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TMI Blog2021 (2) TMI 1107X X X X Extracts X X X X X X X X Extracts X X X X ..... vents to IDI Mauritius Limited ("IML"), a tax resident of Mauritius. All rights and power to negotiate and enter into an agreement to grant Global Partnership right and Marketing and Advertising right in respect of the territory of India was vested with IML. 2. IML and LG India had entered into 'Marketing and Advertising Agreement' (MAA) signed on June 23, 2009 wherein IML had agreed to grant LG India certain promotional, advertising, marketing and other commercial rights in the capacity of being a Global Partner ("GP") in connection with the ICC events. In consideration for the Marketing and Advertising right granted by IML, LG India was obliged to pay to IML a fee of US$17.08 Million. This consideration was attributable to different events organised by ICC in India and outside India during the term of the agreement. 3. LG India had entered into another agreement namely 'Global Partner Agreement' (GPA) with IML, wherein IML had agreed to grant LG India, the Global Partnership Rights in connection with the ICC events in respect of the territory of India. The Applicant, on a conservative basis was withholding tax while making remittance to IML on this p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndle of rights has been artificially split up, and also that the Ruling is being sought only on one agreement , and not on the entire arrangement . These observations can be examined during our subsequent proceedings before pronouncing a Ruling on the questions posed to us by the Applicant. In view of the above observation while admitting the application, we have to examine the total bundle of rights under MAA as well as under GPA while examining the questions raised in the application. Submission the Applicant 5. The Ld. A.R explained that the MAA had granted to LG promotional, advertising, marketing and other commercial rights and opportunities as specified in the Agreement with respect to 'Product' for use in the 'Territory' during the 'Term' including rights granted in Appendix 3 to Appendix 5 of the Agreement. He has drawn our attention to various clauses and Appendixes of the MAA. It was submitted that the Applicant had entered into MAA to seek the commercial rights, which were non-intellectual property rights, from IML to promote and market its products through advertising and sales promotion campaigns and for which payments were made under M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no control over the so-called equipments in and outside the stadium and the control and possession of the equipments was vested with IML, who was responsible for installation and maintenance of the equipments. The Applicant was merely provided the facility of advertising of its logo by IML through sophisticated equipments such as electronic screens, site screens etc. In this regard, our attention was drawn to Para-2,9 of Appendix-3 of MAA which provided that IML shall be responsible for ownership and control of the equipments used in the stadium during the cricket match. Thus, no asset/equipment was getting transferred to LG India from IML. The Ld. A.R submitted that the primary objective of MAA was to provide the Applicant the facility of advertisement, promotion and marketing of its brands in India and there was no consideration paid for "use" or "right to use" of any equipment whatsoever inside or outside the stadium. In view of these facts, the consideration paid by the Applicant to IML under the MAA was not taxable in India and, therefore, the Applicant was under no obligation to withhold/deduct tax at source under the Income-Tax Act. 7. With respect to Question No, 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e was chargeable to tax in India. 9. On the issue of payment to non-resident sport association the Revenue has submitted that IML was wholly owned subsidiary of ICC and Mr. Haroon Lorgat, the Group Chief Executive Officer (CEO) of ICC was also one of the Directors of IML. Further, he was an authorised signatory of MAA as well as GPA between the Applicant and IML. Further, all the payments made by the Applicant were in connection with the events organised by ICC, which was the official international governing body for cricket. According to the Ld. Counsel the real nature of transaction was required to be unveiled and as the agreements made by IML was on behalf of ICC and in connection with licensing of commercial rights in relation to the ICC events; the payment made in essence was to a non-resident sports association. It was further submitted that the amount payable under MAA was fixed amount of USD 17.08 million and was not contingent upon any probable event and, therefore, the payment contemplated under the MAA was in the nature of guarantee fee. Thus all the pre-conditions of section 115BB(1)(b) were satisfied in respect of the games played in India. In view of these fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it transpired that LG had used the ICC trade mark and the words "ICC Cricket World Cup 2011" on its appliances and also "Official mobile of the ICC Cricket World Cup 2011" on its specially launched mobile phones. This use was permitted pursuant to the rights granted by IML under the agreement dated 23.06.2009 which included commercial rights. As such, the vast bouquet of rights granted by IML to the Applicant was within the definition of "Royalty" as defined in Article 12(3) of the DTAA. Further, Article 12(2) of the DTAA permitted royalties to be taxed in the country in which they arose, i.e. India in the present case. 12. The Revenue has submitted that apart from MAA the Applicant had also entered into "Global Partner Agreement" (GPA) with IML on the same date dated 23 rd June, 2009 in respect of the territory of India and the Applicant was withholding tax while making remittance to IML under GPA. It was submitted that both the agreements MAA and GPA were executed on the same date and there was substantial commonality in their clauses. The Revenue has contended that the IML and the Applicant had split the bundle of commercial rights into two - promotional, advertising, ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in respect of "similar property" which was covered in the definition of royalty in clause (i) of Explanation 2 to section 9(1)(vi) of the Act. Therefore, such payment was taxable in India as income was deemed to accrue or arise in India. 