TMI Blog2020 (3) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... be good comparable to distributor satellite channels in Turner International India (P.) Ltd. vs. ACIT [ 2018 (8) TMI 259 - ITAT DELHI] . Therefore, we accept the submission of ld. AR of the assessee to accept these comparable as comparable with assessee and direct the AO/TPO to work out the T.P. Adjustment afresh. Needless to order that before passing the order, the TPO/Assessing Officer shall grant opportunity to the assessee. In the result, the grounds related to comparability of comparable are allowed in accordance with the aforesaid directions. Considering the fact that we have allowed the functional comparability, therefore, discussions on alternative adjustment held by DRP have become academic. Short deduction of TDS - MAT Credit - interest u/s 234B - HELD THAT:- AO is directed to verify the TDS details and grant appropriate relief to the assessee as per law. Similarly on MAT Credit, the AO is directed to verify the fact and grant relief to the assessee in accordance with law. So far as levy of interest u/s 234B is concerned, this interest is consequential, thus, the AO is directed to work out the interest as per law. - ITA No.971/Mum/2016 - - - Dated:- 13-3-2020 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5. erred in rejecting the transfer pricing analysis undertaken by the Appellant under Section 92C of the Act and disregarding the fact that software distributors are appropriate com parables to benchmark MSMD's international transactions in the absence of any direct comparables. 6. erred in law and in facts, in rejecting the following companies from the Transfer Pricing Study for FY 2010-11 which are comparable to the Appellant: (i) Advance Technology Limited (ii) Empower Industries India Limited (iii) Sonata Information Technology Limited (iv) Svam Software Limited Benchmarking analysis undertaken by the learned TPO/ Hon'ble DRP by considering royalty agreements as Comparable Uncontrolled Price (CUP') to benchmark Appellant's international transactions 7. erred in selecting the CUP to benchmark the international transactions of the Appellant without appreciating that Transaction Net Margin ('TNMM') is the most appropriate method to benchmark the Appellant's international transactions; 8. without prejudice to the above, erred in characterizing the distribution fee paid/ payable by the Appellant to its AES to be in the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g to Non-AE channels to both AE and non-AE segment and not appreciating that marketing expenses incurred in the AE segment was reimbursed to the Appellant; 18. erred in not appreciating that 'number of channels' used by the Appellant to allocate common costs between AE and non-AE channels is a more appropriate allocation key instead of 'turnover' used by the Hon 'ble DRP; 19. erred in observing that the net margin as computed by the Appellant or as computed by the Hon'ble DRP does not fall within the +/- 5% range without appreciating that such range needs to be computed with respect to the value of the international transaction; 20. erred in observing that the gross profitability in AY 2012-13 in the non-AE segment is 27.21 % as against 4.6% as submitted by the Appellant; 21. erred in observing that the subscription fees of non-AE business for A Y 2010-11 is more than 50% of total subscription receipts and the resultant margins of non-AE business is 24.57% (on gross basis) without appreciating that the Appellant had entered into the international transaction of license fee payout only for last two months of the financial year; 22. Without prej ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2 USA 361,355,460 3. Discovery Asia Inc. One Discovery Place, Silver Spring, Maryland 20910, USA 8,33,817,957 4. Animal Plant Asia LLC, Corporation Trust Centre, 1209, Orange Street, Delaware Limington, DE 19801, Country of New Castle, USA 167,647,467 5,732,049,802 5. The assessee bench marked the transaction of distribution fee by adopting Transaction Net Margin Method ( TNMM ) and selected software distributor i.e. company engaged in selling intangible products as comparable on the ground that information regarding the companies carrying on the same function was not available in the public domain. The assessee selected the following eight comparable: S.No. Name of the company Updated OP/OR for F.Y. 2010-11 (%) 1. Avance Technologies Limited 0.18 2. Axon Infotech Limited NC 3. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 11.11.2015 the assessee stated that MSMD has to pay guarantee fee to the channel operator in addition to revenue. But under the distributor agreement with its AEs MSMD is not required to pay any minimum guarantee fees. The assessee is exclusive channel distribution for its AE channels and there is no internal CUP available. 10. The TPO after considering the reply and in absence of detailed furnished by the assessee that no benchmarking is possible, the TPO held that distribution fee paid by assessee is in the nature of Royalty and accordingly benchmarked the international transaction on the basis of 7 Royalty-stat database in the following manner: Name of Licensor Name of Licensee Description of agreement Royalty rate Ruffnation Films, LLC (Ref: L4513) New Line Television, Inc. Exclusive copyrights license to distribute, exploit, transmit and telecast the Snipes motion picture via free television broadcast, syndication, pay TV, cable, pay-perview, video-on-demand, subscription, interactive TV, and any other television transmission form. