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2021 (2) TMI 1107 - AAR - Income TaxIncome accrued or deemed to accrue in India - marketing and advertising rights that have been granted under the MAA Marketing and Advertising Agreement' - rights under MAA - source of income was the game of cricket played in India - payment to be made by LG Electronics India Private Limited, a company incorporated in India (hereinafter called as 'LG India') to IDI Mauritius Limited, a company incorporated under the laws of Mauritius (hereinafter referred as 'IML') for grant of commercial rights under the 'Marketing and Advertising Agreement' - Whether payment to IML is taxable? - DTAA between India and Mauritius - HELD THAT - Payment made by the Applicant under MAA was purely for advertisement and publicity of the brand name of the assessee and for promotion of its product during the Cricketing events of ICC and it was not royalty as defined in Article 12.3 of DTAA between India and Mauritius. These payments cannot, by any stretch of imagination, be said to relate to use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process or for information concerning industrial, commercial or scientific experience or for use of commercial equipments so as to constitute royalty . The payment does not qualify as Fee for Technical Services as well; as no service was rendered in this case. The payments may constitute business profits in the hands of the recipient to which Article 7 of the DTAA would apply, but in the absence of any permanent establishment of the payee in India, is not chargeable to tax in India. Therefore, the payment made by the Applicant to IML for grant of commercial rights under MAA is not taxable in India as per the provisions of the DTAA between India and Mauritius. Payments to non-resident sportsmen or sports associations - Obligation to withhold tax on payments made to IML for grant of commercial rights under the 'Marketing and Advertising Agreement ' - Payment made by the Applicant under the agreements is found to be payable to a non-resident sports association/institution in relation to game played in India. Had the sponsorship agreement not been sanctioned by ICC, neither the game could have been played in India nor could the payments have been made to IML in connection with the ICC Events. Further, all the rights transferred under the agreements were in respect of ICC Events and were pertaining to ICC only, particularly under GPA. Even under the MAA the trademark ICC was used in the advertisement, publicity campaigns etc. alongside the Applicant's logo which was held as incidental to the main services obtained by the Applicant under MAA. As the ICC did not undertake any financial transactions directly the payment for grant of rights under the agreements was received through the Group entities owned by ICC. In view of these facts we have no hesitation to hold that the payment made by the Applicant under the agreements with IML was income pertaining to a non-resident sports association or institution. Force Majeure clause of MAA stipulated that if any ICC Events or Matches were abandoned, postponed or cancelled, the Company was not entitled to terminate the Agreement, but the payment of the Rights Fee attributable to that event can be deferred without any penalty until such time as that event was replayed. This also reinforces the nature of payment as guarantee money. Further, what is relevant to consider is not the nomenclature of the payment in the agreement but its real nature. From the above discussions we find that though the payment was mentioned as right fee in the agreement, its real nature was guarantee fee . All the conditions as stipulated in section 115BBA of the Act are found fulfilled in this case. And once these conditions are satisfied, the obligation of the Applicant to deduct tax u/s 194E of the Act was absolute. Unlike section 195 there is no condition in section 194E that the payment being made should be chargeable under the provisions of this Act. Therefore, there was no obligation on the Applicant to examine whether the payment made under MAA was chargeable to tax in India in the hands of IML. Even if the income of IML was notified as exempt u/s 10(39), it did not mitigate the obligation of the Applicant to deduct tax u/s 194E of the Act. In the present case the source of income was the game of cricket played in India. Though the payments were described as rights money, in essence they were in the nature of guarantee money and were intricately connected with the cricketing event and the matches played in India. The close connection between the amount paid by the Applicant and the cricket matches played in India has never been denied. Thus the income of the Non-resident Sports Association had accrued in India under the provision of Section of the Act. There was no requirement to ascertain that the amount paid under section 115BBA was chargeable to tax or not. Even if it was not chargeable it did not absolve the Applicant from the liability to deduct TDS under section 194E. This obligation was neither affected by the DTAA nor by the Notification issued by the CBDT as the benefit of the DTAA or the Notification could have been claimed only by the IML and not by the Applicant. We, therefore, hold that the Applicant was liable to withhold tax under section 194E of the Act on payments made to IML for grant of commercial rights under the 'Marketing and Advertising Agreement' in respect of games played in India. Rate of withholding tax - whether on the stated facts and in law LG India is required to deduct tax at source on he payment to IML for the commercial