14 It was further submitted that the exercise of commercial rights granted to the Applicant necessarily required use and right to use substantial commercial equipment like electronic scoreboards, signages, boundary demarcations, space on the ground itself etc. These equipments were all controlled by IML. Further, as per the agreement IML had agreed to make such staff available, without additional charges, as reasonably required to coordinate and supervise the implementation of Applicant's advertisement and promotional programmes. Further, IML had also appointed a dedicated account administrator. Thus, the rendering of service was in relation to use of equipment which was covered under the definition of royalty. It was submitted that use of brands, marks, logos as well as use of commercial equipments owned and controlled by IML also made the payment covered under the definition of 'royalty' under Article 12 of India-Mauritius DT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e decisions of Ld. ITAT in the case of Reebok India Company Vs Deputy CIT (79 taxmann.com 271) (Delhi-Trib). It was submitted that the agreement in the case of Reebok was identical to the agreements in the present case and the commercial rights offered under the agreements were also identical. The Ld. ITAT had discussed the facts of the case in detail and the Ld. A.R. had drawn comparison of that case to the facts of the present case in support of the contention that the payment for various rights under MAA was not in the nature of royalty. It was submitted that the Revenue had accepted this decision on the issue of royalty and no appeal was filed before the Hon'ble High Court on this issue, though the decision was challenged before the High Court on a different issue. The Ld. A.R. also relied upon the decision of Delhi High Court in the case of DIT Vs. Sheraton International Inc. (2009) 313 ITR 267 (Delhi) and on the decision of Delhi ITAT in the case of Hero MotoCorp Ltd. Vs. Addl. CIT (36 Taxmann.com 103)(Delhi-Trib) in this regard. It was further submitted that an order u/s 264 was passed in the case of the Applicant whereby two-third of the amount was held on account of ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... luding, but not limited to, all advertising, promotion, marketing merchandising , rights of entry to a venue for any commercial, media or promotional purposes, all ground perimeter, stadium, on field, venue and training ground signage and advertising rights , hospitality, travel and tours rights. Commercial Rights means any and all commercial rights and opportunities of whatever nature in, and in relation to, the ICC Events including, but not limited to, association, licensing, franchising, sponsorship and ticketing rights, publication rights and all media rights. Rights under MAA: 19. The marketing and advertising rights that have been granted under the MAA are enshrined in Clause 2.1 of MAA which is as under: IML grants to Company the promotional, advertising, marketing and other commercial rights and opportunities as specified in this Agreement with respect to Products for use in the Territory during the Term, including: a) Appendix 3 with respect to ICC Events; b) Appendix 4 with respect to ICC Awards; c) Appendix 5 with respect to certain additional rights for a particular Match; and d) Appendix 6 with respect to the specified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tches, post-match presentations and other major event related press conferences, (vi) Replays screens- Right to have Company identification on the replay video screens of each stadium. (vii) Hospitality - Right to have specified number of corporate hospitality places at each match, at each major event free of cost with opportunity to purchase additional hospitality packages. (viii) Publication - Right to have, free of charge, one full page colour advertisement in the Official Programme of each major event. (ix) Press Conferences - Right to identification on backdrops on the occasion of ICC press conferences concerning major events. (x) Printed Materials - Right to have Company's logo and identification as Global Partner printed on official printed materials of major events. (xi) Cricket Zones and Event Promotions - Right to operate branded interactive fan activities at the Cricket Zones, right to participate in the promotional tours of ICC events, right to establish a flag court at official hotels, right to have Company Marks included in pre-ICC event print/outdoor advertising etc; (xii) Exclusive Marketing Programmes - Right to conduct one Exclusive Programme for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction or liability for any and all taxes. There was a provision for interest payment at the rate of 2% above LIBOR rate of US$ in case the payment was not made on the due date. Rights under GPA: 25. Under the GPA, the Applicant was granted commercial rights and opportunities with respect to Products for use in the territory of India in respect of ICC Events (Appendix-3), ICC Awards (Appendix-4), additional rights for a particular match (Appendix-5), specified ICC functions (Appendix-6) and broadcast sponsorship and commercial air time rights (Appendix-8). As per Appendix-3 of GPA the various rights allowed were as under: 1) Core commercial Rights- The right to use the following Designations as part of the grant to use the Marks: * Official Global Partner of [Major Event] * Official Global Partner of ICC. * ICC Global Partner/Sponsor Supplier of [Major Event] * Official Product of Major Event e.g. "Official Electronic Supplier of 2011 Cricket * World Cup * Global