BBC World Distribution Ltd Vs ADIT (ITAT Delhi)
ITAT Delhi held that revenue received towards to distribute the channel to cable operators, DTH operators, hotels, institutions etc. in India is not in the nature of royalty and hence addition not sustainable.
Facts-
BBC World News Ltd (in short ‘BBCWN’) is a company incorporated in United Kingdom (UK) and tax resident of UK. BBCWN is the owner of BBC World New Channel. BBCWN has granted non-exclusive global right to BBC World Distribution Limited (In short ‘BBCWD’), the present assessee, to distribute the channel. BBCWD, in turn, has entered into an agreement with BBC World India Pvt. Ltd. (in short ‘BWIPL’) to distribute the channel to cable operators, DTH operators, hotels, institutions etc. in India. In assessment year 2006-07, the assessee received an amount equivalent to Indian Rs.94,58,039/-from distribution of BBC World News Channel in India. Before the Assessing Officer, the assessee pleaded that the amount received from distribution of channel in India is not taxable.
AO, however, held that while granting right to distribute BBC World News Channel in India, the assessee had transferred the right to use copyright to BWIPL, hence, the amount received from distribution of the channel in India is in the nature of royalty, both, under the domestic law as well as under India – UK Double Taxation Avoidance Agreement (DTAA). Therefore, he held that the amount received by the assessee will be taxable at 15% on gross basis. Commissioner (Appeals) upheld the decision of AO.
Conclusion-
We are of the view that the approach of the departmental authorities in taxing the royalty income in these two assessment years is quite baffling. When, it is a fact on record that the entire distribution revenue generated in India from distribution of BBC World News Channel has been accounted for in the books of Indian entity and offered to tax in India, how a part of such income can be notionally attributed to the assessee and taxed in India. Firstly, as held by us earlier, the distribution revenue is not in the nature of royalty and secondly when the assessee has not received any part of such revenue, which has been offered to tax at the hands of BWIPL, no part of such income can again be attributed to the assessee notionally and taxed in India. Therefore, the addition made has to be deleted.
In view of our decision above, the issue, whether the assessee had a PE in India in these two assessment years is purely academic in the nature, as, the entire income has been offered to tax by Indian entity. Before we part, for the sake of completeness, we must deal with the submission of learned Departmental Representative that the distribution revenue earned by the assessee would otherwise qualify as equipment royalty and process royalty under Explanation 2(iva) of section 9(1)(vi) of the Act. In our view, such argument of learned Departmental Representative is preposterous as no such finding has been recorded either by the Assessing Officer or by learned Commissioner (Appeals) and DRP.
FULL TEXT OF THE ORDER OF ITAT DELHI
Captioned appeals by the assessee are for the assessment years 2006-07, 2007-08 and 2008-09. Appeals relating to assessment year 2006-07 arises out of order dated 27.12.2010 passed by learned Commissioner of Income Tax (Appeals)-XI, New Delhi, whereas, the appeals for assessment years 2007-08 and 2008-09 are through the route of Dispute Resolution Panel (DRP). Since, the issues raised in all these appeals are more or less common, hence, these appeals have been clubbed together and disposed of in a consolidated order, for the sake of convenience.
2. The issues arising for consideration in these appeals can be knocked down as under:
i. The subscription/distribution revenue earned by the assessee is chargeable to tax as royalty, and
ii. Whether the assessee has a Permanent Establishment (PE) in India so as to attribute any part of the profit to such PE.
3. Briefly the facts are, BBC World News Ltd (in short ‘BBCWN’) is a company incorporated in United Kingdom (UK) and tax resident of UK. BBCWN is the owner of BBC World New Channel. BBCWN has granted non-exclusive global right to BBC World Distribution Limited (In short ‘BBCWD’), the present assessee, to distribute the channel. BBCWD, in turn, has entered into an agreement with BBC World India Pvt. Ltd. (in short ‘BWIPL’) to distribute the channel to cable operators, DTH operators, hotels, institutions etc. in India. In assessment year 2006-07, the assessee received an amount equivalent to Indian Rs.94,58,039/-from distribution of BBC World News Channel in India. Before the Assessing Officer, the assessee pleaded that the amount received from distribution of channel in India is not taxable because of the following:
