ASST CIT CEN CIR 3(2), MUMBAI vs. MULTI SCREEN MEDIA P.LTD, MUMBAI

Brief facts on this issue are as under:-

Multi Screen Media Pvt.Ltd. (MSMI) is engaged in the business of production, acquisition and sale of television programmes, marketing of air time slots of television channels to Indian advertisers and distribution of television channels. During the year MSMI had been appointed by MSM Satellite (Singapore) Pte.Ltd. [MSMS/AE] as an agent for canvassing sale of airtime of channels owned by MSMS. The international transactions of the MSMI with its AE as service provider is for marketing of air time and distribution of MSMS channels in India for which it got remuneration. On the impugned issue the AO noted that assessee company has debited amounts towards advertisement and sales promotion expenses amounting to Rs. 131,97,89,686/-. The break-up of the said advertisement and sales promotion expenses along with party-wise details was given by the assessee vide letter dated 18 February 2014. Such expenses were incurred towards advertisement by way of hoardings, road shows, conferences, through television channels and publications etc.

3.2 The assessee has made detailed submission in this regard vide its submission dated 18 February 2014. In its submissions, the assessee has broadly contended as follows: i. In the age of multiple channels, in order to keep its subscriber base intact and keep the viewers constantly interested, it is important for the assessee to connect with the viewers through various medium like hoardings, road shows, advertisements on print and cable media. . ii. The expenses have been incurred wholly and exclusively for the purpose of business and are eligible for deduction under Section 37(1) of the Act. iii. The expenditure on advertisement and sales promotion assists MSM in its distribution business and also helps MSM in developing content in line with viewership preferences. This, in turn, helps to increase the subscription revenues or at least maintain the level of subscription revenue earned by MSM.

3 Multi Screen Media Pvt.Ltd. iv. Advertisement and sales promotion leads to better channel recall in the minds of viewers resulting in higher viewership of the channels. Higher viewership gives the channel better ratings which in turn results in better advertising prospects for MSM generating higher advertisement revenues which helps it to earn higher Service Fee. Accordingly, it is essential for MSM to incur the aforesaid expenses with an endeavor to increase its own income by way of distribution revenues and Service fee. v. Higher the distribution revenues earned by MSM, higher are its revenue share from the distribution activity. Accordingly, the expenses and efforts invested by MSM to garner more loyalty and viewership for the channels through effective advertisement and safes promotion help MSM to increase or at the least maintain its distribution revenues. vi. The Hon'ble Supreme Court in the case of Sasoon J. David & Co. -Ltd. (1979) (10 CTR 383) (118 ITR 261) has held that no disallowance could be made on the ground that incurring of expenditure was not necessary for the assessee or that it benefited a third party is not a ground on which the expenses can be disallowed in the hands of the assessee concern. vii. That the issue under consideration is covered in the favour of assessee in its own case for A Y 2005-06, wherein the ITAT passed an order that the issue is squarely covered by the decision of Hon'ble Bombay High Court in the case of Star India Pvt. Ltd., and accordingly decided the issue in favour of MSM, thereby directing the Assessing Officer to allow the advertising and sales promotion expenditure to MSM.

''viii. That the issue under consideration is covered in the favour of" assessee as per the Mumbai Tribunal decisions in the case of Star India Pvt Ltd, NGC Network (India) Pvt. Ltd. and Viacoml8 Media Pvt Ltd. Further, the Bombay High Court has rejected the Income Tax Department's appeal in the case of Star India and Viacom 18.

to be kept in view while deciding what percentage of expenditure can be allowed in the hands of the assessee concern out of the total expenditure debited. Considering the dominant nature of revenue receipt from content supplied and taking a liberal stand point, as done in earlier assessment years, the assessee is allowed 18.75% of the total advertisement and promotion. This is treated as fair and just with respect to the revenue expenses and profit margin of the assessee for AY 2010-11. Out of the total expenses of Rs 131,97,89,686, 18.75% of the same amounting to Rs 24,74,60,566/- is allowed in the hands of assessee company under Section 37(1) of the Act. The balance amount of Rs 107,23,29,120/- is held as expenditure of the channel principal and disallowed in the hands of the assessee concern. It is ordered accordingly.

- Garnering more loyalty and viewership for the channels through effective advertisement and sales promotion helps to increase or at the least ' maintain its distribution and advertisement revenues. This in turn results in higher Subscription income and Service fee earned by the Assessee. - Contractual obligation to incur all local marketing expenses. - Transfer Pricing Officer (TPO) has found that the international transactions pertaining to marketing and distribution segment to be at arm's length except for adjustments made in respect of business restructuring and extending inordinately long period of credit.

9.3. It is seen that though the assessee cited the decision in its own appeal before ITAT on this issue for AY 2005-06 -ITA No 4686/Mum/2010 dated 20/03/2013, the assessing officer has not accepted it. The assessing officer did not accept the 5 Multi Screen Media Pvt.Ltd. contention on the grounds that though the Hon’ble ITAT has held that the facts in this case are similar to the facts in the case of Star India Pvt. Ltd, in which case the decision of the Hon’ble ITAT Mumbai was upheld by the Hon’ble Bombay High Court, SLP has been filed by the department in the case of Star India Pvt Ltd against the decision referred to. It is seen from the copy of the order in the assessee's own case for AY 2005-06 that the Hon'ble ITAT has adjudicated this issue at length in Para 3 to 11, The fact in the case of the assessee has been held to be similar to Star India Ltd. , a Third member decision reported in 103 ITD 73. The revenues appeal in Star India Ltd. was dismissed by the Hon'ble Bombay High Court in dated 24/03/2009. In the order in Para 9 and 10, the Hon'ble ITAT have compared and held the facts in the case of Star India Pvt Ltd. to be similar to that in the case of assessee. Facts for the present year are substantially similar to the preceding years. Hence the AO is directed to allow the entire expenditure claimed as Advertisement and Sales Promotion expenditure.

9.4. Before parting, it is noted that it is not clear whether the TPO has considered the benefit arising to AE on account of very large advertisement and promotion expenses incurred by the assessee, the contribution to the intangible legally owned by AE, and whether the assessee has been adequately been compensated for it. At least there is no explicit mention of any such examination in the order. No view is expressed on this aspect, though it forms a limb of the argument of assessee, since such details are not on record.

itself, the contention of the revenue is that Hon’ble Bombay High Court decision in Star India Pvt.Ltd. has not been accepted by the revenue and SLP against the same has been admitted by Hon’ble Supreme Court. AO has also noted that, assessee plea of ITAT decision in assessee’s own case is not acceptable as the same has been challenged before Hon’ble High Court. Having heard both the parties and perused the records, we find that filing SLP against the Hon’ble jurisdictional High Court decision does not in any manner reduce the value of the precedent. Nothing has been shown before us, as to why the said decision is not to be followed on facts and circumstances of the case. Moreover, as noted by Ld.DRP in assessee’s own case for AY 2005

06. ITAT has decided the issue in favour of the assessee.

6 Multi Screen Media Pvt.Ltd.

Accordingly, we do not find any infirmity in the order of the Ld.DRP and hence, we uphold the same.

Pronounced in the open court on 24.08.2021