TaxTMI 
TaxTMI 
2025 (12) TMI 1588
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct, the petitioner is challenging the order dated 27.04.2004 passed by the respondents under Section 264 of the Income Tax Act, 1961 ('Act') wherein they have decided the payment made by the petitioner to Global Cricket Corporation Pvt. Ltd. (GCC) as the elements for the booking of space and for the right of use of trademark of the International Cricket Council (ICC). Resultantly, the respondents have apportioned 2/3rd of the total payment made by the petitioner to GCC towards advertisement by way of booking of space and the balance 1/3rd towards the right to use the trademark of ICC transferred by GCC to the petitioner and as such, treated the payment as royalty within the meaning of Section 9(1)(vi) Explanation 2(i) of the Act, in conformity with the Singapore-India Double Taxation Avoidance Agreement (DTAA). The Assessing Officer (AO) was accordingly directed to modify the order under Section 195 of the Act taking 1/3rd of the payment made to GCC by the petitioner towards royalty of which 15% shall be taken as tax. 3. Mr. Deepak Chopra, learned counsel for the petitioner has stated that GCC is a company incorporated in Singapore, which entered into an agreement with ICC Devel....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e. 7. Mr. Chopra would submit that being aggrieved by the order dated 12.11.2002, the petitioner filed an application under Section 264 of the Act before the Director of Income Tax ('DIT'). According to him, the DIT granted a partial relief to the petitioner, observing the following:- (i) At the request of DIT, the petitioner filed a submission stating that there was an element of use of trademark by the petitioner but the same was merely incidental and add-on rights. On the basis of a letter given by GCC, the said incidental use of trademark was valued at USD 1,000. (ii) It relies at paragraph 5.3.1 and 6.4 and Schedule 3 to conclude that the petitioner acquired the right to use ICC logo. (iii) The petitioner booked space in the stadium for extensive and exclusive visibility of its brand 'LG'. (iv) The space was booked in a stadium located at South Africa to display various products of LG India. (v) The right to use the trademark of ICC was bought by GCC. (vi) The petitioner conceded that the use of ICC trademark was acquired by the petitioner. (vii) By taking note of popularity of cricket in India to come to a find....
X X X X Extracts X X X X
X X X X Extracts X X X X
....omotional material of whatever nature and in whatever media used or to be used by or on behalf of the Global Partner in relation to the Global Partnership Rights. 12. He submitted that, paragraph 4 of the Schedule 3 further restricts the rights in footage and photographs as LG did not acquire any rights in any such footage. Reference in this regard is made to the judgment of this Court in Formula One World Championship Ltd. v. Commissioner of Income-tax, (International Taxation)-3, Delhi, 2017 390 ITR 199, upheld by the Supreme Court in (2017) 394 ITR 80 (SC). He further stated that, if LG intends to use the footage to show an endorsement of its products then separate consent and/or approval will be required to use such footage. Paragraph 4.3 of the Schedule 3 states that, LG cannot use any footage or photographic material to imply an endorsement of LG products. Paragraph 5.1.2 of the agreement further states that LG cannot develop or undertake promotional, sponsorship or marketing activity in relation to the event which has not been contemplated in the agreement. Paragraph 5.2 of the agreement imposes obligation on LG not to use any advertising material without prior consent of....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... by prior consent. 17. Mr. Chopra has relied upon the judgment of this Court in the case of Director of Income Tax v. Sheraton International Inc, (2009) 313 ITR 267. According to him, the issue which fell for consideration in that case was whether the income earned by Sheraton International Inc. was part of its agreement with ITC Limited for provision of publicity, advertisement and sales services ought to be taxed as royalty since the payment received included a fee component received by Sheraton International for allowing ITC to use its trademark / trade name. He submitted that this Court has held that the payment received by Sheraton International arose primarily out of provision of advertisement services. Furthermore, receipts for use of trademark / trade name etc being incidental to receipts for the provision of the main service i.e. advertising, cannot take the character of royalty. 18. He had stated that as per the details of the assessment proceedings as encapsulated in the decision of the ITAT (Mumbai) in the case titled as ADIT (International Taxation) v. Global Cricket Corporation (P) Limited, (2022) 145 taxmann.com 570 (Mum.,) the amounts received by GCC from the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1. He stated that the 'licensed territory' was defined as the world and the 'advertising material' was defined as all advertising, communications, packaging, labeling containers, and promotional materials of whatever nature and in whatever media used or to be used on behalf of the global partner in relation to the global partnership rights. He also stated that the ICC Mark was defined as 'ICC logo to be notified to the Global Partner in accordance with Clause 6.3' and the Event Mark was defined as 'the official event titles, words, logos, and mascots provided by GCC to the Global Partner in accordance with Clause 6.3'. 22. Mr Rai stated that the petitioner had the right to use the trademark belonging to ICC i.e. ICC Mark, Event Mark, Logo, Global Partner Status etc. on any kind of advertising in any form of media and included packaging and labeling of products etc. of any kind throughout the world i.e. much beyond the venue at which the relevant matches are being played. 23. It is his submission that that the petitioner was specifically permitted to use Event Marks and ICC Marks on its general website where it sells its products, in accordance with Clause 5.1.3 of the agreeme....
