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Commercializing Copyright – A Taxing Event for the Copyright Owner?
With the ever-growing avenues to exploit copyrightable works, the copyright holders strive to exploit their copyright and copyrightable works through various modes to maximize the economic returns on their copyright and copyrightable works. Different methods of commercial exploitation of the copyright lead to taxable events both under direct taxes and indirect taxes. This paper attempts to broadly discuss the provisions relating to the taxation of income generated out of the exploitation of the economic rights of copyright holders/owners, including aspects of international taxation and GST, with the help of recent decisions. This paper, through its analysis, helps the readers to appreciate the balance achieved by the legislators in promoting the creation of intellectual works and revenue generation.
Keywords
Copyright, Economic Rights, Commercial Exploitation, Taxation, Royalty, Income, Income Tax, GST, Service Tax.
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- Section 2(o) of the Copyright Act, 1957.
- Section 2(h) of the Copyright Act, 1957.
- Section 2(p) of the Copyright Act, 1957.
- Section 2(c) of the Copyright Act, 1957.
- Section 2(f) of the Copyright Act, 1957.
- Section 2(xx) of the Copyright Act, 1957.
- Clause (a) read with clause (c) of the proviso to Section 17 of the Copyright Act, 1957.
- Section 2(d) of the Copyright Act, 1957.
- Clause (b) of the proviso to Section 17 of the Copyright Act, 1957.
- Second proviso to Section 17 of the Copyright Act, 1957.
- Section 18 of the Copyright Act, 1957.
- Section 19 of the Copyright Act, 1957.
- Section 30 of the Copyright Act, 1957.
- Section 2(qq) of the Copyright Act, 1957.
- Section 2(q) of the Copyright Act, 1957.
- Section 37 the Copyright Act, 1957.
- Sections 38 and 38A of the Copyright Act, 1957.
- Section 39A of the Copyright Act, 1957.
- Section 2(24) of the IT Act, 1961.
- Section 4 of the IT Act, 1961.
- Section 2(31) of the IT Act, 1961.
- Section 5 of the IT Act, 1961.
- Section 6 of the IT Act, 1961.For instance: A company is a resident in India under the IT Act in a FY when either (a) it is an ‘Indian company’; or (b) its ‘place of effective management’ The phrase ‘place of effective management” means ’a place where key management and commercial decisions that are necessary for the conduct of business of an entity as a whole are, in substance made’.
- Section 5(1) of the IT Act, 1961.
- Section 5(2) of the IT Act, 1961.
- Section 2(45) of the IT Act, 1961.
- CIT v Bhagwan Broker Agency [1995] 212 ITR 133 (Rajasthan).
- CIT v Manmohan Das [1966] 59 ITR 699 (SC).
- Section 2(13) of the IT Act, 1961.
- Karnani Properties Ltd v CIT, [1971] 82 ITR 547 (SC) followed in CIT v M.P. Bazaz, [1993] 200 ITR 131.
- Lala Indra Sen, In re, (1940) 8 ITR 187 (All)
- Narain Swadeshi Weaving Mills v CEPT, (1954) 26 ITR 765 (SC).
- Section 37(1) of the IT Act, 1961.
- Section 43(6)(c) of the IT Act, 1961.
- Section 2(11) of the IT Act, 1961.It means a group of assets falling within a class of assets comprising either (a) tangible assets, or (b) intangible assets, being know-how, patents, copyrights, trademarks, licenses, franchises or any other business or commercial rights of similar nature, not being goodwill of a business or profession, in respect of which the same percentage of depreciation is prescribed.
- Section 32(1)(ii) of the IT Act read with Rule 5(1) of the Income Tax Rules, 1962 (“IT Rules”) and Part B of Appendix I of IT Rules.
- Section 56(1) of the IT Act, 1961.
- Section 57(iii) of the IT Act, 1961.
- Section 194J(1) of the IT Act, 1961.
- Explanation 2 to Section 9(1)(vi) of the IT Act, 1961.
