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TMI Blog2019 (3) TMI 462X X X X Extracts X X X X X X X X Extracts X X X X ..... Moreover, if one carefully reads the provision contained in Explanation below section 9(2) of the Act, it will be very much clear that it will not be applicable to the agency commission earned by the assessee. Therefore, in principle, we agree with the contention of the assessee that income accruing or arising outside India would not be taxable under the Act. It is the case of the Department that the assessee itself has admitted that the profit attributable to India is Rs. ₹ 252,59,62,559. Contesting the aforesaid finding of the TPO and the DRP, the learned Sr. Counsel for the assessee has submitted that the profit attributable to India. For demonstrating such fact, he has heavily relied upon the transfer pricing study report filed before the Transfer Pricing Officer. However, since the actual profit attributable to India is a purely factual issue which has to be demonstrated by the assessee through proper documentary evidences / books of account, for the limited purpose of verifying this fact, we are inclined to restore the issue to the AO to examine assessee’s claim. In the event, the claim of the assessee that actual profit attributable to India is ₹ 227,80,28,14 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions of learned Sr. Counsel. Accordingly, we direct the Assessing Officer to decide the issue of levy of interest under section 234C of the Act by following the ratio laid down by the Hon'ble Jurisdictional High Court in NGC Network Asia LLC (supra), this ground is allowed for statistical purposes. - ITA no. 1947/Mum./2015 - - - Dated:- 15-2-2019 - SHRI SAKTIJIT DEY, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER For The Revenue : Shri Porus Kaka a/w Shri Divesh Chawala For The Assessee : Shri Anand Mohan ORDER PER SAKTIJIT DEY, J.M. This appeal has been filed by the assessee challenging the order dated 29th January 2015, passed under section 143(3) r/w section 144C(13) of the Income Tax Act, 1961 (for short the Act ) for the assessment year 2010 11, in pursuance to the directions of the Dispute Resolution Panel 4 (DRP), Mumbai. 2. In grounds no.1, 2 and 3, the assessee has challenged addition made of ₹ 24,79,34,418, on account of transfer pricing adjustment. 3. Brief facts are, the assessee a foreign company is a tax resident of Hong Kong. The assessee is basically engaged in distribution of satellite television channels ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sociated Enterprise (AE) in India made a reference to the Transfer Pricing Officer for determining the arm's length price (ALP) of the international transactions. From the transfer pricing study report of the assessee, the Transfer Pricing Officer found that the assessee and the channel companies have bench marked the international transaction by adopting Profit Split Method (PSM) as the most appropriate method. Insofar as agency commission is concerned, the global profitability percentage as per the audited financial statements of Star International Movies Ltd. (SIML), Channel V and overseas entities such as Star Television Entertainment Ltd. (STEL), Star Asian Movies Ltd. (SAML), Star Asia Region FZ, LLC (SARF), since merged with Star India Pvt. Ltd (SIPL), have been applied to the Indian revenues and global revenues earned by the channel companies and the overseas merged entities respectively to arrive at the profit / loss earned by each of the channel companies. As per the contractual arrangement between the assessee and the channel companies, the assessee is compensated so as to earn an amount equal to the profits / loss earned / incurred to by the channel companies, meani ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2,525,962,559 Total profits including STAR Ltd. 5,051,925,118 Total global/India revenue of Channel Companies 17,933,444,143 Profit as a percentage of total revenue 28.17% 4. The Transfer Pricing Officer after thoroughly verifying the transfer pricing study report of the assessee accepted PSM as the most appropriate method. He also noted that though under PSM there is no need to further benchmark the profitability against the comparables, however, with a view to demonstrate its bona fide and clear all doubts, the assessee had compared its profitability with nine external comparables, whose average margin worded out to 7.28%. The Transfer Pricing Officer after examining the comparables proposed by the assessee found some of them to be non comparable for various reasons. Accordingly, he short listed five companies as comparables with average mean of 23.81%. Since the assessee had shown a margin of 28.17% as against the average margin of 23 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... king the adjustment. While holding so, the DRP also rejected assessee s contention that the income does not come within the purview section 9 of the Act. Further, the DRP observed that the CBDT circular cited by the assessee, since, have been withdrawn, no importance can be attached to them. They also observed that in view of Explanation below section 9(2) of the Act, income of a non resident shall be deemed to accrue or arise in India whether or not the nonresident has a residence or place of business or business connection in India or has rendered services in India. Accordingly, they upheld the adjustment made to the arm's length price by the Transfer Pricing Officer. In terms with the directions issued by the DRP the Assessing Officer passed the impugned assessment order sustaining the addition made on account of transfer pricing adjustment. 