2023 (2) TMI 857 - AT - Income Tax

Characterizing the income earned from sub-licensing of Designated Rights - Royalty receipt - sub-license of designated right - fee received towards live transmission - distinction between a copyright and a broadcasting right, broadcast or live coverage - HELD THAT - As decided in the case of Fox Network Group Singapore Pte. Ltd. 2020 (3) TMI 1428 - ITAT DELHI here is a clear distinction between a copyright and a broadcasting right, broadcast or live coverage which does not have a copyright, and therefore, payment for live telecast is neither payment for transfer of any copyright nor any scientific work so as to fall under the ambit of royalty under Explanation 2 to Section9(1)(vi). In so far as reference of phrase 'process' in Explanation 6 the same will not be applicable in the case of the assessee because admittedly it is SIPL which is doing the transmission and makes the payment to Asia Satellite and it is not a case of transfer of process. On similar set of issues on live broadcast of sporting and cricket events, in the case of Neo Sports Broadcast (P.) Ltd. 2011 (11) TMI 23 - ITAT MUMBAI and Nimbus Communication Ltd. 2013 (9) TMI 795 - ITAT MUMBAI have held that there is no copyright on live events, and therefore, it is not taxable as 'royalty', thus, we hold that the fee received towards live transmission cannot be taxed as 'royalty' in terms of Section 9(l)(vi) as held by the Hon'ble Jurisdictional High Court and also by the Coordinate Bench of ITAT. Accordingly, we decide this issue in favour of the assessee. Short credit of taxes deducted at source though reflected in Form 26AS - HELD THAT - We direct the Assessing officer to verify the same and grant correct credit of taxes deducted at source. Ground is allowed for statistical purposes. Charging of interest of interest u/s 234B is consequential - AO will recalculate the charging of interest, if any, while giving effect to the appellate order.

Issues Involved:
1. Determination of total income.
2. Characterization of income from sub-licensing of 'Designated Rights' as royalty.
3. Interpretation of 'Process' under Explanation 2 to Section 9(1)(vi) of the Act.
4. Interpretation of 'Process' under Explanation 6 to Section 9(1)(vi) of the Act.
5. Exploitation of sub-licensed rights through various platforms.
6. Non-adherence to the jurisdictional High Court decision.
7. Short credit of taxes deducted at source.
8. Levying of interest under Section 234B.
9. Initiation of penalty proceedings under Section 271(1)(c).

Detailed Analysis:

1. Determination of Total Income:
The assessee contested the assessment order determining its total income at Rs 842,51,96,560 instead of Rs 90,35,46,340 as declared in its return. The primary contention was the addition of Rs. 752,16,50,223 as royalty income by the Assessing Officer (AO) which was upheld by the Dispute Resolution Panel (DRP).

2. Characterization of Income as Royalty:
The AO characterized the income from sub-licensing of 'Designated Rights' for live transmissions of sporting events as 'Royalty' under the Act. The Tribunal found that the issue was covered by several decisions in favor of the assessee, including the Delhi High Court's ruling in the case of Delhi Race Club (1940) Ltd., which held that live telecasts do not fall under the ambit of royalty.

3. Interpretation of 'Process' under Explanation 2 to Section 9(1)(vi):
The AO's interpretation that the income from sub-licensing involved the use of a 'Process' was contested. The Tribunal referred to the Delhi High Court's decision, which clarified that live telecasts do not constitute a 'Process' as per Explanation 2 to Section 9(1)(vi) of the Act.

4. Interpretation of 'Process' under Explanation 6 to Section 9(1)(vi):
The AO also held that the income involved the transfer of rights in respect of a 'Process' under Explanation 6 to Section 9(1)(vi). The Tribunal, however, found that the transmission was conducted by SIPL and not the assessee, thus, it did not constitute a transfer of process.

5. Exploitation of Sub-licensed Rights:
The AO failed to appreciate that the sub-licensed sports broadcasting rights were to be exploited using various platforms such as radio, television, and mobile. The Tribunal noted that similar issues had been decided in favor of the assessee in previous cases, holding that live transmissions do not attract royalty taxation.

6. Non-adherence to Jurisdictional High Court Decision:
The AO did not follow the ratio laid down by the jurisdictional High Court in the case of CIT v. Delhi Race Club (1940) Ltd., which the Tribunal found applicable and decisive in favor of the assessee.

7. Short Credit of Taxes Deducted at Source:
The assessee claimed short credit of taxes deducted at source amounting to Rs 2,03,36,66,125, which was reflected in Form 26AS. The Tribunal directed the AO to verify the claim and grant the correct credit.

8. Levying of Interest under Section 234B:
The assessee contested the interest levied under Section 234B amounting to Rs 1,11,83,15,110. The Tribunal noted that the charging of interest is consequential and directed the AO to recalculate it while giving effect to the appellate order.

9. Initiation of Penalty Proceedings under Section 271(1)(c):
The initiation of penalty proceedings under Section 271(1)(c) was deemed premature by the Tribunal and required no adjudication at this stage.

Conclusion:
The Tribunal partly allowed the appeal, directing the AO to delete the addition of Rs 752,16,50,223, verify and grant the correct credit of TDS, recalculate interest under Section 234B, and noted that the penalty proceedings under Section 271(1)(c) were premature. The judgment emphasized adherence to previous judicial decisions and clarified the non-applicability of royalty on live telecasts.

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