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TMI Blog2024 (9) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... the directions of DRP for the subject AY is bad both in law and on facts. The Ld. AO, based on surmises/ conjectures and in violation of the principles of natural justice, has grossly erred in assessing the income of TBSAP for subject AY at INR 1,51,71,99,007 as against INR 34,96,99,010 per return of income filed by the Appellant. 2. Grounds relating to taxability of distribution revenues 2.1. That on the facts and circumstances of the case and in law, the Ld. AO has grossly erred in alleging that the net distribution revenues (as received by TBSAP from Warner Media India Private Limited ('WMIPL')) of INR 1,25,00,00,000 qualify as 'Royalty' under section 9(1)(vi) of the Income Tax Act, 1961 ('the Act') and Article 12 of the India- United States of America ('USA') Double Taxation Avoidance Agreement ('the Treaty'); 2.2. That on the facts and in circumstances of the case and in law, the Ld. AO has erred in disregarding the principles arrived for in the Mutual Agreement Procedure ('MAP') resolution arrived at between the Competent Authorities of India and the USA for TBSAP for AY 2001-02 to AY 2004-05 wherein distribution revenues ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en the Appellant and WMIPL covering the subject AY wherein it has been specifically mentioned that the Appellant is the owner of the channel and no proprietary rights have been given to WMIPL. Hence, the consideration received by the Appellant in lieu of grant of distribution rights to WMIPL does not qualify as Royalty under the Treaty; 2.10. That on the facts and circumstances of the case and in law, the Ld. AO has erred in not recognizing that Explanation 6 to section 9(1)(vi) of the Act wherein transfer of process has been included under the definition of Royalty cannot apply in the instant case since similar amendment has not been made under the Treaty. 2.11. Without prejudice to the above, even where it is assumed that there is an element of copyright involved in distribution of channels, the Ld. AO has erred in disregarding that transfer of a non- exclusive, non-transferable license, merely enabling the use of a copyrighted product cannot be construed as a license to enjoy any of the enumerated rights in the Copyright Act. 1957 which has also been upheld by the Hon'ble Supreme Court of India (SC) in the case of Engineering Analysis Centre of Excellence (P.) Ltd. [2021 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Dispute Resolution Panel as well as the L.d. AO in the Appellant's own case for AY 2007-08 to AY 2017-18, facts of which are similar to the subject AY 3.7. That on the facts and in circumstances of the case and in law, with respect to the Appellant's advertisement revenue (as received by TBSAP from WMIPL), the Ld. AO has grossly erred in deviating from its consistent position per earlier years i.e. increasing the attribution from 10% to 15% on adhoc and arbitrary basis merely based on surmises/ conjectures without any cogent evidence/ reasoning for increasing the same and in complete violation of various legal principles. applicable provisions of the Treaty in this regard, 3.8. That on the facts and in circumstances of the case and in law, the Ld. AO erred in applying an ad- hoc methodology as the basis for attribution of 15% of advertisement revenue to the alleged PE in India without considering that the Function Asset and Risk (FAR) profile of the Appellant has remained unchanged as compared to earlier AYs: 3.9. That on the facts and circumstances of the case and in law, the Ld. AO has erred in disregarding the decision of Hon'ble SC in the case of Radhasoami ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d from time to time, wherein the assessee granted WarnerMedia India Private Limited the rights to sell advertising and distribution of television and interactive platforms namely Cartoon Network, Cartoon Network HD (CN HD+) and POGO, and any other television, interactive television, and/or telecommunication services for viewership in India. As per the said agreement, WarnerMedia India Private Limited is to retain 50 percent of revenues earned from sale of advertisement inventory for the channels in India and from distribution of channels in India as an Arm's Length Price consideration for services rendered to the assessee subject to an annual minimum guarantee. The assessee received following revenues from WarnerMedia India Private Limited: Particulars Amount (in INR) for F.Y relevant to A.Y 2021-22 Amount (in INR) for F.Y relevant to A.Y 2021-22 Advertisement Revenue 85,00,00,000 52,00,00,000 Distribution Revenue 125,00,00,000 78,00,00,000 3.2. The assessee filed return of income in respect of assessment years under consideration offering the above-mentioned revenues to tax on the basis of erstwhile Mutual Agreement Procedure ('MAP') resolution arrived at between the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e up before the Tribunal in Assessee's own case for Assessment Year 2009-10 to 2017-18, wherein the Coordinate Bench of the Tribunal in ITA Nos. 1343/Del/2014, 631/Del/2015, 4987/Del/2016 and 2610/Del/2017 held that distribution revenues received by the assessee from WarnerMedia India Private Limited towards granting distribution rights of its channels constitutes business income, wherein rejected the stand of the revenue to tax the same as 'Royalty' under the Act and the treaty in following manners:- "41. We have heard the rival submissions, perused the relevant finding given in the impugned orders as well as material referred to before us. The appellant-assessee is a US based Company and is tax resident of US. During the relevant assessment years, it has derived advertisement and distribution revenue from grant of exclusive rights to an Indian Company TIIPL to sale advertisement on the products and to distribute the products as incorporated above. The Indian Company has an exclusive distributor of the said products to the cable operators on principle to principle basis. The distribution agreement allowed the TIIPL to distribute the products to various cable operators and ultima ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the impugned assessment years, the said position has been digressed by the Assessing Officer without there being any material change in the facts and circumstances or the terms of agreement or the business mutual. Therefore, we are in tandem with the contention of the ld. counsel that when this fundamental aspect is permeating through different assessment years which have been accepted by the parties, then as a rule of consistency, the same position should not be altered or should be allowed to be changed. 