Technology Partner of Major Event/ICC Events. * Global Technology Partner of ICC. 2) Marks, Event identification and the use of players and member logos * The right to use ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Analysis of the Rights: 27. On a careful analysis of the rights allowed under MAA & GPA, it is found that the commercial rights under MAA are predominantly in respect of advertisement, marketing and promotion of LG products while those under GPA are on account of association, licensing, franchising, sponsorship etc. The basic difference between the two agreements is sharing of intellectual property rights (IPRs). While there is no sharing of IPR under MAA, the rights under of GPA involve sharing of IPRs. This is apparent from the "Definitions and Interpretations" under the two agreements. There is no mention of IPR in MAA whereas the GPA defines the term IPR. The contention of the Revenue is that both the agreements should be viewed together as just one bundle of commercial rights was being transferred and the composite payment should be considered to be in the nature of royalty. To determine the taxability, what is relevant is not the agreement but the rights transferred under the agreement. Even if the two agreements are considered as a part of composite agreement the entire consideration as per the agreements cannot be brought to tax for this reason alone. We have to cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... industrial, commercial or scientific equipment, or d) Whether the payment is for information concerning industrial, commercial or scientific experience? 29. In the present case, the payment under MAA is neither found to be on account of use or right to use any copyright of literary, artistic or scientific work nor for any information concerning industrial, commercial or scientific experience. In the case of Sahara India Financial Corporation Limited (Supra) the name "Sahara" and its logo was incorporated as the official tournament logo which was prominently displayed in the cricket ground on the outfield, on the stumps and the scoreboards. The players clothing were also required to display Sahara logo. Further, there were other rights in the form of certain number of VVIPs tickets, VIPs tickets and season tickets as part of Title Sponsor Package. The official awards and trophies were also required to carry the Sahara name and/or logo. The Hon'ble Delhi High Court had held in that case that there was no transfer of a copyright or the rights to use the copyright flowing from IMG Canada and that payments made would not fall within the definition of royalty within ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Supplier of [Major Event]" or "Official [Product] of [Major Event]" was part of the rights under Appendix-3 of GPA. Therefore, the instances of ICC trademark appearing on certain products as pointed out by the Revenue are found covered under rights allowed under GPA. There was a clause for right of first option to manufacture new electronic equipment in connection with introduction of new technologies into the game of cricket in MAA which is dealt in para-2.8 of Appendix-3. It stipulates that "Company shall have the right of first option to manufacture, or have manufactured, such equipment and to provide such equipment with Company branding to IML at Company's cost". Thus, there was a provision for only Company branding on such newly manufactured electronic equipments and no trademark of ICC was to be used on such equipments. Therefore, the products as pointed out by the Revenue are not found covered under this clause of MAA. 31. The Revenue has referred to the use of trademark "ICC" in the advertisement and publicity campaigns of the Applicant. In the case of Sheraton International Inc. (Supra) the Hon'ble Delhi High Court had held that main service rendered by ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of India-Singapore DTAA. 34. The Applicant has relied upon the decision of Ld. ITAT in the case of Reebok India Company (supra). It is found that the facts of Reebok India were identical with the facts of the present case. Reebok was allowed by ICC to associate as "Official Partner of ICC". The rights fee in that case was a package of 21 rights which were in the nature of 'Tickets', Boards and signage' , 'Parking passes' , 'Demonstration, sale and display of products', 'Backdrops' , In-stadia video screens', 'Hospitality', 'Match footage and archive', 'Internet promotion', 'Commercial airtime' and 20 out of 21 rights were held to be exclusively for advertisement and promotion of the assessee in connection with ICC events with our without the use of Designations and Marks etc. The Ld. ITAT held that these rights were purely in the nature of advertisement and cannot be considered as royalty in the hands of the recipient. In the present case also the Applicant had made the payment for advertisement and publicity during the ICC events, which does not fall within the realm of royalty in the hands of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and for promotion of its product during the Cricketing events of ICC and it was not "royalty" as defined in Article 12.3 of DTAA between India and Mauritius. These payments cannot, by any stretch of imagination, be said to relate to use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process or for information concerning industrial, commercial or scientific experience or for use of commercial equipments so as to constitute "royalty". The payment does not qualify as "Fee for Technical Services" as well; as no service was rendered in this case. The payments may constitute "business profits" in the hands of the recipient to which Article 7 of the DTAA would apply, but in the absence of any permanent establishment of the payee in India, is not chargeable to tax in India. Therefore, the payment made by the Applicant to IML for grant of commercial rights under MAA is not taxable in India as per the provisions of the DTAA between India and Mauritius. Obligation to withhold tax 37. According to the Applicant, the obligation to withhold tax on the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not a citizen of India or a non-resident sports association or institution, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of twenty per cent Tax on non-resident sportsmen or sports associations. 