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IMG Media Limited Versus Dy. Director of Income Tax (International Taxation) -3 (1) , Mumbai

2015 (9) TMI 16 - ITAT MUMBAI

Nature of payment received - royalty or Fee for Technical services (FTS) - DRP/AO held that the amount received by the assessee from Board of Control of Cricket in India (BCCI) is assessable to tax as “Fee for technical services” and alternatively as “Royalty” also - India–UK Double Taxation Avoidance Agreement - Held that:- “Royalty” means consideration for the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or .....

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that the payment received by the assessee cannot be considered as "royalty" in terms of the India-UK DTAA. Though, it is not necessary to examine about the applicability of provisions of sec. sec. 9(1)(vi) of the Act, yet the facts discussed above would show that the payment received by the assessee cannot fall within the purview of sec. 9(1)(vi) of the Act also.

Question of existence of “permanent establishment” and taxability of "reimbursement of expenses" grounds were not consider .....

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s filed this appeal challenging the assessment order dated 10.1.2014 passed by the Assessing Officer under section 143(3) read with section 144C(13) of the Income Tax Act, 1961 (the Act) in conformity with the direction issued by the Dispute Resolution Panel (DRP). The assessee is aggrieved by the decision of ld. DRP/AO in holding that the amount received by the assessee from Board of Control of Cricket in India (BCCI) is assessable to tax as Fee for technical services and alternatively as Royal .....

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ing live audio and visual coverage of cricket matches conducted under the brand name IPL, 2008 and also IPL, 2009. The taxability of the amount received by the assessee from BCCI is the issue urged before us. The facts relating to the case are described as under by Ld CIT(A):- 3. It has further been submitted by the assessee that the assessee and the Board of Control for Cricket in India ('BCCI") had entered into an agreement for capturing and delivering of the live audio and visual cov .....

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before the commencement of the event IPL 2009 event was initially supposed to be held in India; accordingly couple of personnel of the assessee was present in February/March 2009 for the purpose of recce/ inspection activities before the commencement of matches of IPL 2009. However, the second IPL 2009 event coincided with Indian elections and therefore, the Indian Government refused to commit security by Indian paramilitary forces. As a result, BCCI decided to host the second season of the leag .....

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K DTAA and the income attributable was computed on the basis of Transactional Net Margin Method ('TNMM') prescribed under the Indian transfer pricing regulations. The assessee further submitted the summary of returned income and proposed addition made by the AO as under : Returned income - Rs.(INR) 18,57,748/- (taxable @42.23%) Income as per draft assessment order by holding the same as FTS or alternatively Royalty -Rs.(INR) 20,23,11,392/- (taxable @10.5575%) According to the assessee, i .....

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sessed the entire amount of gross receipts. 3. The Ld Dispute Resolution Panel (DRP) held that the concept of Service PE does not have application, once it is held that the gross receipts are taxable as Fee for technical services or as Royalty . Hence the Ld DRP proceeded to examine the nature of amount received by the assessee from BCCI. The relevant discussions made by Ld DRP in order to hold that the amount received by the assessee is in the nature of Fee for technical services are extracted .....

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formation for ' which a payment described in paragraph 3(a) of this article is received: or b) Are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or c) Make available technical knowledge, experience, skill know how or processes or consist of the development and transfer of a technical plan or technical design Thus the assessee is claiming that his case is covered by the make available clause of FTS and he .....

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April to 24th May 2009 and to provide certain other production services in respect of the IPL 2009 season on the terms and conditions as set out herein. The parties hereby agree as follows: 1. Engagement 1.1 The BCCI hereby engages IMG to provide the services set out below and, in consideration for payment by the BCCI of the costs of providing those services in accordance with clause 3 below, IMG accepts such engagement: a) Production and provision to the Licensees (meaning MSM Satellite (Singap .....

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eed; and (b) Production liaison and administration of arrangements with the Licensees for the Event as set out at Schedule 3 hereto 1.2 IMG will not produce any feed of the Matches other than the feed produced for BCCI hereunder. 1.3 IMG shall be responsible for ensuring that equipment that it introduce into the Match venues complies with international standards of health and safety, it being acknowledged and agreed that IMG shall not be responsible for the compliance of the Match venues and the .....

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o the Licensees at the production control room or equivalent facility of the venue of the relevant Match at no cost to the Licensees. 1. IMG shall liaise with the Licensees prior to the Event and on a daily basis during the Event as required, including providing personnel (including a Production Manager) for daily meetings with the Licensees as required. 3. The Licensees will, subject to space and the facilities at the relevant venue and subject to Licensee giving IMG and/or BCCI reasonable noti .....

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plained by the assessee are that BCCI has engaged IMG Media to capture the live audio and video coverage of IPL event. For the purpose of capturing the IPL event, personal of IMG Media would be based at the grounds where matches are played capturing the audio and video feeds using different cameras and audio equipment located at different places in the stadium and several personnel would be based in the temporary control room located in or around the stadium. The personnel based in the temporary .....

