BBC Worldwide Ltd, New Delhi V. ADIT Circle-1 (1), New Delhi

ITA 2459/DEL/2008

• Counselvise Citation: [2010] 136 COUNSELVISE.COM (IT) 3505 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-07-2010
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 07-07-2010
• Assessment Year: 2003-2004
• Appeal Filed On: 07-07-2008
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASHWANI MAHAJAN
• Assessee Lawyers: ARVIND SONDE
• Keywords: Transfer pricing; Double taxation relief; Opportunity of being heard; International transaction; Permanent establishment; Wholly owned subsidiary; Non-deduction of tax
• Section: 234B; 92

Judgement Text

ITA NOS. 2458&2459(DEL)/2008 1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH A DELHI BEFORE SHRI RAJPAL YADAV AND SHRI K.G. BANSAL ITA NOS. 2458 & 2459(DEL)/2008 ASSESSMENT YEAR: 2001-02 & 2003-04 BBC WORLDWIDE LIMITED, ASSI STANT DIRECTOR OF INCOME C/O E-21, HAUZ KHAS ENCLAVE, VS. TAX, CIR CLE-1, DIRECTORATE OF NEW DELHI-110016. INTERNATIONAL TAXATION, NEW DELHI. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ARVIND SONDE, C.A. RESPONDENT BY : SHRI ASHWANI MAHAJAN, CIT, DR ORDER PER K.G. BANSAL : AM THE APPEAL IN ITA NO. 2458(DEL)/2008 REQUIRES DETERMINATION OF FOUR QUESTIONS, NAMELY, WHETHER- (I) THE LD. C IT(APPEALS) WAS RIGHT IN HOLDING THAT THE ASSESSEE HAD THE BUSINESS CO NNECTION AND THE PERMANENT ESTABLISHMENT (PE) IN INDIA; (II) HE WAS RIGHT IN ATTRIBUTING PROFIT TO THE PE AS DETERMINED BY HIM; (III) HE WAS RIGHT IN TAXING INTEREST INCOME @ 20% ON GROSS BASIS AGAINST THE RATE OF 15% PRESCRIBED UNDER THE RELEVANT TAX AVOIDANCE TR EATY; AND (IV) HE WAS RIGHT IN CHARGING INTEREST U/S 234B ON ASSE SSED INCOME AND NOT ON THE RETURNED INCOME? ITA NOS. 2458&2459(DEL)/2008 2 2. AT THE OUTSET, IT MAY BE MENTIONED THAT THE THRUST OF THE ARGUMENT OF THE LD. COUNSEL FOR THE ASSESSEE HAS BEEN THAT SINCE BBC WORLDWIDE (INDIA) PVT. LTD. (IN SHORT BWIPL) HAS BEEN RE MUNERATED AT ARMS LENGTH BY WAY OF COMMISSION PAID @ 15% OF THE A DVERTISING REVENUE GENERATED IN INDIA, NO INCOME CAN BE ATTRIBUTE D TO THE PE IN INDIA, EVEN IF BWIPL IS TAKEN TO BE THE PE OF THE ASSE SSEE IN INDIA. THEREFORE, IT HAS BEEN ARGUED THAT THE QUESTION OF EXISTENCE OR OTHERWISE OF THE ASSESSEES PE IN INDIA IS ONLY OF ACADEMIC INTER EST. IN ORDER TO SUPPORT THAT THE INCOME ATTRIBUTED TO THE AFORESAID PE I N INDIA IS NIL, RELIANCE HAS BEEN PLACED ON THE DECISION OF THE TRIBUNAL I N THE CASE OF THE ASSESSEE IN ITA NO. 1188(DEL)/2006 FOR ASSESSMENT YEAR 2000 -01 DATED 15.01.2010, A COPY OF WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGE NUMBERS 129 TO 157. IT MAY FURTHER BE MENTIONED THAT THE LD. C OUNSEL WAS APPRAISED THAT IF THERE IS NO PE IN INDIA, THE QUESTION OF ATT RIBUTING ANY INCOME TO IT WOULD NOT ARISE AND, THEREFORE, IT IS THE IMPLI CIT INFERENCE OF THE AFORESAID DECISION THAT THERE IS THE PE IN INDIA, IT HAS BEEN SUBMITTED THAT THE QUESTION IS NONETHELESS OF ACADEMIC I NTEREST ONLY. WHEN THE LD. COUNSEL WAS QUESTIONED AS TO WHETHER GROUNDS IN THIS BEHALF MAY BE TREATED AS NOT PRESSED, IT HAS BEEN SUBMITTED T HAT THAT IS NOT THE CASE. THEREFORE, WE ARE FACED WITH A PIQUANT SITUATI ON IN WHICH SOME GROUNDS ITA NOS. 2458&2459(DEL)/2008 3 EXIST ON RECORD BUT THE LD. COUNSEL DOES NOT W ANT THE GROUNDS TO BE DECIDED. 2.1 IN ORDER TO APPRECIATE THE CONTROVERSY REGAR DING EXISTENCE OR OTHERWISE OF ASSESSEES PE IN INDIA, THE FA CTS MENTIONED BY THE LD. CIT(APPEALS) MAY BE REPRODUCED HERE:- APPELLANT IS A COMPANY INCORPORATED UNDER THE L AWS OF UNITED KINGDOM AND IS A TAX RESIDENT OF UK WITH IN THE MEANING OF ARTICLE 4 OF THE DOUBLE TAXATION AVOI DANCE AGREEMENT BETWEEN INDIA AND UK ( IN SHORT DTAA). THE APPELLANT IS WHOLLY OWNED SUBSIDIARY OF BBC COMME RCIAL HOLDINGS LIMITED. IT OPERATES AS AN INTERNATI ONAL CONSUMER MEDIA COMPANY IN THE AREAS OF TELEVISION, PUBLIS HING, PRODUCT, LICENSING, INTERNET AND INTERACTIVE. AS PART OF ITS BUSINESS ACTIVITY, APPELLANT RUNS AND OPERATES THE BBC WORLDWIDE INTERNATIONAL NEWS AND INFORMATION CHANNEL (IN SHO RT BBC WORLD CHANNEL) UNDER A SEPARATE DIVISION BBC WO RLD DIVISION. DURING THE FINANCIAL YEARS UNDER CONSID ERATION APPELLANT PRIMARY SOURCE OF REVENUE IN INDIA WA S FROM SALE OF AIRTIME FOR THE BBC WORLD CHANNEL I.E., APPELLANT COMPANY WAS EARNING ADVERTISEMENT REVENUE IN INDIA. IN ORDER TO SELL AIRTIME FOR BBC WORLD CHANNEL, THE APPELLANT ENTERED INTO AN AGREEMENT WITH BBC WORLDWIDE (INDIA) PVT. LTD. (IN SHORT BWIPL) ON 1 ST FEBRUARY, 1999. UNDER THE AGREEMENT BWIPL WAS APPOINTED AS EXCLUSIVE A GENT OF APPELLANT FOR SOLICITING ORDERS FOR SALE OF AI RTIME ON BBC WORLD CHANNEL, NEGOTIATING AGREEMENT AND COLL ECTION OF ADVERTISEMENT REVENUE FROM INDIAN ADVERTISER ON BEHALF OF APPELLANT AND REMITTING THE SAME TO THE APPELLA NT. BWIPL WAS ALSO ENGAGED IN MARKETING AND DISTRIBUTION OF BBC WORLD CHANNEL UNDER ANOTHER AGREEMENT. IN CONSID ERATION OF THE ABOVE SERVICES BWIPL WAS PAID A COMMISSION OF 15% OF AIRTIME SALE/SPONSORSHIP GENERATED BY IT FOR APPELLANT. IT IS PERTINENT TO MENTION HERE THAT W.E.F. 1.12.2 002 THE ITA NOS. 2458&2459(DEL)/2008 4 APPELLANT TRANSFERRED BBC WORLD DIVISION WHICH OPERATES BBC WORLD CHANNEL TO ANOTHER GROUP COMPANY M/S BBC WORLD LIMITED AND ABOVE REFERRED TO AGREEMEN T BETWEEN THE APPELLANT AND BWIPL WAS NOVATED IN FAVOUR O F M/S BBC WORLD LIMITED AND W.E.F. 1.12.2002 BWIPL H AD STARTED ACTING AS AGENT OF BBC WORLD LIMITED. 2.2 IT APPEARS THAT FIELD ENQUIRIES WERE MADE BY THE AO IN FINANCIAL YEAR 2002-03, WHICH WERE TAKEN INTO CONSIDERATI ON BY THE LD. CIT(APPEALS). ON THE BASIS OF THE FACTS GATHERED IN THE ENQUIRIES, THE FOLLOWING FINDINGS WERE RECORDED IN THE APPELLANT ORDER FOR ASSESSMENT YEAR 2000-01:- (A) BWIPL WAS UNDER COMMON MANAGEMENT AND CONT ROL AND WAS MANAGED AND CONTROLLED BY SUBSIDIARY OF THE APPELLA NT; (B) APPELLANT HAD PROVIDED FINANCIAL SUPPORT TO BWIPL BY ADVANCING IT HUGE LOAN; BWIPL WAS WORKING WHOLLY AND EXCL USIVELY FOR PROMOTING BUSINESS OF APPELLANT IN INDIA; (C) BWIPL WAS HABITUALLY EXERCISING IN INDIA AN AUTHORITY TO NEGOTIATE AND CONCLUDE ADVERTISEMENT CONTRACT WITH INDIAN ADVERTISER ON BEHALF OF APPELLANT; (D) BWIPL HABITUALLY SECURED UNDER WHOLLY AND EXCLUSIVELY FOR THE APPELLANT; AND (E) THE SOURCE OF ADVERTISEMENT REVENUE WAS LOC ATED IN INDIA WHICH WAS IN FORM OF INDIAN ADVERTISER AND VIEWERSHIP O F BBC WORLD CHANNEL. 2.3 THE LD. CIT(APPEALS) WAS OF THE VIEW THAT T HE FACTS ARE IDENTICAL IN THIS YEAR. THEREFORE, ON THE BASIS OF AFORESAID FACTS AND FINDINGS GIVEN IN ITA NOS. 2458&2459(DEL)/2008 5 ASSESSMENT YEAR 2000-01, IT WAS HELD THAT THE ASSES SEE HAS BUSINESS CONNECTION IN INDIA. 2.4 IN ASSESSMENT YEAR 2000-01, A FINDING WAS ALSO GIVEN THAT BWIPL IS FINANCIALLY AND FUNCTIONALLY DEPENDENT U PON THE ASSESSEE THROUGH WHICH THE ASSESSEE HAS PERFORMED ITS BU SINESS ACTIVITIES IN INDIA ON A REGULAR BASIS. THEREFORE, IT WAS HELD THAT I N ABSENCE OF ANY DISTINCTION IN FACTS, THE ASSESSEE HAS A DEPENDENT AGENT PE IN INDIA IN THIS YEAR ALSO. WE NOTE HERE THAT THIS DECISION IS IN CON FORMITY WITH THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF SET SAT ELLITE (SINGAPORE) PVT. LTD. (INFRA), ON WHICH THE ASSESSEE HAS RELIED HEAVILY FOR THE PURPOSE OF ATTRIBUTION OF PROFITS TO THE PE. ACCORDINGLY, GROUNDS TAKEN IN THIS BEHALF ARE DISMISSED. 2.5 SINCE NO ARGUMENT HAS BEEN ADVANCED BEFORE U S AGAINST THE AFORESAID FINDINGS OF THE LD. CIT(APPEALS), WE HAV E NO OPTION BUT TO HOLD THAT THE ASSESSEE HAS BUSINESS CONNECTION AS WELL AS A PE IN INDIA. 3. IN RESPECT OF ATTRIBUTION OF INCOME TO THE PE , IT HAS BEEN SUBMITTED THAT THE AO COMPUTED THE PROFITS AT RS. 73,37,196/-. THE LD. ITA NOS. 2458&2459(DEL)/2008 6 CIT(APPEALS) ENHANCED THE PROFITS TO RS. 86,31, 995/- BY RETURNING A FINDING THAT THE COMMISSION OF RS. 1,29,47,993/- P AID TO BWIPL SHOULD NOT HAVE BEEN REDUCED FROM THE GROSS REVENUES GENERATED FROM INDIA. HOWEVER, SINCE THE ASSESSEE REMUNERATED THE BWIPL AT ARMS LENGTH, THE PROFITS SHOULD HAVE BEEN TAKEN AT NIL. AS MENTIONED EARLIER, RELIANCE HAS BEEN PLACED ON THE DECISION BY THE TRIBUNAL IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2000-01. THE OPERATI VE PORTIONS OF THIS ORDER ARE CONTAINED IN PARAGRAPH NUMBERS 9 TO 25, WH ICH ARE REPRODUCED BELOW:- 9. WE HAVE HEARD THE PARTIES AND HAVE PERUSED THE MATERIAL ON RECORD. THE FACTS ARE NOT IN DISPUTE. THE QUES TION IS AS TO WHETHER THE LEARNED CIT (APPEALS) HAS CORRECTLY ASS ESSED THE ASSESSEES PROFITS ATTRIBUTABLE TO THE FOREIGN ENTE RPRISES PE IN INDIA @ 10% OF THE GROSS REVENUE RECEIPTS FROM INDI A. 10. THE ASSESSEES CASE IS THAT DURING THE YEAR UN DER CONSIDERATION, THE ASSESSEE COMPANY, A PART OF THE BBC GROUP, OPERATED AS AN INTERNATIONAL CONSUMER MEDIA COMPANY IN THE AREAS OF TV, PUBLISHING AND PROGRAM LICENCING , ETC . IT ALSO OPERATED THE BBC WORLD CHANNEL (THE CHANNEL) THR OUGH A SEPARATE DIVISION, I.E., THE BBC