Distribution Revenue received by CNN Not “Royalty”: ITAT [Read Order]

In a recent judgment, the Delhi bench of the Income Tax Appellate Tribunal ( ITAT ) has held that the distribution revenue received by Cable News Network (CNN) is not “Royalty”.

The assessee had challenged the taxability of distribution revenue earned in India as royalty under section 9(1)(vi) of the Income Tax Act, 1961 as well as under the provisions of the India-USA Double Taxation Avoidance Agreement (DTAA).  

The assessee is a non-resident corporate entity, incorporated in the State of Delaware, United States of America (USA) and a tax resident of that country.  The assessee derives income in India from the sale of various advertisements and also from the distribution of its products namely news and information. For selling the advertisements as well as products, the assessee has appointed Turner International India Private Limited (TIIPL) as its exclusive advertising sales representative in India.

The distribution revenue earned by the assessee in India was offered as business income.  It was observed by the Assessing Officer that as per the past assessment history of the assessee, the advertisement revenue is taxable as business income in India, as the assessee had a PE in the form of TIIPL.

The Assessing Officer held that the distribution revenue received by the assessee is like royalty income and has to be taxed accordingly in India.  The DRP endorsed the view taken by the Assessing Officer that the distribution revenue has to be taxed as royalty income.

A Coram comprising of Shri G S Pannu, President and Shri Saktijit Dey, Judicial Member observed that in the assessment year 2003-04, the competent authorities of India and USA reached an agreement under Mutual Agreement Procedure (MAP) holding that 10% of the advertising and subscription revenue received from India shall be deemed to be the net profit chargeable to tax in India. 

The ITAT further held that “the distribution revenue received by the assessee cannot be treated as royalty and deleted the addition.”  The appeal of the assessee was partly allowed.

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