Sony Pictures Networks India Pvt Ltd v. Income-Tax Appellate Tribunal, Mumbai & Ors

IN THE HIGH COURT OF JUDICATURE AT BOMBAYO.O.C.J. WRIT PETITION NO. 3508 OF 2018 Sony Pictures Networks India Pvt Ltd..Petitioner Versus Income-Tax Appellate Tribunal, Mumbai & Ors...Respondents ................... •Mr. Percy Pardiwalla, Sr. Counsel a/w Mr. Hiten Chande i/by PDSLegal for the Petitioner •Mr. Akhileshkumar Sharma for Respondent Nos. 1 to 3................... CORAM : AKIL KURESHI & M.S. SANKLECHA, JJ. DATE : JANUARY 3, 2019. P.C.: 1.At the request of the learned counsel for the parties,the petition is being disposed of finally at this stage. 2.This petition under Article 226 of the Constitution ofIndia challenges the order dated 13.4.2018 passed by theIncome Tax Appellate Tribunal ("Tribunal" for short). By theimpugned order dated 13.4.2018, the petitioner's applicationunder Section 254(2) of the Income Tax Act, 1961 ("the Act"for short) for rectification of order dated 26.7.2017 passedunder Section 254(1) of the Act relating to assessment year 3.The petitioner is engaged in the business of distributingtelevision channels in India. During the subject assessmentyear, the petitioner distributed television channels inter aliaowned by its Associate Enterprises to Local Cable Operators(LCO), Multi System Operators (MSO) and Direct to HomeOperators (DTO). For the aforesaid activity, the petitioner isremunerated 10% of the subscription revenue collected bydistributing the television channels to these operators. Thebalance 90% is paid over to its Associate Enterprises. TheTransfer Pricing OfÏcer ("TPO" for short) sought tobenchmark the international transactions entered intobetween the petitioners and its Associate Enterprises bycomparing it with seven comparable from the royalty database. Thus, making a transfer pricing adjustment of Rs.335.69 crores as reflected in the draft assessment orderdated 27.2.2015 of the assessing ofÏcer (respondent No. 2). 4.The petitioner filed its objections to the draftassessment order to the Disputes Resolution Panel (DRP). By an order dated 30.11.2015, the DRP disposed of theobjections upholding the applications of comparables fromroyalty database. However, DRP restricted the comparableto only three comparables. This resulted in a lower priceadjustment at Rs. 297.62 crores in terms of order dated30.11.2015 of the DRP. 5.Consequent to the above in terms of the DRP'sdirections, the assessing ofÏcer passed a final order dated31.12.2015 of assessment. 6.Being aggrieved the petitioner filed an appeal to theTribunal. It was the petitioner's case that the amounts paidby them as distribution fees to its Associated Enterprisescannot be characterized as royalty. This as the petitioner hasno right over the content of the broadcast. In its appeal, thepetitioner relied upon the decision of this Court in the case ofCIT Vs. SET India Pvt Ltd ( ITA NO. 1347 of 2013 ) wherein itis held that the distribution fee paid is not in the nature ofroyalty which is taxable under the Act. However, the Tribunalin its order dated 26.7.2017 after having recorded the petitioner's above basic submission did not deal with thecharacter of distribution fees payment i.e whether it isroyalty or not. It proceeded to restore the issue ofdetermining the Arm's Lengh Price to the assessing ofÏcer /TPO to consider the matter afresh. 7.As the order dated 26.7.2017 of the Tribunal passedunder Section 254(1) of the Act did not deal with thefundamental dispute viz. that the distribution fee paid by itto its Associate Enterprises are not payments in the nature ofroyalty. This even after recording the petitioner'ssubmission. This led to the petitioner filing on 5.10.2017, anrectification application under Section 254(2) of the Act. Bythe above application, the petitioner sought consideration ofthe basic issue viz. the character of the distribution fee"whether Royalty or not" before restoring the issue to theassessing ofÏcer / TPO. 7.As the order dated 26.7.2017 of the Tribunal passedunder Section 254(1) of the Act did not deal with thefundamental dispute viz. that the distribution fee paid by itto its Associate Enterprises are not payments in the nature ofroyalty. This even after recording the petitioner'ssubmission. This led to the petitioner filing on 5.10.2017, anrectification application under Section 254(2) of the Act. Bythe above