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TMI Blog2021 (2) TMI 1107X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith 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 ' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such as colour televisions, air conditioners, refrigerators, washing machines, microwave ovens, mobile phones etc. International Cricket Council ( ICC ) is the official international governing body for cricket responsible to its members for the governing of the sport of cricket. ICC Development (International) Limited ( IDI ), is a company incorporated in UAE, which owns and controls the Commercial Rights in relation to the ICC Events. IDI has licensed the commercial rights for India in relation to the ICC events to IDI Mauritius Limited ( IML ), a tax resident of Mauritius. All rights and power to negotiate and enter into an agreement to grant Global Partnership right and Marketing and Advertising right in respect of the territory of India was vested with IML. 2. IML and LG India had entered into 'Marketing and Advertising Agreement' (MAA) signed on June 23, 2009 wherein IML had agreed to grant LG India certain promotional, advertising, marketing and other commercial rights in the capacity of being a Global Partner ( GP ) in connection with the ICC events. In consideration for the Marketing and Advertising right granted by IML, LG India was obliged to pay to IML a fee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;Marketing and Advertising Agreement' to the Mauritius tax resident is in the nature of royalty or not, under the India Mauritius DTAA is an important question that requires examination and clarification, a task that is assigned to this Authority. We also note that the transaction is between two unrelated parties, and merely because one of them is a Mauritius company, cannot, on the face of it, be held against the Applicant. However are unable to ignore the Revenue' s observation that the total bundle of rights has been artificially split up, and also that the Ruling is being sought only on one agreement , and not on the entire arrangement . These observations can be examined during our subsequent proceedings before pronouncing a Ruling on the questions posed to us by the Applicant. In view of the above observation while admitting the application, we have to examine the total bundle of rights under MAA as well as under GPA while examining the questions raised in the application. Submission the Applicant 5. The Ld. A.R explained that the MAA had granted to LG promotional, advertising, marketing and other commercial rights and opportunities as specified in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the case of DIT Vs Sahara India Financial Corporation Limited (189 Taxmann 102) (Delhi) in this regard. 6. The Ld. A.R. further submitted that the payment was also not for use of or right to use any industrial, commercial or scientific equipment. The equipment if any installed in stadiums for cricket match like scoreboards were for mere facilitation of advertising and marketing of LG Brand and its logo and were not meant for commercial exploitation of any equipment. Further that the Applicant had no control over the so-called equipments in and outside the stadium and the control and possession of the equipments was vested with IML, who was responsible for installation and maintenance of the equipments. The Applicant was merely provided the facility of advertising of its logo by IML through sophisticated equipments such as electronic screens, site screens etc. In this regard, our attention was drawn to Para-2,9 of Appendix-3 of MAA which provided that IML shall be responsible for ownership and control of the equipments used in the stadium during the cricket match. Thus, no asset/equipment was getting transferred to LG India from IML. The Ld. A.R submitted that the primary ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the provision of section 194E of the Act casted a mandatory obligation upon the person responsible for making payment to a non-resident sport association to deduct tax at the time of credit or payment of income as referred in section 115BBA of the Act. It was emphasised that obligation u/s 194E was independent and distinct from the obligation u/s 195 of the Act. Further, the obligation u/s 194E to deduct tax was absolute and not contingent upon determination as to whether non-resident's income was chargeable to tax in India. 9. On the issue of payment to non-resident sport association the Revenue has submitted that IML was wholly owned subsidiary of ICC and Mr. Haroon Lorgat, the Group Chief Executive Officer (CEO) of ICC was also one of the Directors of IML. Further, he was an authorised signatory of MAA as well as GPA between the Applicant and IML. Further, all the payments made by the Applicant were in connection with the events organised by ICC, which was the official international governing body for cricket. According to the Ld. Counsel the real nature of transaction was required to be unveiled and as the agreements made by IML was on behalf of ICC and in connectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g rights; the Applicant was also allowed other commercial rights and the Applicant had right to use ICC logo on various products of LG. It was submitted that the LG was entitled to use ICC logo on the products as described in Appendix-1 of MAA. Thus, the Applicant was