The Mumbai bench of the Income Tax Appellate Tribunal (ITAT) clarified the taxability of the sum received from ICC events in India and held that 25% of the Licence Fee paid by SET Satellite (Singapore) Pte Ltd (SET) to Global Cricket Corporation Pvt Ltd (GCC) is a fair estimate.
The Assessing Officer had denied GCC the benefit of the provisions of DTAA. The CIT(A) overturned the decision of the Assessing Officer by holding that the benefit of provisions of DTAA would be available to GCC since the provisions of Article 24 of DTAA would not be attracted. The CIT(A) conclude that the income received by GCC from SET did not “arise” in India since the provisions of Article 12(7) of DTAA were not attracted.
The Revenue submitted that SET had obtained the rights in respect of the Indian territory and the matches were telecasted in India from which advertisement and distribution income were earned by SET from India.
It was submitted that the applicability or otherwise of Article 12(7) of the DTAA does not preclude the applicability to Article 12(1)/(2) of the DTAA as Article 12(1) of the DTAA lays down the principle of the exclusive right to tax royalties in state of the payee (i.e. Residence State) where Article 12(2) of the DTAA gives a secondary/limited right to tax royalties to the state of the payer (i.e. the Source State).
It was contended by GCC that the use of the term “arise” in Article 12(2) of DTAA when interpreted keeping in view the meaning of the term “arise” as per the provisions of the Act given Article 3(2) of the DTAA, leads to the conclusion that income which is “deemed to arise” in India in terms of Section 9 read with Section 5 of the Act would fall outside the ambit of Article 12(2) of the DTAA.
Article 12(3)(a) of DTAA defines “royalties” as payments received as consideration for use of, or right to use of (i) any copyright of a cinematograph film or tapes used for radio or television broadcasting, or (ii) any trade mark.
A Coram consisting of Shri Om Prakash Kant, AM and Shri Rahul Chaudhary, JM concluded that the “live” Feed received by SET also contains recorded content in which copyright subsisted as the rights granted to SET included exclusive right to communicate the Recordings/Feed to the public which amounted to grant of copyright.
The consideration for the same would also be liable to tax as “royalties” in terms of Article 12(2) read with Article 12(3)(a) of DTAA. This would require further apportionment of the amount of Licensee Fee allocated for Live Exhibitions.
The Tribunal observed that the Heads Agreement does not provide any break-up of the consideration and noted that the CIT(A) had, while deciding the appeal for the Assessment Year 2003-04, attributed 75% of the consideration for use of copyright in the live feed and balance 25% for use of copyright in non-live feed/transmission such as highlights, telecast of recorded matches etc.
While partly allowing the appeal of the revenue, the Tribunal held that “25% of the Licensee Fee paid by SET to GCC as a fair estimate of income taxable in India as „royalties‟ in terms of Article 12(2) read with Article 12(3)(a) of the DTAA.”
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