6. Shri Porus Kaka, learned Sr. Counsel appearing for the assessee took us through the computation of arm's length price of the international transaction in the transfer pricing study report and submitted that there is no dispute that the most appropriate method for benchmarking the international transaction is PSM. He submitted, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arm's length price is required, he should not have recommended any further adjustment on the basis of global income. The learned Sr. Counsel submitted, the observations of the DRP that the assessee has admitted the amount of ₹ 252,59,62,559, as the profit attributable to India is a total misconception of fact and on a wholly wrong reading of the transfer pricing study report. He submitted, the assessee has at no stage admitted that the profit attributable to India is ₹ 252,59,62,559. The learned Sr. Counsel submitted, when the departmental authorities have not disputed the fact that the agency commission of ₹ 24,79,34,418, is towards services rendered outside India and the payment was also received outside India it cannot be brought to tax in India. He submitted, the aforesaid legal position has not only been reiterated in various judicial precedents but also in the CBDT Circular no.786, dated 7th February 2000. He submitted, even the withdrawal of the aforesaid circular w.e.f. 22nd October 2010 will not make much difference since the provisions of section 5(2) and section 9 of the Act have not undergone any change in respect of the cases which directly fall w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ternational transaction relating to agency commission and has shown a profit margin of 28.17%. To demonstrate that the profit margin shown is at arm's length the assessee has also offered certain comparables whose average margin worked out to 23.81%. The Transfer Pricing Officer after taking note of the profit margin shown by the assessee and that of the comparable companies has also accepted the arm's length price shown by the assessee to be at arm's length. However, he has made the adjustment on the ground that instead of offering profit of ₹ 252,59,62,559 under the PSM, the assessee has offered profit of ₹ 227,80,28,141. While doing so, the Transfer Pricing Officer has basically relied upon Annexure 1 to the transfer pricing study report wherein revised computation of consolidated net profit compared to the total India / Global Revenues earned by the channel companies and the overall profitability for the period 1st April 2009 to 31st March 2010 has been reflected. 11. Notably, in the said Annexure 1, a copy of which is at Page 76 of the paper book and which has also been reproduced in the orders of the Transfer Pricing Officer and the DRP, an amount o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d outside India is not taxable in India. Moreover, if one carefully reads the provision contained in Explanation below section 9(2) of the Act, it will be very much clear that it will not be applicable to the agency commission earned by the assessee. 13. Therefore, in principle, we agree with the contention of the learned Sr. Counsel for the assessee that income accruing or arising outside India would not be taxable under the Act. However, it is the case of the Department that the assessee itself has admitted that the profit attributable to India is Rs. ₹ 252,59,62,559. Contesting the aforesaid finding of the Transfer Pricing Officer and the DRP, the learned Sr. Counsel for the assessee has submitted that the profit attributable to India is ₹ 227,80,28,141. For demonstrating such fact, he has heavily relied upon the transfer pricing study report filed before the Transfer Pricing Officer. However, since the actual profit attributable to India is a purely factual issue which has to be demonstrated by the assessee through proper documentary evidences / books of account, for the limited purpose of verifying this fact, we are inclined to restore the issue to the Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26. So far as issue raised vide ground 7 and 8, the assessee has challenged the taxation of service fee income @ 41.82% on the gross basis as against applicable @ 10.455% on gross basis. We direct the AO to apply the correct tax rate in accordance with section 115A and examine the contention of the assessee that tax rate of 10.45% and 20.91% should be applied. 21. Facts being identical, we direct the Assessing Officer to decide the aforesaid issue following the directions of the Tribunal as referred to herein above. This ground is allowed for statistical purposes. 22. In ground no.5, the assessee has raised the issue of short grant of TDS credit amounting to ₹ 7,84,041. 23. After considering the rival submissions, we direct the Assessing Officer to verify assessee s claim and grant credit for actual TDS. 24. In ground no.6, the assessee has challenged levy of interest under section 234C of the Act. 25. We have considered rival submissions and perused material on record. It is the contention of the learned Sr. Counsel for the assessee that since the assessee is a non resident and liability was cast upon the payer to deduct tax at source while making the pa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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