All conditions of paragraph 4.2 of Article 24 of DTAA needs to be satisfied simultaneously

By POONAM GANDHI Income Tax Judiciary February 8, 2023

TaxGuru Citation: 2023 taxguru.in 807
Case Name: ADIT (IT) 3(1) Vs Global Cricket Corporation Pte Ltd. (ITAT Mumbai)
Appeal Number: Only available for paid members
Date of Judgement/Order: Only available for paid members
Related Assessment Year: 2002-2003
Courts: All ITAT, ITAT Mumbai

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ADIT (IT) 3(1) Vs Global Cricket Corporation Pte Ltd. (ITAT Mumbai)

ITAT Mumbai held that provisions of Article 24 of DTAA between India and Singapore will be applicable only when condition no. 1, condition no. 2 and condition no. 3 in paragraph 4.2 are satisfied simultaneously. Here, as condition no. 1 is not satisfied, DTAA would not be attracted in case of GCC.

Facts- AO had denied the benefit of DTAA to GCC by holding that provisions of Article 24 of DTAA are attracted mainly on the ground that payments have not been remitted to Singapore.

In appeal preferred by GCC on this issue, CIT(A) was of the view that all the three conditions specified in paragraph 4.2. above should be satisfied simultaneously. Since in case of GCC Condition 1 and Condition 3 were not satisfied, the provisions of Article 24 of DTAA would not be attracted. Accordingly, the CIT(A) held that GCC was entitled to claim benefit of the provisions of DTAA. Being aggrieved the Revenue is in appeal before us on this issue.

Conclusion- We have perused the documents/material relied upon by GCC in this regard including the income tax returns, financial statements, and confirmation from tax advisor. GCC has offered to tax its worldwide income in Singapore. Since Condition No.1, being one of the three conditions which are to be satisfied simultaneously for triggering the provisions of Article 24 of DTAA, is not satisfied, the CIT(A) was correct in holding that the provisions of Article 24 of DTAA would not get attracted and GCC would be entitled to claim benefit of the provisions of the DTAA. Since Condition No. 1 is not satisfied, the rival contentions in relating to the other two conditions (Condition No. 2 & 3 specified in paragraph 4.2 above) do not require adjudication having become academic in the context of applicability of Article 24 of DTAA.

Thus, in view of our conclusion that provisions of Article 24 of DTAA would not be attracted in case of GCC, we hold that GCC would be entitled to avail the benefit of the provisions of DTAA. Ground No. 1, 2 and 3 raised by the Revenue are dismissed. Ground No.1 raised in the Cross Objection by GCC is disposed off as being infructuous.

FULL TEXT OF THE ORDER OF ITAT MUMBAI

1. These are two sets of cross-appeals and cross objections pertaining to Assessment Year 2002-03 and 2003-04 arise out of the order, dated 03.03.2006, and 18.11.2008 passed by the Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as „the CIT(A)’] disposing off the appeal preferred by the Assessee for the Assessment Years 2002-03 and 2003-04, respectively.

1.1. For the Assessment Year 2002-03, the Assessment Order, dated 31.03.2005 was passed under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act’). For the Assessment Year 2003-04 return of income was processed under Section 143(1) of the Act. Subsequently, reassessment proceedings were initiated, inter alia, in view of the information/material gathered during the assessment proceedings for the Assessment Year 2002-03 and assessment order dated 31.03.2005 was passed under Section 147 read with Section 143(3) of the Act.

1.2. Appeals preferred by the Assessee for the Assessment Year 2002-03 and 2003-04 were partly allowed by the CIT(A).

1.3. Being aggrieved, both, the Assessee and the Revenue are in appeal before us for Assessment Year 2002-03 and 2003-04.

The Assessee has also filed Cross-Objection in appeal preferred by the Revenue.

1.4. The appeals involve common issues arising for identical facts and therefore, the appeals were heard together and are being disposed of by way of common order. We would first take up cross-appeals for the Assessment Year 2002-03 along with the cross objection preferred by the Assessee. For the Assessment Year 2002-03, we would also refer to corresponding facts and findings of CIT(A) for the Assessment Year 2003-04 for holistic understanding of facts and to avoid repetition. The connected grounds in the cross-appeals and cross-objection are taken up together wherever possible.

Assessment Year 2002-03

1.5. The Grounds raised in the appeals/cross-objections for the Assessment Year 2002-03 are as under:

ITA No. 3130/Mum/2006

1.6. The Revenue has raised the following grounds of appeal:

“1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing the India Singapore Tax Treaty relief to the appellant in respect of receipts from Set Setellite Singapore Pte. Ltd. (SET).

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the benefit of India Singapore Tax Treaty is available to the appellant in respect o f revenues earned from LG and Hero Honda.

3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the limitation o f relief under Article 24 of the India Singapore Tax Treaty is not applicable to the appellant without appreciating that the payment by SET has not been received in Singapore but in the third country i.e. Jersey.

4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that the payment to GCC by SET cannot be said to arise in India within the meaning o f Article 12(7) of India Singapore Tax Treaty thereby holding that amount of Rs. 99,425,000/- received by the appellant from SET is not taxable in the hands of the appellant without appreciating that

i. Article 12(7) is not a definition of the term “arise” but a deeming fiction.

ii. The term “arise is to be understood as per the domestic law under Article 3(2) of the treaty.

iii. Alternately, the payment is borne by the PE of SET in India since the same has been claimed as deduction out of the total revenue by SET Further, the advertisement rate were much higher than normal rate during the period of telecasting of matches showing a close link with the P.E.

5. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in holding that in view of Article 12(2)(b) of the India Singapore tax treaty the payments received from LG and Hero Honda which are in the nature o f royalties is taxable at 10% of the gross amount without appreciating that the assessee is not the beneficial owner of the royalty.

6. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in directing the Assessing officer to compute the assessed tax after reducing the tax which is deductible at source by the payer from the tax on the total income determined on regular assessment (after giving appeal effect) and charge interest u/s, 234B of the Act accordingly.”

The appellant prays that the order of the Ld. CIT(A) on the above grounds be set aside and that of the AO restored.

The appellant craves leave to amend or alter any ground or add a new ground which may be necessary.”

CO No. 324/Mum/2006 in ITA No. 3130/Mum/2006

1.7. The Assessee has raised the following grounds in cross-objection:

“Ground No 1

The learned CIT(A) has erred in holding that the Respondent has a source of income in India and hence, it has satisfied one of the conditions of Article 24 of the double taxation avoidance agreement executed between India and Singapore (‘India-Singapore tax treaty”).

The Respondent respectfully submits that the above finding is erroneous and should be set aside.

Ground No 2

The learned CIT(A) has erred in holding that the grant o f broadcast rights and sponsorship rights by the Respondent is on a similar footing as sale of advertising airtime by Satellite Television Asian Region Limited (“Star Ltd”) and on that basis, holding that the decision by the Honourable Mumbai Income Tax Appellate Tribunal in the case of Star Ltd for Assessment Year 2000-01 (ITA No 5066/M/04) is applicable to the Respondent’s case.

The Respondent respectfully submits that the above finding is erroneous and should be set aside.

The Respondent respectfully submits that the above finding is erroneous and should be set aside. The Respondent craves leave to add, alter, amend or modify the aforesaid grounds at or before the hearing of the appeal.”

ITA No. 3135/Mum/2006

1.8. The Assessee has raised the following grounds of appeal:

“Ground No. 1

The learned CIT(A) has erred in holding that the consideration received by the Appellant from LG Electronics Private Limited

(„LG‟) and Hero Honda Motors Private Limited (Hero Honda‟) is for the use or right to use commercial equipment and is royalty taxable at the rate of 10 percent on a gross basis as per Article 12(2)(b) of the India-Singapore tax treaty („Treaty‟).

The Appellant respectfully submits that the above finding is erroneous and should be set aside.

Ground No. 2

The learned CIT(A) ought to have held that no interest under section 234A and 234B of the Income Tax Act, 1961 is leviable on the Appellant.

The Appellant requests that the above grounds be decided based on the merits of the case.”

2. A brief introduction of entities involved and the contract structure is as under:

Assessee – Global Cricket Corporation Pte Ltd

2.1 Global Cricket Corporation Pte Ltd (GCC), the Assessee in the present set of appeals, was incorporated as a private company limited by shares in Singapore. Its name was changed from WSG Cricket Pte Ltd. to Global Cricket Corporation Pte Limited with effect from 22.01.2001.

2.2 GCC, holding valid tax residency certificate(s) issued by the Inland Revenue Authority of Singapore for the relevant assessment year(s), claimed benefit of the provisions of the Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion between India and Singapore (for Short ‘DTAA’) for the Assessment Years 2002-03 and 2003-04.

2.3 Eligibility of GCC to claim benefit of DTAA, and the characterization/taxability of income earned by GCC during the Assessment Year 2002-03 and 2003-04 is the subject matter of appeals before us.

International Cricket Council & ICC Development (International) Ltd.

