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2010 (6) TMI 753 - AT - Income TaxTDS u/s 195 - Payment made for acquisition of telecast rights - Royalty as per Explanation 2 of section 9(1)(vi)(c) of the Act - Article 12(7) of DTAA - Chargeability of payment - economic link between the payment of Royalty and SET India or not? - Whether the CIT(A) erred in holding that the royalty has not arisen in India having regarding to the provisions of Article 12(7) of Indo-Singapore DTAA - HELD THAT - We find no infirmity in the order of the Ld CIT(A). The payment made by the assessee to GCC cannot be said to arise in India under Article 12(7) of the Treaty since the payer ( 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 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). 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). 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.
Issues Involved:
1. Territorial jurisdiction of the Income Tax Act, 1961. 2. Applicability of Section 195 to transactions between non-residents. 3. Classification of payments as royalty under Section 9(1)(vi) of the Income Tax Act and Article 12(3) of the India-Singapore Tax Treaty. 4. Determination of income accrual in India under Article 12(7) of the India-Singapore Tax Treaty. 5. Applicability of the limitation clause under Article 24 of the India-Singapore Tax Treaty. Detailed Analysis: 1. Territorial Jurisdiction of the Income Tax Act, 1961: The assessee argued that the territorial jurisdiction of the Income Tax Act, 1961, is restricted to the Indian Territory and cannot be applied to transactions carried out outside India. The tribunal did not specifically address this issue independently but considered it within the broader context of the applicability of Section 195 and the tax treaty provisions. 2. Applicability of Section 195 to Transactions Between Non-Residents: The assessee contended that when payment is made outside India by a non-resident to another non-resident, it is not covered by the provisions of Section 195. The tribunal examined this argument in light of the tax treaty provisions and the nature of the payments involved. 3. Classification of Payments as Royalty Under Section 9(1)(vi) of the Income Tax Act and Article 12(3) of the India-Singapore Tax Treaty: The ADIT held that the payments made by the assessee to GCC were in the nature of 'Royalty' as defined in Explanation 2 to Section 9(1)(vi) of the Income Tax Act, which were deemed to arise in India and hence taxable in India. The CIT(A), however, found substantial merit in the arguments that the payment for live feed rights does not constitute royalty. The tribunal upheld the CIT(A)'s view, stating that even if the payment was considered as royalty, it does not arise in India under Article 12(7) of the tax treaty. 4. Determination of Income Accrual in India Under Article 12(7) of the India-Singapore Tax Treaty: The CIT(A) held that the royalty does not arise in India as per Article 12(7) of the treaty, which requires that the payer be a resident of India or that the payment be connected with and borne by a PE in India. The tribunal supported this view, noting that the payer (the assessee) is not a resident of India, and the liability to pay the royalty was not incurred in connection with nor borne by the PE in India (SET India). The tribunal emphasized the lack of an economic link between the payment of royalties and the PE in India. 5. Applicability of the Limitation Clause Under Article 24 of the India-Singapore Tax Treaty: The Departmental Representative argued that the GCC is not entitled to any benefit under the Indo-Singapore Treaty under the limitation clause (Article 24) as the payments were received in Jersey and not in Singapore. The tribunal did not find it necessary to adjudicate on this point independently, given its decision on the main issue regarding the accrual of royalty income. Conclusion: The tribunal dismissed the Revenue's appeals, holding that the payments made by the assessee to GCC cannot be said to arise in India under Article 12(7) of the tax treaty. Consequently, the assessee was not liable to deduct tax at source from the payments made to GCC. The tribunal also dismissed the cross-objections filed by the assessee as infructuous. The order was pronounced on June 25, 2010.
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