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News Alert
14 November, 2011
Payment for granting of license for ‘live broadcasting’ of cricket matches not royalty
In brief
In a recent ruling, the Mumbai Bench of the Income-tax Appellate Tribunal (“the
Tribunal”), in the case of Neo Sports Broadcast Pvt. Ltd.1 (“assessee”), held that
consideration for live broadcasting cannot be treated as income chargeable to tax
in the hands of a non-resident, as royalty income. It therefore held that, there was
no withholding tax requirement under section 195 of the Income-tax Act, 1961 (the
“Act”). The Tribunal also held that a non-resident cannot be said to have a business
connection under section 9 of the Act in India if that non-resident only allows a
resident (assessee) to exploit certain rights for a defined consideration on a
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commercial basis, even though this has resulted in the resident earning
subscription and advertisement revenues in India.
Facts
The assessee is a company incorporated in, and is a tax resident of India.
In February 2008, the assessee entered into an agreement with Nimbus Sports
International Pte. Ltd. (“Nimbus”) incorporated in Singapore, a commercial agent
of Bangladesh Cricket Board, for the grant of a license for live broadcasting and
pre-recorded broadcasting of cricket matches that were to be played in Bangladesh.
ADIT v. Neo Sports Broadcast Pvt. Ltd. [TS-649-ITAT-2011 (Mum)]
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PwC News Alert
November 2011
The assessee made an application under section 195(2) of the Act to seek
permission for NIL deduction of tax in India on payment to Nimbus for live
broadcasts, and the deduction of tax at the rate applicable to royalty payment for
recorded broadcasts.
The assessing officer (“AO”) considered live broadcasting within the meaning of
royalty as defined in Explanation 2 to section 9(1)(vi) of the Act. The AO further
held that since the assessee would earn income by way of advertisement revenue
and subscription revenue, which would accrue as a result of the receipt of signal of
matches played in India, there was a business connection between Nimbus and
these receipts in India under section 9 of the Act.
Upon the assessee’s appeal, the Commissioner of Income-tax (Appeal) (“CIT(A)”)
upheld the AO’s contention as regards the business connection of Nimbus in India.
However, he did not accept the contentions of the AO that consideration towards
live broadcasting were covered within the meaning of royalty under the Act. He
therefore held that there was no requirement of deduction of tax under section 195
of the Act.
The revenue filed an appeal against the order passed by CIT(A) before the
Tribunal. Though the assessee did not file a cross-appeal before the Tribunal, it
filed an application under Rule 27 of the Appellate Tribunal Rules, 1963 assailing
the findings given by CIT(A) that Nimbus has a business connection in India. The
Tribunal admitted the assessee’s application and decided the question of business
connection on merits.
•
Assessee’s contentions
•
Payments made towards the live broadcasting of matches were not covered
within the ambit of the definition of a royalty as provided in Explanation 2 to
section 9(1)(vi) of the Act. The live broadcasting of an event would not
tantamount to a work in the specific context of ‘cinematograph film’ as defined
in section 2(f) read with section 2(y) of the Copyright Act, 1957.
•
Furthermore, it was argued that there was no infringement of copyright in
depicting the live event for the reason that there was no copyright in live events
and therefore it would not be covered under the definition of copyright as
envisaged by section 14 of the copyright Act 1957.
•
‘The live coverage of any event’ is specifically included in the definition of a
royalty in the proposed Direct Taxes Code Bill 2010, which categorises
copyright and live coverage in distinct sub -clauses and fairly indicates them to
be independent of each other.
•
Reliance was placed on the Supreme Court’s judgement in the case of R. D.
Aggarwal2 to contend that no business connection exists between Nimbus and
receipts in India under section 9(1)(i) of the Act.
•
As there was no business connection and the payment could not be considered
as a royalty, the assessee was not required to withhold taxes under section 195
of the Act from the payments to Nimbus.
Issues before Tribunal
•
Does the consideration for the granting of a license for the live broadcasting of
sports event constitute royalty under section 9(1)(vi) of the Act?
•
Can Nimbus be said to have a business connection in India under section
9(1)(i) of the Act?
Is the assessee required to withhold taxes under section 195 of the Act?
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CIT v. R.D. Aggarwal & Co. & Anr. [1965] 56 ITR 20 (SC)
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PwC News Alert
November 2011
Revenue’s contentions
•
The payment made by the assessee towards licence fees for live broadcasting
was covered within the definition of royalty as provided in Explanation 2 to
section 9(1)(vi) of the Act.
•
It was observed that without the receipt of signal for the matches to be played,
no income would accrue to the assessee in India. Hence, there was a business
connection between Nimbus and receipts in India by way of advertisement and
subscription revenues.
Nimbus in India. Some sort of business activity must be performed by the nonresident in the taxable territory of India which provides directly or indirectly to
the earning of those profits or gains. The relevant criterion is the carrying out
of business operations by the non-resident in India and not the earning of
income by merely allowing commercial exploitation of its assets for a
consideration.
•
The Tribunal relied on the judgement of the Supreme Court in the case of R. D.
Aggarwal2 in which it was held that, in the absence of performing some
operations in India, there was no business connection in India. Attribution
principles of section 9(1)(i) of the Act, which provide that only that part of the
income as is reasonably attributable to the operations carried out in India shall
be deemed to accrue or arise in India, would fail as the non-resident (Nimbus)
in this case cannot be said to have carried out any business in India.
•
As the consideration for live broadcasting does not fall either under section
9(1)(i) or under section 9(1)(vi) of the Act, such amount was not chargeable to
tax in India and therefore there was no question of deduction of tax at source
under section 195 of the Act on payment to Nimbus.
Tribunal Ruling
•
•
The consideration for live broadcasting would not amount to a consideration
for the transfer of copyright of a work as per the Copyright Act, 1957. The
granting of exclusive rights to do any work can arise only when that work has
come into existence. The existence of work is a precondition and must precede
the granting of exclusive rights for doing that work. The process of doing or
creating a work itself cannot be simultaneous with the use of that work.
Reference was also drawn to the Direct Taxes Code Bill, 2010, in which
consideration for live coverage of any event is specifically included in the
definition of the term “royalty” which is not so under the provisions of the Act.
•
Therefore, any consideration for live broadcasting cannot be considered as a
royalty for the purpose of the transfer of copyright so as to fall within the
domain of Explanation 2 to section 9(1)(vi) of the Act.
•
In respect of the business connection, it has been held that the mere act of
allowing the assessee by Nimbus to broadcast the live coverage of the matches
for a defined consideration would not constitute a business connection of
Conclusion
The consideration for the granting of license for live broadcastings of sports events
does not fall within the Explanation 2 to section 9(1)(vi) of the Act, as royalty.
Furthermore, unless a business connection is established for the reason of an
activity carried on by the non-resident (Nimbus) in India, that amount would not
be chargeable to tax under the provisions of the Act in the hands of the nonresident (Nimbus).
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