X X X X Extracts X X X X
X X X X Extracts X X X X
....k, it did not need to display any ICC Logo since the in-stadium advertisement itself was at an ICC event; b. the benefit gained by the petitioner in a country like India which has such a large cricket fan base, on account of associating with the ICC Mark; iv) It was held that consideration for the agreement included payment for advertisement site at the venue and payment for right to use the ICC Mark and the Event Mark and accordingly 2/3rd of the consideration was considered as attributed towards in-stadium advertisement and hence exempted from tax and 1/3rd payment was to be regarded as royalty towards acquisition of right to use the ICC Marks and the Event Marks on which tax @ 15 % was directed to be withheld. 25. According to Mr Rai, ICC Marks, Event Marks and Global Partner Status amount to intellectual property in the nature of 'trademark'. Trademarks are specifically covered within the meaning of 'Royalty' as set out under Explanation 2 to Section 9(1)(vi) of the Act and Article 12(a) of the DTAA. Furthermore, as per Article 12(2) of the DTAA, India will have the right to tax such royalty @ 15% even though it is earned by a resident of Singapore. 26. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....demark royalty free. It is not Revenue's case that such granting of license by LG to GCC results in royalty income in the hands of LG, as it is accepted that such rights are merely incidental to the main purpose of on-ground advertisement to be carried out by GCC. However, in the present case, LG is not responsible for advertising ICC Marks and hence it cannot be said that the right granted to LG to use ICC Marks and Event Marks on any of its products across the world or on its website is incidental to the main purpose of the agreement, as it has no connection to the on-ground advertisement. Therefore, reliance placed on the judgment of Formula One World Championship Limited (supra) is misplaced. Similarly, Mr Rai also distinguished the judgment in the case of Sheraton International Inc. (supra). He relied upon the decision of this Court in the case of J K Synthetics Limited v. CIT, [2004] 139 Taxman 264 (Delhi) in support of his submission as this petition is under Article 226 of the Constitution of India, this Court is not sitting as an appellate authority over the decisions taken by the two authorities below except looking as to whether the process undertaken to take the dec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....L to seize the opportunity to get the right of premium space from GCC who was vested with the exclusive right to use the trademark of ICC Apart from the visible logo of ICC which the LGEIPL was bound to use and display in accordance with the paragraphs quoted above, as mentioned in the millions of viewers were watching the World Cup Cricket far away in South Africa only because the ICC could organize the event there. There is no necessity of the visible display of 'ICC logo in such event as the entire organization itself represents the trade mark of ICC The display of LG in this event like World Cup had a great multiplier effect Obviously the GCC based in Singapore does not have that effect of association with cricket as ICC has for which the exclusively right of use of trademark of ICC was transferred to GCC for a price. Therefore, even though LG has dealt only with GCC, it is the use of trademark of ICC which is relevant. The extent of coverage and visibility which the LG got during this period of time could not have been possible but for the event of World Cup and has only considered the booking of premium space in the brand of World Cup which ICC represents. This is th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n Advertising Sites, and elsewhere, immediately before, during and alter each Match at the Venue as described below- - (a) the right to 12,5% of all ground level perimeter advertising comprising no less than six ground level perimeter boards (size 20 feet x 3 feet and to be no smaller than those provide to other Global Partners) at all Venues, the exact position of which shall be based on a equitable distribution with other Global Partners in accordance with a formula to be developed by GCC and communicated to the Global Partner in advance which is intended to ensure the all Global Partners receive an equal share of prime sites for television exposure; (b) four (4) ground level perimeter boards at all warm-up Matches in the ICC Cricket World Cup 2003 and 2007, the exact size and position of which shall be based on an equitable distribution with other Global Partners; (c) subject to availability and on an equal basis amongst Global Partners, an option to buy further Advertising Sites in the Stadium at cost; (d) two (2) outfield mats (from a total of eight (8), at all Stadia, on which the Global Partner may display the Global Partner Marks which di....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tions shall be subject to the prior written approval of GCC such approval not to be unreasonably withheld or delayed: and (n) the non-exclusive right, at its own cost and risk and only where space and regulations permit to locate a reasonable number of displays and product sampling stands at the Stadium during the Event. 2.2 The Global Partner shall have the right to : (a) one (1) full page of colour advertising space in the official Match programme for each Event, (b) Have the Global Partner Marks featured in all official publications relating to Each Event. PROVIDED THAT the Global Partner suppliers at its own expense camera-ready work for Advertising Materials previously approved by GCC (or such third party as GCC may nominate) at least three (3) weeks in advance of publication deadlines. 3. Rights regarding the Marks:- Subject always to the terms of this Agreement, the Global Partners shall have the no-exclusive right during the Term to use, reproduce and publish or to authorize the use, reproduction and publication and publication of the Event Marks and the ICC Marks throughout the License Territory in or on Advertising Materials in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ncluding, without limitation, Teams and members of Teams) consents and/or approvals required for the use of such photographs prior to publication or other distribution or exploitation thereof. 4.3 The Global Partner acknowledges that any footage and/or photographic material referred to in this paragraph 4 shall not be used by the Global Partner in any way which may express or imply any endorsement of the Global Partner's products (or any product or service) whether by any Team or Team member or otherwise. 