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2024 (7) TMI 432 - AT - Income TaxRoyalty receipts in respect of live transmission programmes - amount received by the appellant under the Broadcasting Agreement under the India-Australia DTAA - Whether payments in lieu of live and non-live transmission of feed received from ESPN is a payment covered under the definition of royalty? - HELD THAT - As we take note of the findings of the Coordinate Bench in AY 2018-19 2023 (8) TMI 1253 - ITAT DELHI it comes up that the Coordinate Bench had relied another Coordinate Bench order 2020 (3) TMI 1428 - ITAT DELHI dated 20.3.2020 in the case of Fox Network Group Singapore Pte. Ltd. vs. ACIT (International Taxation), Circle 1(3)(1), New Delhi to benefit the assessee holding that the fee received towards live transmission cannot be taxed as royalty. This decision of the Delhi Tribunal has been affirmed by the Hon ble Delhi High Court in the case of CIT vs. Fox Network Group Singapore Pte. Ltd. 2024 (1) TMI 1008 - DELHI HIGH COURT Decided in favour of the appellant-assessee. Addition to the license fee received on the basis of the difference in the Rupee amounts reported by the appellant and the Rupee amounts reported by Culver Max Entertainment Private Ltd. in Form 15CA/CB - there is difference in exchange rates applied by the Culver Max Entertainment Ltd. while making remittances and exchange rates adopted by the appellant in computing the INR equivalent to US Dollar invoiced rates raised on Culver Max. Ld - HELD THAT - DR could not dispute the aforesaid facts of adoption of different rates of exchange by the two parties leading to anomaly. As, while determining the above ground no. 2 to 5, we have concluded the fee received towards live transmission to be not taxable as royalty, there is substance in the contention of the Ld. Counsel that 95% of the receipts attributed to live portion deserve to be deleted. As for remaining Rs. 20,28,253/-, the issue is restored to the files of the AO for verification of the reconciliation, on basis of difference in exchange rates, as submitted by the appellant before us. Accordingly, the Ground No. 6 is partly allowed in favour of the assessee. Taxing the receipts from Balkrishna Industries Limited as royalty both under Income tax Act and the Article 12 of the India-Australia - HELD THAT - The right to use the intellectual property should be independent of any act of the owner of the intellectual property. It should not be restrictive in purpose or mode of use. The commercial partnership agreements no where indicates that BAL, as sponsor, had any claim in the logo or other intellectual property of assessee, beyond the event of BBL. In fact, in para 7.3 of draft assessment order, AO refers to the rights given to the sponsor as, bouquet of services from the assessee. This has been relied by the DRP too. This finding in itself is erroneous because if assessee was providing any services , there was no question of consideration being for transfer or exclusive use of any copy rights. After going through the impugned orders, we are of considered view that, there was failure on part of AO and DRP also, to have not gone into the recitals of agreements in holistic manner, but very summarily the conclusion was drawn that, BAL as sponsor had got any exclusive right in the logo or other intellectual property of assessee. The right was not in the logo or other intellectual property of assessee, but right to be part of Big Bash League, organized by assessee, as sponsor and represent it to the viewers of this event, the said association, to market it s own product or brand. Thus we are inclined to allow this ground no. 7. The remaining grounds being general or consequential need no separate adjudication. Sequel to above, the appeal of assessee is allowed.
Issues Involved:
1. Validity of the assessment order being barred by limitation. 2. Classification of license fees as 'Royalty' under the Income-tax Act and the India-Australia DTAA. 3. Transfer of rights in respect of a 'Process' under Explanation 6 to Section 9(1)(vi) of the Act and Article 12 of the India-Australia Tax Treaty. 4. Unilateral amendment of the term 'process' under the Act imported into the definition of 'royalty' under Article 12 of the India-Australia Tax Treaty. 5. Non-compliance with the jurisdictional High Court decisions. 6. Addition of Rs. 4,05,65,051/- due to discrepancies in reported amounts. 7. Taxation of receipts from Balkrishna Industries Limited as royalty. 8. Computation of interest liability under section 234B. 9. Initiation of penalty proceedings under section 270A. Detailed Analysis: 1. Validity of the Assessment Order: The appellant contended that the assessment order dated 22.09.2023 was barred by limitation and should be struck down. However, this issue was not elaborated upon in the judgment, indicating that it was not a primary focus of the Tribunal's decision. 2. Classification of License Fees as 'Royalty': The AO classified the license fees of Rs. 350,54,35,665 received from Culver Max Entertainment Private Limited as 'Royalty' under the Income-tax Act and the India-Australia DTAA. The assessee argued that this classification was incorrect. The Tribunal referred to its own decision in the assessee's case for AY 2018-19, where it was held that such fees could not be regarded as royalty. This decision was based on the precedent set by the Delhi Tribunal in the case of Fox Network Group Singapore Pte. Ltd., which was affirmed by the Delhi High Court. Consequently, the Tribunal sustained Grounds No. 2 to 5 in favor of the appellant, ruling that the license fees should not be taxed as royalty. 3. Transfer of Rights in Respect of a 'Process': The AO held that the receipts involved the transfer of rights in respect of a 'Process' as per Explanation 6 to Section 9(1)(vi) and Article 12 of the India-Australia Tax Treaty. The Tribunal, however, followed its earlier decision and the Delhi High Court's affirmation that such receipts do not constitute royalty. Therefore, this ground was also decided in favor of the appellant. 4. Unilateral Amendment of the Term 'Process': The AO's view that the unilateral amendment of the term 'process' under the Act should be imported into the definition of 'royalty' under the India-Australia Tax Treaty was rejected by the Tribunal. The Tribunal relied on its previous rulings and the Delhi High Court's decisions, which did not support the AO's interpretation. 5. Non-compliance with Jurisdictional High Court Decisions: The AO did not follow the ratio laid down by the jurisdictional High Court in the cases of CIT vs. Delhi Race Club (1940) Ltd. and New Skies Satellite BV. The Tribunal noted this non-compliance and ruled in favor of the appellant, emphasizing the binding nature of High Court decisions. 6. Addition Due to Discrepancies in Reported Amounts: The AO added Rs. 4,05,65,051/- based on discrepancies between the amounts reported by the appellant and Culver Max Entertainment Private Limited in Form 15CA/CB. The Tribunal found that 95% of this amount, attributed to the live portion, should be deleted as it was not taxable as royalty. The remaining Rs. 20,28,253/- was remanded to the AO for verification of reconciliation based on exchange rate differences. 7. Taxation of Receipts from Balkrishna Industries Limited: The AO treated the receipts of Rs. 13,70,50,000/- from Balkrishna Industries Limited as royalty. The Tribunal examined the Commercial Partnership Agreement and found that the rights granted to BAL were not exclusive and were primarily for advertising and promotional purposes. The Tribunal ruled that these receipts did not constitute royalty and allowed this ground in favor of the appellant. 8. Computation of Interest Liability: The AO computed an interest liability of Rs. 12,22,40,160/- under section 234B. This issue was not separately adjudicated by the Tribunal, implying that the decision on the primary grounds would influence the interest computation. 9. Initiation of Penalty Proceedings: The AO initiated penalty proceedings under section 270A, alleging misreporting of income by the appellant. The Tribunal did not specifically address this issue, suggesting that the resolution of the primary grounds would impact the penalty proceedings. Conclusion: The Tribunal ruled in favor of the appellant on the primary grounds, particularly regarding the classification of license fees and receipts from Balkrishna Industries Limited as royalty. The discrepancies in reported amounts were partially resolved, with a portion remanded for verification. The appeal was allowed with consequences to follow as per the determination of the grounds in favor of the appellant.
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