NGC NETWORK INDIA P. LTD, MUMBAI V. ASST CIT CIR 16(1), MUMBAI

ITA 2223/MUM/2017

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 7104 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-04-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 30-03-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANISH KUMAR SINGH
• Keywords: Transfer pricing; International transaction; TDS
• Section: 143(3); 40(a)(ia); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL J BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI RAJESH KUMAR , ACCOUNTANT MEMBER ITA NO. 2223 / MUM . /2017 ( ASSESSMENT YEAR : 20 1 2 13 ) NGC NETWORK (INDIA) PVT. LTD. STAR HOUSE, URMI ESTATE 95, GANPATRAO KADAM MARG LOWER PAREL (W), MUMBAI 400 013 PAN AABCN1401A . APPELLANT V/S ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 16(1), MUMBAI . RESPONDENT REVENU E BY : SHRI MANISH KUMAR SINGH ASSESSEE BY : SHRI PORUS KAKA DATE OF HEARING 18.03.2019 DATE OF ORDER 30.04.2019 O R D E R PER SAKTIJIT DEY. J.M. THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER PASSED UNDER SECTION 143(3) R/W SECTION 144C(13) OF THE INCOME - TAX ACT, 1961 (FOR SHORT 'THE ACT' ) FOR THE ASSESSMENT YEAR 2012 13 IN PURSUANCE TO THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL 2 (DRP), M UMBAI. 2 NGC NETWORK (INDIA) PVT. LTD. 2 . GROUND NO.1, BEING GENERAL IN NATURE DOES NOT REQUIRE ADJUDICATION. 3 . I N GROUNDS NO.2 TO 17, THE ASSESSEE HAS RAISED THE ISSUE RELATING TO TRANSFER PRICING ADJUSTMENT. 4 . AT THE OUTSET, SHRI PORU S KAKA, LEARNED SR. COUNSEL FOR THE ASSESSEE SUBMITTED , IF GROUND NO.12, RELATING TO COMPARABILITY OF APITCO LTD., IS DECIDED IN FAVOUR OF THE ASSESSEE, ASSESSEES MARGIN WOULD BE WITHIN THE ARM'S LENGTH PRICE, HENCE, THE OTHER GROUNDS RELATING TO TRANSFER PRICING ISSUE S WOULD BECOME REDUNDANT. 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE HAS ALSO AGREE D WITH THE AFORESAID SUBMISSION OF THE LEARNED SR. COUNSEL FOR THE ASSESSEE. 6 . IN VIEW OF THE AFORESAID, WE DEEM IT APPROPRIATE TO DECIDE GROUND NO.12, AT THE VERY OUTSET. 7 . BRIEF FACTS ARE, THE ASSESSEE , AN INDIAN C OMPANY , IS BASICALLY ENGAGED IN DISTRIBUTION OF VARIOUS CHANNELS BELONGING TO ITS OVERSEAS ASSOCIATED ENTERPRISES (AE) AND OTHER RELATED ACTIVITIES INCLUDING BUSINESS SUPPORT SERVICE. THE DISPUTE IN THE PRESENT APPEAL IS CONFINED TO THE ADJUSTMENT MADE TO THE ARM'S LENGTH PRICE OF BUSINESS SUPPORT SERVICE. IT IS STA TED THAT IN THE COURSE OF BROAD C ASTING OF THE CHANNELS OF THE AE, THE ASSESSEE ADDS SOME SMALL PROMOS FOR WHICH IT RECEIVES 3 NGC NETWORK (INDIA) PVT. LTD. FEE FROM THE A E. THE ASSESSEE BENCHMARKED SUCH TRANSACTION BY APPLYING TRANSACTIONAL NET MARGIN METHOD ( TNMM ) AS THE MOST APPROPRIATE METHOD AND THE MARGIN SHOWN BY THE ASSESSEE AT 9.94% WAS FOUND TO BE AT ARM'S LENGTH