TaxTMI 
TaxTMI 
2024 (9) TMI 640
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd in law, the assessment order passed by the Ld. AO in line with the directions of DRP for the subject AY is bad both in law and on facts. The Ld. AO, based on surmises/ conjectures and in violation of the principles of natural justice, has grossly erred in assessing the income of TBSAP for subject AY at INR 1,51,71,99,007 as against INR 34,96,99,010 per return of income filed by the Appellant. 2. Grounds relating to taxability of distribution revenues 2.1. That on the facts and circumstances of the case and in law, the Ld. AO has grossly erred in alleging that the net distribution revenues (as received by TBSAP from Warner Media India Private Limited ('WMIPL')) of INR 1,25,00,00,000 qualify as 'Royalty' under section 9(1)(vi) of the Income Tax Act, 1961 ('the Act') and Article 12 of the India- United States of America ('USA') Double Taxation Avoidance Agreement ('the Treaty'); 2.2. That on the facts and in circumstances of the case and in law, the Ld. AO has erred in disregarding the principles arrived for in the Mutual Agreement Procedure ('MAP') resolution arrived at between the Competent Authorities of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... and circumstances of the case and in law, the Ld. AO has erred in not considering Clause 5 of the inter-company agreement between the Appellant and WMIPL covering the subject AY wherein it has been specifically mentioned that the Appellant is the owner of the channel and no proprietary rights have been given to WMIPL. Hence, the consideration received by the Appellant in lieu of grant of distribution rights to WMIPL does not qualify as Royalty under the Treaty; 2.10. That on the facts and circumstances of the case and in law, the Ld. AO has erred in not recognizing that Explanation 6 to section 9(1)(vi) of the Act wherein transfer of process has been included under the definition of Royalty cannot apply in the instant case since similar amendment has not been made under the Treaty. 2.11. Without prejudice to the above, even where it is assumed that there is an element of copyright involved in distribution of channels, the Ld. AO has erred in disregarding that transfer of a non- exclusive, non-transferable license, merely enabling the use of a copyrighted product cannot be construed as a license to enjoy any of the enumerated rights in the Copyright Act. 1957 whic....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in law, the Ld. AO has erred in disregarding the fact that attribution of 10% of advertisement revenues received by TBSAP has been accepted by the Hon'ble Delhi Bench of ITAT. Hon'ble Dispute Resolution Panel as well as the L.d. AO in the Appellant's own case for AY 2007-08 to AY 2017-18, facts of which are similar to the subject AY 3.7. That on the facts and in circumstances of the case and in law, with respect to the Appellant's advertisement revenue (as received by TBSAP from WMIPL), the Ld. AO has grossly erred in deviating from its consistent position per earlier years i.e. increasing the attribution from 10% to 15% on adhoc and arbitrary basis merely based on surmises/ conjectures without any cogent evidence/ reasoning for increasing the same and in complete violation of various legal principles. applicable provisions of the Treaty in this regard, 3.8. That on the facts and in circumstances of the case and in law, the Ld. AO erred in applying an ad- hoc methodology as the basis for attribution of 15% of advertisement revenue to the alleged PE in India without considering that the Function Asset and Risk (FAR) profile of the Appellant has rem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....lid Tax Residency Certificate for the Financial Year relevant to Assessment Year 2020-21 as well as 2021-22. For the years under consideration, the assessee entered into an agreement with WarnerMedia India Private Limited ('WMIPL') effective from April 01, 2011, as amended from time to time, wherein the assessee granted WarnerMedia India Private Limited the rights to sell advertising and distribution of television and interactive platforms namely Cartoon Network, Cartoon Network HD (CN HD+) and POGO, and any other television, interactive television, and/or telecommunication services for viewership in India. As per the said agreement, WarnerMedia India Private Limited is to retain 50 percent of revenues earned from sale of advertisement inventory for the channels in India and from distribution of channels in India as an Arm's Length Price consideration for services rendered to the assessee subject to an annual minimum guarantee. The assessee received following revenues from WarnerMedia India Private Limited: Particulars Amount (in INR) for F.Y relevant to A.Y 2021-22 Amount (in INR) for F.Y relevant to A.Y 2021-22 Advertisement Revenue 85,00,00,000 52,00,00,000 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted the order of the Tribunal in Assessee's own case for Assessment Year 2009-10 to 2017-18 which has been upheld by the Hon'ble High Court of Delhi, nor produced any contrary judicial precedents before us. 6. We have heard both the parties and perused the material available on record. The identical question came up before the Tribunal in Assessee's own case for Assessment Year 2009-10 to 2017-18, wherein the Coordinate Bench of the Tribunal in ITA Nos. 1343/Del/2014, 631/Del/2015, 4987/Del/2016 and 2610/Del/2017 held that distribution revenues received by the assessee from WarnerMedia India Private Limited towards granting distribution rights of its channels constitutes business income, wherein rejected the stand of the revenue to tax the same as 'Royalty' under the Act and the treaty in following manners:- "41. We have heard the rival submissions, perused the relevant finding given in the impugned orders as well as material referred to before us. The appellant-assessee is a US based Company and is tax resident of US. During the relevant assessment years, it has derived advertisement and distribution revenue from grant of exclusive rights to an Indian Company