Exclusive distribution receipts held taxable as business income, not royalty, where no copyright or copyright-use rights were transferred.

Exclusive distribution receipts received by a non-resident for granting Indian distribution rights were held not to be royalty because the agreement did not transfer copyright or any right to use copyright. The assessee retained ownership of the content and copyright, while the Indian distributor was only authorised to receive, promote, market, distribute and sub-distribute the channel products. The receipts were therefore treated as business income, supported by earlier co-ordinate bench and High Court guidance on subscription and distribution income, and by consistent treatment under the mutual agreement procedure in prior years. The additions made by the Assessing Officer were deleted.

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Issues: Whether the distribution revenue received by the non-resident assessee from grant of exclusive distribution rights to the Indian company was taxable as royalty or as business income.

Analysis: The distribution agreement showed that the assessee retained ownership of the content and copyright in the products, while the Indian entity was only given rights to receive, promote, market, distribute and sub-distribute the channel products. Copyright and broadcast reproduction right were treated as distinct legal rights under the Copyright Act, 1957, and the agreement did not transfer any copyright or any right to use copyright to the distributor. The controversy was also covered by earlier co-ordinate bench and High Court guidance holding that subscription and distribution receipts for channel access do not amount to royalty. The assessee had further disclosed and returned income on the basis of the mutual agreement procedure accepted in earlier years, reinforcing the consistency of treatment.

Conclusion: The distribution receipts were not taxable as royalty and were to be assessed as business income. The additions made by the Assessing Officer were deleted, and the assessee succeeded.

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