NGC NETWORK INDIA P. LTD,MUMBAI vs. ASST CIT CIR 16(1), MUMBAI

In grounds no.2 to 17, the assessee has raised the issue relating to transfer pricing adjustment.

At the outset, Shri Porus Kaka, learned Sr. Counsel for the assessee submitted, if ground no.12, relating to comparability of Apitco Ltd., is decided in favour of the assessee, assessee’s margin would be within the arm's length price, hence, the other grounds relating to transfer pricing issues would become redundant.

The learned Departmental Representative has also agreed with the aforesaid submission of the learned Sr. Counsel for the assessee.

In view of the aforesaid, we deem it appropriate to decide ground no.12, at the very outset.

Brief facts are, the assessee, an Indian company, is basically engaged in distribution of various channels belonging to its overseas Associated Enterprises (AE) and other related activities including business support service. The dispute in the present appeal is confined to the adjustment made to the arm's length price of business support service. It is stated that in the course of broadcasting of the channels of the AE, the assessee adds some small promos for which it receives

Learned DRP also upheld the decision of the Transfer Pricing Officer.

Before us, learned Sr. Counsel for the assessee has restricted his argument to selection of Apitco Ltd., as a comparable. In this regard, the specific contention of the learned Sr. Counsel for the assessee is, the company being a Government company cannot be treated as comparable. To emphasize this fact, learned Sr. Counsel drew our

Drawing our attention to the annual report of the company learned Departmental Representative submitted, this company cannot be treated as a 100% Government Company as various other entities including private persons are holding shares of the company. He submitted, though the company may be a Public Sector Undertaking, but it cannot be considered as a 100% Government company. He submitted, since the company is functionally similar to the assessee, it has to be accepted as a comparable.

In rejoinder, learned Sr. Counsel for the assessee submitted, irrespective of the fact that this comparable is a Government Company, even a PSU cannot be considered as a comparable since it is protected by Government in many ways including grant of subsidy. Relying upon the decision of the Hon'ble Delhi High Court in Li & Fung India Pvt. Ltd. v/s CIT, (2014)361 ITR 85, the learned Sr. Counsel submitted, the standard of comparability under Transactional Net Margin Method (TNMM) is not less than any other applicable methods. Further, he submitted, this company cannot be considered as comparable due to functional difference and lack of segmental break up. In support of such contention he relied upon the following decisions:–

We have considered rival submissions and perused material on record. The first issue which requires consideration is, whether a Government Company can be treated as a comparable. In our view, the dispute on this issue is now fairly well settled by virtue of various judicial precedents. The Tribunal, Mumbai Bench, in Thyssen Krupp Industries India Pvt. Ltd. (supra), has held that Government Company cannot be treated as comparable as they are not driven by profit motive and have been created in furtherance of social obligation of the Government. Having held so, we are to examine whether Apitco Ltd., falls in the category of a Government Company / PSU. On a perusal of the material on record including the annual report of the company, we are of the considered opinion that Apitco Ltd. has to be treated as a Government Company / PSU. In fact, in the case of International SOS Services India Pvt. Ltd. v/s DCIT, [2016] 67 taxmann.com 73 (Del.), the Tribunal, Delhi Bench, has excluded Apitco Ltd., by treating it as a Government Company. The aforesaid decision of the Tribunal was upheld by the Hon'ble Delhi High Court while deciding Revenue’s appeal in of 2016, dated 30th May 2017. It is relevant to 7 NGC Network (India) Pvt. Ltd. observe, though the Department challenged the aforesaid decision of the Hon'ble Delhi High Court before the Hon'ble Supreme Court, however, the SLP was dismissed by the Hon'ble Supreme Court finding no merit therein. Thus, in view of the judicial precedents referred to above, Apitco Ltd., cannot be considered to be a comparable. Even otherwise also, in various other decisions, Apitco Ltd., has been rejected as a comparable due to functional dissimilarity and lack of segmental break–up. In view of the aforesaid, we direct the Assessing Officer to exclude Apitco Ltd., from the list of comparables and compute the arm's length price of business support service segment. This ground is allowed.

In view of our decision in ground no.12, the other grounds raised by the assessee on transfer pricing issues are considered academic, hence, left open for adjudication if they arise in any other assessment year.

Grounds no.18 to 25 are on the common issue of disallowance of channel placement fee amounting to ` 26,32,39,328, under section 40(a)(ia) of the Act due to non–deduction of tax at source under section 194J of the Act.

During the assessment proceedings, the Assessing Officer noticed that the assessee has claimed deduction for channel placement fee of `

Learned DRP also sustained the disallowance while disposing off the objections of the assessee.

Learned Sr. Counsel for the assessee submitted, the issue has been consistently decided in favour of the assessee from the assessment year 2009–10 onwards by the Tribunal and the decision of the Tribunal has been upheld by the Hon'ble Jurisdictional High Court. In this context, he drew our attention to the decision of the Tribunal and the Hon'ble Jurisdictional High Court in assessee’s own case for the assessment years 2009–10 and 2010–11. The learned Sr. Counsel submitted, even in respect of other assessees also, the Hon'ble Jurisdictional High Court and the Hon'ble Supreme Court have held that channel placement fee is not in the nature of royalty.

The learned Departmental Representative, though, agreed that in the preceding assessment year the issue has been decided in favour of the assessee by the Hon'ble Jurisdictional High Court, however, he relied upon the observations of learned DRP and the Assessing Officer.

We have considered rival submissions and perused material on record. Undisputedly, assessee has deducted tax on payment of channel placement fee applying the provision of section 194C of the Act. The issue in dispute is, whether channel placement fee is in the nature of royalty requiring deduction of tax under section 1994J of the Act. As could be seen from the material on record, this dispute arose for the first time in assessee’s own case in assessment year 2009–10. Ultimately, when the dispute reached the Tribunal, it held that channel placement fee is not in the nature of royalty, hence, there is no requirement for deduction of tax at source under section 194J of the Act. The aforesaid view was expressed by the Tribunal while deciding assessee’s appeal in assessment year 2010–11 as well. In fact, learned DRP has also accepted the fact that the issue in dispute has been decided in favour of the assessee by the Tribunal and the DRP in A.Y. 2009–10, 2010–11 and 2011–12. However, stating that Revenue’s appeal for the A.Y. 2009–10 and 2010–11 are pending before the Hon'ble Jurisdictional High Court learned DRP decided the 10 NGC Network (India) Pvt. Ltd. issue against the assessee in the impugned assessment year. Notably, the appeals filed by the Revenue for the assessment years 2009–10 and 2010–11, in the meanwhile, have been dismissed by the Hon'ble Jurisdictional High Court in dated 5th March 2019. Therefore, the decision of the Tribunal in holding that channel placement fee is not in the nature of royalty stood affirmed. We have also noted that in respect of other assesses also dispute of identical nature have been decided in their favour by the Tribunal and the Hon'ble Jurisdictional High Court. That being the case, we direct the Assessing Officer to delete the disallowance of ` 26,32,39,328, made under section 40(a)(ia) of the Act. Grounds raised are allowed.

In ground no.26, the assessee has raised the issue of short credit of TDS.

Having considered the submissions of the parties, we direct the Assessing Officer to verify relevant facts and grant credit for TDS as per law. This ground is accordingly disposed off.

Grounds no.27 and 28 being consequential in nature do not require adjudication, hence, dismissed.

Ground no.29, being premature at this stage, does not require adjudication, hence, dismissed.

In the result, appeal is partly allowed. Order pronounced in the open Court on 30.04.2019