2.4 International Cricket Council (For short ‘ICC’) is the global governing body of sport of Cricket and is responsible for organizing and regulating international cricket tournaments (hereinafter referred to as „ICC-Events‟). The bodies governing cricket at national level are members of ICC. The revenues generated from ICC-Events are, inter alia, distributed amongst its members and utilized for development of sport of cricket across the world by ICC.

2.5 ICC Development (International) Ltd. [for short „IDI‟], a company registered in the British Virgin Islands and having its principal office at Monaco at the relevant time, was formed by the members of ICC to own and control all its commercial rights including media, sponsorship and other intellectual property rights relating to the ICC events.

2.6 IDI authorizes ICC member to host an ICC Event in terms of Host Agreement. Each participating nation sends team consisting of players selected by their national body governing cricketing to participate in the ICC-Events in terms of the Participation Agreement between the host nation and the participating nations.

The News Corporation Limited

2.7 The News Corporation Limited (For short ‘News Corporation’) was a company incorporated in South Australia which forming part of the News Corporation Group of Companies engaged, inter alia, in multinational mass media business.

The World Sport Group Limited

2.8 IDI granted to The World Sport Group Limited (For short ‘WSG’), a company incorporated in British Virgin Islands, the worldwide media and sponsorship rights in respect of various ICC-Events for years 2000 to 2007 through the Media and Sponsorship Rights Contract, dated 20.07.2000 executed between IDI, News Corporation and WSG. [hereinafter referred to as the „Master Rights Agreement‟ or „MRA‟]

2.9 Subsequently, News Corporation enter into an arrangement with WSG and the Novation Agreement, dated 02.07.2001 (hereinafter referred to as the ‘TNA’), was executed amongst IDI, WSG, News Corporation, Sky Global Networks Inc and GCC/the Assessee. GCC, and Sky Global Networks Inc, a Delaware corporation, both, were part of News Corporation Group of companies.

2.10 Thus, Master Rights Agreement was novated in favour of the GCC vide TNA and as a result, GCC stepped into the shoes of WSG with effect from 01.01.2001 acquiring the worldwide media and sponsorship rights in respect of various ICC-Events for years 2002 to 2007 in terms of the Master Rights Agreement read with TNA.

SET Satellite (Singapore) Pte Ltd.

2.11 SET Satellite (Singapore) Pte Ltd. (For short ‘SET’) was a private limited company incorporated in Singapore engaged in the business of creating and operating cable & satellite television channels, marketing & distribution of television channels and related activities.

2.12 During the relevant period, SET operated two Sony Entertainment Television Channels – ‘SET’ and ‘SET MAX’. It was also engaged in the marketing of airtime of the channels ‘AXN’ and „CNBC India‟. SET had appointed SET India Private Limited as a non-exclusive advertising and sales agent for canvassing airtime for SET, SET MAX, AXN and CNBC India channels. Further, SET had also granted rights to SET India Private Limited to distribute, collect and retain the subscription revenues of SET, SET MAX and AXN channels with obligation to increase reach of channels.1

2.13 An Agreement, dated 25.01.2002, titled ‘Heads of Agreement relating to the audio visual transmission of International Cricket Council events in India and certain other territories for the period 2002-2007’ (hereinafter referred to as the „Heads Agreement‟ or ‘THA’) was executed amongst GCC, SET and World Sports Nimbus Pte Limited2 (For Short ‘WSN’). GCC granted rights/broadcasting rights to SET in relation to ICC events in consideration of ‘License Fee’ to be paid by SET to GCC in terms of the Heads Agreement. The taxability and characterization of the aforesaid „License Fee‟ received by GCC from SET in India is one of the issues raised in the present appeals.

2.14 The Heads Agreement was followed by execution of Deed Regarding Novation, dated 26.03.2002, (for short „DRN‟) between IDI and all the parties to THA (i.e. GCC, SET and WNS) whereby IDI gave direct assurances to SET.

LG Electronics Private Limited, Hero Honda Motors Private Limited etc.

2.15 GCC granted sponsorship rights to various companies (such as LG, Hero Honda, etc.) for different ICC-Events under separate agreements (hereinafter referred to as the ‘Sponsorship Agreements’) and earned advertising revenues. According to such sponsorship agreements these companies could advertise on the various advertising sites (sign boards, score boards, websites, tickets etc.) which included advertising sites at the venue matches and surrounding spaces during the ICC-Events. The taxability/characterization of the income earned by GCC from the aforesaid companies is one of the issues raised in the present appeals.

3. The relevant facts, in brief, relating to the proceedings for the Assessment Year 2002-03 are as under:

3.1 During the Financial Year 2001-02 relevant to the Assessment Year 2002-03, two ICC-Events were held. First, 2001-ICC Trophy in Canada (June-July 2001), and Second, 2002-ICC U19 World Cup in New Zealand (January-February 2002).

3.2 For the relevant previous year SET held rights/broadcasting rights in terms of THA for the aforesaid ICC-Event and GCC earned USD.20,50,000/- from SET as „License Fee‟ for grant of the aforesaid rights.

3.3 LG Electronics India Private Limited (For Short ‘LGEIL’) was granted sponsorship rights by GCC in terms of Global Partnership Agreement, dated 28.06.2002 (For short „GPA‟). During the relevant previous year, GCC earned USD 1,20,000/-from LGEIL as sponsorship fee.

3.4 Similarly, Hero Honda Motors Limited (For short ‘HH’) was granted sponsorship rights in terms of Sponsorship Agreement, dated 08.07.2002 (For short ‘A’). During the relevant previous year, GCC earned USD 88,000/- from HH as sponsorship fee.

3.5 Thus, GCC earned aggregate revenues of USD.40,44,000/-during the relevant previous year consisting of USD.20,50,000/-from SET, USD.1,20,000/- from LGEIL, and USD.88,000/- from HH.

Return of Income

3.6 GCC filed return of income in India on 27.08.2003 declaring ‘Nil’ income claiming benefit of DTAA on the ground that the revenues earned by GCC were in the nature of ‘Business Income’ and in the absence of Permanent Establishment (‘PE’) of the GCC in India, above revenues were not taxable in India as „Business Income‟. Further, the revenues were also not covered by any other Article of the DTAA, and therefore, such revenues were not liable to tax in India.

Assessment Proceedings

3.7 The Assessing Officer framed assessment of GCC under Section 143(3) of the Act vide order dated, 31.03.2005, at income of INR.2,50,06,600/- holding that:

(a) GCC was not entitled to the benefits of the DTAA since the „Limitations of Relief‟ provision contained in Article 24 of the DTAA was attracted

(b) Amount of USD 20,50,000/- received from SET as 12 License Fees for grant of rights/broadcasting rights was taxable as „royalty‟ under the provisions of the Act.

(c) Amounts received from LGEIL (USD 1,20,000/-) and HH (USD 88,000/-) for grant of sponsorship rights were also taxable as royalty as per the provisions of the Act holding the same to be payments for use or right to use of the commercial equipment (such as hoardings, banner, boards, scoreboards, screens, tickets, websites, & flags).

(d) Assessee was liable to pay consequential interest under Sections 234A, 234B and 234C of the Act.

Appellate Proceedings before CIT(A)

3.8 Being aggrieved GCC preferred appeal before the CIT(A). Vide order dated, 03.03.2006, the CIT(A) disposed off the Appeal holding as under:

(a) The CIT(A) overturned the decision of the Assessing Officer to the extent the CIT(A) held that GCC was entitled to claim benefit of the provisions of DTAA since Article 24 of the DTAA was not attracted.

(b) The CIT(A) concluded that Licensee Fee received from SET was not taxable in India as „royalty‟ as the same did not „arise‟ in India in terms of Article 12(7) of the DTAA.

(c) The CIT(A), however, concluded that payments from LGEIL and HH were taxable as „royalties‟ as per Article 12(2)(b) of the DTAA for the use or right to use commercial equipment.

(d) The CIT(A) also confirmed the levy of interest under Sections 234A and 234B of the Act.

Present Cross-Appeals before Tribunal

3.9 Being aggrieved by the order of CIT(A), both, GCC and the Revenue are in cross-appeals before us. The GCC is also filed cross objection against the appeal preferred by the Revenue. Shri P.J. Pardiwala, Senior Counsel advance arguments on behalf of GCC, while the Revenue was represented by Shri Girish Dave, Special Counsel for the Revenue. Both the sides advanced submissions during the course of the hearing which were summarized in the form of written submissions filed by both the sides. We have considered the rival submission keeping in view the factual matrix and the position in law. We have also perused the judicial precedents cited during the course of hearings. A number of judicial precedents were cited by both the sides. Though all the judicial precedents have been considered. We have not specifically dealt with all judicial precedent on the same proposition of law for the sake of brevity. We have highlighted facts where the judicial precedents were distinguishable on facts without dealing with every judicial precedent separately.

Ground No.1, 2 & 3 of Departmental Appeal (ITA.No.3130/MUM/2006) along with Ground No. 1 of CO No. 324/Mum/2006 filed by the Assessee

4 Ground No. 1 to 3 of the Departmental Appeal are directed against the order of CIT(A) holding that the provisions of Article 24 of the DTAA would not be triggered and therefore, GCC would be entitled to the benefit of the provisions of DTAA. Whereas Ground No. 1 of the Cross Objection is directed against the order of CIT(A) holding that GCC has a source of income in India and hence, one of the conditions of Article 24 of DTAA stands satisfied.

