{"id":18662,"date":"2020-10-30T14:12:45","date_gmt":"2020-10-30T08:42:45","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=18662"},"modified":"2020-10-30T14:17:46","modified_gmt":"2020-10-30T08:47:46","slug":"itat-decides-revenue-distribution-of-products-cannot-be-taxed-as-royalty","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/itat-decides-revenue-distribution-of-products-cannot-be-taxed-as-royalty\/","title":{"rendered":"ITAT Decides Revenue from Distribution of Products cannot be Taxed as &#8216;Royalty&#8217;"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The Income Tax Appellate Tribunal, New Delhi held that the generated revenue distribution of products cannot be taxed as &#8216;royalty&#8217; by business income as it is already mentioned under (MAP) Mutual Agreement Procedure. The earning of an assessee generated from revenue distribution cannot tax as royalty as it will amount to double taxation which assessee already states under the Mutual Agreement Procedure. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Key Highlights from the order as Revenue Distribution Cannot Taxed as\nRoyalty<\/h3>\n\n\n\n<ul><li>The appellant <strong><em>never granted<\/em><\/strong> any licenses to use any copyright but only granted commercial rights in the nature of &#8216;broadcast reproduction right&#8217;, which is defined under section 37 of the <em><strong>Copyright Act<\/strong><\/em><sup><a href=\"https:\/\/en.wikipedia.org\/wiki\/Copyright_Act\"><em><strong>[1]<\/strong><\/em><\/a><\/sup>.<\/li><li>The respondent is carrying out a distribution and selling of the advertisement and it does not have any kind of right for edit, interpret, and add the products distributed by this.<\/li><\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/8-incredible-benefits-of-copyright-registration-in-india\/\">8 Incredible Benefits of Copyright Registration in India<\/a><\/mark><\/p>\n\n\n\n<h2 class=\"wp-block-heading\">In matter of Turner Broadcasting System Asia Pacific Inc vs. Turner\nInternational India Private Limited<\/h2>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"580\" height=\"340\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/10\/image-118.png\" alt=\"Turner Broadcasting System Asia Pacific Inc vs. Turner International India Private Limited\" class=\"wp-image-18663\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/10\/image-118.png 580w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/10\/image-118-300x176.png 300w\" sizes=\"(max-width: 580px) 100vw, 580px\" \/><\/figure><\/div>\n\n\n\n<h3 class=\"wp-block-heading\">Facts of the Case<\/h3>\n\n\n\n<p>An Appellant- <strong><em>Turner Broadcasting System Asia\nPacific Inc. <\/em><\/strong>&nbsp;was a company\nincorporated under the USA laws. During the captioned assessment years, <strong><em>an\nappellant was a tax resident of the USA<\/em><\/strong>. During the relevant assessment\nyears, an Appellant derived advertisement and distribution revenue from a grant\nof exclusive rights to (TIIPL) <strong><em>Turner International India Private Limited<\/em><\/strong>,\nan Indian Company, to sell advertising on the products and also to distribute\nthe products.<\/p>\n\n\n\n<p>However, the Indian Company, TIIPL\nacted as the exclusive distributor of the products to cable operators and other\npermitted systems on a &#8216;principal to principal basis&#8217;. <strong><em>A &#8216;distribution agreement&#8217;\nallowed TIIPL to distribute the products to various cable operators and\nultimately to the consumers in India.<\/em><\/strong><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Legal Illustration: Brief<\/h3>\n\n\n\n<p>The distribution revenue collected\nby TIIPL was shared between TBSAP (Third party) and TIIPL. However, in relation\nto TIIPL (Indian Company), the copyright in content always remained with an\nAppellant. At any point of\ntime, it was NOT transferred either to TIIPL or the sub-distributor, which is\nevident from <strong><em>Clause 5 of the Agreement<\/em><\/strong> concluded between an Appellant\nCompany and TIIPL. This clarifies that all copyrights and other\nproprietary rights in the products (channels) has to vest solely in the\nappellant company.<\/p>\n\n\n\n<p>The AO in the current year must be\ntreated as the distribution revenue to be &#8216;Royalty&#8217; in accordance with <strong><em>section\n9(1)(vi) of Act, and Article 12 of DTAA (Double Taxation avoidance Agreement)<\/em><\/strong>\nbetween India and the USA. After perusal of distribution in sales agreement it came\nto conclusion that as per terms of an agreement, in consideration rights for license is between TIIPL and\nTENA (Sub-distributor). The TIIPL have to pay TENA the sum of <strong><em>50%\nof net revenue generated<\/em><\/strong> from a distribution and advertising sales on\nchannels subject to minimum guarantee set out under the <strong><em>&#8220;distribution fee&#8221; and\n&#8220;advertising sales fee&#8221; which is a royalty both under the Income Tax\nAct and DTAA<\/em><\/strong>.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What was decided by the ITAT?<\/h2>\n\n\n\n<p>The <strong><em>bench of two-member<\/em><\/strong> has\nobserved that <strong><em>an appellant has never granted any licenses to use any copyright<\/em><\/strong>,\neither to a distributor or to the cable operator. It has only granted right for\npurpose of selling advertisement on the product that are channels and\ndistribution of such products in India. The tribunal has also observed that <strong><em>an\nIndian company is carrying out a distribution and selling of the advertisement\nand it does not have any kind of right for edit, interpret, and add the\nproducts distributed by this.<\/em><\/strong><\/p>\n\n\n\n<p>The tribunal held that an assessee\ncompany only granted commercial rights in the nature of &#8216;broadcast reproduction\nright&#8217; to the TIIPL, which is defined under <strong><em>section 37 of the Copyright Act<\/em><\/strong>.\nTherefore, it is held that revenue derived by an assessee for distribution of\nproducts is NOT taxable as &#8216;royalty&#8217; as it is a business income of the\nassessee.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p>The revenue distribution earned by the appellant-assessee <strong><em>cannot be taxed as royalty as a business income<\/em><\/strong>. Since an assessee has already mention its income as business income in terms of the MAP. Therefore, an income declared by the assessee in accordance with the MAP and accepted by the Department in the earlier years has to be accepted.<\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/extension-on-tax-audit-report-due-dates-and-income-tax-returns-applicable-for-ay-2020-21\/\">Extension on Tax Audit Report due Dates and Income Tax Returns Applicable for AY 2020-21<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Income Tax Appellate Tribunal, New Delhi held that the generated revenue distribution of products cannot be taxed as &#8216;royalty&#8217; by business income as it is already mentioned under (MAP) Mutual Agreement Procedure. The earning of an assessee generated from revenue distribution cannot tax as royalty as it will amount to double taxation which assessee [&hellip;]<\/p>\n","protected":false},"author":10,"featured_media":18695,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[153],"tags":[1160],"acf":{"service_id":"220"},"authorName":"Soumya Bajpai","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/01\/0.jpg","authorDescription":"Soumya has done LLB (Hons) and has a 2+years experience in writing. Her main interest is in reading judgments, new enactments and amendments taking around in law. She always strives to bring the best to work that she does.","postViews":3681,"readingTime":3,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/18662"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/10"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=18662"}],"version-history":[{"count":7,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/18662\/revisions"}],"predecessor-version":[{"id":18671,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/18662\/revisions\/18671"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/18695"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=18662"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=18662"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=18662"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}