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hem using technical desk claimed to be (standard equipment) and thereafter convert the same into the standard digitalized signals and deliver the same to BCCI for the purpose of telecasting and broadcasting. This completes the service by IMG. The most important part in this service is the part regarding selection of the audio and video images which are captured live and mixing of these images. A recorded copy of the live audio and video coverage is also to be given to BCCI Production is done by .....

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e stadium (iii) Recommendation regarding new technology such as Hawk eye (iv) Recommendation for Scoring graphics (v) Recommendation for hiring commentators -if IMG given recommendation only why have you said before that commentators are hired by IMG (sic.) (vi) Recommendation for hiring equipment suppliers It is further seen that the specification are mentioned in the Agreement, whereas some are discussed with BCCI orally. These specifications are agreed by BCCI. The output of the services i.e. .....

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of improved contents to the Licensees i.e. broadcasters, in this case, viz MSM Satellie Singapore Pte Ltd, world sport group (M) Ltd and Live Current Media matches and Production liaisoning and administration of arrangements with the licensees for the event as set out in schedule 3 (Services). These are parties in agreement with BCCI for Broadcasting. Further, a look at schedule 2 of the said agreement shows the minimum feed technical specification and requirements. There are exhaustive lists o .....

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it means that unless IMG shares and makes available its technical plan, design, the broadcasters cannot seamlessly function and consequently the ultimate objective of HD video feed to be broadcasters live worldwide cannot be achieved. Moreover, each broadcaster breaks such live programming also for insertion of advertisements and other breaks. This live programming with breaks incorporated in it by the broadcaster is broadcast contents which itself is a copy righted product. What is tremendousl .....

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know-how and processes which also consisted of development and transfer to its broadcasters of technical plan and design relating to production and generation of live television signal. Further, schedule 3, of the said agreement mandates that IMG shall make available feed to the broadcasters at the production control room or the equivalent facility of the venue of the match. It shall also liaise activities aims at seamless production and transmission of video signal for worldwide broadcast in a .....

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see to produce and deliver live audio-visual coverage of the IPL-2008 & IPL-2009 cricket Matches conducted by BCCI. According to the agreement, the assessee shall produce the feed and deliver the same to the broadcasters, who are called licensees. Thus, it is noticed that the job of the assessee shall come to an end, once the feed is produced and delivered to the licensed broadcasters in the form of digitalized signals. As per the agreement, the BCCI shall supply the equipments like cameras, .....

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ces means payments of any kind of any person in consideration for rendering of any technical or consultancy services (including the provision of services of technical or other personnel) which : a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for ' which a payment described in paragraph 3(a) of this article is received: or b) Are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of t .....

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6 ITD 791)(Mum) (c) Guy Carpenter and Co. (346 ITR 504)(Del) The Ld A.R submitted that the principle of make available‟ has not been defined in the India-UK DTAA, but the same has been explained in the Protocol to the India-US DTAA as under:- Generally speaking, technology will be considered made available‟ when the person acquiring the same is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service d .....

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ating to the production of live coverage of audio-video visuals of the cricket matches, but only supplied the program content produced by it. Accordingly he submitted that the amount received by the assessee from BCCI cannot fall under the category of Fee for technical services in terms of Article 13(4)(c) of India-UK DTAA. 6. We notice that the Article 13(4)(c) of the India-UK DTAA also uses the expression make available . Though the said expression has not been explained in the context of Indi .....

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f make available‟ explained in the context of India-US DTAA can be imported to understand the provisions of Article 13(4)(c) of the India-UK DTAA also. 7. Now we shall examine the question on the basis of discussions made in the earlier paragraphs. We notice that the assessee produces the feed (program content) of live coverage of audio-video visuals of the cricket matches by using its technical expertise. After that it delivers the feed (program content) in the form of digitalized signals .....

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nt from the provision of technology itself. In the former case, the recipient would receive only the product and he can use the product according to his convenience, where as in the later case, the recipient would get the technology/knowhow and hence he would be able to use the technology /knowhow on his own in order to produce any other program content of similar nature. In the later case, the technology/knowhow would be made available to the recipient, in which case the payment given would fal .....

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s between the assessee and the broadcasters. In our view, there is a fallacy in the view taken by Ld DRP. The object of the production of live feed is to offer quality coverage of the live cricket matches to the viewers. The assessee‟s job is restricted to production of live coverage and the job of broadcasting the same is undertaken by the BCCI. The BCCI, in turn, has given license to certain companies (called licensees) and they have undertaken the job of broadcasting the live coverage o .....

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ved by synchronizing the quality of technical equipments between the assessee and the broadcasters (licensees). Such kind of synchronization of technology would ensure seamless function and complete coordination between the assessee and the broadcasters. Thus, there is a difference between the technology involved in the production of live coverage feed of cricket matches and the technology required to broadcast the same in the required quality. Hence, in order to ensure and maintain quality of l .....

