2025 (8) TMI 958 - AT - Income Tax

Fees for live telecast from broadcaster do not qualify as royalty under section 9(1)(vi) of the Act

ITAT-DEL held that fees received by the assessee for live telecast from a broadcaster do not constitute royalty under section 9(1)(vi) of the Act and ... Accrual of income in India or not - Royalty receipt - receipt for the live telecast received by the assessee from Lex Sportel - HELD THAT:- As following the decision of Fox Network Group Singapore Pte. Ltd. [2024 (1) TMI 1008 - DELHI HIGH COURT] as held fees received by the respondents towards live transmission could not be classified as royalty income u/s 9(1)(vi) of the Act. We hereby hold that the receipt for the live telecast received by the assessee from Lex Sportel is not the royalty income; hence, the same is held not taxable in the hands of the assessee as royalty under section 9(1)(vi) of the Act. This ground is accordingly allowed. 1. ISSUES PRESENTED AND CONSIDERED 1.1 Whether the payments received for live telecast rights of a sports event are taxable as 'royalty' under section 9(1)(vi) of the Income Tax Act, 1961 and under the applicable tax treaty. 1.2 Whether the Tribunal should follow the precedential reasoning that distinguishes live transmission/'live feed' from royalty, and the effect of the Double Taxation Avoidance Agreement (DTAA) and related precedents on classification. 1.3 Whether challenges to reassessment jurisdiction and procedural validity of reopening (involving sections 147/148/148A and approval/issuance authorities under sections 151/151A/148D) fall to be decided where the substantive issue is decided on merits. 1.4 (Raised but not finally decided) Whether the quantum of receipt determined by the Assessing Officer is incorrect (i.e., claimed lower actual receipt), and related consequential reliefs (interest/penalty) are sustainable once the primary taxability issue is resolved. 2. ISSUE-WISE DETAILED ANALYSIS 2.1 Issue 1 - Taxability of payments for live telecast rights as 'royalty' under section 9(1)(vi) and under the DTAA 2.1.1 Legal framework 2.1.1.1 Section 9(1)(vi) taxes income by way of royalty; Explanation 2 and Explanation 6 to section 9(1)(vi) define and clarify what constitutes 'copyright, artistic or scientific work' and 'process' (including transmission by satellite, cable, optic fibre etc.). 2.1.2 Precedent Treatment 2.1.2.1 The Tribunal followed the reasoning of a higher court (referred decision) which held that income from live telecast ('live feed') does not fall within clause (v) of Explanation 2 to section 9(1)(vi) and thus is not royalty. That higher court's decision was applied as binding on the present facts. 2.1.3 Interpretation and reasoning 2.1.3.1 The Court emphasized the distinction between (a) the activity of transmission by satellite/cable (captured by Explanation 6) and (b) the nature of the underlying subject-matter of the right granted. Explanation 6 clarifies 'process' to include transmission technologies, but that clarification is directed at characterising transmission activity, not converting a live sporting event's broadcast rights into a 'work' or copyrighted subject-matter under Explanation 2. 2.1.3.2 The Court noted that where the actual transmission is performed by a third party (and not by the recipient of the license payment), Explanation 6 does not alter the nature of the payment into royalty for 'work' under Explanation 2. The decisive factor is whether the payment is for a protected 'work/process' as envisaged by the domestic provision and the DTAA. 2.1.3.3 The Court relied on the primacy of the DTAA (as enunciated in controlling precedent) when domestic provisions and treaty provisions interact, affirming that treaty principles govern interpretation and may preclude treating live feed receipts as royalty. 2.1.4 Ratio vs. Obiter 2.1.4.1 Ratio: Payments for live telecast of sporting events, where characterized as fees for live transmission/telecast and not for exploitation of copyrighted 'work' or a protected process by the payer/recipient, do not constitute 'royalty' under section 9(1)(vi); Explanation 6 cannot be invoked to recharacterize such receipts as royalty where transmission activity was not performed by the recipient. 2.1.4.2 Obiter: Observations clarifying nuances of Explanation 6 and hypothetical applications where transmission is undertaken by the recipient may be persuasive but are not central to the decision on the facts before the Court. 2.1.5 Conclusion 2.1.5.1 The Court held that the receipt for live telecast rights is not royalty under section 9(1)(vi) and, in consequence, is not taxable as royalty in the hands of the recipient; the appeal on this ground is allowed. 