43. Be that as may be, now we will independently analyse, whether distribution revenue on the facts of the present case can be considered as 'royalty' in terms of Article 12 of the DTAA between India and USA. Ld. Assessing Officer had applied the provision of domestic law u/s. 9(1)(vi) and held that payment received by the assessee for grant of right or license to distribute the channel in India tantamount to transfer of rights including the granting of license in of any copyright, etc. would amount to royalty. The relevant finding and observation of the Assessing Officer has already been dealt above. On perusal of the material placed on record and the facts of the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not have any kind of right to edit, interpret, add the products distributed by it. The assessee company only granted commercial rights in the nature of 'broadcast reproduction right' to the TIIPL, which has been separately defined u/s. 37 of the Copyright Act and therefore, it cannot be held that revenue derived by the assessee for distribution of products is taxable as 'royalty' albeit it is a business income of the assessee. 44. The Assessing Officer has tried to justify the tax the distribution revenue in the nature of royalty by applying the retrospective amendment made in Explanation-6 of Section 9(1)(vi) of the Act. Such an approach cannot be upheld because there is no similar amendment in the definition of royalty under the DTAA and it has been well settled by the Hon'ble Delhi High Court in the case of New Skies Satellite BV (supra), that amendment in the domestic law cannot be imported or read into DTAA. 45. The Ld. Departmental Representative has relied upon various clauses of the agreement between the Appellant Company and TIIPL to state that the content in the product was licensed to TIIPL. Accordingly, the amount received by the Appellant Comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay High Court. The crux and the core issue involved in the decision rendered by Hon'ble Bombay High Court and the impugned issue remains to be the same, i.e., whether the amounts received by a non- resident company for granting distribution rights to an Indian Company could be brought to tax as royalty or not. The Hon'ble Bombay High Court has categorically held that subscription charges received by MSM Satellite was for only viewing of the channels operated by it and it cannot be said that such revenue was for parting of any copyright. Accordingly, if the aforesaid principle of the Hon'ble Bombay High Court is to be followed, then the amount received by the appellant company from the Indian concern is to be brought to tax as Business Income. 48. Lastly, the Ld. DR has relied heavily upon the decision rendered by the Hon'ble Supreme Court in the case of Star India Private Limited v. Department of Industrial Policy and Promotions & Others. [ C.A. Nos. 7326-7327 of 2018] to contend that the distribution fees[tariff] as received by the assessee relate to "content" which is protected and covered by the Copyright Act in form of "Copyright", "Broadcast Right" and/or "Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a broadcaster there may be three different rights. First right when the broadcaster has produced the serial and second when they broadcast the serial and third again re broadcast. The Hon'ble Apex Court has concluded the same in para 64 as hereunder: "The picture that, therefore, emerges is that copyright is meant to protect the proprietary interest of the owner, which in the present case is a broadcaster, in the "work", i.e. the original work, its broadcast and/or its re- broadcast by him." 51. Consequently, even the observations of the Hon'ble Apex Court in fact supports the case of assessee and its reliance on Bombay High Court that the broadcasting right a separate right which cannot come within the purview of copyright gets fortified. Even at the cost of repetition, it is again reiterated that even as per the agreement the copyrights in the product/channel has not been transferred to the Appellant and therefore it would not fall in the first category i.e. wherein the broadcaster himself has produced the serial. 52. The Ld. DR was not correct to compare with the first example wherein the broadcaster himself has produced the serial which is not the case of the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d matters and the Hon'ble High Court of Delhi vide order dated 28/03/2024, found no justification to entertain the Appeal filed by the revenue in following manners:- 1. "The Revenue has instituted the instant appeals and has proposed the following questions of law for our consideration:- "2.1 Whether on the facts and in the circumstances of the case, the !d. ITAT has erred in holding that the distribution revenue earned by the appellant assessee cannot be taxed as royalty, as per section 9(1 )(vi) of the Act and Article 12 of the DTAA between India and the USA but as a business income? 2.2 Whether on the facts and in the circumstances of the case, the Ld. ITAT is correct in determining the income of the assessee company in the current Assessment Year by following the Income determined in resolution made under Mutual Agreement Procedure (MAP) in respect of earlier years in assessee's own case even though the resolution under MAP is limited to only those assessment years under consideration in MAP and do not apply to other assessment years in its own case even under identical facts?" 2. We however take note of our order of 14 December 2022 and which is extracted herein be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing agreed to pay 10% of advertising and subscription revenue is not disputed. As would be manifest from a reading of paragraph nos. 4 to 6 of our order dated 14 December 2022, the aforesaid practice is also stated to have been accepted by the Revenue for Assessment Years 2007-08 and 2008-09.
4. In view of the aforesaid and bearing in mind the principles of consistency, we find no justification to entertain the challenge."
8. By respectfully following the order of the Co-ordinate Bench of the Tribunal and the order of the Jurisdictional High Court (supra), we hold that the subject distribution revenue earned by the assessee cannot be taxed as Royalty albeit as a business income. Since the assessee has already offered the said income as business income in terms of MAP and the income as declared by the assessee in accordance with the MAP which has been accepted by the Department in earlier years has been accepted, we delete the additions made by the Assessing Officer for the Assessment Year 2020-21 and 2021-22.
9. In the result, Appeal in ITA No. 2432/Del/2023 and 3717/Del/2023 of the assessee are allowed.
Order pronounced in the open court on 09th September, 2024. X X X X Extracts X X X X X X X X Extracts X X X X
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