application, the petitioner sought consideration ofthe basic issue viz. the character of the distribution fee"whether Royalty or not" before restoring the issue to theassessing ofÏcer / TPO. 8.Thereafter, by the impugned order dated 13.4.2018,the Tribunal rejected the rectification application made underSection 254(2) of the Act seeking to rectify the order dated 26.7.2017 of the Tribunal. This on the ground that the entireissue had been restored to the departmental authority forfresh adjudication. This fresh adjudication would also includedeciding on the characterization of the distribution fee i.eRoyalty or not. The impugned order does not dispute thatthe issue was raised before it during the hearing by theparty. However, it holds that non consideration of anargument made by a party would not lead to an rectification,as it would amount to review. In support, reliance is placedon the decision of this Court in Commissioner of IncomeTax Vs. Ramesh Electrical Company Ltd, (203 ITR 497). 9.The submission on the part of the revenue that noprejudice is caused as the entire issue has been restored tothe assessing ofÏcer, who would also consider the characterof the distribution fee is not correct. It is not the case of therevenue nor the order of the Tribunal that before thecharacterization of the fee can be decided, certain facts areto be ascertained. Thus, all facts to decide on the questionof law was available with the Tribunal. In the abovecircumstances, the Tribunal ought to have dealt with the issue itself. By not dealing with an issue which is otherwiseripe for consideration and instead remanding to the TPO, theTribunal has ensured further litigation and continueduncertainty for both the Revenue and the assessee. Thisobservation of ours with regard to conduct of the Tribunalfinds support in the decision of this Court in Coca-Cola India(P) Ltd Vs. Assistant Registrar representing IncomeTax Appellate Tribunal, [2014] 368 ITR 487. The relianceupon an observation in the decision of this Court in RameshElectrical (supra) (without consideration of the context) toconclude that in every case, where a submission / argumentis not considered, rectification will not be the remedyavailable. The Tribunal ignored the fact that the aboveobservation of this Court in Ramesh Electrical (supra) was onthe basis that for a rectification application to bemaintainable, the mistake should be apparent from therecord. In this case, the mistake / error in not dealing withthe fundamental submission in appeal is apparent from therecord, as the submission that the distribution fee was notroyalty was recorded and yet not dealt with in the order.Thus the decision of this Court in the case of Ramesh Electrical (supra), turned on its own peculiar facts and asheld by the Supreme Court that a Judgment of the Court isnot to be read as a statute. The factual background of thecase is to be considered while applying the judgment andholding oneself bound by the rule of precedents. (Please seeCCE, Calcutta Vs. Alnoori Tobacco Products[1]andEscorts Ltd Vs. CCE, Delhi-II[2]) Electrical (supra), turned on its own peculiar facts and asheld by the Supreme Court that a Judgment of the Court isnot to be read as a statute. The factual background of thecase is to be considered while applying the judgment andholding oneself bound by the rule of precedents. (Please seeCCE, Calcutta Vs. Alnoori Tobacco Products[1]andEscorts Ltd Vs. CCE, Delhi-II[2]) 10. In view of the above position in facts and law, theTribunal ought to have decided the issue of the character ofdistribution fees is royalty or not, as all facts were availablebefore it and submissions also made, rather than remandingthe issue to TPO. Besides non-consideration of the abovebasic submission made at the hearing as recorded, is clearlya mistake apparent from the record. The Tribunal ought tohave allowed the rectification application dated 5.10.2017and recalled the order dated 26.7.2017 for freshconsideration of the appeal. 11. Therefore, we allow the petition and also set aside the 12004 (170) ELT 135 (S.C.)22004(173) ELT 113 (S.C.)22004(173) ELT 113 (S.C.) order dated 26.7.2017 passed under Section 254(1) of theAct by the Tribunal. The appeal is restored to the Tribunal forfresh disposal in accordance with law. 12. Petition allowed in above terms. No order as to costs. [ M.S. SANKLECHA, J. ] [ AKIL KURESHI, J ]