2.2 Issue 2 - Application and effect of precedent and DTAA primacy in classifying live telecast receipts 2.2.1 Legal framework 2.2.1.1 Domestic statutory explanations (Explanation 2 and Explanation 6) and the applicable DTAA govern characterization of cross-border receipts; international jurisprudence recognizes that treaty provisions prevail over domestic tax law where applicable. 2.2.2 Precedent Treatment 2.2.2.1 The Court expressly followed a higher-court decision that (i) a live telecast does not fall within 'work' for the purposes of Explanation 2, and (ii) fees for live transmission cannot be classified as royalty under Section 9(1)(vi) when considered in light of the DTAA and controlling precedents (including New Skies Satellite principle on treaty primacy). 2.2.3 Interpretation and reasoning 2.2.3.1 The Court held that domestic explanations cannot be read in isolation to override the DTAA or the settled principle that DTAAs have primacy in interpretation where the treaty applies; accordingly, the higher-court reasoning distinguishing live telecast receipts from royalty controls the present determination. 2.2.4 Ratio vs. Obiter 2.2.4.1 Ratio: Where treaty provisions and precedent indicate that live telecast receipts are not royalty, domestic statutory clarifications directed at transmission do not convert such receipts into royalty; the DTAA and controlling jurisprudence govern characterization. 2.2.5 Conclusion 2.2.5.1 The Court applied the cited precedents and DTAA principles to hold that the live telecast payment is not royalty, endorsing the higher-court approach. 2.3 Issue 3 - Procedural challenges to reassessment (reopening validity, authority approval, faceless assessment requirements) 2.3.1 Legal framework 2.3.1.1 Provisions govern validity of reopening (sections 147/148), and specific requirements about approval authorities and faceless procedure (sections 148D/151/151A) were invoked by the appellant to challenge jurisdictional validity. 2.3.2 Precedent Treatment 2.3.2.1 Several decisions were cited by the appellant supporting strict compliance with approval and faceless procedure requirements. 2.3.3 Interpretation and reasoning 2.3.3.1 The Tribunal did not decide these procedural contentions on their merits. Having resolved the substantive taxability issue in favour of the assessee by following controlling precedent, the Tribunal treated the procedural challenges as academic and left them open. 2.3.4 Ratio vs. Obiter 2.3.4.1 Obiter/Procedural: No ratio laid down on procedural validity because the Court expressly refrained from adjudicating these points after deciding the substantive issue on merits. 2.3.5 Conclusion 2.3.5.1 Procedural objections regarding reopening authority and faceless issuance were noted but not decided; they remain open and academic in light of the substantive determination. 2.4 Issue 4 - Quantum of receipts, interest and penalty (consequential matters) 2.4.1 Legal framework 2.4.1.1 Challenges were raised to the AO's quantification of receipts and to interest/penalty leviable under relevant provisions. 2.4.2 Precedent Treatment 2.4.2.1 No new precedent applied because the Tribunal's determination on royalty meant that the contested additions and consequential charges discharged at source or otherwise became immaterial for the purpose of taxing the assessee as royalty. 2.4.3 Interpretation and reasoning 2.4.3.1 Since the core addition treating the entire amount as royalty was set aside, the Tribunal treated remaining grounds as academic and did not examine quantum/interest/penalty in substance. 2.4.4 Ratio vs. Obiter 2.4.4.1 Obiter/Consequential: No adjudication on quantum, interest and penalty; these issues were left open as consequential and academic. 2.4.5 Conclusion 2.4.5.1 The Tribunal did not decide quantum, interest and penalty points; they were rendered academic by the principal ruling and left open for determination if necessary. 3. FINAL CONCLUSIONS AND DISPOSITION 3.1 The Court held that the receipt for live telecast rights is not royalty under section 9(1)(vi) and is not taxable as such, following the controlling higher-court precedent and applying the primacy of the DTAA. 3.2 Because the substantive issue was decided in favour of the assessee, all other grounds challenging quantification, interest, penalty and certain procedural objections were treated as academic and left undecided. 3.3 Disposition: The appeal was allowed on the primary ground; the stay application became infructuous and was dismissed.