TURNER BROADCASTING SYSTEM ASIA PACIFIC, INC.,GEORGIA vs. DEPUTY COMMISSIONER OF INCOME TAX, NEW DELHI

In the case of the assessee in the earlier assessment year, the competent authority of India and USA had reached the agreement that 10% of the advertisement and subscription revenue received from the Indian sources was deemed to be net profit from the business chargeable to tax in India. In line of such an agreement the assessee in Assessment Years 2007-08 and 2008-09 had related its income on the same basis as agreed by the competent authority of both the countries. Accordingly fully disclosed its computation of income along with notice to the tax computation filed during the return of income/assessment proceedings, the same has been accepted by the Department in the assessment orders for Assessment Years 2007-08 and 631/Del/2015, 4087/Del/2016 & 2610/Del/2017 44 2009. Though assessee’s case was throughout had been that it does not have any kind of plea and the transaction with TIIPL are on principle to principle basis and even if TIIPL is an agent of independent status, then remuneration paid to TIIPL was at arm’s length, and therefore, TIIPL cannot be considered to be PE of assessee in India. It has been brought on record that in all the years and in subsequent years also Assessing Officer has held the advertisement revenue to be the business income following the MAP order. However, during 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.

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 respect 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 case it is quite evident that the appellantassessee has merely granted rights to TIIPL to ‘receive, promote, market, license, distribute and sub-distribute the products to cable, satellite, broadcast, hotel, interactive and telecommunication entities and other users”, “sell advertising” and performing ancillary activities. Clause 5 as reproduced above provides the sole ownership of the rights and the contents of the products to the assessee company and Indian Company had no right to copy, modify or alter the content therein. The definition of royalty as given in Article 12(3) which has been reproduced above, envisages that “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 cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience………………….” The Term copyright has not been defined in the DTAA albeit has been defined in Section 14 of the Copyright Act, 1957 as an exclusive right to do or authorize being of any of the acts specified in the said provision in respect of work or any substantial part thereof likewise work being defined in Section 2(y) of the said Act 631/Del/2015, 4087/Del/2016 & 2610/Del/2017 46 which is namely, literary, dramatic, musical or artistic work or a cinematograph film and a sound recording. Sub-section (1) of Section 14 of the Copyright Act, 1957 lists several Acts in respect of a work in relation to which exclusive right would be termed as copyright. Section 37 of the Copyright Act separately defines broadcast reproduction right. The Term ‘Copyright’ has defined in Section 14 and ‘broadcast reproduction right’ has been defined in Section 37 and both

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.

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 Company from TIIPL (Indian Concern) needs to be brought to tax as Royalty and not business income. However, the Ld. DR has completely ignored Clause 5 of the agreement (reproduced above). Considering the specific clause, no inference to the effect that the copyright of the content in the product has been transferred can be drawn. The clause makes it clear that the copyright in the content of the product always remains with the Appellant and is never transferred. The Appellant merely provides right to distribute the product. The ability to initiate legal action against the infringer of the copyright by TIIPL is merely a commercial term incorporated in the agreement to safeguard the interest of the appellant company which is situated in the United States. I

The Ld. DR has also relied upon the down linking guidelines to state that in order to ensure that the channels are down linked in India an application must be made to the concerned authority in India by a company located in India. The assessee company must be an exclusive distributor of the channel and should have the ability to conclude contracts in India on behalf of the channel for the programme content. TIIPL has been granted exclusive distribution rights by the Appellant Company with respect to the products (channels) in India. Surely, TIIPL can enter into an agreement with respect to the content of the programmes but this right does not allow them to take ownership of the content. The copyright within the product has always been vested with the Appellant Company. The clause must be seen from a business

Ld. DR has tried to distinguish the facts of the captioned matter from the case of MSM Satellite (Supra) and stressed heavily upon the ability of the consumer to ‘store’ and ‘interact’ with the content. However, the aforementioned factors cannot form basis for distinguishing the judgement rendered by the Hon’ble Bombay 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 nonresident 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.

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 “Rebroadcast Right”. Accordingly, the amounts received by the Appellant Company needs to be brought to tax as Royalty.

If we go through judgment, it is seen that the issue before the Hon’ble Supreme Court was, whether the TRAI only had the power to regulate the means of transmission and did not have the authority to regulate the content of the program. The Petitioners in the concerned case wanted to be covered under the Copyright Act instead of the TRAI Act. However, the Hon’ble Supreme Court had held otherwise. Further, the question and the Act that were considered in the aforesaid decision has nothing to do with levy of Income-tax and characterization of income in the Income-tax Act, 1961. Accordingly, the ratio of Star India does not have any direct application in the case at hand. The issue before the Hon’ble Apex Court was on the regulatory powers of TRAI and whether the same is inconsistent with the Copyright Act. Therefore, the legal question as well as the judgement of the Apex Court relate to a subject which is alien to the issue involved in the case at the hand. It is a settled position of law that without appreciating the ratio decidendi of the judgement i.e. the rule of law on which judgement is based, a judgment cannot be applied blindly on different set of facts. Thus, the reliance of the Ld. Departmental Representatives on the judgement of the Hon’ble Apex Court has no application in the case at hand.

However, if we read para 60 of the aforesaid decision, wherein the Hon’ble Apex Court while delivering the verdict has recognized that the broadcasting is a separate right from 631/Del/2015, 4087/Del/2016 & 2610/Del/2017 51 the Copyright. Relevant Paragraph for the sake of ready reference is reproduced hereunder:

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.

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 Appellant Company In fact the case of the Appellant is covered by the judgement of the Hon’ble Bombay High Court in the case of MSM Satellite (Singapore) Pte Ltd, (Supra) wherein the Hon’ble Bombay High Court emphatically observed that there is a difference in copyright and “broadcast reproduction rights”. The Hon’ble High Court has observed

Just by way of reference, the famous treaty of Salmond on Jurisprudence, it is explained how a legal right is created. While explaining the jurisprudence behind the concept of right, it is mentioned as hereunder:

Thus, we hold that the distribution revenue earned by the appellant-assessee cannot be taxed as royalty albeit as a business income. Since, assessee has already offered income as business income in terms of the MAP, therefore, the income as declared by the assessee in accordance with the MAP and accepted by the Department in the earlier years has to be accepted. Accordingly, the additions made by the Assessing Officer are deleted.”

It is further observed that the above order of the Tribunal dated

In the result, Appeals of the Assessee are allowed.