making payment under MAA for use of trademark of ICC which was in the nature of royalty. The Revenue has submitted that LG had used ICC logo on numerous products it had manufactured and from the publicly available information it transpired that LG had used the ICC trade mark and the words ICC Cricket World Cup 2011 on its appliances and also Official mobile of the ICC Cricket World Cup 2011 on its specially launched mobile phones. This use was permitted pursuant to the rights granted by IML under the agreement dated 23.06.2009 which included commercial rights. As such, the vast bouquet of rights granted by IML to the Applicant was within the definition of Royalty as defined in Article 12(3) of the DTAA. Further, Article 12(2) of the DTAA permitted royalties to be taxed in the country in which they arose, i.e. India in the present case. 12. The Revenue has submitted that apart from MAA the Applicant had als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come important vehicle for promotion and advertisement. The ICC had created its brand which was commercially exploited through these events to derive maximum commercial benefits and the revenue earned by ICC from these events was nearly 80% of the total revenue of ICC. The Revenue has contended that the commercial rights granted under MAA were inextricably linked with use of logos, marks and brands; and the payment made by LG India to IML was in effect for grant of license in respect of similar property which was covered in the definition of royalty in clause (i) of Explanation 2 to section 9(1)(vi) of the Act. Therefore, such payment was taxable in India as income was deemed to accrue or arise in India. 14 It was further submitted that the exercise of commercial rights granted to the Applicant necessarily required use and right to use substantial commercial equipment like electronic scoreboards, signages, boundary demarcations, space on the ground itself etc. These equipments were all controlled by IML. Further, as per the agreement IML had agreed to make such staff available, without additional charges, as reasonably required to coordinate and supervise the implementation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an't be applied to the facts of the present agreement where no guarantee money was paid. It was further submitted that the transaction between the Applicant and IML was not a sham transaction and, therefore, the question of piercing the corporate veil did not arise. 16. On the issue of royalty, the Ld. A.R. reiterated that the payment was not covered in the definition of royalty under Article 12 of India-Mauritius DTAA. In this regard, reliance was placed on the decisions of Ld. ITAT in the case of Reebok India Company Vs Deputy CIT (79 taxmann.com 271) (Delhi-Trib) . It was submitted that the agreement in the case of Reebok was identical to the agreements in the present case and the commercial rights offered under the agreements were also identical. The Ld. ITAT had discussed the facts of the case in detail and the Ld. A.R. had drawn comparison of that case to the facts of the present case in support of the contention that the payment for various rights under MAA was not in the nature of royalty. It was submitted that the Revenue had accepted this decision on the issue of royalty and no appeal was filed before the Hon'ble High Court on this issue, though the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... PA the Applicant has been granted commercial rights related to the use the brand name, logos, marks etc. of ICC in the capacity of being a Global Partner in the territory of India in connection with the ICC Events which are identical with the events of MAA. The commercial rights as defined in the two agreements are found to be as under: MAA GPA Commercial Rights means any and commercial rights and opportunities of whatever nature in, and in relation to, the ICC Events including, but not limited to, all advertising, promotion, marketing merchandising , rights of entry to a venue for any commercial, media or promotional purposes, all ground perimeter, stadium, on field, venue and training ground signage and advertising rights , hospitality, travel and tours rights. Commercial Rights means any and all commercial rights and opportunities of whatever nature in, and in relation to, the ICC Events including, but not limited to, association, licensing, franchising, sponsorship and ticketing rights, publication rights and all media rights. Rights under MAA: 19. The marketing and advertising rights that have been g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kdrops, official event functions etc. X) Right to Company's Boards and Company's signage in the depiction of the Stadium on any interactive video, computer game etc. if so authorized by IML, without additional charge. (iii) Accreditation and Parking Passes - on equitable basis with other Global Partners. (iv) Promotion of products - Exclusive right to run promotions in respect of Products at the stadiums. (v) Signage - Right to identification on backdrops for flash interviews on-pitch or off-pitch following matches, post-match presentations and other major event related press conferences, (vi) Replays screens - Right to have Company identification on the replay video screens of each stadium. (vii) Hospitality - Right to have specified number of corporate hospitality places at each match, at each major event free of cost with opportunity to purchase additional hospitality packages. (viii) Publication - Right to have, free of charge, one full page colour advertisement in the Official Programme of each major event. (ix) Press Conferences - Right to identification on backdrops on the occasion of ICC press conferences concerning major events. