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TMI Blog2023 (3) TMI 1241X X X X Extracts X X X X X X X X Extracts X X X X ..... aysia has been found to be existing much prior to TSA Cayman Island and the assessee, and its revenue and setup have not been disputed by the Revenue, we are of the considered opinion that it would be wrong to allege that TSA Malaysia to be mere conduit and paper company existing merely to avail the benefit of India-Malaysia DTAA. The conclusion could have been different if the entire setup would have been in Cayman Island and the Malaysian entity would have been a mere name lender in this set of transactions with no role to play. However, such being not the facts, therefore, we find no infirmity in the order of the learned CIT(A) in quashing the invocation of Article 28 of India-Malaysia DTAA in the present case. Whether the payment made by the assessee to TSA Malaysia in respect of the advertising package/rights, which includes (a) Logo Rights, (b) Advertising Privileges, (c) Promotion Activities Rights, and (d) Rights to Complimentary Tickets constitutes Royalty for being taxed in India? - Rights of similar nature are involved and the definition of the term Royalty in India-Malaysia DTAA is worded similarly to the provisions of India-Canada DTAA, therefore, respectfully f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s ex parte, qua the assessee after hearing the learned Departmental Representative ( learned DR ) and based on the material available on record. 3. In the larger interest of justice, the slight delay of 16 days in filing the appeal by the assessee is condoned. During the hearing, the learned DR also did not raise any objection against the condonation of the aforesaid delay. 4. In its appeal, the Revenue has raised the following grounds: 1. Whether on the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in holding that the activities falling under category A , viz display of logo on the sporting apparel/attire of the players and the rights to complimentary tickets were separable and independent from the other activities under category B , viz Advertising privileges and Promotional activities rights ignoring the fact that the entire activities together only constituted the essence of the agreement and the payments by assessee were not separately bifurcated under the agreement to for each activity. 2. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in holding that the payments in relation to the act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its Indian group company i.e. the assessee. The entire arrangement was to take benefit of DTAA for beneficial rate of taxation under the treaty. 7. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) therefore, after having accepted that assessee has failed to explain as to why and how the agreement between TSA, Malaysia and assessee dated 23/5/2013 could precede the agreement dated 23/7/2013 between West Indies team and TSA, Cayman Island and then agreement dated 5/3/2014 between TSA, Cayman Island and TSA, Malaysia, ought to have held that there was no economic substance in the agreement between TSA, Cayman Island and TSA, Malaysia and that entire arrangement was a sham for availing the benefit of DTAA with Malaysia. He erred in concluding that these discrepancies were not fatal to the claim of economic substance and genuineness as per the impugned agreements. 8. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) failed to appreciate that on facts and circumstances of the case, the recipient of Royalty i.e. TSA, Malaysia was not the beneficial owner and as such on this ground also it was not entitled for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Islands ). TSA Cayman Islands is a holding company having 11 subsidiaries around the world including the assessee and Total Sports Asia, SDN, BHD ( TSA Malaysia ). As per the assessee, TSA Malaysia is the company through which the holding company, TSA Cayman Islands distributes the advertising and other rights acquired by them. TSA Malaysia has entered into the following 2 agreements with the assessee:- (a) Agreement dated 24/09/2012 sub-licensing to the assessee the advertising package/rights of Sri Lanka National Cricket Team. These rights had been acquired by TSA Malaysia from TSA Cayman Islands, who in turn had acquired it from Sri Lanka Cricket; and (b) Agreement dated 23/05/2013 sub-licensing to the assessee the advertising package/rights of West Indies Senior Men s National Cricket Team. These rights had been acquired by TSA Malaysia from TSA Cayman Islands, who in turn had acquired it from West Indies Cricket Board Inc. 7. In respect of both the agreements under consideration, the advertising package/rights refer to are (a) Logo Rights, (b) Advertising Privileges, (c) Promotion Activities Rights, and (d) Rights to Complimentary Tickets. In respect of the Sri La ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such rights by the West Indies Cricket Board Inc. and thus the same is a colourable device. It was also held that even if it is accepted that the TSA group is mainly operating through Malaysia and the control and management of the business are through its office and infrastructure in Malaysia, therefore, there is no commercial sense for routing the transaction through Cayman Island company. It was further held that there is no physical presence of substantial activity in Cayman Island except for acquiring rights. It was held that the only purpose of forming a Cayman Island company by the group is to avail exemption without any physical presence of substantial activity in Cayman Island. Accordingly, the assessee was denied the benefit of tax exemption claimed under India-Malaysia DTAA on payments made to TSA Malaysia. Since the assessee failed to deduct tax at source under section 195 of the Act in respect of payment made to TSA Malaysia for the use of or right to use of patent, design, trademark, and similar property of Sri Lanka and West Indies Cricket Team, the assessee was treated as assessee in default under section 201 and accordingly, tax of Rs.86,11,558 and interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... place in Bangladesh. Under the aforesaid agreement, TSA Cayman Island was granted rights, such as logo rights, advertising rights, promotional activities rights, and rights to complimentary tickets, which are collectively referred to as sponsorship rights . Sri Lanka Cricket further agreed that sponsorship rights can be sub-licensed by TSA Cayman Island to its clients. Under the agreement, it was also agreed that the intellectual property right of TSA Cayman Island and Sri Lanka Cricket shall remain