IN COMPARISON TO THE ARITHMETIC MEAN OF SIX COMPARABLE COMPANIES AT 5.39%. THE TRANSFER PRICING O FFICER DID NOT ACCEPT THE BENCH MARKING OF THE ASSESSEE. THE TRANSFER PRICING OFFICER OBSERVED , MOST OF THE COMPARABLES SELECTED BY THE ASSESSEE ARE NOT COMPARABLE . THEREFORE, THE TRANSFER PRICING OFFICER PROPOSED A SET OF FIVE NEW COMPARABLES WITH ARITHMETIC MEAN OF 15.66% AND ULTIMATELY INCLUDED THEM IN THE FINAL SET OF COMPARABLES. THE MA RGIN SHOWN BY THE ASSESSEE AT 8. 94% SINCE DID NOT FALL WITHIN THE ACCEPTABLE RANGE OF THE ARITHMETIC MEAN OF THE COMPARABLES SELECTED, THE TRANSFER PRICING OFFICER PROPOSED UPWARD ADJUSTMENT TO THE ARM'S LENGTH PRICE OF THE INTERNATIONAL TRANSACTION RELATING TO BUSINESS SUPPORT SERVICES. 8 . LEARNED DRP ALSO UPHELD THE DECISION OF THE TRANSFER PRICING OFFICER. 9 . BEFORE US, LEARNED SR. COUNSEL FOR THE ASSESSEE HAS RESTRICTED HIS ARGUMENT TO SELECTION OF APITCO LTD., AS A COMPARABLE. IN THIS REGARD, THE SPECIFIC CONTENTION OF THE LEARNED SR. COUNSEL FOR THE ASSESSEE IS , THE COMPANY BEING A GOVERNMENT COMPANY CANNOT BE TREATED AS COMPARA BLE. TO EMPHASIZE THIS FACT, LEARNED SR. COUNSE L DREW OUR 4 NGC NETWORK (INDIA) PVT. LTD. ATTENTION TO THE FUNCTIONAL PROFILE OF THIS COMPANY AS CONTAINED IN THE ANNUAL REPORT AND SUBMITTED THAT WHILE THE ASSESSEE IS RENDERING SMALL SUPPORT SERVICES TO THE AE , THIS COMPARABLE IS AN ENTREPRENEUR . FURTHER, HE SUBMITTED , THE SEGMENTAL DETAILS OF VARIOUS SEGMENTS ARE NOT AVAILABLE IN THE ANNUAL REPORT. FURTHER, DRAWING OUR ATT ENTION TO THE ANNUAL REPORT, LEAR NED SR. COUNSEL SUBMITTED , T HIS COMPANY RECEIVES SUBSIDY FROM THE GOVERNMENT. THEREFORE, THE BUSINESS MODEL OF THE COMPANY IS COMPLETELY DIFFERENT FROM THE ASSESSEE. HE SUBMITTED , THE DRP ITSELF HAS HELD THAT THE GOVERNMENT COMPANIES DUE TO THEIR DIFFERENT BUSINESS MODEL CANNOT BE CONSIDERED AS COMPARABLE. THUS , HE SUBMITTED , THIS COMPANY HAS TO BE REJECTED. I N SUPPORT OF HIS CONTENTION, LEAR NED SR. COUNSEL RELIED UPON THE FOLLOWING DECISIONS: I ) PCIT V/S INTERNATIONAL SOS SERVICES INDIA PVT. LTD., SLP (C) DIARY NO.18255/2018, DA T ED 30.05.2017; II ) PCIT V/S INTERNATIONAL SOS SERVICES INDIA PVT. LTD., ITA NO.454/2016, DATED 30.05.2017 (DELHI HIGH COURT) ; III ) INTERNATIONAL SOS SERVICES INDIA PVT. LTD. V/S DCIT, [2016] 67 TAXMANN.COM 73 (DEL.); IV ) M/S. H&M MAURITZ INDIA PVT. LTD. V/S DCIT, IT(TP) NO.282/ BANG./2015, ETC., DATED 19.08.2016; V ) CIT V/S THYSSEN KRUPP INDUSTRIES INDIA PVT. LTD., [2018] 68 TAXMANN.COM 248 (BOM.); VI ) THYSSENKRUPP INDUSTRIES INDIA PVT. LTD. V/S ACIT, [2013] 33 TAXMANN.COM 107 (MUM. TRIB.) 5 NGC NETWORK (INDIA) PVT. LTD. 10 . DRAWING OUR ATTENTION TO THE ANNUAL REPORT OF THE COMPA NY LEARNED DEPARTMENTAL REPRESENTATIVE SUBMITTED , THIS COMPANY CANNOT BE TREATED AS A 100% GOVERNMENT COMPANY AS VARIOUS OTHER ENTITI ES INCLUDING PRIVATE PERSONS ARE HOLDING SHARES OF THE COMPANY. HE SUBMITTED , THOUGH THE COMPANY MAY BE A PUBLIC SECTOR UNDERTAKING, BUT IT CANNOT BE CONSIDERED AS A 100% GOVERNMENT COMPANY. HE SUBMITTED , SINCE THE COMPANY IS FUNCTIONALLY SIMILAR TO THE ASSESSEE, IT HAS TO BE ACCEPTED AS A COMPARABLE. 