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December 28, 2011 Payment made for ‘Live Feed’ of Cricket Matches Is Not Royalty: Income Tax Appellant Tribunal, Mumbai In a recent ruling in the matter of Neo Sports Broadcast Private Limited (“Applicant”)1, the Mumbai Bench of the Income Tax Appellate Tribunal (“ITAT”) held that payment made to a non-resident, in lieu of the right to broadcast live feed of cricket matches played outside India, does not amount to ’royalty’ under the Income Tax Act, 1961 (“ITA”). Further, the ITAT also held that the mere right of a person residing in India, to broadcast live feed of matches received from a person outside India, does not constitute an Indian ‘business connection’ of a non-resident under the ITA and hence there is no requirement of withholding tax on consideration paid for such live feed. A detailed analysis of this ruling is provided herein below. Facts The Applicant had executed an agreement (“Agreement”) with M/s Nimbus Sports International Pte. Ltd. (“Nimbus”), a company incorporated under the laws of Singapore. Pursuant to the Agreement, Nimbus, in the capacity of a commercial agent of the Bangladesh Cricket Board, granted a license to the Applicant for broadcasting live feed of cricket matches played in Bangladesh, in India. The Agreement also permitted the Applicant to telecast certain recorded cricket matches in India. In order to remit the payments to Nimbus, the Applicant filed an application under section 195(2) of the ITA before the Deputy Director of Income Tax (International Taxation) (“DDIT”), seeking permission for nil deduction of income tax for the payments to be made to Nimbus for the grant of license for live broadcast of cricket matches from Bangladesh. The Applicant contended that whilst the payment to be made on account of recorded matches would be in the nature of royalty and hence subject to withholding taxes in India; a payments towards live telecast of cricket matches were not covered under the definition of royalty, due to which no obligation to withhold tax in India arose for such payments. Proceedings before the Tax Department After considering the submissions of the Applicant, the DDIT held that the payments made to Nimbus by the Applicant for (i) receiving and broadcasting live feed of cricket matches, and (ii) for telecast of recorded matches were both in the nature of royalty as defined under Explanation 2 of Section 9(1)(vi) of the ITA. The DDIT further noted that as per the Agreement, Nimbus is to receive payments from the Applicant in its bank account in London. The DDIT held that since the Article 24 (Limitation of Relief) of the India-Singapore Double Tax Avoidance Agreement (“DTAA”) restricted the benefits of the DTAA only to the income which is remitted to, or received in, Singapore, the benefits of the DTAA could not be granted to Nimbus for the payments received in London. Further, the DDIT held that due to the fact that the payments were made on account of broadcast of the cricket matches in India, there existed a ‘business connection’ of Nimbus in India, and hence the income received by it would be subject to taxation in India. Finally, the DDIT rejected the request of the Applicant to grant a nil deduction certificate to the Applicant for the aforesaid payments. The Applicant appealed against the decision of the DDIT before the Commissioner of Income Tax (Appeals) (“CIT-A”). The CIT-A rejected the DDIT’s classification of the payments made to Nimbus for live broadcast, stating that the same would not be in the nature of royalty as defined under the ITA. However, the CIT-A upheld the decision of the DDIT as regards the business connection of Nimbus in India and restated that without the receipt of live feed of the matches to be played, no income would accrue to Nimbus. Proceedings before the ITAT Aggrieved by the decision of the CIT-A on the issue of payment for live feed being in the nature of royalty, the revenue department appealed before the ITAT. The ITAT, upon considering the arguments of both the revenue and the Applicant, held that the payments to be made by the Applicant to Nimbus would not be in the nature of royalty, as defined under the ITA, and since Nimbus did not have a business connection in India, its income would not be taxable in India. Aggrieved against the decision of the CIT-A, the tax department filed an appeal before the ITAT. ITAT’s Observation The ITAT stated that Explanation 2 to section 9(1)(vi) of the ITA provides the definition of ‘royalty’ as, inter alia, a consideration for the transfer of all or any rights in respect of a copyright, literary, artistic or scientific work including films or video for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films. Further, the ITAT noted that the term ‘copyright’ as defined under section 14(1) of the Copyright Act, 1957 (“Copyright Act”) means the exclusive right to do or authorize the doing of any of the specified acts in respect of a ‘work’ or a substantial part thereof, including the performance of the ‘work’ in public, or communicate it to the public. The ITAT observed the definition of the term ‘work’ under section 2(y) of the Copyright Act which includes: i. a literary, dramatic, musical or artistic work; ii. a cinematographic film; iii. a sound recording Upon perusal of the above definition of ‘work’ as defined under the Copyright Act, the ITAT concluded that playing of cricket matches cannot be equated with either literary, dramatic, musical or artistic work on one hand, or a sound recording. Further, in the context of cinematographic films, the ITAT held that the meaning of copyright under section 14 of the Copyright Act, 1961 referred to ‘making a copy of the film’, and not its original recording. Since the Applicant would broadcast live feed of a cricket matches, such broadcast could not be treated as copyright of cinematographic films simply because there would be no ‘work’ that would come into existence prior to the broadcast. The ITAT held that there is no copyright in the live events and depicting the same cannot infringe copyright. In view of its above analysis, the ITAT held that the consideration for live broadcasting of cricket matches cannot be considered as royalty for the purposes of section 9(1)(vi) of the ITA. Further, as regards the constitution of a business connection in India, the ITAT held that the mere act of allowing the Applicant to live broadcast of matches in India, on a principal to principal basis, would not constitute a business connection in India. The ITAT held that for the constitution of a business connection of a non-resident in India, it is necessary that some sort of business activity must be done by the non-resident in India. Hence, the ITAT held that for the matter in consideration before it, there did not exist a business connection of Nimbus in India. Finally, the ITAT concluded that since the consideration for live broadcasting does not fall within the meaning of the term ‘royalty’ as under the ITA, and since there exists no business connection of Nimbus in India, the consideration for the live broadcast of cricket matches is not subject to withholding tax in India. Analysis In the above analyzed ruling, the ITAT has held that the payments made to non-resident for the live feed of cricket matches for broadcasting in India cannot be considered as transfer of copyright and thereby not taxable in India as ’royalty’. Therefore, this is a welcome ruling for companies broadcasting live events in India, since till the time such events are not recorded or stored after the live broadcast, they should not be treated as covered under the term ‘copyright’ as per the Copyright Act. The ruling is relevant to the case of most non-residents, irrespective of whether they are residents of any jurisdiction with which India has executed a treaty or not, since the ITAT has relied solely on the provisions of the ITA and not the DTAA. It is significant to note that this ruling may not hold ground once the proposed Direct Taxes Code Bill (2010) (“DTC”) comes into force in its current form.2 Under the present draft of the DTC, the definition of royalty expressly covers ‘the transfer of all or any rights (including the granting of a licence) in respect of ‘live coverage of any event’. Therefore, if the proposed definition of ‘royalty’ comes into force, the payments made to non-residents may, subject to a beneficial provision of any applicable tax treaty, may become subject to tax in India.
_______________ 1 Asst. Director of Income Tax (International Taxation) v. Neo Sports Broadcast Private Limited (ITA No.99/Mum/2009) (Mum) 2 DTC was placed before the Indian Parliament on August 30, 2010. The DTC is in its draft stages and has been referred to a Parliamentary Standing Committee. After the DTC is approved by both Houses of the Indian Parliament and receives the President’s assent, it would be enacted as law.
- Vivaik Sharma, Ankita Srivastava & Bijal Ajinkya You can direct your queries or comments to the authors
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