their own and this agreement shall not affect their ownership in any way unless mutually agreed upon. Further, Sri Lanka Cricket is the owner of the patent, copyright, trade secrets, trademark, and any other intellectual property rights which subsist in sporting apparel. Vide another agreement, TSA Cayman Island sub-licensed these rights to TSA Malaysia. These rights were further sub-licensed to the assessee vide agreement entered into between TSA Malaysia and the assessee. Finally, vide a separate agreement, the assessee granted these rights to Homestead Infrastructure Development Pvt. Ltd., a company registered in India under the provisions of the Companies Act and having a corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al events for its products (its clients) in which the team members will be attending, organise photography sessions with the team members with right to use these material for its own advertising in its promotional activities / advertisements during the period of agreement. Right to complementary Tickets are access to a fixed number of tickets to the tournaments. 13. As per the Revenue, there is no commercial expediency in introducing TSA Malaysia between TSA Cayman Island and the assessee, when the advertising rights were required to be transferred to the assessee and thus TSA Malaysia is only a conduit to claim the benefit of India Malaysia DTAA. Further, there is no business rationale for introducing a Malaysian entity while assigning the rights to the assessee, since there was no economic exploitation of the rights transferred to TSA Malaysia. Accordingly, the Revenue has placed reliance upon Article 28 of the India-Malaysia DTAA to deny the benefit of the treaty to the assessee. In respect of the agreement with West Indies Cricket Board Inc., the Revenue has also noted that the rights are granted to the assessee prior to the same being granted to TSA Cayman Island by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso seen that the turnover of the Malaysian company is significantly higher than that of the transaction value in the present case and the non-resident is dealing with many other similar contracts with other countries. Hence, the activities of the Malaysian company cannot be held to be country or treaty specific. The appellant has also submitted documents to evidence that all the entities were in existence much prior to the entering into of the agreement under appeal. In fact, the contentions of the A.O. as well as the submission of the appellant reveal that no functions appear to have been performed in Cayman Islands. Hence, invocation of Article 28 in this case is not found to be warranted. 15. We also find a letter dated 09/05/2013 by West Indies Cricket Board Inc to the VP Sales and Marketing of TSA Cayman Island in the paper book. From the perusal of the said letter, it is evident that West Indies Cricket Board Inc has confirmed that they intend to contract with the TSA Cayman Island for sponsorship rights to West Indies Men s National Cricket Team in respect of the ICC Champions Trophy 2013 tournament and ICC T20 World Cup 2014 tournament. We also find that in the said l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the present case. 16. Now it is to be examined whether the payment made by the assessee to TSA Malaysia in respect of the advertising package/rights, which includes (a) Logo Rights, (b) Advertising Privileges, (c) Promotion Activities Rights, and (d) Rights to Complimentary Tickets constitutes Royalty for being taxed in India. We find that the definition of the term Royalty in Article 12 of India-Malaysia DTAA is more restrictive than the definition of the same provided under section 9(1)(vi) of the Act. Article 12(3) of India-Malaysia DTAA defines the term Royalty as under:- 3. The term royalties as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films or films or tapes used for television or radio broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information (know-how) concerning industrial, commercial or scientific experience. 17. Therefore, in order to be covered under the definition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... authorities of their respective countries. The matches were to be recognized by the ICC as having full one day international cricket status. 4. The Schedule to the said agreement specifies the details of the Title Sponsor Package, which included the right that all the matches and the tournaments would be referred to as Sahara Cup . It also provided for incorporation of the Sahara name and logo as the official tournament logo. The said Sahara name and logo was to be prominently displayed at either ends of the cricket ground on the outfield as also prominently displayed on the stumps and the score boards. The players clothing was also required to display the Sahara logo. Apart from these rights, certain other rights, such as provision for certain number of VVIP tickets, VIP tickets and season tickets were also part of the Title Sponsor Package. The official awards and trophies were also required to carry the Sahara name and/or logo. 5. The revenue insists that the payment made by the respondent/assessee to IMG Canada for the said rights of title sponsorship amounted to a royalty payment under article 13 (3) of the said DTAA. The Tribunal has examined this submission mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gories (a) and (b) obviously do not arise. It is for this reason that the Commissioner of Income-tax (Appeals) sought to include the payment made by the assessee to IMG Canada under the third category, that is, article 13(3)(c) of the said DTAA. Unfortunately, what the Commissioner of Income-tax (Appeals) failed to notice was that before any payment could be termed as a royalty under article 13(3)(c), it would have to be either as consideration for the copyright or for the right to use a copyright in any of the four categories of works mentioned therein, namely, (i) literary; (ii) artistic; (iii) scientific work; and (iv) cinematographic films and films or tapes for radio or television broadcasting. What the Commissioner of Income-tax (Appeals) failed to note was that there was no transfer of a copyright or the right to use the copyright flowing from IMG Canada to the respondent/assessee and, therefore, any payment made by the respondent/assessee to IMG Canada would not fall within article 13(3)(c) of the said DTAA. The reference in article 13(3)(c) is to any copyright and it is not a reference to any right . 9. In these circumstances, we feel that the findings of fact a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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