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2022 (5) TMI 1143 - AT - Income TaxTDS u/s 195 - Consideration paid by ESPN India to ESPN UK - whether payments made by ESPN India constitutes ‘royalty’ falling u/s.9(1)(vi) ? - resale of advertisement space on websites owned - Taxability as per India-UK DTAA - treating the assessee as ‘assessee in default’ for non-deduction of tax at source u/s.201(1) & 201(1A) - whether ESPN India has obtained the right to use/ exploit the websites? - HELD THAT:- Re-seller agreement clearly states that the seller, ESPN UK, directly owns or has the rights to exploit numerous digital media websites and no such right has been transferred to ESPN India. Further Clause 4.2 of the Re-seller agreement, which confirms that ESPN UK controls the amount of advertising space available on the websites and the nature of advertisements permitted to be displayed. Hence, assessee does not in any way control the website / server, nor has been conferred with a right over any part of the website / server. We cannot accept the argument of Learned Department Representative, who at the hearing, pointed out the Assessee’s submissions as encircled by the AO on page 10 of the order, stating that, “ESPN UK or third party service provides do not provide specific access to / control over any particular server / website”, which in fact supports the case of the assessee. Therefore, in our view neither is any equipment given to the Assessee nor is it under the control of the Assessee. This is only a re-seller agreement of advertising space. Objective of the Equalisation Levy provisions was to levy a tax on online advertisements as it was otherwise not chargeable under the Act read with the Tax Treaties - It was a business profit and in the absence of any permanent establishment was not taxable in India as held by Right Florists[2013 (4) TMI 338 - ITAT KOLKATA] - Since the Tax Treaties would override any non-favourable clause under the Act, to overcome this, EL provisions were introduced as a separate stand-alone enactment by the Finance Act 2016 and outside the Act. Consequently, the above object and purpose was achieved by the introduction of section 164 (i) of the Finance Act 2016 that defines a “specified service” to mean “online advertisement, any provision for digital advertising space or any other facility or service for the purpose of online advertisement and includes any other service as may be notified by the Central Government in this behalf”. We noted that the Finance Act, 2016 recognizes providing advertising space as a ‘specified service’ subject to Equalisation levy. Consequently, to suggest that the sale of advertising space is ‘royalty’ would even be contrary to the legislative intent, the objects and purpose of the EL provisions and result in absurdity and double taxation, as acknowledged by the Memorandum to the Finance Bill, 2016. We noted that the assessee has filed the details and Challans for the EL payment, which are annexed as a summary of the EL amount paid along with the date of payment and challan details Thus we are of the view that the consideration paid by ESPN India for purchase of advertisement space was not taxable during the period under consideration. The consideration paid by ESPN India is not for ‘use’ of equipment (server) or for any process nor imparting of any information concerning technical, industrial, commercial, or scientific knowledge, experience or skill. Further, no right has been conferred on ESPN India over the server or website belonging to ESPN UK and ESPN India is merely a reseller of advertisement space it purchases on ESPN UK’s website. Further, the reliance of the AO and CIT(A) on the unilateral retrospective amendments to section 9(1)(vi) of the Act to the definition of ‘royalty’ cannot override the more beneficial definition under Article 13(3) of the UK-India Tax Treaty. Hence, we allow the issue on merits in these appeals of assessee.
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