License fees for live broadcasting rights don't qualify as royalty under Section 9(1)(vi) and DTAA Article 12

The ITAT Delhi held that license fees for live broadcasting rights do not constitute royalty under Section 9(1)(vi) and DTAA Article 12, as the treaty definition of 'process' was not amended to include satellite transmission. However, for bundled contracts containing both live and recorded content, the tribunal modified the apportionment from assessee's claimed 5% recorded/95% live to 10% recorded/90% live coverage. The AO was directed to apply correct tax rates for non-resident payers. The assessment order was quashed as the Section 148 notice was barred by limitation under amended provisions, not being covered under TOLA.

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The core legal questions considered by the Appellate Tribunal (AT) in these appeals pertain primarily to the taxability of income arising from broadcasting rights granted by the assessee, a non-resident entity engaged in licensing broadcasting rights for live and recorded sports events. The principal issues are:

1. Whether the receipts from live broadcasting rights and bundled contracts (comprising both live and recorded content) constitute 'royalty' income under Section 9(1)(vi) of the Income Tax Act, 1961 (the Act) and the India-USA Double Tax Avoidance Agreement (DTAA).

2. The correctness of the Assessing Officer's (AO) and Dispute Resolution Panel's (DRP) apportionment of receipts between live and recorded content, specifically the rejection of the assessee's bifurcation of 5% towards recorded content and 95% towards live content.

3. The applicability of Explanation 6 to Section 9(1)(vi) of the Act, which defines 'process' to include transmission by satellite and similar technologies, in characterizing the receipts as royalty under the DTAA.

4. The validity and limitation aspects of notices issued under Section 148 of the Act for reassessment.

5. The correctness of the tax rates applied by the AO on receipts from resident and non-resident payers.

6. The entitlement of the assessee to credit for tax deducted at source (TDS) and self-assessment tax paid.

7. The initiation of penalty proceedings and levy of interest under relevant sections of the Act.

Issue-wise Detailed Analysis:

1. Taxability of Broadcasting Rights Receipts as Royalty under Section 9(1)(vi) and DTAA

Legal Framework and Precedents: Section 9(1)(vi) of the Act defines 'royalty' to include consideration for the use of, or the right to use, any copyright, trademark, or similar property or right. Explanation 2(1) to this section elaborates on the rights included, and Explanation 6 clarifies that 'process' includes transmission by satellite or similar technology. Article 12 of the India-USA DTAA broadly defines royalty to include payments for use of copyrights and processes related to broadcasting.

Precedents include the Delhi High Court's decision in CIT vs Delhi Race Club, which held that live telecast/broadcast does not constitute a 'work' under the Copyright Act and hence does not attract royalty tax. Similar views were expressed in Fox Network Group Singapore Pte Ltd and Lex Sportel Vision Pvt. Ltd. cases, where payments for live broadcasting rights were held not to be royalty absent transfer of copyright.

Court's Interpretation and Reasoning: The Tribunal noted that the AO and DRP had treated all receipts, including those from live content, as royalty income under Section 9(1)(vi) relying on Explanation 6 and the DTAA. However, the Tribunal relied on the Delhi High Court's authoritative rulings which distinguish between broadcasting rights and copyright. It emphasized that live broadcasting does not create copyright and thus does not qualify as royalty. The Tribunal also noted that the actual transmission of content was carried out by another entity, not the assessee, negating the applicability of 'process' under Explanation 6.

Application of Law to Facts: The assessee granted broadcasting rights for live and recorded content but did not engage in transmission. The Tribunal held that such licensing of broadcasting rights does not amount to transfer of copyright or use of a 'process' as per the DTAA or the Act. Consequently, receipts from live content cannot be taxed as royalty.

Treatment of Competing Arguments: The AO/DRP relied on Explanation 6 and the Viacom 18 Media decision, which involved payments for transmission of programs by satellite, to classify receipts as royalty. The assessee countered with binding High Court decisions rejecting this view and argued that Explanation 6 cannot be read into the DTAA unless the treaty itself is amended. The Tribunal agreed with the assessee, emphasizing treaty sanctity and the need for bilateral amendments to alter treaty definitions.

Conclusion: The Tribunal held that the entire receipts from live broadcasting rights do not constitute royalty under Section 9(1)(vi) or the India-USA DTAA. This issue was allowed in favor of the assessee.

2. Apportionment of Receipts Between Live and Recorded Content in Bundled Contracts

Legal Framework and Precedents: Apportionment of income in bundled contracts is a question of fact and commercial reality. The Supreme Court in Radhasoami Satsang and other decisions have held that such apportionment involves approximation and should be based on relevant material and consistency. Tribunal decisions in Neo Sports Broadcast and Fox Network Group accepted bifurcation with a small percentage (4-5%) attributed to recorded content.

Court's Interpretation and Reasoning: The AO rejected the assessee's bifurcation of 5% recorded and 95% live content, citing the need to consider additional rights such as use of clips, trademarks, and promotional rights, which relate to recorded content. The AO referred to a Mumbai Tribunal decision attributing 25% to recorded content in a cricket broadcasting context. The Tribunal acknowledged the AO's concerns but noted the differing popularity and commercial value of sports in the present case (football and badminton) compared to cricket.

