Times Global Broadcasting Company Ltd Vs Union of India & Ors. (Bombay High Court)
It is indisputable that by virtue of sub-sections (2A) and (2B) of Section 92CA, in case of an international transaction, the TPO would have an authority to examine any international transaction which comes to his notice during the proceedings, whether a reference in this respect was made by the Assessing Officer or not and whether the assessee had reported such transaction under Section 92E of the Act or not. However, in view of specific non-inclusion of the specified domestic transaction under the said sub-sections, in so far as the domestic transactions are concerned, the situation would be vastly different.
In plain terms, in absence of sub-sections (2A) and (2B) of Section 92CA, the TPO would get jurisdiction to examine a transaction whether it is international or specified domestic transaction, only upon reference being made by the Assessing Officer under sub-section (1) of Section 92CA of the Act. Sub-section (2) of Section 92CA provides that where a reference is made under sub-section (1), the TPO would serve a notice to the assessee requiring him to furnish details in relation to international transaction or specified domestic transaction referred to in sub-section (1). Thus, the jurisdiction of the TPO to issue a notice to the assessee would be in relation to international transaction or specified domestic transaction for which reference is made by the Assessing Officer under sub-section (1). It is precisely for this reason that sub-sections (2A) and (2B) provide a deeming fiction where they provide that in case of an international transaction not referred to the TPO or an international transaction not reported by the assessee, which comes to his notice during the proceedings, the provision of the Chapter would apply as if such international transaction was one referred to in sub-section (1). In absence of this deeming fiction, it would not be open for the TPO to exercise the powers under the said chapter in relation to the transaction not referred to him. The reference to be made by the Assessing Officer is not an empty formality. Said reference has to be made only on approval of the Principal Commissioner or Commissioner. Legislature, requires the Assessing Officer to obtain an approval from senior Revenue Authority before a reference is made. Such requirement cannot be jettisoned by the TPO exercising sue motu jurisdiction over the transaction not reported to him.
Inescapable conclusion that we have reached is that in relation to a specified domestic transaction, the TPO can under take transfer pricing study only in relation to those transactions which are referred to him under sub-section (1) of Section 92C of the Act. Sub-section (2A) and (2B) of Section 92C are confined to international transactions and with the aid of any interpretive process, the said provision cannot be applied to empower the TPO to examine any specified domestic transaction not referred to him by the Assessing Officer under sub-section (1). Any other view would be doing violence to the plain language of the statute.
Even in such a situation, the statute does not permit the TPO to assume the jurisdiction to determine the arm’s length price of a specified domestic transaction not reported to him. There may be number of cases where the assessee may bonafide hold a belief that certain transaction is not a specified domestic transaction and therefore, would not report the same under Section 92E of the Act. Whether bonafide or not, not making a report by the assessee of a specified domestic transaction would not leave the revenue without remedy. As clarified by CBDT in the instructions dated 20.5.2013, it is always open for the TPO who notices such transaction during the course of the proceedings before him to call for a reference by the Assessing Officer. If the Assessing Officer does make a report, only then TPO can undertake further steps as envisaged under sub-section (2) and other sub-sections of Section 92CA. As noted, the statute is sufficiently clear. The legislature while expanding the scope of the transfer pricing study by the TPO to a transaction not referred him or not reported by the Assessing Officer, under sub-section (2A) and (2B) of Section 92CA, has confined the applicability thereof only to international transactions. The TPO exercising such powers suo motu in relation to a specified domestic transaction would be transgressing his jurisdiction and in the process would render the requirement of sub-section (1) of Section 92CA redundant. As noted, the reference that the Assessing Officer can make to the TPO would have the approval of the Principal Commissioner or the Commissioner.
Under these circumstances, in relation to the transaction of payment to creditors in demerger process, the TPO had no jurisdiction to make any adjustments. Under these circumstances and even otherwise, we are not inclined to examine the adjustment on merits though it was argued before us by the learned counsel for the petitioner.
FULL TEXT OF THE HIGH COURT ORDER / JUDGMENT
1. The petitioner has challenged an order dated 15.10.2018 as at Annexure “M” to the petition passed by the Transfer Pricing Officer (“TPO” for short) under Section 92CA(3) of the Income Tax Act, 1961 (“the Act” for short).
2. Brief facts are as under:-
2.1 Petitioner – Times Global Broadcasting Company Ltd is a company registered under the Companies Act, 1956 and his a wholly owned subsidiary of Benett, Coleman and Company Ltd (hereinafter referred to as “BCCL”). The petitioner is engaged in the business of distribution of television channels for the Times Group entities. It also provides support services to Times Group entities in the area of finance, legal, human resources, commercial, administration and technical and broadcasting. With effect from 1.4.2014, the petitioner demerged one of its business undertakings into BCCL. The scheme of demerger was approved by the High Court at Bombay by an order dated 16.1.2015. Consequently, the business pertaining to “Times Now” television channel of the petitioner got vested in BCCL. All assets and liabilities pertaining to demerged undertaking were also transferred to BCCL at the book value as on 31.3.2014. The difference between assets and liabilities was then adjusted against the brought forward profit and loss account balance as on 31.3.2014. However, no expenditure or income was charged to the profit and loss account for the financial year as per the scheme of demerger approved by the High Court.
2.2 For the assessment year 2015-16, the petitioner filed return of income on 28.11.2015 declaring total income of Rs. 5.90 crores (rounded off). In the said return, the petitioner had reported following two specified domestic transactions:-