4.1. Article 24 of the DTAA reads as under:

“1. Where this Agreements provides (with or without other conditions) that income from sources in a Contracting State shall be exempt from tax, or taxed at a reduced rate in that Contracting State and under the laws in force in the other Contracting State the said income is subject to tax by reference to the amount thereof which is remitted to or received in that other Contracting State and not by reference to the full amount thereof, then the exemption or reduction of tax to be allowed under this Agreement in the first-mentioned Contracting State shall apply to so much of the income as is remitted to or received in that other Contracting State.”

4.2. On perusal of the above, it is clear that the provisions of Article 24 are attracted resulting in denial of the benefits of the DTAA in case:

(a) income under consideration is subjected to tax in Singapore as per domestic tax laws of Singapore by reference to the amount thereof which is remitted to Singapore and not by reference to the full amount thereof (hereinafter referred to as ‘Condition 1′);

(b) such income is earned from a source of income in India (hereinafter referred to as ‘Condition 2’);

(c) such income is exempt from tax, or is taxed at a reduced rate in India (hereinafter referred to as ‘Condition 3’).

4.3. We note that the Assessing Officer has, while finally concluding, denied the benefit of DTAA to GCC by holding that the provisions of Article 24 of DTAA are attracted mainly on the ground that payments have not been remitted to Singapore. The relevant extract of the Assessing Officer reads as under:

“Thus it is held that the treaty does not provide any relie f to GCC on taxation of its receipts from the assessee mainly on the ground that payment has not been remitted to Singapore”3

4.4. In appeal preferred by GCC on this issue, CIT(A) was of the view that all the three conditions specified in paragraph 4.2. above should be satisfied simultaneously. Since in case of GCC Condition 1 and Condition 3 were not satisfied, the provisions of Article 24 of DTAA would not be attracted. Accordingly, the CIT(A) held that GCC was entitled to claim benefit of the provisions of DTAA.

4.5. Being aggrieved the Revenue is in appeal before us on this issue.

4.6. The Learned Special Counsel for the Revenue submitted that CIT(A) fell in error in granting benefit of the DTAA to GCC. He submitted that GCC is not entitled to relief under the provisions of the DTAA as the provisions relating to „Limitation of Relief‟ contained in Article 24 of the DTAA would be attracted. He submitted that Singapore follows territorial system of taxation. Income accruing in India is taxed in Singapore only on receipt of such income in Singapore. Since the payments were received by GCC is Jersey (and not in Singapore) the same were not taxable in Singapore. From the return of income filed in Singapore placed on record by GCC it was not clear that the income under consideration has been offered to tax in Singapore since no break up was given. The onus to provide these details was on GCC more so when the entire amount received by GCC from SET in Jersey could not have been remitted to Singapore by GCC. He further submitted that the details of amounts received in Jersey and remittance, if any, to Singapore were never provided by GCC during the assessment proceedings. The relevant extract of written submission, dated 22.08.2022, filed by the Revenue in this regard reads as under:

“The case of the Department is that limitation of benefit clause would apply for the reason that income is subject to preferential or reduced rate of tax in India as per Article 12 o f the treaty and income has not been ‘remitted to’, or ‘received ‘ in Singapore as per the flow chart of movement of amounts shown above. In order to come out of the mischief of Article 24 of the treaty, the onus is on the appellant-assessee to show that the income is ‘remitted to’ or ‘received’ in Singapore and it is confined to the case in which the income is taxable in Singapore on limited receipt basis rather than on a comprehensive accrual basis. It is correct that where income is taxable on accrual basis in Singapore & not on remittance basis, the onus does not trigger. Article 24 is limiting the benefit only to the extent of the amount which is ‘remitted to’ or ‘received’ in Singapore and does not refer the full amount. The word ‘remitted’ by any stretch of reasoning cannot be read as ‘accrued’ for the purposes of Article 24 o f the treaty as is being argued for and on behalf of the appellant-assessee. It is also not the case of the appellant-assessee that amount deposited in the joint account is the full amount shown as income on accrual basis. Singapore imposes tax on “territorial basis” under which system tax is imposed on all income accruing in or derived from Singapore and all foreign sourced income remitted or deemed to be remitted to Singapore in the preceding year subject to certain exceptions. In the case of the appellant-assessee as could be seen from a reading of various agreements, the gross amounts deposited in the ‘Revenue’ account were subject to various adjustments in accordance with varying interests o f concerned parties. The appellant-assessee has not given the details of ‘gross revenues’ earned from various events, adjustments thereof and the manner in which ‘net revenues’ was arrived at which are shown as income by respective parties. In fact, the payments are firstly made with J”ersey’/Monaco’ accounts which must have been subject to some taxation, in whatever way as per the laws prevailing therein. Strictly speaking, the income cannot be said to have been ‘remitted to or received in Singapore. The return o f Income and documents attached do not inspire correctness o f the claim.

The order of learned CIT(Appeals) in this regard is erroneous without appreciation of complete facts and deserves to be set aside to this effect.” (Emphasis Supplied)

The Ld. Counsel for Revenue also referred to the transfer credit advice and communication from the bank placed at page 189 to 191 of the paper-book for the Assessment Year 2003-04 and submitted that in case funds were to move from SET Singapore to GCC Singapore there was no need to route the same through Monaco/Jersey.

4.7. Responding to the above contentions the Learned Senior Counsel for GCC submitted that none of the conditions of Article 24 of DTAA were satisfied on account of the following:

(a) Condition No. 1 gets satisfied in case income is taxed in Singapore on receipt basis. Since GCC had offered income from SET, LGEIL and HH in Singapore on accrual basis and not on receipt basis, the aforesaid condition is not satisfied.

In order to substantiate/support the aforesaid contention reliance was placed on Section 10 (Charge of income tax) of the Singapore Income Tax Act to establish that a person is taxable in Singapore not only with respect to the income received in Singapore but also with respect to income accruing in or derived from Singapore.

For establishing that income was offered to tax in Singapore tax return as „Income accruing in/derived from Singapore‟ reliance was also placed on (i) tax return filed by GCC in Singapore for the year ended 31.12.2002 and 31.12.2003, (ii) audited global financial statement filed by GCC in Singapore for the year ended 31.12.2002 giving the balance sheet position as on 31.12.2001 and 31.12.2002 along with Profit & Loss earned during the calendar year 2001 and 20024 (iii) Reconciliation of income offered to tax in Singapore tax return furnished during the course of hearing, and (iv) Confirmation, dated 15.02.2006 from tax advisors of GCC that GCC offered global income to tax on accrual basis in Singapore. The decision of the Tribunal in the case of Alabra Shipping Pte Ltd (175 TTJ 359) and APL Co Pte Ltd (ITA No. 4435/M/2013) were relied upon in support the above contentions.

(b) Condition No. 2 gets satisfied in case income is earned from a source from India. It was contended on behalf of GCC that source of income was outside India, and therefore, Condition No.2 above was also not satisfied.

(c) Condition No. 3 gets satisfied in case income is exempt from tax or is taxed at a reduced rate in India. It was contended on behalf of GCC that income was “not taxable” in India which was not same as “being exempt from tax” in India. Therefore, Condition No.3 was also not satisfied.

It was contended on behalf of GCC that none of the conditions of Article 24 were satisfied in case of GCC and, hence, the provisions of Article 24 of DTAA were not attracted. Consequently, GCC was entitled to claim the benefits of the provisions of DTAA.

It was also pointed out that the CIT(A) had, for the Assessment Year 2003-04, accepted the contention of GCC that Article 24 was not applicable and that GCC was entitled to the beneficial provisions contained in the DTAA.

Reliance was also placed on order, dated 11.02.2011 passed by the Tribunal in MA No. 520/Mum/2010 arising out of ITA No. 7574 & 7349/Mum/20045 wherein in proceedings pertaining to SET it was held that provisions of Article 24 were no attracted and GCC was entitled to claim benefit of DTAA.

4.8. Without prejudice to the above, the Learned Senior Counsel for GCC submitted that as per the provisions of Master Rights Agreement, GCC was required to receive payments from broadcasters/sponsors into a joint bank account in the name of IDI and GCC (“Revenue Account“) which was maintained in Monaco at the time of execution of Master Rights Agreement and was subsequently maintained at Jersey. Therefore, the remittances were received in Revenue Account maintained at Jersey. As per the terms of Master Rights Agreement, after reducing prescribed expenses and IDI’s share of revenues, GCC’s share of income was subsequently remitted to GCC’s bank account in Singapore. In this regard, GCC had also filed sample documents evidencing amounts remitted from Jersey to its Singapore bank account during the assessment proceedings. Thus, income was received in Singapore.

