TII BRIEF

OECD's CLIs indicate growth momentum in USA & Germany

CASE LAWS

2017-TII-24-HC-MUM-TP

CIT Vs NIMBUS COMMUNICATION LTD : BOMBAY HIGH COURT (Dated: April 4, 2017)

Income tax - Sections 14A, 35D, 92C(2), 92CA(1) & 133(6)

Keywords: Media rights fee - licence fee - TP adjustment - notional guarantee commission - international media rights - CUP - TNMM & notional interest

The assessee, Nimbus Communication Ltd., acquired the media rights in respect of BCCI cricket events for a period from the year 2006 to 2010 under a contract with the BCCI on 28th February 2006. In consideration of the grant of license of the media rights by the BCCI, the assessee was required to pay US$ 612.18 million i.e., in terms of INR 2724,20,10,000 for the entire four years. This global contract was broken into exploitation of media rights in the Indian territory and in the international territory. The media rights for the international territory was at US$ 108.09 million. The entire license for exploitation of media rights was dependent upon schedule of matches and tournaments which were to be carried out in four years. The assessee contended that it had effectively transferred all the risks associated with the BCCI contract (for the international territory) to NSI at the price which it had acquired the contract from the BCCI. It was argued that in case NSI succeeded to explore the international rights profitably in the overseas market, any excess revenue over and above the sum assured i.e., minimum guarantee amount, 90% of the revenue would also be passed to the assessee.

On appeal, the High Court held that,

Whether the issue regarding determination of ALP in respect of amounts received from its A.E. in respect of licence of international media rights, can be remanded without giving reference to any documentary evidence produced in respect thereof - NO: HC

++ the order of Tribunal has restored the issue to TPO to ascertain the actual amount paid by assessee to the BCCI for the media rights in respect of cricket matches held in A.Y. 2008-09. It would be on the above ascertained basis that the amount receivable by the assessee from its AEs for international media rights in the ratio of 15.2% of the amount in fact paid to BCCI by assessee can be determined. This alone would enable arriving at ALP in respect of media rights licence given for international territory by the assessee to its A.E. The order of the lower authority had worked out the amount paid by Assessee to BCCI for subject AY on the basis of hypothetical inferences of the contract value to determine the ALP received from the A.E. The Revenue is not able to point out any prejudice to it by the Tribunal restoring the issue to TPO to compute ALP of amounts received by it from its A.E. in respect of licence of international media rights during the subject AY. In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained;

Whether the adjustment made by TPO/AO on account of ALP determination of return on the exploitation of the international rights can be set aside without appreciating the fact that TPO has made it on reasonable basis - NO: HC

++ the order holds that the ALP determined by the TPO by ordering 10% markup on the cost of the media rights given by the Assessee to its A.E. The impugned order records that neither the Assessee nor the TPO had benchmarked the consideration received by the assessee from its AEs by applying any of the prescribed methods in terms of Section 92C(1). It was in the above view that the order of the Tribunal restores this issue to the TPO/AO for working out the necessary transfer pricing adjustment on application of one of the prescribed methods to determine the ALP. The Revenue is not able to show how it has been prejudiced by the order of remand passed by the Tribunal. In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained;

Whether the expenditure incurred on upgrading of website can be allowed as revenue expenditure, even in spite of the fact that there was enduring benefit from the same - YES: HC

++ the impugned order records a finding of fact that the amount incurred towards website development was in fact expenditure incurred not for the creation of a new website but only for upgrading the existing website. In the aforesaid circumstances, the impugned order holds that in the absence of upgrading of the website, the website itself would become redundant and it is an essential part of running daytoday business. The impugned order places reliance upon the decision of the Delhi HC in CIT, Delhi-IV vs. Indian Visit.com (P.) Ltd. [2009] 176 Taxman 164, where in an identical fact situation, the Delhi HC has taken a view that such expenditure on the upgrading of website was of a revenue nature. Counsel for the Revenue, is unable to point out any reason, which would justify our taking a view different from that of Delhi HC in Indian Visit.com (P.) Ltd. in an identical fact situation. In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained;

Whether component of interest paid can be disallowed while reworking disallowance u/s 14A, even if such assessee is in possession of sufficient interest free fund for making investment - NO: HC

++ we note that the impugned order of the Tribunal while restoring the issue to AO had directed the Assessing Officer to compute the disallowance u/s 14A after removing the interest component. This in view of the finding of fact arrived at by the Tribunal that the Assessee was possessed of sufficient interest free funds to make the necessary investments. Therefore, the presumption is that no borrowed funds were used for investment. This was by following the decision of this Court in CIT vs. Reliable Utilities 2009-TIOL-27-HC-MUM-IT. We find that the impugned order has merely followed the law laid down by this Court in Reliable Utilities. This after recording a finding of fact that Assessee was in possession of sufficient interest free fund for making investment, consequently holding no disallowance of interest is called for. In the above view, the question as proposed does not give rise to any substantial question of law. Thus, not entertained.

