ITAT SB Members Benchmark ‘Bundle of Sports Broadcasting Rights’ with ‘Other Method’

Case Details: Star India Private Limited v. ACIT – [2023] 151 taxmann.com 77 (Mumbai-Trib.) (SB)

Judiciary and Counsel Details

• • R.S. Syal, Vice-president & Aby T. Varkey, Judicial Member
  • Porus Kaka, Sr. Adv. & Divesh Chawla, Adv. for the Appellant.
  • Vinod Tanwani for the Respondent.

Facts of the Case

Assessee was a company engaged in broadcasting and distributing various satellite channels primarily in India. It entered into a Master Rights Agreement (MRA) with ESPN Star Sports Ltd. (ESS), US based entity, to purchase a bundle of sports event broadcasting rights.

By virtue of MRA, assessee acquired all rights and obligations in a bundled manner that ESS had with different international sports bodies (ISBs), including various national and international sports governing bodies.

Assessee made payments with respect to said broadcasting rights to third parties under novated agreements and was compensated 9.5% discount by ESS under sub-licensed agreements.

Assessee disclosed said international transaction adopting ‘Other method’ as the Most Appropriate Method (MAM). However, the assessee later adopted CUP as MAM and used a valuation report for comparability analysis wherein the valuer adopted DCF and valued international transactions by considering finite period valuation and terminal value.

On reference made to the Transfer Pricing Officer (TPO), TP adjustments were made based on the deficiencies found in the valuation report submitted by the assessee.

The controversy revolved around selecting the most appropriate method between the CUP and Other methods. Due to the different view adopted by the predecessor Bench in the assessee’s own case, the Hon’ble President constituted Special Bench on reference made by the Division Bench.

ITAT Held

The Members of the Special Bench of Tribunal have diversified views on the issue which are discussed as follows:

Vice President Views

The Vice President ruled in favour of the assessee and held that the ALP of ‘Purchase of Bundle of Sport Broadcasting Rights’ determined by the assessee under the CUP method was correct.

However, the accountant and judicial members disagree with the view the Vice President took.

Accountant Member Views

The Accountant Member held that I could not persuade myself that on the facts and circumstances of the case, ‘The Most Appropriate method’ to determine ALP is ‘CUP’.
In the instant case, the Bundle of sports broadcasting rights was transferred, which is a unique intangible asset. In such a case, the ‘Other Method’ would be more appropriate to value those rights at different points in time based on changes in economic conditions and market situations.

The introduction of ‘other method’ is in accord with global best practices for determining ALP. It prevents the difficulty of the taxpayer and the tax administration where the transfer pricing is of complex assets such as the designated rights covered as intangible rights therein.

This method applies where traditional methods of transfer pricing fail and, in fact, serve as the ‘savior’. Thus, the ‘other method’ of determining ALP of international transactions is neither inferior nor superior to other methods but helps the assessee and taxpayers substantiate an international transaction’s ALP in certain specified situations where other traditional methods do not support the case.

The sale of a bundle of sports broadcasting rights is also a unique transaction where other traditional methods fail. Thus, the’ other method’ is the most appropriate method in this case.

Judicial Member View

The Judicial Member agreed with the Ld. Accountant Member that, in the given facts of the present case, the ‘Other Method’ and not the ‘CUP Method’ was the most appropriate method.

Undeniably, product comparability is paramount to apply CUP, and the uncontrolled price has to be ascertained based on the same or similar terms during the same time period, market conditions as prevailing during the period when the assessee transacted with the AE.

The assessee put forth no arguments regarding the manner of application of the ‘Other Method’ and the deficiencies in the valuation report as pointed out by TPO. Thus, the instant appeal is to be placed before the Division Bench on determining the ALP of the international transaction in question by adopting the ‘Other Method’.