4.9. We have considered the rival submission, perused the material on record and taken into account the judicial precedents cited by both the sides. In our view, all the above three conditions, (i.e., Condition 1,2 & 3 specified in paragraph 4.2 above), must be satisfied in case the provisions of Article 24 are to be attracted. Thus, even if one of the three conditions is not satisfied, the provisions of Article 24 of DTAA would not be attracted. Further, even if the provisions of Article 24 of DTAA are attracted the benefit of exemption or taxation at reduced rate would still be available to the part of income remitted to or received in Singapore.

4.10. The stand taken by the Assessing Officer, which has been supported by the Learned Counsel for Revenue in appeal before us, is premised upon the understanding that the income under consideration is taxable in Singapore on receipt/remittance basis being foreign sourced income. Whereas, it has been contended on behalf of GCC that the income under consideration was taxable in Singapore on accrual basis and has been, therefore, offered to tax in Singapore as income accruing in Singapore.

4.11. We note that the Assessing Officer had returned a finding that GCC has failed to provide relevant evidence to support the contention that the income under consideration has been offered to tax in Singapore. In appeal preferred by GCC on this issue, the CIT(A) has, after examining the information and documents placed on record by GCC, returned a finding that GCC has offered its worldwide income to tax in Singapore. The relevant extract of the order of CIT(A) reads as under:

“8. As regards the first condition, the AO’s findings in this regard is that whereas worldwide income of residents is subjected to tax in India, residents of Singapore are subjected to tax only on the income accruing or arising in Singapore i.e. offshore income is not taxable in Singapore unless it is received in Singapore. The AO also found that the assessee’s claim that the amount is included in its return of income filed at Singapore is without any proof and assessee has also not furnished any explanation as to in which the account the sums were received in Jersey and how the same were brought back to Singapore. During the appellate proceedings, the appellant has furnished a copy of the Singapore Income tax Act and in submissions dt. 17.2.2006, has reproduced the relevant extract of Section 10 of the Singapore Income Tax Act as under:

10 (1) Income tax shall, subject to the provisions of this Act be payable at the rate or rates specified hereinafter for each year of assessment upon the income of any person accruing in or derived from Singapore or received in Singapore from outside Singapore in respect of —

(a) gains or profits from any trade, business, profession or vocation, for whatever period of time such trade, business, profession or vocation may have been carried on or exercised:

(b) gains or profits from any employment;

(d) dividends, interest or discounts;

(e) any pension, charge or annuity:

(f) rents, royalties, premiums and any other profits arising from property; any gains or profits of an income nature not falling within any of the preceding paragraphs…”

9. The appellant’s contention is that a person is taxable not only with respect to the income received in Singapore but also with respect to income accruing in or derived from Singapore and has stated that in the present case, the income is accruing in or derived from Singapore. The appellant has drawn attention to its contention before the AO that “for the period under consideration, GCC has filed a tax return in Singapore reporting to tax its worldwide income for the subject period. Specifically. GCC has included the income under consideration…” It has been stated that at page: 6 of the return of income filed by the appellant in Singapore for the year ended 31.12.2002 (page 104 of Paper Book) the gross income was reflected at $ 53,595,059 and the loss before income tax was shown at $139,824,648 and these amounts of Gross Income and loss before income-tax were also reflected in the financial statements for the year ended 31.12.2002, (page 117 of Paper Book). It has been submitted that the total revenue is a sum of sponsorship income and income from grant of broadcasting rights and the entire income under consideration i.e. the sponsorship income and the income from grant of broadcasting rights has been offered to tax in the return of income filed with the Singapore authorities. By letter dt 17.2.2006, the appellant has further furnished a confirmation received from their tax advisors clearly confirming that the global revenues of the appellant are subject to tax in Singapore. The confirmation given in reference no. F/34/103/100539/GC 15.2.2006 by Mrs. Chong Lee Siang Tax Partner Ernst & Young 10 Hoe Chiang Road 18-00 Keppel Towers Singapore 089315 is as follows:-

“This is to confirm that Global Cricket Corporation Pte Ltd (GCC) has been filing its tax returns in Singapore and subjecting to tax in Singapore all its global revenues irrespective of the place of receipt of such revenues, on the basis that these revenues are accruing in or derived from Singapore. Such basis of taxation is as per the provisions of Section 10 of the Singapore Income Tax Act. GCC has been filing its tax returns in Singapore on this basis since its date of incorporation.”

10. This confirmation is to the same effect as the letter addressed by GCC to SET Singapore referred to in para 8.6 o f appeal order dt. 2.7.2004 in the case of SET Satellite (Singapore) Pte Ltd relating to Section 201(1) and 201(1A) of the Act. The fetter as reproduced therein is as under:

“…We confirm that GCC is a Singapore incorporated company and has filed income-tax Return (Form C) in Singapore. In particular, the company has included payment from SET Satellite (Singapore) Pte Ltd to calculate the income tax liability in Singapore….”

11. At page 11 of the assessment order, the AO has held that Article 24 of the India Singapore tax treaty is applicable in the appellant’s case mainly on the ground that payment has not been remitted to Singapore. The remittance from Jersey to Singapore becomes irrelevant in view of the above discussion on appellant’s submissions that global revenues of the appellant are subject to tax in Singapore.

In view of the above discussion, it is held that the first condition supra is not satisfied.” (Emphasis Supplied)

4.12. On perusal of Section 10 of the Singapore Income Tax Act, 1947 reproduced by the CIT(A) in his order above it becomes clear that Section 10 creates a charge on income accruing in or derived from Singapore in addition to specified income received in Singapore from outside Singapore. The CIT(A) has returned a finding that income under consideration has been offered to tax in Singapore as income accruing in or derived from Singapore. Thus, accepting the contention of GCC that the income under consideration is not taxable in Singapore on receipt/remittance basis, but on accrual basis. Nothing has been placed on record to controvert the findings of CIT(A). We have perused the documents/material relied upon by GCC in this regard including the income tax returns, financial statements, and confirmation from tax advisor. GCC has offered to tax its worldwide income in Singapore. Since Condition No.1, being one of the three conditions which are to be satisfied simultaneously for triggering the provisions of Article 24 of DTAA, is not satisfied, the CIT(A) was correct in holding that the provisions of Article 24 of DTAA would not get attracted and GCC would be entitled to claim benefit of the provisions of the DTAA. Since Condition No. 1 is not satisfied, the rival contentions in relating to the other two conditions (Condition No. 2 & 3 specified in paragraph 4.2 above) do not require adjudication having become academic in the context of applicability of Article 24 of DTAA. Thus, in view of our conclusion that provisions of Article 24 of DTAA would not be attracted in case of GCC, we hold that GCC would be entitled to avail the benefit of the provisions of DTAA. Ground No. 1, 2 and 3 raised by the Revenue are dismissed. Ground No.1 raised in the Cross Objection by GCC is disposed off as being infructuous.

Ground No. 4 Departmental Appeal (ITA.No.3130/MUM/2006)

5 Ground No. 4 of the Departmental Appeal is directed against the order of CIT(A) deleting the addition of INR.99,425,000 made by the Assessing Officer holding that the payments of Licensee Fee made by SET to GCC in terms of the Heads Agreement are not taxable in India as „royalties‟ in terms of Article 12 of the DTAA since the same cannot be said to arise in India as the provisions Article 12(7) of DTAA.

5.1. The facts relevant to the adjudication of the issue, in brief, are that the Assessing Officer had denied GCC the benefit of the provisions of DTAA. The CIT(A) overturned the decision of Assessing Officer by holding that the benefit of provisions of DTAA would be available to GCC since the provisions of Article 24 of DTAA would not be attracted. The CIT(A), thereafter, proceeded to conclude that the income received by GCC from SET did not „arise‟ in India since the provisions of Article 12(7) of DTAA were not attracted. Being aggrieved the Revenue has carried this issue in appeal before us.

5.2. The Learned Counsel for Revenue submitted that the case of the Revenue is that the royalty income from SET arose in India as per Article 12(2) of DTAA read with Article 3(2) and Section 5 & 9 of the Act.

5.3. The Learned Counsel for Revenue submitted that SET had obtained the rights in respect of the India territory and the matches were telecasted in India from which advertisement and distribution income was earned by SET from India. Elaborating upon the aforesaid, he submitted that there existed an intricate web of complex agreements forming part of the same activity which must be read together to construe and determine the effect of such agreements. All the agreements (including the two sponsorship agreements with LGEIL and HH) when read together conjunctively help in appreciating the ‘real’ effect of the agreements. Examined thus, the agreements show that the royalty income arose in India in view of the following:

(a) Agreements contained reference to India, Indian territory and Indian Prime Time. Then there were clauses which provide the territory covered by transmission of the ‘Feed’ would include India. As per Schedule 1 of the Heads Agreement, the „„License Fee‟‟ was spread over for the periods from the year 2002 to 2007 with other stipulations like, authorized number of exhibitions, minimum commitment and rights provided therein.

(b) As per the production agreement between GCC and the producer (i.e. Octagon CSI Limited)6, Feed was to be created at the place where match is played. The access to the production team is procured by GCC from the organizers of the matches (i.e. the various cricket associations who owned/controlled the venues). From the Schedule itself it was evident that at least one match was played in India. Further, as the information available, ICC Championship Trophy was held in India in the year 2006 and as per Schedule 2 to the Heads Agreement, 11% of the total consideration was apportioned to this event.

