TaxTMI 
TaxTMI 
2021 (2) TMI 1107
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....hts for India in relation to the ICC events to IDI Mauritius Limited ("IML"), a tax resident of Mauritius. All rights and power to negotiate and enter into an agreement to grant Global Partnership right and Marketing and Advertising right in respect of the territory of India was vested with IML. 2. IML and LG India had entered into 'Marketing and Advertising Agreement' (MAA) signed on June 23, 2009 wherein IML had agreed to grant LG India certain promotional, advertising, marketing and other commercial rights in the capacity of being a Global Partner ("GP") in connection with the ICC events. In consideration for the Marketing and Advertising right granted by IML, LG India was obliged to pay to IML a fee of US$17.08 Million. This consideration was attributable to different events organised by ICC in India and outside India during the term of the agreement. 3. LG India had entered into another agreement namely 'Global Partner Agreement' (GPA) with IML, wherein IML had agreed to grant LG India, the Global Partnership Rights in connection with the ICC events in respect of the territory of India. The Applicant, on a conservative basis was withholding ta....
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....ver are unable to ignore the Revenue' s observation that the total bundle of rights has been artificially split up, and also that the Ruling is being sought only on one agreement , and not on the entire arrangement . These observations can be examined during our subsequent proceedings before pronouncing a Ruling on the questions posed to us by the Applicant. In view of the above observation while admitting the application, we have to examine the total bundle of rights under MAA as well as under GPA while examining the questions raised in the application. Submission the Applicant 5. The Ld. A.R explained that the MAA had granted to LG promotional, advertising, marketing and other commercial rights and opportunities as specified in the Agreement with respect to 'Product' for use in the 'Territory' during the 'Term' including rights granted in Appendix 3 to Appendix 5 of the Agreement. He has drawn our attention to various clauses and Appendixes of the MAA. It was submitted that the Applicant had entered into MAA to seek the commercial rights, which were non-intellectual property rights, from IML to promote and market its products through adv....
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....eant for commercial exploitation of any equipment. Further that the Applicant had no control over the so-called equipments in and outside the stadium and the control and possession of the equipments was vested with IML, who was responsible for installation and maintenance of the equipments. The Applicant was merely provided the facility of advertising of its logo by IML through sophisticated equipments such as electronic screens, site screens etc. In this regard, our attention was drawn to Para-2,9 of Appendix-3 of MAA which provided that IML shall be responsible for ownership and control of the equipments used in the stadium during the cricket match. Thus, no asset/equipment was getting transferred to LG India from IML. The Ld. A.R submitted that the primary objective of MAA was to provide the Applicant the facility of advertisement, promotion and marketing of its brands in India and there was no consideration paid for "use" or "right to use" of any equipment whatsoever inside or outside the stadium. In view of these facts, the consideration paid by the Applicant to IML under the MAA was not taxable in India and, therefore, the Applicant was under no obligation to withhold/deduct ....
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....to deduct tax was absolute and not contingent upon determination as to whether non-resident's income was chargeable to tax in India. 9. On the issue of payment to non-resident sport association the Revenue has submitted that IML was wholly owned subsidiary of ICC and Mr. Haroon Lorgat, the Group Chief Executive Officer (CEO) of ICC was also one of the Directors of IML. Further, he was an authorised signatory of MAA as well as GPA between the Applicant and IML. Further, all the payments made by the Applicant were in connection with the events organised by ICC, which was the official international governing body for cricket. According to the Ld. Counsel the real nature of transaction was required to be unveiled and as the agreements made by IML was on behalf of ICC and in connection with licensing of commercial rights in relation to the ICC events; the payment made in essence was to a non-resident sports association. It was further submitted that the amount payable under MAA was fixed amount of USD 17.08 million and was not contingent upon any probable event and, therefore, the payment contemplated under the MAA was in the nature of guarantee fee. Thus all the pre-condit....
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....hat LG had used ICC logo on numerous products it had manufactured and from the publicly available information it transpired that LG had used the ICC trade mark and the words "ICC Cricket World Cup 2011" on its appliances and also "Official mobile of the ICC Cricket World Cup 2011" on its specially launched mobile phones. This use was permitted pursuant to the rights granted by IML under the agreement dated 23.06.2009 which included commercial rights. As such, the vast bouquet of rights granted by IML to the Applicant was within the definition of "Royalty" as defined in Article 12(3) of the DTAA. Further, Article 12(2) of the DTAA permitted royalties to be taxed in the country in which they arose, i.e. India in the present case. 12. The Revenue has submitted that apart from MAA the Applicant had also entered into "Global Partner Agreement" (GPA) with IML on the same date dated 23 rd June, 2009 in respect of the territory of India and the Applicant was withholding tax while making remittance to IML under GPA. It was submitted that both the agreements MAA and GPA were executed on the same date and there was substantial commonality in their clauses. The Revenue has contended t....