WORLD DIVISION. I T HAD AS ITS SUBSIDIARY IN INDIA, BWIPL. IT APPOINTED BWIPL AS ITS AUTHORIZED AGENT IN INDIA. THIS WAS UNDER AN AIRT IME SALES AGREEMENT DATED 15.9.2000, EFFECTIVE FROM 13.11.199 8. THIS AGREEMENT WAS FOR DOLLAR DENOMINATED DEALS AND WAS ENTERED INTO TO SOLICIT ORDERS FOR THE SALE OF ADVERTISING AIRTIME ON THE CHANNEL. THE RATES AND TERMS AND CONDITIONS TO G OVERN SUCH SALE WERE PROVIDED BY THE ASSESSEE. THE PAYMENT F ROM THE INDIAN ADVERTISERS FOR AIRTIME SALES AND SPONSORSHI P WAS TO BE RECEIVED DIRECTLY BY THE ASSESSEE. THIS WAS TO BE THROUGH EEFC ACCOUNT OR ON SPECIFIC RBI PERMISSION. FOR T HE SERVICES ITA NOS. 2458&2459(DEL)/2008 7 PROVIDED BY BWIPL, IT WAS TO RECEIVE CONSIDERATION OF 15% MARKETING COMMISSION OF THE ADVERTISEMENT REVENUES RECEIVED BY THE ASSESSEE FROM INDIAN ADVERTISERS. ON 1.2.1 999, THE ASSESSEE AND BWIPL EXECUTED ANOTHER AIRTIME SALES A GREEMENT. THIS WAS FOR RUPEE DENOMINATED DEALS CONCERNING SOLICITING ORDERS FOR CHANNEL AIRTIME SALES, AS WAS THE CASE UNDER THE AFOREMENTIONED EARLIER AGREEMENT. THIS SECOND AGR EEMENT WAS EXECUTED SO AS TO ENABLE BWIPL TO COLLECT PAYMENT F ROM INDIAN ADVERTISERS FOR SALE OF AIRTIME ON BEHALF OF THE AS SESSEE AND TO REMIT THE SAME TO THE ASSESSEE. BWIPL WAS TO BE P AID, AGAIN, COMMISSION @ 15%. 11. IN THE RETURN OF INCOME FILED FOR THE YEAR UNDE R CONSIDERATION, THE ASSESSEE SHOWED INCOME AT RUPEES NIL. IT WAS CLAIMED THAT THE ASSESSEE WOULD NOT BE TAXABLE IN I NDIA ON ITS INCOME CONCERNING AIRTIME SALES. THE BASIS FOR SU CH CLAIM WAS THAT THE AIRTIME INCOME SALES WAS BUSINESS PROFITS OF THE ASSESSEE, SINCE THE ASSESSEE DID NOT HAVE A PERMANE NT ESTABLISHMENT IN INDIA. LATER ON, THE RETURN WAS REVISED, DISCLOSING AN INCOME OF RS.81,86,735/- REPRESENTING CERTAIN ROYALTY INCOME WHICH, AS PER THE ASSESSEE REMAINED FROM BEING SHOWN IN THE ORIGINAL RETURN OF INCOME. THE ASSES SEE CLAIMED NOT TO HAVE ANY OTHER INCOME CHARGEABLE TO TAX IN I NDIA. IN THE NOTES TO THE RETURN FILED, THE ASSESSEE CONTENDED T HAT NO INCOME ACCRUED OR AROSE TO THE ASSESSEE FROM ANY BUSINESS CONNECTION IN INDIA, EITHER UNDER THE INDIAN INCOME TAX ACT OR UNDER THE TREATY BETWEEN INDIA AND UK; THAT EVEN IF BWIPL WAS CONSIDERED TO BE A BUSINESS CONNECTION/PERMANENT ESTABLISHMENT OF THE ASSESSEE IN INDIA, THE COMMISS ION PAID TO IT CONSTITUTED ADEQUATE COMPENSATION FOR ITS ACTIVITIE S IN INDIA; THAT IT WAS SUBJECT TO TAX IN INDIA AND NO FURTHER INCOME OF THE ASSESSEE WAS LIABLE TO TAX IN INDIA; THAT EVEN OTHE RWISE, THE SALE OF AIRTIME IN INDIA HAVING RESULTED IN A NET LOSS T O THE ASSESSEE, EVEN IF IT WERE TO BE HELD THAT THE ASSESSEE HAD A PERMANENT ESTABLISHMENT IN INDIA, THERE COULD BE NO TAXABLE I NCOME; THAT THE AIRTIME SALES ACTIVITY OF THE ASSESSEE WAS A PA RT OF THE ACTIVITY OF THE BBC WORLD DIVISION WHICH RAN THE CH ANNEL; THAT THE BBC WORLD DIVISION HAVING INCURRED LOSSES WORL DWIDE DURING THE YEAR, THERE WOULD BE A LOSS EVEN IF ANY INCOME OR LOSS ON A PROPORTIONATE BASIS WERE TO BE HELD TO BE ATTRIBUTABLE ITA NOS. 2458&2459(DEL)/2008 8 TO THE ASSESSEES INDIAN OPERATIONS; AND AS SUCH, T HE ASSESSEE WOULD LEGALLY BE ENTITLED FOR CARRY FORWARD OF SUCH LOSS FOR SETTING IT OFF AGAINST FUTURE ATTRIBUTABLE PROFIT. THE ASSESSEE PLACED RELIANCE ON CBDT CIRCULAR NO. 23 OF 1969, AC CORDING TO WHICH, IF THE AGENTS COMMISSION FULLY REPRESENTS T HE VALUE OF PROFIT ATTRIBUTABLE TO ITS SERVICE, IT SHOULD PRIMA FACIE EXTINGUISH THE ASSESSMENT. AN ALLOCATION STATEMENT WAS FILED BEFORE THE AO. THIS WAS REGARDING REVENUES AND EXPENSES ATTR IBUTABLE TO INDIA FOOTPRINT. IT SHOWED A LOSS IN THE EVENT A B USINESS CONNECTION/PERMANENT ESTABLISHMENT WAS FOUND TO EXI ST. 12. BY VIRTUE OF THE ASSESSMENT ORDER DATED 31.3.20 03, THE AO, REJECTING THE ASSESSEES CONTENTION, HELD THAT BWIPL CONSTITUTED THE ASSESSEES BUSINESS CONNECTION AS W ELL AS A PERMANENT ESTABLISHMENT UNDER ARTICLES 5(4)(A) AND 5(4)(C) OF THE INDO-UK TREATY. THE PROFITS OF THE ASSESSEE W ERE ESTIMATED AT A RATE OF 20% OF THE TOTAL ADVERTISEME NT REVENUE ATTRIBUTABLE TO INDIA. 13. BEFORE THE LD. CIT(A), THE ASSESSEE, INTER ALIA , FILED AUDITED ACCOUNTS OF THE REVENUES AND EXPENSES ALLOC ABLE TO INDIA FOOTPRINT. HOWEVER, VIDE ORDER DATED 27.1.2 006, I.E., THE IMPUGNED ORDER, THE LD. CIT(A) CONFIRMED THE ASSESS MENT ORDER. PLACING RELIANCE ON CBDT CIRCULAR NO. 742 DATEAD 2.5.1996, THE LD. CIT(A) FURTHER ESTIMATED THE ASSE SSEES PROFITS AT THE RATE OF 10% OF THE TOTAL ADVERTISEMENT REVE NUES ALLOCABLE TO INDIA. 