2019 (4) TMI 1621 - HC - Income Tax

Court dismisses income tax appeals, rules distribution revenues not taxable in India, upholds ITAT decision

Commissioner of Income Tax (IT) 3 Versus M/s MSM Satellite (Singapore) Pte. Ltd.

The court dismissed the income tax appeals, affirming that the advertisement and distribution revenues were not taxable in India due to the absence of a ... Income by way of royalty - broadcast reproduction right - DTAA with Singapore - addition of income as per rule 10A on account of “Advertisement Revenue” and “Distribution revenue” - PE in India - HELD THAT:- Only if the payment in the present case by way of a royalty as explained in explanation (2) below subsection (1) of Section 9 of the Act, the question of applicability of clause (vi) of subsection (1) of Section 9 would arise. Revenue placed considerable tress on clause (v) of explanation (2) by virtue of which the transfer of the rights in respect of copyright of a literary, artistic or scientific wok including cinematograph film or films or tape used for radio or television broadcasting etc. would come within the fold of royalty for the purpose of Section 9(1) of the Act. We do not see how the payment in the present case could be covered within the said expressions. As noted, this is not a case where payment of any copyright in literary, artistic or scientific work was being made. We may also notice that India Singapore Double Taxation Avoidance Agreement contains Article 12 pertaining to royalty and fees for technical service. Even going by this definition, the payment in question can not be categorized as royalty. Issues Involved:1. Addition of income as per rule 10A on account of 'Advertisement Revenue' and 'Distribution Revenue' due to the assessee's Permanent Establishment (PE) in India.2. Classification of Multi Screen Media Pvt. Ltd. (MSM India) as a Permanent Establishment of the assessee under Article 5 of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore.3. Assessment of distribution receipts as 'Royalty Income' by the assessing officer.Issue-wise Detailed Analysis:1. Addition of Income on Account of 'Advertisement Revenue' and 'Distribution Revenue':The revenue challenged the judgment of the Income Tax Appellate Tribunal (ITAT), asserting that the assessee, a Singapore-based company engaged in telecasting channels in India, has a Permanent Establishment (PE) in India. Consequently, the revenue sought to tax the advertisement and distribution revenues generated by the assessee in India. The court noted that this issue had previously been resolved in favor of the assessee in the case of Set Satellite (Singapore) Private Limited Vs. Deputy Director of Income Tax 307 ITR 205, where it was determined that advertisement revenue received by the assessee was not taxable in India as long as the treaty and relevant Circular stood. Given this precedent, the court concluded that question (a) did not need to be entertained.2. Classification of MSM India as a Permanent Establishment:The revenue argued that MSM India should be treated as a Permanent Establishment of the assessee under Article 5 of the DTAA between India and Singapore. However, the ITAT had previously determined that even if MSM India were considered a Permanent Establishment, the assessee would still have no tax liability in India. As a result, the court deemed question (b) to be academic and unnecessary to address.3. Assessment of Distribution Receipts as 'Royalty Income':The revenue contended that the distribution receipts should be classified as 'Royalty Income.' The ITAT, referencing earlier assessment proceedings, concluded that the payment of distribution charges could not be termed as payment for copyright but rather as business income. This conclusion was based on past decisions where the Tribunal had consistently ruled in favor of the assessee, affirming that broadcasting reproduction rights do not fall under the definition of 'Royalty' as per Section 9(1)(vi) of the Income Tax Act and Article 12 of the DTAA. The court upheld this interpretation, emphasizing that the payments were for commercial rights and not for the use of any copyright, thereby not qualifying as royalty payments.Conclusion:The court dismissed the income tax appeals, affirming the ITAT's judgment that the advertisement and distribution revenues were not taxable in India due to the absence of a Permanent Establishment. Additionally, the distribution receipts were correctly classified as business income rather than royalty income. The court found no reason to interfere with the ITAT's decision, thereby upholding the assessee's position on all counts.