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Facts
The assessee provided in-flight entertainment (IFE) content to Air India. The Assessing Officer treated the fees received for this as royalty and/or fees for technical services (FTS). The assessee appealed this treatment.
Held
The Tribunal held that the payments received by the assessee were not royalty or FTS, as the assessee merely provided copyrighted content and usage rights, without transferring ownership or technical know-how. The assessee's role was limited to procuring and integrating content for screening.
Key Issues
Whether the payments received by the assessee for providing IFE content constitute royalty or fees for technical services under the Act and the India-UK DTAA.
Sections Cited
9(1)(vi), 9(1)(vii), 143(3), 144C(13), 144C(5), 270A, 234B
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “D”: NEW DELHI
Before: SHRI M. BALAGANESH & SHRI VIMAL KUMAR
O R D E R PER M. BALAGANESH, A. M.: 1. The Assessee Anuvu UK Operations Ltd (hereinafter referred to as ‘assessee) by filing the present appeal sought to set aside the impugned order dated 22.01.2025 passed by the Assessing Officer (AO) under section 143(3) r.w.s. 144C(13) of the Income Tax Act, 1961 (for short ‘the Act’) inconsonance with the order passed by the Dispute Resolution Panel (DRP)-1, New Delhi dated 04.12.2024 u/s 144C(5).
The Ground No.1 raised by the assessee was stated to be not pressed by the Learned AR at the time of hearing. Accordingly, the same is hereby dismissed as not pressed.
The only issue to be decided in this appeal is as to whether the Learned AO was justified in treating the fees for provision of content for in-flight entertainment system amounting to Rs. 2,68,43,526 as royalty under section 9(1)(vi) of the Act and under Article 13 of the India-UK Double Taxation Avoidance Agreement (DTAA). The interconnected issue involved therein is as to whether the Learned AO was justified in treating the fees for provision of content for in-flight entertainment system amounting to Rs. 2,68,43,526 could be brought to tax as fee for technical services under section 9(1)(vii) of the Act and under Article 13 of the India-UK DTAA.
We have heard the rival submissions and perused the materials available on record. At the outset, we find that the Learned AO relied on the findings given in assessee’s own case for assessment year 2021-22 and made an addition in the assessment. Even the Learned DRP followed its earlier directions given for assessment year 2021-22. Both the parties agreed that this Tribunal for assessment year 2021-22 in assessee’s own case had already decided this issue in /Del /2023 dated 3-9-2025. Since the facts are identical to assessment year 2021-22 and earlier years, we deem it fit to reproduce the relevant operative portion of the order passed by this Tribunal in assessee’s own case in for assessment year 2018-19 dated 3-9-2025 as under:-
“8. We have heard the submissions made by rival sides and have examined the orders of authorities below. In so far the activities carried out by the assessee of providing IFE content it is not in dispute. The IFE content provided by the assessee includes audio, video and some advertisement content. Before proceeding further it would be imperative to refer to the agreement entered into between the assessee and airlines (Air India Ltd.) for providing the services. The agreement dated 14.04.2016 is available at page no.209 onwards of the paper book. The covenants of Agreement (supra) relevant to decide the issue are extracted herein below: Page | 2
IFE Content and Scope of CSP's1 Work "For the purpose of providing inflight entertainment content and services to Air India, the CSP hereby agrees for the rates as set out in Schedule I of this Agreement. The estimated quantity and choice of IFE content including quantity and choice of Hollywood movies (latest and classic) will solely be the prerogative of Air India as spelt out in the tender document. In view thereof, the Parties hereby mutually agree that the Flat Rates as mentioned in Schedule I are based on flight segment estimates provided by Air India during tender and further negotiations. In the event of fluctuation in the flight segments the Parties reserve the right to re-negotiate the flat fee pricing for the remaining term. a. Management of IFE Content services for IFE systems: The CSP shall procure exhibition rights and perform various services including but not limited to encoding, duplicating, integrating and supply of IFE Content for onboard screening on all such Air India's IFE Systems as mentioned in IFSD-ENTT- CSP- 2015-01 dated 12h January 2015 during the period of this Agreement. b. The Integration of IFE Content The Parties further agree that the CSP shall at all times provide personnel to execute the integration of content for Thales IFE Systems by using Digital Content Management Station (DCMS), offered by Thales to Air India. 1. CSP: Cotent Service Provider-The assessee has been referred to CSP in the agreement. c. Supply of Valid & Licensed Video and Audio IFE Content The CSP shall supply Valid & Licensed Video and Audio IFE Content which includes selection, negotiation and contracting with distributors and other third parties, securing licensing, commission of post-production (as required from time to time) and managing the labeling and duplication of Cassettes, DVD's, VHS, Hi-8's, Encoding of Video IFE Content and relevant copyright clearance of Video and Audio titles and content for exhibition license, as well as the production of audio content in the correct format for each aircraft type/system and quality control of all content. d. CSP shall provide Copies of all IFE Content as played on the IFE System for office records in digital format, except Hollywood movies.