TIIPL to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....gent of independent status, then remuneration paid to TIIPL was at arm's length, and therefore, TIIPL cannot be considered to be PE of assessee in India. It has been brought on record that in all the years and in subsequent years also Assessing Officer has held the advertisement revenue to be the business income following the MAP order. However, during the impugned assessment years, the said position has been digressed by the Assessing Officer without there being any material change in the facts and circumstances or the terms of agreement or the business mutual. Therefore, we are in tandem with the contention of the ld. counsel that when this fundamental aspect is permeating through different assessment years which have been accepted by the parties, then as a rule of consistency, the same position should not be altered or should be allowed to be changed. 43. Be that as may be, now we will independently analyse, whether distribution revenue on the facts of the present case can be considered as 'royalty' in terms of Article 12 of the DTAA between India and USA. Ld. Assessing Officer had applied the provision of domestic law u/s. 9(1)(vi) and held that payment rec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....this case, appellant never granted any licenses to use any copyright, either to distributor or to the cable operator albeit it has only granted right for purpose of selling advertisement on the product that are channels, etc. and distribution of such products in India. The Indian company is carrying out the distribution and selling of the advertisement and it does not have any kind of right to edit, interpret, add the products distributed by it. The assessee company only granted commercial rights in the nature of 'broadcast reproduction right' to the TIIPL, which has been separately defined u/s. 37 of the Copyright Act and therefore, it cannot be held that revenue derived by the assessee for distribution of products is taxable as 'royalty' albeit it is a business income of the assessee. 44. The Assessing Officer has tried to justify the tax the distribution revenue in the nature of royalty by applying the retrospective amendment made in Explanation-6 of Section 9(1)(vi) of the Act. Such an approach cannot be upheld because there is no similar amendment in the definition of royalty under the DTAA and it has been well settled by the Hon'ble Delhi High Cou....
X X X X Extracts X X X X
X X X X Extracts X X X X
....9; in the hands of the Appellant Company. 47. Ld. DR has tried to distinguish the facts of the captioned matter from the case of MSM Satellite (Supra) and stressed heavily upon the ability of the consumer to 'store' and 'interact' with the content. However, the aforementioned factors cannot form basis for distinguishing the judgement rendered by the Hon'ble Bombay High Court. The crux and the core issue involved in the decision rendered by Hon'ble Bombay High Court and the impugned issue remains to be the same, i.e., whether the amounts received by a non- resident company for granting distribution rights to an Indian Company could be brought to tax as royalty or not. The Hon'ble Bombay High Court has categorically held that subscription charges received by MSM Satellite was for only viewing of the channels operated by it and it cannot be said that such revenue was for parting of any copyright. Accordingly, if the aforesaid principle of the Hon'ble Bombay High Court is to be followed, then the amount received by the appellant company from the Indian concern is to be brought to tax as Business Income. 48. Lastly, the Ld. DR has relied....
X X X X Extracts X X X X
X X X X Extracts X X X X
....produced a serial. They may also be the copyright owners of the broadcast of this serial which is a separate right under the Copyright Act which they are able to exploit, and if there is a re-broadcast of what has already been copyrighted, this again is protected by Chapter VIII of the Copyright Act." The argument before the Hon'ble Apex Court on the interpretation of the Copyright Act, 1957 was that, in case of a broadcaster there may be three different rights. First right when the broadcaster has produced the serial and second when they broadcast the serial and third again re broadcast. The Hon'ble Apex Court has concluded the same in para 64 as hereunder: "The picture that, therefore, emerges is that copyright is meant to protect the proprietary interest of the owner, which in the present case is a broadcaster, in the "work", i.e. the original work, its broadcast and/or its re- broadcast by him." 51. Consequently, even the observations of the Hon'ble Apex Court in fact supports the case of assessee and its reliance on Bombay High Court that the broadcasting right a separate right which cannot come within the purview of copyright gets fortif....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... royalty albeit as a business income. Since, assessee has already offered income as business income in terms of the MAP, therefore, the income as declared by the assessee in accordance with the MAP and accepted by the Department in the earlier years has to be accepted. Accordingly, the additions made by the Assessing Officer are deleted." 7. The said order of the Tribunal has been called in question before the Hon'ble High Court in ITA No. 282/2022 and connected matters and the Hon'ble High Court of Delhi vide order dated 28/03/2024, found no justification to entertain the Appeal filed by the revenue in following manners:- 1. "The Revenue has instituted the instant appeals and has proposed the following questions of law for our consideration:- "2.1 Whether on the facts and in the circumstances of the case, the !d. ITAT has erred in holding that the distribution revenue earned by the appellant assessee cannot be taxed as royalty, as per section 9(1 )(vi) of the Act and Article 12 of the DTAA between India and the USA but as a business income? 2.2 Whether on the facts and in the circumstances of the case, the Ld. ITAT is correct in determining the in....