THE FACT THAT AN IN SIGNIFICANT PORTION OF STAR DEN'S TOTAL REVENUE IS GENERATED FROM PROVISION OF SERVICES FOR DISTRIBUTION OF CHANNELS IN SRI LANKA AND BANGLADESH AND GIVEN THE SIMILARITY IN THE EFFORTS INVOLVED AND THE COMMONALITY OF THE RESOURCES, IT IS PRACTICALLY NOT PO SSIBLE TO IDENTIFY THE PROFIT GENERATED FROM THE ACTIVITIES SEPARATELY I.E. IT IS NOT POSSIBLE TO PREPARE SEGMENTED ACCOUNTS FOR THE TWO INTERNATIONAL TRANSACTIONS. 7. THE ASSESSEE, ACCORDINGLY, DUE TO THE SIMILARITY IN THE FUNCTIONS PERFORMED FOR INTERNA TIONAL TRANSACTIONS, INSIGNIFICANT VALUE AND THE INABILITY TO BIFURCATE THE PROFIT AND LOSS ACCOUNT HAS AGGREGATED AND ANALYZED BOTH THE TRANSACTIONS UNDER THE MAIN BUSINESS ACTIVITY OF THE ASSESSEE I.E. OBTAINING LICENSE FOR DISTRIBUTION OF CHANNELS FOR T HE PURPOSE OF BENCHMARKING THE ALP. THUS, THE OVERALL ENTITY LEVEL TNMM APPROACH IS ADOPTED TO BENCHMARK THE INTERNATIONAL TRANSACTIONS BY THE ASSESSEE AND IS FOUND TO BE APPROPRIATE. 8. BASED UPON VARIOUS FUNCTIONS AND RISKS , THE ASSESSEE CLAIMED T H AT IT WA S ENGAGED IN THE BUSINESS OF DISTRIBUTION OF TELEVISION CHANNELS. FOR THE PURPOSE OF CONDUCTING ITS BUSINESS, THE ASSESSEE HAS OBTAINED THE RIGHTS FOR DISTRIBUTION OF VARIOUS TELEVISION CHANNELS FROM ITS AES. IN CONSIDERATION, THE ASSESSEE HAS PAID LICE NSE FEES TO ITS AES. 9. THE SEARCH PROCESS WAS UNDERTAKEN BY THE ASSESSEE FOR DETERMINING THE COMPARABLE COMPANIES, WHEREIN IT WAS NOTED THAT DISTRIBUTION OF CHANNELS IN THE ENTERTAINMENT INDUSTRY WAS MOSTLY WITHIN GROUP COMPANIES AND ACCORDING STAR DEN MEDIA SERVICES PVT. LTD. 4 TO THE ASS ESSEE THERE WAS NO PUBLICLY AVAILABLE DATA TO COMPARE THE PRICING. THE ASSESSEE THEN EXPANDED THE SEARCH PROCESS AND IT WAS OBSERVED THAT DISTRIBUTION OF CHANNELS WAS AKIN TO DISTRIBUTION OF COMPUTER SOFTWARE AS BOTH REQUIRED SELLING THE CONTENT ON A MAGNE TIC MEDIUM. ACCORDINGLY, THE ASSESSEE CONSIDERS COMPANIES ENGAGED IN DISTRIBUTION OF COMPUTER SOFTWARE APPROPRIATE FOR BENCHMARKING THE INTERNATIONAL TRANSACTIONS ENTERED INTO BY IT. 10. THE ASSESSEE HAS ADOPTED TNMM TO BE THE MOST APPROPRIATE METHOD TO B ENCHMARK THE TRANSACTION WITH OP/TR AS THE PLI AND WITH THE ASSESSEE AS THE TESTED PARTY. THE ASSESSEE HAS AN ENTITY LEVEL PLI WORKING OF 0.74%. THE WEIGHTED AVERAGE OF THE COMPARABLE PLI WAS GIVE N. 11. THE TPO WAS NOT SATISFIED WITH THE COMPARABLE SELEC TED. HE OBSERVED THAT THE COMPARABLES SELECTED BY THE ASSESSEE I.E. SOFTWARE DISTRIBUTORS DO NOT UNDERTAKE FUNCTIONS WHICH ARE SIMILAR TO THAT OF THE ASSESSEE. THE TPO REJECTED ALL THE SUBMISSIONS AND OBJECTIONS OF THE ASSESSEE AND FINALLY CAME TO THE FOLL