14. BEFORE US, HOWEVER, THE ISSUE OF BUSINESS CONNE CTION OR PERMANENT ESTABLISHMENT WAS NOT ADDRESSED. THE LE ARNED COUNSEL FOR THE ASSESSEE HAS, RATHER, STRESSED AND DILATED UPON THE ASSESSEES STAND THAT BWIPL HAS BEEN REMUNERATE D ON THE BASIS OF A FAIR TRANSFER PRICE, DUE TO WHICH, NOTHI NG FURTHER REMAINS TO BE TAXED IN INDIA. IT HAS BEEN ARGUED THAT HAVING EXAMINED THE TWO AFOREMENTIONED AIRTIME SALES AGRE EMENTS, THE DEPARTMENT HAS ITSELF ACCEPTED THAT COMMISSION OF 1 5% PAID TO BWIPL IS A FAIR TRANSFER PRICE. REFERENCE CONCERN ING THIS HAS BEEN MADE TO THE TRANSFER PRICING ORDER FOR ASSESSM ENT YEAR 2002-03 IN THE CASE OF BWIPL. A COPY THEREOF HAS BEEN PLACED ON RECORD. IN THAT ORDER, THE TPO ACCEPTED THAT THE ITA NOS. 2458&2459(DEL)/2008 9 TRANSACTION WAS AT ARMS LENGTH PRICE. IT WAS HELD THAT THE CUP METHOD SELECTED BY BWIPL FOR DETERMINING THE ARMS LENGTH PRICE OF THE COMMISSION INCOME EARNED BY IT, WAS AC CEPTABLE; THAT THIS WAS DUE TO THE FACT THAT BWIPL HAD COMPAR ED THE RATE OF COMMISSION CHARGED BY IT FROM BBCW WITH THAT CH ARGED BY AN UNCONTROLLED PARTY FOR SIMILAR SERVICES; THAT EV EN OTHERWISE, IT WAS FOUND THAT THE RATE OF COMMISSION IN THE ASS ESSEES TRADE WAS FAIRLY UNIFORM AND ALMOST EVERYONE WAS CHARGING THE SAME RATE OF COMMISSION IN THE SALE OF AIRTIME ON TV CHA NNELS AND FM CHANNELS; AND THAT IT WAS THEREFORE, THAT THE AR MS LENGTH PRICE DETERMINED BY BWIPL WAS NOT BEING DISTURBED. THE LEARNED COUNSEL FOR THE ASSESSEE HAS ALSO SOUGHT TO PLACE RELIANCE ON THE DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SET SATELLITE (SINGAPORE)PVT. LTD. V. DDIT, 307 ITR 205(BOM). IN THAT CASE, COMMISSION OF 15% OF G ROSS ADVERTISEMENT REVENUE PAID BY SET SINGAPORE, THE F OREIGN COMPANY, TO ITS AGENT, SET INDIA, WHICH AGENT WAS H ELD TO CONSTITUTE SET SINGAPORES DEPENDENT AGENT PERMANEN T ESTABLISHMENT, WAS HELD TO REPRESENT PRICE COMPUTED AT ARMS LENGTH. THE HONBLE HIGH COURT HELD, INTER ALIA, THAT IT WAS CLEAR FROM READING ARTICLE 7(1) OF THE TREATY, THA T THE PROFITS OF AN ENTERPRISE OF THE CONTRACTING STATE SHALL BE TAX ABLE ONLY IN THAT STATE, UNLESS THE ENTERPRISE CARRIES ON BUSI NESS IN THE OTHER CONTRACTING STATE THROUGH A PERMANENT ESTABLISHMENT CONSTITUTED THEREIN; THAT THE PROFITS OF THE ENTERP RISE MAY BE TAXED IN THE OTHER STATE, BUT ONLY SO MUCH OF THEM, AS ARE DIRECTLY OR INDIRECTLY ATTRIBUTABLE TO THAT PERMANE NT ESTABLISHMENT; THAT THE EXPRESSION USED WHILE DETE RMINING THE PROFITS ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT , IN ARTICLE 7(2) OF THE TREATY, IS ESTIMATED ON A REASONABLE B ASIS; THAT THE TREATY DID NOT REFER TO ARMS LENGTH PAYMENT; THAT IT WAS SECTION 92 OF THE I.T. ACT WHICH CONTAINED THE PRIN CIPLES CONCERNING INCOME FROM INTERNATIONAL TRANSACTIONS O N AN ARMS LENGTH PRICE; THAT THESE PRINCIPLES HAD BEEN CLARIF IED BY THE FINANCE ACT, 2001 AND THE FINANCE ACT, 2002; THAT I T WAS CLEAR FROM THE CIT(A)S ORDER, THAT SET SINGAPORE HAD MAD E PAYMENT TO ITS PERMANENT ESTABLISHMENT ON THE ARMS LENGTH PRINCIPLE; THAT A FINDING OF FACT HAD BEEN RECORDED TO THE EFFECT THAT SET SINGAPORE HAD PAID SERVICE FEES @ 15% OF THE GROSS ADVERTISEMENT REVENUE TO ITS AGENT SET INDIA, FOR P ROCURING ITA NOS. 2458&2459(DEL)/2008 10 ADVERTISEMENTS DURING THE YEAR FROM APRIL, 1998 TO OCTOBER, 1998; THAT CBDT CIRCULAR NO. 742 RECOGNIZED THAT T HE INDIAN AGENTS OF FOREIGN TELECASTING COMPANIES GENERALLY RETAIN 15% OF THE ADVERTISEMENT REVENUES OF THE SERVICE CHARGE S; THAT THEREFORE, THE SAID CIRCULAR ALSO SUPPORTED THE STA ND THAT THE PAYMENT OF 15% SERVICE FEE WAS PAYMENT AT ARMS LENG TH; THAT THE SAID AMOUNT OF 15% HAD BEEN REDUCED TO 12.5% OF THE NET ADVERTISEMENT REVENUE BY VIRTUE OF A REVISED AGREEM ENT ENTERED INTO BETWEEN THE PARTIES; AND THAT SIMULTANEOUSLY SET SINGAPORE HAD ALSO, VIDE AN AGREEMENT, ENTITLED SET INDIA TO ENTER INTO AGREEMENTS TO COLLECT AND RETAIN ALL SUB SCRIPTION REVENUE. 