Multi Screen Media Pvt. Ltd., V. M/s Seth India Pvt Ltd,

ITA 6806/MUM/2003

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9494 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-11-2012
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 21-11-2012
• Assessment Year: misc
• Appeal Filed On: 17-10-2003
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KUMAR
• Assessee Lawyers: DINESH VYAS; ASHISH AGARWAL
• Keywords: Transfer pricing; Permanent establishment
• Section: 80HHC; 92

Judgement Text

ITA NO.6806 OF 2003 SET INDIA PVT LTD MUMBAI PAGE 1 OF 13 IN THE INCOME TAX APPELLATE TRIBUNAL 'L' BENCH, MUMBAI BEFORE SHRI B. RAMAKOTAIAH, ACCOUNTANT AND SHRI VIJAY PAL RAO, JUDICIAL MEMBER ITA NO.6806/MUM/2003 (ASSESSMENT YEAR: 2000-01) ACIT, CIRCLE 11(1) ROOM NO.439, AAYAKAR BHAVAN, MK MARG, MUMBAI 400020 VS. M/S SET INDIA PRIVATE LIMITED (NOW KNOWN AS MULTI SCREEN MEDIA PVT. LTD), INTERFACE BUILDING NO.7 4 TH FLOOR, MALAD (WEST) MUMBAI 400064 PAN: AATS 2739 Q (APPELLANT) (RESPONDENT) DEPARTMENT BY: SHRI NARENDRA KUMAR, DR ASSESSEE BY: SHRI DINESH VYAS & MR. ASHISH AGARWAL DATE OF HEARING: 21/11/2012 DATE OF PRONOUNCEMENT: 27/11/2012 O R D E R PER VIJAY PAL RAO (J.M): THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDERS DATED 14.08.2003 OF CIT (A) FOR THE ASSESSMENT YEAR 2000-01. THIS APPEAL OF THE REVENUE ALONG WITH THE CROSS APPEAL O F ASSESSEE IN ITA NO.6693/MUM/2003 AND C.O. NO.282/MUM/2004 WERE DISP OSED OFF BY THE TRIBUNAL VIDE COMPOSITE ORDER DATED 23.0 1.2009. SUBSEQUENTLY, ASSESSEE FILED A MISCELLANEOUS APPLIC ATION NO.173/MUM/2009 FOR RECALLING OF THE TRIBUNAL ORDER WITH RESPECT TO GROUND NOS. 2 & 3 OF THE REVENUE APPEAL AND CONS EQUENTLY THE TRIBUNAL VIDE ORDER DATED 15.06.2009 RECALLED THE E ARLIER ORDER OF THE TRIBUNAL DATED 23.01.2009 WITH RESPECT TO GROUN D NOS. 2 & 3 OF THE REVENUE APPEAL FOR CONSIDERING AND DECIDING THE GROUND NOS.2 & 3 OF THE REVENUE APPEAL AFRESH ON MERITS. ITA NO.6806 OF 2003 SET INDIA PVT LTD MUMBAI PAGE 2 OF 13 2. GROUND NOS. 2 & 3 OF THE REVENUE APPEAL ARE AS UNDE R: 2. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED CIT (A)-XI MUMBAI HAS ERRED IN DIR ECTING AO TO ALLOW DEDUCTION UNDER SECTION 80HHF OF THE I. T. ACT AMOUNTING TO ` .15,94,10,399/- TO ASSESSEE. 3. ON FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED CIT (A)-XI MUMBAI HAS ERRED IN DIR ECTING AO TO DELETE THE ADDITION OF ` .7,71,16,333/- IN RESPECT OF VARIATION IN THE PERCENTAGE OF SERVICE FEES MADE UN DER SECTION 92 OF THE I.T. ACT. 3. GROUND NO.2 IS REGARDING REDUCTION OF 90% OF SERVIC E FEE FROM PROFITS OF BUSINESS FOR THE PURPOSE OF DEDUCTION UN DER SECTION 80HHF. 4. THE ASSESSEE HAS CLAIMED DEDUCTION OF ` .15.94 CRORES UNDER SECTION 80HHC OF THE I.T. ACT ON ACCOUNT OF EXPORT OF FILM SOFTWARE, T.V. SOFTWARE, MUSIC SOFTWARE ETC. THE AO WAS OF TH E VIEW THAT THE INCOME RECEIVED BY ASSESSEE BY WAY OF SUBSCRIPTION, SERVICE FEE (COMMISSION), SERVICE INCOME ETC ARE NOT ENTITLED F OR DEDUCTION UNDER SECTION 80HHC NOT BEING THE INCOME DERIVED FR OM THE EXPORT OF FILM SOFTWARE, MUSIC SOFTWARE ETC. ACCORDINGLY A O HAS REDUCED 90% OF THE INCOME RECEIVED BY ASSESSEE ON ACCOUNT O F SUBSCRIPTION, SERVICE FEE (COMMISSION), SERVICE INCOME ETC., UNDE R CLAUSE (BAA) WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC. ON