2024 (1) TMI 1008 - HC - Income Tax

Live transmission fees cannot be classified as royalty income under Section 9(1)(vi), distinguishing from non-live broadcasting content.

The Commissioner Of Income Tax -International Taxation -1 Versus Fox Network Group Singapore Pte Ltd. and Ess (Formerly Known As Espn Star Sports)

The Delhi HC dismissed appeals challenging ITAT orders regarding classification of income from live transmission as royalty under Section 9(1)(vi). The ... Accrual of income in India - royalty receipt - income as stated to have been earned from sublicensing of broadcasting ‘non live’ content as per the Master Rights Agreement [“MRA”] - as per assessee submission essentially appears to have been that transmission of ‘live feed’ through satellite would not fall within the ambit of Section 9(1)(vi) and the Explanations appended thereto. Insofar as the bifurcation of the royalty earned in the ratio of 95% and 5% was concerned, the respondent referring to the stipulations forming part of the Novation Agreement had contended that the latter alone was liable to be recognised as revenue generated from ‘non live’ feed. Whether income derived from transmission of ‘live feed’ would fall within the ambit of royalty? - As reliance appears to have been placed on the decision rendered by a Division Bench of our Court in Commissioner of Income Tax v. Delhi Race Club [2014 (12) TMI 265 - DELHI HIGH COURT]. The attention of the ITAT was additionally drawn to the decisions rendered by M/s Neo Sports Broadcast Private Limited [2011 (11) TMI 23 - ITAT MUMBAI] and Nimbus Communications Limited [2013 (9) TMI 795 - ITAT MUMBAI] wherein the issue had come to be decided and answered in favour of the assessee. Bifurcation of revenue - We find no merit in the contention of the appellants that the ratio adopted for the purposes of bifurcation of income was either unsubstantiated or arbitrary. Whether service from which income was generated would clearly fall within the ambit of Explanation 2 as placed in Section 9(1)(vi)? - In light of the unequivocal conclusions as expressed by the Division Bench in Delhi Race Club[2014 (12) TMI 265 - DELHI HIGH COURT] and with which we concur, we find that once the Court came to the conclusion that a live telecast would not fall within the ambit of the expression ‘work’, it would be wholly erroneous to hold that the income derived by the assessee in respect of ‘live feed’ would fall within clause (v) of Explanation 2 to S.9(1)(vi) of the Act. As in the facts of the present case, it is admitted to the appellant that the actual transmission of content was undertaken by SIPL and not by the respondent. The Explanation, therefore in our considered opinion does not detract from the correctness of the view as ultimately expressed by the ITAT. ITAT did not commit any error in passing the impugned orders dated 20 March 2020 and 21 February 2023 and that it was completely justified in arriving at the finding that the fees received by the respondents towards live transmission could not be classified as royalty income under Section 9(1)(vi) of the Act. Consequently, no substantial question of law arises in the instant appeals and the appeals stand dismissed on the aforesaid terms. Issues Involved:1. Delay in refiling the appeal.2. Classification of income from live feed transmission as royalty.3. Bifurcation of revenue between live and non-live transmissions.4. Applicability of Explanation 6 to Section 9(1)(vi) of the Income Tax Act, 1961.5. Primacy of Double Taxation Avoidance Agreements over domestic statutes.Summary:1. Delay in refiling the appeal:The court condoned the delay of 480 days in refiling the appeal, considering the disclosures made by the appellant.2. Classification of income from live feed transmission as royalty:The primary issue was whether income derived from the transmission of live feed falls within the ambit of royalty under Section 9(1)(vi) of the Income Tax Act, 1961. The respondent argued that only income from non-live feed should be classified as royalty, while income from live feed should not. The ITAT upheld this view, relying on previous judgments, including Commissioner of Income Tax v. Delhi Race Club, which concluded that live telecast does not constitute a 'work' under the Copyright Act and thus does not fall within the definition of royalty.3. Bifurcation of revenue between live and non-live transmissions:The ITAT found the bifurcation of revenue into 95% for live transmissions and 5% for non-live transmissions to be substantiated by the agreements between the parties. The court concurred with the ITAT's finding that the bifurcation was neither unsubstantiated nor arbitrary.4. Applicability of Explanation 6 to Section 9(1)(vi) of the Income Tax Act, 1961:The appellant argued that the income from live feed should be taxable under the term 'process' as defined in Explanation 6 to Section 9(1)(vi). However, the court noted that the actual transmission of content was undertaken by SIPL, not the respondent, and thus the explanation did not apply to the respondent's income.5. Primacy of Double Taxation Avoidance Agreements over domestic statutes:The court emphasized the primacy of Double Taxation Avoidance Agreements (DTAAs) over domestic statutes, citing the judgment in Director of Income Tax vs. New Skies Satellite. The court held that amendments to domestic law cannot alter the terms of a treaty unless the treaty itself is amended. This principle was crucial in determining that the income from live feed could not be classified as royalty under the DTAA terms.Conclusion:The court upheld the ITAT's decisions dated 20 March 2020 and 21 February 2023, finding no substantial question of law in the appeals. The fees received by the respondents for live transmission were correctly not classified as royalty income under Section 9(1)(vi) of the Income Tax Act, 1961. The appeals were dismissed accordingly.