Income from distribution of “Ten Sports” channel to cable operators couldn’t be held as ‘royalty’

Facts:

a) The assessee was engaged in business of telecasting “Ten Sports”. Its revenue arose from advertisement and distribution of sports channel in India. A distribution agreement was entered into by the assessee with ‘Taj India’ for distribution of pay channel to various cable operators and ultimately to consumers in India.

b) The AO made following observations:

The income from distribution of sports channel by assessee is taxable as royalty.

Transponder fee paid to US based company for rendering services in connection with telecasting of “Ten Sports” was taxable as royalty.

c) The CIT(A) reversed the order of AO. The aggrieved-revenue filed the instant appeal. The Tribunal held as under:

1) Transponder charges are only for use of facility and it does not amount to use of any copyright effecting work, secret formula, process, etc., or any other term described in Article 12 of the India-USA DTAA. The payment of transponder charges could not be treated as payment for use or right to use any industrial, commercial or scientific equipment. There was no such right to use which was given by the service provider. Thus, such transponder fee could not be considered as royalty under Article 12 of India-USA DTAA.

2) Under the distribution agreement, the assessee-company had not granted any license to use any copyright to the distributor or to the cable operators. The assessee only made available the content to cable operators which would be transmitted by them to ultimate customers. Further, right over contents at all times lay with the assessee and was never made available with the distributors or cable operators. Thus, income from distribution of sports channel could not be considered as royalty. – Astt. DIT v. Taj TV Ltd. - [2016] 72

taxmann.com 143 (Mumbai - Trib.)