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TMI Blog2018 (8) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... ) in the Appellant's own case for the same year as well as for Assessment Years 2007-08 and 2008-09 which are squarely applicable in the instant case as well, thus violating the principal of judicial discipline; 2.2 in conducting a fresh comparability analysis based on application of incorrect keywords and filters, in contradiction of the Hon'ble ITAT's direction in Appellant's own case thereby considering incorrect comparables, without providing any cogent reasons; 2.3 in failing to understand and appreciate the functions performed, assets employed and risks assumed by the Appellant and its Associated Enterprises, thereby comparing companies which are functionally incomparable vis-a-vis the distribution segment of the Appellant; 2.4 in rejecting functionally comparable companies (viz. Trijal Industries Limited and Svam Softwares Limited) which was considered by the Appellant based on the fresh search conducted by the Appellant in line with the Hon'ble ITAT's directions; and instead selecting functionally dissimilar companies; 2.5 in committing factual/ computational errors while calculating the operating margins of companies selected as comparables in the TP order; and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business have been enumerated which are as under:- "Sub distribution of distribution rights for Turner Group 'channels' . For the Turner Group channels in FY 2005-06, it received a 10% return on its operating expenses. Marketing of advertisement air time for the Turner Group 'channels' . For the Turner group channels, TIIPL is entitled to 15% of the net advertising revenue. Purchase of distribution and advertisement rights for HBO channel . For HBQ channel , TIIPL (for the subdistibution and marketing of advertisement airtime activity) would pay a fixed fee of USD 1,395,833 per month to HBO PP. * Provision of product and promotional licensing services for certain "cartoon characters". TIIPL is entitled to 40% of revenues col lected. * Provision of production services. TIIPL is entitled to a return of 10% on costs incurred toward this activity. 1.2.4 In conduct of its business, TIIPL engages in the following inter-company transactions with its Group Companies: * Part of subscription fee (collected from users in India) paid/ payable. * Commission on account of the marketer of advertisements activity. * Part of Promotional license and product license fee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and Promotion Licensing Internal CUP 86,81,328/- 3. Production of Content TNMM (PLI as OP/OC) 4,71,97,889/- 4. Interest on ECB CUP 55,04,332/- 5. Cost Reimbursements CUP 10,47,19,876/- 5. The present proceedings are second round of proceedings in pursuance of direction given by the Tribunal vide order dated 20th May, 2016, wherein the matter was remanded back to the file of the TPO/AO for undertaking fresh comparability analysis for the distribution segment of the assessee. The main issue before the Tribunal was with respect to category/class of comparable that are to be selected for bench marking the distribution segment. The Tribunal held that only a distributor would be a valid comparable for the purpose of bench marking the distribution segment. The relevant observations of the Tribunal are at paragraph 12 and 14. For the sake of ready reference are reproduced hereunder:- "12...... The learned TPO ignoring the same erred in comparing the appellant with the entities involved in service activities. He erred in selecting service companies as comparables for the distribution segment of the appellant. The learned TPO was also not justified in ignoring t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 12,78,34,821/- was proposed. Apart from that further adjustment of Rs. 7,56,353/- was made on account of corporate tax issues. 7. Before the DRP, the assessee mainly objected to the selection of companies by the TPO which were engaged in the business of broadcasting and distribution of TV channels and exclusion of the two companies selected by the assessee which were engaged in software distribution. Certain error in computing the margin of companies was also raised along with denial of benefit of working capital adjustment. The DRP directed the TPO to verify the margins of the comparable companies and also granted the benefit of working capital adjustment to the assessee. However, the assessee's contention with respect to the inclusion/exclusion of comparables was rejected. Thus, from the stage of the DRP following set of comparables were finalized with an average mean of 11.95%. S. No. Name of comparable Working capital adjusted OP/OR 1. Malayalam Communications Ltd. 11.07% 2. Raj Television Network Ltd. 18.55% 3. TV Today Network Ltd. 25.21% 4. Sun TV Network Ltd. -4.05% 5. Zee Entertainment Enterprises Ltd. 0.43% 6. Zee Media Corporation Ltd. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n planning channel content as has been contended by the TPO in his transfer pricing order. Thus, TPO in his impugned order has erred in stating that assessee had aggregated distribution transaction with production services. Again, the remand report was sought from the TPO by the DRP, who furnished an alternative analysis wherein companies engaged as software distributors were searched. However, the DRP held them to be inappropriate comparables and as a result, the additional comparables furnished by the TPO in his remand report has been rejected by the learned DRP. Thus, he submitted that for bench marking the distribution segment only the distributors are appropriate comparables for bench marking the impugned international transaction and this was the direction of the Tribunal also wherein it was categorically held that assessee cannot be compared to channel owners. Consequently, channel/content owners comparables selected by the TPO should be excluded for benchmarking the impugned distribution segment, for the reason that, f irstly, neither the DRP nor the TPO could substantiate that assessee performs production or manages the content of programmes distributed by it; secondly, pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CL is a part of the Essel group and operates a news channel and is engaged - content creation; * ZMCL is engaged mainly in the business of broadcasting of news, current affairs and regional entertainment satellite television channels uplinked from India: * Functionally different (operates a news channel); and * Full-fledged Channel Company which owns and operates various entertainment channels (TV channel - Zee News, Zee Business, Zee 24 Taas, Zee Punjabi. Zee Marathi, Zee Bangla, Zee Gujarati, Zee Telugu and Zee Kannada). 4. Malayalam Communications Limited ("Malayalam") (OP/OR 10.86% and Adjusted OP/OR -2.67%) * Functionally different and channel owner; * Engaged in undertaking entrepreneurial functions relating to their presenting and broadcasting; * Full-fledged channel company which owns and operates various entertainment channels (TV channel - Kairali TV, Kairali People and Kairali WE): and * Absence of segmental data. 5. Raj Television Network Limited ("Raj TV") (OP/OR 17.58% and Adjusted OP/OR 17.23%) * Full-fledged channel company which owns and operates various entertainment channels (TV c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r own. The Tribunal in assessee's own case for the Assessment Year 2007-08 and 2008-09 and also in Assessment Year 2006-07 have held that Satellite TV channels and cable network operators have significantly different operating models and provide earning model and once the Tribunal has held that such channel/content owner companies should not be included for the purpose of comparability analysis, then there is no reason why the TPO is again selecting such companies for the purpose of benchmarking the ALP of the assessee's distribution segment. Before us, the learned counsel has already clarified on the basis of material available on record that distribution activity and ancillary/production activity of the assessee are two distinct set of transactions for which, not only separate benchmarking has been done but also separate remuneration has been earned for each of the said activities. So far as production activity is concern, the same has been found at arm's length by the TPO and once these are two different segments then there is no justification to mix up the functions of such ancillary activities with that of distribution activity so as to justify selection of such channel/conten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel that Software Distribution Company should be accepted, we agree in principle that such companies can be taken for comparability analysis, when there are no direct comparable dealing with distribution of satellite channels are available. Such an acceptability of software distribution companies in the case of distribution of TV channels has found favour by the co-ordinate bench in the case of NGC India Pvt. Ltd. (supra). Thus, we hold that software companies can also be included for the purpose of comparability analysis, because in assessee's own case for the subsequent years such companies have been accepted to be good comparables and Trijal Industries Ltd. too has been accepted as a valid comparable by the TPO in the Assessment Year 2013- 14. In so far as Trijal Industries Ltd. is concerned, it is seen that this company is engaged in trading of computer packages and is mainly Software Distribution Company and hence can be taken as good comparable. The functions carried out are quite akin with the distribution activity of the assessee company, which can be analysed atleast under TNMM. Even if we agree with the contention of the learned DR that in case software companies are ..... 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