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Commissioner of Income Tax (LTU) Versus M/s. ESPN Software India Ltd.

2017 (11) TMI 586 - DELHI HIGH COURT

Clubbing of income for Armís Length Price (ALP) determination - clubbing of two distinct revenue streams i.e. sale of air time with distribution business, advertisements, sale business, etc by ITAT - ITAT upheld the Appellate Commissionerís findings that the transactions in question ought to be analyzed in conjunction i.e. after aggregation for armís length purposes and also found that the assessee had structured itself in a manner that its profit was maximized as a whole rather than independent .....

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ated as a question of law. In the present case, the reasons which impelled the lower authorities i.e. the CIT (A) and the ITAT to uphold the assesseeís plea with regard to aggregation for ALP purposes, are reasonable and cannot be interfered with. - Decided against revenue - ITA 882/2017 & ITA 890/2017 & CM No.37958/2017, ITA 891/2017 - Dated:- 7-11-2017 - MR. S. RAVINDRA BHAT & MR. SANJEEV SACHDEVA JJ. Present: Mr. Rahul Chaudhary, Sr. Standing Counsel with Mr. Sanjay Kumar, Jr. Standing Co .....

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lubbing of these transactions for Arm s Length Price (ALP) determination had been permitted in the past. It relied upon common features to contend that whereas in sale of airtime, it was bulk sale of the product/service to the concerned customer, i.e. the air time user, distribution too involves sale through a network. The TPO s rejection of the aggregation, for ALP determination was appealed against. 2. The CIT (A) was of the opinion that both segments were appropriately clubbed for the purpose .....

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segments employed the same set of assets and that separately benchmarking them would take it away from reality. Furthermore, the ITAT felt that it was not possible to merge comparables for profits having regard to these practical considerations, the CIT upheld the assessee s decision to aggregation of the sets of transactions for the purpose of ALP determination and worked out an operating profit margin of 7.82%. 3. In appeal, the Revenue emphasized that in earlier years the advertisement sales .....

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separate business segment, i.e., distribution business segment and sale of air time advertisement sale segment. The ITAT rejected the Revenue s submissions. The findings of the ITAT pertinently are as follows: 20. …… In the present case, it is noticed that activities of distribution of channels and advertisement air time inventory allotment are inter-related because higher the subscriber base of channel, the greater are chances of the aired advertisement being viewed by a large tar .....

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a commission agent for its AE and solicited advertisements in the Indian market for its AE for that purpose the assessee was getting a fixed percentage of commission while for the year under consideration and in the succeeding years, the assessee shifted to the distribution model in pursuant to the change in the foreign exchange regulations of the RBI vide Circular No. 76 which relaxed the condition of export earnings by advertisers in Foreign Television Channels and the assessee, without prior .....

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keting/distribution rights for the same, inclusive of the rights to the advertising and subscription revenues for the channel and must submit adequate proof at the time of application. 1.4 In case the applicant company has exclusive marketing / distribution rights, it should also have the authority to conclude contracts on behalf of the channel for advertisements, subscription and programme content. 21. In view of the aforesaid guidelines, if the assessee decided to relinquish advertisement air .....

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ket events which is evident from the chart furnished by the assessee, reproduced in the former part of this order. On perusal of the said chart, it would be clear that when the cricket events were more in the FYs 2007-08 and 2009-10. The OP/sales ratio jumped to 9.18% and 6.85% respectively from the negative ratio of 0.78% in the FY 2004-05 when the cricket events were less. In the present case, by changing the business model, the assessee was getting more control over the distribution of functi .....

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