Turner Broadcasting System Asia Pacific Inc., USA v. Dy. CIT (2024)

📺 Turner Broadcasting System Asia Pacific Inc. vs. Dy. CIT – Delhi ITAT on TV Channel Distribution Revenue & Royalty under India–USA DTAA (2024)

📌 Background

The taxation of revenues earned by foreign broadcasters from India—particularly from advertising sales and distribution of television channels through Indian affiliates—has been a persistent area of litigation. The Revenue has frequently attempted to classify such receipts as royalty under Section 9(1)(vi) of the Income-tax Act, 1961, invoking the definition of copyright and allied rights.

In Turner Broadcasting System Asia Pacific Inc., USA v. Dy. CIT [(2024) 115 ITR 21 (SN) (Delhi ITAT)], the Tribunal revisited this controversy for AYs 2020–21 and 2021–22, examining whether distribution and advertising revenues earned by a US broadcaster through an Indian company could be taxed as royalty under Article 12 of the India–USA DTAA, or whether they constituted business income.

📂 Facts of the Case

• Assessee: Turner Broadcasting System Asia Pacific Inc., USA
• Assessment Years: 2020–21 and 2021–22
• Nature of Business: Broadcasting of television channels and sale of advertisement airtime
• Indian Counterparty: An Indian group company (“W”), engaged in distribution and advertisement sales in India

Key Features of the Arrangement:

• Indian company distributed Turner’s TV channels in India.
• Indian company sold advertising airtime on behalf of the assessee.
• No transfer of:
  • Copyright,
  • Title, or
  • Ownership interest in the television channels or content.
• All intellectual property rights remained vested with the assessee.

❓ Point of Dispute

Whether distribution and advertising revenues received by the assessee from India were taxable as royalty under:

• Section 9(1)(vi) of the Income-tax Act, and
• Article 12 of the India–USA DTAA,

or whether such receipts constituted business income, taxable in India only if the assessee had a Permanent Establishment (PE) under Section 9(1)(i) and Article 7 of the DTAA.

📑 Submissions by the Revenue

• Grant of distribution rights amounted to use of copyright or similar rights.
• Broadcast reproduction rights were equated with copyright.
• Distribution revenue should be characterised as royalty under domestic law and DTAA.
• Additions were made treating the receipts as royalty income.

📑 Submissions by the Assessee

• No copyright or ownership rights in the channels or content were transferred.
• The Indian company merely acted as a distributor and advertising agent.
• Broadcast reproduction right is distinct from copyright and does not fall within Article 12.
• Revenue constituted business income, taxable only in the presence of a PE, which the assessee did not have in India.
• Issue was squarely covered by earlier years’ Tribunal orders in assessee’s own case.

⚖️ Legal Principles & Tribunal’s Findings

1. Copyright vs. Broadcast Reproduction Right

The Tribunal reiterated that:

• Copyright protects original literary, dramatic, musical, or artistic works.
• Broadcast reproduction right is a separate, limited statutory right and cannot be equated with copyright.

Grant of distribution rights for TV channels does not result in transfer of copyright.

2. No Transfer of Ownership or Title

It was categorically found that:

• The assessee retained full ownership and control over the channels and content.
• The Indian company received no proprietary or exploitative rights.

Thus, the essential requirement for royalty taxation—use of or right to use copyright—was absent.

3. Article 12 – India–USA DTAA

Article 12 defines royalty narrowly. The Tribunal held that:

• Mere permission to distribute channels or sell advertisements does not amount to royalty.
• Distribution revenue does not fall within Article 12.

4. Business Income Characterisation

The receipts were held to be business income under Article 7.
Since the assessee did not have a PE in India, such income was not taxable in India.

5. Consistency with Earlier Years

The Tribunal followed its own decisions for earlier assessment years in the assessee’s case, emphasizing judicial discipline and consistency.

🏁 Held

The Delhi ITAT held that:

✅ Distribution and advertising revenues earned by the assessee are not royalty under Section 9(1)(vi).
✅ No transfer of copyright, title, or ownership interest took place.
✅ Broadcast reproduction right is distinct from copyright.
✅ Receipts constitute business income, not taxable in India in the absence of a PE.
✅ Additions made by the Assessing Officer were deleted for AYs 2020–21 and 2021–22.

✅ Practical Impact for Media & Broadcasting Companies

• Relief for Foreign Broadcasters: Distribution and ad-sales arrangements through Indian entities are not automatically royalty.
• DTAA Protection Strengthened: Article 12 cannot be stretched to cover mere distribution rights.
• Certainty through Consistency: Repeated confirmation across years reduces prolonged litigation.
• Business Structuring Guidance: Clear demarcation of IP ownership is crucial in contracts.

🔑 Key Takeaways

1. Distribution rights ≠ copyright transfer.
2. Broadcast reproduction right is not royalty under DTAA.
3. Advertising and distribution revenue = business income, not royalty.
4. No PE → no tax in India under Article 7.
5. Judicial consistency plays a decisive role in international tax disputes.

📢 Why This Case Matters

The decision in Turner Broadcasting System Asia Pacific Inc. (2024) is a significant reaffirmation of settled law on taxation of broadcasting revenues. It curbs the Revenue’s tendency to overextend the scope of “royalty” and aligns Indian tax treatment with international norms under tax treaties.

For multinational media groups operating in India through distribution and advertising arrangements, this ruling provides strong precedential value, clarity, and long-awaited certainty.

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