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TMI Blog2019 (10) TMI 1342X X X X Extracts X X X X X X X X Extracts X X X X ..... s concerned, undisputedly, the profit margin shown by the company in the assessment year 2007-08 and 2008-09 is substantially high. Though, in the impugned assessment year, the profit margin has fallen drastically, the company has still shown profit of 1.04%. Even if the fall in profit rate is due to write-off of bad debt, still this company cannot be excluded as a comparable since bad debts are operating in nature. In view of the aforesaid, we direct the Assessing Officer/Transfer Pricing Officer to include the aforesaid three companies as comparable. Non applying PSM to non-AE transaction and determining the profit on estimate basis - HELD THAT:- Admittedly, the Assessing Officer simply relying upon the direction of learned DRP in assessment year 2007-08 has estimated the profit on non-AE transactions. However, as could be seen, the Tribunal while deciding the issue relating to identical addition made in assessment year 2007-08 as observed that once the combined net profit has been arrived at by taking into account the transactions of both AEs/non-AEs, which is factored into all the costs and revenue, then, to segregate a non-AE transaction over and above such profit determi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It needs to be observed, the aforesaid channel companies are non-residents and are engaged in Satellite Television business and derived revenue from various countries in Asia and other parts of the world, including the Indian market, from sale of advertisement time on the Television Channels, distribution of Television Channels and syndication of content on the channels. The aforesaid channel companies appointed the assessee as an agent for the following functions/activities:- i) To sell, advertising air time and the channels; ii) To distribute the channels in the territories where the channels are broadcasts; and iii) To procure syndication revenue in respect of the content on the channels. 4. As per the terms of agreement, the assessee was also required to incur the cost necessary for the purpose of broadcasting channels including and not limited to lease appropriate transponder space to cover the relevant footprints for broadcast. For performing the aforesaid functions/activities, the assessee was compensated by a fee which was calculated so as to recover all the costs that it incurred in rendering the services including the sub-agent's commission which also incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... determine the total profits earned in respect of the Indian revenue for the relevant 12 month period of 1st April 2008 to 31st March 2009. Since the profits earned by the channel companies and the assessee were consolidated, the consolidated profit effectively denoted the profit based on third party revenue and third party cost. In the aforesaid process, the assessee computed the overall profit rate of 8.48%. Though, the assessee claimed that once the assessee has determined the profit percentage by applying PSM, there is no further need to benchmark the profitability against comparables, however, to put the comparability analysis beyond doubt, the assessee compared the aforesaid profitability with nine external comparables with average margin of 4.85% based on weighted average of earlier years. Thus, the transaction with the AEs was claimed to be at arm's length. After examining the Transfer Pricing Study Report, the Transfer Pricing Officer was of the view that out of the nine comparables selected by the assessee, four companies viz. Astha Broadcasting Network Ltd., Jain Studios Ltd., Television 18 India Ltd., Raj Television Network Ltd., being either loss making or low prof ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... el submitted, the Transfer Pricing Officer rejected the comparable due to write off of bad debts. He submitted, the company has shown high profit margin in the assessment years 2007-08 and 2008-09. He submitted, in the impugned assessment year also, the company has shown a profit margin of 1.04%. Further, he submitted, bad debts are operating in nature, hence, have to be considered for computing profit margin. The learned Sr. Counsel submitted, the Transfer Pricing Officer himself in assessment years 2007-08 and 2008-09 has accepted Television 18 India Ltd. as a good comparable. Thus, he submitted, rule of consistency should apply while accepting/rejecting these two comparables. Further, in support of his submissions, the learned counsel relied upon the following decisions:- i) TPG Capital India Pvt. Ltd., [2017] taxmann.com 101 (Mum. Trib.); ii) Goldman Sachs India Securities Pvt. Ltd., [2016] 69 taxmann.com 19 (Bom.); iii) Bobst India Pvt. Ltd., [2015] 63 taxmann.com 339 (Pun. Trib.); iv) Actavis Pharma Development Centre Pvt. Ltd., MANU/IU/0347/2018 : 92 taxmann.com 253 (Mum. Trib.); v) WNS Global Services Pvt. Ltd., MANU/IU/0044/2019 : [2019] 103 taxmann.com 75 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allen drastically, the company has still shown profit of 1.04%. Even if the fall in profit rate is due to write-off of bad debt, still this company cannot be excluded as a comparable since bad debts are operating in nature. In view of the aforesaid, we direct the Assessing Officer/Transfer Pricing Officer to include the aforesaid three companies as comparable and determine the arm's length price accordingly. These grounds are allowed. 10. In grounds No. 5 and 6, the assessee has challenged the decision of the Assessing Officer in not applying PSM to non-AE transaction and determining the profit on estimate basis. 11. Brief facts are, as observed by the Assessing Officer, in spite of requesting the assessee to prepare and furnish India Specific Profit Loss account so as to identify and determine the income from operations in India to properly allocate the profit attributable to Indian operations, no such account was furnished by the assessee. Thus, the Assessing Officer observed that though the Transfer Pricing Officer has determined the taxable income in India under PSM, however, such determination is restricted to Intra Group/AE transactions only. He observed, since th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed. 15. In view of our decision in grounds No. 1 to 6, grounds No. 7 to 12, are of mere academic importance and there is no need to specifically adjudicate them. Hence, these grounds are dismissed. 16. In grounds No. 13 and 14, the assessee has challenged the decision of the Assessing Officer in bringing to tax the royalty income by applying the rate of 42.23%. 17. Vis-a-vis the issue raised in the aforesaid ground, the learned Sr. Counsel for the assessee submitted, the assessee being a foreign company, the applicable tax rate on royalty income is as provided under section 115A of the Act. He submitted, instead of applying the tax rate provided under section 115A of the Act, the Assessing Officer has taxed it @ 42.23% by treating it as business profit. He submitted, identical issue arising in assessee's own case in assessment year 2007-08 and 2008-09, have been decided in favour of the assessee. The learned Departmental Representative relied upon the observations of learned DRP and Assessing Officer. 18. We have heard the parties and perused materials on record. Undisputedly, identical issue arising in assessee's own case in preceding assessment years has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmitted, the disallowance made should be deleted. 21. The learned Departmental Representative submitted, the assessee is not authorised under the Act to decide the taxability of income at the hands of the channel companies. He submitted, as per the provisions of section 195 of the Act, the assessee is required to deduct tax at source at the time of making payment. Further, he submitted, in case of Asia Satellite Telecommunication Ltd. (supra), the Tribunal has held that the transponder lease charges received by it is in the nature of royalty, hence, taxable in India. Therefore, the disallowance made is justified. 22. We have considered rival submissions and perused material on record. For not withholding tax at source on the payment made to Asia Satellite Telecommunication Ltd., the assessee had primarily advanced two reasons. Firstly, the payment has been made to all non-resident companies which do not have any business connection in India. Therefore, its income is not taxable in India, hence, withholding of tax is not required to be made while making the payment. It is further submitted, even if by virtue of amended provisions of section 195 of the Act, the payment is to be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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