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2010 (6) TMI 753 - AT - Income TaxTDS u/s 195 - Payment made for acquisition of telecast rights - Royalty as per Explanation 2 of section 9(1)(vi)(c) of the Act - Article 12(7) of DTAA - Chargeability of payment - economic link between the payment of Royalty and SET India or not? - Whether the CIT(A) erred in holding that the royalty has not arisen in India having regarding to the provisions of Article 12(7) of Indo-Singapore DTAA - HELD THAT:- We find no infirmity in the order of the Ld CIT(A). The payment made by the assessee to GCC cannot be said to arise in India under Article 12(7) of the Treaty since the payer ( i.e. assessee) is not a resident of India. As per the first limb of Article 12(7) of the Treaty, royalties cannot arise in India, since the payer is not a resident of India. Such royalties under the first limb of Article 12(7) of the Treaty arise in Singapore since the payer (i.e. the assessee) is a resident of Singapore. The second limb of Article 12(7) of the Treaty deals with a scenario where the payments are made by a nonresident, where such non-resident has a PE in India. However, a mere existence of a PE in India cannot lead to a conclusion that royalties arise in India. In addition to the existence of PE, for royalties to arise in India under Article 12(7) of the Treaty, it is essential that liability to pay such royalties has been “incurred in connection with” and is “borne by” the PE of the payer in India. Hence even if it is assumed that the payment for broadcasting cricket constitutes Royalty, in our opinion such royalty does not arise in India within the meaning of provisions of Article 12(7) of the Tax Treaty and hence the second ground raised by the revenue is dismissed. There is no economic link between the payment of royalties and the alleged PE of the assessee in India (i.e. SET India ), the economic link is entirely with the assessee’s head office in Singapore. Thus, the payments to GCC cannot be said to have been incurred “in connection” with the appellant’s PE in India (i.e. SET India). Alleged PE in India (i.e. SET India) was also not involved in any way with the acquisition of the right to broadcast the cricket matches, nor did the PE bear the cost of payments to GCC. Thus the payments to GCC cannot be said to have been “borne by” the assessee’s PE in India (i.e. SET India). Even if it is assumed that the payment for broadcasting cricket constitutes Royalty, in our opinion such royalty does not arise in India within the meaning of provisions of Article 12(7) of the Tax Treaty.
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