2020 (2) TMI 1225 - AT - Income Tax

Royalty receipt - production work undertaken is a live coverage of event - Whether production work undertaken by the appellant qualify as Royalty under the provisions of Section 9(i)(vi) of the Act as well as Article 13 of the DTAA - HELD THAT - A plain reading of the order passed by the Dispute Resolution Panel shows that the issue in appeal is squarely covered by a decision of the coordinate bench, in assessee s own case for the assessment year 2010-11 2019 (2) TMI 1803 - BOMBAY HIGH COURT in favour of the assessee. The only reason, on account of which the DRP has declined relief to the assessee, is to keep the matter alive for the SLP, if any, before the Hon ble Supreme Court. We, therefore, uphold the plea of the assessee and hold that the receipts in question cannot be treated as royalty . The assessee succeeds on the issue. Fees for Technical Services - There is a difference between the technology involved in the production of live coverage feed of cricket matches and the technology required to broadcast the same in the required quality. Hence, in order to ensure and maintain quality of live coverage feed, it becomes necessary on the part of the assessee to specify or oversee the technology available with the broadcasters so that the same does not compromise on the quality and compatibility. The specification of the technical requirements does not mean that the assessee has supplied the technology involved in the production of live coverage feed to the broad casters. If that be the case, the broadcasters should be in a position to use the technology in order to produce the live feed on their own. We notice that the revenue has not established that the broadcasters (who are acting on behalf of the BCCI) or the BCCI itself has acquired the technical expertise from the assessee which would enable them to produce the live coverage feeds on their own after the conclusion of IPL 2008 and IPL 2009 cricket matches. In that case the essential condition of make available clause fails and hence the amount received by the assessee cannot be considered as Fee for technical services in terms of Article 13(4)(c) of the DTAA entered between India and UK. DRP observation that the live coverage of cricket matches involve instant and continuous production and broadcasting of live matches. The existing program would keep merging with the new work. Further, the broadcasters are able to split the program content in order to insert advertisements not bring the payment under the category of Fee for technical services . It only shows the technical expertise of the assessee to produce a flexible program content to give enhanced quality of viewing the live matches. - Decided in favour of assessee

Summary

Issues Involved:
1. Royalty
2. Fees for Technical Services (FTS)
3. Attribution of Profits to Permanent Establishment (PE)

Issue-wise Detailed Analysis:

1. Royalty:
The appellant contested the classification of income from production work as "Royalty" under Section 9(i)(vi) of the Income Tax Act and Article 13 of the DTAA. The Dispute Resolution Panel (DRP) and Assessing Officer (AO) had previously ruled against the appellant, treating the income as royalty. However, the appellant argued that this matter was already settled in their favor by the ITAT for previous assessment years (2009-10 to 2012-13, 2014-15, and 2015-16), and the Bombay High Court had not admitted the substantial question of law regarding this issue for AY 2010-11.

The ITAT noted that the appellant was engaged by BCCI to produce live coverage of cricket matches, and the program content became the property of BCCI. The revenue failed to show that the appellant retained ownership rights over the program content. The ITAT referenced the definition of "royalties" in the India-UK DTAA, which requires payments to be for the use of or the right to use any copyright. Since the appellant did not retain ownership of the program content, the payment could not be considered royalty.

The ITAT also referred to the Delhi High Court's decision in CIT Vs. Delhi Race Club, which clarified that live TV coverage does not involve a copyright. Consequently, the ITAT upheld the appellant's plea, ruling that the receipts in question could not be treated as "royalty."

2. Fees for Technical Services (FTS):
The appellant challenged the characterization of services provided as "Fees for Technical Services" under Section 9(i)(vii) of the Act and Article 13 of the DTAA. The ITAT had previously ruled in favor of the appellant for AY 2010-11, stating that the appellant produced live coverage of cricket matches using its technical expertise but did not make any technology or know-how available to BCCI.

The ITAT emphasized that producing program content is different from providing technology, and the payment received was for the production of the program content, not for supplying technology. The DRP's observation that the agreement involved technical specifications to ensure quality did not imply that technology was transferred to BCCI. The ITAT reiterated that the payment could not be considered FTS as the appellant did not make any technology available to BCCI.

3. Attribution of Profits to Permanent Establishment (PE):
The appellant contested the ad-hoc attribution of total profit between PE and head office in the ratio of 75:25, arguing that the transfer pricing methodology followed in earlier years was accepted by the TPO/AO. The ITAT agreed to remit the issue back to the AO for fresh adjudication, following the tribunal's orders for AY 2010-11 and 2015-16.

Conclusion:
The ITAT ruled in favor of the appellant on the issues of royalty and FTS, following consistent decisions in previous years and the jurisdictional High Court's stance. The issue of profit attribution was remitted to the AO for fresh adjudication. The appeal was allowed in the terms indicated above.