BBC tax raid case: ITAT partly allows appeals, reduces taxable profit in India to 12 percent

The Income Tax Appellate Tribunal (ITAT) has partly allowed six appeals filed by BBC Global News Limited arising from the February 2023 Income Tax raids and reduced the profit attributable to its Indian operations from 15 percent to 12 percent of its advertisement revenue [BBC Global News Limited Vs DCIT].

A Bench of Judicial Member Vikas Awasthy and Accountant Member Renu Jauhri rejected BBC’s plea to retain the earlier attribution rate of 8.75 per cent. However, it found that the 15 percent rate fixed by the Assessing Officer (AO) was excessive and based on mere estimation.

The dispute was over how much of the BBC’s advertising revenue from India could be treated as profit earned through its Indian entity and taxed in India.

The BBC argued that the figure should remain at the earlier rate of 8.75 percent, while the Income Tax Department fixed it at 15 percent after finding that the Indian entity performed more functions than the BBC had disclosed. The ITAT agreed that the rate should be increased but found 15 percent excessive and therefore, fixed it at 12 per cent.

BBC Global News is a United Kingdom tax resident that operates the BBC World News television channel and the BBC website. Its Indian associated enterprise, BBC Global News India Private Limited (BGNIPL), was admittedly its dependent agency permanent establishment (DAPE) in India.

For assessment years 2004-05 to 2014-15, the Indian and UK tax authorities had agreed under the Mutual Agreement Procedure (MAP) to attribute 8.75 percent of the BBC’s Indian advertisement revenue to its permanent establishment. The same rate was followed for the next two years.

The Income Tax Department conducted raids at the BBC’s Delhi and Mumbai offices between February 14 and 16, 2023. The action was formally undertaken as a survey under Section 133A of the Income Tax Act.

Following the raids, assessments for 2017-18 to 2021-22 were reopened. The AO also increased the attribution rate to 15 percent.

The Department relied on statements recorded from key BBC officials, including Vishal Bhatnagar, sales director for South Asia advertising. It argued that BGNIPL was performing functions beyond those disclosed in the BBC’s transfer-pricing study report.

These included promoting and selling advertising airtime, securing orders, collecting payments, following up on outstanding dues, undertaking business development, proposing advertising campaigns and carrying out marketing and research activities.

The ITAT found that the BBC had failed to controvert the Department’s findings concerning these additional activities.

“The rate of attribution of profit to assessee’s PE in India is required to be enhanced to compensate for the additional activities carried out by the PE in India,” the order said.

It also held that the earlier MAP resolution was not binding on assessment years it did not expressly cover. Its benefit could be extended to subsequent years only if there was no change in the facts or functions performed by the permanent establishment.

However, the ITAT found the 15 percent attribution excessive.

“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,” it observed.

The tribunal, therefore, restricted the attribution to 12 percent.

The BBC’s claim for credit of taxes paid by BGNIPL was remanded to the AO for verification and quantification.

Senior Advocate Sachit Jolly, advocates Abhudaya Shankar Bajpai and Sohum Dua and chartered accountant Anurag Singhal represented BBC Global News.

Special Counsel Indruj Singh Rai and advocate Gourav Kumar appeared for the Income Tax Department.

[Read Judgment]