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TMI Blog2011 (9) TMI 548X X X X Extracts X X X X X X X X Extracts X X X X ..... bhagya Aggarwal, Advocate. A.K. SIKRI, J. 1. In these three appeals common issue is raised in respect of the same assessee, pertaining to three assessment years. The proposed question of law is as under: ―Whether the ITAT was justified in the eyes of law in holding that no further income is required to be attributable to the assessee herein as the transaction was at arm s length price, when the mandatory FAR analysis in the case of the assessee herein has never been conducted for any assessment year to determine the arm s length price, as provided by Article 7 of the Indo-UK DTA; ratio of judgment in the case of Morgan Stanley; Rule 10B sub-rule 2 of the Income Tax Rules, 1962 and Section 92C of the Income Tax Act, 1961? 2. Before we advert to the aforesaid issue, we deem it apposite to take note of some relevant facts. The assessee is a non-resident. It is a company incorporated under the laws of England and Wales and is a part of BBC Group. This BBC group has a company incorporated in India as well, known as M/s. BBC Worldwide India Pvt. Ltd. (hereafter referred to as the BWIPL ). 3. During the year under consideration, BWIPL was operating as interna ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e business connection in India inasmuch as there was a real and intimate relation between the business activities carried on outside India and the activity of soliciting, sourcing and collecting advertisement revenues from India that the advertisement revenue received in India in respect of BBC World Channel was a business receipt in the hands of the assessee that BWIPL was acting as an agent of the assessee that BWIPL was acting as an agent of the assessee company and was rendering all services on behalf of the assessee company. BWIPL, i.e., the Indian company prepared the rate-cards, collected the advertisements and advertisement revenue for onward remittance to the U.K. after deducting its commission and all these functions were undertaken by BWIPL in India on behalf of the assessee company and the advertisement revenues collected from India were remitted to the assessee company. The AO, therefore, held that the income of the assessee company from the advertisement revenues accrued or arose in India under Section 9(1) of the Income Tax Act (hereinafter referred to as the Act ). It was held that BWIPL constituted a business connection of the assessee as well as a permanent establ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal. The Tribunal did not go into the issue of business connection or permanent establishment, which was not addressed before it and confined itself to the issue as to whether the BWIPL had been adequately remunerated on the basis of Transfer Pricing. There is no dispute that if answer to this is in affirmative, then no further income of the assessee is taxable in India. The Tribunal held that once the T.P.O. had himself accepted that commission of 15% paid to BWIPL is a fair transfer price and on the basis of this opinion of the TPO, income declared by the BWIPL for its Assessment Year 2002-03 was accepted by the Department, the Department could not contend otherwise. Referring to the order of the TPO, the Tribunal has noted the following features therein: ―In that order, the TPO accepted that the transaction was at arm s length price. It was held that the CUP method selected by BWIPL for determining the arm s length price of the commission income earned by it, was acceptable; that this was due to the fact that BWIPL with that charged by an uncontrolled party for similar services; that even otherwise, it was found that the rate of commission in the assessee s trade w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present case are found to be parity with those present in SET Satellite (supra), to the extent noticed above. Both the cases concern years before the onset of the Transfer Pricing regime. As such, we hold that ―SET Satellite‖ (supra) has rightly been relied on behalf of the assessee and that it is directly applicable to the assessee s case. xxx xxx xxx 21. So far as regards the Department s assettiont hat CBDT Circular No.742 (supra) has wrongly been relied on, it is seen that CBDT Circular No.765 dated 15.04.1998 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 telecasting company and that it did not have a branch office or a permanent establishment or did not maintain country wise accounts of its operations. The Circular would not apply in the event of any of the said conditions being not satisfied. All the conditions are not to be cumulatively satisfied so as to apply the Circular. In the assessee s case, the assessee had filed before the AO its country accounts for India, wherein the total revenues and expenses of the assessee were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... transactions; (d) conditions prevailing in the markets in which the respective parties to the transactions operate, including the geographical location and size of the markets, the laws and Government orders in force, costs of labour and capital in the markets, overall economic development and level of competition and whether the markets are wholesale or retail. 12. Concluded his arguments, the learned counsel summed up his submission that: A. FAR Analysis is mandatory to be conducted in every assessment year to determine the income of a non-resident; B. The issue concerning the determination of the ALP has been raised by the assessee before the Tribunal for the first time; C. The Tribunal cannot do the FAR Analysis or substitute FAR Analysis of the Permanent Establishment for it, when it has not been done by the AO or TPO; D. Article 7 of the Indo-UK DTAAA also provides that the FAR Analysis is to be conducted for determining the assessable income of the non-resident; E. No FAR Analysis has been done by the AO at any point in time for any assessment year in the case of the assessee herein; F. CBDT Circular No.742 dated 02-05-1996 is applicable to the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by the TPO that no adverse inference/addition could be drawn. 14. He also submitted that in ITA No.705/2011 for the Assessment Year 2003-04, the assessee had duly submitted the accountant s report under Form 3CEB in relation to its international transactions, in compliance with the transfer pricing regulations. It is also relevant to note that a transfer pricing reference was made under Section 92CA of the Act in the assessee s case for the Assessment Year 2003-04 and no addition was made by the TPO. 15. After considering the respect arguments, we are of the opinion that no substantial question of law arises in the instant cases as we do not find any justification in interfering with the impugned order of the Tribunal. Following pertinent aspects which emboldened stand out and stare at the face of the Department and shut its case completely: (i) The provisions of transfer pricing was introduced for Finance Act, 2002 from the Assessment Year 2002-03 and therefore, in respect of two appeal for the Assessment Years 2000-01 and 2001-02, no such FAR Analysis was even required. (ii) For the Assessment Year 2002-03, FAR Analysis was prepared and submitted by the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is year also, reference was made to TPO, which again passed the orders dated 07.3.2006, once again opining that no adverse inference could be drawn in respect of ALP. Following portion of the said order is worthwhile to quote: ―A reference under Section 92CA was received in the case of BWIPL from its assessing officer. All the above mentioned international transactions have been examined at length in the order under section 92CA(3) dated 09.01.2006. In that order Arm s Length Price of international transaction mentioned above has been revised upward but there is no reciprocal effect in the case of assessee in view of provisions of sub-section 3 of Section 92 of Income Tax Act. Hence no adverse inference is drawn in respect of arm s length price of the above mentioned transaction in the hands of assessee company. (v) We do not find any merit in the plea of the Department that country-wise accounts have not been made by the assessee and therefore, the deemed rate of taxation at 10% of advertisement revenue as per Circular No.742 dated 02.5.1996 issued by the CBDT, should be applied to tax the revenue of the Permanent Establishment of the assessee. In this regard, we not ..... X X X X Extracts X X X X X X X X Extracts X X X X
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