Broadcasting Production Right doesn't fall under the Ambit of Royalty under Article 12 of U.S. Treaty: ITAT grants relief to Fox International Channels [Read Order]

The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) while grating relief to Fox International Channels, held that broadcasting production rights doesn’t fall under the ambit of royalty under Article 12 of the United States Treaty.

The assessee, Fox International Channels (FIC) is a non-resident foreign company, incorporated in the US. It is primarily engaged in the media industry, and its business consists of broadcasting its channels over various countries, including the Indian sub-continent. FIC is eligible for the benefits of the India - USA Double Taxation Avoidance Agreement and has filed a copy of the Tax residency certificate (TRC) to that effect which is placed on record.

The assessee has entered into a distribution representation agreement with NGC Network (India) Private Limited appointing NGC India as FIC's exclusive agent for distribution of the Channels to media intermediaries' subscribers in India, Nepal, and Bhutan. The NGC India acting on behalf of the assessee, has entered into separate agreements with Star India Pvt. Ltd., (SIPL) for the distribution of the Channels.

The Assessing Officer observed that the transaction with the SIPL is a license fee payment which is covered within the definition of royalty under the Income Tax Act, 1961 as well as under Article 12 of the U.S. Treaty, as being payments made for use of any copyright of a literary, artistic or scientific work, including cinematograph films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting.

By relying on the Authority for Advance Rulings (AAR) and other Tribunal decisions he came to the conclusion that the distribution license would fall within the ambit of royalty and accordingly, the distribution receipt of ₹.43,73,44,337/- is treated as royalty income. Accordingly, he brought to tax 15% with applicable surcharge and education cess under Section 115A of the Income Tax Act.

The Authorized Representative of the assessee submitted that the assessee has granted only distribution rights and the assessee has imposed restrictions on SIPL not to make any copies, it shows that all the rights are held by the assessee and only the SIPL and the intermediaries have the right only on transmission.

It was further submitted that there is no definition of Copyright in the Copyright Act and also when the channels do not have a modification right and only broadcast reproduction rights, it cannot be brought under the definition of Royalty.

The Two-member bench comprising of Rifaur Rahman (Accountant member) and Rahul Chaudhury (Judicial member) held that the Broadcasting Reproduction Right is different from the copyright as mentioned in the Copyright Act. therefore, the appeal of the assessee was allowed.

To Read the full text of the Order CLICK HERE

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