BBC raids: India arm lost PF money in IL&FS, DHFL scam

BBC World Service India Private Ltd, whose offices were subject to a survey today by the income-tax authorities over non-compliance with the Transfer Pricing Rules, had to write off ₹7.2 crore from its pension fund following its exposure to the two tainted non-banking companies, IL&FS and DHFL.

The New Delhi-based subsidiary of the UK’s national broadcaster along with other group entities, BBC Studios India Pvt Ltd and BBC Global News India Pvt Ltd, has a provident fund scheme under a trust called the BBC Worldwide India Employees Provident Fund. The trust had an exposure of ₹2.85 crore and ₹4.35 crore in the securities of IL&FS and DHFL, respectively. It is not clear if the “securities” only refer to debt or equity as well.

During the year (FY21), the company provided for ₹1.59 crore, including interest accrued till date, as a proportionate share of exposure of 80% and 35% of the investment made in IL&FS and DHFL, respectively, and accounted for the same as an exceptional item in its P&L. A sum of ₹1.44 crore on the investments was considered as a contingent liability and was to be assessed in the future based on the resolution proceedings, stated the company's filings. Fortune India, however, could not access the company’s financials for 2021-22.

Incidentally, rating agencies CARE and Brickworks, which have since been barred by the market regulator, had given an ‘AAA’ rating to DHFL’s non-convertible debentures (NCD) between 2016 and 2019. The bonds were subsequently downgraded to a default rating (D) after the NBFC began defaulting on its obligations. Besides commercial banks that owed ₹35,000 crore to DHFL, fixed deposit and NCD investors were the biggest lenders with an exposure of ₹45,000 crore.

With regards to the search, the tax authorities issued a statement today stating that the survey was in view of BBC’s deliberate non-compliance “for years” with the transfer pricing rules and vast diversion of profits. “As a result of the same, several notices have been issued to the BBC. However, the BBC has been continuously defiant and non-compliant and has significantly diverted profits,” read the statement.

According to the authorities, the key focus of the survey is to look into the manipulation of prices for unauthorised benefits, including non-compliance under transfer pricing rules, persistent and deliberate violation of transfer pricing norms; deliberate diversion of significant amounts of profits, and non-adherence in maintaining arm’s length arrangement in the case of allocation of profit. The company, which paid ₹2.04 crore in income tax in FY21, already has an ongoing case with the tax authorities but believes the outcome will not adversely impact its financial position and operations.

Incidentally, BBC World Service India, which produces content for radio, television and websites under contractual agreements with its parent and other group companies, in its annual statement mentioned that it has a comprehensive system of maintenance of information and documents as required by the transfer pricing regulation under Sections 92-92F of the Income-Tax Act, 1961.

“Since the law requires the existence of such information and documentation to be contemporaneous in nature, the company continuously updates its documentation for the international transactions entered into with the associated enterprises during the financial year and expects such records to be in existence latest by the due date for the same. The management is of the opinion that its international transactions are at arm’s length so that the aforesaid legislation will not have any impact on the financial statements, particularly on the amount of tax expense and that of provision for taxation,” the company filings state.

During 2020-21, the transactions that the company entered into on an arm’s length basis, involve the parent company, and fellow subsidiary, BBC Global News India Pvt Ltd. In FY21, on revenues of ₹107.45 crore, BBC World Service incurred a total expenditure of ₹103.97 crore, including staff expenses of ₹51.93 crore. As a result, it ended the year with a profit after tax of ₹2.40 crore.

The company, as of FY21, has also not complied with the Department for Promotion of Industry and Internal Trade 2019 Press Note that caps foreign direct investment in digital media entities at 26%. The Indian arm’s filings state the company had studied the rules, including the clarifications in detail, but felt that it has a “bona fide belief” that the rule is aimed at ‘digital only’ entities as all media organisations have a digital presence, and, hence, it would be a “counter-productive exercise to have a different set of rules for broadcasting and digital businesses.”

However, the company had stated that it was studying various options, including restructuring of content syndication deals, evaluating the arrangement with digital news providers, and streamlining the uploading of news and other content from India, in case "compliance with rules becomes eminent". The primary source of revenue for the company is the service fee from the parent and a programming fee from licensing of programs for FM radio stations, television channels and other digital platforms within and outside India.

Interestingly, the subsidiary, whose parent recently aired a controversial documentary on Prime Minister Narendra Modi, had contributed ₹14.32 lakh to Prime Minister’s National Relief Fund in FY21.