Application of Law to Facts: The Tribunal accepted the assessee's rationale that live telecast commands higher value due to viewership and sponsorship, but adjusted the apportionment slightly to 10% recorded and 90% live content to account for ancillary rights associated with recorded content. This was deemed a fair and reasonable approximation based on industry practice and factual matrix.

Treatment of Competing Arguments: The AO's insistence on a higher percentage for recorded content was balanced against the assessee's consistent practice and documentary evidence of industry standards. The Tribunal favored a pragmatic approach recognizing the commercial realities of viewership and sponsorship.

Conclusion: The Tribunal partially accepted the assessee's apportionment, allowing 90% for live content and 10% for recorded content, thus partly allowing the appeal on this issue.

3. Applicability of Explanation 6 to Section 9(1)(vi) to DTAA and Characterization of Receipts as Royalty

Legal Framework and Precedents: Explanation 6 to Section 9(1)(vi) of the Act clarifies that 'process' includes transmission by satellite and similar technology. However, the Delhi High Court in New Skies Satellite BV and Engineering Analysis Centre of Excellence Pvt. Ltd. held that domestic amendments cannot be read into an international treaty unless the treaty itself is similarly amended.

Court's Interpretation and Reasoning: The Tribunal held that the AO erred in importing Explanation 6 into the DTAA definition of royalty. The DTAA's definition of 'process' remains unamended, and unilateral domestic amendments cannot alter treaty obligations. The Tribunal relied on authoritative Supreme Court and High Court decisions to affirm this principle.

Application of Law to Facts: Since the DTAA was not amended to include the expanded definition of 'process', the receipts from broadcasting rights cannot be characterized as royalty on the basis of Explanation 6 to Section 9(1)(vi) of the Act.

Treatment of Competing Arguments: The AO relied on Explanation 6 and the Viacom 18 Media decision, but the Tribunal distinguished those facts and emphasized treaty sanctity and the need for bilateral amendment.

Conclusion: The Tribunal rejected the AO's reliance on Explanation 6 for characterizing receipts as royalty under the DTAA.

4. Validity and Limitation of Notice under Section 148

Legal Framework: Section 149(1) prescribes limitation periods for issuance of notice under Section 148. The Taxation and Other Laws (Relaxation and Amendment of Certain Provisions) Act, 2020 (TOLA) provides certain relaxations but does not extend limitation under the first proviso to Section 149(1).

Court's Interpretation and Reasoning: The Tribunal followed the recent decision of the Mumbai Bench in Pushpak Realities Pvt. Ltd., which held that notices issued beyond the prescribed limitation period under Section 149(1) are invalid and liable to be quashed.

Application of Law to Facts: The notice under Section 148 for AY 2015-16 was issued on June 28, 2021, beyond the limitation period of March 31, 2022, and not covered under TOLA. Therefore, the notice was barred by limitation.

Conclusion: The Tribunal quashed the reassessment order for AY 2015-16 on limitation grounds and allowed the appeal.

5. Tax Rates Applied on Receipts from Resident and Non-Resident Payers

Legal Framework: Section 115A of the Act prescribes tax rates on royalty income from resident payers, and Article 12 of the India-USA DTAA prescribes rates for non-resident payers.

Court's Interpretation and Reasoning: The AO had taxed the entire amount at 40% plus surcharge and cess. The Tribunal observed that the correct rates are 10% for resident payers under Section 115A and 15% for non-resident payers as per the DTAA.

Application of Law to Facts: The Tribunal directed the AO to verify and apply the correct tax rates accordingly.

Conclusion: Grounds challenging the tax rates were allowed for statistical purposes.

6. Credit for TDS and Self-Assessment Tax

Legal Framework: Taxpayers are entitled to credit for TDS and self-assessment tax paid against their tax liability.

Court's Interpretation and Reasoning: The Tribunal directed the AO to verify and allow the credit of TDS amounting to INR 1,77,696 and self-assessment tax of INR 31,22,870.

Conclusion: This ground was allowed with directions for verification and credit adjustment.

7. Penalty Proceedings and Interest Levy

Legal Framework: Penalty provisions under Sections 271F, 271(1)(c), and interest under Sections 234A and 234B of the Act.

Court's Interpretation and Reasoning: The assessee did not press the penalty ground, and it was dismissed as not pressed. Interest levy was not adjudicated due to quashing of assessment in one appeal.

Conclusion: Penalty ground dismissed as not pressed; interest issue left undecided.

Significant Holdings:

"A live telecast/broadcast is not a 'work' within the meaning of the Copyright Act and does not attract copyright protection; therefore, payments for live broadcasting rights do not constitute 'royalty' under Section 9(1)(vi) of the Act or the India-USA DTAA."

"Explanation 6 to Section 9(1)(vi) of the Act, which expands the definition of 'process' to include transmission by satellite and similar technologies, cannot be read into the India-USA DTAA unless the treaty itself is amended; unilateral domestic amendments do not alter treaty provisions."

"Apportionment of consideration in bundled contracts between live and recorded content involves approximation based on commercial realities and industry practice; a bifurcation of 90% live and 10% recorded content is a reasonable and acceptable estimation in the facts of this case."

"Notices issued under Section 148 of the Act beyond the prescribed limitation period under Section 149(1) are invalid and liable to be quashed, notwithstanding relaxations under TOLA."

"Taxation of receipts from resident and non-resident payers must follow the rates prescribed under Section 115A of the Act and the India-USA DTAA respectively, and not arbitrary higher rates."

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