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....der MAA were inextricably linked with use of logos, marks and brands; and the payment made by LG India to IML was in effect for grant of license in respect of "similar property" which was covered in the definition of royalty in clause (i) of Explanation 2 to section 9(1)(vi) of the Act. Therefore, such payment was taxable in India as income was deemed to accrue or arise in India. 14 It was further submitted that the exercise of commercial rights granted to the Applicant necessarily required use and right to use substantial commercial equipment like electronic scoreboards, signages, boundary demarcations, space on the ground itself etc. These equipments were all controlled by IML. Further, as per the agreement IML had agreed to make such staff available, without additional charges, as reasonably required to coordinate and supervise the implementation of Applicant's advertisement and promotional programmes. Further, IML had also appointed a dedicated account administrator. Thus, the rendering of service was in relation to use of equipment which was covered under the definition of royalty. It was submitted that use of brands, marks, logos as well as use of commercial equi....
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....rated that the payment was not covered in the definition of royalty under Article 12 of India-Mauritius DTAA. In this regard, reliance was placed on the decisions of Ld. ITAT in the case of Reebok India Company Vs Deputy CIT (79 taxmann.com 271) (Delhi-Trib). It was submitted that the agreement in the case of Reebok was identical to the agreements in the present case and the commercial rights offered under the agreements were also identical. The Ld. ITAT had discussed the facts of the case in detail and the Ld. A.R. had drawn comparison of that case to the facts of the present case in support of the contention that the payment for various rights under MAA was not in the nature of royalty. It was submitted that the Revenue had accepted this decision on the issue of royalty and no appeal was filed before the Hon'ble High Court on this issue, though the decision was challenged before the High Court on a different issue. The Ld. A.R. also relied upon the decision of Delhi High Court in the case of DIT Vs. Sheraton International Inc. (2009) 313 ITR 267 (Delhi) and on the decision of Delhi ITAT in the case of Hero MotoCorp Ltd. Vs. Addl. CIT (36 Taxmann.com 103)(Delhi-Trib) in this r....
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.... to be as under: MAA GPA Commercial Rights means any and commercial rights and opportunities of whatever nature in, and in relation to, the ICC Events including, but not limited to, all advertising, promotion, marketing merchandising , rights of entry to a venue for any commercial, media or promotional purposes, all ground perimeter, stadium, on field, venue and training ground signage and advertising rights , hospitality, travel and tours rights. Commercial Rights means any and all commercial rights and opportunities of whatever nature in, and in relation to, the ICC Events including, but not limited to, association, licensing, franchising, sponsorship and ticketing rights, publication rights and all media rights. Rights under MAA: 19. The marketing and advertising rights that have been granted under the MAA are enshrined in Clause 2.1 of MAA which is as under: IML grants to Company the promotional, advertising, marketing and other commercial rights and opportunities as specified in this Agreement with respect to Products for use in the Territory during the Term, including: a) Appendix 3 with respect to ICC Events; ....
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.... (iii) Accreditation and Parking Passes - on equitable basis with other Global Partners. (iv) Promotion of products - Exclusive right to run promotions in respect of Products at the stadiums. (v) Signage - Right to identification on backdrops for flash interviews on-pitch or off-pitch following matches, post-match presentations and other major event related press conferences, (vi) Replays screens- Right to have Company identification on the replay video screens of each stadium. (vii) Hospitality - Right to have specified number of corporate hospitality places at each match, at each major event free of cost with opportunity to purchase additional hospitality packages. (viii) Publication - Right to have, free of charge, one full page colour advertisement in the Official Programme of each major event. (ix) Press Conferences - Right to identification on backdrops on the occasion of ICC press conferences concerning major events. (x) Printed Materials - Right to have Company's logo and identification as Global Partner printed on official printed materials of major events. (xi) Cricket Zones and Event Promotio....
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....nd-names may be filed for registration under the relevant Intellectual Property Rights Laws. 24. The fee for marketing and advertising rights was specified in Appendix-2 of MAA as per which fee of US$17,083,333 was payable in accordance with the payments schedule. The fee for each of the ICC Event was separately mentioned in this Appendix. The payment was to be made in freely transferable US dollars and without deduction or liability for any and all taxes. There was a provision for interest payment at the rate of 2% above LIBOR rate of US$ in case the payment was not made on the due date. Rights under GPA: 25. Under the GPA, the Applicant was granted commercial rights and opportunities with respect to Products for use in the territory of India in respect of ICC Events (Appendix-3), ICC Awards (Appendix-4), additional rights for a particular match (Appendix-5), specified ICC functions (Appendix-6) and broadcast sponsorship and commercial air time rights (Appendix-8). As per Appendix-3 of GPA the various rights allowed were as under: 1) Core commercial Rights- The right to use the following Designations as part of the grant to use the Marks: â€....
