2023 (8) TMI 1253 - AT - Income Tax

Tribunal Allows Appeal: Deletes 'Royalty' Additions, Grants Tax Credit, Dismisses Premature Penalty Proceedings.

Cricket Australia Versus ACIT (International Taxation), Circle-1 (2) (1), Delhi.

The appeal was partly allowed by the Tribunal, which directed the deletion of additions related to 'Royalty' and granted credit for taxes withheld at ... Royality u/s 9 - Addition in respect of license fee for live and non-live transmission qua Sony Pictures Networks India Pvt.Ltd. - whether live transmission of sports events in the modern era is not merely a process of streaming event from the venue to the television set of the viewer? - As per the AO, there is a value addition in live transmission likely there are studios having hosts speaking vernacular languages, interviewing experts and celebrity guests and playing short bites of replay of important moments in the game/match even as the game continues - HELD THAT:- In the light of binding precedents in New Skies Satellite BV [2016 (2) TMI 415 - DELHI HIGH COURT] we are of the considered view that the AO was not justified in making the impugned addition. The Revenue has not pointed out that corresponding amendment has been made in DTAA. In the absence of any corresponding change into DTAA in terms, ratio laid down in New Skies Satellite BV (Supra) the amended provision of section 9 of the Act, would have no application. The AO is therefore, directed to delete the addition. Ground Nos. 1 to 4 raised by the assessee is allowed. Treatment of tournament fees and reimbursement of dinner tickets as Royalty - HELD THAT:- DRP had directed the AO to spell out the reasons for treating the amount in question as “Royalty”. The AO failed to spell out the reasons in final assessment order. He has simply repeated the findings of draft order. Therefore, in the absence of clear finding on the part of the AO as to how this amount should be treated as “Royalty”. The findings cannot be sustained. We therefore, direct the AO to delete this addition. Ground No.5 raised by the assessee is thus, allowed. Non-granting credit of tax withheld at source - HELD THAT:- Considering the submissions made by assessee, we hereby, direct the AO to verify the factum of withholding of tax at source amounting and grant credit in accordance with law. Ground No.6 raised by the assessee is thus, allowed. Issues Involved:1. Classification of license fees as 'Royalty' under the Income Tax Act and India-Australia DTAA.2. Application of Explanation 6 to Section 9(1)(vi) of the Act regarding 'Process.'3. Impact of unilateral amendment of domestic law on DTAA definitions.4. Non-adherence to judicial precedents.5. Classification of tournament fees and reimbursement of dinner tickets as 'Royalty.'6. Non-granting of credit for taxes withheld at source.7. Computation of interest liability under Sections 234A and 234B.8. Initiation of penalty proceedings under Section 270A.Summary:Issue 1: Classification of License Fees as 'Royalty'The assessee contested the AO's classification of license fees from Sony Pictures for live cricket transmissions as 'Royalty' under the Act and the India-Australia DTAA. The Tribunal referenced the Delhi High Court's decisions in CIT vs. Delhi Race Course Club and Director of Income Tax vs. New Skies Satellite BV, concluding that live telecast fees do not constitute 'Royalty' as they do not involve the transfer of any copyright or scientific work.Issue 2: Application of Explanation 6 to Section 9(1)(vi)The Tribunal rejected the AO's reliance on Explanation 6 to Section 9(1)(vi), emphasizing that domestic law changes do not alter DTAA terms unless both treaty parties amend the agreement. The Tribunal cited precedents, including the case of Fox Network Group Singapore Pte. Ltd., supporting the view that live transmission does not qualify as a 'process' under the Act.Issue 3: Impact of Unilateral Amendment on DTAA DefinitionsThe Tribunal upheld that unilateral amendments to domestic law, such as those in the Finance Act, 2012, do not affect DTAA definitions unless the treaty itself is amended. This principle was reinforced by the Delhi High Court in Director of Income Tax vs. New Skies Satellite BV.Issue 4: Non-Adherence to Judicial PrecedentsThe Tribunal noted that the AO and DRP failed to follow the jurisdictional High Court's decisions, which clearly distinguished between copyright and broadcasting rights, thereby invalidating the AO's classification of live telecast fees as 'Royalty.'Issue 5: Classification of Tournament Fees and Reimbursement of Dinner TicketsThe Tribunal found the AO's classification of tournament fees and dinner ticket reimbursements as 'Royalty' unsustainable due to the lack of clear reasoning. The Tribunal directed the AO to delete this addition.Issue 6: Non-Granting of Credit for Taxes Withheld at SourceThe Tribunal directed the AO to verify and grant credit for taxes withheld at source amounting to INR 55,98,776, as requested by the assessee.Issue 7: Computation of Interest LiabilityThe Tribunal deemed the issue of interest computation under Sections 234A and 234B as consequential and did not provide a separate ruling.Issue 8: Initiation of Penalty ProceedingsThe Tribunal dismissed the issue of penalty proceedings under Section 270A as premature and not requiring adjudication at this stage.Conclusion:The appeal was partly allowed, with the Tribunal directing the deletion of additions related to 'Royalty' and the granting of tax credit, while dismissing the premature penalty proceedings. The judgment emphasized adherence to judicial precedents and the non-applicability of unilateral domestic amendments to DTAA terms.