STAR DEN MEDIA SERVICES P.LTD,MUMBAI vs. ASST CIT RG 11(1), MUMBAI

Since the issues are common and connected and appeals were heard together these are being consolidated and disposed of by this common order.

The common issue raised is that the Transfer Pricing Officer (TPO) erred in transfer pricing adjustment of Rs. 429,611,231/- for A.Y. 2009-10 and Rs. 2,88,54,506 for A.Y. 2010-11. Since the facts are identical we are referring to the facts and figures for A.Y. 2009-10.

Brief facts of the case are as under :-

Details of International Transactions:-

Determination of ALP :-

The assessee, accordingly, due to the similarity in the functions performed for international transactions, insignificant value and the inability to bifurcate the profit and loss account has aggregated and analyzed both the transactions under the main business activity of the Assessee i.e. obtaining license for distribution of channels for the purpose of benchmarking the ALP. Thus, the overall entity level TNMM approach is adopted to benchmark the international transactions by the Assessee and is found to be appropriate.

Based upon various functions and risks, the assessee claimed that it was engaged in the business of distribution of television channels. For the purpose of conducting its business, the Assessee has obtained the rights for distribution of various television channels from its AEs. In consideration, the Assessee has paid license fees to its AEs.

The search process was undertaken by the assessee for determining the comparable companies, wherein it was noted that distribution of channels in the entertainment industry was mostly within group companies and according

The assessee has adopted TNMM to be the most appropriate method to benchmark the transaction with OP/TR as the PLI and with the Assessee as the tested party. The assessee has an entity level PLI working of 0.74%. The weighted average of the comparable PLI was given.

The TPO was not satisfied with the comparable selected. He observed that the comparables selected by the assessee i.e. software distributors do not undertake functions which are similar to that of the assessee. The TPO rejected all the submissions and objections of the assessee and finally came to the following set of comparables :-

In the light of the above, given that the assessee’s margin of 4.62% is less than the arithmetic mean of 11.51% of the comparables and given that the same does not fall within plus and minus 5% safe limits, the transfer pricing adjustment was worked out.

The transfer pricing adjustment was also done, for A.Y. 2010-11 on similar facts. The TPO rejected the assessee’s comparables. He referred to the order for A.Y. 2009-10. Out of the comparables selected for A.Y. 2009-10 he rejected the Turnover Asian Films Production and Distribution Ltd. by 5 Star Den Media Services Pvt. Ltd.

Against this order the assessee has filed the appeal before the ITAT.

We have heard both the counsel and perused the records. Learned Senior Counsel Shri Porus Kaka submitted that the issue is squarely covered in favour of the assessee by the decision of Delhi ITAT in the case of Turner International India (P) Ltd. Vs. ACIT (95 taxmann.com 285) and decision of ITAT Mumbai in the case of ACIT Vs. NGC Network (India) Pvt. Ltd. (10 taxmann.com 140). Referring to the said decision of Turner International India P. Ltd. (supra), learned Counsel of the assessee submitted that in the said decision it was noted that the assessee was mainly engaged in the business of marketing and distribution of satellite channels of Cartoon Network, CNN, POGO, HBO etc. The Tribunal gave a finding that the satellite TV channels and cable network operators had significantly different operating models and provide earning model and such channels content owner companies should not be included for the purpose of comparability analysis for distribution segment. It was held that since the assessee company was mainly engaged in marketing and distribution of satellite channels of Cartoon Network, CNN, POGO, HBO etc., the company engaged in trading in computer packages and who were mainly software distribution company could be taken as good comparable. Learned counsel contended that as per the Tribunal order in 6 Star Den Media Services Pvt. Ltd.

Learned Counsel of the assessee submitted that the assessee’s selection of software distributor as comparable should be accepted on the touchstone of above decisions. He submitted that the assessee’s comparable for A.Y. 2009-10 included Sonata Information Technologies Ltd. and Fintech communications Ltd. For A.Y. 2010-11 it also included Empower Industries India Ltd. He submitted that all these have been found by the ITAT in Turner International India Pvt. Ltd. to be good comparable. Hence, learned counsel contended if the comparables approved by the ITAT in the case of Turner International India P. Ltd. are adopted the assessee margin would compare favorably within the safe harbour rules of plus and minus 5% and no adjustment would be called for.

Per contra, learned Departmental Representative relied upon the order of DRP.

We have carefully considered the submissions and perused the record. We find that the submissions of learned counsel that identical issue was decided in the case of Turner International India P. Ltd. (supra) by the ITAT Delhi Bench has sufficient cogency. The business activity of the assessee in that case was marketing and distribution of satellite TV channels. Akin to that the assessee in the present case is also involved in distribution of various Star as well as third party channels in India. In such circumstances, selection of comparables engaged in software distributor has been accepted by the ITAT. Accordingly, we accept the submission of learned counsel and direct the TPO to examine his submission that if the comparables finally accepted by the ITAT in the case of Turner International India P. Ltd. are taken into account and the comparables of the assessee are selected with reference to it the margin should

In the result, assessee’s appeals stand allowed as above.