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TMI Blog2010 (6) TMI 753X X X X Extracts X X X X X X X X Extracts X X X X ..... 132/M/2007 (Arising out of ITA No.672/Mum/2007, C.O. No. 207/M/2009 (Arising out of ITA No.2691/Mum/2009) SHRI P.M. JAGTAP AND SMT. ASHA VIJAYARAGHAVAN, JJ. For the Appellant : Shri S.E. Dastur Shri Niraj Sheth For the Respondent : Shri Narender Singh ORDER PER BENCH Against the order of the Ld. CIT(A) dt. 2nd July 2004 which was emanated from the order u/s. 201(1) and 201(1A) of the I.T. Act, 1961 dt. Feb. 19, 2004, passed by the ADIT (International Taxation), Mumbai, Revenue is in appeal and the assessee has filed the cross objection. The remaining appeals of the Revenue are against the orders of the Ld. CIT(A) whereby he has disposed off the appeals filed by the assessee against orders passed by the AO u/s. 195 of the I.T. Act. Since the issues involved in all these appeals are common, the same have been heard together and are being disposed off by this single consolidated order for the sake of convenience. 2. The facts of the case are that the assessee is a Singapore based company engaged in the business of acquiring television programs, motion pictures and sports events and exhibiting the same on its television channels from Singapore. The assessee is a tax resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d an appeal before the Ld. CIT(A). The Ld. CIT(A) in his order dt. 2nd July, 2004 inter alia discussed and decided the main issues in paragraph No. 8.42 as under: "I have considered the submissions of the appellant as well as the submissions made by the ADIT. There are two aspects of the matter. Whether payment for live cricket event rights constitutes Royalty within the meaning of Article 12(3) of the Tax Treaty. Assuming that the answer to the above is in the affirmative, whether such a Royalty arises in India within the meaning of provisions of Article 12(7) of the Tax Treaty. As is apparent, if my answer to the second issue viz., that the Royalty does not arise in India is in the affirmative, my answer to question No. 1 would become redundant. Accordingly, while I find substantial merit in the arguments canvassed by the appellant that the payment for live feed rights does not constitute Royalty, I do not consider it necessary to decide on this issue. This is because I am in full agreement with the contention of the appellant that even if one assumed that the payment was in the nature of Royalty, such a Royalty does not arise in India having regard to the provisions of Arti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in the agreement in a limited way. It shows that the assessee has exclusive broadcasting rights for distribution in the licensed territory. The assessee has also been given non-exclusive right to use, logo of GCC. iv) Sale of Airtime on its channel to Indian persons, collection of subscription from Cable Operators in India would amount to doing business in India. v) The assessee has a Permanent Establishment in India in the form of Set India who is doing the marketing activity of the assessee namely M/s. Set satellite Singapore. vi) There is a direct nexus between collection of advertisement revenue from the assessee from India and payment for acquisition of broadcasting rights of cricket matches. vii) The payments made by the assessee to GCC for transfer of telecasting rights are in the nature of Royalty under Explanation-2 such payments are deemed to accrue or arise in India u/s. 9(1)(vi)(c) of the Act. 10. The Ld. Departmental Representative also contended that the provisions of I.T. Act 1961 are applicable to the transaction outside India if the same has any nexus in India. In this context, he raised the following points: a) The provisions of the Sec. 195 are appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Further in the assessment order for the A.Y. 2001-02, the Ld. ADIT has held that the assessee has an Agency PE in India in the form of SET India. The assessee has submitted that the provisions of Article 12(7) are not attracted even if the assessee has only an Agency PE because it does not have a physical presence in India. The Ld. Counsel for the assessee Shri Dastur brought out that under Article 12(7), the condition which needs to be satisfied is that the liability to pay Royalty has been incurred 'in connection with' the payer's PE in India. For this he produced a chart with diagrams showing how the entire broadcasting business is being carried out. He pointed out that from the chart it could be easily understood that the collection by way of advertisements and through negotiations with channel operators which are the source of revenue for SET India has no direct nexus between the activities of the payer's PE in India and the royalty payment. He further submitted that its broadcasting business is being carried out from Singapore and it does not carry out any such activity in India. The payment for the cricket rights is made only for the broadcasting operations of the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the amount has not been paid by SET India Pvt. Ltd. to GCC to acquire the broadcasting rights. 17. We heard both the parties. We find no infirmity in the order of the Ld CIT(A). The payment made by the assessee to GCC cannot be said to arise in India under Article 12(7) of the Treaty since the payer ( i.e. assessee) is not a resident of India. . As per the first limb of Article 12(7) of the Treaty, royalties cannot arise in India, since the payer is not a resident of India. Such royalties under the first limb of Article 12(7) of the Treaty arise in Singapore since the payer (i.e. the assessee) is a resident of Singapore. The second limb of Article 12(7) of the Treaty deals with a scenario where the payments are made by a nonresident, where such non-resident has a PE in India. However, a mere existence of a PE in India cannot lead to a conclusion that royalties arise in India. In addition to the existence of PE, for royalties to arise in India under Article 12(7) of the Treaty, it is essential that liability to pay such royalties has been "incurred in connection with" and is "borne by" the PE of the payer in India. 18. Based on an analogy from paragraph 26 and 27 of the OECD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es not borne by the PE of the payer in India. Therefore there being no economic link between the payment of Royalty and SET India hence the royalty does not arise in India having regard to the provisions of Article 12(7) of the Treaty. Hence even if it is assumed that the payment for broadcasting cricket constitutes Royalty, in our opinion such royalty does not arise in India within the meaning of provisions of Article 12(7) of the Tax Treaty and hence the second ground No. 3 raised by the revenue is dismissed. 21. In view of our decision rendered above on the main issue, other grounds raised in Revenue's appeal and assessee's appeal have become only academic and we do not deem it expedient to adjudicate upon the same. 22. As regards the remaining appeals filed by the Revenue, the main issue involved therein is similar to the one which has already been decided by us in the foregoing portion of this order while disposing of the cross appeals filed for A.Y. 2003-04. Following the said decision, we dismiss all these appeals filed by the Revenue. Consequently, the cross objection filed by the assessee have become infructuous and the same are accordingly dismissed. 23. In the result, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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