2012 (4) TMI 604 - AT - Income Tax

Whether the consideration paid by the assessee to Set Satellite (Singapore) Pte. Ltd. for acquiring the non-exclusive rights to distribute SET and SETMAX Channels is in the nature of Royalty taxable @ 15% on gross basis under Article 12 of the India-Singapore Double Tax Avoidance Agreement (DTAA) or is business profits? - Held that - t Broadcasting Reproduction Right is not covered under the definition of Royalty under section 9(1)(vi) of the Income tax Act as well as Article 12 of the Treaty.Accordingly the payment is not in the nature of Royalty but in the nature of business income. No infirmity in the order of ld CIT(A) that consideration paid by the assessee to the non-resident company for acquiring nonexclusive right to distribute TV channels is not in the nature of Royalty but in the nature of business income and hence it was not subject to withholding tax. Accordingly we uphold his order by dismissing the grounds taken by the department.

Summary

Issues Involved:
Whether consideration paid for acquiring non-exclusive rights to distribute TV channels is taxable as Royalty under India-Singapore DTAA or as business income.

Analysis:
The appeal pertains to the nature of consideration paid by the assessee to a Singaporean company for acquiring non-exclusive distribution rights to TV channels. The key issue is whether this payment should be treated as Royalty taxable at 15% under Article 12 of the India-Singapore Double Tax Avoidance Agreement (DTAA) or as business profits. The Non-resident company, which operates the TV channels, does not have a Permanent Establishment in India and its business is not taxable in India as per the DTAA.

The Assessing Officer initially directed a withholding tax of 15% on the payment, considering it as Royalty under the DTAA. However, the CIT(A) held that the payment was in the nature of business income, not Royalty, based on the distribution agreement terms and the absence of copyright exploitation rights. The CIT(A) noted that the distribution rights granted did not involve any copyright use or exploitation, as clarified by the provisions of the Copyright Act, 1957.

The Tribunal observed that the distribution rights were purely commercial and did not entail the use of copyright. The Tribunal considered the previous judgment involving the recipient company, where the payment was treated as business income and not Royalty. Consequently, the Tribunal upheld the CIT(A)'s decision that the payment for distribution rights was business income, not Royalty, and thus not subject to withholding tax.

Ultimately, the Tribunal dismissed the department's appeal, affirming that the consideration paid for acquiring the non-exclusive rights to distribute TV channels was rightly characterized as business income, not Royalty, under the India-Singapore DTAA.