APPEAL THE CIT (A) HAS ALLOWED THE CLAIM OF ASSESSEE BY FO LLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF BANGALORE CLOTHING LTD, 260 ITR 371. REVENUE HAS CH ALLENGED THE IMPUGNED ORDER OF THE CIT (A) BEFORE US. 5. WE HAVE HEARD THE LEARNED DR AS WELL AS THE SR. COU NSEL SHRI DINESH VYAS AND CAREFULLY PERUSED THE RELEVANT MATE RIAL ON RECORD. AT THE OUTSET THE SR. COUNSEL HAS POINTED OUT THAT THE ISSUE IS COVERED IN FAVOUR OF ASSESSEE BY THE DECISION OF TH E TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1998-9 9, 2001-02 ITA NO.6806 OF 2003 SET INDIA PVT LTD MUMBAI PAGE 3 OF 13 AND 2002-03 AND THEREFORE, IN VIEW OF THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE THE ORDER OF THE CIT (A) ON THI S ISSUE MAY BE UPHELD. ON THE OTHER HAND THE LEARNED DR HAS SUBMIT TED THAT FOR THE ASSESSMENT YEARS 1998-99, 2001-02 AND 2002-03 T HE TRIBUNAL HAS DECIDED THIS ISSUE BY FOLLOWING THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF BANGALORE CLOTHING LTD (SUPRA) WHEREAS THE SAID DECISION IS NO LONGER A GO OD LAW IN VIEW OF THE SUBSEQUENT DECISION OF THE HON'BLE SUPREME COUR T IN THE CASE OF CIT V. K. RAVINDRA NATHAN NAIR 295 ITR 228, AS W ELL AS THE RECENT DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. DRESSER RAND INDIA (P) LTD 323 ITR 429. THE LEARNED DR HAS TOOK US THROUGH THE DECISION OF THE HON'BLE JUR ISDICTIONAL HIGH COURT IN THE CASE OF DRESSER RAND INDIA (P) LTD (SU PRA) AND SUBMITTED THAT THE HON'BLE JURISDICTIONAL HIGH COUR T AFTER CONSIDERING THE DECISION IN THE CASE OF BANGALORE C LOTHING LTD (SUPRA) AS WELL AS THE DECISION OF THE HON'BLE SUPR EME COURT IN THE CASE OF CIT V. K. RAVINDRA NATHAN NAIR (SUPRA) HAS HELD THAT THE DECISION IN THE CASE OF BANGALORE CLOTHING CO. LTD IS NO LONGER A GOOD LAW. THE LEARNED DR HAS POINTED OUT THAT IN TH E CASE OF DRESSER RAND INDIA (P) LTD, THE ISSUE BEFORE THE HO N'BLE HIGH COURT WAS WITH REGARD TO REDUCTION OF 90% OF RECOVERY OF FREIGHT, INSURANCE, PACKING RECEIPTS AND THE SERVICES UNDER CLAUSE BAA OF EXPLANATION TO SECTION 80 HHC. THEREFORE, THE SERVI CE INCOME AS IT IS COMMON IN THE CASE OF ASSESSEE UNDER CONSIDERATI ON FALLS UNDER CLAUSE (F) OF EXPLANATION TO SECTION 80HHF. 6. THE LEARNED DR HAS FURTHER SUBMITTED THAT THE INCOM E ON ACCOUNT OF SUBSCRIPTION FEE, SERVICE FEE AND COMMIS SION CONSTITUTE INDEPENDENT INCOME HAVING NO NEXUS WITH THE EXPORT AND THEREFORE, THE SAME ARE REQUIRED TO BE REDUCED FROM THE BUSINE SS PROFIT AS PER CLAUSE F OF EXPLANATION TO SECTION 80HHF. RELYING UPON THE DECISION OF THE HON'BLE SUPREME COURT AS WELL AS TH E HON'BLE ITA NO.6806 OF 2003 SET INDIA PVT LTD MUMBAI PAGE 4 OF 13 JURISDICTIONAL HIGH COURT THE LEARNED DR FORCEFULLY CONTENDED THAT THE DECISION IN THE CASE OF BANGALORE CLOTHING LTD (SUPRA) IS NO LONGER HELD A GOOD LAW BY THE HON'BLE JURISDICTIONA L HIGH COURT IN VIEW OF THE DECISION OF THE HON'BLE SUPREME COURT, THEN THE ORDERS/ DECISIONS OF THE TRIBUNAL IN ASSESSEES OWN CASE FO R THE OTHER ASSESSMENT YEARS IS NOT BINDING AND THEREFORE, THE SAME CANNOT BE FOLLOWED. 