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TMI Blog2024 (2) TMI 518X X X X Extracts X X X X X X X X Extracts X X X X ..... f information and Broadcasting of India to operate Star World channel in India, it is also established that the ownership of the Star World channel is outside India. Given this, when the ratio laid down in in the case of Cub Pty Ltd [ 2016 (7) TMI 1094 - DELHI HIGH COURT] case is applied, we see merit in the argument of the ld AR that the impugned asset is not an asset situated in India since it is owned by a person outside India and therefore the situs of the asset is also outside India. Accordingly in our considered view, the income arising out of the transfer of Star World channel, being an asset outside India by the assessee to SIML will not fall within the provisions of section 9(1)(i) and accordingly not taxable in India. Asset as situated in India since there is clear cut nexus and strong business connection of the transferred asset to India due to very nature of the asset and its ability to continually and regularly generate income from India and therefore taxable in India - Though there may be merit in the argument that viewership in India affects the valuation / purchase price of the transaction, we are not in a position to concur with the said contention of the reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... carried out by the Appellant Gr.No.4-6 Gr.No.4-6 3 Non application of PSM approved by the TPO for AE transaction to third party transaction Gr.No. 7 11 Gr.No.7 11 4 Application of certain TP principles Gr.No.8-10 Gr.No.8-10 5 Double taxation of India sourced revenue at the Arm s length rate determined by the TPO, i.e. 13.54% without considering the 50:50 split of revenues between STAR Ltd and Channel Companies as approved by the TPO Gr.No.12-14 Gr.No.12-14 6 Transfer of Channels (i.e. Vijay TV and STAR World) held liable to tax in India as Short Term Capital Gain by holding that the channel / assets of the channel are located in India Gr.No.15-16 Gr.No.15-16 7 Taxation of royalty income (income from transfer of content) at the rate of 42.23% instead of the applicable rate of 10.5575% on gross basis Gr.No.17 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order of assessment passed by the Assessing Officer pursuant to the directions of the DRP. TRANSFER PRICING ADJUSTMENT 4. For the year under consideration, the assessee has entered into the following transactions with other entities in the star group as reported in form 3CEB. License to use Star Mark in combination with Channel Mark from Star Ltd Agency services availed by Channel Companies from Star Ltd in connection with sale of advertisement airtime, distribution of channels and syndication of content including services relating to pre-production, post production, playout, uplinking and transmission through transponder Procurement of content by Channel Companies from Star India Private Limited ('SIPL') and Vijay Television Private Limited (' VTPL') Availing of management services by Channel Companies from Star Ltd Grant of license for distribution of channels by the Channel Companies to Star Den Media Services Private Limited ('Star Den') Grant of license for the purpose of syndicating content in India by STEL to SIPL . Grant of license for mobile content b STEL to SIPL Availing of support services for organizing an eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evised to factor in the revised profitability. (ii) While computing the global profitability of the Channel Companies based on the financial statements for the year ended June 30,2009, any profit/loss earned/incurred to / by the Channel Companies on account of the business not related to channel broadcasting was eliminated, since such transactions would qualify as extraordinary transactions. (iii) As per the arrangements entered into by the Channel Companies with Star Ltd, Star Ltd is entitled to a fee which is calculated so as to recover all the costs that are incurred by Star Ltd in respect of marketing advertisement airtime on Channels, distributing the Channels and syndicating the content telecasted on the Channels in addition to 50 percent of the overall profit on the Channel operations (which is calculated after considering the costs incurred by Channel Companies and the above costs of Star Ltd, as adjusted against the overall revenues from the Channels). (iv) Based on the above arrangements, the profits earned by Star Ltd and attributable to India revenues ought to be equal to the profits earned by the Channel Companies (subject to other non operating incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hmarking under PSM, with a view to avoid litigation, the assessee has chosen 9 comparables, the average margin of which was given to be 4.85% based on weighted average of earlier years. Accordingly, the assessee held that the transactions with AEs are at arm s length. The TPO observed that out of the comparables chosen by the assessee, the following companies are loss making or low profit making and called on the assessee to show cause why the company could not be excluded:- Sr. No. Company name 2009 (net profit on revenue) 1. Aastha Broadcasting Network Ltd -291.23% 2. Jain Studios Ltd (consolidated) -15.87% 3. Television Eighteen India Ltd (consolidated) -34.96% 4. Raj Television Network Ltd 1.04% 8. The assessee filed a detailed submission stating that all comparable companies proposed to be excluded by the TPO are full-fledged entertainment broadcasters and functionally comparable to Star group and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l companies as below to make an adjustment of Rs. 25,64,77,167/-:- Particulars Total 50% of Rs. 840,017,078 STEL (INR) SIML (INR) SAML (INR) V Partnership (INR) SAR (INR) 100% 61.06% 7.79% 10.25% 3.70% 17.20% Apportioned to channel companies 420,008,539 256,477,167 32,715,183 43,029,908 15,523,657 72,220,624 12. The assessee submitted before the DRP that all the 9 comparables chosen by the assessee should be retained and exclusion of companies on the ground that they are loss making, is not correct. The DRP rejected the submissions of the assessee and upheld the TP addition. 