(c) The Heads Agreement makes provision to define, Pay-per-view, terrestrial rights, terrestrial restrictions, telephony rights, video rights and theatrical rights to define how these rights can be exercised. Clearly these rights had nexus with the „Licensed Territory‟ which included India.

(d) There was coverage of viewership in the India where SET had a PE which telecasted the matches in India.

5.4. Learned Counsel for Revenue submitted that the CIT(A) had, while deciding appeal for the Assessment Year 2002-03, incorrectly concluded the royalty income did not accrued in India merely because the provisions of Article 12(7) of the DTAA were not attracted. The applicability or otherwise of Article 12(7) of the DTAA does not preclude the applicability to Article 12(1)/(2) of the DTAA. Article 12(1) of the DTAA lays down the principle of exclusive right to tax royalties in state of payee (i.e. Residence State). Article 12(2) of the DTAA gives a secondary/limited right to tax royalties to the state of payer (i.e. the Source State). Article 12(6) of the DTAA excludes the applicability of Article 12(1)/(2) of DTAA. Article 12(7) of DTAA deems the royalty to arise in the state of Permanent Establishment provided specified conditions are satisfied. Article 12(7) of the DTAA does not define the phrase „arising in a State‟ for the purpose of Article 12(2) and only expands the scope of the phrase „arising in a State‟ like Section 5 and Section 9 of the Act. Since term „arise‟ is not defined in the Act, its meaning must be understood as per the provisions of the Act as per Article 3(2) of the DTAA. Therefore, the Learned Counsel for Revenue placed reliance on the judgment of the Hon‟ble Supreme Court in the case of Performing Rights Society Ltd. & Anr. Vs. CIT & Ors: [1977] 106 ITR 11(SC) to support the contention that the royalty income arose in India.

5.5. Per contra, the Learned Senior Counsel for GCC submitted that according to Article 12(7) of DTAA payments made from one non-resident to another non-resident would arise in India only when all the following three conditions are satisfied. First, non-resident payer (i.e. SET) should have a Permanent Establishment in India. Second, the liability to pay royalty is incurred in connection with such Permanent Establishment. Third, the royalty is borne by such Permanent Establishment. None of the aforesaid conditions are satisfied in case of payments made by SET to GCC during the Assessment Year 2002-03. The CIT(A) had accepted the aforesaid contention of GCC as the CIT(A) had concluded that the payments received from SET did not have any nexus or connection with the Permanent Establishment of the payer (i.e. SET) in India. Therefore, CIT(A) rightly held that the payments from SET did not arise in India in terms of Article 12(7) of DTAA.

5.6. Learned Senior Counsel for GCC further submitted that Section 12(7) of the DTAA exhaustively defines the place where royalty arises. Therefore, once the royalty cannot be said to have arisen in India in terms of Article 12(7) of DTAA, royalty income cannot be brought to tax in India. In this regard, the Learned Senior Counsel for GCC relied upon the decision of the Tribunal in the case of Decca Survey Overseas Limited, UK Vs ITO, Ward 12(2), Mumbai [ITA No. 8506 to 8508, 8895 and 8879/Bom/1990, Assessment Years 1984-85 to 1989-90, 30.01.2006] and the decision of Authority for Advance Ruling in the case of Jay Shree Tea and Industries Limited: 274 ITR 97.

5.7. Without prejudice to the above, the Learned Senior Counsel for GCC submitted that even if it is concluded that Article 12(7) does not define the phrase „arising in a State‟ exhaustively and the same is to be interpreted having regard to Article 3(2) of the DTAA, even then royalty income cannot be said to have arisen in India. He submitted that the Act also does not define the term „arise‟. Further, there is a clear distinction between the wordings in Section 5 and Article 12(2) of the DTAA. As per section 5(1)(b) of the Act, a nonresident is taxable in India if income „accrues or arises‟ or is „deemed to accrue or arise‟ in India. Thus, references to both „accrue or arise‟ and „deemed to accrue or arise‟ exist in Section 5 of the Act and Section 9 defines the scope of „deemed to accrue or arise‟ in India. The expression „deemed to arise‟ is missing in Article 12(2) of the DTAA. Therefore, to fall within the ambit of Article 12(2), royalty income must „accrue or arise‟ in India in terms of Section 5 of the Act without the aid of Section 9 of the Act. Accordingly to him since royalty income did not „arise‟ in India in terms of Section 5 of the Act in view of the following, the provisions of Article 12(2) of the DTAA would not be attracted:

(a) the agreement with SET and GCC granting rights to SET was entered outside India

(b) GCC carried out all its business operations outside India

(d) the broadcast of matches, which were held outside India, happened from SET‟s broadcasting facility in Singapore

(e) mere fact that the signals were downlinked and viewed in India cannot be considered to constitute source of income in India

5.8. Learned Senior Counsel for GCC, while concluding his arguments on this issue, submitted that even while deciding appeal for the Assessment Year 2003-04 the CIT(A) did not hold that income arose in India in terms of Section 5 of the Act as the CIT(A) only referred to Section 9(1)(vi)(c) of the Act. Section 9 of the Act only deals with income which is „deemed to accrue or arise‟ in India and, therefore, even as per CIT(A) royalty income did not arise in India in terms of Section 5 of the Act.

5.9. We have considered the rival submission, perused the material on record and taken into account the judicial precedents cited by both the sides. During the course of arguments much emphasis was laid by both the sides on the interpretation of term „arise‟ as used in Article 12(2) of the DTAA. However, in our view, the question of determining the meaning of term „arise‟ as used in Article 12(2) of the DTAA does not arise keeping in view the context in which it has been used, as explained hereinafter.

5.10. Section 4 of the Act is the charging section which provides that income tax shall be charged in respect of total income. Section 5(2) prescribes the ‘scope of total income’ of a non-resident and provides that total income of a nonresident shall include all income, from whatever source, which accrues or arises in India or is deemed to accrue or arise in India. Section 9 of the Act lays down the various circumstances under which income would be deemed to accrue or arise in India.

5.11. The Hon‟ble Supreme Court had, in the case of UOI Vs Azadi Bachao Andolan: 263 ITR 706, made following observations regarding bilateral double taxation avoidance agreements entered by nations which are germane to the issue before us:

“16. Every country seeks to tax the income generated within its territory on the basis of one or more connecting factors, such as location of the source, residence of the taxable entity, maintenance of a permanent establishment, and so on. A country might choose to emphasise one or the other of the aforesaid factors for exercising fiscal jurisdiction to tax the entity. Depending on which of the factors is considered to be the connecting factor in different countries, the same income of the same entity might become liable to taxation in different countries. This would give rise to harsh consequences and impair economic development In order to avoid such an anomalous and incongruous situation, the Governments of different countries enter into bilateral treaties, Conventions or agreements for granting relief against double taxation. Such treaties, conventions or agreements are called double taxation avoidance treaties, conventions or agreements.” (Emphasis Supplied)

5.12. In the Section 90(1) of the Act enables the Union of India to enter into the above agreements, conventions or tax treaties with the foreign Governments [hereinafter referred to as „Tax Treaties‟], inter alia, for the purpose of granting relief against double taxation to the residents of such foreign countries having income taxable in India. The Tax Treaties allocate right of taxation between the two Contracting States – the Residence State (i.e. the State of residence of the taxpayer in receipt of income) and the Source State (i.e. the Other Contracting State where income arises). Tax Treaties, generally, do not create a charge on income but merely allocate taxing rights by, inter alia, providing for restricted scope of income and/or beneficial rate of taxation in respect of income chargeable to tax in, both, Residence State and Source State. India has entered into DTAA with Singapore and taxing rights in respect of income in the nature of „royalties‟ have been allocated by Article 12 of DTAA. In Article 12(2) of DTAA the term „arise‟ has been in the context of the „contracting state‟ having right to tax income and not in the context of income or scope thereof. When viewed from this perspective, the expression „Contracting State in which they arise‟ used in Article 12(2) refers to the contracting state having the right to tax (i.e. Source State).

5.13. The meaning as well as purport of term „arise‟ has to be adopted and understood keeping in view the provisions of the Act only. We note that the OECD Model Convention provided the Residence State exclusive right the tax royalty income and therefore, there was no occasion to define the terms „arise‟. However, UN Model Convention departed from this position and provided for sharing of taxing rights in respect of income in the nature of „royalties‟ between the Residence State and the Source State. It provided that the „royalties‟ may also be taxed in Source State and according to the law of the Source State at a rate not exceed the rate agreed upon by the contracting states through bilateral negotiation. Since the benefit was limited to reduce rate of tax in respect of defined royalty income, there was again no occasion to define the meaning of term „arise‟. However, Article 12(3) of DTAA provided a narrower definition of „royalties‟ as compared to the one contained in Explanation 2 to Section 9(1)(vi) of the Act. Therefore, the meaning and purport of „arise‟ as used in Article 12(2) or „arising in a contracting state‟ as used in Article 12(1) of the DTAA would, in our view, flow from the domestic tax law of the contract states only.