7. ON THE OTHER HAND THE LEARNED SR. COUNSEL HAS SUBMI TTED THAT IN THE RECENT DECISION OF THE HON'BLE JURISDIC TIONAL HIGH COURT IN THE CASE OF CIT VS. PFIZER LTD, 330 ITR 62, THE DECISION IN THE CASE OF DRESSER RAND INDIA LTD HAS BEEN CONSIDERED AND T HEREAFTER THE HON'BLE HIGH COURT HAS DECIDED THE ISSUE IN FAVOUR OF ASSESSEE AND AGAINST THE REVENUE. THE LEARNED SR. COUNSEL HAS PO INTED OUT THAT THE HON'BLE JURISDICTIONAL HIGH COURT HAS TAKEN NOT E OF THE FACT THAT IN CASE OF DRESSER RAND INDIA, THE ISSUE REGARDING FREIGHT CHARGES, INSURANCE AND PACKING RECEIPTS, SALES TAX REVENUE A ND SERVICE INCOMES WERE DECIDED ON THE BASIS OF CONCESSION OF THE COUNSEL APPEARING ON BEHALF OF ASSESSEE THAT THE RATIO IN R ESPECT OF PROCESSING CHARGES AS HELD INDEPENDENT INCOME UNREL ATED TO EXPORT WOULD SIMILARLY APPLY TO THE OTHER ISSUES WITH REGA RD TO THESE RECEIPTS. THUS THE SR. COUNSEL HAS SUBMITTED THAT T HE DECISION IN THE CASE OF DRESSER RAND INDIA CANNOT BE APPLIED WH EN THE INCOME IS NOT AN INDEPENDENT INCOME. STRONGLY RELIED UPON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F PFIZER INDIA (SUPRA), HE HAS AND SUBMITTED THAT THE HON'BLE HIGH COURT HAS HELD THAT WHETHER A RECEIPT WHICH FORM PART OF THE PROFI TS OF BUSINESS IS ALLOWABLE TO UNDERGO A REDUCTION OF 90% AS STIPULAT ED IN CLAUSE BAA OF EXPLANATION TO SECTION 80HHC, IT IS NECESS ARY FOR THE COURT TO CONSIDER WHETHER THE RECEIPT IS OF A SIMILAR NAT URE INCLUDED IN SUCH PROFITS. THE HON'BLE HIGH COURT HAS FURTHER OB SERVED THAT THE PROFITS OF BUSINESS AS DEFINED IN EXPLANATION TO SE CTION 80HHC, IT IS ITA NO.6806 OF 2003 SET INDIA PVT LTD MUMBAI PAGE 5 OF 13 NOT TALKED ABOUT THE ELEMENT OF EXPORT TURNOVER AND THIS FACT HAS BEEN TAKEN CARE OF BY THE LEGISLATURE IN THE APPLIC ATION OF FORMULA WHICH IS REFERRED IN SUB SECTION 3 OF SECTION 80HHC . THUS THE LEARNED SR. COUNSEL HAS SUBMITTED THAT IN ORDER TO BRING THE INCOME UNDER THE AMBIT OF CLAUSE BAA OF EXPLANATION, IT IS NOT A NECESSARY CRITERIA THAT THE SAID INCOME IS NOT PART OF THE EX PORT TURNOVER. THE LEARNED SR. COUNSEL HAS REFERRED THE DECISION OF TH E COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. GRENT EX & CO. (P) LTD DATED 14.05.2010 IN ITA NO.5256/MUM/08 (10 TAXMANN. COM 91) AND SUBMITTED THAT A SIMILAR VIEW HAS BEEN TAKEN BY THE TRIBUNAL AFTER CONSIDERING THE DECISION OF THE HON'BLE SUPRE ME COURT IN THE CASE OF CIT VS. K. RAVINDRA NATHAN NAIR (SUPRA). HE NCE THE LEARNED SR. COUNSEL HAS SUBMITTED THAT THE INCOME ON ACCOUN T OF COMMISSION, SUBSCRIPTION AND SERVICE IS IN THE NATU RE OF OPERATIONAL INCOME AND 90% OF THE SAME IS NOT REQUIRED TO BE RE DUCED UNDER CLAUSE F OF EXPLANATION TO SECTION 80HHC WHILE COMP UTING THE DEDUCTION. 8. HAVING CONSIDERED THE RIVAL CONTENTIONS AS WELL AS THE RELEVANT MATERIAL ON RECORD, WE NOTE THAT FOR THE A SSESSMENT YEAR 1998-99 THE TRIBUNAL HAS CONSIDERED AND DECIDED THI S ISSUE IN PARA 11 IN ITA NO.3446/MUM/2002 DATED 7.12.2005 AS UNDER : 11. WE HAVE HEARD THE RIVAL SUBMISSIONS, THE ISSUE STANDS COVERED IN ASSESSEES FAVOUR BY THE DECISION OF THE TRIBUNAL IN THE CASE OF A.O VS. ASWIN FISHERIES LTD (77 ITD 561) AND THE HON'BLE BOMBAY HIGH COURTS DECISION IN THE CASE OF CIT VS. BANGALORE CLOTHING CO. (260 ITR 371). THE HON'BLE HIGH COURT HELD THAT IF THE PROCESS OF ACTIVITY FORMING PART OF THE MANUFACTURI NG ACTIVITY OF ASSESSEE THAT 90% OF THE LABOUR CHARGES OUGHT NOT TO HAVE BEEN EXCLUDED FROM SUCH BUSINESS PROFIT S WHILE COMPUTING DEDUCTION UNDER SECTION 80HHC. IN T HE