INCOME TAX ACT, 1961

Section 92C

Transfer pricing - Computation of ALP - Ad hoc addition of 10% under transfer pricing adjustment -

Assessee operated as “multi-system operator” in distribution of television channels through analog and digital cable distribution network and internet services through cable. One of revenue streams earned by assessee was placement charges which were amount paid by broadcasters for placing their channels at preferred positions and such revenue was shared by assessee with related parties on the basis of their subscriber base. TPO did not accept the system of proportional allocation of the total placement revenue for the reason that benchmarking was ad hoc in nature and does not justify the allocation of total revenue proportionately. TPO held that entire revenue shared with RPs on basis of the subscriber base and benchmarking does not result in ALP. TPO, therefore, determined the ALP of placement charges at 50% of the amount and held that the balance 50% has to be retained by assessee for its own services rendered, risks undertaken and capital deployment. DRP had restricted ad hoc addition to the extent of 10%. Held: Finding of the TPO for RPs should be allowed just 50% of the amount attributable to its subscriber base has been rejected by the DRP and held that by way of this transaction, assessee was given an authority by RPs to negotiate with broadcasters for the placement charges for entire group. DRP acknowledged the fact that clubbing of such rights with one person ensured better charges for the entire group and assessee itself was benefited from such pooling. Furthermore, DRP had not categorically held that other than giving such rights of negotiation to assessee, no other risks are transferred to assessee nor there was any deployment of capital on behalf of the RPs. There was no justification for upholding any ad hoc addition of 10%. Adjustment of 10% upheld by DRP was without following any of the prescribed methods under section 92C(1) and did not have any benchmarking for being adopted in determination of the ALP.

Followed:CIT v. Lever India Exports Ltd. ITA No. 1306/1307/1349 of 2014 : 2017 TaxPub(DT) 0590 (Bom-HC)

REFERRED :

FAVOUR : In assessee's favour

A.Y. :

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