The assessee, a foreign company and a tax resident of Hong Kong, was engaged in the business of distribution of satellite television channels and sale of advertisement air time for the channel companies at global level. Till F.Y. 2007-08, the assessee and channel had principal to principal relationship in respect of both advertising stream and distribution stream of income. However, in pursuance to the guidelines issued by Ministry of Information and Broadcasting, there was change in relationship and the channel companies with effect from 1st April 2008 and the assessee started operating as an agent of the channel companies in respect of advertisement and distribution stream of income. During AY 2010-11, the assessee earned income from agency commission, management fees and other income in the nature of royalty. In the course of assessment proceedings, the assessing officer noticed that assessee earned income from international transaction from its AE in India and therefore made a reference to TPO. Assessee had adopted PSM as the most appropriate method to benchmark its international transaction relating to agency commission and has shown a profit margin of 28.17%. The Transfer Pricing Officer after taking note of the profit margin shown by the assessee and that of the comparable companies has also accepted the arm’s length price shown by the assessee to be at arm’s length. However the TPO noticed that out of the global commission received by the assessee from the overseas merged entities, commission fee received towards the services rendered outside India was not offered to tax by the assessee in India and only the balance commission fee was offered to tax in India. He thus made an adjustment on the ground that instead of offering profit of Rs.252,59,62,559/- under the PSM, the assessee has offered profit of Rs.227,80,28,141/-. While doing so, the Transfer Pricing Officer has basically relied upon an Annexure to the transfer pricing study report wherein revised computation of consolidated net profit compared to the total India / Global Revenues earned by the channel companies and the overall profitability for the period 1st April 2009 to 31st March 2010 has been reflected. Aggrieved by the draft order, assessee raised objection before DRP. The DRP confirmed the addition. On further appeal, the Tribunal, held that agency/marketing commission paid to non-resident outside India and for the services rendered outside India is not taxable in India. Moreover, if one carefully reads the provision contained in Explanation below section 9(2) of the Act, it will be very much clear that it will not be applicable to the agency commission earned by the assessee. Therefore, income accruing or arising outside India would not be taxable under the Act. The Tribunal further observed that the assessee itself has admitted that the profit attributable to India is Rs.252,59,62,559/-. As the actual profit attributable to India was a purely factual issue which had to be demonstrated by the assessee through proper documentary evidences / books of account, for the limited purpose of verifying this fact, the Tribunal restored the issue to the Assessing Officer to examine assessee’s claim. (AY. 2010-11)