INSTANT CASE, THE FACTS STATED HEREIN ABOVE, MAKES IT CLEAR THAT IT IS PART OF ASSESSEES MANUFACTURING A CTIVITY. SINCE THE ISSUE STANDS COVERED NOW IN ASSESSEES FA VOUR ITA NO.6806 OF 2003 SET INDIA PVT LTD MUMBAI PAGE 6 OF 13 BY THE DECISION OF THE CITED ABOVE AND THE DECISION IN THE CASE OF DCIT VS. ALLEN & ALVAN (P) LTD (81 TTJ 751) AGRA ITAT THE ISSUE HAS TO GO IN ASSESSEES FAVOUR. AO M AY WHILE GIVING EFFECT TO THIS ORDER TAKE INTO CONSIDE RATION THE DECISIONS CITED ABOVE AND MAY GIVE APPROPRIATE RELIEF. ORDER ACCORDINGLY. 9. IT IS CLEAR FROM THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEAR 1998-99 THAT THE CLAIM OF ASSESSEE WAS ALLOWED BY FOLLOWING THE DECISION IN THE CASE OF CIT VS. BANGALORE CLOTH ING CO.(SUPRA). IN THE SUBSEQUENT ASSESSMENT YEARS I.E. 2001-02 TO 200 2-03 THE DECISION FOR THE ASSESSMENT YEAR 1998-99 WAS FOLLOW ED AND ACCORDINGLY THE ISSUE WAS NOT INDEPENDENTLY EXAMINE D. THE DECISION IN THE CASE OF BANGALORE CLOTHING CO.(SUPRA) IS UND ERSTOOD BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. DR ESSER RAND INDIA (P) LTD IN THE LIGHT OF THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF K. RAVINDRA NATHAN NAIR (SUPRA). THE RE LEVANT OBSERVATION OF HON'BLE HIGH COURT IN PARA 13 TO 15 AS UNDER: 13. WE HAVE DEALT WITH THE OBSERVATIONS OF THE DIV ISION BENCH IN BANGALORE CLOTHING [2003] 260 ITR 371 IN A CONSIDERABLE DEGREE OF DETAIL BECAUSE READING THE JUDGMENT, IT IS EVIDENT THAT THE COURT CONSIDERED T HAT TO BE A CASE WHERE A FINDING OF FACT WHICH WAS ARRIVED AT BY THE TRIBUNAL SHOULD NOT BE DISTURBED. BE THAT AS IT MAY, THE DECISION OF THE DIVISION BENCH TO THE EXTENT TO WHICH IT LAYS DOWN A PROPOSITION OF LAW INCONSISTENT WITH TH E SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN RAVINDRANATHAN NAIR'S CASE CANNOT BE REGARDED AS LA YING DOWN A BINDING POSITION IN LAW. IN BANGALORE CLOTHI NG, THE SPECIFIC CONTENTION OF THE REVENUE WAS THAT ONL Y THOSE ITEMS OF INCOME WHICH HAVE RELATION TO EXPORT ACTIV ITY ARE LIABLE TO BE TAKEN INTO ACCOUNT WHILE COMPUTING BUS INESS PROFITS UNDER SECTION 80HHC. THE DIVISION BENCH DID NOT FIND ANY MERIT IN THE ARGUMENT ADVANCED ON BEHALF O F THE REVENUE. IN THIS BACKGROUND WE MUST REITERATE THAT IN RAVINDRANATHAN NAIR'S CASE [2007] 295 ITR 228 (SC) THE SUPREME COURT HAS NOW CATEGORICALLY HELD THAT INDEPENDENT INCOMES LIKE RENT, COMMISSION, BROKERAG E, ETC., THOUGH THEY FORMED A PART OF THE GROSS TOTAL INCOME HAVE TO BE REDUCED BY 90 PER CENT. AS CONTEMPLATED IN EXPLANATION (BAA) IN ORDER TO ARRIVE AT BUSINESS PR OFITS. THE RATIONALE FOR THIS WHICH IS INDICATED IN THE JU DGMENT ITA NO.6806 OF 2003 SET INDIA PVT LTD MUMBAI PAGE 7 OF 13 OF THE SUPREME COURT IS THAT PROFIT INCENTIVES AND ITEMS WHICH CONSTITUTE INDEPENDENT INCOMES HAVE NO ELEMEN T OF EXPORT TURNOVER AND ARE CONSEQUENTLY LIABLE TO BE EXCLUDED TO THE EXTENT THAT IS STIPULATED IN EXPLAN ATION (BAA). THE DECISION IN BANGALORE CLOTHING, TO THE E XTENT TO WHICH IT LAYS DOWN A PRINCIPLE OF LAW AT VARIANCE W ITH THE SUBSEQUENT JUDGMENT OF THE SUPREME COURT IN RAVINDRANATHAN NAIR'S CASE [2007] 295 ITR 228 (SC) WOULD NOT, THEREFORE, HOLD THE FIELD AFTER THE JUDG MENT OF THE SUPREME COURT. 