Expenses incurred by Indian entity for setting up its
overseas subsidiary (pre-incorporation expenses) cannot be
relegated as "international transaction" and shall
consider being a "shareholder activity"
Facts of the case
New Delhi Television Ltd. ("the taxpayer") is engaged
in the business of Television, News Broadcasting to its two
channels namely NDTV 24x7 and NDTV India. During the financial year
2006-07, the taxpayer assisted its overseas subsidiary i.e. NDTV
Net Works Plc. [associated enterprise ("AE")] to set up
its business operations in England. For this purpose, the taxpayer
incurred certain expenditure prior to incorporation of its overseas
subsidiary, as a part of its plan to diversify into various domains
of the media. These expenses were subsequently reimbursed to the
taxpayer at cost by the AE. The taxpayer also rendered certain
management services to its AE post incorporation, towards which the
taxpayer again did not charge any markup.
