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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 ..... 0. We find that on 02/01/2023, the Registry as well as the Department was directed to serve the notice on the new address of the assessee. In this regard, the office of the Income Tax Officer has filed a letter dated 02/02/2023, intimating that upon physical service of the notice of hearing on the assessee's new address, it was found that the office of the assessee does not exist at the given address and assessee's agreement regarding the virtual office at the said address was also expired on 14/05/2019. Therefore, in view of the above, we proceed to dispose off the present cross-appeals 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 disp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee by exploitation of rights mentioned under category "B" because CIT(A) himself held that there was no exploitation of any user right of any brand/trademark in relation to the activity "A". 6. Whether on the facts and in the circumstances of the case and in law, the Ld CIT(A) erred in holding that provisions of article 28 of the DTAA between India and Malaysia are unwarranted without appreciating that the agreements between TSA, Cayman Island and TSA, Malaysia lacked economic substance and that in substance the transaction was between TSA, Cayman Island and 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 agreeme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... end all or any of the Grounds of Appeal." 6. The brief facts of the case are that the assessee is a company registered and incorporated in India. The assessee is engaged in the business of seeking and endorsing sponsorship deals for athletes and carrying on the business of rights sponsorships for any sports and entertainment-related accessories, including jerseys, and arranging sports and entertainment-related tours in India and abroad. The assessee is a wholly owned subsidiary of Total Sports Asia Ltd, Cayman Island ("TSA Cayman 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; an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the active or actual exploitation of rights and thus TSA Malaysia is just a conduit 100% subsidiary company. Since the affairs were managed in such a manner only to take benefit of the DTAA between India and Malaysia, therefore, Article 28 which provides for the limitation of benefits is applicable to the present case. The AO-TDS also referred to the date of execution of the agreement in respect of advertising rights from West Indies Cricket Board Inc and held that the rights were granted to the assessee prior to granting 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... % of the payment made in respect of advertising package of Sri Lanka and West Indies Cricket Teams was held not to be Royalty and thus not taxable. 11. In the present case, TSA Cayman Island entered into a contract with Sri Lanka Cricket for sponsorship rights of the Sri Lanka National Cricket Team comprising such players as announced by Sri Lanka Cricket from time to time including coach(es), and others in respect of International Cricket Council ("ICC") World T20, 2012 taken place in Sri Lanka and World T20, 2014 taken 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers" for the teams with which agreements have been entered into, display words to a similar effect in its communications, advertising, publicity material, website or any other media relating to the events, provide a link to the web site of the teams on its own website etc, right to ground signage of two regular size boards and web banner on the website of the national team with which agreements have been undertaken. In Promotional activity rights, the appellant gets a right to organise promotional 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 rational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the learned CIT(A) vide impugned order held that Article 28 of the India-Malaysia DTAA cannot be invoked in the present case by observing as under:- "5.6 In spite of the anomaly pointed out by the AO, the fact remains that there is substance in the appellant's contention that bulk of the functions are being performed in Malaysia and that there is a valid reason for having a setup at Malaysia. It cannot be the case of the AO that no activity is being carried out in Malaysia. It is also 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge 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. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been defined in clause 1(i) of the said agreement to mean the title sponsorship benefits in connection with the tournament set out in the Schedule. The word "tournament", in turn, was defined in Clause 1(vi) to mean, inter alia, the Friendship Cup, to be known as "the Sahara Cup", which would consist of a series of five one day international cricket matches to be played in Canada between the full Indian and Pakistan national cricket teams, as selected by the cricket 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the revenue contended that the expression "payment of any kind including rentals", has a very wide meaning and, therefore, it includes the payment for "any" rights. Such a contention is not tenable in view of the fact that the payment, which may be of any kind and which may include rentals, has to be in connection with the right to use any of the rights specified in the three categories mentioned above. 8. It is apparent that the categories (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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