115BBA. (l) Where the total income of an assessee, (a) being a sportsman (including an athlete), who is not a citizen of India and is a non-resident, includes any income received or receivable by way of - (i) participation in India in any game (other than a game the winnings wherefrom are taxable under section 115BB or sport; or (ii) advertisement; or (iii) contribution of articles relating to any game or sport in India in newspapers, magazines or journals; or (b) being a non-resident sports association or institution, includes any amount guaranteed to be paid or payable to such association or institution in relation to any game (other than a game the winnings wherefrom are taxable under section 115BB) or sport played in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IML will be covered under section 115BBA, in proportion to number of games played in India to the total number of games played in the tournament. 41. The contention of the Applicant is that the payment made by it under MAA was not payment to any sports association or institution and, therefore, section 115BBA was not attracted. It is found that ICC is the official international governing body for cricket and the matches for which the payment were made under MAA could not have been conducted without sanction of ICC. ICC Development (International) Limited (IDI) was incorporated in 1993 as wholly owned subsidiary of ICC and all the commercial rights in relation to ICC Events were transferred to IDI and thus IDI is commercial arm of the ICC. IML was incorporated in 2009 as wholly owned subsidiary of IDI to manage certain commercial rights and IDI had licensed the commercial rights for India in relation to the ICC events to IML. Thus, IML was managing the commercial rights of ICC Events for the territory of India. As per this arrangement, IML was only acting as a commercial arm of the ICC to negotiate the commercial rights pertaining to India and all the payments under MAA and G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution in relation to game played in India. Had the sponsorship agreement not been sanctioned by ICC, neither the game could have been played in India nor could the payments have been made to IML in connection with the ICC Events. Further, all the rights transferred under the agreements were in respect of ICC Events and were pertaining to ICC only, particularly under GPA. Even under the MAA the trademark "ICC" was used in the advertisement, publicity campaigns etc. alongside the Applicant's logo which was held as incidental to the main services obtained by the Applicant under MAA. As the ICC did not undertake any financial transactions directly the payment for grant of rights under the agreements was received through the Group entities owned by ICC. In view of these facts we have no hesitation to hold that the payment made by the Applicant under the agreements with IML was income pertaining to a non-resident sports association or institution. 44. The other contention of the Applicant is that the payment under MAA was not guarantee money but rights fee. It is found from Appendix-2 of MAA that fee of US $ 17.08 Million was payable by the Applicant. The amount of fee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s "guarantee fee". 45. In view of the above facts, all the conditions as stipulated in section 115BBA of the Act are found fulfilled in this case. And once these conditions are satisfied, the obligation of the Applicant to deduct tax u/s 194E of the Act was absolute. Unlike section 195 there is no condition in section 194E that the payment being made should be chargeable under the provisions of this Act. Therefore, there was no obligation on the Applicant to examine whether the payment made under MAA was chargeable to tax in India in the hands of IML. Even if the income of IML was notified as exempt u/s 10(39), it did not mitigate the obligation of the Applicant to deduct tax u/s 194E of the Act. 46. In the case of PILCOM (supra) the assessee had made payments to ICC as well as to the cricket control boards/associations of different member countries of ICC from its two London bank accounts on which it had failed to deduct tax at source in accordance with provisions of section 194E. The payments made by PILCOM were classified into seven distinct categories and the matter before the Apex Court was only in respect of amounts categorized in the nature of Guarantee Money p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n that case as under: 18. We now come to the issue of applicability of DTAA. As observed by the High Court, the matter was not argued before it in that behalf, yet the issue was dealt with by the High Court . In our view, the reasoning that weighed with the High Court is quite correct. The obligation to deduct Tax at Source under Section 194 E of the Act is not affected by the DTAA and in case the exigibility to tax is disputed by the assessee on whose account the deduction is made, the benefit of DTAA can be pleaded and if the case is made out, the amount in question will always be refunded with interest . But, that by itself, cannot absolve the liability under Section 194E of the Act. 19 . In the premises, it must be held that the payments made to the Non-Resident Sports Associations in the present case represented their income which accrued or arose or was deemed to have accrued or arisen in India. Consequently, the Appellant was liable to deduct Tax at Source in terms of Section 194 E of the Act. 48. The ratio of this decision is found squarely applicable to the facts of the present case. The amount paid by the Applicant to IML in relation to the games played in Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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