WARNER BROS. DISTRIBUTING INC.,MUMBAI vs. ACIT (IT) 4(3)(2), MUMBAI

This appeal is filed by the assessee against order of Learned Commissioner of Income Tax (DRP-2), Mumbai-3 [hereinafter in short “Ld.DRP”] dated 31.01.2022 for the A.Y. 2020-21 passed u/s. 144C(5) of Income-tax Act, 1961 (in short “Act”).

Assessee, Warner Bros. Distributing Inc., is a non-resident corporate entity incorporated in the United States of America. Its activities, inter alia, include, export of films from USA, produced either by its group studios or produced by other third parties. Warner Bros Pictures International, a Division of Warner Bros Distributing Inc. (WBDI) has entered into an agreement with Warner Bros Pictures (India) Pvt. Ltd. ('WBPIPL') in April 01, 2009 granting exclusive rights of distribution of cinematographic film to WBPIPL, on payment of specified royalty in terms of the above referred Agreement. During the year under consideration the assessee has received ₹.42,59,04,410/- from WBPIPL under the terms of agreement, which has been characterized as 'Royalty Income' by the assessee and claimed exempt under the Act and the India-USA DTAA, both. The income was claimed to be non-taxable as Royalty income by 3 (A.Y. 2018-19) Warner Bros. Distributing Inc. the assessee on the basis of the exception provided in Explanation 2 to Section 9(1)(vi) of the Act. The assessee has claimed refund of ₹.4,94,12,330/-, comprising of TDS, also. However, the Assessing Officer has held the royalty income received in India as taxable u/s 5(2) of the Act and alternatively taxable as Royalty Income under Section 9(1)(i) of the Act and Article 12(3) of the India-USA DTAA as well. The Assessing Officer has issued the Draft Order dated 01.04.2021 u/s 144C(1) of the Act and proposed an assessment of the income at ₹.28,35,05,640/- wherein he has considered an amount of ₹.27,68,37,866/- i.e. 65% of Gross Receipts / Royalty Receipts of ₹.42,59,04,410/- relating to distribution of films in India, as business income of the assessee.

Aggrieved, the assessee raised objections before Ld. DRP, inter-alia, by drawing attention to the fact that this issue was covered by the orders of Tribunal’s in assessee’s own case in earlier years. However, it was observed that the proceedings before Ld. DRP were continuation of assessment proceedings only and DRP was not an appellate authority and therefore, since the department was under appeal in earlier years before Hon’ble Bombay High Court, the view of Assessing Officer was to be upheld. Resultantly, final assessment order was passed on 28.02.2022, ₹.28.35 Crores. Aggrieved, the assessee is under appeal before us.

During hearing before us, it is submitted that the issue under appeal is squarely stood covered in assessee’s favour by various decisions of this Tribunal right from A.Y. 2006-07 to 2017-18, copies of orders has been placed on record.

The lead order of the Tribunal is for the A.Y. 2006-07 in ITA.No.

Ld. DR fairly agreed that the issue is covered in favour of the assessee.

Considered the rival submissions and material placed on record, it is an admitted position that issue stood squarely covered in assessee’s favour by the lead decision of this Tribunal in assessee’s own case for the A.Y. 2006-07 in ITA.No. 3160/Mum/2010 dated 30.12.2011, wherein it is held as under: - “9) We have considered the rival contentions and examined the facts on record. There is no dispute with reference to the fact that the assessee has entered into agreement with Warner Brothers Pictures India (P) Ltd outside India and the amounts were also received outside India. There is also no dispute with reference to the fact that the definition of royalty under section 9(1)(vi) Explanation 2 to (v) excludes the payment received with reference to sale, distribution and exhibition of cinematographic films. There is also no dispute with reference to the provisions of DTAA entered into by India with USA, notified on 20th December, 1990, that the term royalty used in the Article 12 does not include payment of any gain received as consideration for the use of any copyright or literary, artistic or scientific work including cinematographic films or work on films, tape or other means of production for use in connection with Radio or T.V. broadcasting. In view of this specific provisions, the amount received by the assessee cannot be considered as royalty as was done by the Assessing Officer while invoking the Article 12(2) of the DTAA for taxing the amounts. To that extent the findings of the CIT (A) are correct and there is no need to deviate from such findings. In view of this the amount received by the assessee cannot be considered as royalty within the meaning of Indian Income Tax Act or under the DTAA. 10) The issue can be examined in another dimension whether the amount is taxable under the Indian Income Tax Act in India if not as royalty, but as business income. The CIT (A) finding is that assessee has a business connection in India. However, he considered that there is no PE to the assessee, the fact of which was also accepted by the Assessing Officer as he has invoked only Article 12(2) and not considered the amounts business income as per PE proviso. It was the contention of the learned Departmental Representative that the assessee having business connection, the findings of which was given by the CIT (A), the amount cannot be excluded without examining ‘PE proviso’ provisions of the DTAA. In this regard the learned Counsel’s submission that under the Income Tax Act as well

The above decision rendered in A.Y. 2006-07 has subsequently been followed by various co-ordinate benches of the Tribunal in assessee’s own case in subsequent years as tabulated above. Further, it is quite evident that Ld. DRP has dismissed assessee’s objections only in view of the fact that the department, in earlier years, was in further appeal before Hon’ble

In the result, appeal filed by the assessee is allowed.