Non-Exclusive Film Broadcasting Rights Not ‘Royalty’ under Indo-Mauritius DTAA: ITAT Mumbai Rules in Asia Today Ltd Case [Read Order]

The Income Tax Appellate Tribunal, Mumbai Bench ( ITAT ) ruled that the income received as payment for granting the 'non-exclusive' broadcasting rights of 100 Hindi feature films on an exclusive basis over a limited period is not considered as qualifying for the status of 'royalty' under Article 12 of the India-Mauritius Double Taxation Avoidance Agreement (DTAA) and thus would NOT be taxable in India.

M/s Asia Today Limited, the appellant, a foreign telecaster (television broadcasting company) incorporated in Mauritius with its tax residence, entered into an agreement, with Usha Kiron Television India, granting a 'non-exclusive' right for the satellite broadcasting of 100 Hindi Feature Films for 2 ½ years at a total cost of ₹1 crore.

The appellant contended that the payment received from its customer was not taxable in India as it did NOT qualify for the payment of 'royalty' as defined in Explanation 2 of Section 9(1)(vi) of the Income Tax Act, 1961, and that the Company had no permanent establishment in India.

However, the Assessing Officer (AO) disagreed and stated that the payment received would be treated as 'royalty' and the tax levied would be at the rate of 15% as specified under Article 12 of the DTAA. The order was further upheld by the Commissioner of Income-tax (Appeals) leading to an appeal by Asia Today Limited before the ITAT.

The appellant argued that the transaction simply gave non-exclusive broadcasting rights, and that copyright or modification, alteration or revenue sharing was not granted. The appellant took the position that Section 9(1)(vi) of the Income Tax Act, 1961 does not include royalties as payment for consideration for sale, distribution or exhibition of cinematographic films in its definition of royalties based on Article 12 of the India-Mauritius DTAA.

The Revenue, however, contended that the definition of royalty under Article 12 of the India-Mauritius DTAA specifically includes payments for the use or right to use cinematographic films. The Revenue argued that both contracts were executed in India, the films were delivered in India and the broadcasting rights were given specifically for telecasting in India. With permanent establishment in India as well, the royalties collected for granting licensing for the films should have been accrued as income while the appellant was conducting business in India.

The appeal was decided by Narender Kumar Choudhry, Judicial Member, and Omkareshwar Chidara, Accountant Member, ruling that the agreement clearly granted only non-exclusive broadcasting rights for a limited duration and did not involve transfer of copyright.

Relying on Explanation 2 to Section 9(1)(vi) of the Income Tax Act, 1961, the Bench observed that consideration for the sale, distribution, or exhibition of cinematographic films is expressly excluded from the definition of royalty.

The Tribunal further held that a tax treaty cannot create a tax liability where none exists under domestic law. It depended on the judicial precedents to conclude that broadcasting rights are distinct from copyright rights.

Accordingly, the Bench set aside the orders of the lower authorities and held that the consideration of ₹1 crore received by the appellant was not taxable as royalty in India.

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