Mumbai ITAT upholds arm’s length treatment for Warner Bros distribution revenue, rejects ₹34.78 Cr addition

The Mumbai Income Tax Appellate Tribunal (ITAT) has deleted a ₹34.78 crore addition made by the Revenue on Warner Bros. Distributing Inc., rejecting the claim that distribution income from its Indian associate, Warner Bros. India, should be taxed as additional business income.

The Tribunal, comprising Vikram Singh Yadav (Accountant Member) and Sandeep Singh Karhail (Judicial Member), ruled that once transactions between a foreign parent and its Indian affiliate are conducted at arm’s length, there is no need for further profit attribution.

While the ITAT did not conclusively decide whether Warner Bros. India constitutes a Dependent Agent Permanent Establishment (DAPE), it emphasised that consistent arm’s length pricing over multiple years was sufficient to preclude additional tax liability.

The Tribunal referenced prior TPO orders for assessment years 2018-19 and 2022-23, where similar transactions were determined to be at arm’s length. It noted that the revenue model and arrangements remained unchanged, reinforcing the assumption of arm’s length pricing for the year under consideration.

On the issue of whether distribution revenue qualifies as royalty, the Tribunal relied on a coordinate bench ruling for AY 2006-07, concluding that such income cannot be taxed as royalty in India. Additionally, the ITAT directed the AO to tax interest income on income tax refunds at 15%, citing the Bechtel International Inc. ruling under the India–USA DTAA.

Meanwhile reacting on the development, Sandeep Sehgal, Partner – Tax at AKM Global, said, “The Tribunal has adopted a pragmatic and fair approach. When international transactions consistently adhere to arm’s length principles over multiple years without any material changes, there is no justification for additional profit attribution or aggressive tax adjustments—even in the presence of a DAPE. This decision reinforces the fundamental principle of transfer pricing: fair pricing and consistent business practices protect foreign parents against aggressive tax claims. It is a significant precedent for large media companies operating in India, showing that substance prevails over form.”Read about our editorial guidelines and ethics policy