2020 (3) TMI 1428 - AT - Income Tax

Tribunal rules live transmission fees not taxable as 'royalty' under tax laws

The tribunal allowed the appeal, ruling that fees for live transmission are not taxable as 'royalty' under the Act or the India-Singapore Tax Treaty. The ... Royalty receipt - assessee- company had received gross consideration under MRA on account of sub-licensing of sport broadcast right of ‘live’ and ‘non-live’ feed to SIPL - only with regard to the consideration received in relation to ‘live’ feeds, the assessee’s contention is that it does not constitute ‘royalty’ either under the Income Tax Act or under the India-Singapore Treaty - entire case of the Revenue hinges upon the reason that, the agreement consists of integrated bundle of rights licensed by the third parties like various international governing bodies for various sports events and there cannot be any distinction between the live transmission rights and non live transmission rights and there is no distinction as such in the agreement as part of designated right - whether the payment received for the grant of live broadcast rights are taxable in India, i.e., whether it falls under the definition of ‘royalty’ in terms of Section 9(1)(vi) and also as per Article 12 of India-Singapore Treaty? - HELD THAT:- The nature of right acquired is purely in respect of live feeds (in so far as 95% of the consideration of the receipt is concerned). Further, live feed is ephemeral in nature that it does not have any lasting time as it is not a film which can constitute a ‘work’ in which a copyright can be given. A live feed cannot constitute a ‘work’ in which copyright can subsist. There cannot be copyright on broadcast covering live events of sports. Here the 95% fee is for live transmission which is ephemeral and not for any recording of any event, visual or sound. Live broadcasting of sporting events does not emanate from any pre-recording of images or sound, so there cannot be any ‘work’ which comes into existence in a live feed or event and hence no right to use can be transferred. Recording for re-telecast or replays is not part of this live transmission fees nor any such event of commentary, etc., as assessee has not granted any such licence to conduct such activity, atleast nothing is borne out that live transmission fees consist of such activity also. So such an argument of the revenue cannot be accepted. As decided in the case of CIT vs. Delhi Race Club [2014 (12) TMI 265 - DELHI HIGH COURT] clinches the issue in favour of the assessee, wherein it has been categorically held that there is a clear distinction between a copyright and a broadcasting right, broadcast or live coverage which does not have a copyright, and therefore, payment for live telecast is neither payment for transfer of any copyright nor any scientific work so as to fall under the ambit of royalty under Explanation 2 to Section 9(1)(vi). Reference of phrase ‘process’ in Explanation 6, the same will not be applicable in the case of the assessee, because admittedly it is SIPL which is doing the transmission and makes the payment to Asia Satellite and it is not a case of transfer of process. On similar set of issues on live broadcast of sporting and cricket events, ITAT Mumbai Bench in the case of Neo Sports Broadcast Pvt. Ltd. [2011 (11) TMI 23 - ITAT MUMBAI] and Nimbus Communication Ltd. [2013 (9) TMI 795 - ITAT MUMBAI] have held that there is no copyright on live events, and therefore, it is not taxable as ‘royalty’. Thus, we hold that the fee received towards live transmission cannot be taxed as ‘royalty’ in terms of Section 9(1)(vi) as held by the Hon’ble Jurisdictional High Court and also by the Co-ordinate Bench of ITAT. Accordingly, we decide this issue in favour of the assessee. Issues Involved:1. Determination of total income.2. Characterization of income from sublicensing of 'Designated Rights' as 'Royalty'.3. Transfer of rights in respect of a 'Process'.4. Unilateral amendment of the term 'process' under the Act.5. Nature of 'Designated Rights' as a 'bouquet of rights'.6. Bifurcation of license fees into fees for 'live transmission' and 'non-live transmission'.7. Justification of bifurcation of license fees.8. Applicability of the Delhi Race Club decision.9. Levying interest under section 234B.10. Initiation of penalty proceedings under Section 271(1)(c).Detailed Analysis:1. Determination of Total Income:The appellate tribunal addressed the issue of determining the total income of the appellant, which was contested to be Rs 11,81,68,93,675 instead of Rs 65,77,75,300 as declared by the appellant. The tribunal noted that the assessee, a tax resident of Singapore, had offered an income of Rs. 66,77,75,300/- to tax in India, which included royalty income from sublicensing of broadcasting rights and fees for technical services.2. Characterization of Income from Sublicensing of 'Designated Rights' as 'Royalty':The tribunal examined whether the income earned by the appellant from sublicensing 'Designated Rights' pertaining to 'live' transmissions of sporting events could be characterized as 'Royalty' under the Act and the India-Singapore Tax Treaty. The tribunal concluded that the income from 'live' feeds does not constitute 'royalty' as it does not involve any copyright. The tribunal relied on the judgment of the Hon’ble Jurisdictional High Court in the case of CIT vs. Delhi Race Club (1940) Ltd., which held that live telecast does not fall within the category of 'royalty' because it does not have any copyright.3. Transfer of Rights in Respect of a 'Process':The tribunal evaluated whether the sublicensing of 'Designated Rights' involves the transfer of rights in respect of a 'Process' as per Explanation 6 to Section 9(l)(vi) of the Act and Article 12 of the India-Singapore Tax Treaty. The tribunal concluded that the live transmission rights do not get covered in the definition of 'process' as there is no recording by way of cinematographic film or sound recording involved in live broadcast.4. Unilateral Amendment of the Term 'Process' under the Act:The tribunal addressed the appellant's contention against the unilateral amendment of the term 'process' under the Act being imported into the definition of 'royalty' under Article 12 of the India-Singapore Tax Treaty. The tribunal held that the unilateral amendment does not apply to the definition of 'royalty' in the treaty context.5. Nature of 'Designated Rights' as a 'Bouquet of Rights':The tribunal assessed whether the 'Designated Rights' sublicensed by the appellant constitute a 'bouquet of rights' and not just 'broadcasting rights'. The tribunal observed that the agreements indicated a clear bifurcation between live and non-live transmissions, with 95% of the fees attributable to live transmissions and 5% to non-live transmissions.6. Bifurcation of License Fees into Fees for 'Live Transmission' and 'Non-Live Transmission':The tribunal examined the bifurcation of license fees into fees for 'live transmission' and 'non-live transmission'. The tribunal found that the agreements clearly acknowledged and agreed upon the bifurcation, with specific clauses attributing 95% of the fees to live transmissions and 5% to non-live transmissions.7. Justification of Bifurcation of License Fees:The tribunal addressed the justification of the bifurcation of license fees, noting that the agreements and submissions provided clear evidence of the bifurcation, which was acknowledged by the parties involved.8. Applicability of the Delhi Race Club Decision:The tribunal relied heavily on the Delhi Race Club decision, which held that payments for live telecast do not constitute 'royalty' as there is no copyright involved. The tribunal found this decision directly applicable to the present case.9. Levying Interest under Section 234B:The tribunal did not provide a detailed analysis on the issue of levying interest under section 234B, treating it as general in nature.10. Initiation of Penalty Proceedings under Section 271(1)(c):The tribunal also did not provide a detailed analysis on the initiation of penalty proceedings under Section 271(1)(c), treating it as general in nature.Conclusion:The tribunal allowed the appeal of the assessee, concluding that the fees received for live transmission cannot be taxed as 'royalty' under Section 9(1)(vi) of the Act or Article 12 of the India-Singapore Tax Treaty. The other grounds raised were treated as general in nature and did not require further analysis. The appeal was allowed in favor of the assessee.