rights under the 'Marketing and Advertising Agreement ' at the rate of 10% plus applicable surcharge and cess as per the provisions of section of the Income-Tax Act, 1961 -The rate as prescribed in section 115A(1)(b)(AA) cannot be applied in the present case. The liability of the Applicant to deduct tax was u/s 194E of the Act in respect of the games played in India and the rate prescribed in this section was 10% which was increased to 20% with effect from 01/07/2012. Accordingly, the Applicant was required to deduct tax at the rate(s) as prescribed in section 194E of the Act at the relevant point of time. The Applicant cannot deduct tax at source at the rate prescribed under the treaty between Indian and Mauritius even if that rate is beneficial. As held by Hon'ble Supreme Court in the case of PILCOM 2020 (5) TMI 57 - SUPREME COURT the obligation to deduct Tax at Source under Section 194E of the Act was not affected by the DTAA and it was only the recipient who can take the benefit of DTAA for the beneficial rate under the DTAA. So far as the Applicant is concerned, it was required to deduct Tax at Source at the rate(s) as prescribed under section 194E of the Act only. Advance ruling - Que. 1 The payment made by the Applicant to IDI Mauritius Limited, for grant of commercial rights under the 'Marketing and Advertising Agreement' is not found taxable in India in the hands of IML as per the provisions of the DTAA between India and Mauritius. Que. 2 LG India was obligated to withhold tax on payments made to IML for grant of commercial rights under the 'Marketing and Advertising Agreement' in respect of games played in India. Que. 3 LG India was required to deduct lax at source on the payment to IML for the commercial rights under the 'Marketing and Advertising Agreement' in respect of games played in India at the rate as prescribed under section 194E of the Income-Tax Act, 1961.
Issues Involved:
1. Taxability of the payments made by LG India to IML under the Marketing and Advertising Agreement (MAA) as per the provisions of the India-Mauritius Double Taxation Avoidance Agreement (DTAA). 2. Obligation of LG India to withhold tax on payments made to IML under the MAA. 3. Rate of tax deduction at source if the payment is taxable. Issue-wise Detailed Analysis: 1. Taxability of the Payments under MAA: The primary issue was whether payments made by LG India to IML for commercial rights under the MAA are taxable in India under the India-Mauritius DTAA. The Authority examined the nature of the rights granted under the MAA and GPA (Global Partner Agreement). The MAA granted promotional, advertising, marketing, and other commercial rights, while the GPA involved intellectual property rights (IPRs) like the use of ICC logos and trademarks. The Authority concluded that the rights under MAA were purely for advertisement and publicity and did not involve the use of any IPRs. Therefore, the payments under MAA did not qualify as "royalty" under Article 12.3 of the DTAA. The Authority cited various case laws, including DIT Vs Sahara India Financial Corporation Limited and Reebok India Company Vs Deputy CIT, to support the view that such payments were not for the use of any trademark or patent and hence were not taxable as royalty. Consequently, the payments under MAA were not taxable in India as per the provisions of the DTAA between India and Mauritius. 2. Obligation to Withhold Tax: The second issue was whether LG India was obligated to withhold tax on payments made to IML under the MAA. The Authority distinguished between payments for games played in India and those played outside India. For games played outside India, the obligation to withhold tax would arise only if the payment was chargeable under the Income-Tax Act, which it was not, as the payments were not in the nature of royalty or fees for technical services (FTS). For games played in India, the Authority examined the provisions of Section 194E read with Section 115BBA of the Income-Tax Act. It was found that the payments made for the 2011 Cricket World Cup and the 2013 Women's CWC, which were played in India, were in the nature of guarantee fees and thus fell under the purview of Section 115BBA. The Authority held that the payments were intricately connected with the cricketing events in India and constituted income of a non-resident sports association or institution. Therefore, LG India was obligated to withhold tax under Section 194E for these payments. 3. Rate of Tax Deduction at Source: The third issue concerned the rate at which tax should be deducted if the payments were taxable. The Applicant argued for a beneficial rate of 10% as per Section 115A(1)(b)(AA) of the Income-Tax Act, whereas the Revenue contended for the rate prescribed under Section 194E. The Authority clarified that the payments under MAA were not in the nature of royalty and thus the rate under Section 115A(1)(b)(AA) was not applicable. Instead, the rate prescribed under Section 194E, which was 10% initially and later increased to 20% from 01/07/2012, was applicable. The Authority also noted that the obligation to deduct tax under Section 194E was not affected by the DTAA, and the benefit of the DTAA could only be claimed by the recipient, not the payer. Conclusion: 1. The payment made by LG India to IML under the MAA is not taxable in India under the DTAA between India and Mauritius. 2. LG India was obligated to withhold tax on payments made to IML under the MAA for games played in India. 3. LG India was required to deduct tax at the rate prescribed under Section 194E of the Income-Tax Act, 1961.
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