OWING SET OF COMPARABLES : - SR.NO. N A ME OF COMPANY MARGIN (IN %) F.Y. 2008 - 09 1 FAME MOTION PICTURES LTD./SHRINGAR FILMS LTD. 6.28 2 NATIONAL FILMS DEVELOPMENT CORPORATION LTD. 20.17 3 ASIAN FILMS PRODUCTION AND DISTRIBUTION LTD. 8.07 11.51 1 2. IN THE LIGHT OF THE ABO V E, GIVEN THAT THE ASSESSEES MARGIN OF 4.62% IS LESS THAN THE ARITHMETIC MEAN OF 11.51% OF THE COMPARABLES AND GIVEN THAT THE SAME DOES NOT FALL WITHIN PLUS AND MINUS 5% SAFE LIMITS, T HE TRANSFER PRICING ADJUSTMENT WAS WORKED OUT . 13. T HE TRANSFER PRICING ADJUSTMENT WAS ALSO DONE , F OR A.Y. 2010 - 11 ON SIMILAR FACTS . T HE TPO REJECTED THE ASSESSEES COMPARABLES. HE REFERRED TO THE ORDER FOR A.Y. 2009 - 10. OUT OF THE COMPARABLES SELECTED FOR A.Y. 2009 - 10 HE R EJECTED THE T URNOVER A SIAN FILMS PRODUCTION AND DISTRIBUTION LTD. BY STAR DEN MEDIA SERVICES PVT. LTD. 5 OBSERVING THAT THE TURNOVER WAS BELOW RS. 1 CRORE. THE TPO ADDED BABA ARTS LIMITED DURING THE YEAR. BASED UPON IT HE CAME TO THE FOLLOWING COMPARABLES : - SR.NO. N AME OF COMPANY MARGIN (IN % ) 1 FAME MOTION PICT URES LTD./SHRINGAR FILMS LTD. - 4.94 2 NATIONAL FILM DEVELOPMENT CORPORATION LTD. 17.66 3 BABA ARTS LTD. 5.45 ARITHMETIC MEANS 6.06 T HEREAFTER THE TRANSFER PRICING ADJUSTMENT WAS DONE AT RS. 2,88,54,506/ - . THE ASSESSEES OBJECTION AGAINST THE ABOVE T RANSFER PRICING A D J USTMENT WAS REJECTED BY LEARNED DRP. 14. AGAINST THIS ORDER THE ASSESSEE HAS FILED THE APPEAL BEFORE THE ITAT. 15. WE HAVE HEARD BOTH THE COUNSEL AND PERUSED THE RECORDS. LEARNED SENIOR C OUNSEL SHRI PORUS KAKA SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF DELHI ITAT IN THE CASE OF TURNER INTERNATIONAL INDIA (P) LTD. VS. ACIT (95 TAXMANN.COM 285) AND DECISION OF ITAT MUMBAI IN THE CASE OF ACIT VS. NGC NETWORK (INDIA) PVT. LTD. (10 TAXMANN.COM 140). REFERRING TO THE SAID DECISION OF TURNER INTERNATIONAL INDIA P. LTD. (SUPRA), LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT IN THE SAID DECISION IT WAS NOTED THAT THE ASSESSEE WAS MAINLY ENGAGED IN THE BUSINESS OF MARKETING AND DISTRIBUTION OF SATEL LITE CHANNELS OF CARTOON NETWORK, CNN, POGO, HBO ETC. THE TRIBUNAL GAVE A FINDING THAT THE SATELLITE TV CHANNELS AND CABLE NETWORK OPERATORS HAD SIGNIFICANTLY DIFFERENT OPERATING MODELS AND PROVIDE EARNING MODEL AND SUCH CHANNELS CONTENT OWNER COMPANIES SH OULD NOT BE INCLUDED FOR THE PURPOSE OF COMPARABILITY ANALYSIS FOR DISTRIBUTION SEGMENT. IT WAS HELD THAT SINCE THE ASSESSEE COMPANY WAS MAINLY ENGAGED IN MARKETING AND DISTRIBUTION OF SATELLITE CHANNELS OF CARTOON NETWORK, CNN, POGO, HBO ETC., THE COMPAN Y ENGAGED IN TRADING IN COMPUTER PACKAGES AND WHO