14. HOWEVER, IT WAS SOUGHT TO BE URGED THAT THE DEC ISION IN BANGALORE CLOTHING WAS CITED BEFORE THE SUPREME COURT IN ITS DECISION IN BABY MARINE EXPORTS [2007] 290 ITR 323. THE SUBMISSION OF THE ASSESSEE IS THAT THE JUDGMENT IN BANGALORE CLOTHING MUST BE REGARDED AS BEING IMPLIEDLY APPROVED BY THE SUPREME COURT IN BA BY MARINE EXPORTS [2007] 290 ITR 323. THE ISSUE BEFORE THE SUPREME COURT IN BABY MARINE EXPORTS [2007] 290 ITR 323 WAS WHETHER AN EXPORT HOUSE PREMIUM RECEIVED BY THE ASSES-SEE IS INCLUDIBLE IN THE PROFITS OF THE B USINESS OF THE ASSESSEE WHILE COMPUTING THE DEDUCTION UNDER SECTION 80HHC. THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF SELLING MARINE PRODUCTS BOTH IN THE DOM ESTIC AND INTERNATIONAL MARKETS IN PURSUANCE OF A CONTRAC T WHICH IT HAD ENTERED INTO WITH EXPORT HOUSES. THE ASSESSEE RECEIVED THE ENTIRE FOB VALUE OF THE EXPOR TS TOGETHER WITH A PAYMENT WHICH WAS DESCRIBED AS AN EXPORT HOUSE PREMIUM OF 2.25 PER CENT. OF THE FOB V ALUE. THE TRIBUNAL IN THAT CASE HELD THAT THE EXPORT HOUS E PREMIUM RECEIVED BY THE ASSESSEE WAS INCLUDIBLE IN THE PROFITS OF THE BUSINESS UNDER SECTION 80HHC. THE CONTENTION OF THE REVENUE BEFORE THE SUPREME COURT WAS THAT AS A SUPPORTING MANUFACTURER, THE ASSESSEE WAS ENTITLED TO A DEDUCTION ONLY ON THE SALE PRICE OF I TS GOODS AND THE PREMIUM RECEIVED COULD NOT BE HELD TO BE DE RIVED FROM THE BUSINESS OF EXPORT. BEFORE THE SUPREME COU RT RELIANCE WAS PLACED BY THE ASSESSEE ON THE JUDGMENT OF THE DIVISION BENCH OF THIS COURT IN BANGALORE CLOTH ING [2003] 260 ITR 371 IN SUPPORT OF THE SUBMISSION THA T IF A PARTICULAR RECEIPT IS IN THE NATURE OF AN OPERATION AL INCOME, IT MUST BE INCLUDED IN BUSINESS PROFITS. TH E SUPREME COURT HELD THAT THE ASSESSEE BEING A SUPPOR TING MANUFACTURER UNDER SECTION 80HHC(1A) IT WAS ENTITLE D TO A DEDUCTION OF THE PROFIT DERIVED FROM THE SALE OF GOODS OR MERCHANDISE TO AN EXPORT HOUSE FOR THE PURPOSES OF EXPORT. THE ASSESSEE, AS CONSIDERATION FOR THE SALE OF THE ITA NO.6806 OF 2003 SET INDIA PVT LTD MUMBAI PAGE 8 OF 13 GOODS TO AN EXPORT HOUSE, RECEIVED THE ENTIRE FOB V ALUE OF THE GOODS AND AN EXPORT HOUSE PREMIUM OF 2.25 PE R CENT. THE SUPREME COURT NOTED IN ITS FOLLOWING OBSERVATIONS THAT AS A MATTER OF FACT THE PREMIUM W AS A PART OF THE SALE PRICE REALIZED BY ASSESSEE: 'THE APPELLATE TRIBUNAL HAS ARRIVED AT THE DEFINITE CONCLUSION THAT THE EXPORT HOUSE PREMIUM IS NOTHING BUT AN INTEGRAL PART OF SALE PRICE REALISED BY THE ASSESSEE-A SUPPORTING MANUFACTURER FROM THE EXPORT HOUSE. THE TRIBUNAL FURTHER HELD THAT THE EXPORT HOUSE PREMIUM CAN-NOT POSSIBLY BE CONSIDERED TO BE EITHER COMMISSION OR BROKERAGE, AS A PERSON CANNOT EARN COMMISSION OR BROKERAGE FOR HIMSELF.' 15. THE SUPREME COURT AFFIRMED THE FINDING OF THE TRIBUNAL THAT THE EXPORT HOUSE PREMIUM WAS AN INTEG RAL PART OF THE SALE PRICE REALIZED BY THE ASSESSEE FRO M THE EXPORT HOUSE. THE SUBMISSION OF THE REVENUE THAT TH E PREMIUM WAS TOTALLY UNRELATED TO EXPORT WAS HELD TO BE LACKING IN MERIT. THE SUPREME COURT HELD THAT THE SUBMISSION WAS CONTRARY TO THE SPECIFIC TERMS OF TH E AGREEMENT ENTERED INTO BY THE ASSESSEE. THE EXPORT HOUSE PREMIUM, AS HELD BY THE SUPREME COURT, COULD BE INCLUDED IN THE BUSINESS PROFIT 'BECAUSE IT IS AN I NTEGRAL PART OF BUSINESS OPERATION OF THE RESPONDENT WHICH CONSISTS OF SALE OF GOODS BY THE RESPONDENT TO THE EXPORT HOUSE'. THE DECISION OF THE SUPREME