2010 (2) TMI 46 - HC - Income Tax

Royalty ITAT held that the payment of US 9, 24, 500/- by the assessee as per the agreement dated 10.07.1996 to IMG Canada through IMC India did not amount to a royalty payment under Article 13(3)(c) of the Double Taxation Avoidance Agreement (DTAA) entered into between India and Canada held that - Commissioner of Income Tax (Appeals) failed to notice was that before any payment could be termed as a royalty under Article 13(3)(c) it would have to be either as consideration for the copyright or for the right to use a copyright in any of the four categories of works mentioned therein namely (i) literary; (ii) artistic; (iii) scientific work; and (iv) cinematographic films and films or tapes for radio or television broadcasting. What the Commissioner of Income Tax (Appeals) failed to note was that there was no transfer of a copyright or the right to use the copyright flowing from IMG Canada to the respondent / assessee and therefore any payment made by the respondent/ assessee to IMG Canada would not fall within Article 13(3)(c) of the said DTAA. - The reference in Article 13(3)(c) is to any copyright and it is not a reference to any right revenue appeal dismissed.

Summary

Issues:
Interpretation of royalty payment under Double Taxation Avoidance Agreement between India and Canada.

Analysis:
The case involved an appeal by the revenue against the Income Tax Appellate Tribunal's order related to a payment made by the assessee to IMG Canada for title sponsorship rights under an agreement. The revenue contended that the payment constituted a royalty payment under Article 13(3)(c) of the Double Taxation Avoidance Agreement. However, the Tribunal disagreed, stating that the payment did not fall under the definition of royalty as it was not for the acquisition or use of copyright. The Tribunal emphasized that the payment was for title sponsorship rights and associated benefits outlined in the agreement, not for copyright usage.

The agreement specified the rights granted to the assessee, including the use of the Sahara name and logo, display rights at cricket grounds, player clothing branding, and other entitlements. The Tribunal's decision was based on a thorough examination of the agreement terms, concluding that the payment was not for copyright usage as defined in Article 13(3)(c) of the DTAA. The Tribunal found that the payment was specifically for title sponsorship benefits, not for any copyright-related rights, thus rejecting the revenue's argument regarding royalty payment classification.

The High Court analyzed the definition of royalties under Article 13(3) of the DTAA, which includes payments for the use of patents, trademarks, designs, or copyrights. The Court emphasized that for a payment to qualify as royalty, it must be in connection with the right to use one of the specified categories, such as copyrights of literary, artistic, or scientific works. The Court dismissed the revenue's argument that the broad interpretation of "payment of any kind" should include all rights, clarifying that the payment must be linked to the right to use specific categories outlined in the agreement.

The Court highlighted that the payment in question did not involve the transfer of a copyright or the right to use a copyright from IMG Canada to the assessee. Therefore, it did not meet the criteria under Article 13(3)(c) of the DTAA for classification as royalty. The Court affirmed the Tribunal's decision, stating that no substantial question of law arose from the case and consequently dismissed the appeal by the revenue.