5.14. We are not inclined to accept the contention advanced on behalf of GCC that use of term „arise‟ in Article 12(2) of DTAA, when interpreted keeping in view the meaning of term „arise‟ as per the provisions of the Act in view of Article 3(2) of the DTAA, leads to the conclusion that income which is „deemed to arise‟ in India in terms of Section 9 read with Section 5 of the Act would fall outside the ambit of Article 12(2) of the DTAA. The aforesaid interpretation would, in our view, lead to anomalous situation as explained hereafter. Expression „deemed to arise‟ is absent in, both, Article 12(1) and 12(2) of the DTAA. Article 12(1) and 12(2) of DTAA read as under:

“Article 12 Royalties and Fees for Technical Services

1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed ….”

5.15. In case proposed meaning of the term „arise‟ or ‟arising‟ is accepted, the ambit of the right of State of Residence of the recipient of royalty income to tax such royalty income would get also restricted to income arising in India in terms of Section 5 of the Act as Article 12(1) also does not use the expression „deemed to arise‟ whereas Section 5 uses the expression „deemed to accrue/arise‟ in addition to „accrues/arises‟. Thus, depriving the beneficial treatment available in terms of Article 12(1) of the DTAA in respect of income „deemed to accrue/arise‟ in India in terms of Section 9 read with Section 5 of the Act. Such income, which is deemed to accrue or arise in India as per the provisions of the Act, would also not be covered by Article 12(2) of DTAA, and therefore, be liable to tax at normal rates as per the provisions of the Act in India. This would clearly be an anomalous situation.

5.16. We are also not inclined to accept the contention advanced on behalf of GCC that Article 12(7) exhaustively defines where „royalties‟ arises as the same would amount to limiting the definition of term „arise‟ only to the extent of deeming fiction created by Article 12(7) of the DTAA. Further, the language in which the provisions of Section 12(2) and 12(7) are couched also do not support the contention advanced on behalf of GCC that the Article 12(7) of the DTAA exhaustively defines the place where royalties arise. Reliance was placed on behalf of GCC on paragraph 26 and 27 of the OECD Commentary on Article 11 of Model Convention relating to interest income wherein in the context of Article 11(5) it has been provided that in absence of economic nexus between the interest-bearing loan and permanent establishment, the contracting state where such permanent establishment is situated cannot be regarded as a state where interest arises. Since Article 11(5) is couched in similar language as Article 12(7) of DTAA, it was contended on behalf of GCC, on the same analogy, that in absence of a nexus between the permanent establishment of SET in India and royalty income, India cannot be regarded as the state where income arises even in terms of Article 12(2) of DTAA. However, we are not inclined to accept the same. It is admitted position that OECD Model Convention Commentary does not provide similar/corresponding explanation in relation to Article 12(7) for the reason OECD Model Convention provided the Residence State exclusive right the tax royalty income. Further, the commentary on Article 11(5) seeks nexus between interest-bearing loans (which is the source of interest income) with the permanent establishment. Given the nature of interest income nexus between interest-bearing loans with the permanent establishment could have been the only criterion of establishing economic nexus with the contracting state. However, the same need not be the case with royalty income which can have economic nexus in different form or manner depending upon the nature of right, asset, property in relation to which it arises, location of payer, place of utilization etc. For the aforesaid reasons, the judicial precedents rendered in the context of Article 11 of DTAA on which reliance has been placed on behalf of GCC would not be of any assistance to GCC.

5.17. Further, the other judicial precedents (including those pertaining to SET) upon which reliance was placed on behalf of GCC are also distinguishable on facts as in each of the those cases the conclusion that royalty income did not arise in India in terms of Article 12(7) of the DTAA was based upon the factual finding by Tribunal that royalty income had no nexus/connection with the permanent establishment of the assessee in India. In the aforesaid cases the contention of the Revenue was limited to the applicability of the deeming fiction contained in Article 12(7) of DTAA whereas in the present case the contention of the Revenue is that the royalty income is liable to tax in India in terms of Article 12(2) of DTAA and that the applicability/non-applicability of Article 12(7) does not preclude the applicability of Article 12(2) of DTAA. The aforesaid contention was neither raised nor examined in the said cases. Thus, the decisions rendered in the context of Article 12(7) of DTAA are distinguishable on account of the aforesaid facts and therefore, not applicable to the issues raised by the Revenue in the present appeals. Accordingly, for the reason stated hereinabove we reject the contention advanced on behalf of GCC that Article 12(7) exhaustively defines where „royalties‟ arises.

5.18. In view of the above, we hold that royalty income that accrues/arises in India as per Section 5 of the Act and the royalty income that is deemed to accrue/arise in India with the aid of Section 9 read with Section 5 of the Act would be considered as „royalties‟ that arises in India for the purpose of Article 12(1) and Article 12(2) of the DTAA.

5.19. We note that, it was contended on behalf of GCC, on without prejudice basis, that the royalty income cannot, in any case, be said to accrue/arise or deemed to accrue/arise in India in terms of Section 9 read with Section 5 of the Act as payment of „License Fee‟ by SET to GCC was not for the purpose of business operation of SET in India. It was emphasized that income earned by GCC had no nexus with India as execution of contract, ICC-Event, production and up-linking of feed, and the receipt of consideration, all, took place outside India.

5.20. Per contra, it was contended by the Learned Counsel for Revenue that the royalty was paid for rights utilized for business operations of SET in India and for the purpose of earning income from sources in India. The Learned Counsel for Revenue submitted that contract could not be considered to be as the source of income, and more so when such contract was merely executory document. Reliance in this regard was placed by him on the decision of the Hon‟ble Supreme Court in the case of Performing Rights Society Ltd. & Anr. Vs. CIT & Ors: [1977] 106 ITR 11(SC).

5.21. We note that the Hon‟ble Supreme Court has, in the case of Performing Rights Society Ltd (supra), held as under:

“The society is a non-resident company, and though it receives the income out of the agreement executed not in India but in England, the income undoubtedly accrues or arises in India. On behalf of the appellants it was contended that the source of income was really the agreement which was entered into in England. We do not think that the question as to the source of the income is relevant because sub-section (2) of section 5 provides that all income “from whatever source derived” is to be included in the total income of the non-resident assessee if the income accrues or arises in India during the relevant year. Reference was also made to section 9 of the Act which enumerates the incomes that shall be “deemed to accrue or arise in India” though actually accruing elsewhere, to establish that the income in question could not be deemed to accrue or arise in India. But the income in this case has in fact accrued in India and no question arises whether it should be “deemed” to accrue or arise in India. Whether a certain income accrued or arose in India within the meaning of section 5(2) is a question of fact “which should be looked at and decided in the light o f commonsense and plain thinking” as the Calcutta High Court considering a similar question under section 4(1) of the Indian Income-tax Act, 1922, observed: V.G. Every, In re [1937] 5 ITR 216 (Cal). In the case before us the High Court and the income-tax authorities considered it a hard matter of fact that the income derived from broadcast o f copyright music from the stations of All India Radio arose in India. In our opinion, this was the correct view to take and we find no reason to differ from it.” (Emphasis Supplied)

5.22. In the above case, the Hon‟ble Supreme Court rejected the contention that income had accrued outside India which was the place of execution of the contract. We agree with the Learned Senior Counsel for GCC that in the above case the Hon‟ble Supreme Court decided the issue holding that the income had accrued in India and therefore, question of invoking deeming provision contained in Section 9 of the Act did not arise for consideration. However, the observations made by the Hon‟ble Supreme Court that „Whether a certain income accrued or arose in India within the meaning of section 5(2) is a question of fact which should be looked at and decided in the light of commonsense and plain thinking‟ would continue to guide us.

5.23. Assessing Officer had concluded that income received from SET by GCC was in the nature and would be deemed to accrue/arise in India as per Section 9(1)(vi) of the Act. In appeal preferred by GCC, CIT(A) concluded that income did not arise in India as deeming provisions contained in Article 12(7) of DTAA were not attracted. We have rejected the reasoning given by the CIT(A) in paragraph 5.17 above, and therefore, we are examining whether income from SET could be said to have arisen in India for the purpose of Article 12(2) of the DTAA. For now we proceed on the presumption, which we would revisit later on, that the payments received from SET are in the nature of „royalty‟ in terms of Explanation 2 to Section 9(1)(vi) of the Act read with Article 12(3) of the DTAA.

Section 9(1)(vi)(c) of the Act provides that income by way of royalty payable by a person who is a non-resident shall be deemed to accrue/arise in India, where the royalty is payable, inter alia, in respect of any right, property or information used or services utilised for the purposes of making or earning any income from any source in India. We note that „License Fee‟ has been paid by SET to GCC in respect of rights granted in terms of Heads Agreement. SET exploited these rights in the licensed territory of India for the purpose of earning income from source in India in the form of advertisement revenue and subscription/distribution fee from India. Whether the aforesaid income earned by SET was chargeable to tax in India or not is irrelevant for the purpose of applicability of the provisions of Section 9(1)(vi)(c) of the Act. Thus, we hold that Licensee Fee received by GCC from SET is deemed to accrue/arise in India as per the provisions of the Act. We have already concluded in paragraph 5.18 above that for the purpose of Article 12(2) income which is deemed to accrue/arise in India a per the provisions of Section 9 read with Section 5 of the Act would be considered as income arising in India for the purpose of Article 12(2) of the DTAA. Therefore, income received from SET by GCC would be considered as income arising in India which may also be taxed in India in terms of Article 12(2) of the DTAA provided it is in the nature of royalty. Accordingly, we would now be required to examine the character of payments received from SET.