15. GALILEO INTERNATIONAL INCORPORATION, 114 TTJ 289 OF THE DELHI BENCH OF THE TRIBUNAL HAS ALSO BEEN RELIED ON BEHALF OF THE ASSESSEE. THEREIN, THE INDIAN COMPANY MADE BO OKING ON A COMPUTERIZED RESERVATION SYSTEM FOR THE FOREIGN ASS ESSEE. THIS GENERATED INCOME FOR THE FOREIGN COMPANY. IT WAS H ELD THAT THE INDIAN COMPANY WAS A DEPENDENT AGENT PERMANENT ESTABLISHMENT OF THE FOREIGN COMPANY. CONCERNING ATTRIBUTION OF PROFITS FOR THE PERMANENT ESTABLISHMENT, IT WAS OBSERVED THAT ONLY 15% OF THE REVENUE GENERATED FROM THE BOOKINGS MADE WITHIN INDIA WAS TAXABLE IN INDIA AND IT WAS THIS P ROPORTION WHICH WAS TO BE ADOPTED FOR COMPUTING PROFIT ATTRI BUTABLE TO THE PERMANENT ESTABLISHMENT. THE HONBLE DELHI HI GH COURT CONFIRMED THE FINDINGS RECORDED BY THE TRIBUNAL IN DIT V. GALILEO INTERNATIONAL INCORPORATION 224 CTR 251(DE L), WHICH HAS FURTHER BEEN RELIED ON. 16. RELIANCE HAS ALSO BEEN PLACED ON CBDT CIRCULAR NO. 742 (SUPRA), WHICH WAS RELIED ON BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF SET SATELLITE(SUPRA). FURT HER, IT HAS BEEN CONTENDED THAT THE COMMISSION PAID BY THE ASSE SSEE TO BWIPL @ 15% BEING THE VALUE OF PROFIT ATTRIBUTABLE TO THE SERVICES RENDERED BY BWIPL, FURTHER INCOME FROM ADVERTISEMENT REVENUES OUGHT NOT TO BE TAXED IN IND IA. CBDT CIRCULAR NO. 23 OF 1969 HAS BEEN RELIED ON IN THIS REGARD. AS PER THIS CIRCULAR, WHERE A NON RESIDENTS SALES TO INDIAN CUSTOMERS ARE SECURED THROUGH THE SERVICES OF AN AG ENT IN INDIA, THE ASSESSMENT IN INDIA OF THE INCOME ARISING OUT O F THE ITA NOS. 2458&2459(DEL)/2008 11 TRANSACTION WILL BE LIMITED TO THE AMOUNT OF PROFIT WHICH IS ATTRIBUTABLE TO THE AGENTS SERVICES, PROVIDED THAT NON-RESIDENTS BUSINESS ACTIVITIES IN INDIA ARE WHOLLY CHANNELED T HROUGH ITS AGENT, THE CONTRACTS TO SELL ARE MADE OUTSIDE INDIA AND SALES ARE MADE ON A PRINCIPLE-TO-PRINCIPLE BASIS. AS PER TH IS CIRCULAR, IN THE ASSESSMENT OF THE AMOUNT OF PROFITS, ALLOWANCE WILL BE MADE FOR THE EXPENSES INCURRED, INCLUDING THE AGENTS CO MMISSION, IN MAKING THE SALES AND IF THE AGENTS COMMISSION FULL Y REPRESENTS THE VALUE OF THE PROFIT ATTRIBUTABLE TO HIS SERVICE , IT SHOULD PRIMA FACIE EXTINGUISH THE ASSESSMENT. 17. CBDT CIRCULAR NO. 23 OF 1969 (SUPRA) IS ELOQUEN TLY CLEAR, PROVIDING THAT IF THE VALUE OF THE PROFIT AT TRIBUTABLE TO THE SERVICES RENDERED BY THE AGENT IS FULLY REPRESENTED BY THE COMMISSION PAID, IT SHOULD, PRIMA FACIE EXTINGUISH THE ASSESSMENT. DIT V. MORGAN STANLEY AND COMPANY INC.(SUPRA), AS STATED, HAS TAKEN INTO CONSIDERATI ON CBDT CIRCULAR NO. 23 OF 1969(SUPRA). IN THAT CASE, SINC E CERTAIN EMPLOYEES HAD BEEN DEPUTED BY THE FOREIGN COMPANY T O THE INDIAN AFFILIATE COMPANY, THE FOREIGN COMPANY WAS H ELD TO HAVE A PERMANENT ESTABLISHMENT IN INDIA. THE AAR HELD THAT ONCE THE TRANSFER PRICING ANALYSIS WAS UNDERTAKEN, THERE WAS NO FURTHER REQUIREMENT TO ATTRIBUTE PROFITS TO A PERMA NENT ESTABLISHMENT. ADJUDICATING ON THE ISSUE AS TO WH ETHER THE ACTION OF THE AAR IN HOLDING SO WAS CORRECT OR NOT, THE HONBLE SUPREME COURT HELD, INTER ALIA, THAT WHERE THE TRAN SACTION WAS HELD TO BE AT ARMS LENGTH, THE RULING OF THE AAR WA S CORRECT IN PRINCIPLE, PROVIDED THAT AN ASSOCIATED ENTERPRISE, WHICH ALSO CONSTITUTED A PERMANENT ESTABLISHMENT, WAS REMUNERA TED ON ARMS LENGTH BASIS, TAKING INTO ACCOUNT ALL THE RIS KSTAKING FUNCTIONS OF MULTINATIONAL ENTERPRISES AND THAT IN SUCH A CASE, NOTHING FURTHER WOULD BE LEFT TO ATTRIBUTE TO THE P ERMANENT ESTABLISHMENT. 18. AS CONTENDED , FOR THE YEAR UNDER CONSIDERATION , TRANSFER PRICING GUIDE LINES WERE NOT APPLICABLE. THAT BEI NG SO, RELIANCE ON BEHALF OF THE ASSESSEE ON SET SATELLITE (SUPRA ) CANNOT AT ALL BE SAID TO BE MISPLACED. THEREIN ALSO, THE AS SESSMENT YEAR BEING 1999-2000, THE TRANSFER PRICING GUIDE LINES WERE NOT APPLICABLE, AS THEY BECAME APPLICABLE FROM THE NEXT YEAR. ITA NOS. 2458&2459(DEL)/2008 12 PERTINENTLY, THE HONBLE BOMBAY HIGH COURT, IN THE CASE OF SET SATELLITE (SUPRA), HAS HELD THAT IF THE CORRE CT ARMS LENGTH PRICE IS APPLIED AND PAID, NOTHING FURTHER WOULD B E LEFT TO BE TAXED IN THE HANDS OF THE FOREIGN ENTERPRICE. MO RGAN STANLEY (SUPRA) AS WELL AS CBDT CIRCULAR NO. 23 (SUPRA) WER E TAKEN INTO CONSIDERATION. THE FACTS IN THE PRESENT CAS E ARE FOUND TO BE AT PARITY WITH THOSE PRESENT IN SET SATELLITE( SUPRA), TO THE EXTENT NOTICED ABOVE. BOTH THE CASES CONCERN YEAR S BEFORE THE ONSET OF THE TRANSFER PRICING REGIME. AS SUCH, WE HOLD THAT SET SATELLITE(SUPRA) HAS RIGHTLY BEEN RELIED ON O N BEHALF OF THE ASSESSEE AND THAT IT IS DIRECTLY APPLICABLE TO THE ASSESSEES CASE. 19. APROPOS THE DEPARTMENTS CONTENTION THAT THE AS SESSEE HAS FURNISHED DIFFERENT MUTUALS INTRINSICALLY IRREC ONCILABLE STATEMENTS BEFORE THE AUTHORITIES BELOW, COPIES OF THESE DOCUMENTS HAVE BEEN PLACED IN THE PAPER BOOK FILED BY THE ASSESSEE. THESE DOCUMENTS ARE :- 1. CONSOLIDATED ANNUAL AUDITED ACCOUNTS SHOWING THE LOSSES SUFFERED BY THE CHANNEL; 2. THE COMPUTATION OF LOSS AS PER RULE 10 (II) OF T HE I.T. RULES, 1962; AND 3. ALLOCATION STATEMENTS OF INCOME AND EXPENSES OF INDIA FOOTPRINT. 