11 . IN REJOINDER, LEARNED SR. COU NSEL FOR THE ASSESSEE SUBMITTED , IRRESPECTIVE OF THE FACT THAT T HIS COMPARABLE IS A GOVERNMENT COMPANY, EVEN A PSU CANNOT BE CONSIDERED AS A COMPARABLE SINCE IT IS PROTECTED BY GOVERNMENT IN MANY WAYS INCLUDING GRA NT OF SUBSIDY . RELYING UPON THE DECISION O F THE HON'BLE DELHI HIGH COURT IN LI & FUNG INDIA PVT. LTD. V/S CIT , (2014)361 ITR 85 , THE LEARNED SR. COUNSEL SUBMITTED , THE STANDARD OF COMPARABILITY UNDER TRANSACTIONAL NET MARGIN METHOD ( TNMM ) IS NOT LESS THAN ANY OTHER APPLICABLE METHODS. FURTHER, HE SUBMITTED, THIS COMPANY CANNOT BE CONSIDERED AS COMPARABLE DUE TO FUNCTIONAL DIFFERENCE AND LACK OF SEGMENTAL BREAK UP. IN SUPPORT OF SUCH CONTENTION HE RELIED UPON THE FOLLOWING DECISIONS: I ) ROCHE PRODUCTS INDIA PVT. LTD. V/S ACIT, ITA NO.7035/ MUM./2012, DATED 12.04.2016; 6 NGC NETWORK (INDIA) PVT. LTD. II ) TRAVEL SECURITY SERVICES INDIA PVT. LTD. V/S DCIT, [2017] 80 TAXNANN.COM 281 (DEL. TRIB.); III ) KOBELCO CRANES INDIA PVT. LTD. V/S ITO, [2016] 70 TAXMANN.COM 3 (DEL. TRIB.); AND IV ) MARUBENI ITOCHU STEEL INDIA PVT. LTD. V/S DCIT, [2016] 67 TAXMANN.COM 52 (DEL. TRIB.). 12 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. THE FIRST ISSUE WHICH REQUIR ES CONSIDERATION IS, WHETHER A GOVERNMENT COMPANY CAN BE TREATED AS A COMPARABLE. IN OUR VIEW, THE DISPUTE ON THIS ISSUE IS NOW F AIRLY WELL SETTLED BY VIRTUE OF VARIOUS JUDICIAL PRECEDENTS. THE TRIBUNAL, MUMBAI BENCH, IN THYSSEN KRUPP INDUSTRIES INDIA PVT. LTD. (SUPRA), HAS HELD THAT GOVERNMENT COMPANY CANNOT BE TREATED AS COMPARABLE AS THEY ARE NOT DRIVEN BY PROFIT MOTIVE AND HAVE BEEN CREATED IN FURTHERANCE OF SOCIAL OBLIGATION OF THE GOVERNMENT . HAVING HELD SO, WE ARE TO EXAMINE WHETHER APITCO LTD., FALLS IN THE CATEGORY OF A GOVERNMENT COMPANY / PSU. ON A PERUSAL OF THE MATERIAL ON RECORD INCLUDING THE ANNUAL REPORT OF THE COMPAN Y, WE ARE OF THE CONSIDERED OPINION THAT APITCO LTD. HAS TO BE TREATED AS A GOVERNMENT COMPANY / PSU. IN FACT, IN THE CASE OF INTERNATIONAL SOS SERVICES INDIA PVT. LTD. V/S DCIT, [2016] 67 TAXMANN.COM 73 (DEL.), THE TRIBUNAL, DELHI BENCH, HAS EXCLUDED APIT CO LTD., BY TREATING IT AS A GOVERNMENT COMPANY. THE AFORESAID DECISION OF THE TRIBUNAL WAS UPHELD BY THE HON'BLE DELHI HIGH COURT WHILE DECIDING REVENUES APPEAL IN ITA NO. 454 OF 2016, DATED 30 TH MAY 2017. IT IS RELEVANT TO 7 NGC NETWORK (INDIA) PVT. LTD. OBSERVE , THOUGH THE DEPARTMENT CHALLENGED THE AFORESAID DECISION OF THE HON'BLE DELHI HIGH