COURT IN BABY MARINE EXPORTS CASE (SUPRA) THEREFORE RESTS ON TWO FOUNDATIONS. FIRSTLY, THE SUPREME COURT AFFIRMED TH E FINDING OF FACT OF THE TRIBUNAL THAT THE EXPORT HOU SE PREMIUM WAS AN INTEGRAL PART OF THE CONSIDERATION F OR THE SALE REALIZED BY THE ASSESSEE, WHICH WAS A SUPPORTI NG MANUFACTURER FOR AN EXPORT HOUSE. SECONDLY, THE PREMIUM, AS A MATTER OF FACT, WAS RELATED TO THE EX PORT ACTIVITY SINCE IT FORMED AN INTEGRAL PART OF THE BU SINESS OF THE ASSESSEE WHICH CONSISTED OF THE SALE OF GOODS T O AN EXPORT HOUSE. THE SUPREME COURT HAS, AS A MATTER OF FACT, IN THE COURSE OF THE DISCUSSION NOT AFFIRMED THE JU DGMENT OF THIS COURT IN BANGALORE CLOTHING CO.S CASE (SUP RA). THE DECISION UNDOUBTEDLY WAS CITED ON BEHALF OF THE ASS ESSEE BUT THAT IN ITSELF IS NOT A GROUND FOR THIS COURT T O HOLD THAT IT WAS IMPLIEDLY APPROVED. THERE IS NOTHING IN THE JUDGMENT OF THE SUPREME COU RT TO SUGGEST THAT THE JUDGMENT IN BANGALORE CLOTHING ITA NO.6806 OF 2003 SET INDIA PVT LTD MUMBAI PAGE 9 OF 13 CO.S CASE (SUPRA) WAS EITHER EXPRESSLY OR IMPLIEDL Y APPROVED. THE SUBMISSION WHICH HAS BEEN URGED ON BEHALF OF THE ASSESSEE CANNOT THEREFORE BE ACCEPTED . THE AMBIT OF EXPLANATION ( BAA) HAS BEEN CONSIDERED BY THE JUDGMENT OF THE SUPREME COURT IN K. RAVINDRANATHAN NAIRS CASE (SUPRA). THE LEGISLATIVE POLICY UNDERLY ING THE PROVISION IS THAT ITEMS WHICH ARE UNRELATABLE TO TH E EXPORT ACTIVITY MUST BE EXCLUDED IN THE COMPUTATION OF BUS INESS PROFITS IN ORDER TO PREVENT A DISTORTION IN THE COM PUTATION OF THE DEDUCTION UNDER SECTION 80HHC. WHAT PROVISIO N SHOULD BE MADE CONSISTENT WITH THE LEGISLATIVE POLI CY UNDERLYING SECTION 80HHC IS EVIDENTLY A MATTER FOR PARLIAMENT TO DETERMINE. THE DUTY OF THE COURT IS T O INTERPRET THE LANGUAGE OF THE PROVISION. IN THE PRE SENT CASE THE INTERPRETATION OF THE PROVISION BY THE SUP REME COURT IS BINDING AND HAS TO BE FOLLOWED. 10. THUS IT IS CLEAR THAT THE HON'BLE JURISDICTIONAL HI GH COURT HAS OBSERVED THAT THE DECISION IN THE CASE OF BANGALORE CLOTHING IS NO LONGER A GOOD LAW ON THE POINT. THEREFORE, IN VIEW OF THE ABOVE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT A S WELL AS THE HON'BLE SUPREME COURT THE DECISION OF THE COORDINAT E BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 1998-99 WHICH WAS FOLLOWED FOR THE ASSESSMENT YEARS 2001-02 AND 2002-03 WOULD NOT OPERATE AS A BINDING PRECEDENT. SO FAR AS THE OBSERVATIONS AND FINDINGS OF THE HON'BLE JURISDICTI ONAL HIGH COURT IN THE CASE OF DRESSER RAND INDIA THAT THE DECISION IN THE CASE OF BANGALORE CLOTHING CO. IS NO LONGER A GOOD LAW, THE DECISION IN THE CASE OF PFIZER LTD (SUPRA) DOES NOT DISTURB THE SAI D FINDINGS OF THE HON'BLE JURISDICTIONAL HIGH COURT. 11. NOW THE QUESTION ARISES WHETHER THE RECEIPT ON ACCO UNT OF COMMISSION, SUBSCRIPTION AND SERVICE INCOME ARE IND EPENDENT INCOME SIMILAR TO THE INCOME AS STIPULATED UNDER TH E CLAUSE BAA OF EXPLANATION TO SECTION 80HHC AND CLAUSE F OF EXPL ANATION TO SECTION 80HHF (LANGUAGE OF BOTH THE PROVISIONS ARE IDENTICAL AND PARI MATERIAL). THIS QUESTION REQUIRES A VERIFICATI ON AND EXAMINATION OF FACTS TO DETERMINE THE NATURE OF THE INCOME WHET HER INDEPENDENT ITA NO.6806 OF 2003 SET INDIA PVT LTD MUMBAI PAGE 10 OF 13 OR HAS NEXUS TO THE MAIN ACTIVITY OF ASSESSEE RELAT ING TO THE EXPORT