Revenue Earned By BBC For Distribution Of BBC News In India, Not Taxable As Royalty: ITAT

The Delhi Bench of the Income Tax Appellate Tribunal (ITAT) has ruled that the distribution revenue earned by the assessee- BBC World Distribution Ltd., from distribution of BBC World News Channel in India, is not in the nature of royalty and thus, it is not taxable in India in the absence of a Permanent Establishment. The bench of G.S. Pannu (President) and Saktijit Dey (Judicial Member) held that distribution rights transferred by the assessee to BBC World India, to distribute BBC News Channel in India, did not fall under the definition of copyright under Section 14 of the Copyright Act, 1957. Thus, the ITAT concluded that the distribution revenue was not taxable as royalty. The Tribunal ruled that the assessee had only conferred upon BBC World India the broadcasting reproduction rights, i.e., the right to broadcast the news channel in India, as provided under Section 37 of the Copyright Act. The ITAT added that broadcasting reproduction rights are distinct and separate from copyright as defined under Section 14 of the Copyright Act. BBC World News Ltd., a company incorporated in the United Kingdom (UK) and a tax resident of the UK, is the owner of the BBC World News Channel. BBC World News Ltd. granted non-exclusive global rights to the assessee- BBC World Distribution Ltd., to distribute the said channel. The assessee entered into an agreement with BBC World India Pvt. Ltd. (BWIPL) to distribute the channel to cable operators, DTH operators and hotels in India. During the assessment proceedings, the assessee contended before the Assessing Officer (AO) that the relationship between the assessee and BBC World India is that of independent contractors, who work on a principal-to-principal basis. Thus, it pleaded that the amount received by the assessee in the relevant assessment year, i.e., A/Y 2006-07, from distribution of BBC World News Channel in India, was not taxable. With respect to the assessment years 2007-08 and 2008-09, the assessee submitted before the AO that the assessee had not received any payment from distribution of channels in India. The assessee averred that since the entire distribution revenue had been received by BBC World India and offered to tax in India, nothing could be taxed at the hands of the assessee with respect to the said assessment years. Rejecting the submissions of the assessee, the AO opined that while granting rights to BBC World India to distribute BBC World News Channel in India, the assessee had transferred the right to use copyright over the content of the said news channel. Thus, the AO opined that the amount received by the assessee from distribution of the news channel in India, was in the nature of royalty under the Income Tax Act, 1961 as well as under the India-UK Double Taxation Avoidance Agreement (DTAA). It accordingly made additions to assessee's income for the A/Y 2006-07. With respect to A/Ys 2007-08 and 2008-09, the AO concluded that BBC World India, which had been granted the distribution rights, was a Permanent Establishment (PE) of the assessee in India. The AO accordingly passed an order taxing the distribution revenue at the hands of the assessee. The assessee challenged the additions made by the AO before the ITAT. The assessee- BBC World Distribution, submitted before the ITAT that copyright over BBC World News Channel was completely vested with BBC World News Ltd. It averred that since the assessee itself did not have the copyright in the content displayed on the channel, the assessee could not have transferred any copyright to BBC World India. The assessee added that with respect to A/Ys 2007-08 and 2008-09, BBC World India directly entered into contract with subscribers in its own right and that the entire subscription revenue in the said assessment years was received by BBC World India, which was accounted in their books of account and offered to tax in India. Thus, it submitted that since no distribution revenue was received by the assessee in the relevant assessment years, taxing of notional income at the hands of the assessee was unjustified. Further, it averred that BBC World India cannot constitute a PE of the assessee as the relationship between the assessee and BBC World India is on a principal-to-principal basis. The revenue department submitted that the distribution rights transferred by the assessee fell under the definition of copyright under Section 14 of the Copyright Act, 1957; thus, the distribution revenue received by assessee was in the nature of royalty. The department argued that since BBC World India had been authorized to conclude contracts on behalf of the assessee, therefore, BBC World India constituted a fixed place PE as well as a dependent agent of the assessee in India. The ITAT referred to the terms of the distribution agreement, as executed between BBC World News Ltd. and the assessee, and the...

Revenue Earned By BBC For Distribution Of BBC News In India, Not Taxable As Royalty: ITAT

Parina Katyal

Tags