ESPN Digital Media (India) Pvt. Ltd Vs DCIT (ITAT Chennai)
ITAT held that the consideration paid by ESPN India for purchase of advertisement space was not taxable during the period under consideration. The consideration paid by ESPN India is not for ‘use’ of equipment (server) or for any process nor imparting of any information concerning technical, industrial, commercial, or scientific knowledge, experience or skill. Further, no right has been conferred on ESPN India over the server or website belonging to ESPN UK and ESPN India is merely a reseller of advertisement space it purchases on ESPN UK’s website. Further, the reliance of the AO and CIT(A) on the unilateral retrospective amendments to section 9(1)(vi) of the Act to the definition of ‘royalty’ cannot override the more beneficial definition under Article 13(3) of the UK-India Tax Treaty.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
These four appeals by the assessee are arising out of different orders of Learned Commissioner of Income Tax Appeals)-16, Chennai in ITA Nos.295/CIT(A)-16/2010-11, 294/CIT(A)-16/2012-12, 293/CIT(A)-16/2012-13 & 296/CIT(A)-16/2013-14 vide orders of even date 31.01.2018. The assessments were framed by the DCIT, International Taxation 1(1), Chennai u/s. 201(1)/(1A) of the Income Tax Act, 1961 (hereinafter ‘the Act’) vide orders of even date 04.11.2016 for the assessment years 2010-11, 2011-12, 2012-13 & 2013-14.
2. The only common issue in these four appeals of assessee is as regards to the order of CIT(A) confirming the action of AO in holding the payments made by ESPN India constitutes ‘royalty’ falling u/s.9(1)(vi) of the Act and thereby, treating the assessee as ‘assessee in default’ for non-deduction of tax at source u/s.201(1) & 201(1A) of the Act. For this, assessee has raised exactly identically worded grounds in all the four years. The issue and facts, as conceded by both the sides, are exactly same, except the quantum. As the facts are identical in all the four assessment years and issue is exactly one, we will take the facts from assessment year 2010-11 in ITA No.1070/Chny/2018 and will decide the issue. The relevant grounds Nos.2.1 to 2.14 read as under:-
2. Payment made should not be considered as royalty :
2.1 The order passed by Hon’ble CIT(A) and the learned AO is bad in law and in facts, stating that the payments made by ESPN India constitute as royalty and is subject to withholding tax.
2.2 The Hon’ble CIT(A) and the learned AO has erred in holding that ESPN India has obtained the right to use/ exploit the websites without appreciating that the Appellant, as per the reseller agreement, only purchases advertisement space from ESPN UK and resells the same to third parties/ advertisers in India.
2.3 The Hon’ble CIT(A) and the learned AO has failed to appreciate that the purchase of advertisement space by ESPN India was on principal to principal basis.
2.4 The Hon’ble CIT(A) and the learned AO has erred in holding that the Appellant was given direct access to servers for the purpose of uploading the advertisements.
2.5 The Hon’ble CIT(A) and the learned AO has erred in holding that the Appellant has used the servers of ESPN UK. The learned CIT(A) and the learned AO failed to appreciate that, ESPN UK renders the web publishing services using servers as the medium and sale of advertisement space cannot be deemed as providing a right to use of equipment or process as alleged by the learned CIT(A).
2.6 The Hon’ble CIT(A) and the learned AO has erred in holding that the Appellant uploads advertisement content on the website of ESPN UK without considering the submissions made by the Appellant that it only provides the advertisement content as per ESPN UK standards and the uploading on the websites are handled by third Party.
2.7 The Hon’ble CIT(A) and the learned AO has erred in holding that the Appellant has failed to deduct withholding tax without appreciating that the consideration paid to ESPN UK is not chargeable to tax in India as per section 9(1)(vi) of the Act read with India-UK Double Taxation Avoidance Agreement [“India- UK tax treaty”] and hence, withholding tax under section 195 of the Act does not arise.
2.8 The Hon’ble CIT(A) and the learned AO failed to appreciate that the consideration for purchase of advertising space neither falls under the definition of “royalty” under section 9(1)(vi) of the Act nor the same is in the nature of