BUSINESS. IN THE FACTS AND CIRCUMSTANCES OF THE CAS E, WE ARE OF THE CONSIDERED OPINION THAT THE ISSUE IS REQUIRED TO BE EXAMINED AND CONSIDERED ON THIS ASPECT AT THE LEVEL OF AO IN THE LIGHT OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF DRESSER RAND INDIA AS WELL AS IN THE CASE OF PFIZER LTD (SUPRA). ACCORDINGLY WE SET ASIDE THIS ISSUE TO THE FILE OF AO TO DECIDE THE SAME AFRESH AS PER LAW. 12. GROUND NO.3 IS REGARDING THE ADDITION UNDER SECTION 92 ON ACCOUNT OF VARIATION IN THE PERCENTAGE OF SERVICE F EE FROM 15% TO 12.5%. WE HAVE HEARD THE LEARNED DR AS WELL AS THE LEARNED SR. COUNSEL OF ASSESSEE AND CONSIDERED THE RELEVANT MAT ERIAL ON RECORD. AT THE OUTSET WE NOTE THAT THIS ISSUE HAS BEEN CONS IDERED AND DECIDED BY THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2001-02 VIDE ORDER DATED 12.02.2010 IN PARA 9 TO 13 AS UNDER: 9. GROUND NO. 2 IS AGAINST DELETION OF RS.10,01,80,302/- ADDED BY THE A.O. ON THE GROUND T HAT THERE IS VARIATION IN THE PERCENTAGE OF SERVICE FEE S UNDER SECTION 92 OF THE I.T. ACT. 10. THE ASSESSEE IN THIS CASE HAS EARNED SERVICE FE ES @12.5% OF NET ADVERTISEMENT REVENUE RECEIPT INSTEAD OF 15% OF GROSS ADVERTISEMENT REVENUE. IT IS SUBMITTED THAT THIS REDUCTION IN THE RATE OF COMMISSION IS IN ANTI CIPATION OF RISE IN THE SUBSCRIPTION REVENUE AND SERVICE FEE S. THE A.O. HELD THAT THE CLAIM OF THE ASSESSEE CANNOT BE ACCEPTED. THE RELEVANT EXTRACT IS AS FOLLOWS: - '4.1. BEFORE THE A.O., IT WAS CONTENTED THAT: - THE APPELLANT AGREED FOR REDUCED RTE OF COMMISSION @ 12.5% OF NET AD-REVENUE INSTEAD OF 15% OF GROSS AD-REVENUE IN ANTICIPATION OF RISE IN SUBSCRIPTION REVENUES AND SERVICE FEES. THE PROFIT BEFORE TAX OF APPELLANT INCREASED SUBSTANTIALLY IN COMPARISON TO EARLIER YEARS. ITA NO.6806 OF 2003 SET INDIA PVT LTD MUMBAI PAGE 11 OF 13 THE A.O. DID NOT ACCEPT THE CLAIM OF THE APPELLANT IN VIEW OF PROVISIONS OF SEC. 92 OF THE I.T. ACT ON THE FOL LOWING GROUNDS: - THE RATE OF COMMISSION IS LESS THAN WHAT OTHER CHANNELS HAD BEEN RECEIVING. THE TERM 'ORDINARY PROFIT' REFERRED TO SEC. 92 MEANT THE PROFIT AN ENTERPRISE SHOULD GET IF IT WAS AN INDEPENDENT ENTITY AND DEALT WITH OTHER ENTITLED INDEPENDENTLY. THE CONCEPT IS SEEN AS ARMS LENGTH PRICE WHICH HAS BEEN ELABORATED BY FINANCE ACT, 2001 WHILE INTRODUCING THE TRANSFER PRICING REGULATIONS IN I.T. ACT EFFECTIVE FROM 1-4- 2002. IN THE ORIGINAL AGREEMENT DATED 1-10-1995 AND LETTER DATED 5- 1-1996 THE RATE OF ADVERTISEMENT COMMISSION WAS AGREED UPON @15% OF GROSS ADVERTISING REVENUES IN INDIA. SET, SINGAPORE WERE TO REIMBURSE MAJOR MARKETING COSTS TO APPELLANT. IT IS ONLY VIDE LETTER DATED 16.10.1998, THAT THE ADVERTISING SALES AGENCY COMMISSION HAS BEEN REDUCED FROM 15% OF GROSS AD-REVENUES TO 12.5% NET AD-REVENUES IN INDIA. THE SUBSCRIPTION REVENUE AND SERVICE FEE AND INDEPENDENT CHANNELS OF REVENUE AND IF BOTH CHANNELS DO WELL, THE PROFITS OF APPELLANT WOULD GO UP. OTHER COMPANIES LIKE ZEE TV AND STAR INDIA LTD., HAVE REFLECTED ADVERTISEMENT REVENUES @ 15% OF GROSS RECEIPTS THOUGH THEY ARE ALSO ON THE SAME LINE. IN VIEW OF THE ABOVE, THE A.O. WORKED OUT THE INCOM E ACCRUED TO THE APPELLANT FROM THE SERVICE FEE @15% OF THE GROSS REVENUE RECEIPTS AS UNDER: - 15% OF GROSS REVENUE RECEIPTS OF RS.4,00,72,12,000/- RS.60,10,81,812/- SHOWN BY THE ASSESSEE IN THE INCOME RS.50,09,01,501 /- THE DIFFERENCE RS.10,01,08,302/-' ITA NO.6806 OF 2003 SET INDIA PVT LTD MUMBAI PAGE 12 OF 13 11. AFTER CONSIDERING THE CONTENTIONS OF THE ASSESS EE THE CIT(A) DELETED THE ADDITION BY FOLLOWING HIS ORDER FOR THE A.Y. 2000-01 WHICH IS DATED 14.08.2003. 