13. Ground No.4 to 6 is with regard to the inclusion of Jain Studios Ltd., Television 18 India Ltd., and Raj Television Network Ltd. The Ld.AR in this regard submitted that the co-ordinate bench in group company s case, Star International Movie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 14. The Ld.DR relied on the order of the lower authorities. 15. We heard the parties and perused the materials on record. In the case of the assessee, the Assessing Officer has excluded the above 3 comparables for the same reasons that those companies are loss making and the profit margin is low. Therefore, the ratio laid down by the co-ordinate bench in the above case is applicable to assessee also and, therefore, respectfully following the above decision of the co-ordinate bench, we hold that these comparables cannot be excluded. The TPO is directed to include these comparables and re-compute the ALP accordingly. 16. Ground 7 11 and 12 to 14 is with regard to the decision of the Assessing Officer in not applying the PSM as approved by the TPO to non AE transactions and determining the profit on estimate basis. The Assessing Officer, while passing the draft assessment order held that though the Transfer Pricing Officer has determined a taxable income in India u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7704239310 2431766411 2157187007 329261172 2386448179 SIML 1292907615 12.27 775293699 NIL NIL 775293699 517613916 217082236 70084924 287167160 SAML 1702206539 8.56 1095227617 NIL 128316111 1223543728 478662811 342592244 64810945 407403188 SARF 2854166988 -2.91 1804147631 NIL 1619109 1805766740 1198371171* 505614687 162263394 667878081 17. The Ld.AR in this regard submitted that the addition has been made purely on estimate basis and, therefore, cannot be sustained. The Ld.AR further submitted that the issue is covered by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n made by the Assessing Officer. 21. In view of our decision with regard to the TP adjustment as above, the Ground Nos. 8 to 10 raised by the assessee with regard to the application of certain TP principles have become academic and does not warrant separate adjudication. 22. Ground No. 15 16 pertain to taxability of income from transfer of channel as short term capital gains. During the year under consideration, the assessee has transferred channel i.e. Star World 24 hour English channel to another sister concern Star International Movies Ltd (SIML) vide business agreement dated 28/02/2009 for a consideration of Rs. 42,55,32,513/-. The assessee transferred the business as a going concern to SIML. The assessee did not offer the gain arising out of such transaction to taxation in India for the reason that the channel is not an asset situated in India. The assessee submitted before the Assessing Officer that the said transactions is between the assessee and SIML being non residents and that the Star World business is situated outside India and, therefore, the sale of Star World is not taxable in India. The assessee further submitted that tax has been deducted at source on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re is clear cut nexus of the transferred asset to India and strong business connection of the asset to India due to very nature of the asset and its ability to continually and regularly generate income from India. The basic elements of the assets being brand name, logo, goodwill, contents, permits, licenses, approvals, pre-existing agreements. customer base (Advertisements), viewers base etc. Hence, such asset being a Channel can be held to be located in India. Further, on account of the peculiar nature of the channel business, there would be insignificant/nil physical assets located outside India in respect of the asset block under the category Channel . In view of the above, the very basic premises of the assessee that Star World channel business is situated outside India is flawed. Therefore, the proceeds from sale of Star World Channel are linked to transfer of assets situated in India and accordingly, taxable in India. 18.3.6. ****** 18.3.7. Hence, from the above discussion it is dear that the Channel sale consists of transfer of assets like the Brand-name, goodwill, and certain items like contents and pre-ordered contracts and the rights over band ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , taking cue from provisions of Section 55(2)(a), the assessee itself has considered the cost of acquisition of such self-generated asset as 'Nil' for the purpose of undertaking TDS. Accordingly, as claimed by the assessee in submissions dated. 12.03.2013, vide Point No. 7 and dated. 18.03.2013, vide Point No. 9, the assessee itself has withheld taxes on the entire receipt of Rs. 42,55,32,513/-as its 'capital gains'. 18.3.10. In view of the above discussion, the goodwill, brand name, ' trademark, sanctions, approvals, licenses, viewership, clientele, etc. of the transferred 'channel' pertaining to India constitute an intangible asset situated in India akin to those envisaged u/section 55(2)(a) of the Income Tax Act, 1961. Since such are self-generated assets, the cost of acquisition is taken to be 'Nil'. Therefore the entire Sale Consideration Rs. 42,55,32,5137- is treated as Short-term capital gain in the hands of the assessee. 