Case Law Details
KSS Limited (formerly known as K Sera Productions Ltd.) Vs Pr. CIT (Bombay High Court)
Conclusion: Where the money was routed through AE by the assessee for the purpose of acquisition of distributorship, the back to back agreements, the contents thereof and most significantly, the fact that neither at the point of payment nor at the point of refund of money, AE retained the same for any significant period of time, the transaction did not result into diversion of income of assessee to its AE and did not give rise to international transaction.
Held: Assessee-company was engaged in the business of production and distribution of films. Assessee desired to acquire rights for distribution of three Hollywood films in India. For such purpose, assessee contacted M/s. C. According to assessee, C would not deal with assessee directly and required a foreign based entity. In order to formalize this arrangement of acquisition and distribution rights of the films, assessee, therefore, used a UAE based company, its associated enterprise, as a conduit. Assessee first entered into an agreement with the said AE which envisaged the AE acquiring distribution rights for assessee from C. On the very next day, AE entered into an agreement with C. To operationalize said arrangement, assessee advanced certain amounts to AE. AE, in turn, immediately paid up such amounts to C. However, eventually, the arrangement did not work out. C, thereupon, refunded the advance to assessee through its AE. In the process, however, some time was consumed and the repayment was made over a period of time. Revenue contended that by making interest free advances to AE, assessee had transferred its profit and therefore, the transfer price regime would apply. It was held Explanation to section 92B clarified that capital financing including any type of long-term or short-term borrowings, lending or guarantee, purchase or sale of marketable securities or any type of advance, would be included within the expression “international transaction”. The back to back agreements, the contents thereof and most significantly, the fact that neither at the point of payment nor at the point of refund of money, AE retained the same for any significant period of time. This transaction did not result into diversion of income of assessee to its AE. Therefore, transaction did not give rise to international transaction.
FULL TEXT OF THE HIGH COURT ORDER / JUDGEMENT
1. This appeal is filed by the Revenue challenging the judgment of the Income Tax Appellate Tribunal, Mumbai (“the Tribunal” for short) dated 10.6.2015.
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