2023 (1) TMI 161 - AT - Income Tax

Income deemed to accrue or arise in India - receipts from Set Setellite Singapore Pte. Ltd. (SET) - benefit of India Singapore Tax Treaty - Global Cricket Corporation Pte Ltd (GCC), the Assessee in the present set of appeals, was incorporated as a private company limited by shares in Singapore - Eligibility of GCC to claim benefit of DTAA, and the characterization/taxability of income earned by GCC - HELD THAT - On perusal of Section 10 of the Singapore Income Tax Act, 1947 reproduced by the CIT(A) in his order above it becomes clear that Section 10 creates a charge on income accruing in or derived from Singapore in addition to specified income received in Singapore from outside Singapore. CIT(A) has returned a finding that income under consideration has been offered to tax in Singapore as income accruing in or derived from Singapore. Thus, accepting the contention of GCC that the income under consideration is not taxable in Singapore on receipt/remittance basis, but on accrual basis. Nothing has been placed on record to controvert the findings of CIT(A). We have perused the documents/material relied upon by GCC in this regard including the income tax returns, financial statements, and confirmation from tax advisor. GCC has offered to tax its worldwide income in Singapore. Since Condition No.1, being one of the three conditions which are to be satisfied simultaneously for triggering the provisions of Article 24 of DTAA, is not satisfied, the CIT(A) was correct in holding that the provisions of Article 24 of DTAA would not get attracted and GCC would be entitled to claim benefit of the provisions of the DTAA. Since Condition No. 1 is not satisfied, the rival contentions in relating to the other two conditions (Condition No. 2 3 specified in paragraph 4.2 above) do not require adjudication having become academic in the context of applicability of Article 24 of DTAA. Thus, in view of our conclusion that provisions of Article 24 of DTAA would not be attracted in case of GCC, we hold that GCC would be entitled to avail the benefit of the provisions of DTAA. Ground No. 1, 2 and 3 raised by the Revenue are dismissed. Ground No.1 raised in the Cross Objection by GCC is disposed off as being infructuous. Payments of Licensee Fee made by SET to GCC in terms of the Heads Agreement are not taxable in India as royalties in terms of Article 12 of the DTAA since the same cannot be said to arise in India as the provisions Article 12(7) of DTAA - HELD THAT - In the present case the contention of the Revenue is that the royalty income is liable to tax in India in terms of Article 12(2) of DTAA and that the applicability/non-applicability of Article 12(7) does not preclude the applicability of Article 12(2) of DTAA. The aforesaid contention was neither raised nor examined in the said cases. Thus, the decisions rendered in the context of Article 12(7) of DTAA are distinguishable on account of the aforesaid facts and therefore, not applicable to the issues raised by the Revenue in the present appeals. Accordingly, for the reason stated hereinabove we reject the contention advanced on behalf of GCC that Article 12(7) exhaustively defines where royalties arises. In view of the above, we hold that royalty income that accrues/arises in India as per Section 5 of the Act and the royalty income that is deemed to accrue/arise in India with the aid of Section 9 read with Section 5 of the Act would be considered as royalties that arises in India for the purpose of Article 12(1) and Article 12(2) of the DTAA. SET had the right to exhibit live/delayed coverage during the ICC-Event. After the ICC-Event, SET could exhibit full match recordings for the year of the ICC-Event and for subsequent year. SET also had the right to exhibit the highlights and programme featuring clips after the ICC-Event. SET could also exhibit/exploit coverage via Pay-Per-View during/after the event. Further, Clause 6 of Heads Agreement specifically provided that the rights granted to the Licensee shall include the rights to use the Feed and/or recording thereof on live, as live, delayed, deferred, highlights, clips, news, features, magazine and/or documentary basis. In view of above, it cannot be said that consideration paid by SET to GCC was simply for live broadcast/re-broadcast of the cricket match. The Heads Agreement, however, did not provide separate consideration or break-up of consideration for different rights forming part of bouquet of rights obtained by SET. Whether Live Feed delivered to SET by GCC or by the producer on behalf of GCC in terms of the Heads Agreement was Live Feed or modified Feed? - In view of the factual findings returned by us, after examining various agreements, to the effect that the