5.24. Since we have held that GCC would be entitled to claim benefit of provisions of the DTAA we proceed to examine whether payments received by GCC from SET would constitute „royalties‟ in terms of Article 12(3) of the DTAA as Article 12(3) is a beneficial provisions containing narrower definition of „royalties‟ as compared to Explanation 2 to Section 9(1)(vi) of the Act. Article 12(3)(a) of DTAA defines „royalties‟ to mean, inter alia, payments received as consideration for use of, or right to use of (i) any copyright of a cinematograph film or tapes used for radio or television broadcasting, or (ii) any trade mark. The issue that arises for consideration is whether the payment by SET to GCC could be regarded as payment for use or right to use of a copyright in cinematograph film, or tapes used for television broadcasting. Term „copyrights‟ and „trademark‟ have not been defined in DTAA and therefore, their meaning would have to be determined as per Indian laws keeping in view the context in which they have been used and the provisions of Article 3(2) of DTAA.

5.25. Section 14 of the Copyright Act, 1957 [TCA] defines copyright to mean the exclusive right to do, or authorise the doing of, inter alia, the following acts in respect of a „work‟ being a „cinematograph film‟:

(a) to make a copy of the film, including storing of it in any medium by electronic or other means,

(b) to communicate the film to the public.

5.26. Thus, for a copyright to exist there must be „work‟. Section 2(y) of TCA defines „work‟ to include „cinematograph film‟ which is in turn defined by Section 2(f) of TCA as under:

“cinematograph film means any work of visual recording and includes a sound recording accompanying such visual recording and cinematograph shall be construed as including any work produced by any process analogous to cinematography including video films; (Emphasis Supplied)

5.27. On perusal of the above, it is clear that to qualify as work being cinematograph film there must be visual/sound recording. In case of a live broadcast of a sporting event there is no recording and therefore, no „work‟. It is for this reason that it has been contended by GCC that the Feed received from SET is „live‟ Feed whereas the Learned Counsel for Revenue, at the outset, submitted that the payments made by SET to GCC were not for „live‟ broadcast of sporting event.

5.28. In this regard, the Learned Counsel for Revenue took us through the order of CIT(A) for the Assessment Year 2003-04 and referred to the factual findings and reasoning given by the CIT(A). He submitted that the Feed received from SET was not ‘Live‟ Feed but a ‘modified’ one. In this regard he relied upon Clause 4 to Clause 11 of the Heads Agreement describing various rights, and submitted that the aforesaid clauses must be read with Clause 15 to Clause 20 under the head „Deliverables‟. He further submitted that bare reading of the aforesaid clauses reveals that the Feed was a ‘modified’ Feed that was produced by a producer appointed to cater to the needs of viewers in India. The producer provided Feed to GCC who granted transmission rights to SET. In effect, however, there was no transfer of the ‘modified’ Feed to GCC and as soon as the Feed was produced (as per the agreement between the producer and GCC), the same would be passed onto SET for transmission across the licensed territory which included India.

5.29. Placing reliance on Clause 43 of the Heads Agreement, he submitted GCC continued to own all „Proprietary Interests‟ in the Feed and highlights package, and granted only an exclusive license of such „Proprietary Interests‟ in the Feed and highlight package to SET to enable fully exploitation of the Feed.

5.30. Relying upon the decision of the Hon’ble Delhi High Court, dated 26.09.2008, in the case of ESPN Star Sports Vs. Global Broadcast News Ltd: 2008 SCC OnLine Del 1385, the Learned Counsel for Revenue submitted that copyright exists in the ‘modified’ Feed. He further submitted that as per Clause 4 of the Master Rights Agreement, „Media Rights‟ included Recording and Transmission Rights, and Media Transmission. He submitted that the aforesaid rights were to be read together with Clause 4 of the Heads Agreement. Media Transmission Rights in the Heads Agreement were expanded to include „Holdbacks‟ such as Theatrical Rights, Telephony Rights, Electronic Media Rights and VOD/NOD. Further, Clause 12 of the Heads Agreement granted to SET nonexclusive right to use (a) name & logos of ICC, (b) names & logos of all official partners, sponsors and suppliers of the events and the teams, (c) names and images of the players, (d) fixture lists, (e) names and player statistics and/or other „event‟ related data, (f) official music, and (g) stills taken from the Feed. SET was also given right to appoint broadcaster or on-air sponsorships in connection with its transmissions and other related rights.

5.31. Responding to the above submissions of the Revenue, the Learned Senior Counsel for GCC submitted that the consideration was paid to SET by GCC for delivery of „Live‟ Feed which was not pre-recorded. Hence, there was no „work‟ and consequently no copyright. Thus, the payments made by SET to GCC could not be considered as payments for use of, or right to use of copyright in a cinematograph film. The Learned Senior Counsel submitted that the objective of the Heads Agreement was grant of „Live‟ broadcasting rights whereby GCC would give „Live‟ Feed to SET in which no copyright subsisted. In this regard, reference was made to the following:

(a) Definition of „Feed‟ at page 25 of the Heads Agreement wherein Feed was defined to mean „a live television signal of the Matches‟

(b) Clause 15 of Heads Agreement pertaining to Feed Specifications wherein it was stated that the Feed comprised an international quality live clean and continuous Feed (without commercials and/ or virtual advertising) together with English commentary and international sound effects

(c) Clause 18 of Heads Agreement relating to Highlights wherein it was stated that GCC would create and deliver to SET highlights package at no additional cost

(d) Clause 19 of Head Agreement containing obligation of GCC to deliver Feed

5.32. It was contended on behalf of GCC that the signals received by SET contained live visuals of the match and commentary captured from the cameras placed at several locations at the stadium. The transmission of „Live‟ signals to SET through satellite did not involve any recording in any medium. It was obligation of GCC to produce the Feed and for this purpose it outsourced the activity to production companies such as Octagon CSI Ltd (For short „Octagon‟). Even under the Production Agreement with Octagon [as referred in the CIT(A) order for AY 2003-04], the Feed to be produced by Octagon was only „Live‟ Feed. The Feed produced by Octagon was defined to mean live audio and visual signals derived from the „Recordings‟ in the form of a live television picture in digital format. The term „Recordings‟ was also defined to mean the live audio and visual coverage of the Matches of 2003 World Cup. Clause 4.2 of the aforesaid Production Agreement also mentioned that the Feed must be live, continuous and uninterrupted. Even the Technical Expert Report issued by Broadcast Cable Services, Inc, had concluded that all the matches were broadcast „Live‟ on SET channels and there was no recording of the matches. Further, replays were included as part of „Live‟ real time matches. An identical Feed was given to other broadcasters in respect of other territories with replays, commentary and graphics included as part of „Live‟ Feed. In view of the aforesaid, it was submitted that GCC received consideration for the purpose of grant of „Live‟ rights. Further, in a response to the specific query raised by the Bench it was submitted by GCC that as per industry practice, no copyright in the Feed was registered by GCC in Singapore.

5.33. In order to controvert the contention of the Revenue that none of the live events could be telecast without first recording them on a medium with the help of a camera, reliance was placed on the decision of the Delhi Bench of the Tribunal in the case of Fox Network Group Singapore Pte Ltd (121 taxmann.com 330) wherein the Tribunal observed that live broadcasting neither involved a recording by way of cinematography nor by way of sound recording. Reliance was also placed on behalf of GCC on the following judicial precedents wherein it was held that payments made for „live Feed‟ for broadcasting live sports event was not in the nature of „royalty‟ as per Section 9(1)(vi) of the Act:

(a) Delhi Race Club (1940) Ltd (113 DTR 0420)

(b) Neo Sports Broadcast Private Limited (67 DTR 0170)

(d) Taj TV Ltd (ITA No 1079/Mum/2008 and ITA No 3702/Mum/2005)

5.34. Reliance was also placed on the definition of „royalty‟ contained in the Direct Tax Code, 2010 which specifically included live coverage of events within the definition of royalty, which was absent in the definition of royalty given in Explanation 2 to Section 9(1)(vi) of the Act.

5.35. We have considered the rival submissions as well as the judicial precedents cited by both the sides, and have perused the material on record.

5.36. On perusal of the Master Rights Agreement and Heads Agreement it becomes clear that SET had acquired a bouquet of rights out of larger basket of rights granted by IDI to GCC. By way of DRN7, IDI gave direct assurances to SET regarding relationship between IDI & GCC. The consideration paid to SET was not for just „live‟ broadcast of cricket matches as explained hereinafter.

