2024 (10) TMI 427 - HC - Income Tax

Delhi HC quashes section 147 reassessment proceedings on live feed royalty taxation citing Fox Network precedent

Trans World International LLC Twi Versus Deputy Commissioner of Income-Tax (International Tax)

Delhi HC quashed reassessment proceedings under section 147 regarding taxability of live feed as royalty. The court found no justification for continuing ... Validity of reopening of assessment u/s 147 - taxability of 'live feed' and its asserted tax ability as royalty - bifurcation of licence fee between live feed and recorded content - revenue received by the petitioner from an Indian payer had not been subjected to deduction of tax at source even though the consideration received was income chargeable to tax in India - HELD THAT:- In view of the above position in law as enunciated in CIT (International Taxation) v. Fox Network Group Singapore Pte. Ltd. [2024 (1) TMI 1008 - DELHI HIGH COURT] we find no justification to recognize a right inhering in the respondents to continue the impugned reassessment action. The view taken by the AO that there was no basis for the bifurcation of the revenue in the ratio of 95 per cent. and five per cent. is clearly rendered perverse in the light of the stipulations contained in the agreement and which has been extracted hereinabove. We accordingly allow the instant writ petitions and quash the order under section 148A(d). Issues Involved:1. Legality of the reassessment proceedings initiated under section 148A of the Income-tax Act, 1961.2. Taxability of income derived from 'live feed' under the ambit of royalty.3. Validity of the bifurcation of license fees between live and recorded content.4. Applicability of Double Taxation Avoidance Agreement (DTAA) provisions.Detailed Analysis:1. Legality of the Reassessment Proceedings:The reassessment proceedings were initiated under section 148A(b) of the Income-tax Act, 1961, with the issuance of a notice on March 31, 2022, followed by an order under section 148A(d) and a consequential notice under section 148 dated May 26, 2022. The respondent alleged that the revenue received by the petitioner from an Indian payer had not been subjected to deduction of tax at source, which led to the assertion that income chargeable to tax in India had escaped assessment. The court found that the basis of the reassessment proceedings was flawed, as the taxability of the income in question was already settled in previous judgments, and thus, the reassessment action was deemed unjustified.2. Taxability of Income Derived from 'Live Feed':The court addressed the issue of whether income derived from the transmission of 'live feed' falls within the ambit of royalty. Referring to the decision in CIT (International Taxation) v. Fox Network Group Singapore Pte. Ltd., the court noted that live telecasts do not constitute a 'work' under the Copyright Act, 1957, and thus, income from live feed does not qualify as royalty. The court emphasized that the live broadcast does not have a copyright, and the revenue from live feed cannot be taxed as royalty under section 9(1)(vi) of the Income-tax Act.3. Validity of the Bifurcation of License Fees:The bifurcation of the license fee between live feed and recorded content was a significant point of contention. The agreement specified that 95% of the license fee was attributable to live transmissions and 5% to non-live programming. The court found this bifurcation to be substantiated and not arbitrary, as it was explicitly stated in the agreement. The respondent's claim that there was no basis for this bifurcation was deemed perverse, given the clear stipulations in the agreement.4. Applicability of Double Taxation Avoidance Agreement (DTAA) Provisions:The petitioner contended that the income should be considered under the DTAA provisions, which would override the domestic tax laws. The court recognized the primacy of DTAA provisions over domestic statutes, as previously established in DIT v. New Skies Satellite BV. The petitioner's failure to substantiate its tax residency and eligibility for DTAA benefits was noted; however, the court did not find this sufficient to uphold the reassessment proceedings, given the overarching legal precedent favoring DTAA provisions.Conclusion:The court allowed the writ petitions, quashing the orders under section 148A(d) and the notices under section 148 for the assessment years in question. The reassessment actions were found to lack justification, particularly in light of the established legal principles regarding the taxability of live feed income and the substantiated bifurcation of license fees. The court's decision underscored the importance of adhering to legal precedents and the terms of contractual agreements in tax assessments.