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2022 (3) TMI 68 - AT - Income TaxIncome accrued in India - subscription/distribution revenue derived by the assessee as assessable to tax as royalty - as per AO assessee had granted various rights relating to its products including the right to sub-license. The Assessing Officer further observed that in allowing TIIPL to sub-distribute the encrypted television signals for commercial exploitation, the assessee has granted the right to communicate the work to public which is defined u/s. 2(ff) of the Copyright Act, 1957 - HELD THAT - A careful perusal of the clause by clause comparison shows that the terms and clauses are pari materia same except the difference in channels that have been distributed. A similar comparison of the assessment order in the case of TBSAP 2020 (10) TMI 245 - ITAT DELHI and the assessee has been furnished by the assessee. A perusal of the same shows that the wordings and findings are identical. Tribunal at Bombay in the case of MSM Satellite (Singapore) Pte Limited 2015 (9) TMI 793 - ITAT MUMBAI had the occasion to consider a similar quarrel in respect of subscription charges collected by MSM which were taxed as royalty for use of copyright and the co-ordinate bench held that the amount received by the Singaporean company cannot be brought to tax in India as royalty and the same is in the nature of business income.This decision has been approved by the Hon'ble High Court of Bombay 2019 (4) TMI 1621 - BOMBAY HIGH COURT as emphatically observed that there is difference in copyright and broadcast reproduction right As per Circular No. 6/2001, it has been clarified that subscription charges receivable for Foreign Telecasting Companies (FTCs) shall continue to be taxed in accordance with guidelines prescribed for advertisement revenue, i.e. as business income. - Decided in favour of assessee.
Issues Involved:
1. Reopening of the assessment. 2. Classification of subscription/distribution revenue as royalty or business income. 3. Consistency in the treatment of income in line with previous assessments and MAP agreements. 4. Application of domestic law amendments to DTAA. Issue-wise Detailed Analysis: 1. Reopening of the Assessment: In ITA No. 2921/DEL/2014 for Assessment Year 2004-05, the assessee challenged the reopening of the assessment. However, during the hearing, the counsel for the assessee stated that this ground was not being pressed. Consequently, the challenge to the reopening of the assessment was dismissed as not pressed. 2. Classification of Subscription/Distribution Revenue: The primary issue was whether the subscription/distribution revenue should be classified as royalty or business income. The Assessing Officer treated the revenue as royalty, citing that the assessee had granted rights to communicate the work to the public under the Copyright Act, 1957. However, the Tribunal found that the assessee merely granted distribution rights without transferring the copyright. The Tribunal referenced the case of Turner Broadcasting System Asia Pacific, Inc. (TBSAP) vs. DDIT, where similar facts were present, and it was held that the revenue was business income, not royalty. The Tribunal also cited the decision in MSM Satellite (Singapore) Pte Limited, where the Bombay High Court differentiated between copyright and broadcast reproduction rights, ruling that subscription charges were business income. 3. Consistency in Treatment of Income: The Tribunal emphasized the importance of consistency in tax treatment. In previous years, following a Mutual Agreement Procedure (MAP) between India and the USA, 10% of the advertising and subscription revenue was deemed to be net profit chargeable to tax in India. This position was accepted by the Department in earlier assessments. The Tribunal held that this consistent treatment should not be altered without any material change in facts or circumstances. 4. Application of Domestic Law Amendments to DTAA: The Assessing Officer applied the retrospective amendment in Explanation-6 of Section 9(1)(vi) of the Income-tax Act to classify the revenue as royalty. However, the Tribunal noted that amendments in domestic law could not be imported into the DTAA. The Tribunal referenced the Delhi High Court's decision in New Skies Satellite BV, which held that domestic law amendments could not alter the DTAA provisions. Conclusion: The Tribunal concluded that the subscription/distribution revenue earned by the assessee could not be taxed as royalty but as business income. The Tribunal followed the decision of the co-ordinate bench in the case of TBSAP, finding the facts of the present appeals identical. Consequently, the income declared by the assessee in accordance with the MAP and accepted by the Department in earlier years was upheld. All the appeals of the assessee were allowed. Judgment: - ITA No. 6565/DEL/2016 [A.Y 2008-09] Allowed - ITA No. 2921/DEL/2014 [A.Y 2004-05] Allowed - ITA No. 2922/DEL/2014 [A.Y 2009-10] Allowed - ITA No. 1112/DEL/2015 [A.Y 2010-11] Allowed - ITA No. 310/DEL/2016 [A.Y 2011-12] Allowed - ITA No. 6269/DEL/2016 [A.Y 2013-14] Allowed - ITA No. 6209/DEL/2017 [A.Y 2014-15] Allowed
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