- Section 80B(5) of the IT Act, 1961.It means ‘the total income computed in accordance with the provisions of this Act, before making any deduction’ under Chapter VIA of the IT Act, 1961.
- Section 80A(1) of the IT Act, 1961.
- As per Explanation (d) to Section 80QQB of the IT Act, lump sum, “in regard to royalties or copyright fees, includes an advance payment on account of such royalties or copyright fees which is not returnable”.
- First proviso to Section 80QQB(2) of the IT Act, 1961.
- Explanation (b) to Section 80QQB of the IT Act. 1961 – ‘brochures, commentaries, diaries, guides, journals, magazines, newspapers, pamphlets, text-books for schools, tracts and other publications of similar nature, by whatever name called’
- Section 115A(1)(b) of the IT Act, 1961.
- Plus applicable surcharge and cess
- As per Explanation (c) to Section 44DA of the IT Act, the term ‘permanent establishment’ is defined to include “a fixed place of business through which the business of the enterprise is wholly or partly carried on”.
- Section 44DA of the IT Act, 1961.
- Section 90(2) of the IT Act, 1961.
- Section 48(1) of the IT Act, 1961.
- Section 2(14) of the IT Act, 1961.
- As per H. Mohmed & Co. v CIT [1977] 107 ITR 637 (Gujarat), a’ stock-in-trade’ is “something in which a trader or a businessman deals; whereas his capital asset is something with which he deals. It is possible that one and the same commodity may in the case of one assessee be his stock-in-trade, whereas in the case of another assessee it may be his capital asset.For example, in the case of an assessee who carries on the business of buying and selling land, land may be his stock-in-trade but in the case of an assessee who has invested his savings in land and gets income from the land or the structures put up on the land, the land is his capital asset. Therefore, one of the indications for deciding as to what is stock in-trade is whether a particular assessee is buying or selling the commodity or whether he has merely invested his amount with a view to earn further income or with a view to carry on his other business. It may be pointed out that ‘trade’ means that particular business activity where the person engaged in the profession buys or sells. All businesses may be carried on for the purpose of earning a profit but that particular kind of business where the businessman buys and sells a commodity can only be designated as ‘trade’.” [Emphasis supplied]
- Section 2(47) of the IT Act, 1961.
- Section 2(42A) of the IT Act, 1961.
- Second proviso to Section 48 of the IT Act, 1961.
- Index notified by the Central Government in the Official Gazette (having regard to 75% of average rise in the Consumer Price Index (urban)) as per Clauses (v) of the Explanation to Section 48 of the IT Act, 1961.
- Clauses (iii) of the Explanation to Section 48 of the IT Act, 1961.
- Clauses (iv) of the Explanation to Section 48 of the IT Act, 1961.
- Plus applicable surcharge and cess. Section 112(1) of the IT Act, 1961.
- [1987] 168 ITR 733 (Bombay).
- Section 50 of the IT Act, 1961.
- Explanation 2 to Section 9(1)(vi) of the IT Act, 1961.
- ‘GST laws collectively refers CGST Act and Integrated Goods and Services Tax Act, 2017 (“IGST Act”).
- Section 9(1) of the CGST Act and Section 5(1) of the IGST Act, 2017
- Section 7(1) of the CGST Act, 2017
- Section 2(52) of the CGST Act, 2017
- Section 2(102) of the CGST Act, 2017
- Schedule II to the CGST Act, 2017
- Entry 5(c) of Schedule II to the CGST Act, 2017
- Serial No. 452P of Notification No. 1/2017 Central Tax (Rate), dated 28-6-2017 read with Notification No. 13/2021 Central Tax (Rate), dated 27-10-2021.
- Serial No. 17 item (ii) of Notification No. 11/2017 Central Tax (Rate) dated 28-6-2017 read with Notification No. 6/2021 Central Tax (Rate), dated 30-9-2021.
