Revenue Earned By BBC For Distribution Of BBC News In India, Not Taxable As Royalty: ITAT

The bench of G.S. Pannu (President) and Saktijit Dey (Judicial Member) held that distribution rights transferred by the assessee to BBC World India, to distribute BBC News Channel in India, did not fall under the definition of copyright under Section 14 of the Copyright Act, 1957. Thus, the ITAT concluded that the distribution revenue was not taxable as royalty.

The Tribunal ruled that the assessee had only conferred upon BBC World India the broadcasting reproduction rights, i.e., the right to broadcast the news channel in India, as provided under Section 37 of the Copyright Act. The ITAT added that broadcasting reproduction rights are distinct and separate from copyright as defined under Section 14 of the Copyright Act.

BBC World News Ltd., a company incorporated in the United Kingdom (UK) and a tax resident of the UK, is the owner of the BBC World News Channel. BBC World News Ltd. granted non-exclusive global rights to the assessee- BBC World Distribution Ltd., to distribute the said channel.

The assessee entered into an agreement with BBC World India Pvt. Ltd. (BWIPL) to distribute the channel to cable operators, DTH operators and hotels in India.

During the assessment proceedings, the assessee contended before the Assessing Officer (AO) that the relationship between the assessee and BBC World India is that of independent contractors, who work on a principal-to-principal basis. Thus, it pleaded that the amount received by the assessee in the relevant assessment year, i.e., A/Y 2006-07, from distribution of BBC World News Channel in India, was not taxable.

With respect to the assessment years 2007-08 and 2008-09, the assessee submitted before the AO that the assessee had not received any payment from distribution of channels in India. The assessee averred that since the entire distribution revenue had been received by BBC World India and offered to tax in India, nothing could be taxed at the hands of the assessee with respect to the said assessment years.

Rejecting the submissions of the assessee, the AO opined that while granting rights to BBC World India to distribute BBC World News Channel in India, the assessee had transferred the right to use copyright over the content of the said news channel. Thus, the AO opined that the amount received by the assessee from distribution of the news channel in India, was in the nature of royalty under the Income Tax Act, 1961 as well as under the India-UK Double Taxation Avoidance Agreement (DTAA). It accordingly made additions to assessee's income for the A/Y 2006-07.

With respect to A/Ys 2007-08 and 2008-09, the AO concluded that BBC World India, which had been granted the distribution rights, was a Permanent Establishment (PE) of the assessee in India. The AO accordingly passed an order taxing the distribution revenue at the hands of the assessee.

The assessee challenged the additions made by the AO before the ITAT.

The assessee- BBC World Distribution, submitted before the ITAT that copyright over BBC World News Channel was completely vested with BBC World News Ltd. It averred that since the assessee itself did not have the copyright in the content displayed on the channel, the assessee could not have transferred any copyright to BBC World India.

The assessee added that with respect to A/Ys 2007-08 and 2008-09, BBC World India directly entered into contract with subscribers in its own right and that the entire subscription revenue in the said assessment years was received by BBC World India, which was accounted in their books of account and offered to tax in India. Thus, it submitted that since no distribution revenue was received by the assessee in the relevant assessment years, taxing of notional income at the hands of the assessee was unjustified.

Further, it averred that BBC World India cannot constitute a PE of the assessee as the relationship between the assessee and BBC World India is on a principal-to-principal basis.

The revenue department submitted that the distribution rights transferred by the assessee fell under the definition of copyright under Section 14 of the Copyright Act, 1957; thus, the distribution revenue received by assessee was in the nature of royalty.

The department argued that since BBC World India had been authorized to conclude contracts on behalf of the assessee, therefore, BBC World India constituted a fixed place PE as well as a dependent agent of the assessee in India.

The ITAT referred to the terms of the distribution agreement, as executed between BBC World News Ltd. and the assessee, and the distribution agreement between the assessee and BBC World India. The ITAT concluded that BBC World News Ltd. had not parted with the copyright over the content of the news channel. The Tribunal observed that the distribution agreement between BBC World News and the assessee mandated that the assessee cannot modify, alter, or make any changes in the content of the news channel, while exercising the distribution rights.

"In view of such explicit condition imposed under the distribution agreement, it cannot be said that the assessee had any right over the copyright of the contents of the channel. When the assessee itself had no right over the copyright of the content of BBC World News Channel, it is beyond comprehension, how the assessee can transfer such non-existent right in favour of BWIPL (BBC World India)", the Tribunal said.

Thus, the Tribunal concluded that under the distribution agreement, the assessee had only conferred upon BBC World India the right to broadcast the channel, i.e., BBC World India had only acquired broadcasting reproduction rights as defined under Section 37 of the Copyright Act.

The Tribunal reiterated that broadcasting reproduction rights, as provided under Section 37 of the Copyright Act, is distinct and separate from copyright as defined under Section 14 of the Copyright Act.

Referring to the decision of the Bombay High Court in CIT versus MSM Satellite (Singapore) Pte. Ltd. (2019), the ITAT held that the distribution revenue received by the assessee cannot be termed as royalty, either under section 9(1)(vi) of the Income Tax Act or under the India – UK DTAA.

Further, it observed that ITAT Mumbai in DDIT(IT) versus SET India Pvt. Ltd. (2012) has ruled that distribution rights of a channel are purely a commercial right which are distinct from the right to use copyright and thus, they cannot be characterized as royalty.

Therefore, the ITAT ruled that the distribution revenue received by the assessee in the relevant assessment year, i.e., 2006-07, was not in the nature of royalty and thus, it was not taxable in India in the absence of a PE. Observing that the revenue department had failed to make any allegations regarding the existence of a PE with respect to the said assessment year, the Tribunal held that the additions made by the AO could not be sustained.

The ITAT further noted that the Ministry of Information and Broadcasting has framed new guidelines, dated 11.11.2005, whereby it has imposed a mandatory requirement on the Indian company appointed as a distributor, to have exclusive rights to enter into contract on behalf of the foreign company. The Tribunal took into account that in view of the said guidelines, the assessee entered into a fresh agreement with BBC World India, under which BBC India was authorized to receive entire distribution revenue from the cable operators and credit it to its books of account. Therefore, for the A/Ys 2007-08 and 2008-09, the distribution revenue was received by BBC World India, which was accounted in their books of account and offered to tax in India.

The ITAT concluded that since the entire distribution revenue generated in India from distribution of BBC World News Channel was accounted in the books of the Indian entity and offered to tax in India, a part of such income cannot be notionally attributed to the assessee and taxed in India. The ITAT added that since the entire income had been offered to tax by an Indian entity, the issue whether the assessee had a PE in India in the relevant assessment years (i.e., A/Ys 2007-08 and 2008-09) was purely academic in nature.

"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", the ITAT said.

The ITAT thus allowed the appeal and set aside the additions made by the AO.

Case Title: BBC World Distribution Ltd. versus ADIT

Dated: 21.11.2022 (ITAT Delhi)

Representative for the Appellant/ Assessee: Mr. Ajit Jain, CA

Representative for the Respondent/ Revenue Department: Ms. Anupama Anand, CIT(DR)

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