Broadcasting reproduction rights are not royalty; no PE attribution where income was already taxed in India.

A distribution right over channel content that permits retransmission subject to restrictions on alteration does not amount to a transfer of copyright; it is only a broadcasting reproduction right, so the subscription/distribution revenue was not taxable as royalty under section 9(1)(vi) or the treaty provision. Where the revenue was received and offered to tax by the Indian entity, and no part accrued to or was received by the non-resident assessee, no notional attribution could be made on permanent establishment principles. The additions were therefore deleted.

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Issues: (i) Whether the subscription/distribution revenue from the channel distribution arrangement was taxable as royalty; (ii) Whether any amount could be attributed to the assessee on the basis of a permanent establishment in India.

Issue (i): Whether the subscription/distribution revenue from the channel distribution arrangement was taxable as royalty.

Analysis: The assessee did not own the copyright in the channel content. The distribution agreements only permitted distribution and retransmission subject to restrictions on altering, modifying, or editing the content. On those facts, what was transferred was a broadcasting reproduction right, which is distinct from copyright under the Copyright Act. Such a commercial distribution right does not amount to use of, or right to use, copyright for the purposes of royalty under Section 9(1)(vi) of the Income-tax Act, 1961 or the treaty provision.

Conclusion: The revenue was not taxable as royalty and the addition on that basis was not sustainable.

Issue (ii): Whether any amount could be attributed to the assessee on the basis of a permanent establishment in India.

Analysis: For one year, no allegation of permanent establishment had been made, and for the later years the entire distribution revenue was received and offered to tax by the Indian entity. Since no part of that revenue accrued to or was received by the assessee, no notional attribution could be made merely on the basis of a PE allegation. The PE controversy was also rendered academic where the income had already been taxed in the hands of the Indian entity.

Conclusion: No income could be attributed to the assessee on PE principles.

Final Conclusion: The additions made by the tax authorities were deleted and the appeals were allowed.

Ratio Decidendi: A distribution right that conveys only broadcasting reproduction rights, and not copyright, is not royalty, and income cannot be notionally attributed to a non-resident where the entire revenue has already been earned and taxed in India in the hands of the Indian entity.

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