International Taxation

CA. Hinesh Doshi, CA. Jhankhana Thakkar

M/s Indian Oil Corporation Ltd vs. Deputy Director of Income Tax, Circle-3(1), International Taxation, New Delhi [TS-789-ITAT-2023(Mum)] dated 19th December, 2023

Facts:

  • Assessee-Company ‘Indian Oil Corporation Ltd’, entered into an official sponsor (worldwide) agreement, with Global Cricket Corporation PTE Ltd. Singapore (GCC) and World Sports Nimbus PTE Ltd. Singapore (WSN) for acquisition of sponsorship of the ICC cricket events commencing from the ICC Champions Trophy 2004 to ICC Cricket World Cup 2007.

  • Accordingly, GCC raised invoices on the assessee towards sponsorship including display of signage and other associated benefits during ICC Champions Trophy 2004 held in England and the ICC Trophy 2005 at Ireland.

  • Assessee filed an application with the Revenue to issue an authorization for remittance of $595000 to GCC, without deduction of tax at source and pointed out that the payee does not have PE in India and that display of signage is done outside India, thus the said payment is not liable to tax in India.

  • Revenue rejected assessee’s application under Section 195(2) and held that the aforesaid remittances are in the nature of royalty and directed the Assessee to deduct tax under Section 195. CIT(A) granted part relief to the Assessee holding that only 50% of the said payment is for the use of trademark, trade name and copyright, thus the remittances are in the nature of royalty only to that extent.

  • Aggrieved, the assessee filed an appeal with the ITAT.

Issue:

Whether Sponsorship payments for cricket matches will be taxable as royalty?

Held:

  • ITAT relied on Delhi ITAT ruling in Hero Motor Corp wherein, on identical issue, it was held that the payments made towards sponsorship rights are not in the nature of royalty as the payment was not for the use of trademark or brand name, thus the assessee was not required to deduct tax at source on the said payments.

  • ITAT also relied on co-ordinate bench ruling in Global Cricket wherein while considering the issue of taxability of the amounts received from the sponsors for use of event marks, sign ages, etc. in the hands of the recipient, it was held that such payments cannot be considered as royalty in the hands of recipient under Section 9(1)(vi). ITAT held that payments made by the Assessee under sponsorship agreement for non-exclusive right to use, reproduce and publish the ‘event marks’ and non-exclusive right to use ‘footage and still images’ for advertising and promotion during Cricket matches is not taxable as royalty under India-Singapore DTAA.

  • Thus, ITAT ruled in the favour of the assessee.

M/s Lex Sportel Vision Pvt. Ltd. vs. Income Tax officer, Circle-2(2)(1), International Taxation, New Delhi [TS-799-ITAT-2023(DEL)] dated 26th December, 2023

Facts:

  • Assessee-Company ‘Lex Sportel Vision Pvt. Ltd’ engaged in the business of broadcasting or sub-licensing right to broadcast sport events e.g., golf, cricket, soccer etc. on live and non-live basis, filed return of income for AY 2018-19 declaring NIL income.

  • Assessee entered into agreements with various non-resident entities for acquisition of right to broadcast live sports events and right to use audio-visual recording of the sport events for subsequent telecasting, cutting small clips for advertisements, making highlights of the event etc.

  • The agreements and invoices clearly mentioned total consideration between consideration for ‘Live Rights’ and consideration for ‘Non-Live Rights’. Assessee deducted tax at source on the payments made towards acquisition of ‘Non-Live Rights’ considering the same to be royalty under Section 9(1)(vi), however did not deduct any tax at source under Section 195 on the payment made for ‘Live Rights’.

  • Revenue passed the order under Section 201(1) and 201 (1A) by holding that the payment for ‘Live Rights’ is chargeable to tax as royalty in the hands of the non-resident recipients, thus the assessee was required to deduct tax on the same under Section 195 and failing the same, held assessee to be in default, which was confirmed by the CIT(A).

  • Aggrieved, the assessee filed an appeal with the ITAT.

Issue:

  • Whether remittance for “Live Rights” will be taxable as royalty?

Held:

  • ITAT opined that “when the agreements clearly bifurcate the consideration paid towards “Live Right” and “Non-Live Rights”, the department can’t deem the payment made for “Live Rights” to have been made for a bouquet of rights”.

  • Relying on Jurisdictional HC judgment in Delhi Race Club, co-ordinate bench rulings in Fox Network Group Singapore, Cricket Australia, ESS and Mumbai ITAT rulings in Neo Sports Broadcast and Nimbus Communications to observe that broadcasting live events does not amount to a work in which copyright subsists, meaning thereby right to broadcast live events i.e., ‘Live Rights’, is not ‘copyright’, hence not taxable as royalty.

  • Thus, ITAT ruled in the favour of the assessee.

M/s. HCL Singapore PTE. Ltd. vs. Assistant Commissioner of Income Tax Circle,2(1)(1), International Taxation, New Delhi [TS-801-ITAT-2023(DEL)] dated 20th December, 2023

Facts:

  • HCL India and HCL Group companies, HCL Singapore (lead assessee) are jointly rendering services to the customer located outside India where a consolidated invoice is raised by HCL India whereafter the revenue is shared in proportion of the services rendered by the Assessee to the customers.

  • HCL America provided services to the clients of HCL India outside India and the Assesse company provided the marketing and sales support as well as onsite services’ India was subjected to survey operation wherein Revenue observed that the Indian entity made payment of Rs.55 Cr to the assessee which were alleged to be in the nature of fee for technical Services under section 9(1)(vii) and no taxes were withheld on the same and Rs 55cr was added back to the income.

  • DRP granted partial relief reducing the addition to Rs 26.17 Cr.

  • Aggrieved, the assessee filed an appeal with the ITAT.

Issue:

  • Whether independent services provided outside India to customer’s abroad by HCL group Co’s will be taxable as FTS?

Held:

  • ITAT opined “HCL India is the facilitator or single contact point for the end customer does not lead to the conclusion that services are being provided by the assessee to HCL India.”

  • Relying on jurisdictional HC judgment in NIIT and observes, “receipt from the overseas customer by HCL India which further distributes the same to the group entities, including the assessee, for their share of the work, cannot be held to be income in the hands of the assessee and liable to tax in India.”

  • ITAT held that amounts are received outside India and services are also rendered outside India, thus, section 5(2) is not applicable.

  • Relying on Allahabad HC judgment in Seth Shiv Prasad and ITAT concluded that as per the ‘source rule’ itself, Section 9(1)(vii) is also not applicable as services are utilised outside India and source of income is outside India.

  • Thus, ITAT ruled in the favour of the assessee.