Revenue Earned By BBC through Distribution of News Is Not Taxable As Royalty

Nikhil Mogha

26 Dec, 2022

In a landmark case of BBC World Distribution Ltd. vs ADIT, 2022, the Delhi ITAT has reiterated that any revenue earned by BBC through distribution of news is not in the nature of royalty. Hence, it cannot be held as taxable income in India. Further, the court held that the revenue distributed is not in nature of royalty. Where the assessee has not received any part of the revenue which is offered to tax. Henceforth afterwards, no part of such income can be again attributed to the assessee for taxability in India. The present article will discuss the facts of the case, the grounds for appeal and the decision or rationale of the court in the case.

Brief Facts of the Case

The facts of the case are:

1. The BBC World News Limited is a company incorporated in the UK and therefore, it is a tax resident of the UK. It is the owner of the BBC world news channel. It has granted the exclusive global right to the assessee (World Distribution LTD.) for its distribution network. 
2. The assessee enters into an agreement with BBC world to distribute the channel to cable operators, hotels, institutions, DTH operators etc.
3. The assessee earned a total amount of Rs 94, 58, 039 for the assessment year 2006-2007 as the revenue earned by BBC through the distribution of BBC world news channel in India. The assessee asserts before the assessing officer that the amount received by the assessee is not taxable as:
4. The distribution is limited to a specific area of India,
5. Provides assistance for remittance to BBC world Distribution,
6. BBC world India and BBC world Distribution is an independent body working on a principal-to-principal basis.
7. BBC work India Pvt. Ltd quoted the prices for distribution at the agreed rates.
8. BBC World India Private Ltd. does not make any change without the approval of BBC world distribution.
9. BBC world Indian Pvt. Ltd distributes all the orders to BBC world Distribution
10. BBC world India Pvt. Ltd does not have the authority to accept any proposal or order or conclude the contract.
11. Further, for the assessment years 2007-2008 and 2008-2009, the assessee contends that it has yet to receive any revenue from the distribution channels in India from the grant of the distribution right. It is further asserted that since the entire distribution income is received by BBC world India Pvt. Ltd. and offered to tax in India, hence it cannot be made taxable at the hands of the assessee.
12. The assessing officer denied the assessee’s contentions for all the assessment years and states that the revenue earned by BBC through distribution shall be taxable at 15 % on a gross basis.
13. Being aggrieved by the order of the assessing officer, the assessee filed an appeal before the CIT (A). The CIT (A) dismissed the assessee’s appeal and upheld the assessing officer’s findings.
14. Bering aggrieved by the order of the CIT (A), the assessee has filed the appeal before the Delhi Income Tax Appellate Tribunal.

Issue of the case

Whether the revenue earned by BBC through distribution in India is chargeable to tax as a royalty?

Decision of the Assessing officer

At the time of rejecting the assessee’s contentions, the assessing officer held that while granting the right of distribution to BBC World News channel in India, it has also transferred the right to use copyright to BBC world India limited. Therefore, any revenue earned by BBC through distribution in India is in the nature of royalty; hence, it will be taxable under both domestic and Indian law under the UK double Taxation Avoidance Agreement (DTAA).

Further, the assessing officer held that as per the Copyrights act 1957^[1], the distribution right would amount to the transfer of the right to use copyright and therefore, it converts into royalty. Moreover, according to the guidelines of the Ministry of information and broadcasting, the Indian company should have the authority to conclude the contract on behalf of the Indian channels; therefore, it was held that not only revenue earned by BBC through distribution is chargeable as royalty but also the Indian company to whom the distribution right is granted shall be considered as Permanent Establishment of the assessee in India.