20. AS POINTED OUT, IT IS SEEN THAT ALL THESE STATE MENTS REFLECT A LOSS. IT WAS THE FOREIGN EXCHANGE RATE AND INDIA FOOTPRINT WHICH GAVE RISE TO DIFFERENCE IN THE FIGURES SUBMIT TED BEFORE THE TAXING AUTHORITIES. 21. SO FAR AS REGARDS THE DEPARTMENTS ASSERTION TH AT CBDT CIRCULAR NO. 742(SUPRA) HAS WRONGLY BEEN RELIED ON, IT IS SEEN THAT CBDT CIRCULAR NO. 765 DATED 15.4.1998 EXTENDED CIRCULAR NO. 742 (SUPRA). AS PER CBDT CIRCULAR NO. 742, IT WAS NEEDED TO BE ESTABLISHED, FOR THE APPLICABILITY OF THE CIRCULAR, THAT THE ASSESSEE OR A NON-RESIDENT FOREIGN TELECAS TING COMPANY AND THAT IT DID NOT HAVE A BRANCH OFFICE OR A PERMA NENT ESTABLISHMENT OR DID NOT MAINTAIN COUNTRYWISE ACCOU NTS OF ITS OPERATIONS. THE CIRCULAR WOULD NOT APPLY IN THE E VENT OF ANY ITA NOS. 2458&2459(DEL)/2008 13 OF THE SAID CONDITIONS BEING NOT SATISFIED. ALL T HE CONDITIONS ARE NOT TO BE CUMULATIVELY SATISFIED SO AS TO APPLY THE CIRCULAR. IN THE ASSESSEES CASE, THE ASSESSEE HAD FILED BEFO RE THE AO ITS COUNTRY ACCOUNTS FOR INDIA, WHEREIN THE TOTAL REVEN UES AND EXPENSES OF THE ASSESSEE WERE ALLOCATED TO ITS INDI A ACTIVITY. A COPY THEREOF HAS BEEN PLACED BEFORE US. BEFORE TH E CIT(A), THE ASSESSEE ALSO FILED ITS AUDITED ACCOUNTS CONTAINING ALLOCATION OF REVENUES AND EXPENSES TO ITS INDIA ACTIVITY. A COP Y THEREOF HAS ALSO BEEN FURNISHED BEFORE US. THE LEARNED CIT(A) REMANDED THESE TO THE AO. THEREFORE, EVIDENTLY, CBDT CIRC ULAR NO. 742 (SUPRA) DOES NOT APPLY. 22. APROPOS RELIANCE ON THE TPOS ORDER IN BWIPL (SUPRA), IT DOES NOT MAKE A DIFFERENCE IF THE ORDER OF THE TPO IN THAT CASE WAS THAT OF A DEPENDENT AGENT. THE TPO HAD ACCEPTED THAT THE TRANSACTION WAS AT ARMS LENGTH PRICE. IT WAS OBSERVED THAT ALMOST EVERYONE IN THE ASSESSEES LINE OF BUSI NESS WAS CHARGING THE SAME RATE OF COMMISSION ON THE SALE OF AIRTIME ON TV CHANNELS OR FM CHANNELS. 23. FURTHER, THE DEPARTMENT HAS NOT BEEN ABLE TO ES TABLISH ITS ASSERTION THAT THE STAND THAT BWIPL WAS MERELY SOLI CITING ORDERS FOR THE ASSESSEE, WAS A MERE FACADE. IT HAS RATHER BEEN SHOWN TO BE OTHERWISE, AS DISCUSSED HEREINABOVE. 24. SET SATELLITE (SUPRA) AND MORGAN STANLEY (S UPRA), AS DELIBERATED UPON IN THE PRECEDING PARAGRAPHS ARE DI RECTLY APPLICABLE IN FAVOUR OF THE ASSESSEE AND THE DEPART MENT HAS NOT BEEN ABLE TO SUCCESSFULLY CANVASS AS TO WHY THEY SH OULD NOT BE FOLLOWED. 25. IN VIEW OF THE ABOVE, THE CASE MADE OUT BY THE ASSESSEE IS FOUND TO BE JUSTIFIED. ITS GRIEVANCE IS THUS ACCE PTED. 3.1 IN REPLY, THE LD. CIT, DR REFERRED TO THE L OGIC AND THE DECISION OF THE TRIBUNAL THAT PAYMENT AT ARMS LENGTH TO THE BWIPL EXHAUSTED THE PROFITS OF THE PE. IT HAS BEEN SUBMITTED THAT N O TRANSFER PRICING STUDY ITA NOS. 2458&2459(DEL)/2008 14 HAS BEEN CONDUCTED IN THIS YEAR. SUCH A STUDY H AD ALSO NOT BEEN CONDUCTED FOR ASSESSMENT YEAR 2002-03. THE FAC TS OF OTHER CASES, RELIED UPON BY THE TRIBUNAL, TO UPHOLD THE AFORESAID LO GIC, ARE NOT KNOWN AND HAVE NOT BEEN BROUGHT ON RECORD. THEREFORE, IT HAS BEEN ARGUED THAT PROFITS OF THE PE HAVE TO BE COMPUTED INDEPENDEN T OF THE RATE AT WHICH COMMISSION HAS BEEN PAID TO THE BWIPL. 4. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. THE FACTS OF THE CASE FOR THIS YEAR ARE IDENTICAL WITH THE FACTS OF THE CASE OF ASSESSMENT YEAR 2002-03. THE EAR LIER DECISION THAT COMMISSION HAS BEEN PAID TO THE BWIPL AT ARMS LENGTH AND SUCH PAYMENT EXHAUSTS THE PROFITS, HAS BEEN ARRIVED AT IN ABSENCE OF ANY TRANSFER PRICING STUDY. THEREFORE, JUDICIAL DIS CIPLINE DEMANDS THAT A DECISION TAKEN AFTER DEBATE AND DISCUSSION SHO ULD BE FOLLOWED EVEN IF THERE MAY BE SOME ARGUMENT NOT RAISED OR CONSID ERED IN THAT ORDER. RESPECTFULLY FOLLOWING THE DECISION FOR ASSESS MENT YEAR 2002-03, IT IS HELD THAT THE INCOME ATTRIBUTED TO THE PE IS NIL IN THIS CASE. THUS, THE GROUNDS TAKEN IN THIS BEHALF ARE ALLOWED. ITA NOS. 2458&2459(DEL)/2008 15 5. COMING TO THE ISSUE OF RATE OF TAXATION OF IN TEREST, THE LD. COUNSEL REFERRED TO THE LOAN AGREEMENT BETWEEN THE ASSE SSEE AND BWIPL DATED 20.9.2000, UNDER WHICH UK POUND 10 LAKHS WERE LENT TO THE ASSESSEE FOR A PERIOD OF TEN YEARS AND THREE MONTHS, WITH INTEREST @ LIBOR PLUS 0.06% P.A. IN VIEW OF THE AFORESAID, IT HAS BEE N SUBMITTED THAT IT IS A LOAN SIMPLICITER. THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IREL AND WITH INDIA PROVIDES FOR THE LEVY