xxxxxxx 4. PPL/IPRS licensing Content & Licensing fess All subject IFE Content shall be offered by the CSP as governed under the Licensing of Content by PPL / IPRS. Any PPL/IPRS fees, shall be paid directly by Air India to PPL/IPRS. xxxxxxx 6. Cost and Rights Excluded If the Integration of the IFE Content is carried out by Thales at Irvine or by Panasonic at its facilities in the US then the applicable terms and conditions (including but not limited to cost for such integration for the Thales IFE / Panasonic IFE Systems) shall be as covered & governed, within the scope of applicable Media Service Agreement signed between Air India / Thales for the said Thales IFE systems and Air India / Panasonic for Panasonic IFE systems. Under the terms of this Agreement between CSP and Air India, the CSP disclaims any responsibility or liability whatsoever as may relate to Thales or Panasonic's acts/omission and performance relating to the IFE Content under the direct arrangement between Air India/Thales or Air India/Panasonic, whether in US- based facilities or elsewhere in the world. Both Thales and Panasonic will remain responsible to obtain any right, licenses, authorizations and clearance for their performance of obligations under the applicable and direct arrangement between the hardware vendor and Air India. xxxxxxx 16.2 Security of Media Air India shall use adequate precautions to protect and secure all media in its custody. Air India shall not permit the copyrights of any Audio, Pictures of Programmes to be infringed Air India shall not use or permit the use of any media supplied by CSP for any purpose other than for exhibition on Air India's aircraft. Air India shall not mortgage, pledge, hypothecate or obtain ownership of any video cassettes or digital files supplied by or through CSP hereunder. 16.3 Performance rights, Airline-provided Materials; Infringement Indemnification -Air India shall be solely and directly responsible for negotiating and paying, to the applicable licensing party for all relevant countries for all public performance royalties, mechanical rights and connected royalties pertaining to musical compositions and audiovisual works.
Unless otherwise explicitly agreed, the licenses that CSP obtains whilst providing IFE content to Air India is related to exhibition of Films/TV short programs only and not for the audio tracks or underlying works contained therein. During the term of this Agreement, should Air India directly source any IFE content, then Air India remains responsible to obtain and clear all related permissions, clearance, authorizations and licenses, and Air India grants CSP the right and license to process, integrate and distribute such IFE Content to Air India as part of the deliverables. All intellectual property Rights in such IFE content shall remain vested in Air India its licensors and suppliers, as applicable." A perusal of the agreement reveals that the assessee is required to provide IFE content and services to Air India Ltd. that includes Hollywood movies, Indian movies, Indian regional movies, International and Indian music videos, documentaries, reality shows, , etc. as per the choice and prerogative of Air India Ltd. The responsibility of procuring exhibiting rights of the content is on the assessee. Further, for screening of content in aircrafts, the assessee was required to perform the process of encoding, duplicating, integrating with IFE system. The license fee for exhibiting contents i.e. audio/video on IFE is to be paid by Air India directly to the concerned agencies. As per clause 6 of the agreement, Air India Ltd. has entered into a separate triparty agreement with the assessee and Thales/Panasonic for integration of content for screening on IFE system.
