Waiver of Loans and Taxability After Finance Act 2023

Facts of the Case

The assessee, a UK-based company, was engaged in providing portable wireless in-flight entertainment (IFE) systems and related services to Indian Airlines. It also provided management, sales, and inventory management of advertising slots (including static and video advertisements). The assessee was providing the services above to Air India Ltd. and Jet Airways (India) Ltd.
During the relevant assessment year, the assessee received a certain amount from Airlines. The assessee claimed that the said amount was not taxable in India under the provisions of the Act, read with the provisions of the India-UK DTAA.

The assessee’s claim did not convince the Assessing Officer (AO), who held that the fee for the provision of content received by the assessee was akin to royalty/FTS. Accordingly, the AO made additions to the assessee’s income. On appeal, the Dispute Resolution Panel (DRP) upheld the order of the AO. Aggrieved by the order, an appeal was filed to the Delhi Tribunal.

Tribunal Held

The Tribunal held that the assessee was required to provide IFE content and services to Air India Ltd., which included Hollywood movies, Indian movies, Indian regional movies, International and Indian music videos, documentaries, and reality shows, as per the choice and prerogative of Air India Ltd. The responsibility of procuring and exhibiting rights to the content lies with the assessee.

Furthermore, for screening content in aircraft, the assessee was required to perform the processes of encoding, duplicating, and integrating with the IFE system. The license fee for exhibiting content, i.e. audio/video on IFE, is to be paid by Air India directly to the concerned agencies.

According to the agreement, the assessee did not transfer any rights in the copyrighted product but only permitted its use. At no point in time was the ownership of the content transferred to Air India Ltd., nor was the know-how to develop such a product assigned to Air India Ltd. by the assessee. The assessee is merely providing copyrighted content.

Hence, the payments received by the assessee for performing the task of procuring and processing content for screening the same on the IFE system of airlines do not fall within the meaning of royalty as defined in Article 13(2) of India-UK DTAA.

List of Cases Reffered to

• DIT v. New Skies Satellite BV [2016] 68 taxmann.com 8/238 Taxman 577/382 ITR 114 (Delhi) (para 5.1)
• Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT [2021] 125 taxmann.com 42/281 Taxman 19/432 ITR 471 (SC) (para 7).