Revenue's appeal partly admitted

2017-TII-15-HC-MUM-INTL

NGC NETWORK ASIA LLC Vs UoI : BOMBAY HIGH COURT (Dated: April 5, 2017)

Income tax - Sections 9(1)(vi), 143(3), 254(1), 260A - India-US DTAA - Articles 5(4), 7 & 12

Keywords - ALP - AE - advertisement air time - dependent agent PE - fee for giving distribution rights - royalty - right to procure advertisement & telecasting rights

The assessee is a subsidiary of "Fox Entertainment Group Inc" and holds 100% shares in NGC Network (Mauritius) Holden Ltd, which in turn, holds 99% shares in M/s NGC Network (India) Private Limited. All these companies were either subsidiaries/affiliate companies of M/s News Corporation, USA. The assessee was the owner of two television channels viz., The National Geographical Channel and Fox International Channel. It was engaged in the business of broadcasting of its channels in various Countries including Indian sub-continent. Assessee had also appointed M/s NGC India as its distributor to distribute its television channels and also to procure advertisements for telecasting in the channels. During the concerned year, two agreements were entered by the assessee with NGC India in respect of advertisement revenues. This petition under Article 226 of the Constitution of India challenges the orders dated 16th December, 2015 and 23rd November, 2016 passed by Tribunal u/s 254(1) and (2) respectively for AYs 2007-08 and 2008-09. The assessee had filed appeals u/s 260A from the Orders of the Tribunal dated 16th December, 2015 passed u/s 254(1) relating to AYs 2007-08 and 2008-09. Therefore, we will not examine assessee's challenge to the order dated 16th December, 2015 as the petitioner has already exercised an alternative remedy of appeal. Therefore, the petitioner's challenge to the order dated 16th December, 2015 2015-TII-205-ITAT-MUM-INTL was dismissed.

On appeal, the High Court held that,

Whether the High Court has no obligation to examine assessee's challenge in case such assessee has already exercised an alternative remedy of appeal - YES: HC

Whether in case the decision making process is flawed in the order passed by Tribunal as it proceeds on an erroneous basis, such an order deserves to be set aside to grant a fresh opportunity of being heard to the assessee - YES: HC

++ it appears that the Tribunal had reserved its order on the two appeals on 5th June, 2015. However, on 31st August, 2015 the bench of the Tribunal which heard the appeals released it and the Registry was directed to place the appeals again on board on 4th September, 2015 as certain clarification was required. The hearing on 4th September, 2015 only records that Ms. Sheetal Shah appeared for the petitioner before the Tribunal. Neither the Roznama nor the order dated 16th December, 2015 reflect any clarification sought by the Members of the Tribunal from the so called representative of assessee. Inspite of the above facts stated in the Miscellaneous Application dated 26th January, 2016, the order dated 23rd November, 2016 passed on the Miscellaneous Application proceeds to record that it is an undisputed fact that the Counsel by name Ms. Sheetal Shah appeared on behalf of assessee on 4th September, 2015 and hence her appearance was marked on that date. This is factually incorrect as the contention of the petitioner is that nobody by name Ms. Sheetal Shah appeared on its behalf and that no authorization was granted to any person by that name. In the above view, the decision making process is flawed as it proceeds on an erroneous basis that it is an admitted position that Ms. Sheetal Shah appeared on behalf of the petitioner. In fact, it is just the opposite according to the petitioner. In these circumstances, it would be appropriate that the order dated 23rd November, 2016 is quashed and set aside and restored to the Tribunal for hearing and passing a fresh order on the Miscellaneous Application dated 26th January, 2016. The petition raises various other grievances in the petition with regard to its contention that there are errors apparent on record. At this stage, we have not examined the same, as we are restoring the Miscellaneous Application dated 26th January, 2016 to the Tribunal for fresh consideration and passing a fresh order after taking into account all contentions raised in the rectification application. All contentions kept open to be urged before the Tribunal. Both the Writ Petitions are finally disposed of in the above terms.

Case remanded