Mumbai Tribunal rules that substantial viewership of Channel in India cannot be a reason to hold that Channel is situated in India; situs of intangibles is the situs of owner

In the case of Star Television Entertainment Ltd.^[1] (Taxpayer), one of the issues before the Tribunal pertained to whether income arising from transfer of TV channel is taxable in India.

In the facts of the case, Taxpayer a Hong Kong based company transferred ‘Star World’ channel vide a business agreement, to one of its sister concerns based in Hong Kong. The Taxpayer did not offer the gain arising out of such transaction to tax in India based on the contention that the transaction was undertaken between two non-residents and the underlying asset (i.e., channel) was not situated in India and, hence, no income accrued or can be deemed to accrue or arise in India. The Taxpayer also referred to certain decisions which supported that situs of an intangible asset is at the place where the owner of the asset is located.

The tax authority contended that the transfer of the Channel would result in trigger of indirect transfer provisions under the Income Tax Act (ITA). Further it contended that gains arising from transfer of channel can be deemed to accrue or arise in India and, hence taxable in India basis the following arguments:

• The very nature of the asset and its ability to regularly generate income from India created a strong nexus and business connection with India.
• Various elements of the asset being the brand name, logo, contents, permits, customer base (advertisements), substantial viewer base etc. located in India hence the situs of the channel was in India.

The Mumbai Tribunal ruled in favor of the Taxpayer and held that gains from transfer of channel is not taxable in India for the following reasons:

• Delhi High Court in the case of Cub Pty Ltd^.[2] held that the situs of intangibles (such as Channel, here) is the situs of the owner i.e., outside India. The down-linking license obtained by the Taxpayer from Ministry of Information and Broadcasting of India, establishes that ownership of the channel is situated outside India. Accordingly, applying the ratio of Delhi High Court, the Tribunal held that the situs of the channel is also outside India.
• Delhi HC decision in the case of Asia Satellite Telecommunications Co Ltd.^[3] supports that merely because the footprint area includes India and the viewers of the channel are located in India, does not amount to carrying on of a business in India.
• The indirect transfer provision under the ITA is a deeming provision which deems that a share or interest in a company or entity located outside India is located in India, if such share or interest derives substantial value from assets in India. However, there is no such specific provision with regard to the situs of intangible assets.

Without prejudice, the indirect transfer provisions require that for an asset to be deemed as being situated in India, it must derive substantial value from assets in India.  While there may be merit in the argument that viewership in India may affect the determination of whether the Channel derives substantial value from India, tax authority has not brought any material on record to show that the Channel derives substantial value from assets in India.

[1] ITA No. 1814/Mum/2014; dated 8 December 2023
[2] (2016) 71 taxmann.com 315
[3] 332 ITR 340