OF TAX AT 15% OF GROSS AMOUNT OF INTEREST. ACCORDINGLY, IT IS URGED THAT A DIRECTION MAY BE ISSUED TO CHARGE T AX AT 15% ON THE GROSS AMOUNT OF INTEREST. NO PARTICULAR ARGUMENT W AS MADE BY THE LD. DR EXCEPT THAT THE RATE OF 15% IS APPLICABLE IN RESP ECT OF INTEREST ON MONIES LENT BY THE COMPANY TO THE BWIPL. WE HAVE CONSI DERED THE RIVAL ARGUMENTS IN THIS MATTER. WE FIND THAT THE ASSESS EE HAS FURNISHED A COPY OF LOAN AGREEMENT AS WELL AS INTEREST ACCOUNT ON EXTERNAL COMMERCIAL BORROWINGS (ECB FOR SHORT). FROM THE LOAN AGRE EMENT, IT IS CLEAR THAT UK POUND 10 LAKHS WERE LENT TO THE ASSESSEE A T A CERTAIN RATE OF INTEREST FOR A PERIOD OF 10 YEARS AND 3 MONTH S RE-PAYABLE IN 12 QUARTERLY INSTALLMENTS STARTING FROM DECEMBER, 2007. IT IS A CASE OF LENDING OF MONEY. THEREFORE, THE PROVISION CONTAINED IN THE TREATY IS MORE BENEFICIAL TO THE ASSESSEE THAN THE PROVISION CONTAINED IN INCOME-TAX ACT, 1961. IN ITA NOS. 2458&2459(DEL)/2008 16 VIEW OF THE PROVISION CONTAINED IN SECTION 90(2), IT IS HELD THAT THE ASSESSEE IS LIABLE TO PAY TAX ON GROSS AMOUNT OF INTERES T @ 15% THEREOF. THUS, THE GROUND IN THIS BEHALF IS ALLOWED. 6. INTEREST UNDER SECTION 234B HAS TO BE LEVIED O N THE ASSESSED INCOME AND NOT ON THE BASIS OF RETURNED INCOME AS MENT IONED IN THE GROUNDS. IN THIS CONNECTION, IT IS SUBMITTED THAT THE WHOLE O F THE INCOME OF THE ASSESSEE IS SUBJECT TO TAX DEDUCTION AT SOURCE U/S 195 OF THE ACT. THEREFORE, THE ADVANCE-TAX PAYABLE ON THE ESTIMATED INCOME AFTER CONSIDERING THE TAX DEDUCTIBLE AT SOURCE AMOUNTS TO NIL. ALTHOUGH NO ARGUMENT WAS RAISED BY ANY OF THE PARTIES IN THIS BEHALF, WE ARE O F THE VIEW THAT THE GROUND IS BASED UPON SOUND LOGIC WHEN WE CONSIDER THE REL EVANT PROVISION FOR COMPUTING THE LIABILITY OF THE ASSESSEE TO PAY ADVANCE-TAX. THUS, THE GROUND IN THIS BEHALF IS ALSO ALLOWED. IT MAY HOWE VER BE MENTIONED THAT THIS DECISION DOES NOT ABSOLVE THE PAYMENT FRO M LIABILITY OF INTEREST, ARISING ON ACCOUNT OF FAILURE TO DEDUCT TAX OR TO DEPOSIT THE SAME IN TREASURY AS PER RULES. 7. THE APPEAL IN ITA NO. 2459(DEL)/08 INVOLVES DETERMINATION OF ONLY THREE QUESTIONS AS THERE IS NO GROUND RE GARDING CHARGEABILITY OR OTHERWISE OF INTEREST U/S 234B. THE SUBMISSIONS O F BOTH THE PARTIES ARE ITA NOS. 2458&2459(DEL)/2008 17 THE SAME AS IN ITA NO. 2458(DEL)/2008 IN RESPEC T OF QUESTION REGARDING BUSINESS CONNECTION, PE AND THE RATE OF INTERE ST. IN VIEW THEREOF, THE ORDER IN THAT APPEAL IS MADE APPLICABLE IN THIS APPEAL ALSO. 8. THE SUBMISSIONS IN REGARD TO ATTRIBUTION OF PROFIT TO THE PE ARE ALSO THE SAME. THE ONLY POINT ADDED BY THE L D. DR IS THAT TRANSFER PRICING STUDY HAS BEEN MADE IN THE CASE OF BWIP L, PLACED IN THE PAPER BOOK AT PAGE NUMBERS 114 TO 130. THAT ASSESSEE ITSELF MADE ADJUSTMENT IN RESPECT OF TRANSACTIONS WITH THE ASSESSEE, A N ASSOCIATED ENTERPRISE. OUR ATTENTION WAS DRAWN TOWARDS PAGE NO. 117, IN DICATING THESE ADJUSTMENTS, WHICH READ AS UNDER:- SL. NO. NAME OF AE DESCRIPTION OF TRANSACTION BOOK VALUE OF TRANSACTION VALUE OF TRANSACTIONS AS COMPUTED BY THE ASSESSEE HAVING REGARD TO THE ARMS LENGTH PRICE METHOD USED FOR DETERMINING THE ARMS LENGTH PRICE (RS.) (RS.) 1. BBC WORLDWIDE LIMITED PROVIDING MARKET AND DISTRIBUTION SUPPORT SERVICES 34,009,063 52,745,176 TNMM 2. BBC WORLD LIMITED PROVIDING MARKET SUPPORT SERVICES 28,902,900 34,989,025 TNMM ITA NOS. 2458&2459(DEL)/2008 18 3. BBC WORLD DISTRIBUTION LIMITED PROVIDING DISTRIBUTION SUPPORT SERVICES 3,610,954 2,920,325 TNMM TOTAL 6,65,22,917 9,06,54,526 8.1 THE TRANSFER PRICING OFFICER ENHANCED THE VA LUE OF TRANSACTIONS, LEADING TO FURTHER INCREASE OF RS. 1,45,68,882/-. HIS FINDINGS ARE CONTAINED IN PARAGRAPH 12.1, WHICH IS REPRODUCE D BELOW:- 12.1 HOWEVER, BWIPL HAS INCURRED ON OPERATING LOSS OF RS. 32.60 MILLIONS THEREFORE TO EARN ARMS LENGTH PROFIT BWIPL MUST ENHANCE VALUE OF INTERNATIONAL TRANSAC TIONS BY 3,93,91,120/- (RS. 3,26,00,000 + 67,91,120). BWIPL HAS ALREADY OFFERED ON ADDITIONAL SUM OF RS. 2,48,22, 238/- IN ITS RETURNS OF INCOME AND BALANCE 1,45,68,882/- IS AD DED TO OPERATING PROFIT OF THE ASSESSEE. THE TOTAL INCOM E OF THE ASSESSEE SHALL BE INCREASED BY AN AMOUNT OF RS. 1,45,68,882/- ON ACCOUNT OF DIFFERENCE BETWEEN ARMS LENGTH P RICE OF INTERNATIONAL TRANSACTION OF SALE OF AIRTIME AND MARKET SUPPORT & DISTRIBUTION SERVICES. IT IS FURTHER CLARIFIE D THAT THE ADDITIONAL INCOME IS IN ADDITION TO SUM OF RS. 2, 48,22,238/- ALREADY ADJUSTED BY BWIPL. 