The Income Tax Appellate Tribunal, Mumbai, in Asia Today Ltd., Mumbai v. Asst. Director of Income Tax – 2(2), Mumbai (ITA No. 1403/M/2008), considered the taxability of income earned by Asia Today Limited, a Mauritius-based broadcasting entity, for the assessment year 2004–05. The assessee was engaged in acquiring, producing, and licensing Hindi feature films for broadcast and had entered into an agreement with an Indian licensee for telecast rights in respect of 100 films for a consideration of INR 1 crore.
The assessee contended that the amount received was not taxable in India on the ground that the transaction was undertaken outside India. It was further argued that the payment did not constitute “royalty” within the meaning of the Income Tax Act, 1961 or the applicable provisions of the India–Mauritius Double Taxation Avoidance Agreement (DTAA).
The Assessing Officer and the Commissioner of Income Tax (Appeals) held that the assessee had a Permanent Establishment (PE) in India in connection with its broadcasting activities and that the consideration received for licensing telecast rights constituted royalty under Article 12 of the India–Mauritius DTAA. Accordingly, the income was held to be taxable in India.
On appeal, the Tribunal upheld the findings of the tax authorities. The Tribunal observed that the licensing arrangement involved the grant of rights to broadcast copyrighted films, which fell within the scope of royalty under the DTAA. It further agreed that the assessee’s activities in India constituted a PE for the purposes of the treaty.
Accordingly, the Tribunal held that the income derived from the licensing agreement was liable to tax in India.