Assessee's Appeal Allowed, Revenue's Dismissed, Payments Not Royalty under India-Malaysia DTAA

The appeal by the assessee was allowed, and the appeal by the Revenue was dismissed. The delay in filing the appeal was condoned. Payments for advertising rights were categorized into two groups, with only one group considered as Royalty. The Tribunal determined that the payments did not fall under the definition of Royalty per the India-Malaysia DTAA. The argument invoking Article 28 for limitation of benefits was rejected as TSA Malaysia was deemed to have substantial business operations. Consequently, the payments were not taxable in India under the treaty provisions.

---

---

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Characterization of payments as Royalty.
3. Applicability of Article 28 of India-Malaysia DTAA.
4. Taxability of payments under the advertising package/rights.

Condonation of Delay:

In the larger interest of justice, the slight delay of 16 days in filing the appeal by the assessee is condoned. During the hearing, the learned DR also did not raise any objection against the condonation of the aforesaid delay.

Characterization of Payments as Royalty:

The Revenue argued that the payments made by the assessee for advertising rights should be classified as Royalty under section 9(1)(vi) of the Income Tax Act, 1961, and Article 12(3) of the India-Malaysia DTAA. The learned CIT(A) bifurcated the payments into two categories: Category A (display of logo, etc.) and Category B (use of "Official Partners", etc.). It was held that payments under Category A do not constitute Royalty, while payments under Category B do.

Upon review, the Tribunal found that the payments for the advertising package/rights do not fall within the definition of Royalty under Article 12(3) of the India-Malaysia DTAA. The Tribunal referenced the Delhi High Court's decision in DIT vs Sahara India Financial Corporation Ltd, which held that similar payments for title sponsorship rights do not constitute Royalty.

Applicability of Article 28 of India-Malaysia DTAA:

The Revenue contended that TSA Malaysia was a conduit to claim the benefit of the India-Malaysia DTAA and invoked Article 28, which provides for the limitation of benefits. The learned CIT(A) rejected this contention, noting that TSA Malaysia had substantial business operations and was not a mere conduit.

The Tribunal upheld the CIT(A)'s decision, stating that TSA Malaysia had a valid business presence and substantial operations, thus Article 28 of the India-Malaysia DTAA was not applicable.

Taxability of Payments under the Advertising Package/Rights:

The Tribunal concluded that the payments made by the assessee to TSA Malaysia for advertising rights do not constitute Royalty under the India-Malaysia DTAA. Consequently, the payments are not taxable in India under the treaty provisions. The Tribunal directed the Assessing Officer to delete the addition on account of the advertising package/rights in respect of Sri Lanka Cricket and West Indies Cricket Board Inc.

Conclusion:

In the result, the appeal by the assessee is allowed, while the appeal by the Revenue is dismissed.

---