consideration received by GCC from SET was (a) for live and non-live exhibitions and (b) the Live Feed was not simply live feed but the same was modified to include non-live content. At this point it would be pertinent to note that perusal of the decision cited on behalf of the GCC shows that the production agreement, which according to us provided the link between Recording and Feed , was not placed before the Tribunal/Court in any of the matters. Even before us, the production agreement has not been placed on record and has been referred to an relied upon by the parties and considered by us to the extent the same has been reproduced in the order passed by the CIT(A) for the Assessment Year 2003-04. Allocation/apportionment of the Licensee Fee income received by GCC from SET in terms of the Heads Agreement - As in the present case the Heads Agreement does not provide any break-up of the consideration. We note that the CIT(A) had, while deciding the appeal for the Assessment Year 2003-04, attributed 75% of the consideration for use of copyright in the live feed and balance 25% for use of copyright in non-live feed/transmission such as highlights, telecast of recorded matches etc. Keeping in view the overall facts and circumstances of the case, we hold that 25% of Licensee Fee is fair estimation of the Licensee Fee attributable to the Non-Live Exhibitions and recorded content in Live Feed. There is no material placed on record by both the sides to arrive at the more precise or better estimation/apportionment. Accordingly, in view of the above, we hold that 25% of the Licensee Fee paid by SET to GCC as fair estimate of income taxable in India as royalties in terms of Article 12(2) read with Article 12(3)(a) of the DTAA. Payments received by GCC from from LGEIL and HH which are in the nature of royalties is taxable at 10% of the gross amount in view of Article 12(2)(b) of the DTAA - We hold that payments made by LGEIL and HH to GCC for rights acquired in terms of GPA and SA, respectively, were for promotion, advertisement and publicity of their respective brands and products/services. We reject the contention of the Revenue that the aforesaid payments were made by LGEIL/HH for right to use equipment. It was also contended on behalf of GCC the advertising sites, scoreboards etc. do not constitute equipment. Since we have concluded as aforesaid, the examination of the said contention raised by GCC does not require adjudication as the issue raised therein has become academic. Levy and computation of interest under Section 234A and 234B - We note that this issue stand settled by the judgment of the Hon ble Supreme Court in the case of Director of Income Tax, New Delhi vs. Mitsubishi Corporation 2021 (9) TMI 875 - SUPREME COURT wherein it has been held that prior to Assessment Year 2013-14, prior to the Financial Year 2012-13, an assessee was permitted to reduce the amount of income-tax which was deductible at source while computing the advance tax liability and therefore an assessee cannot be held to have defaulted in payment of its advance tax liability. Accordingly, no interest would be charged under Section 234B of the Act. Validity of reopenng of assessment u/s 147 - HELD THAT - The return of income for the Assessment Year 2003-04 was merely process under Section 143(1) of the Act. The income tax return and/or accompanying documents were yet to be examined and therefore, no opinion was formed on the same. The return of income, the accompanying documents as well as the material/information gathered during the course of assessment for the Assessment Year 2002-03 (including Master Right Agreement, Head Agreement and Production Agreement which were relevant/operative for the Assessment Year 2003-04) and the findings returned in the Assessment Order for the Assessment Year 2002-03 constituted tangible material on the basis of which the Assessing Officer formed the belief that taxable income had escaped assessment. Explanation 2 to Section 147 of the Act specifically provides that income chargeable to tax shall be deemed to have escaped assessment where return of income has been furnished but no assessment has been made, and it is noticed by the Assessing Officer that the Assessee has understated the income or has claimed excessive deduction or relief in the return. Thus, there existed tangible material on the basis of which the Assessing Officer formed belief that income chargeable to tax for the Assessment Year 2003-04 has escaped assessment. Thus we hold that re-assessment proceedings for the Assessment Year 2003-04 were initiated in compliance with the provisions of Section 147/148 of the Act and the same cannot be regarded as bad in law. Accordingly, Ground No. 1 raised by GCC in Appeal is dismissed.