- USV (P.) Ltd., In re, [2021] 133 taxmann.com 296 (AAR - MAHARASHTRA), the question of classification of transfer of registered trademarks as either supply of goods or supply of services under GST law was raised. However, based on the certain procedural the application for advance ruling was rejected as being not maintainable under section 95 of CGST Act.
- Notification No. 25/2012-ST, dated 20-6-2012 as amended by Notification No. 3/2013-ST, dated 1 March 2013.The relevant extract is “15. Services provided by way of temporary transfer or permitting the use or enjoyment of a copyright – (a) covered under clause (a) of sub-section (1) of Section 13 of the Copyright Act, 1957 (14 of 1957), relating to original literary, dramatic, musical or artistic works; or (b) of cinematograph films for exhibition in a cinema hall or cinema theatre;”
- Explanation 3 to Section 9(1)(vi) of the IT Act, 1961.
- Section 2(ffc) of the Copyright Act.
- Explanation 2 to Section 9(1)(vi) of the IT Act, 1961.
- Explanation 4 to Section 9(1)(vi) of the IT Act, 1961.
- Section 90(2) of the IT Act, 1961.
- (2022) 3 SCC 321.
- The extract of the relevant paragraphs is “180. Given the definition of “royalties” contained in Article 12 of the DTAAs mentioned in Para 46 of this judgment, it is clear that there is no obligation on the persons mentioned in Section 195 of the Income Tax Act to deduct tax at source, as the distribution agreements/EULAs in the facts of these cases do not create any interest or right in such distributors/end-users, which would amount to the use of or right to use any copyright. The provisions contained in the Income Tax Act [Section 9(1)(vi), along with Explanations 2 and 4 thereof], which deal with royalty, not being more beneficial to the assessees, have no application in the facts of these cases.181.Our answer to the question posed before us, is that the amounts paid by resident Indian end-users/distributors to non-resident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in Section 195 of the Income Tax Act were not liable to deduct any TDS under Section 195 of the Income Tax Act. The answer to this question will apply to all four categories of cases enumerated by us in Para 3 of this judgment.”
- Commissioner of Income Tax International Taxation & Anr v Engineering Analysis Centre of Excellence Pvt Ltd, RP(C) 1422/2021.
- Rajgopalan Ganesh CA, Taxation of Copyright Royalties in India: Interplay of Copyright Law and Income Tax, Oak Bridge Publishing Pvt Ltd, Gurugram (2019).
- In re [2009] 182 Taxman 268 (AAR)
- In re [2005] 142 Taxman 284 (AAR) (thereafter affirmed by Hon’ble Bombay High Court)
- ITA No. 1683/Mum./2015
- Income Tax Officer (International Taxation)-I, Ahmedabad v Cadila Healthcare Ltd. [2017] 77 taxmann.com 309/162 ITD 575 (Ahmedabad - Trib.); Deputy Commissioner of Incometax (International Taxation) Ahmedabad v Welspun Corporation Ltd. [2017] 77 taxmann.com 165 (Ahmedabad - Trib.)
- ESPN Star Sports v Global Broadcast News Ltd. 2008 (38) PTC 477 (Delhi); Akuate Internet Services (P) Ltd v Star India (P) Ltd. [FAO (OS) 153/2013], CIT v Delhi Race Club (1940) Ltd [2015] 228 Taxman 185 (Delhi HC)
- Fox Network Group Singapore (P.) Ltd. v ACIT [2020] 121 taxmann.com 330 (Delhi ITAT); CIT v Delhi Race Club (1940) Ltd [2015] 228 Taxman 185 (Delhi HC); DDIT v Nimbus Communications Ltd [2013] 32 taxmann.com 53 (Mumbai ITAT); and ADIT v Neo Sports Broadcast (P.) Ltd. [2011] 15 taxmann.com 175 (Mumbai ITAT)
- Agrawal A, Singhal S & Sakthivel M, Ownership and transfer of ‘Musical Work’ and ‘Sound Recording’– A case for Service Tax, Journal of Intellectual Property Rights, 27 (3) (2022) 227.
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