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2016 (4) TMI 208 - ITAT MUMBAI

2016 (4) TMI 208 - ITAT MUMBAI - TMI - Income received - business receipts OR royalty/fee for technical services - PE in India - DTAA between India and UK - Held that:- Decide the issue of the fee/income received by the assessee in favour of the assessee with a direction to the AO to treat the receipts of the assessee as business income of the assessee. Since the assessee has admitted that it has a PE in India, hence the AO is directed to consider the taxability of the receipts as business incom .....

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ter referred to as the DRP] relevant to assessment year 2009-10. 2. The Revenue, in its appeal, has agitated the action of the Ld. DRP in holding that the income received by the assessee is business receipts and not royalty/fee for technical services as was held by the Assessing Officer (hereinafter referred to as the AO) in draft assessment order. Whereas the assessee in his appeal has agitated the levy of interest under section 234B and section 234C of the Income Tax Act. The relevant facts re .....

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) had entered into an agreement for capturing and delivering of the live audio and visual coverage of the first Indian Premier League ( IPL") 2008 event which was conducted in India during April 18, 2008 - June 01, 2008. Thereafter, the assessee also entered into another agreement dated April 15, 2009 with BCCI for the live audio and visual coverage of the matches for the second IPL 2009 event. The assessee further submitted that for IPL 2008 event, few personnel of the assessee had visited .....

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used to commit security by Indian paramilitary forces. As a result, BCCI decided to host the second season of the league outside India. On 24 March 2009, the BCCI officially announced that the second season of the IPL will be held in South Africa. It was also argued by the assessee that since, the cumulative period of stay of the assessee s personnel in India exceeded the threshold limit of 90 days in the '12 months' period, beginning from March 22, 2008 to March 21, 2009, a service perm .....

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the AO that the services rendered by the assessee were in the nature of technical services and accordingly, the assessee was asked to show cause as to why the revenue earned by it should not be taxable as Fee for Technical Services under the provisions of Section 9(1)(vii) of the Income Tax Act 1961 ( the Act') read with the provisions of Article 13 of the DTAA. While passing the order for this assessment year, the AO has relied on the agreement for the IPL 2009 event on the premise that bo .....

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e DTAA and explanation to section 9(i)(vi) of the Act. It has further been held by the AO that once it is held that the services being provided are taxable as per Article 13 of the DTAA, the provisions of Article 5(2)(k) of the DTAA becomes redundant. The reason for the same being that Article 5(2)(k) of the DTAA specifically excludes the services in the nature of FTS / Royalty (under Article 13 of the DTAA) for the purpose of determination of service PE. The assessee has made detailed submissio .....

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after considering the submissions of the assessee, held that the fees received by the assessee for the services was neither fees for technical services nor would fall in the definition of royalty. The Ld. DRP upheld the contention of the assessee that it has a service PE in India in terms of Article 5(2)(k) of DTAA between India and UK and income from this service would be taxable as business income under Article 7 read with Article (Taxable @ 42.23%) Income as per draft assessment order by hold .....

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UK and considering the nature of services provided by the assessee, has held vide its order dated 26.08.15 that the amount received by the assessee was not in the nature of fee for technical services by observing as under: 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 India-UK DTAA, it is the plea of the assessee that the principle or concept of make available e .....

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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 to the licensees (broadcasters). There should not be any dispute that the licens .....

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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 fall under the category of "Fee for technic .....

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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 of cricket matches on behalf .....

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lity 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 live coverage feed, it become .....

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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" in .....

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shows 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 Trib .....

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tinguishable. 11. Since 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. 5. The Tribunal further examined whether the payment received by the assessee would fall under the category of royalty. After considering the submissions and the detailed evidence on the file, .....

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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 as per the Act as w .....

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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 commercial an .....

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ision broadcasting, 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 royalt .....

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gh Court had an occasion to examine 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 .....

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sound recording. 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 have .....

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ct, 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 content produced b .....

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licability of provisions of 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. 6. The Ld. A.R. has further invited our attention to para 17 of the said order wherein the Tribunal has set aside the issue of charging of interest under section 234B of the Act to the file of the AO with a direction to the AO to take appropriate decision by considering the decision of the Jurisdi .....

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