8.2 IN THE LIGHT OF AFORESAID FACTS, IT HAS BEE N SUBMITTED THAT THE TRANSACTIONS OF THE ASSESSEE WITH BWIPL ARE NO T AT ARMS LENGTH. THEREFORE, THE RATIONALE ADOPTED BY THE TRIBUNA L IN THE CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2002-03 IS NOT APPL ICABLE TO THE FACTS OF THIS YEAR. ITA NOS. 2458&2459(DEL)/2008 19 8.3 THE SUBMISSIONS OF THE LD. COUNSEL ARE THAT TH E TRANSFER PRICING STUDY WAS MADE IN THE CASE OF THE ASSESSEE ALSO, WHICH HAS BEEN PLACED IN THE PAPER BOOK AT PAGE NUMBERS 131 AND 132, IN WHICH NO ADVERSE INFERENCE HAS BEEN DRAWN IN RESPECT OF ARMS LENGTH PRICE B OTH IN RESPECT OF MARKET SUPPORT SERVICES AND INTEREST RECEIVABLE ON ECB . IT IS SUBMITTED THAT THE REPORT IN THE CASE OF BWIPL IS IN THE NATURE O F A THIRD PARTY REPORT. IT HAS FURTHER BEEN SUBMITTED THAT NO CASE HAS B EEN MADE OUT BY LOWER AUTHORITIES ON THE BASIS OF THAT REPORT AND, THE REFORE, THE SAME CANNOT BE CONSIDERED NOW. IN THIS CONNECTION, THE ATTENTIO N OF THE LD. COUNSEL WAS DRAWN TOWARDS THE DECISION OF HONBLE BOMBAY H IGH COURT IN THE CASE OF B.R. BAMSI VS. CIT (1972) 83 ITR 223, IN WHIC H IT HAS INTER-ALIA BEEN HELD THAT THE DEFENDANT CAN RAISE ANY OTHER GRO UND TO SUPPORT THE ORDER OF THE LD. CIT(APPEALS). IN REPLY, HE DREW OUR ATTENTION TO THE DISCUSSION ON PAGE 246 OF THE REPORT WHERE IT IS MENTION ED THAT IF THE GROUND SUCCEEDS, THE ONLY RESULT WOULD BE THAT THE AP PEAL WOULD FAIL. THE ACCEPTANCE OF THE GROUND WOULD SHOW THAT THE E NTIRE ASSESSMENT PROCEEDINGS WERE INVALID, BUT YET THE TRIBUNAL WHICH HEARS THAT APPEAL WOULD HAVE NO POWER TO DISTURB OR TO SET ASIDE THE ORDER IN FAVOUR OF THE APPELLANT AGAINST WHICH THE APPEAL HAD BEEN FILED. ITA NOS. 2458&2459(DEL)/2008 20 9. WE HAVE CONSIDERED THE FACTS OF THE CASE AND SUBMISSIONS MADE BEFORE US. IT IS SEEN THAT TRANSFER PRICING R EPORTS HAVE BEEN MADE BY THE TPO IN THE CASE OF THE ASSESSEE AND THE BWIPL. I N THE CASE OF THE ASSESSEE, THE VALUE OF THE TRANSACTION HAS BEEN ACCEPTED. HOWEVER, IN THE CASE OF BWIPL, THE VALUE OF THE TRANSACTIONS WITH THE ASSESSEE HAS BEEN INCREASED BY THE ASSESSEE ITSELF AND FURTHER I NCREASED BY THE TRANSFER PRICING OFFICER. THAT REPORT HAS NOT BEEN CONSI DERED BY THE LOWER AUTHORITIES. COMING TO THE ISSUE AS TO WHETHER T HAT REPORT CAN BE TAKEN INTO ACCOUNT NOW, THE FACTS ARE THAT THE REPOR T IS ON RECORD IN THE PAPER BOOK FILED BY THE ASSESSEE. THEREFORE, NO NEW FACT IS TO BE ASCERTAINED AT THIS STAGE. CONSEQUENTLY, THE REVENUE CAN REL Y ON THAT REPORT FOR THE LIMITED PURPOSE OF SUPPORTING THE IMPUGNED ORDER. HOWEVER, THE ADJUSTMENT MENTIONED THEREIN DO NOT STAND ESTABL ISHED QUA THE ASSESSEE, WHO HAS TO BE HEARD IN RESPECT OF ADJUSTMENTS M ADE BY THAT ASSESSEE AND FURTHER ADJUSTMENTS MADE BY THE TPO. ONLY THE N AN INFORMED DECISION CAN BE TAKEN IN THE MATTER. 9.1 THE LD. COUNSEL FAIRLY SUBMITTED THAT CIRC ULAR NO. 23 HAD BEEN WITHDRAWN IN THE MONTH OF OCTOBER, 2009. HOWEVER, SUCH WITHDRAWAL SHALL OPERATE PROSPECTIVELY AND, THEREFORE, THE WITHDRA WAL HAS NO IMPACT ON THE ITA NOS. 2458&2459(DEL)/2008 21 ASSESSMENT OF THIS YEAR. THE ASSESSEE HAD ALSO CHANGED THE METHOD OF REMUNERATION PAYABLE TO THE BWIPL FROM 15% OF THE INDIAN REVENUES TO COST + 10%. THE REMUNERATION SO CALCULATED EX CEEDS THE REMUNERATION PAYABLE ON THE EARLIER BASIS. THUS, THERE IS N O JUSTIFICATION FOR ATTRIBUTING ANY PROFIT TO THE PE. 9.2 HAVING CONSIDERED SUBMISSIONS FROM BOTH THE SIDES, WE ARE OF THE VIEW THAT THE ISSUE NEEDS FURTHER EXAMINATION IN WHICH BOTH THE REPORTS WILL HAVE TO BE CONSIDERED. THE ARGUMENT REGARD ING PROSPECTIVE WITHDRAWAL OF THE CIRCULAR ALSO NEEDS EXAMINATI ON. THEREFORE, WE RESTORE THE MATTER TO THE FILE OF THE AO TO CONSIDER THE MATTER AFRESH AFTER GIVING A REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASS ESSEE. THE ATTRIBUTION OF PROFIT, IF FOUND NECESSARY, SHALL BE SUBJECT TO LIMITATION MENTIONED IN THE CASE OF B.R.BAMSI (SUPRA). 10. IN THE RESULT:- (I) APPEAL IN ITA NO. 2458(DEL)/2008 IS PARTLY AL LOWED; AND (II) APPEAL IN ITA NO. 2459(DEL)/2008 IS TREATED A S PARTLY ALLOWED. THIS ORDER WAS PRONOUNCED IN THE OPEN COURT ON 2 3 JULY, 2010. SD/- SD/- (RAJPAL YADAV) (K.G.BANSAL) JUDICIAL MEMBER ACCOUNTANT MEMBER DATE OF ORDER: 23RD JULY,2010. SP SATIA ITA NOS. 2458&2459(DEL)/2008 22 COPY OF THE ORDER FORWARDED TO:- BBC WORLDWIDE LTD., NEW DELHI. ASSTT. DIRECTOR OF INCOME-TAX, CIRCLE 1(1),INTERNAT IONAL TAXATION, NEW DELHI. CIT(A) CIT THE DR, ITAT, NEW DELHI. ASSISTANT REGISTRAR.