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount (Rs.) Distribution fees payout @ 90% of total revenues (A) 5,739,503,019 Distribution fees payout @ 37.36% of total revenues arm s length payout (B) 2,382,531,491 Payout in excess of arm s length (A-B) 3,356,971,528 12. Thus, the TPO suggested adjustment of ₹ 335,69,71,528/- on account of distribution fee to its AE. On receipt of report of TPO, the Assessing Officer passed the draft assessment order under section 143(3) r.w.s. 144C(1) dated 27.02.2015. The copy of draft assessment order was served upon the assessee. The assessee exercised its option for filing objection before the Dispute Resolution Panel (DRP). During the hearing before the DRP, the assessee furnished the details of 3rd party channel distributor and urged that due to insufficient time, the assessee could not furnish the same before the TPO. The Net Margin of assessee from AE segment was 3.48% compared to 4.77% from Non-AE segment. Thus, the assessee claimed its transaction with AE is within +/- 5% as prescribed under section 92C(2). 13. The DRP vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... channel owned by the AE over various platforms namely Cable, DTH and other digital platforms. The assessee only acts as an intermediary between the Broadcaster and the ultimate customer who views the channel. The assessee neither any right in the content that is broadcasted over the channel nor any right to make any changes in the content to be broadcasted on the channel. The assessee simply acts as a distributor and distributes the channel to various LCOs/MSOs/DTH operators in the chain who in turn distribute it further to the ultimate viewer. Thus, the distribution fees paid by the assessee cannot be termed as Royalty within the meaning of section 9(1)(vi) by making the payment it does not acquire any right to use any copyright or rights relating to the content that is broadcasted on the channel. 17. The ld. AR of the assessee further submits that distribution fees is not in the nature of Royalty has been upheld by Tribunal and affirmed by Hon ble Bombay High Court in the hands of payer as well as the recipient of distribution fees in case of SET India Private Limited (ITA No. 1347/2013 and in case of recipient of distribution fees in CIT vs. MSM Satellite (Singapore) Pte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 101 taxmann.com 446 (Del Trib.) dt. 08.10.2018. 21. On the other hand the ld. DR for the revenue supported the order of lower authorities. The ld. DR further submits that in its TPSR the assessee contended that that no direct comparable companies are available for channel distributor result. In absence of details no benchmarking was possible. The TPO has no option but to go to search Royalty stat data for searching comparable. The decision of High Court in NGC Network (India) Pvt Ltd (supra) is based on different facts and the ratio of order in that case is not applicable on the facts of this case. While examining the comparability functionality has to be seen predominantly. 22. We have considered the rival submissions of the parties and have gone through the orders of the lower authorities. The first issue for our consideration is whether the distribution fee is in the nature of Royalty or not. Before us the ld. AR for the assessee vehemently submitted that the TPO wrongly characterized the channel distribution fee as Royalty. It was further explained that the assessee acts as a intermediary between the broadcaster and the ultimate customers who uses the channels. Thu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11.Before Tribunal, the assessee has placed on record the financial statement of Avance. Perusal of financial statement reveals that this company has earned ₹ 140 Crore from sale of software out of total sales of ₹ 176 Crore. This company has approximately 80% of its income from software product. Thus, segmental information as placed before us is available at (Page No. 204 to 205 of Paper Book). Further, while rejecting Empower, the TPO held that this company is engaged in selling of hardware and no segmental are available. From the financial statement placed before Tribunal at (Page No. 207 to 219 of the Paper Book) As per discussion available on Page No. 22 of Annual Report of this comparable (Page No. 209) the company has earned more than 80% of its revenue from software sales. Similarly, Sonata was rejected by TPO by taking view that this company is engaged in software trading, consultancy services. We have noted that this comparable was accepted in A.Y. 2020-11 by TPO himself in its order dated 29.01.2014. Further, financials of this comparable shown that this company has earned ₹ 584 Crore from distribution of software product out of total sales of ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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