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....of the ICC award as "LG ICC Awards". Further, it also had branding, advertising, internet, television, use of ICC Awards composite logo an official designation and use of company logo rights as specified in the said Appendix. The Appendix-5 allowed the right to designation as "Official Match Partner" where the company was appointed as match partner for an event and nothing was specified in Appendix-6. Further, Appendix-8 allowed certain broadcast sponsorship and commercial airtime rights. The total fee payable as per GPA was USD 8,541,667. The product category as mentioned in GPA was identical with the product category as defined in MAA. Analysis of the Rights: 27. On a careful analysis of the rights allowed under MAA & GPA, it is found that the commercial rights under MAA are predominantly in respect of advertisement, marketing and promotion of LG products while those under GPA are on account of association, licensing, franchising, sponsorship etc. The basic difference between the two agreements is sharing of intellectual property rights (IPRs). While there is no sharing of IPR under MAA, the rights under of GPA involve sharing of IPRs. This is apparent from the "Defin....
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.... industrial, commercia I or scientific equipment , or for information concerning industrial , commercial or scientific experience. In order to attract this clause of royalty we have to examine whether the payment falls into any one of the following categories: a) Whether the payment is for use or right to use any copyright of literary, artistic or scientific work (including cinematograph films, and films or tapes for radio or television broadcasting), or b) Whether the payment is for use or right to use any patent, trademark, design or model, plan, separate formula or process, or c) Whether the payment is for use or right to use industrial, commercial or scientific equipment, or d) Whether the payment is for information concerning industrial, commercial or scientific experience? 29. In the present case, the payment under MAA is neither found to be on account of use or right to use any copyright of literary, artistic or scientific work nor for any information concerning industrial, commercial or scientific experience. In the case of Sahara India Financial Corporation Limited (Supra) the name "Sahara" and its log....
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....ting programmes, hospitality tickets for ICC awards and match partner rights. All these rights as per MAA are purely for the promotion, advertisement and publicity of the assessee's brand name and products. None of these rights are found to be in respect of any "trademark" as contended by the Revenue. In fact, the right for use of trademark of ICC is found to be covered under the GPA and not under the MAA. The Revenue has pointed out the use of ICC trademark "ICC Cricket World Cup 2011" on the appliances of the Applicant and also about "Official mobile of the ICC Cricket World Cup 2011" on its specially launched mobile phones. The right to use the "Designations" such as "ICC Global Partner/Sponsor Supplier of [Major Event]" or "Official [Product] of [Major Event]" was part of the rights under Appendix-3 of GPA. Therefore, the instances of ICC trademark appearing on certain products as pointed out by the Revenue are found covered under rights allowed under GPA. There was a clause for right of first option to manufacture new electronic equipment in connection with introduction of new technologies into the game of cricket in MAA which is dealt in para-2.8 of Appendix-3. It stipula....
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....ese equipments nor had its control over it. Therefore, the payments under MAA cannot be considered to be for use or right to use of any equipment so as to cover it within the definition of royalty. 33. In the case of Hero Moto Corp. Ltd. (supra) the assessee had made payment to GCC Singapore and N Singapore in relation to sponsorship of various sports events organised by ICC whereby the assessee was entitled to advertise on billboards at venue and advertisement space in official brochure/website of ICC etc. It was held by the Ld. ITAT that such payment was purely for advertisement and publicity of brand name of assessee and not royalty for use of any trademark or brand name as defined in Article 12 of India-Singapore DTAA. 34. The Applicant has relied upon the decision of Ld. ITAT in the case of Reebok India Company (supra). It is found that the facts of Reebok India were identical with the facts of the present case. Reebok was allowed by ICC to associate as "Official Partner of ICC". The rights fee in that case was a package of 21 rights which were in the nature of 'Tickets', Boards and signage' , 'Parking passes' , 'Demonstration, s....
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....only the latter, which is in the nature of Royalty' income in the hands of ICC. In the present case, however, there is no clause for right for the use of Marks of ICC in manufacture and sale of licensed products in the MAA. Such right is only under GPA and we are not concerned with the rights transferred under GPA in the present application. Therefore, there is no element of 'royalty' in the consideration paid for various rights under MAA. 36. In view of the above facts and the propositions laid down in the case laws discussed above, we are of the considered view that the payment made by the Applicant under MAA was purely for advertisement and publicity of the brand name of the assessee and for promotion of its product during the Cricketing events of ICC and it was not "royalty" as defined in Article 12.3 of DTAA between India and Mauritius. These payments cannot, by any stretch of imagination, be said to relate to use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process or for information concerning industrial, comme....