WERE MAINLY SOFTWARE DISTRIBUTION COMPANY COULD BE TAKEN AS GOOD COMPARABLE. LEARNED COUNSEL CONTENDED THAT AS PER THE TRIBUNAL ORDER IN STAR DEN MEDIA SERVICES PVT. LTD. 6 TURNER INTERNATIONAL INDIA PVT. LTD. (SUPRA) FOLLOWING WERE THE FINAL COMPARABLES : - EMPOWER INDUSTRIES INDIA LTD. SONATA INFORMATION TECHNOLOGIES LTD. SOF T CELL TECHNOLOGIES LTD. TRIJAL INDUSTRIES LTD. 16. LEARNED COUNSEL OF THE ASSESSEE SUBMITTED THAT THE ASSESSEES SELECTION OF SOFTWARE DISTRIBUTOR AS COMPARABLE SHOULD BE ACCEPTED ON THE TOUCHSTONE OF ABOVE DECISIONS . HE SUBMITTED THAT THE ASSESSEES COMPARABLE FOR A.Y. 2009 - 10 INCLUDED SONATA INFORMATION TECHNOLOGIES LTD. A ND FINTECH COMMUNICATIONS LTD. F OR A.Y. 2010 - 11 IT ALSO INCLUDED EMPOWER INDUSTRIES INDIA LTD. HE SUBMITTED THAT A LL THESE HAVE BEEN FOUND BY THE ITAT IN TURNER INTERNATIONAL INDIA PVT. LTD. TO BE GOOD COMPARABLE. HENCE, LEARNED COUNSEL CONTENDED IF THE COMPARABLES APPROVED BY THE ITAT IN THE CASE OF TURNER INTERNATIONAL INDIA P. LTD. ARE ADOPTED THE ASSESSEE MARGIN WOULD COMPARE FAVORABLY WITHIN THE SAFE HARBOUR RULES OF PLUS AND MINUS 5% AND NO ADJUSTMENT WOULD BE CALLED FOR. 17. PER CONTRA, LEARNED DEPARTMENTAL REPRESENTATIVE RELIED UPON THE ORDER OF DRP. 18. WE HAVE CAREFULLY CONSIDERED THE SUBMISS IONS AND PERUSED THE RECORD. WE FIND THAT THE SUBMISSIONS OF LEARNED COUNSEL THAT IDENTICAL ISSUE WAS DECIDED IN THE CASE OF TURNER INTERNATIONAL INDIA P. LTD. (SUPRA) BY THE ITAT DELHI BENCH HAS SUFFICIENT COGENCY. THE BUSINESS ACTIVITY OF THE ASSESSEE IN THAT CASE WAS MARKETING AND DISTRIBUTION OF SATELLITE TV CHANNELS. AKIN TO THAT THE ASSESSEE IN THE PRESENT CASE IS ALSO INVOLVED IN DISTRIBUTION OF VARIOUS STAR AS WELL AS THIRD PARTY CHANNELS IN INDIA. IN SUCH CIRCUMSTANCES, SELECTION OF COMPARABLES ENG AGED IN SOFTWARE DISTRIBUTOR HAS BEEN ACCEPTED BY THE ITAT. ACCORDINGLY, WE ACCEPT THE SUBMISSION OF LEARNED COUNSEL AND DIRECT THE TPO TO EXAMINE HIS SUBMISSION THAT IF THE COMPARABLES FINALLY ACCEPTED BY THE ITAT IN THE CASE OF TURNER INTERNATIONAL INDIA P. LTD. ARE TAKEN INTO ACCOUNT AND THE COMPARABLES OF THE ASSESSEE ARE SELECTED WITH REFERENCE TO IT THE MARGIN SHOULD STAR DEN MEDIA SERVICES PVT. LTD. 7 BE ACCEPTED IF THEY ARE PLUS AND MINUS 5%. NEEDLESS TO ADD ASSESSEE SHOULD BE PROVIDED ADEQUATE OPPORTUNITY. 19. IN THE RESULT, ASSESSE ES APPEALS STAND ALLOWED AS ABOVE. ORDER HAS BE EN PRONOUNCED IN THE COURT ON 5 . 2 . 20 20 . SD/ - SD/ - ( PAWAN SINGH ) (SH A MIM YAHYA ) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI ; DATED : 05 / 0 2 / 20 20 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 ) PS ITAT, MUMBAI