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and or/ its Group Holding Company and those products during the terms of this Agreement for which the brand-names may be filed for registration under the relevant Intellectual Property Rights Laws. 24. The fee for marketing and advertising rights was specified in Appendix-2 of MAA as per which fee of US$17,083,333 was payable in accordance with the payments schedule. The fee for each of the ICC Event was separately mentioned in this Appendix. The payment was to be made in freely transferable US dollars and without deduction or liability for any and all taxes. There was a provision for interest payment at the rate of 2% above LIBOR rate of US$ in case the payment was not made on the due date. Rights under GPA: 25. Under the GPA, the Applicant was granted commercial rights and opportunities with respect to Products for use in the territory of India in respect of ICC Events (Appendix-3), ICC Awards (Appendix-4), additional rights for a particular match (Appendix-5), specified ICC functions (Appendix-6) and broadcast sponsorship and commercial air time rights (Appendix-8). As per Appendix-3 of GPA the various rights allowed were as under: 1) Core commercial Rights - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ignation and use of company logo rights as specified in the said Appendix. The Appendix-5 allowed the right to designation as Official Match Partner where the company was appointed as match partner for an event and nothing was specified in Appendix-6. Further, Appendix-8 allowed certain broadcast sponsorship and commercial airtime rights. The total fee payable as per GPA was USD 8,541,667. The product category as mentioned in GPA was identical with the product category as defined in MAA. Analysis of the Rights: 27. On a careful analysis of the rights allowed under MAA GPA, it is found that the commercial rights under MAA are predominantly in respect of advertisement, marketing and promotion of LG products while those under GPA are on account of association, licensing, franchising, sponsorship etc. The basic difference between the two agreements is sharing of intellectual property rights (IPRs). While there is no sharing of IPR under MAA, the rights under of GPA involve sharing of IPRs. This is apparent from the Definitions and Interpretations under the two agreements. There is no mention of IPR in MAA whereas the GPA defines the term IPR. The contention of the Reve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause of royalty we have to examine whether the payment falls into any one of the following categories: a) Whether the payment is for use or right to use any copyright of literary, artistic or scientific work (including cinematograph films, and films or tapes for radio or television broadcasting), or b) Whether the payment is for use or right to use any patent, trademark, design or model, plan, separate formula or process, or c) Whether the payment is for use or right to use industrial, commercial or scientific equipment, or d) Whether the payment is for information concerning industrial, commercial or scientific experience? 29. In the present case, the payment under MAA is neither found to be on account of use or right to use any copyright of literary, artistic or scientific work nor for any information concerning industrial, commercial or scientific experience. In the case of Sahara India Financial Corporation Limited (Supra) the name Sahara and its logo was incorporated as the official tournament logo which was prominently displayed in the cricket ground on the outfield, on the stumps and the scoreboards. The players clothing were also required to display ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rights are found to be in respect of any trademark as contended by the Revenue. In fact, the right for use of trademark of ICC is found to be covered under the GPA and not under the MAA. The Revenue has pointed out the use of ICC trademark ICC Cricket World Cup 2011 on the appliances of the Applicant and also about Official mobile of the ICC Cricket World Cup 2011 on its specially launched mobile phones. The right to use the Designations such as ICC Global Partner/Sponsor Supplier of [Major Event] or Official [Product] of [Major Event] was part of the rights under Appendix-3 of GPA. Therefore, the instances of ICC trademark appearing on certain products as pointed out by the Revenue are found covered under rights allowed under GPA. There was a clause for right of first option to manufacture new electronic equipment in connection with introduction of new technologies into the game of cricket in MAA which is dealt in para-2.8 of Appendix-3. It stipulates that Company shall have the right of first option to manufacture, or have manufactured, such equipment and to provide such equipment with Company branding to IML at Company's cost . Thus, there was a provision for on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Ltd. (supra) the assessee had made payment to GCC Singapore and N Singapore in relation to sponsorship of various sports events organised by ICC whereby the