COURT BEFORE THE HON'BLE SUPREME COURT, HOWEVER, THE SLP WAS DISMISSED BY THE HON'BLE SUPREME COURT FINDING NO MERIT THEREIN. THUS, IN VIEW OF THE JUDICIAL PRECEDENTS REFERRED TO ABOVE, APITCO LT D., CANNOT BE CONSIDERED TO BE A COMPARABLE. EVEN OTHERWISE ALSO, IN VARIOUS OTHER DECISIONS, APITCO LTD., HAS BEEN REJECTED AS A COMPARABLE DUE TO FUNCTIONAL DISSIMILARITY AND LACK OF SEGMENTAL BREAK UP. IN VIEW OF THE AFORESAID, WE DIRECT THE ASSESSING O FFICER TO EXCLUDE APITCO LTD., FROM THE LIST OF COMPARABLES AND COMPUTE THE ARM'S LENGTH PRICE OF BUSINESS SUPPORT SERVICE SEGMENT. THIS GROUND IS ALLOWED. 13 . IN VIEW OF OUR DECISION IN GROUND NO.12 , THE OTHER GROUNDS RAISED BY THE ASSESSEE ON TRANSFER PRICI NG ISSUES ARE CONSIDERED ACADEMIC, HENCE, LEFT OPEN FOR ADJUDICATION IF THEY ARISE IN ANY OTHER ASSESSMENT YEAR. 14 . GROUNDS NO.18 TO 25 ARE ON THE COMMON ISSUE OF DISALLOWANCE OF CHANNEL PLACEMENT FEE AMOUNTING TO ` 26,32,39,328, UNDER SECTION 40(A)(IA) OF THE ACT DUE TO NON DEDUCT ION OF TAX AT SOURCE UNDER SECTION 194J OF THE ACT. 15 . DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS CLAIMED DEDUCTION FOR CHANNEL PLACEMENT FEE OF ` 8 NGC NETWORK (INDIA) PVT. LTD. 26,32,39,328 , CALLED UPON THE ASSESSEE TO EXPLAIN WHY SUCH PAYMENT SHOULD NOT BE DISALLOWED SINC E THE ASSESSEE HAS FAILED TO DEDUCT TA X UNDER SECTION 194J OF THE ACT. THOUGH , THE ASSESSEE OBJECTED TO THE PROPOSED DISALLOWANCE, HOWEVER, THE ASSESSING OFFICE R REJECTING THE SUBMISSIONS OF THE ASSESSEE HELD THAT CHANNEL PLACEMENT FEE IS IN THE NATURE OF ROYALTY, HENCE, THE ASSESSEE WAS REQUIRED TO DEDUCT TAX UNDER SECTION 194J OF THE ACT. ON THE ALLEGED FAILURE OF THE ASSESSEE TO DEDUCT TAX AT SOURCE UNDER THE SAID PROVISION , THE ASSESSING OFFICER DISALLOWED THE ENTIRE CHANNEL PLACEMENT FEE UNDER SECTION 40(A)(IA) OF THE ACT. 16 . LEARNED DRP ALSO SUSTAINED THE DISALLOWANCE WHILE DISPOSING OFF THE OBJECTIONS OF THE ASSESSEE. 17 . L EARNED SR. COUNSEL FOR THE ASSESSEE SU BMITTED , THE ISSUE HAS BEEN CONSISTENTLY DECIDED IN FAVOUR OF THE ASSESSEE FROM THE ASSESSMENT YEAR 2009 10 ONWARDS BY THE TRIBUNAL AND T HE DECISION OF THE TRIBUNAL HAS BEEN UPHELD BY THE HON'BLE JURISDICTIONAL HIGH COURT. IN THIS CONTEXT, HE DREW OUR ATTE NTION TO THE DECISION OF THE TRIBUNAL AND THE HON'BLE JURISDICTIONAL HIGH COURT IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR S 2009 10 AND 2010 11. THE LEARNED SR. COUNSEL SUBMITTED , EVEN IN RESPECT OF OTHER ASSESSEES ALSO, THE HON'BLE JURISDICTIONAL HIGH COURT AND THE HON'BLE SUPREME COURT HAVE HELD THAT CHANNEL PLACEMENT FEE IS NOT IN THE NATURE OF ROYALTY. 9 NGC NETWORK (INDIA) PVT. LTD. 18 . THE LEARNED DEPARTMENTAL REPRESE NTATIVE, THOUGH, AGREED THAT I N THE PRECEDING ASSESSMENT YEAR THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE HON'BLE JURISDICTIONAL HIGH COURT, HOWEVER, HE REL IED UPON THE OBSERVATIONS OF LEARNED DRP AND THE ASSESSING OFFICER. 