ITAT Delhi Cuts Share Of BBC Global News' India Ad Revenue Attributed To Indian PE From 15% To 12%

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has reduced from 15% to 12% the share of BBC Global News Limited's Indian advertisement revenue treated as profit attributable to its Indian Permanent Establishment (PE).

The same finding has been applied to assessment years 2017-18 to 2022-23.

The ITAT took assessment year 2022-23 as the lead case. It held that while an increase from the earlier 8.75% rate was justified, the assessing officer had fixed the 15% rate merely on estimation.

"It is equally true that the AO on mere estimation has enhanced the attribution of profit from 8.75% to 15%, In our considered view the rate of attribution as determined by the AO is very much on higher side. To meet the ends of justice and to lay the matter to rest, we restrict attribution to 12% of advertisement revenue for the impugned assessment year. Thus, ground of appeal no. 3 to 5 of appeal are partly allowed, in the terms aforesaid" the ITAT observed.

The bench comprised Judicial Member Vikas Awasthy and Accountant Member Renu Jauhri. It was dealing with BBC Global News' appeals for assessment years 2017-18 to 2022-23.

The dispute concerned how much of BBC Global News' advertisement revenue from India could be treated as profit attributable to its Indian PE for tax purposes.

BBC Global News is a UK tax resident and operates the BBC World News channel and the BBC website. Its Indian entity, BBC Global News India Pvt. Ltd. (BGNIPL), is its Dependent Agency Permanent Establishment (DAPE) in India.

An 8.75% attribution rate had been used in earlier years. Under a Mutual Agreement Procedure (MAP) resolution, the rate was agreed for assessment years 2004-05 to 2014-15 and was subsequently adopted for assessment years 2015-16 and 2016-17.

The Assessing Officer increased the rate to 15% after a survey conducted in February 2023. During the survey, statements of key officials were recorded, including Vishal Bhatnagar, Sales Director, South Asia Advertising.

Based on Bhatnagar's statement, the Assessing Officer found that BGNIPL was carrying out activities beyond those described in BBC Global News' Transfer Pricing Study Report.

These activities included promoting advertising airtime and sponsorships, obtaining orders from customers and collecting outstanding payments. They also included business development, identifying market opportunities, marketing and sales promotion, and research into the reach of BBC World News, its websites and social media.

BBC Global News had argued that the earlier 8.75% rate should continue. It relied on the MAP resolution and contended that there had been no change in the functions of its Indian entity or the manner of its business.

The ITAT noted that a MAP resolution is not binding for assessment years that are not covered by it. It held that the earlier rate could be extended to later years only where there was no change in the facts or in the scope of activities carried out by the PE.

In BBC Global News' case, the statement recorded during the survey indicated that the Indian PE was carrying out a wider range of activities than those disclosed in the Transfer Pricing Study Report. The ITAT therefore held that the attribution rate had to be increased to account for those additional activities.

The ITAT, however, found the Assessing Officer's 15% rate too high because it had been arrived at merely through estimation. It therefore restricted the share of advertisement revenue treated as profit attributable to the Indian PE to 12% for assessment year 2022-23.

BBC Global News had also argued that no further profit could be attributed to its Indian PE because BGNIPL had already been remunerated at arm's length for providing advertisement sales and market support services.

The ITAT rejected the contention.

The ITAT relied on the Supreme Court's ruling in DIT v. Morgan Stanley & Co., but noted that further profit can still be attributed where the transfer pricing analysis does not fully account for the PE's functions and risks. It held that BBC Global News' case fell within this exception.

BBC Global News had also sought credit for taxes paid by its Indian PE on advertisement income. The Assessing Officer had denied the credit on the ground that the relevant assessment year was not covered by a MAP resolution.

The ITAT agreed that the earlier MAP resolutions were not binding for years outside the MAP. It nevertheless found no reason to depart from the earlier position where there was no change in facts. It also noted that there was no material on record showing that the tax credit could not be allowed.

It therefore sent the issue back to the assessing officer for verification and quantification of the tax credit relating to the advertisement income.

For assessment years 2017-18 to 2021-22, the ITAT noted that the same issues arose on an identical set of facts. It accordingly applied its findings for assessment year 2022-23 to those appeals, which were also partly allowed.

The appeals for all six assessment years were consequently partly allowed.

For BBC Global News Limited: Senior Advocate Sachit Jolly, Advocates Abhudaya Shankar Bajpai and Sohum Dua, and Chartered Accountant Anurag Singhal.

For Revenue: Special Counsel Indruj Singh Rai and Advocate Gourav Kumar.