23. The Ld.DRP upheld the addition for the reason that the assets such as brand name, logo, goodwill, contents, terms, licenses, approval, customer base, viewers base are all located in India and, therefore, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sset shall be at the location of the owner. The ld AR further submitted that in the said case the intangibles relating to a brand was exploited in India and even under such circumstances, the Hon ble Court has held the intangible assets to be situated outside India since the ownership lies outside India. The Ld.AR accordingly submitted that assessee s case is in a better position that the Channel viewing is not restricted to India but is across the globe. Therefore, the ratio laid down by the Hon ble Delhi High Court is squarely applicable in assessee s case. To substantiate the claim that the ownership of the channel asset being Star World is outside India, the Ld.AR drew our attention to the guidelines issued by the Ministry of information and Broadcasting of India, which requires a foreign taxing company, i.e. the channel which is uplinked from outside India to obtain down linking license in India and accordingly, down linking license were obtained by the assessee to operate Star World channel in India. This would, according to the Ld.AR, evidence that the channel is owned and uplinked from outside India and, therefore, the ownership of the intangible asset is outside India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h or from any asset or source of income in India or through the transfer of a capital asset situated in India; Explanation 5 For the removal of doubts, it is hereby clarified that an asset or a capital asset being any share or interest in a company or entity registered or incorporated outside India shall be deemed to be and shall always be deemed to have been situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India: 27. Explanation 5 was added to section 9(1)(i) in the Act by the Finance Act, 2012, with retrospective effect from 01.04.1962 which provides that such shares/interest shall be deemed to be situated in India, if the share or interest derives, directly or indirectly, its value substantially from the assets located in India. With the insertion of the said explanation the legislature has brought in clarity with respect to the situs of the capital asset being share or interest in a company by stating that if the share or interest derives, directly or indirectly, its value substantially from the assets located in India is shall be treated as an asset situated in India. However there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess it is altered by local legislation. Since there is no such alteration in the Indian context, we would agree with the submissions made on behalf of the petitioner that the situs of the trademarks and intellectual property rights, which were assigned pursuant to the ISPA, would not be in India. This is so because the owner thereof was not located in India at the time of the transaction. 21. As a consequence of the foregoing discussion, the view taken by the AAR on question (1), which was placed before the AAR, cannot be accepted and the answer to the said question would be that the income accruing to the petitioner from the transfer of its right, title or interest in and to the trademarks in Foster's brand intellectual property is not taxable in India under the Income Tax Act, 1961. That being the case, question (2), which was posed before the AAR, would not arise. 28. The Hon'ble High Court by following the principle of 'mobilia sequuntur personam' which means movables follow the law of the person and accordingly held that the situs of the owner of an intangible asset would be the closest approximation of the situs of an intangible asset. In the issu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly derived due to the viewership in India. Though there may be merit in the argument that viewership in India affects the valuation / purchase price of the transaction, we are not in a position to concur with the said contention of the revenue in the absence of any concrete material brought on record to prove the claim that the substantial value of the channel is derived from assets located in India. We further notice that the Hon ble Delhi High Court in the case of Asia Satellite Telecommunications Co Ltd (supra) has held that merely because the footprint area includes India and the programmers by ultimate consumers/viewers are watching the programs in India, even when they are uplinked and relayed outside India, would not mean that the assessee is carrying out its business operations in India. Applying the said ratio to the issue under consideration, we are of the view that the Star World Channel having viewership India generation income cannot be a reason for holding that the channel is an asset situated in India. Therefore on this count also the addition made is not tenable. 30. Ground No.17 to 19 The assessee is contending the initiation of penalty proceedings through thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, SARF transferred (i) Programs, (ii) Vijay name (iii) Goodwill and (iv) Future revenue for international distribution and advertisement. SARF offered to tax an income towards sale of contents (programs) as Royalty and paid tax thereon. However SARF did not offer to tax the income earned in to the same of Brand, Goodwill and revenue contracts in respect of STAR Vijay channel for the reason that these intangibles are not an asset situated in India. The assessee submitted before the Assessing Officer that the business of the channels namely broadcasting of television channels was carried on from outside of India and the assets transferred are global intangible assets not specific to Indian business. The Assessing Officer did not accept the submissions of the assessee and proceeded to treat the entire transaction value as short term capital gain taxable in India. The DRP upheld the addition made by the Assessing Officer. 36. We have while adjudicating the issue of transfer of STAR World channel by STEL to SIML held that for an intangible asset the situs is where the owner of the asset is situated and since the STAR World is owned by STEL who is a non resident the intangible asse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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