Receipts from transfer of distribution rights of television channels, does not amount to ‘Royalty’ under the Act
Facts of the Case:
Fox International Channels (US) Inc. (hereinafter referred to as “the Assessee”) is a non-resident company who was engaged in the business of broadcasting of its channels over various countries. The Assessee was earning revenue from India through distribution of channels for which an exclusive agent was appointed by the Assessee in India. The agent,. was appointed as taxpayer’s exclusive agent for distribution of the channels to media intermediaries’ subscribers in India. The agent contracted on behalf of the taxpayer with Star India Pvt. Ltd., (“SIPL”) for the distribution of channels
As per the agreement, SIPL was not allowed to modify or delete anything from the transmission of the channels and it had to ensure that channels are transmitted in their entirety. Further, the Assessee had also restricted SIPL and the intermediaries from modifying, replacing or copying any copyright, trademarks, trade names, logos and names.
The Assessee’s return was taken up for re-assessment proceedings wherein AO observed that the transaction with the SIPL is license fees payment and which is covered within the definition of royalty under the Income Tax Act, 1961 (the Act) as well as under Article 12 of the India-U.S. Treaty and accordingly AO treated it as ‘royalty’ income. Aggrieved by the same, the Assessee went before DRP however, DRP also sustained the findings of the AO and directed the AO to pass final re-assessment order.
Against the re-assessment order, the Assessee went before ITAT and small question that was put forth for consideration before Hon’ble ITAT was that where the agent does not have any modification right in the content, whether the receipts from the such transfer of distribution rights will be covered under definition of ‘Royalty’.
Observation And Conclusion:
Hon’ble ITAT held that:
By relying on the decision of Hon’ble Bombay High Court in the case of CIT v. MSM Satellite (Singapore) Pte. Ltd., [2019] 106 taxmann.com 353 (Bombay) and on the decision of coordinate bench of ITAT Delhi in the case of ESS Distribution (Mauritius) SNC et Compagnie v. DDIT (International Taxation) [2022] 145 taxmann.com 267 (Delhi – Trib), ITAT held that there is a clear distinction between the broadcasting reproduction rights as defined u/s 37 vis-àvis copyright as defined u/s 14 of the Copyright Act, 1957. Accordingly, the additions made by the AO are liable to be set aside.
The ITAT analysed several definitions from the Copyright Act to arrive at this conclusion. While Section 14 of the Copyright Act defines copyright to mean exclusive right to do or authorize doing of specific acts. Further, the term “work” is defined in section 2(y) to mean any of the works namely a literary, dramatic, musical, or artistic work or a cinematograph film or a sound recording. Section 14(1) of the Copyright Act lists several acts in respect of a work in relation to which exclusive right would be termed as copyright.
In the present case, the Assessee did not transfer any right to use of any copyright and there was a specific restriction imposed on SIPL and the intermediaries from modifying or deleting anything from the transmission of the channel. It was found that the copyright remained with the Assessee, and that it was not transferred either to Agent or SIPL.
SW Point of View: Where a person is granted nonexclusive distribution rights of the channels to another person and has not given any right to use or exploit any copyright, such rights are purely in nature of commercial rights which are distinct from the right to use copyright. Further, on conjoint reading of section 14 and 37 of the Copyright Act, it can be seen that broadcast reproduction right is distinct and separate from copyright. Accordingly, where there is no transfer of right to use any copyright, it cannot be categorized as ‘Royalty’ under the Income Tax Act as well as respective DTAAs, subject to the fulfilment of other conditions. However, it is interesting to understand had this case been analysed by the ITAT on such receipt being business income in the hands of Agent.
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “I”, MUMBAI ITA NO. 948/MUM/2023 (A.Y: 2015-16) Fox International Channels (US) Inc v. DCIT (Intl. Taxation)
