Star Television Entertainment Ltd. Vs DCIT (ITAT Mumbai)
ITAT Mumbai held that exclusion of comparables for the reason that those companies are loss making or low profit making is not correct. Accordingly, TPO directed to include these comparables and re-compute the Arm’s Length Price (ALP).
Facts- The assessee is a non resident company and is a tax resident of Hong Kong belonging to the Star Television group of companies.
The case of the assessee was selected for scrutiny and statutory notices were duly served on the assessee. A reference was made to the Transfer Pricing Officer (TPO) in order to determine the arm’s length price of the transactions the assessee has entered into with its Associated Enterprises (AEs). The TPO made an adjustment of R.25,64,77,167/-. AO was of the view that the income arising to the assessee in India out of the non-AE transactions, was out of the purview of TPO and had to be determined by assessing officer. Accordingly he proceeded to compute the income from non-AE transactions at a reasonable percentage of the turnover which is determined at 28%. AO applied the said percentage on the gross turnover in non-AE transactions to make an addition of Rs.215,71,87,007 towards income from non-AE transactions. AO also revised the income from AE transactions to Rs.32,92,61,172 as against the ALP adjustment proposed by the TPO.
In addition AO also made an addition of Rs.42,55,32,513/- towards capital gains on transfer of channel “Star World” to “Star International Movies Ltd”, a Hong Kong based company. Aggrieved, the assessee filed its objections before the Dispute Resolution Panel (DRP), who confirmed the TPO adjustment as well as the addition made by AO.
Conclusion- Held that AO has excluded 3 comparables for the same reasons that those companies are loss making and the profit margin is low. Therefore, the ratio laid down by the co-ordinate bench in the above case is applicable to assessee also and, therefore, respectfully following the above decision of the co-ordinate bench, we hold that these comparables cannot be excluded. The TPO is directed to include these comparables and re-compute the ALP accordingly.
Held that the impugned asset is not an asset situated in India since it is owned by a person outside India and therefore the situs of the asset is also outside India. Accordingly in our considered view, the income arising out of the transfer of Star World channel, being an asset outside India by the assessee to SIML will not fall within the provisions of section 9(1)(i) and accordingly not taxable in India.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
These two appeals are against the final order of assessment passed under section 143(3) r.w.s.144C(13) of the Income Tax Act (the Act) by the Deputy Director of Income-tax-2(1), Mumbai dated 28/01/2014 in the case of Star Television Entertainment Ltd (STEL) and dated 27/11/2014 in the case of Star Asian Region FZ LLP (SARF). Since the issues contended are common for both these assessees the appeals were heard together and disposed of by this common order.
2. The common issues contended in both the appeals through various grounds are tabulated below:-