Summary

Issues Involved:
1. Applicability of the India-Singapore Tax Treaty and Article 24.
2. Taxability of payments received from SET Satellite (Singapore) Pte. Ltd. as "royalties" under the Income Tax Act and DTAA.
3. Taxability of sponsorship fees received from LG Electronics, Hero Honda, and Hutchinson Max Telecom as "royalties."
4. Levy and computation of interest under Sections 234A and 234B of the Income Tax Act.
5. Validity of reassessment proceedings under Section 147 for Assessment Year 2003-04.

Issue-wise Detailed Analysis:

1. Applicability of the India-Singapore Tax Treaty and Article 24:
The Revenue challenged the CIT(A)'s decision to grant DTAA benefits to GCC, arguing that Article 24 of the DTAA applied, denying such benefits. The Tribunal noted that Article 24 applies if income is taxed in Singapore on a remittance basis, the income arises from a source in India, and the income is exempt or taxed at a reduced rate in India. The Tribunal found that GCC's income was taxed in Singapore on an accrual basis, not on a remittance basis. Therefore, Article 24 was not applicable, and GCC was entitled to DTAA benefits. Consequently, the Tribunal dismissed the Revenue's grounds and GCC's cross-objection as infructuous.

2. Taxability of Payments Received from SET Satellite (Singapore) Pte. Ltd. as "Royalties":
The Tribunal examined whether the payments from SET were taxable as "royalties" under Article 12 of the DTAA. The Tribunal held that 25% of the Licensee Fee paid by SET to GCC constituted "royalties" under Article 12(2) read with Article 12(3)(a) of the DTAA. The Tribunal rejected the contention that the payments were solely for live broadcast rights, noting that the rights granted included non-live exhibitions and recorded content, which involved the use of copyright. Thus, the Tribunal partially allowed the Revenue's ground and dismissed GCC's grounds challenging the taxability of these payments.

3. Taxability of Sponsorship Fees Received from LG Electronics, Hero Honda, and Hutchinson Max Telecom as "Royalties":
The Tribunal examined whether the sponsorship fees received by GCC were taxable as "royalties" under Article 12(3)(b) of the DTAA. The Tribunal concluded that the payments were for advertising and promotional rights, not for the use of commercial equipment. The Tribunal relied on the Delhi Tribunal's decision in Hero Honda Motocorp Ltd., which held that similar payments were not "royalties." Consequently, the Tribunal dismissed the Revenue's grounds and allowed GCC's grounds, holding that the sponsorship fees were not taxable as "royalties."

4. Levy and Computation of Interest under Sections 234A and 234B of the Income Tax Act:
The Tribunal addressed the issue of interest under Sections 234A and 234B, noting the Supreme Court's decision in Mitsubishi Corporation, which held that assessees could reduce the amount of tax deductible at source while computing advance tax liability. Therefore, the Tribunal dismissed the Revenue's grounds and disposed of GCC's grounds as infructuous, holding that interest under Sections 234A and 234B was not leviable.

5. Validity of Reassessment Proceedings under Section 147 for Assessment Year 2003-04:
GCC challenged the reassessment proceedings for AY 2003-04, arguing that there was no new material to justify reopening the assessment. The Tribunal noted that the return for AY 2003-04 was processed under Section 143(1), and no assessment was framed under Section 143(3). The Tribunal held that the material gathered during the assessment for AY 2002-03 constituted tangible material for reopening the assessment for AY 2003-04. Therefore, the Tribunal upheld the validity of the reassessment proceedings and dismissed GCC's ground challenging the same.

Conclusion:
For both Assessment Years 2002-03 and 2003-04, the Tribunal dismissed the Revenue's appeals, allowed GCC's appeals in part, and disposed of GCC's cross-objections as infructuous. The Tribunal upheld the applicability of DTAA benefits to GCC, partially taxed the payments from SET as "royalties," and held that the sponsorship fees were not taxable as "royalties." Interest under Sections 234A and 234B was not leviable, and the reassessment proceedings for AY 2003-04 were valid.