2015 (9) TMI 16 - AT - Income Tax

Nature of payment received - royalty or Fee for Technical services (FTS) - DRP/AO held that the amount received by the assessee from Board of Control of Cricket in India (BCCI) is assessable to tax as Fee for technical services and alternatively as Royalty also - India UK Double Taxation Avoidance Agreement - Held that - 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. In the instant case, we have noticed that the BCCI becomes the owner of the program content produced by the assessee. The job of the assessee ends upon the production of the program content and the broadcasting is carried out by some other entity to which license was given by the BCCI. Hence, in our view, the question of transfer of all or any right does not arise in the facts and circumstances of the instant case. Hence, we are of the view that the payment received by the assessee cannot be considered as royalty in terms of the India-UK DTAA. Though, it is not necessary to examine about the applicability of provisions of sec. 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. Question of existence of permanent establishment and taxability of reimbursement of expenses grounds were not considered by the Ld DRP/AO, since they proceeded to assess the receipts as fee for technical services /royalty. Hence we set aside both the issues to the file of the AO for consideration of the same afresh. - Decided in favour of assessee for statistical purposes.

Issues Involved:
1. Taxability of the amount received by the assessee as "Fee for Technical Services" (FTS) or "Royalty".
2. Existence of a "Permanent Establishment" (PE).
3. Taxability of "Reimbursement of Expenses".
4. Charging of interest under Section 234B of the Income Tax Act.

Detailed Analysis:

1. Taxability as "Fee for Technical Services" (FTS) or "Royalty":
The primary issue was whether the amount received by the assessee from BCCI for producing and delivering live audio-visual coverage of IPL matches should be taxed as "Fee for Technical Services" (FTS) or "Royalty". The assessee, a UK tax resident, argued that its activities constituted a service PE and that the income should be computed based on the Transactional Net Margin Method (TNMM). However, the Assessing Officer (AO) and Dispute Resolution Panel (DRP) held that the receipts were taxable as FTS or alternatively as Royalty.

The DRP examined the nature of the services and concluded that the services rendered by the assessee involved technical knowledge, experience, skill, know-how, and processes, thus falling under the definition of FTS as per Article 13(4)(c) of the India-UK DTAA. The DRP emphasized that the services made available technical knowledge to the broadcasters, which was necessary for the seamless production and transmission of video signals.

The Tribunal, however, disagreed with the DRP, stating that the assessee only provided a final product (program content) and did not make available any technology or know-how to BCCI or the broadcasters. The Tribunal applied the principle of "make available" as explained in the India-US DTAA protocol, concluding that the payment received by the assessee did not constitute FTS under Article 13(4)(c) of the India-UK DTAA.

Regarding the alternative argument of Royalty, the DRP held that the payments also fell under the definition of Royalty as per Section 9(1)(vi) of the Income Tax Act and Article 13 of the India-UK DTAA. The Tribunal rejected this view, noting that the assessee did not retain ownership rights over the program content and that the payment was for producing the program content, not for the use of any copyright or process. Thus, the amount received by the assessee could not be considered as Royalty.

2. Existence of a "Permanent Establishment" (PE):
The issue of whether the assessee had a PE in India was not addressed by the DRP/AO as they had assessed the receipts as FTS/Royalty. The Tribunal set aside this issue to the AO for fresh consideration.

3. Taxability of "Reimbursement of Expenses":
Similarly, the issue of the taxability of reimbursement of expenses was not considered by the DRP/AO. The Tribunal set aside this issue to the AO for fresh consideration.

4. Charging of Interest under Section 234B:
The Tribunal also set aside the issue of charging interest under Section 234B to the AO, directing consideration of the jurisdictional High Court's decision in DIT Vs. NGC Network Asia LLC (313 ITR 187) and other relevant decisions.

Conclusion:
The appeal filed by the assessee was treated as allowed for statistical purposes. The Tribunal ruled that the amount received by the assessee could not be taxed as FTS or Royalty under the India-UK DTAA. The issues regarding the existence of a PE, taxability of reimbursement of expenses, and charging of interest under Section 234B were set aside to the AO for fresh consideration.

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