BBC Global News Limited Vs DCIT (ITAT Delhi)
Delhi ITAT in BBC Global News: MAP Profit Attribution Rate Not Binding for Later Years When Functions of Indian PE Change-15% Reduced to 12%
The Delhi ITAT partly allowed six appeals of BBC Global News Limited, a UK tax resident operating BBC World News Channel and its website, concerning attribution of profits to its Dependent Agency Permanent Establishment (DAPE) in India, BBC Global News India Pvt. Ltd. (BGNIPL).
The principal controversy was whether the historical 8.75% attribution rate, which had been agreed under the Mutual Agreement Procedure (MAP) for AYs 2004-05 to 2014-15 and continued for AYs 2015-16 and 2016-17, should govern the subsequent years. Following a survey in February 2023, the AO concluded that the Indian DAPE was performing substantially wider functions than those disclosed in the Transfer Pricing Study Report and therefore increased attribution from 8.75% to 15% of Indian advertisement revenue.
The survey statements indicated that BGNIPL was engaged not merely in routine support but in a much broader range of functions, including promoting advertising sales and sponsorships, soliciting proposals, obtaining customer orders, collecting amounts, business development, identifying market opportunities, implementing marketing/PR and sales promotions, and conducting market research relating to BBC World News, BBC websites and social media. The assessee was unable to controvert that these functions went beyond those reflected in its TPSR.
The ITAT laid down an important principle: a MAP resolution is not binding for assessment years which are not specifically covered by it. The benefit of an earlier MAP attribution methodology can be extended to later years only where there is no material change in facts, functions or scope of activities of the assessee or its PE. Since the survey revealed that the Indian PE’s functions were considerably wider, the earlier 8.75% rate could not automatically be carried forward.
At the same time, the Tribunal found that the AO had enhanced the attribution from 8.75% to 15% merely on estimation, without adequately establishing why 15% represented the appropriate attribution. It considered 15% to be “very much on higher side” and, to meet the ends of justice, restricted the profit attribution to 12% of advertisement revenue.
The assessee alternatively argued, relying on the Supreme Court decision in DIT v. Morgan Stanley & Co., that since BGNIPL had already been remunerated at arm’s length, no further profits could be attributed to the PE. The ITAT rejected this contention. It noted that Morgan Stanley itself recognises an exception where the transfer-pricing analysis does not adequately capture all functions performed and risks assumed by the PE. Since BGNIPL was found to be carrying out additional functions not adequately reflected in the TPSR, the assessee fell within this exception and further attribution was permissible.
On another significant issue, the assessee sought credit for taxes paid by its Indian PE/BGNIPL in relation to advertisement income. The AO had denied the credit merely because the relevant year was outside the MAP period. The Tribunal held that although MAP itself was not binding for later years, there was no reason to depart from the principle of granting credit for taxes already paid by the PE where no material demonstrated that such credit was impermissible. The issue was therefore restored to the AO for verification and quantification of the tax credit.
The Tribunal held that interest under Section 234B was consequential and mandatory, while the challenge to initiation of penalty proceedings under Section 270A was premature. For AYs 2017-18 to 2021-22, identical findings were applied mutatis mutandis, and all six appeals were partly allowed.
FULL TEXT OF THE ORDER OF ITAT DELHI
These six appeals by the assessee, each for assessment year 2017-18 to 2022-23, respectively are taken up together as similar issues are involved in all these appeals and the facts germane to the issues in these appeals are identical.
