No tax on distribution revenue received as ‘Royalty’ if same already offered as income under MAP

Cable News Network Inc Vs DCIT (ITAT Delhi)

Conclusion: Distribution revenue earned by assessee had already offered income as business income in terms of the Mutual Agreement Procedure (MAP) holding that 10% of the advertising and subscription revenue received from India should be deemed to be the net profit chargeable to tax in India, therefore, the additions made by AO were deleted.

Held: Assessee was a non-resident corporate entity, incorporated in the USA and a tax resident of that country. It derived income in India from sale of various advertisements and also from distribution of its products namely news and information. For selling the advertisements as well as products, assessee had appointed TIIPL as its exclusive advertising sales representative in India. TIIPL was also responsible for distribution of the products of assessee. For the assessment year, under dispute, assessee filed its return of income on 30.11.2016 declaring income of Rs.11,10,85,020/-. The distribution revenue earned by assessee in India was offered as business income. In course of assessment proceedings, AO observed that as per the past assessment history of assessee, the advertisement revenue was taxable as business income in India, as assessee had a PE in the form of TIIPL. However, as far as the distribution revenue was concerned, AO observed that it was treated as royalty both under the provisions of the Act as well as under the India-USA tax treaty. Thus, following the decision taken by the AO in earlier assessment years, he held that the distribution revenue received by the assessee was in the nature of royalty income and had to be taxed accordingly in India. Assessee objected to the aforesaid decision of AO before learned DRP. However, following their directions in assessee’s own case in assessment year 2013-14, DRP endorsed the view taken by AO that the distribution revenue had to be taxed as royalty income. It was held that the distribution revenue earned by assessee could not be taxed as royalty albeit as a business income. Since, assessee had already offered income as business income in terms of the Mutual Agreement Procedure (MAP) holding that 10% of the advertising and subscription revenue received from India should be deemed to be the net profit chargeable to tax in India, therefore, the income as declared by assessee in accordance with the MAP and accepted by the Department in the earlier years had to be accepted. Accordingly, the additions made by the Assessing Officer were deleted.

FULL TEXT OF THE ORDER OF ITAT DELHI

This is an appeal by the assessee challenging the final assessment order dated 17.03.2021 passed under section 143(3) of the Income Tax Act, 1961, pertaining to assessment year 2016-17, in pursuance to the directions of learned Dispute Resolution Panel (DRP).

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