12. AFTER HEARING THE CONTENTIONS OF THE REVENUE WE FIND THAT THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF S ET SATELLITE (SINGAPORE) PTE LTD. VS. DCIT (INTERNATIO NAL TAXATION) REPORTED IN 307 ITR 205 NOTED AT PAGE 216 AS FOLLOWS: - 'FROM THE ORDER OF THE COMMISSIONER OF INCOME-TAX, WHICH HAS BEEN ACCEPTED IT IS CLEAR THAT THE APPELL ANT HEREIN HAS PAID TO ITS PERMANENT ESTABLISHMENT ON T HE ARM'S LENGTH PRINCIPLE. IT RECORDED A FINDING OF FA CT THAT THE APPELLANT HAS PAID SERVICE FEES AT THE RATE OF 15 PER CENT OF GROSS AD REVENUE TO ITS AGENT, ET INDIA, FO R PROCURING ADVERTISEMENTS DURING THE PERIOD APRIL 19 98 TO OCTOBER, 1998. THE FACT THAT 15 PER CENT SERVICE FE E IS AN ARM'S LENGTH REMUNERATION IS SUPPORTED BY CIRCULAR NO. 742 WHICH RECOGNIZES THAT THE INDIAN AGENTS OF FORE IGN TELECASTING COMPANIES GENERALLY RETAIN 15 PER CENT OF THE AD REVENUES AS SERVICE CHARGES. EFFECTIVE NOVEMBER 1998, A REVISED ARRANGEMENT WAS ENTERED INTO BETWEE N THE PARTIES WHEREBY THE AFORESAID AMOUNT WAS REDUCE D TO 12.5 PER CENT OF NET AD REVENUE (I.E., GROSS AD REVENUE LESS AGENCY COMMISSION). SIMULTANEOUSLY, THE APPELL ANT ALSO ENTERED INTO AN AGREEMENT ENTITLING SET INDIA TO ENTER INTO AGREEMENTS, COLLECT AND RETAIN ALL SUBSC RIPTION REVENUE. CONSIDERING ALL THESE ASPECTS AND THE FACT THAT THE AGENT HAS A GOOD PROFITABILITY RECORD, IT HELD THAT THE APPELLANT HAS REMUNERATED THE AGENT ON THE ARM'S LE NGTH BASIS. THIS FINDING OF THE TRIBUNAL HAS NOT BEEN DISPUTED BY THE REVENUE. THE ENTIRE CONTENTION OF THE REVENUE IS TH AT THE ADVERTISEMENT REVENUE PERTAINING TO ITS OWN CHANNEL AND AXN CHANNEL ARE ALSO TAXABLE IN INDIA.' 13. IN VIEW OF THE ABOVE OBSERVATION THAT THE FINDI NG OF THE TRIBUNAL THAT 12.5% OF NET AD REVENUES IS ARMS LENGTH PRICE, WAS NOT CHALLENGED BY THE REVENUE, WE UPHOLD THE FINDINGS OF THE FIRST APPELLATE AUTHORIT Y AND DISMISS THIS GROUND OF THE REVENUE. 13. AS POINTED OUT BY THE LEARNED SR. COUNSEL, WE FURTH ER NOTE THAT EVEN IN THE SUBSEQUENT YEARS I.E. FOR ASSESSM ENT YEARS 1999- ITA NO.6806 OF 2003 SET INDIA PVT LTD MUMBAI PAGE 13 OF 13 2000, 2002-03 2003-04 AND 2004-05, THE AO HAS ACCEP TED THE SERVICE FEE @ 12.5%. ACCORDINGLY BY FOLLOWING THE E ARLIER ORDER OF THIS TRIBUNAL AS WELL AS IN VIEW OF THE FACT THAT A O HAS ACCEPTED THE SAME RATE OF SERVICE FEE IN THE SUBSEQUENT YEARS AS MENTIONED ABOVE, WE DECIDE THIS ISSUE AGAINST THE REVENUE AND IN FAVOUR OF ASSESSEE, THE ORDER OF THE CIT (A) QUA THIS ISSUE I S UPHELD. 14. IN THE RESULT GROUND NO.2 OF THE REVENUE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES AND GROUND NO.3 IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH NOVEMBER, 2012. SD/- SD/- (B. RAMAKOTAIAH ) (VIJAY PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED 27 TH NOVEMBER, 2012. VNODAN/SPS COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CONCERNED CIT(A) 4. THE CONCERNED CIT 5. THE DR, L BENCH, ITAT, MUMBAI BY ORDER ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCHES, MUMBAI