9. For integration of content with hardware used in aircraft, the assessee utilized the services of 3rd party viz. Thales or Panasonic. The final product that emerges after compilation encoding and integration of audios/videos and advertisement as per the requirements of airlines was a copyrighted product of the assessee which is exhibited on IFE systems of the aircrafts operated by Air India Ltd. As per the agreement assessee did not transfer any rights in the copyrighted product but only permitted use of the copyrighted product.
The airlines would screen the content provided by the assessee during currency of agreement. At no point of time ownership in the content is transferred to Air India Ltd. Or the knowhow to develop such product was transferred to Air India Ltd. by the assessee.
Royalty has been defined under Article 13(3) of India-UK DTAA as under:- "3. For the purposes of this Article, the term "royalties" means: (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic." A bare perusal of the definition of royalty as defined under DTAA would show that consideration for use of or right to use any secret formula or process amounts to payment of royalty. The Assessing Officer has placed heavy reliance on the definition of royalty as defined u/s. 9(i)(vi) of the Act and Explanation 6 thereof. The definition of royalty under the provisions of the Act is very broad and inclusive. Explanation 6 to section 9(1) (vi) inserted by Finance Act, 2012 has further enlarged the scope of definition of royalty and has done away with the concept of secret process. Whereas, Article 13 defines royalty narrowly Amendment to the definition of royalty as defined under section 9(1)(vi) of the Act by the Finance Act, 2012 does not impact the definition of royalty as defined in Article 13 of India-UK DTAA. Therefore, in terms of provisions of section 90(2) of the Act, the provisions which are more beneficial i.e. provisions of Act or DTAA, shall apply. Once it is accepted by the Revenue that assessee is eligible for India- UK DTAA benefit, the definition of royalty as per Article 13(3) of the DTAA would prevail as it is more beneficial to the assessee.
IFE System stream audio/video content viz. movies, songs, TV serial episodes, games, etc. that are licensed. The copyrights in the aforesaid contents are not transferred to the airlines. The owners of the license holders merely grant access or usage rights to stream the content. The assessee's role is limited to procure exhibition rights and perform the process of encoding, integrating etc. so that the content is available for screening on IFE system. Even the process of integration is carried out by third party for which airlines have entered into separate contract. The assessee is merely providing copyrighted content. Hence, the payments received by the assessee for performing the task of procuring processing of content for screening the same on IFE system of airlines does not fall within the meaning of royalty as defined in Article 13(2) of India-UK DTAA.
As regards alternate argument of the DR, we are of considered view that the Hon'ble Supreme Court of India in the case of Engineering Analysis Centre of Excellence (P) Ltd. vs. CIT (supra) in an unambiguous manner has held that payments received for mere for access or use of software, even if licensed does not amount to royalty under DTAA. The payments are made by airlines to the assessee who is providing a software that enables IFE system to screen the contents only. There is no transfer of reproduction or distribution of rights, the payment made for such software does not fall within the meaning of royalty under DTAA. For the aforesaid reasons, we find merit in ground no. 2 of appeal, hence, the same is allowed.
In ground no. 3 of appeal, the assessee has assailed payment received for provision of content as FTS. Article 13(4)(c) provides for "make available" condition. In the present case, the Revenue has not been able to show transfer of any knowhow or technical knowledge by the assessee to the Air India Ltd. Hence, the receipts by the assessee for providing IFE content does not fall within the definition of FTS either. Hence, the addition made by AO on account of FTS is unsustainable. The assessee succeeds and ground no. 3 of appeal as well.”
Similar order was passed for assessment years 2019-20, 2020-21 and 2021-22 by this Tribunal by the consolidated order dated 3-9-2025 wherein they have just relied on the findings given for assessment year 2018-19 reproduced supra.
Since the issue is covered by the decision of this Tribunal in assessee’s own case referred supra, the Ground Nos. 2 and 3 raised by the assessee are hereby allowed for assessment year 2021-22.
The Ground No. 4 is challenging the levy of interest under section 234 B of the Act which would be consequential in nature.
The Ground No. 5 raised by the assesse is challenging the initiation of penalty proceedings under section 270A of the Act which would have no legs to stand in the light of our aforesaid decision in Ground Nos. 2 and 3.
In the result, the appeal of the assessee is allowed.