×Latest Case Laws on Income Tax by various Income Tax Appellate Tribunals in India
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10-01-2020, Hathway Cable and Datacom, Section 92BA(i), Tribunal Mumbai
This is the appeal filed by the assessee against the direction of the Dispute Resolution Panel-1(WZ) (DRP), Mumbai dated 27/08/2018 U/s 144C (5) of the Income Tax Act, 1961 (in short, the Act) for the A.Y. 2014-15, which was given effect by the A.O. passing order U/s 144C(13) of the Act dated 22/09/2018. In this appeal, the assessee has raised following grounds:
“1. Payment of placement charges:
1.1. On the facts and in the circumstances of the case and in law, Hon'ble Dispute Resolution Panel / Transfer Pricing Officer/ Assessing Officer erred in retaining the adjustment to the extent of Rs. 6,96,01,120;
1.2. On the facts and in the circumstances of the case and in law, Hon'ble Dispute Resolution Panel erred in rejecting the supplemental benchmarking without providing any cogent reasons;
1.3. On the facts and circumstances of the case and in law, Hon'ble Dispute Resolution Panel erred in holding that the Assessee has rendered marketing services, incurred additional cost, and performed additional functions in negotiating placement charges on behalf of its related parties;
1.4. On the facts and in the circumstances o the case and in law, Hon'ble Dispute Resolution Panel erred in determining the arm's length price at 10% of the gross amount distributed to Associated Enterprise without following any of the prescribed methods/process;
1.5. Without Prejudice to the above ground, the Hon'ble Dispute Resolution Panel failed to note that the Appellant has retained arm's length consideration as determined in ground no. 1.4 and no further adjustment is warranted;
1.6. On the facts and in the circumstances of the case and in law, having held that the allocation of channel placement is fair and proper, the Hon'ble Dispute Resolution Panel erred in holding that the Appellant has rendered services of marketing of the channel placement rights and should have charged 10% of the amount distributed as arm's length consideration and thereby travelling beyond the scope of Section 92BA(i) r.w.s. 40A(2)(b).
2. Applicability of provisions of Specified Domestic transaction:
2.1. On the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel-I, Mumbai erred in not appreciating the fact that the provisions of Section 92BA(i) are omitted and not repealed by the Finance Act 2017.
3. Reference to the Transfer Pricing Officer (`TPO') under section 92CA of the Act.
3.1. On the facts and in the circumstances of the case and in law, the Id. AO erred in making a reference to the Id. Transfer Pricing Officer by mechanically following the directions of the Id. Principle Commissioner of Income tax u/s 263 of the Act, which is not mandate of Section 92CA of the Act, thereby making the reference and the transfer pricing order bad in law.
3.2. Without prejudice to the above grounds and on the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel erred in confirming the action of the learned AO in not stating reasons to show that any of the conditions mentioned in clauses (a) to (d) of Section 92C(3) of the Act were satisfied before making an adjustment to the total income of the Appellant;
3.3. Without prejudice to the above grounds and on the facts and in the circumstances of the case and in law, the Hon'ble Dispute Resolution Panel er ed in confirming the action of the learned AO in not demonstrating the motive of the Appellant, to carry out transactions to reduce the taxable profits by manipulating the prices of its Specified Domestic transactions, either at the stage of invoking or initiating the assessment or at the stage of framing the assessment. Each of the above Grounds of Appeal are without prejudice to each other.
The Appellant craves leave to add, amend, delete, rectify, substitute, modify, or otherwise, all or any of the aforesaid grounds or add a new ground(s) at any time before or during the hearing of the above appeal.”
2. Rival contentions have been heard and record perused. Even though, 11 grounds have been taken by the assessee but the crux of the issue revolves around the decision of DRP for upholding 10% of the ad hoc addition made on account of income distributed for the services rendered for marketing of channel placement rights. Facts in brief are that the assessee company operates as “multi system operator” (MSO) in distribution of television channels through analog and digital cable distribution network and internet services through cable. The assessee company operates as last mile cable operator for certain territories of the country. Over the years, it also acquired stake in other entities by subscribing to majority shares therein. These entities fall within the meaning of related parties as defined in Section 40A(2)(b) of the Act. These entities are hereinafter referred to as “Related Parties” (RPs). These RPs of the company operate as last mile cable ope ator in their respective territories which are not within the operating area of the assessee company. As such the assessee company and RPs together, as a group, operate over a large part of the country. The assessee company has adopted a ‘Pooled Model’ under which it negotiates and settles with the broadcasters for their hannels or bouquets of channels. It acts as a principal negotiator (pooling entity) in the discussions and negotiations with the broadcaster/distributor and in settlement of the terms for the group as a who e. One of the revenue streams earned by the assessee is placement charges which are the amount paid by the broadcasters for placing their channels at preferred positions. Such revenue is shared by the assessee with the RPs on the basis of their subscriber base. In negotiating such placement charges also, the assessee company acts on the pooled model and negotiates the terms based on the total number of subscribers of the assessee company as well as the RPs. By projecting higher number of subscribing households of the group as a whole, the