ITAT Mumbai Rules That Non-Exclusive Film Broadcasting Licence Not ‘Royalty’

The assessee, M/s Asia Today Limited, a Mauritius-incorporated foreign telecasting company holding a valid tax residency certificate, entered into a licence agreement with M/s Usha Kiron Television (India). Under the agreement, the assessee granted a non-exclusive satellite broadcasting license for 100 Hindi feature films for a period of two years and six months for a consideration of Rs. 1 crore. The films were permitted to be telecast on E-TV network channels in India with limited runs, without transfer of copyright ownership.

For AY 2004-05, the assessee claimed that the licence fee was not taxable in India, contending that it was not “royalty” under section 9(1)(vi) and that it had no permanent establishment in India. The Assessing Officer treated the receipt as royalty taxable under Article 12 of the India-Mauritius DTAA, which view was upheld by the CIT(A). The assessee appealed to the ITAT.

Main Issue: Whether consideration received for granting a non-exclusive, time-bound licence to broadcast cinematographic films constitutes “royalty” taxable in India under section 9(1)(vi) of the Act and Article 12 of the India–Mauritius DTAA.

ITAT Ruled: The Hon’ble ITAT allowed the appeal and held that the consideration of Rs. 1 crore did not constitute royalty. The Tribunal noted that the assessee had only granted limited broadcasting rights for a fixed period without transferring any copyright or permitting commercial exploitation or reproduction of the films. Such rights are distinct from copyright rights under the Copyright Act, 1957.

The transaction fell within the exclusion in Explanation 2(v) to section 9(1)(vi), which excludes consideration for the sale, distribution, or exhibition of cinematographic films from the definition of royalty. Relying on CIT v. MSM Satellite (Singapore) Pte Ltd., Warner Bros. Pictures Inc., the Tribunal held that broadcasting rights are not equivalent to copyright rights and cannot be taxed as royalty either under domestic law or the DTAA.

The Tribunal held that the license period was clearly restricted under the agreement and perpetual rights would amount to the sale of films, which is expressly excluded from royalty. Hence, the addition was deleted.

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