Submissions of the Appellant

It is submitted by the appellant that:

1. The appointment of BBC world India Pvt. Ltd. is as a service provider to distribute BBC world News Channels to DTH operators, Cable operators hotels etc. in India. Further, for the distribution of channels to hotels, the assessee directly enters into a contract with the third-party distribution agency. Hence, the amount of Rs 95, 58,039 is received from a third-party distribution agency.
2. The copyrights over the BBC World News channel totally vest with the BBC World News Ltd. Therefore, it is contended that the assessee could not have transferred any right to BBC world India Pvt. Ltd.
3. In terms of the agreement, the broadcaster has no right to change, modify, alter or edit the contents which are displayed on the channel.
4. The assessee has only broadcasting reproduction right as it has only been given a non-exclusive license to reception and re-transmission of the channel. It is contended that it is entirely different from copyright. Thus, the broadcasting reproduction right cannot be treated as royalty.
5. For the assessment years 2007-2008 and 2008-2009, it is contended that the assessee entered into a new agreement with BBC World India Pvt. Ltd., which gives it the exclusive right of distribution in India. Henceforth, BBC world India Pvt. Ltd. directly enter into the contract with subscribers in its own capacity and the revenue is earned by the entity itself. It is further contended that BBC earns no revenue through distribution in these two years.
6. BBC world India Pvt. Ltd cannot constitute a Permanent establishment as the relationship between the assessee and BBC world India Pvt. Ltd. is on principal to principal basis.

Submissions of the Respondent

It is submitted by the respondent that:

1. It is contended that the distribution right transferred by the assessee comes within the definition of Section 14 of the Copyrights Act.
2. It is contended that the revenue earned by BBC through distribution as royalty under explanation 2 (via) to Section 9(1) (vi) of IT act 1961 as the transfer is in respect of all or any of the rights in respect of process and equipment. Hence, the distribution revenue is process and equipment royalty.
3. It is contended that as per the ministry’s guidelines, BBC world India Pvt Ltd is an Indian entity and is authorised to conclude the contract on behalf of the assessee. Therefore, there is a fixed permanent establishment and dependent agent of the assessee in India in the form of BBC World India Pvt Ltd.

Observations of the Tribunal

The tribunal, while rationalising its judgement, took note of the case MSM Satellite (Singapore) Pte. Ltd., 2019, wherein the court did a comparative analysis of Article 12 (3) of India- Singapore DTAA and Article 13 (3A) of India – UK DTAA. Based on the comparative analysis, it is held by the court that the revenue earned by BBC through distribution in India cannot be held as royalty either under Section 9 (1) (vi) of the act or under the India- UK DTAA.

While observing the point on transferring of copyright, the tribunal took note of the case ADIT vs Taj TV Ltd., wherein it was held that granting the distribution right does not imply transferring the right to use copyright to the cable operator. The assessee makes the content available to the cable operators through a distributor who will transmit it to the ultimate viewers. The rights over the content always remain with the content’s ultimate owner and are not transmitted to the cable operators. As in the present case, the assessee does not own the content; it only holds the right to distribute the channel to third-party distribution agencies and hotels in India. Hence, the revenue earned by BBC through distribution in India cannot be termed as royalty.

Further, in the case of DDIT vs SET Indian Pvt. Ltd., it is observed that the distribution right of the channel is purely a commercial right and is different from the right to use the copyright. Hence, it cannot be categorised as royalty. Thus, it is held that the distribution right held by the assessee is not royalty and hence any revenue earned by BBC through distribution in India is not taxable without the existence of a physical establishment.

The tribunal observes that the rationale of the assessing officer to tax the income earned in the assessment year 2007-2008 and 2008-2009 is incorrect. It is observed that revenue earned by BBC through distribution in India has been accounted for in the books of Indian entity and tax has been paid on the said income. Therefore, it is wrongly attributed by the assessing officer that the income is notionally attributed to the assessee and taxed in India.

Decision of the tribunal

In this case, the tribunal allowed the assessee’s appeal and directed the assessing officer to delete all the additions made by the assessing officer.

Conclusion

Any revenue earned through distribution cannot be termed as royalty and is not allowed to be taxed in India, provided that the ultimate owner of the content is someone else. The court takes the same proposition in the present case wherein the revenue earned by BBC through news distribution can be termed as royalty and be offered for tax in India. Further, it is held that any distribution right in the channel is a commercial right and, therefore, cannot be termed royalty. The court also observes that granting any distribution right does not imply transferring the right to use copyright to any cable operator. 

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