ANUVU UK OPERATIONS LTD (ERSTWHILE KNOWN AS GLOBAL EAGLE ENTERTAINMENT LIMITED),LONDON vs. ACIT, INT. TAX. 1(3)(1), NEW DELHI

Shri Ravi Sharma, appearing on behalf of the assessee submitted that in so far as assessee’s eligibility to claim benefit under India-UK DTAA there is no dispute. It is an accepted position that the assessee has no Permanent Establishment (PE) in India. Explaining nature of activities carried out by the assessee, the ld. Counsel submitted that the asseseee is a content service provider for in-flight entertainment systems to various airlines including Air India Ltd. and Jet Airways (India) Ltd., in India. The assessee entered into an agreement for providing the service to Air India Ltd. on 14.04.2016 w.e.f 01.06.2015 copy of agreement is at page 209 to 230 of the paper book. He fairly stated that in the past, the assessee has been offering to tax entire amount as royalty. As per the said agreement, the assessee was required to supply licensed video and audio in- flight entertainment content which includes Hollywood movies, Hindi movies, Indian regional movies, International and Indian comedy, International and Indian music videos, Indian and International wild life documentaries, realities shows, fashion, sports, lifestyle, business, science and technology contents, talk shows, concerts, etc. The assessee compiles the content for in-flight entertainment systems in accordance with the requirement of airlines and integrates the same in the hardware of airlines with the assistance of third party facility. The responsibility of collecting licensed audio/video content as per the requirement of airlines is on the assessee. Apart from above, the assessee also procures and insert advertisement, sponsorships in the IFE content as per the specifications and requirements of IFE system which is subject to the approval of airlines (Air India Ltd.). Air India Ltd. reserves absolute right and discretion to reject any particular advertisement sourced by the assessee. The assessee incurs the cost of encoding and coding, integration, etc. of the advertising and sponsorship material. The assessee compiles entire content for IFE as per the requirement of the airlines, the entire content is programmed in to a final product by the assessee. After assimilation and encoding of the media content, the assessee forwards the entire content to 3rd party like Thales or Panasonic for content integration and to make it compatible with the hardware systems of the aircrafts, so that the content can be watched when the aircraft is air borne.

The ld. Counsel for the assessee submitted that the AO has erred in coming to the conclusion that the payments received by the assessee from airlines for providing content for in-flight entertainment system to Air India Ltd. and Jet Airways (India) Ltd. is in nature of royalty as the process of obtaining, encoding the media content into a compilation results into a new product developed by the assessee for the use of which, charges received by the assessee are in the nature of royalty under the Act as well as the India-UK DTAA. The AO fails to appreciate the fact that as per the agreement between the assessee and airlines the copyrights are intact with the assessee and what has been transferred is only a limited exhibition rights which are non transferable and non exclusive rights to be used during the flight only. Further, the exhibition rights granted to the airlines would terminate with the end of agreement. The agreement is only for the supply of content which are copyrighted product. No copyrights are transferred, therefore, the payment does not fall within the definition of royalty as per DTAA. 5.1. The ld. Counsel pointed that the AO has taxed the receipts as royalty while placing heavy reliance on the amendment made by the Finance Act 2012, inserting Explanation 6 that dilutes the concept of use of secret process.

Per contra, Ms. Anjula Jain, representing the department vehemently defended the impugned order and prayed for dismissing appeal of the assessee. The ld. DR submitted that the process of obtaining, encoding, testing and integrating of in-flight entertainment content is a complex and specialized process. Though as per the agreement it is only the content which has been licensed but in essence the content cannot be used without further processing and making it compatible with components/hardware. The content is integrated with the hardware installed in the aircrafts. The process of obtaining, copyrighted content and converting it into IFE system compatible content by encoding by using software, hardware etc., gives rise to a new product which is not independently available in open domain or one size fit for all product. Collection of content and encoding is a ‘process’. Payment for providing/supply of a product after processing falls under the definition of royalty. Accordingly, the receipt for supply of such programs fall within the definition of royalty under the Act, as well as, DTAA. The ld. DR made an alternate argument that the assessee has given right to the airlines for use of product. For granting right to use the product for a limited period, the payment is in the nature of royalty.

