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2013 (9) TMI 795 - AT - Income TaxNature of payment received - Whether business connection of a company will lead to count its income as accrued in India - TDS on Royalty 195- Broadcasting of cricket matches - live feed or recorded feed - Royalty defined in DTC Bill, 2010 - DDIT has held that income can be held as accruing or arising to Nimbus directly or indirectly through or from any business connection in India. In reaching this conclusion the DDIT has noticed that the assessee, by broadcasting the matches in India will be earning income from advertisement and subscription. This income is taxable in the hands of the assessee. It is on this basis that the DDIT has held that the payment made by the assessee to Nimbus will be held as arising out of business connection in India, - Held that - Nimbus has provided license for the live broadcast of certain matches to the assessee for a definite consideration. The rights in such broadcast vest with Nimbus. After the live broadcast by the assessee, Nimbus will continue to hold right over such broadcast. The mere act of allowing the assessee by Nimbus to live broadcast the matches for a defined consideration, in our considered opinion, would not constitute a business connection in India. In the case of R.D. Aggarwal And Company And Anothers (1964 -TMI - 49330 - SUPREME Court) the Hon ble Supreme Court has held that the expression business connection undoubtedly mean some thing more than business . A business connection has been held to be involving a relation between the business carried on by a nonresident yielding profits or gains and some activity in the taxable territories which provides directly or indirectly to the earning of those profits or gains. A stray or isolated transaction has been held to be not constituting a business connection. As the consideration for live broadcasting does not fall either u/s 9(1)(i) or u/s 9(1)(vi), such amount is not chargeable to tax under the provisions of this Act in the hands of non-resident - Following decision of Asstt. Director of Income-tax, (International Taxation), 4(2) Versus Neo Sports Broadcast (P.) Ltd. 2011 (11) TMI 23 - ITAT MUMBAI - Decided in favor of assessee.
Issues Involved:
1. Taxability of payment made for live broadcast of cricket matches as royalty. 2. Existence of business connection of Nimbus Sports International Pte Ltd. (NSI) in India. Detailed Analysis: Issue 1: Taxability of Payment for Live Broadcast as Royalty The assessee, a company engaged in sports marketing and television marketing, entered into an agreement with NSI for live terrestrial television rights of a cricket series. The assessee filed an application under section 195(2) of the Income-tax Act seeking a nil deduction certificate, arguing that the payment for live broadcast was not royalty and thus not taxable in India. The Assessing Officer (AO) disagreed, stating: - The matches are broadcasted in India, accruing income from advertisement and subscription revenue, which is taxable. - The broadcast involves capturing and editing images, thus constituting royalty under Explanation 2 to section 9(1)(vi) of the Income-tax Act. - Payments should be taxed under section 115A as royalty. The AO concluded that the payment was royalty and tax at 10% was deductible. Additionally, since the payment was net of taxes, the amount had to be grossed up, resulting in a tax deduction at 11.80%. The Commissioner of Income-tax (Appeals) (CIT(A)) reversed this, referencing a similar case (Neo Sports Broadcast P. Ltd.) where it was held that live feed does not constitute a "work" under the Copyright Act and thus is not royalty. The CIT(A) concluded that the payment was not royalty and not taxable in India. The Tribunal upheld the CIT(A)'s decision, agreeing that live telecast does not involve transfer of copyright. It referenced the Tribunal's earlier decision in Neo Sports Broadcast P. Ltd., which stated that live telecasting does not create a "work" under the Copyright Act, and thus, the payment for live broadcasting is not royalty. Issue 2: Business Connection of NSI in India The AO and CIT(A) held that NSI had a business connection in India because: - The cricket matches were broadcasted in India, enabling the assessee to sell airtime to Indian advertisers. - NSI acquired media rights, including for India, indicating a business connection. The Tribunal disagreed, citing the Neo Sports Broadcast P. Ltd. decision, which clarified that: - NSI providing a license for live broadcast for a consideration does not constitute a business connection. - Business connection requires some business activity by the non-resident in India. - The relationship between the assessee and NSI was on a principal-to-principal basis, with no business operations by NSI in India. The Tribunal concluded that NSI did not have a business connection in India, and thus, no income was deemed to accrue or arise in India from the transaction. Conclusion: The Tribunal dismissed the Revenue's appeal, affirming that the payment for live broadcast was not royalty and not taxable in India. It allowed the assessee's appeal, ruling that NSI did not have a business connection in India. The order was pronounced on November 23, 2012.
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