5. Tickets and Corporate Hospitality The Global Partner shall have the right to : (a) one hundred (100) best category tickets free of charge per Match; (b) an option to buy one hundred (l00) of the best category tickets at face value for each Match which may be used tor promotional purposes which option must be exercised at least three months before the start of the Event in question provided that GCC shall use its best efforts to increase this number should LG have additional demand for certain Matches; (c) an option to buy two hundred (200) tickets of any category subject to availability at the time of face value provided....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is section by reason only of the tact it is taken into account in a balance sheet prepared in India. Explanation 2 - For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India.' 35. We may also note the Section 9(1)(vi) of the Act as under:- i) The following incomes shall be deemed to accrue or arise in India- vi) income by way of royalty payable by - a) the Government; or b) a person who is resident, except where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or c) a person who is a non-resident, where the royalty is payable in respect of any right, property or information used or service utilized for the purposes of a business or profession carried on by such pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t chargeable under the head 'Capital gains') form the transfer of all or any rights(including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property; ii) the imparting of any information concerning the working of: or the use of a patent, invention, model, design, secret formula or process or trade mark or similar property; iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property; iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill; (via) or the use or right to use, any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB; v) the transfer of all or any rights (including the granting of a licence) in respect of copyright, literary, al1istic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films;....
X X X X Extracts X X X X
X X X X Extracts X X X X
....from the alienation of any such right, property or information; (b) any industrial commercial or scientific equipment, other than payments derived by an enterprise from activities described in paragraph 4(b) or 4(c) of Article 8. 4. The term 'fees for technical service' as used in this Article means payments of any kind to any person in consideration for services of a managerial technical or consultancy' nature (including the provision of such services through technical or other personnel) if such services: (a) are ancillary, and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge. experience skill, know-how or process, which enable the person acquiring the services to apply the technology contained therein; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purposes of (b) and (c) above. the person acquiring the service shall be deem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....utable to the permanent establishment may be estimated on a reasonable basis. 3) In the determination of the profits of a permanent establishment there shall be allowed as deductions expenses which are incurred for the purposes of the business of the permanent establishment including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere. In accordance with the provisions of and subject to the taxation laws of that State. (4) Insofar as it has been customary in the Contracting State to determine the profits to be attributes to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph 2 shall preclude that Contracting State from determining the profits to be taxed by such an appointment as may be customary; the method of apportionment adopted shall., however, be such that the result shall be in accordance with the principals contained in this Article. 5) No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of good or mer....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... incidental and only 'add on' rights. The value of these rights as confirmed by GCC itself vide their letter dated 12.5.03 is USD 1000. A nominal value of these rights is in itself justified when we attempt to put an empirical value of the advertising space purchased from Gee. This has been confirmed by an independent study carried out by a Lintas Group Company which has put the total benefit to LGEIL at a value of Rs.95.2 Crores, which tantamount to USD 20 Million. This amount is far in excess of USD 11 Million which is the total cost of purchasing these advertising space over a period of 5 years in between (and including) 2 world cup cricket matches. The payment is actually being made for LGEIL to use its own logo on the space, which it has booked through GCC and not for LGEIL to be able to use the ICC logo, which has therefore been correctly valued at) nominal value of USD 1000.' 41. The representation on behalf of the petitioner makes it clear that there is an element of use of the ICC Mark by the petitioner as defined in Schedule 3.1, 3(2)(m) and 3(3) of the agreement between the two parties. When the petitioner itself conceded the use of the ICC Mark, the attempt ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....der cannot be faulted with. 43. The judgment relied upon by Mr. Chopra are clearly distinguishable. In the case Formula One World Championship Limited (supra), as clearly justified by Mr. Rai, the royalty through license to use the Formula One trademark was clearly held to be incidental to the purpose of advertising access from paragraph no.73, which we reproduce as under:- '73....... There is no doubt that the main object of the RPC and the relevant provisions of the ALA was not the permission to use the trademarks, but granting and designating Jaypee as the promoter of the event and laying out the rights of the parties, particularly FOWC as regards the event, the spaces to be made available to it exclusively, the sole and exclusive rights over all event related activities, the right to exploit them commercially, etc. The use of the mark on the tickets sold by Jaypee was only incidental. The AAR's findings that the use of the mark and intellectual property rights benefited Jaypee, which paid for them, is entirely erroneous. Jaypee's permitted use, as it were, was for a limited duration and of an extremely restricted manner; this is contained in the definition of 'permi....