19 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. UNDISPU TEDLY, ASSESSEE HAS DEDUCTED TAX ON PAYMENT OF CHANNEL PLACEMENT FEE APPLYING THE PROVISION OF SECTION 194C OF THE ACT. THE ISSUE IN DISPUTE IS , WHETHER CHANNEL PLACEMENT FEE IS IN THE NATURE OF ROYALTY REQUIRING DEDUCTION OF TAX UNDER SECTION 1994J OF THE ACT. AS COULD BE SEEN FROM THE MATERIAL ON RECORD, THIS DISPUTE AROSE FOR THE FIRST TIME IN ASSESSEES OWN CASE IN ASSESSMENT YEAR 2009 10. ULTIMATELY, WHEN THE DISPUTE REACHED THE TRIBUNAL, IT HELD THAT CHANNEL PLACEMENT FEE IS NOT IN THE NATURE OF ROYAL TY, HENCE, THERE IS NO REQUIREMENT FOR DEDUCTION OF TAX AT SOURCE UNDER SECTION 194J OF THE ACT . THE AFORESAID VIEW WAS EXPRESSED BY THE TRIBUNAL WHILE DECIDING ASSESSEES APPEAL IN ASSESSMENT YE AR 2010 11 AS WELL. IN FACT, LEARNED DRP HAS ALSO ACCEPTED TH E FACT THAT T HE ISSUE IN DISPUTE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE BY THE TRIBUNAL AND THE DRP IN A.Y. 2009 10, 2010 11 AND 201 1 12. HOWEVER, STATING THAT REVENUES APPEAL FOR THE A.Y. 2009 10 AND 2010 11 ARE PENDING BEFORE THE HON'BLE JURI SDICTIO NAL HIGH COURT LEARNED DRP DECIDED THE 10 NGC NETWORK (INDIA) PVT. LTD. ISSUE AGAINST THE ASSESSEE IN THE IMPUGNED ASSESSMENT YEAR. NOTABLY, THE APPEALS FILED BY THE REVENUE FOR THE ASSESSMENT YEAR S 2009 10 AND 2010 11 , IN THE MEANWHILE , HAVE BEEN DISMISSED BY THE HON'BLE JURISDICTIONAL H IGH COURT IN ITA NO.1783/2016, DATED 5 TH MARCH 2019. THEREFORE, THE DECISION OF THE TRIBUNAL IN HOLDING THAT CHANNEL PLACEMENT FEE IS NOT IN THE NATURE OF ROYALTY STOOD AFFIRMED. WE HAVE ALSO NOTED THAT IN RESPECT OF OTHER ASSESSES ALSO DISPUTE OF IDENTICA L NATURE HAVE BEEN DECIDED IN THEIR FAVOUR BY THE TRIBUNAL AND THE HON'BLE JURISDICTIONAL HIGH COURT. THAT BEING THE CASE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF ` 26,32,39,328, MADE UNDER SECTION 40(A)(IA) OF THE ACT. GROUNDS RAISED ARE ALLOWED. 20 . IN GROUND NO.26, THE ASSESSEE HAS RAISED THE ISSUE OF SHORT CREDIT OF TDS. 21 . HAVING CONSIDERED THE SUBMISSIONS OF THE PARTIES, WE DIRECT THE ASSESSING OFFICER TO VERIFY RELEVANT FACTS AND GRANT CREDIT FOR TDS AS PER LAW. THIS GROUND IS ACCOR DINGLY DISPOSED OFF. 22 . GROUNDS NO.27 AND 28 BEING CONSEQUENTIAL IN NATURE DO NOT REQUIRE ADJUDICATION, HENCE, DISMISSED. 23 . GROUND NO.29, BEING PREMATURE AT THIS STAGE, DOES NOT REQUIRE ADJUDICATION, HENCE, DISMISSED. 11 NGC NETWORK (INDIA) PVT. LTD. 24 . IN THE RESULT, APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN C OURT ON 30.04.2019 SD/ - RAJESH KUMAR ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 30.04.2019 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (SR. PRIVATE SECRETARY) ITAT, MUMBAI