S. 92C : Transfer pricing-Arm’s length price-Bundle of Sport Broadcasting Rights-Most Appropriate Method-CUP Method and Other Method-Report of an independent Valuer-Assessee can resile from the Most Appropriate method selected earlier -The Most Appropriate Method is other Method – On the facts the Assessing Officer was justified in making transfer pricing adjustment in the international transaction of acquiring Bundle of Sport Broadcasting Rights on the basis of deficiencies found by him in the valuation report submitted by the assessee-Majority view. [S. 92, R. 10B, 10C]
The Special Bench was constituted to consider the following question of law.
“Whether on facts and in law, the Assessing Officer was justified in making transfer pricing adjustment anent to the international transaction of acquiring Bundle of Sport Broadcasting Rights, on the basis of deficiencies found by him in the valuation report submitted by the assessee?”
Star India Pvt. Ltd. for acquiring Bundle of Sport Broadcasting Rights (BSB Rights) hitherto held by its US-based Associated Enterprise (AE), namely, ESPN Star Sports Ltd. (ESS) entered into a transaction that was concluded for 1211 USD million by means of a Master Rights Agreement (MRA) entered on 31-10-2013. The assessee furnished a report of an independent valuer determining the total value of BSB Rights at this level by using the ‘other method’ (Discounted Cash Flow (DCF) method). The assessee claimed deduction of Rs.1013.26 crore on this score for the immediately preceding assessment year, 2014-15. It applied the Comparable Uncontrolled Price (CUP) method to demonstrate that the international transaction of acquiring the BSB Rights was at Arm’s Length Price (ALP). For doing so, the assessee adopted the comparable uncontrolled transaction of ESS acquiring such BSB Rights for a total sum of 1338 USD million. The rights acquired by the assessee were by two different means viz., one set of rights was sub-licensed by ESS to the assessee. The second set of rights was by means of novation of the agreements under which the assessee was substituted in place of ESS, becoming liable to make full direct payment to ISBs and recovering 9.5% from ESS. The TPO observed that the Valuer had inflated the amount of cash flows during the `Finite period’ valuation of the BSB Rights by 38%. He determined ALP of the international transaction at 411 USD million. This resulted into variation between actual consideration and ALP consideration at 66.06% of the actual consideration. The TPO proposed a transfer pricing adjustment of Rs.669.36 crore for the immediately preceding year. Finally, the TPO extensively discussed and reproduced his order for the immediately preceding assessment year in his order for the instant year, eventually, determining excess payment on the overall basis at 66.06% towards the Full terminal value and the Part finite period value. On appeal the Tribunal held that, the Assessee can resile from the Most Appropriate method selected earlier if the new method is in accordance with applicable provisions, is ‘The Most Appropriate Method.’
It was noted that ESS had contracted the liabilities with the third parties in prior years when prevailing market conditions, time period etc., were materially different from the date on which MSA was entered into with the assessee. Since agreed prices were paid by the assessee to various sports bodies by virtue of liabilities assumed under MSA entered into with ESS represented, there was only a discharge of liabilities and was a part of a controlled transaction which was paid to non-AE [Sports Bodies] at the instance of AE [ESS]. Therefore, the said payments would not represent uncontrolled price/transaction under uncontrolled conditions and would not constitute reliable data to undertake CUP analysis. Therefore, it was held that the MAM to benchmark international transactions in the instant case would be ‘Other Method’ and not ‘CUP Method’. Hence, appeal of the assessee was dismissed. Majority view. (ITA No. 7872/Mum/2019 dt. 5-6-2023)(AY. 2015-16)
Star India Private Limited v. ACIT-16(1), Mumbai [2023] 151 taxmann.com 77 (SB)(Mum.)(Trib.)
[Coram : Hon’ble Shri R.S. Syal (V.P.), Hon’ble Shri Aby T. Varkey (J.M.) and Hon’ble Shri Prashant Maharishi (A.M.)]