2019 (5) TMI 290 - AT - Income Tax

Transfer pricing adjustment - comparable selection of Apitco Ltd. as a Government Company / PSU - HELD THAT - On a perusal of the material on record including the annual report of the company, 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, 2015 (12) TMI 1548 - ITAT DELHI the Tribunal, Delhi Bench, has excluded Apitco 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 Revenue s appeal 2017 (5) TMI 1588 - DELHI HIGH COURT . It is relevant to 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 2018 (7) TMI 643 - SUPREME COURT OF INDIA Thus, in view of the judicial precedents referred to above, Apitco Ltd., 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 Officer to exclude Apitco Ltd., from the list of comparables and compute the arm's length price of business support service segment. Addition u/s 40(a)(ia) - TDS u/s 194J - channel placement fee - HELD THAT - Undisputedly, assessee has deducted tax on payment of channel placement fee applying the provision of section 194C. The issue in dispute is, whether channel placement fee is in the nature of royalty requiring deduction of tax u/s 1994J. As could be seen from the material on record, this dispute arose for the first time in assessee s own case in assessment year 2009 10. Tribunal held that channel placement fee is not in the nature of royalty, hence, there is no requirement for deduction of tax at source u/s 194J We have also noted that in respect of other assesses also dispute of identical nature have been decided in their favour by the Tribunal and the Hon'ble Jurisdictional High Court 2019 (5) TMI 229 - BOMBAY HIGH COURT . That being the case, we direct the Assessing Officer to delete the disallowance made u/s 40(a)(ia) Short credit of TDS - HELD THAT - We direct the Assessing Officer to verify relevant facts and grant credit for TDS as per law.

Summary

Issues:
1. Appeal against order under section 143(3) r/w section 144C(13) of the Income-tax Act, 1961 for the assessment year 2012–13.
2. Transfer pricing adjustment issues raised by the assessee.
3. Disallowance of channel placement fee under section 40(a)(ia) of the Act.
4. Short credit of TDS.
5. Consequential grounds and premature issue.

Transfer Pricing Adjustment Issue:
The appeal concerned transfer pricing adjustments for the assessment year 2012–13. The dispute revolved around the arm's length price of business support services provided by the Indian company to its overseas Associated Enterprises (AE). The assessee applied the Transactional Net Margin Method (TNMM) and benchmarked the transaction, showing a margin of 9.94%. However, the Transfer Pricing Officer proposed adjustments as most comparables were deemed not comparable. The key contention was the selection of Apitco Ltd. as a comparable. The assessee argued against its comparability due to being a Government company, functional differences, and lack of segmental details. Relying on judicial precedents, the tribunal held that Apitco Ltd. could not be considered a comparable and directed its exclusion from the list, allowing the ground raised by the assessee.

Disallowance of Channel Placement Fee:
Another issue involved the disallowance of channel placement fee under section 40(a)(ia) of the Act due to non-deduction of tax at source under section 194J. The Assessing Officer disallowed the fee, considering it as royalty. The assessee contended that previous tribunal decisions favored them, supported by the Hon'ble Jurisdictional High Court's rulings. The tribunal observed that the channel placement fee was not royalty, as per earlier decisions, and directed the Assessing Officer to delete the disallowance, amounting to ?26,32,39,328.

Short Credit of TDS:
The assessee raised an issue regarding the short credit of TDS. The tribunal directed the Assessing Officer to verify the facts and grant credit for TDS as per the law, disposing of the ground accordingly.

Consequential Grounds and Premature Issue:
Consequential grounds and a premature issue were dismissed as they did not require adjudication at that stage.

In conclusion, the tribunal partly allowed the appeal, addressing the transfer pricing adjustment, disallowance of channel placement fee, and short credit of TDS issues while dismissing other grounds as either premature or consequential. The judgment provided detailed analysis and referenced relevant legal precedents to support the decisions made.