assessee was entitled to advertise on billboards at venue and advertisement space in official brochure/website of ICC etc. It was held by the Ld. ITAT that such payment was purely for advertisement and publicity of brand name of assessee and not royalty for use of any trademark or brand name as defined in Article 12 of India-Singapore DTAA. 34. The Applicant has relied upon the decision of Ld. ITAT in the case of Reebok India Company (supra). It is found that the facts of Reebok India were identical with the facts of the present case. Reebok was allowed by ICC to associate as Official Partner of ICC . The rights fee in that case was a package of 21 rights which were in the nature of 'Tickets', Boards and signage' , 'Parking passes' , 'Demonstration, sale and display of products', 'Backdrops' , In-stadia video screens', 'Hospitality', 'Match footage and archive', 'Internet promotion', 'Commercial airtime' and 20 out of 21 rights were held to be exclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not concerned with the rights transferred under GPA in the present application. Therefore, there is no element of 'royalty' in the consideration paid for various rights under MAA. 36. In view of the above facts and the propositions laid down in the case laws discussed above, we are of the considered view that the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exigible to withholding tax under the provisions of Income-tax Act. 38. As regards games played in India, we have to examine the provisions of section 194E read with section 115BBA of the Act. The relevant provisions regarding 115BBA and 194E are as under: Payments to non-resident sportsmen or sports associations. 194E . Where any income referred to in section 115BBA is payable to a non-resident sportsman (including an athlete) or an entertainer who is not a citizen of India or a non-resident sports association or institution, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rate of twenty per cent Tax on non-resident sportsmen or sports associations. 115BBA . (l) Where the total income of an assessee, (a) being a sportsman (including an athlete), who is not a citizen of India and is a non-resident, includes any income received or receivable by way of - (i) participation in India in any game (other than a game the winnings wherefrom a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e u/s 115BB) or sports played in India. 40. There is no dispute to the fact that 2013 - Women's CWC was played in India and all the games were held in India and for which fee of US$ 172,542 was paid by the Applicant. However, 2011 - Cricket World Cup was held jointly by India, Sri Lanka, Pakistan and Bangladesh for which fee of US Dollar 43, 13,543 was paid. Therefore, only proportionate payment of fee of US Dollar 43, 13,543 paid to IML will be covered under section 115BBA, in proportion to number of games played in India to the total number of games played in the tournament. 41. The contention of the Applicant is that the payment made by it under MAA was not payment to any sports association or institution and, therefore, section 115BBA was not attracted. It is found that ICC is the official international governing body for cricket and the matches for which the payment were made under MAA could not have been conducted without sanction of ICC. ICC Development (International) Limited (IDI) was incorporated in 1993 as wholly owned subsidiary of ICC and all the commercial rights in relation to ICC Events were transferred to IDI and thus IDI is commercial arm of the ICC. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompany) and its subsidiary companies ICC (Events) Limited, International Cricket Council FZ-LLC, IDI Mauritius Limited and IDI Hungary KFT, referred to as the Group . It was further qualified that the Group was owned by International Cricket Council for the benefit of all its Members. 43. In view of the above facts the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 . 45. In view of the above facts, 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. 46. In the case of PILCOM (supra) the assessee had ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rantee 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. On the Issue of applicability of DTAA, the Supreme Court has held in that case as under: 18 . We now come to the issue of applicability of DTAA. As observed by the High Court, the matter was not argued before it in that behalf, yet the issue was dealt with by the High Court . In our view, the reasoning that weighed with the High Court is quite correct. The obligation to deduct Tax at Source under Section 194 E of the Act is not affected by the DTAA and in case the exigibility to tax is disputed by the assessee on whose account the deduction is made, the benefit of DTAA can be pleaded and if the case is made out, the amount in question will always be refunded with interest . But, that by itself, cannot absolve the liability under Section 194E of the Act. 19 . In the premises, it must be held that the payments made to the Non-Resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 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 (Supra), 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. 50. In view of the foregoing, the questions posed to us for a Ruling are answered as under: 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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