5.37. Clause 4 to 16 of the Heads Agreement described the various rights granted to SET. As per Clause 4 of the Heads Agreement SET had the exclusive „Rights‟, for the „Authorised Number of Exhibitions‟ throughout the Licensed territory (including India). Part 6 of Schedule annexed to the Heads Agreement provided that „Rights‟ meant the right to transmit, broadcast, exhibit, perform, include in cable programmes and/or otherwise distribute, or make available to the public any moving visual and/or audio-visual representations and/or images of matches, players or play in any ICC-Event including the Feed, Highlights Package and any recordings and other material by specified means. Thus, the rights granted to SET by GCC were not limited to grant of „live‟ rights or broadcast of Feed. SET also had right to transmit, exhibit and distribute to public moving visuals, images and audio-visual representation of matches, players and plays during the event as well as after the event. The ‘Exhibition Period‟ was defined in Schedule 1 annexed to the Heads agreement as from the date of the Heads Agreement until three months after the completion of the last ICC-Event which was specified in Schedule 4 to be 2007 Cricket World Cup. However, there was a cap on the number of exhibitions that could be made by SET. Part 4 of Schedule annexed to the Heads Agreement gave details of Authorised Number of Exhibitions and read as under:

“Authorised Number of Exhibitions:
In relation to each Match:

(a) During the Event (live/delayed coverage including customizations that the Licensee may create) 2 ‘exhibition days’ (‘exhibition day’ meaning any day of 24 hours commencing on the first transmission of a relevant programme and including 2 playouts per day)

(b) After the Events (full match recordings): 4 additional exhibition days for the year of the Event and for each subsequent year of the Exhibition Period;

(c) After the Event (Highlights): 4 ‘exhibition weeks’ per year (‘exhibition week’ meaning any week o f 7 days commencing on the first transmission of a relevant programme and consisting of 2 exhibition days per exhibition week;

(d) Clip Programming: up to 3 programmes featuring clips may be transmitted per week, each episode of each such programme shall have 10 exhibition days during the Exhibition Period (subject at all times to the limitation of no more than 3 programmes featuring clips being transmitted by the Licensee in any week).

(e) During the Event: the Licensee’s exploitation via Pay Per View shall be unlimited during the currency of the Event from which the relevant coverage is drawn. After completion of any Event, the Licensee shall not exploit Pay Per View Rights in respect of that Event for a period of 14 days, when after it shall be free to exploit Pay Per View rights and to coverage of the Event without restriction during the remainder of the Exhibition Period.” (Emphasis Supplied)

5.38. Thus, SET had the right to exhibit live/delayed coverage during the ICC-Event. After the ICC-Event, SET could exhibit full match recordings for the year of the ICC-Event and for subsequent year. SET also had the right to exhibit the highlights and programme featuring clips after the ICC-Event. SET could also exhibit/exploit coverage via Pay-Per-View during/after the event. Further, Clause 6 of Heads Agreement specifically provided that the rights granted to the Licensee shall include the rights to use the Feed and/or recording thereof on live, as live, delayed, deferred, highlights, clips, news, features, magazine and/or documentary basis.

5.39. In view of above, it cannot be said that consideration paid by SET to GCC was simply for „live‟ broadcast/re-broadcast of the cricket match. The Heads Agreement, however, did not provide separate consideration or break-up of consideration for different rights forming part of bouquet of rights obtained by SET.

5.40. Further, as regards, the exhibitions made by SET after the conclusion of the match are concerned, it cannot be said that there existed no recording and/or cinematograph film as it would not have been able to make such exhibitions without there being a recording/cinematograph film. Clearly there existed recordings which constituted cinematograph film as defined in Section 2(f) of ICA and qualified as „work‟ as defined in Section 2(y) of ICA. Since SET had exclusive right to exhibit, communicate or distribute this work to public in the Licensed Territory, the same amounted to having right to use copyright. The consideration given to GCC for the grant of the aforesaid copyright was in the nature of „royalties‟ as defined in Article 12(3) of the DTAA.

5.41. This takes us to the judgment of the Ho‟ble Delhi High Court which has been relied upon on behalf of the GCC to contend that the „broadcasting rights‟ are not „copyright‟. In order to appreciate the proposition of law laid down by the Hon‟ble High Court it would be pertinent to consider the facts of the case. This judgment was rendered in regular first appeal arising from the order dismissing suit for permanent injunction filed by ESPN Star Sports (ESS), holding exclusive right to broadcast some cricket matches at the relevant time, against Global Broadcast News Limited and other broadcasters having news channels (hereinafter referred to as the „New Broadcaster‟. ESS had alleged that the News Broadcasters were making unauthorized telecast of signals to the cricket matches. The Ld. Single Judge dismissed the suit as not maintainable on the ground that Section 61(1) of ICA, requiring the owner of copyright to be made a party to infringement suit, was applicable to a claim of infringement of broadcast reproduction rights and non-impleadment of the owner of copyright was fatal to the maintainability of suit. In appeal, ESS contended that provisions of Section 61 of ICA were not applicable to a case of infringement of broadcast reproduction rights. In addition, as an alternative argument, it was contended by ESS that ESS would get separate copyright in the final feed telecasted after making its own additions/alterations etc. in the live feed received from the host broadcaster. Thus, it was contended by ESS that there were two separate rights, broadcast reproduction right (which was separate right of ESS independent of the copyright in the feed received from host broadcaster), and the cinematographic copyright in the final feed, giving rise to two distinct causes of actions. The Hon‟ble High Court concluded the final feed/transmission made by ESS, particularly the non-live portion, was substantially different from the feed received from the host broadcaster and the same resulted in independent copyright in the final feed „whether it be treated and termed as broadcasting reproduction rights or copyright‟. Therefore, the Hon‟ble High Court held that the mandate of Section 61, even if held to be applicable, would stand fulfilled with ESS being owner of the independent copyright in the final feed. The issue whether „right to broadcast‟ or „broadcast reproduction rights‟ was a species of copyright was not examined/decided as is clear from the following observations of the Hon‟ble Delhi High Court:

“25. Even if we accept the respondent’s plea on the presumption that copyright includes broadcasting rights and section 61 applies, since we have found the eventual telecast of the appellant to be distinct and different from as received by the host broadcaster, the independent copyright owner of the modified product is the appellant itself and not C.A. and the dismissal of the suit on the ground o f maintainability by application of Section 61 of the Act is thus not warranted. This issue does not find mention in the learned Single Judge’s judgment and we have therefore, dealt with it on the existing pleadings. It is amply clear from the Act itself, as the proviso to Section 39A in Chapter VIII relating to broadcasting reproduction rights specifically lays down, that where copyright subsists in respect of any work or performance that has been broadcast, no license of the reproduction of such broadcast will be permitted without the consent of the owner of the Rights. The Legislative intent can be clearly discerned from the proviso to Section 39A which specifically mentions various Sections of the Act which apply to broadcasting rights with necessary modifications and adaptations and the proviso specifically mentions that where in any case an element of copyright subsists in respect of any work that has been broadcast, the license to reproduce such broadcast will take effect only with the consent of the owner of the right. In our view, in the present case the copyright owner of the new product, after additions/alterations, which makes the appellant’s telecast significantly different from the original feed of the cricket match as received from the host broadcaster, Channel 9, on behalf of Cricket Australia (C.A.), can only be the appellant and not the C.A. or channel 9. Thus, any unauthorized and prolonged telecast/replay of the cricket match or portion thereof falling beyond the concept of fair dealing without the permission of the appellant, amounts to infringement of the broadcasting reproduction right, the monopoly of which belongs to the appellant as above. However, we make it clear that this position of law does not apply to news coverage falling within the ambit of ‘fair dealing’ by the respondent T.V. Channel.” (Emphasis Supplied)

5.42. Before moving further, we would like to observe that the Revenue had also placed reliance on the above judgment of the Hon‟ble Delhi High Court to contend that the „live‟ Feed was a modified one in which copyright subsisted as per the above judgment. At this junction it would be pertinent to note that the „Live‟ Feed that we are concerned with is the one delivered by GCC or delivered by producer in behalf of GCC to SET and not the final Feed broadcasted by SET (hereinafter referred to as „Broadcasted Feed‟).

5.43. Accordingly, we proceed to examine the issue whether „Live‟ Feed delivered to SET by GCC or by the producer on behalf of GCC in terms of the Heads Agreement was „Live‟ Feed or „modified‟ Feed.

5.44. It was contended on behalf of GCC that the Feed delivered to SET was live and uninterrupted and was not pre-recorded. Reliance in this regard was placed upon the report of Broadcast Cable Services, Inc [hereinafter referred to as the „Technical Expert‟] dated 15.01.2004 pertaining to matches played in 2003 ICC World Cup, South Africa in February and March, 2003 wherein it was stated as under:

“We have determined the following:

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Name: POONAM GANDHI

Qualification: CA in Practice

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All conditions of paragraph 4.2 of Article 24 of DTAA needs to be satisfied simultaneously

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ADIT (IT) 3(1) Vs Global Cricket Corporation Pte Ltd. (ITAT Mumbai)

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