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....under the provisions of the Act. The payment was neither in the nature of royalty nor FTS. The payment can be considered as business income but was not exigible to tax in the absence any PE of IML. Thus, the amounts paid by the Applicant in respect of games played outside India is not found exigible to withholding tax under the provisions of Income-tax Act. 38. As regards games played in India, we have to examine the provisions of section 194E read with section 115BBA of the Act. The relevant provisions regarding 115BBA and 194E are as under: Payments to non-resident sportsmen or sports associations. 194E. Where any income referred to in section 115BBA is payable to a non-resident sportsman (including an athlete) or an entertainer who is not a citizen of India or a non-resident sports association or institution, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of twenty per cent Tax on non-resident sportsmen or sports associations....
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....ation or institution is applicable. The provision of section 115BBA will be attracted on fulfilment of the following conditions: i. Income pertains to a non-resident sports association or institution. ii. The income includes any amount guaranteed to be paid or payable to such association/institution. iii. Such payment is in relation to any game (other than a game the winnings wherefrom are taxable u/s 115BB) or sports played in India. 40. There is no dispute to the fact that 2013 - Women's CWC was played in India and all the games were held in India and for which fee of US$ 172,542 was paid by the Applicant. However, 2011 - Cricket World Cup was held jointly by India, Sri Lanka, Pakistan and Bangladesh for which fee of US Dollar 43, 13,543 was paid. Therefore, only proportionate payment of fee of US Dollar 43, 13,543 paid to IML will be covered under section 115BBA, in proportion to number of games played in India to the total number of games played in the tournament. 41. The contention of the Applicant is that the payment made by it under MAA was not payment to any sports association or institution and, therefore, sectio....
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....ICC to enter into such agreements and the ultimate beneficiary of the income of sponsorship agreement was ICC only. It is mentioned in the ICC Consolidated Financial Statements - 31 December 2012 that "The ICC is a company registered in the BVI, is limited by guarantee, does not have share capital and undertakes no transactions." Further, this consolidated financial statements comprised the results of ICC Development (International) Limited (the Company) and its subsidiary companies ICC (Events) Limited, International Cricket Council FZ-LLC, IDI Mauritius Limited and IDI Hungary KFT, referred to as the "Group". It was further qualified that the Group was owned by International Cricket Council for the benefit of all its Members. 43. In view of the above facts the payment made by the Applicant under the agreements is found to be payable to a non-resident sports association/institution in relation to game played in India. Had the sponsorship agreement not been sanctioned by ICC, neither the game could have been played in India nor could the payments have been made to IML in connection with the ICC Events. Further, all the rights transferred under the agreements were in respec....
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....rovision for refund of the guarantee money. In the present case also there was a clause for reduction of the fee in the event of the cancellation of any match of Major Event. Such a clause is normal in such agreements and it does not change the character of the payment. Further, the Force Majeure clause of MAA stipulated that if any ICC Events or Matches were abandoned, postponed or cancelled, the Company was not entitled to terminate the Agreement, but the payment of the Rights Fee attributable to that event can be deferred without any penalty until such time as that event was replayed. This also reinforces the nature of payment as guarantee money. Further, what is relevant to consider is not the nomenclature of the payment in the agreement but its real nature. From the above discussions we find that though the payment was mentioned as "right fee" in the agreement, its real nature was "guarantee fee". 45. In view of the above facts, all the conditions as stipulated in section 115BBA of the Act are found fulfilled in this case. And once these conditions are satisfied, the obligation of the Applicant to deduct tax u/s 194E of the Act was absolute. Unlike section 195 there i....
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....ecome payable. The expression 'in relation to' emphasises the connection between the game or sport played in India on one hand and the Guarantee Money paid or payable to the Non-resident Sports Association on the other. Once the connection is established, the liability under the provision must arise. 47. In the present case also the source of income was the game of cricket played in India. Though the payments were described as rights money, in essence they were in the nature of guarantee money and were intricately connected with the cricketing event and the matches played in India. The close connection between the amount paid by the Applicant and the cricket matches played in India has never been denied. Thus the income of the Non-resident Sports Association had accrued in India under the provision of Section of the Act. On the Issue of applicability of DTAA, the Supreme Court has held in that case as under: 18. We now come to the issue of applicability of DTAA. As observed by the High Court, the matter was not argued before it in that behalf, yet the issue was dealt with by the High Court . In our view, the reasoning that weighed with the High Court is qu....