Rebutting the alternate plea raised by the DR, the ld. Counsel for assessee submitted that the assessee had provided a copyrighted product for the end user i.e. the airlines for a limited period. The assessee has not granted any right to the airlines to commercially exploit it. The case of the assessee is squarely covered by the decision rendered in the case of Engineering Analysis Centre of Excellence (P) Ltd. vs. CIT 125 taxmann.com 42(SC).

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:

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.

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.

In ground no. 4 of appeal, the assessee has assailed charging of interest u/s. 234A, 234B, 234D of the Act. Charging of interest under aforesaid sections is mandatory and consequential. Hence, ground no. 4 of appeal is dismissed.

In ground no. 5 of appeal, the assessee has assailed levy of penalty u/s. 270A of the Act. Challenge to penalty proceedings at this stage is premature. Hence, ground no. 5 of appeal is dismissed.

In the result, appeal of the assessee is partly allowed.

Both sides heard, orders of the authorities below examined. It is an admitted that in these appeals facts and the issues are identical to that of (supra). Thus, the findings given by us while adjudicating the aforesaid appeal would mutatis mutandis apply to both these appeals as well. For parity of reasons, both the appeals are partly allowed. ITA No.3338/Del/2023 for AY 2021-22 20. This appeal by the assessee is directed against assessment order dated 26.09.2023 u/s. 143(3) r.w.s 144C(13) of the Act.

The assessee in appeal has raised as many as eight grounds. The ld. Counsel for the assessee made statement at Bar that he is not pressing ground no. 1 and 2 of appeal.

The assessee in ground of appeal no.3 & 4 has assailed the Assessment Order treating in fee for provision of content for in-flight entertainment system as royalty under section 9(i)(vi) of the Act and also as per Article 13 of India-UK DTAA and in ground no. 4 of appeal, the assessee has assailed treating fee for provision of in-flight entertainment system as fee for FTS. Both these issues are identical to the one raised in ground no. 2 & 3 in AY 2018-19. The findings given by us on both the issues in AY 2018-19 would mutatis mutandis apply to ground no. 3 & 4 of the instant appeal. For parity of reasons, ground no. 3 & 4 of instant appeal are allowed.

The ld. DR fairly stated that the primary issue raised in this appeal in ground no. 3 & 4 of appeal are identical to the issues for which submissions have been made in for AY 2018-19. Hence, the submissions already made would equally hold good for instant appeal.

Both sides heard, orders of the authorities below examined. In light of the statement made by ld. Counsel for the assessee. The ground no. 1 and 2 of appeal are dismissed as not pressed.

The issue raised in ground no. 3 and 4 of appeal is with respect to treating fees for provision of content for in-flight entertainment system as royalty/FTS. The issues are similar to the one adjudicated by us in appeal of the assessee in AY 2018-19 (supra). Hence, the findings given while adjudicating the issue in said appeal would mutatis mutandis apply to ground no. 3 & 4 of appeal. For parity of reasons ground no. 3 & 4 of appeal are allowed.

Since, we have allowed ground no. 3 & 4 of appeal, the ground no. 5 of appeal assailing rate of tax becomes infructuous, hence, and the same is dismissed as such.

Charging of interest u/s. 234A and 234B of the Act is mandatory and consequential. Hence, ground no. 6 & 7 of appeal are dismissed.

Challenge to penalty proceedings u/s. 270A of the Act at this stage is premature. Hence, ground no. 8 of appeal is dismissed.

In the result, appeal of the assessee is partly allowed.

To sum up, appeals of the assessee in & 1878/DEL/2022(A.Y. 2018-19 & 2019-20), & 3338/DEL/2023 (A.Y. 2020-21 & 2021-22) are partly allowed. Order pronounced in the open court on Wednesday the 3rd day of September, 2025. Sd/- Sd/- (NAVEEN CHANDRA) (VIKAS AWASTHY) लेखाकार सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER िद�ी/Delhi, �दनांक/Dated 03/09/2025 NV/- �ितिलिप अ�ेिषतCopy of the Order forwarded to : अपीलाथ�/The Appellant , 1. 2. �ितवादी/ The Respondent. 3. The PCIT/CIT(A) िवभागीय �ितिनिध, आय.अपी.अिध., िद�ी /DR, ITAT, िद�ी 4. गाड� फाइल/Guard file. 5.