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feed on their own. We notice that the revenue has not established that the broadcasters (who are acting on behalf of the BCCI) or the BCCI itself has acquired the technical expertise from the assessee which would enable them to produce the live coverage feeds on their own after the conclusion of IPL 2008 and IPL 2009 cricket matches. In that case the essential condition of make available clause fails and hence the amount received by the assessee cannot be considered as Fee for technical services .....

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the technical expertise of the assessee to produce a flexible program content to give enhanced quality of viewing the live matches. 10. Before us, the Ld D.R placed reliance on the decision rendered by the Delhi bench of Tribunal in the case of Nimbus Sport International Pte Ltd (2012)(18 taxmann.com 105), wherein the Tribunal had held that the services or production and generation of live television signal were in the nature of technical services. The Ld A.R contended that the Delhi Tribunal di .....

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the amount received by the assessee is held to be not in the nature of Fee for technical services as per the definition of Article 13(4)(c) of the India-UK DTAA, in our view, there is no necessity to examine about its taxability u/s 9(1)(vii) of the Income tax Act, 1963. 12. The AO/Ld DRP have also expressed the view that the payment received by the assessee would fall under the category of Royalty also. The relevant observations made by Ld DRP are extracted below:- 5.5 Additionally, we find th .....

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t introduces into the Match venues complies with international standards of health and safety, it being acknowledged and agreed that IMG shall not be responsible for the compliance of the Match venues and their infrastructure with such international standards of health and safety This makes it clear that the assessee is required to bring and use some equipment for recording live audio-visual feed of the matches. In schedule 2 of the said agreement as well, various minimum camera and equipment sp .....

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dentified and costs assigned. In this also, a lot of these relate to use of equipments like production equipments, maintenance of equipments, setting up of a studio in India, broadcast from outside etc. All these clearly establish that the assessee would be using equipments to carry out this work which is nothing but equipment royalty as per the Act as well as the DTAA. 5.5.1 On a perusal of this agreement, it is also observed that the assessee company is the world leader in this field and has d .....

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less/uninterrupted production and broadcasting of the complete match. During such production process, a new work is created within a split of few macro seconds and the existing for keeps on merging with the new work being created. The activity which leads generation of revenue is the complete work being taken into consideration and therefore it would be incorrect to state that the payments received by assessee is for the live work and not for any work being in existence. Also, the production wor .....

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redit agreed between the BCCI and IMG As per this clause, the assessee company is taking the credit for this creation. Had this not been a unique creation which is of world standard, the assessee company would not claim the credit. By taking this credit, it is being demonstrated by the assessee that it is a unique product which has been created by following a unique product and that‟s why they are demonstrating before the world that it is created by the assessee company. Hence, in a way th .....

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ociated Enterprises. This clearly shows that BCCI has given this work only to the assessee company and does not want it to assign this work to anybody else as it has got a unique process of producing the live feed. This also establishes that it has developed commercial and scientific experience in this field which is being used for proving these services. 5.5.2 In view of the above discussions, it is held that the payments would be taxable as Royalty" both under the provisions of Section 9( .....

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uction of the program content‟. According to the assessee, the program content shall become the property of the BCCI. We notice that the revenue has not brought any material on record to show that the assessee has kept the ownership rights over the program content. The Ld DRP has noticed that the BCCI is required to supply certain equipments and hence the Ld DRP has held as under:- …the assessee would be using equipments to carry out this work which is nothing but equipment royalty .....

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BCCI. Under commercial terms, if the assessee was required to bring the equipments, then the consideration payable for the production of live coverage of cricket matches should go up. Thus, in our view, it was a simple case of commercial agreement entered between the parties with regard to the modalities to be followed and the same is not a determinative factor to decide about the nature of payment received by the assessee. 14. The Ld D.R.P. has further observed that the assessee has developed .....

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asting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) Payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. A careful perusal of the definition of royalties extracted abov .....

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xamine an identical issue in the case of CIT Vs. Delhi Race Club (2015)(273 CTR 503) in the context of the provisions of sec. 194J of the Act. In the above said case, the assessee was engaged in the business of conducting of horse races and it made payment for live telecast of races. The AO held that the said payment would fall under the definition of royalty‟ falling within the purview of the provisions of sec. 194J of the Act and hence disallowed the payments u/s 40(a)(ia) of the Act. Th .....

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ecording. Similar is the provision of Section 14 of the Copyright Act which stipulates the exclusive right to do certain acts. A reading of Section 14 would reveal that copyright‟ means exclusive right to reproduce, issue copies, translate, adapt etc., of a work which is already existing… 18. In view of the aforesaid position of law which brought out a distinction between a copyright and broadcast right, sufficie would it be to state that the broadcast or the live coverage does not .....

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sec. 194J of the Act, yet section imports the definition of the term royalty‟ from Explanation 2 to sec. 9(1)(vi) of the Act. Under the definition given in the above said provision also royalty means consideration for 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. 15. In the instant case, we have noticed that the BCCI becomes the owner of the program conte .....

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