TMI Blog2010 (6) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... ( 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 as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g television programs, motion pictures and sports events and exhibiting the same on its television channels from Singapore. The assessee is a tax resident of Singapore in terms of Article 4 of the India Singapore Tax Treaty. 3. The assessee had entered into an agreement on January 25, 2002 with Global Cricket Corpn. Pte Ltd (GCC) (also a tax resident of Singapore under the Treaty). Under the agreement, GCC has granted rights to the assessee throughout the licensed territory. The term rights under Sch-I to the agreement has been defined as the right to transmit, broadcast, exhibit, perform, include in cable programs and/or otherwise distribute, make available to the public any moving visual or audio visual representations and/or images of matches, players or play in any event, the feed, the highlights, package and any recording and other material by means of any media. The term licensed territory has been defined under Sch-I to the agreement as India, Pakistan, Srilanka, Bangladesh, Singapore and Malaysia. 4. The ADIT initiated proceedings u/s. 201 of the I.T. Act on the assessee for non deduction of tax at source from payments made to GCC. During the course of Sec. 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contention of the appellant that even if one assumed that the payment was in the nature of Royalty, such a Royalty does not arise in India having regard to the provisions of Article 12(7) of the Treaty. I concur with the opinion of Mr. Phillip Baker on the subject and hold that unless there is a direct nexus with the activities of the PE and the incurring of the said expenditure, the Royalty cannot be said to arise in India. Since there is no such nexus in this case, I hold that the payment to GCC cannot be said to arise in India with the meaning of Article 12(7) of the Treaty. 7. The Ld. CIT(A) thus inter alia decided the main issue in favour of the assessee holding that even if it is assumed that the amount in question is in the nature of royalty, such royalty income does not arise in India in terms of Article 12(7) of the relevant DTAA and thus the same is not chargeable to tax in India. Accordingly he held that the assessee was not liable to deduct tax at source from the payment made to GCC. The Ld. CIT(A) thus partly allowed the appeal of the assessee by his impugned order against which the assessee and department has filed these appeals before us. 8. The main issue wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T. Act 1961 are applicable to the transaction outside India if the same has any nexus in India. In this context, he raised the following points: a) The provisions of the Sec. 195 are applicable even to a transaction made between two non-residents outside India. b) The telecasting rights received by the assessee from the GCC are in the nature of property similar to a patent, invention, model, design, trade mark etc. as mentioned in clause (i) of Explanation 2 to Sec. 9(1)(vi) c) The rights to be transferred by the GCC to the assessee are also copyright rights as mentioned in clause (v) of Explanation 2 to Sec. 9(1)(vi). d) The assessee is carrying on business in India and the payments made to the GCC were for the purpose of business carried out in India and also for making an earning from sources in India. e) The payments made by the assessee to the GCC are in the nature of royalty u/s. 9(1)(vi) of the Act and therefore chargeable to tax in India. f) The GCC is not entitled to any benefit under Indo-Singapore Treaty under the limitation clause (article 24) as the payments have been received in Jersey and not in Singapore. 11. The Ld. AR countered the arguments o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dcasting business is being carried out from Singapore and it does not carry out any such activity in India. The payment for the cricket rights is made only for the broadcasting operations of the assessee, which are carried out from Singapore. Further, the liability for the payment is incurred by the assessee in connection with its broadcasting operations in Singapore and has no connection with the marketing activities carried through its alleged PE in India. 14. The second aspect which requires consideration is that Article 12(7) requires the Royalty must be borne by the payers PE in India. The assessee contended that in the present case, the financial burden of the payment for live cricket rights is borne by the Head Office of the assessee in Singapore and not by its alleged agency PE in India and therefore the payment cannot be treated as borne by the assessee s PE in India. The wordings, viz., payments being incurred in connection with and borne by by a PE in the other contracting state are also found in Article 11(5) of the OECD Model Convention relating to Interest . The assessee has relied on para 26 of the OECD commentary on Article 11 of the Model Convention, whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 18. Based on an analogy from paragraph 26 and 27 of the OECD Commentary on Article 11, it is clearly evident that for royalties to arise in India, an existence of an economic link between the liability for payment of such royalties and PE is necessary. However, in the present case 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). Further, the 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). 19. We find that the case laws cited by the Ld. Counsel for the assessee also supports the assessee s case. In the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
