The tribunal case ITA No.740/Del/2021, featuring Cable News Network Inc. against the Deputy Commissioner of Income Tax (International Taxation), Circle-1(2)(1), New Delhi, centers around the dispute regarding the classification of distribution revenues derived from Indian operations for the assessment year 2016-17.
Cable News Network Inc., headquartered in the USA and operating through its Indian counterpart, challenged the final assessment order issued under section 143(3) of the Income Tax Act, 1961. The case was guided by directions from the Dispute Resolution Panel (DRP), focusing on the taxation of distribution revenue in India as royalty rather than business income.
The appeal was initially delayed due to COVID-19, with the Supreme Court extending deadlines, thereby allowing the case to proceed on merits. The main contention revolved around whether the distribution revenue should be considered royalty under section 9(1)(vi) of the Income Tax Act and the India-USA Double Taxation Avoidance Agreement (DTAA).
The Assessing Officer (AO) categorized the distribution revenue as royalty, aligning with previous assessments. This interpretation meant that the revenue would be subject to different tax treatment compared to business income.
The tribunal referred to previous rulings and Mutual Agreement Procedures (MAP) between India and the USA, which treated similar revenues as business income. They noted that the distribution rights given to Turner International India Private Limited (TIIPL) did not transfer any copyright ownership, aligning the income more with business operations than royalty.
This case sets a significant precedent on how distribution revenues from international entities are treated under Indian tax law. The tribunal’s decision reinforces the need for clear guidelines on royalty versus business income, ensuring fair taxation practices. The detailed judgment underscores the complexities of international taxation and the need for careful interpretation of agreements and tax treaties.
CNN vs. DCIT (International Taxation) on Distribution Revenue Taxation: ITA 740/DEL/2021
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