In ITA. No.7872/MUM/2019 - ITAT - Special Bench of ITAT (Mumbai) rules 'Other Method' as Most Appropriate Method for determining ALP of international transaction of purchase of bundle of sport broadcasting rights by Star India; Directs appeal to Division Bench for determination of ALP of international transaction using 'Other Method'
Members Prashant Maharishi (Accountant), Aby T. Varkey (Judicial) & R.S. Syal (Vice President) [05-06-2023]

Read Order: Star India Private Limited v. ACIT-16(1), Mumbai

Chahat Varma

New Delhi, June 7, 2023: In a significant ruling, the Special Bench Income Tax Appellate Tribunal (Mumbai) has ruled that the Most Appropriate Method (MAM) to determine the Arm's Length Price (ALP) of international transaction of `Purchase of Bundle of Sport Broadcasting Rights’ by Star India Private Limited. (assessee), was the 'Other Method' rather than the 'CUP Method'. As no arguments were presented regarding the application of the 'Other Method' and due to the deficiencies in the valuation report, the bench decided to refer the appeal to the Division Bench for further consideration on the determination of the ALP using the 'Other Method'.

In the present case, the Special Bench was constituted by the Hon'ble President under Section 255(3) of the Income Tax Act, 1961 for the assessment year in question. The Division Bench referred the case to the Special Bench as it was unable to concur with the view taken by the predecessor Bench in the assessee's case for the preceding assessment year regarding the benchmarking of the international transaction of `Purchase of Bundle of Sport Broadcasting Rights’.

Briefly stated, Star India Private Limited (assessee) had filed Form No.3CEB containing a list of international transactions, including, payment of Rs. 3075,24,15,714/- for acquiring Bundle of Sport Broadcasting Rights (BSB Rights) hitherto held by its US based Associated Enterprise (AE), namely, ESPN Star Sports Ltd. (ESS). The transaction of acquiring the BSB Rights (rights to broadcast through television/internet/mobile various sports events like ICC Tournaments including Cricket World cup, Champions League T20 cricket, Formula-1 GP2 and Wimbledon Championships etc.) from ESS was concluded for 1211 USD million by means of Master Rights Agreement (MRA) entered on 31-10-2013. The assessee claimed deduction of Rs.1013.26 crore. It applied the CUP method for demonstrating that the international transaction of acquiring the BSB Rights was at ALP.

The bench in the case observed that there was a lack of evidence to support the existence of a price charged by independent parties in a comparable uncontrolled transaction under similar circumstances. They emphasized that there was no evidence available of any independent party purchasing identical or similar sports broadcasting rights at the same time. Due to the absence of comparable uncontrolled transaction prices, the bench held that the CUP method was not the most appropriate method to determine the arm's length price in this case.

Further, the assessee had accepted the responsibility and liability of ESS for payment to various sports bodies, which were previously agreed upon by ESS. This was done through a novation agreement and sub-license arrangement. The bench noted that the prices agreed upon by ESS with the sports bodies did not reflect contemporaneous market factors prevailing on 31.10.2013. Due to this lack of contemporaneousness and the change in market conditions, the bench opined that the CUP method could not be considered the most appropriate method in this case.

The bench also observed that the transfer of a Bundle of sports broadcasting rights took place according to the MRA. The bench acknowledged that these rights constituted a unique intangible asset. In such cases, the bench held that the use of the Other Method became even more appropriate as it allows for the valuation of these rights at different points in time, taking into account changes in economic conditions and market situations, as also opined by experts.