TMI Blog2018 (8) TMI 259X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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/content owner companies, especially when transaction from such ancillary services constitutes only 4% of the value of the international transaction of the assessee. Apart from that, the assessee is providing these services as a captive service provider for which it is remunerated separately and ALP of such transaction is not in dispute. Accordingly, we reject the DRPs and TPO action for mixing the functionality of distribution and production activities which are in fact independent and also separately benchmarked. We are in tandem wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... margins of companies selected as comparables in the TP order; and 2.6 in disregarding judicial precedents in India while undertaking the TP adjustment. Corporate Tax 3. That on the facts and circumstances of the case and in law, the Ld. AO grossly erred in adjudicating on the corporate tax issues consequent to the Hon ble ITAT order dated May 20, 2016 passed under Section 254 of the Act without appreciating that the direction of the Hon ble ITAT is limited to the transfer pricing adjustment and therefore, the assumption of jurisdiction by the Ld. AO on corporate tax issues is devoid of any legal merit. 3.1. Without prejudice to the above grounds, the Ld. AO violated the principles of natural justice by not granting any opportunity of being heard to the Appellant before passing the impugned assessment order, therefore also the impugned assessment order is wrong and bad in law and liable to be quashed. Without Prejudice to the above, 4. That on the facts and circumstances of the case and in law, the Ld. AO has erred in holding that the expenditure amounting to INR 1,53,283 and 1NR 2,25,107 incurred on relocation of two employees and assets respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion on account of the marketer of advertisements activity. Part of Promotional license and product license fee for sub- licensing of certain proprietary cartoon characters Income f rom Production Payment of f ixed Fee to HBO for subscription and advertisement representation Interest expense on loans received from Group Companies. Receipt of reimbursement of expenses from Group Companies. 1.2.5 From a transfer pricing perspective, TIPL s business activities have been analysed separately. Its activities of acting as a marketer of advertisements and distributing sub-distribution rights for the Turner group channels ( including HBO) have been aggregated. These activities are essentially driven towards promoting channels, by increasing their spread, awareness and viewership. Thus, the activities are inter-related and complementary to each other. Overall , this aggregate segment contributed to approximately 95% of the Company's total revenues during 2005-06. 1.2.6 Further, the fol lowing international transactions have been separately analyzed. Income from production Product and Promotional licensing fee Interest ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nch mark the impugned segment and accordingly, an upward adjustment of ₹ 12,78,34,821/- was proposed. Apart from that further adjustment of ₹ 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% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eur whereas assessee cannot be characterized as an entity that plans or manages the content. He strongly emphasized that the ancillary services are separate and distinct from the distribution segment and must be considered de hors to the main transaction under adjudication. The separate benchmarking of these transactions was found to be at arm s length during the first round of assessment proceedings. He also pointed out that the DRP had sought for a remand report from the TPO in respect of assessee s contention and the TPO in his remand report himself stated that it is the AEs who are playing crucial role of planning and determining channel contents and he himself clarified that assessee is not engaged in 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 compar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for exclusion 1. Sun TV Network Limited ( Sun TV ) (OP/OR 58.65% and Adjusted OP/OR 56.65%) * Full-fledged channel company which owns and operates more than thirty channels and forty five FM radio regional television channel; and * Rejected by the Hon'ble ITAT in the case of ESPN Software India Limited 2. Zee Entertainment Enterprises Limited ( ZEEL ) (OP/OR 7.77% and Adjusted OP/OR 4.54%) * Functionally dissimilar and channel owner (ZEEL is a Television, Media arc Entertainment Company, which owns the popular Zee series of channels viz. Zee TV, Zee Classic, Zee Cinema, Zee Action, Zee News etc.; and ZEEL is also a brand owner. 3. Zee Media Corporation Ltd. ( ZMCL ) (OP/OR 9.2% and Adjusted OP/OR 4.23%)' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me shows, Music shows, News time, etc. 6. TV today Network Ltd. ( TV Today) (OP/OR 24.82% and Adjusted OP/OR 23%) * TTNL is part of the India Today group, is engaged in news broadcasting operations and operates a network of TV news channels; * Operates in two segments: TV Broadcasting and Radio Business; * TV Today was the first Indian broadcaster to uplink from India, a 24 hour Hindi news channel; and * Channel owned includes Aaj Tak, Headlines Today, Tez, Delli Aaj Tak. 7. UTV Software Communications Ltd ( UTV ) (OP/OR 0.44% and Adjusted OP/OR -4.05%) * Functionally different (owns and operates TV channels); an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity 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/content owner companies, especially when transaction from such ancillary services constitutes only 4% of the value of the international transaction of the assessee. Apart from that, the assessee is providing these services as a captive service provider for which it is remunerated separately and ALP of such transaction is not in dispute. Accordingly, we reject the DRPs and TPO action for mixing the functionality of distribution and production activities which are in fact independent and also separately benchmarked. We are in tandem with the contention of the learned counsel that these two activities cannot be mixed up for distorting the functionality and justifying the selection of channel owner companies. Thus, we hold that the seven comparable companies, namely, i) Malayalam Communications Ltd.; ii) Raj Television Network Ltd.; iii) TV Today Network Ltd. iv) Sun TV Network Ltd.; v) Zee Entertainment Enterprises Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rijal 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 to be included then matter should be remanded back to the TPO for searching for other software companies. However, looking to the fact that already two rounds of litigations have been done in the case of the assessee and matter pertains to the Assessment Year 2006-07, therefore, to give finality on the issues, we hold that following four comparables with working capital adjustment should be taken and should be benchmarked with the assessee s margin of 2.07% on PLI of OP/OR:- (i) Empower Industries India Ltd. (ii) Sonata Information Technologies Ltd. (iii) Softcell Technologies Ltd. (iv) Trijal Industries Ltd. 14. With this di ..... X X X X Extracts X X X X X X X X Extracts X X X X
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