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2016 (2) TMI 836 - AT - Income TaxTransfer pricing adjustment - application of Profits Split Method (PSM) - Held that:- In this case, the DRP has accepted the PSM for 80% of the ad-revenue in PSM Pool, therefore, it would not be proper that for the balance, a separate determination of profit is required and that to be at a higher profit rate of 28%. Once the combined net profit has been arrived at by taking into account all the transactions of AE as well as non-AE which is factored into all the costs and revenue then to separate out non-AE transaction over and above such a profit determined is not desirable. Thus, we hold that any income if at all from non-AE cannot be taxed separately by applying net profit rate of 28%, because it has already included in the combined profit of entire international transaction of the entities and have already been taxed on the profit rate of 27.18%. Thus, the addition of ₹ 118,59,30,000/- cannot be separately made and we direct to delete the addition.- Decided in favour of assessee Addition on account of distribution revenues - 50% of total distribution revenues which has been taxed on protective basis under section 44DA and balance 50% has been taxed in the hands of Channel Companies - Held that:- Such an amount cannot be added separately, because it has already been included in the PSM Pool and in the combined rate of 27.18% and accordingly, the same is directed to be deleted, because it will be subject to double taxation when all the revenues has been factored into the combined profit of 27.18%. It is not understood as to why DRP/AO is again taxing part of same revenue again. This is wholly and arbitrary action which cannot be upheld.- Decided in favour of assessee Disallowance of cost on advertisement revenue - non deduction of TDS - Held that:- No separate addition is called for; firstly, the provision of withholding tax cannot be applied on the basis of any amendment which has come subsequently by giving retrospective effect, as held by various Courts, on the reasoning that assessee cannot be expected to withhold tax when there was no such provision under the statute and secondly, prior to such amendment, there was a judgment of Hon'ble Supreme Court in the case of Vodafone International Holdings BV (2012 (1) TMI 52 - SUPREME COURT OF INDIA ) that payment made by one non-resident to another non-resident, provisions of TDS are not applicable; thirdly, when income has been determined under PSM, inter-company transactions are eliminated and in such a methodology the combined net profit is first worked out and then divided as per the relevant functions and role of each entity. Last but not the least, the channel companies have been separately assessed and they have discharged their tax liability and, therefore, there is no requirement by the assessee to deduct tax and accordingly, no disallowance can be made.- Decided in favour of assessee Disallowances made under section 40(a)(i) on account of payment made to Asia SAT, payment for foreign content and payment for technical cost, also cannot be made for the reasons given above that, while computing the profit under PSM at 27.18%, there is no requirement for making separate disallowances under section 40(a)(i) and same are directed to be deleted. - Decided in favour of assessee Taxation of service fee income @ 41.82% on the gross basis as against applicable @ 10.455% on gross basis - Held that:- 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.- Decided in favour of assessee Disallowance of interest expense - Held that:- Addition should also be deleted, because it stands already disallowed by the assessee while computing PSM profit. Thus, such disallowance made by the AO in the computation of income, as incorporated above stands deleted on the reasons stated herein above.- Decided in favour of assessee Levy of interest under section 234B - Held that:- we find that this issue stands covered in favour of the assessee by the decision of Hon'ble Delhi High Court in the case of NGC Network Asia LLC (2009 (1) TMI 174 - BOMBAY HIGH COURT ). The High Court further held that the primary liability of deducting tax was that of the payer. The payer would be an assessee in default, on failure to discharge the obligation to deduct tax, under Section 201 of the Act and no interest was leviable on the respondent assessees under Section 234B, even though they filed returns declaring NIL income at the stage of reassessment. - Decided in favour of assessee
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