ITAT Cuts BBC Global News India PE Profit Attribution From 15% To 12% Of Ad Revenue [Read Order]

New Delhi: The Income Tax Appellate Tribunal, Delhi Bench, has partly allowed six appeals filed by BBC Global News Limited for assessment years 2017-18 to 2022-23, holding that the Assessing Officer's enhancement of profit attribution to the assessee's Dependent Agency Permanent Establishment in India from 8.75% to 15% of advertisement revenue was excessive, and restricting the attribution to 12%, while also directing verification of the assessee's claim for credit of taxes paid by its Indian AE.

The Bench of Vikas Awasthy, Judicial Member, and Renu Jauhri, Accountant Member, was hearing six appeals filed by BBC Global News Limited, a UK tax resident engaged in operating the BBC World News Channel and the website bbc.com, against assessment orders for AY 2022-23 and reassessment orders for AY 2017-18 to 2021-22. The appeal for AY 2022-23 was treated as the lead case, both sides having agreed that the facts and issues in all six appeals were identical.

It was undisputed that BBC Global News India Pvt. Ltd. (BGNIPL) constitutes the assessee's Dependent Agency Permanent Establishment (DAPE) in India. For assessment years 2004-05 to 2014-15, the assessee had entered into a Mutual Agreement Procedure (MAP) resolution under which profit attributable to its PE in India was fixed at 8.75% of advertisement revenue, with credit to be given for taxes paid by the AE in proportion to advertisement profits. The same rate continued to be applied for AY 2015-16 and 2016-17. For the assessment years under appeal, however, the Assessing Officer enhanced the rate of attribution to 15%, relying on statements recorded during a survey conducted at the assessee's premises in February 2023, which the AO held indicated that BGNIPL was carrying out activities beyond the scope described in the assessee's Transfer Pricing Study Report.

Counsel for the assessee, Mr. Sachit Jolly, Senior Advocate, submitted that the enhancement to 15% was arbitrary and without empirical basis, that there was no change in the functions of the AE or the assessee's business in the impugned years, and that the rate of 8.75% agreed under MAP ought to have continued. It was further submitted that the Assessing Officer had failed to give effect to the Dispute Resolution Panel's direction to examine and allow credit for tax of Rs.25,08,200/- paid by the assessee's AE in India.

The Special Counsel for the Revenue, Mr. Indruj Singh Rai, opposed the appeals, submitting that the MAP resolution covered only AY 2004-05 to 2014-15 and was not binding on subsequent years. It was submitted that during the February 2023 survey, the assessee had itself offered additional income of Rs.80,00,000/- to tax, and that statements of its Sales Director, Mr. Vishal Bhatnagar, and another official revealed that BGNIPL was in fact undertaking a wider range of activities, including promoting advertising sales, soliciting proposals from advertisers, collecting payments and undertaking marketing and business development functions, which went beyond what was disclosed in the Transfer Pricing Study Report, thereby justifying the enhanced attribution.

The Tribunal held that the assessee had failed to controvert the additional activities attributed to its PE by the AO, and that MAP resolutions, being confined to the assessment years they cover, do not bind subsequent years unless there is no change in facts or scope of activities. Since the scope of activities carried out by the PE was found to be wider than what was stated in the Transfer Pricing Study Report, the Tribunal held that the 8.75% rate fixed under MAP could not automatically be applied to the years in question. It nevertheless found the AO's enhancement to 15% to be excessive and, to meet the ends of justice, restricted the rate of attribution to 12% of advertisement revenue, partly allowing the relevant grounds of appeal.

On the assessee's contention that no further attribution was warranted since its DAPE had already been remunerated at arm's length, the Tribunal, relying on the Supreme Court's ruling in DIT v. Morgan Stanley & Co., held that this principle applies only where the transfer pricing analysis adequately reflects the functions performed and risks assumed by the PE, and that the present case fell within the exception since the transfer pricing analysis did not capture the full scope of the PE's activities. This ground was accordingly dismissed.

On the question of credit for tax paid by the Indian AE, the Tribunal held that although MAP resolutions are not binding on years not covered by them, there was no reason to depart from the MAP methodology where there was no change in facts, and restored the issue to the AO for verification and quantification of the credit due, allowing this ground for statistical purposes. The grounds relating to levy of interest under Section 234B and initiation of penalty proceedings under Section 270A were dismissed as consequential and premature, respectively, while the grounds challenging the assessment orders on limitation and jurisdiction were dismissed as not pressed, pursuant to a statement made by counsel for the assessee.

Holding that its findings for AY 2022-23 would apply mutatis mutandis to the remaining assessment years on account of identical facts, the Tribunal partly allowed all six appeals of the assessee in similar terms.

Appearances:

For the Appellant: Shri Sachit Jolly, Sr. Advocate, with S/Shri Abhudaya Shankar Bajpai and Sohum Dua, Advocates, and Anurag Singhal, Chartered Accountant.

For the Respondent: S/Shri Indruj Singh Rai, Special Counsel for Revenue, and Gourav Kumar, Advocate.

Case Title: BBC Global News Limited vs. Deputy Commissioner of Income Tax Circle Intl. Tax 1(1)(2), ITA Nos. 52 to 56/Del/2025 and ITA No. 1847/Del/2025 (AY 2017-18 to 2022-23)

[Read Order]