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

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;

(c) (Deleted by Act 29/65)

(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

(c) payment and receipt of consideration was 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)

(c) Nimbus Communications Ltd (32 taxmann.com 53)

(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:

• All of the ICC Cricket World Cup matches were broadcast “live” on the SET Channels….
• At no time was any ICC Cricket World Cup match recorded and re-broadcast as pre-recorded event.”

However, the above report also stated as under:

“The network used to transmit these “live” telecasts was composed on the following:

• xx
• Instant replay highlights were included as part of the production of ICC Cricket World Cup matches, but these highlights were, at all times, included as an integrated production value of the “live” real time match”

5.45. From the above report it is clear that the entire cricket matches were not first recorded and thereafter, telecasted as pre-recorded cricket match. However, it can also be inferred from the report that there was recording during the match which enabled the production team to produce instant replay highlights which were then included in the Feed to produce uninterrupted „Live‟ Feed. Further, consideration for use, as well as for the right to use copyright qualifies as „royalties‟ in terms of Article 12(3) of the DTAA. Therefore, merely because the right to use copyright has not been exploited would not lead to rejection of the claim of the Revenue.

5.46. Both the sides had relied upon the provisions of the Master Rights Agreement, Heads Agreement, the Production Agreement between GCC & Octogon [as reproduced in the order of CIT(A) for the Assessment Year 2003-04] in support of their contentions. Accordingly, we also proceed to examine the same in the context of the issue before us.

5.47. Perusal of the Master Rights Agreement shows that various clauses made references to term „Recordings‟ and contained rights and obligation relating to „Recordings‟ some of which are summarized as under:

(a) IDI had granted Media Rights (as per Clause 4) and Sponsorship Rights (as per Clause 6) to GCC. Media Rights included Recording Rights (Clause 4.1) and Transmission Rights (Clause 4.2). The Recording Rights gave GCC right to produce the Recordings whereas Transmission Rights gave GCC rights to exploit the Recordings by way of transmission, distribution etc.

(b) Term „Recordings‟ was defined to mean any form of audio, visual and/or audio-visual coverage or other reproductions of matches and all live videos & audio signals of an Event. Thus, Recordings meant audio­visual coverage of matches (including their reproductions) as well as live audio-visual signals.

(c) Allowable Expenditure was defined to mean production cost for Recording of Events.

(d) Clause 4.1, pertaining to recording and transmission rights, gave GCC exclusive rights of access, free of charge, to all avenues for the purpose of producing the Recordings.

(e) Clause 4.1(b)(iv) specifically provided that all costs payable for Recordings for the 2003 World Cup shall be payable from the Revenue Account as allowable expenditure for the 2003 World Cup.

(f) Clause 4.2 relating to Media Transmission provided that GCC was granted exclusive rights to transmit the „Recordings‟ and exploit the Media Transmission or adaptations thereof by all news of distribution whether simultaneous or delayed, digital or analogue or otherwise)

(g) Clause 4.5(a) dealing with Copyright and Content provided that by way of assignment of future copyrights the entire copyright and all other intellectual property and other rights throughout the universe in all Recordings and Media Transmissions including the electronic data Feed signal shall vest in IDI absolutely free from encumbrance for the full period of copyright protection.

(h) Clause 4.6(a), dealing with Production and Quality Control, provided that GCC shall ensure that all Recordings and its Media Transmission by GCC are of the best quality.

(i) Clause 4.6(b) provided that GCC shall make or procure to be made accessible Recordings available for transmission and Media Transmissions of matches.

(j) Clause 4.6(f) provided that GCC shall within 7 days of conclusion of the Event deliver to IDI one best quality Master Copy of each Recording made by the GCC or host broadcasters in a broadcast quality format.

(k) Clause 4.6(i) provided that GCC shall ensure that there are sufficient replacement/reserve resources in facilities to ensure that all Recordings are made to the requisite standard.

(l) Clause 4.6(k), inter alia, provided that GCC shall supply or make available to IDI within 30 days after each Media Transmission for television broadcast transmission report.

5.48. Thus, simply put, the right to make Recordings (which included audio-visual coverage of the matches) and to exploit the same was granted by IDI to GCC. The existence of Recordings was pre-condition for Media Transmission which was defined in Clause 4.2 of the Master Rights Agreement as under:

“Media Transmission

4.2. Subject to the provisions of this Contract the Counterparty is granted the exclusive right to

(a) transmit the Recordings and exploit the Media Transmission or adaptations thereof by all means o f distribution and point to multipoint and/or point to point transmission now known or hereafter devised (whether simultaneous or delayed, digital or analogue or otherwise) including without limitation:

(i) all forms of television whether pay (subscription and pay per view) or free including terrestrial, cable, satellite and microwave transmissions and re­transmissions

(ii) all forms of radio,

(iii) all forms of home video, home video disc and DVD and any other fixed media system:

(iv) the internet (including, without limitation, technology of video, sound and in data transmission to portable devices (such as, mobile telephones and palm-top computers) and/or any similar or related systems;

(v) all forms of electronic publishing (including CD Roms); and

(vi) all forms of software downloading, and

(vii) áll forms of electronic communication system developed for the delivery and provision of content for use by an end-user, and

(b) operate an official internet website for each Event”

5.49. On the strength of the Master Rights Agreement, GCC granted rights to SET the rights specified in Clause 4 read with Part 6 of Schedule 1 annexed to the Heads Agreement in terms of the Heads Agreement (read with the TNA).

5.50. As per Clause 5 of Heads Agreement, SET was permitted to reconfigure, combined and/or package the Feed for the purpose of exploiting the „Rights‟ (i.e. 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 audiovisual representations including the Feed, Highlights Package and any recordings by specified means).

The Heads agreement did not contain definition of terms „Recordings‟ or made any reference to the same. The Heads Agreement defined the term „Feed‟ and various rights and obligation of GCC and SET in relation to the same. The term „Feed‟ was defined to mean live television signals of matches as per Clause 15 which reads as under:

“15. Feed Specifications: The Feed shall comprise an international quality live clean and continuous Feed (without commercials and/or virtual advertising) together with English language commentary and international sound effects (each on separate tracks) and generic non branded English language graphics (including occasional references to the Event website URL) and sponsored data and sponsored timing graphics all in accordance with minimum indicative technical specifications to be included in the Long Form Agreement The Licensor shall produce & Feed o f all Matches necessary for the Licenses to fulfill the Minimum Commitment, together with (subject to reasonable notice by the Licensee and at the Licensee’s request but at the cost of the Licensor) the Indian team Matches in the U19 Cricket World Cups. The Feed shall contain coverage of the entirety of each such Match (including without limitation all on pitch activities during warm ups, stoppages, breaks in play and following close o f play), together with opening/closing and all pre/post Match ceremonies The Feed shall not contain pictures which focus on advertising at any Event to an extent not editorially justified. The Feed shall commence a minimum of 5(five) minutes prior to the start of any activities and continue until 5 (five) minutes after the end of any activities (including, without limitation, any post-match ceremonies)”

(Emphasis Supplied)

5.51. As per Clause 15 above, GCC was under obligation to deliver the ‘Feed’ that was of international quality, live, clean and continuous, with English commentary, international sound effects and generic non-branded English language graphics. In terms of Clause 16 of the Heads Agreement, SET could ask for customization of the „Feed‟ by specifying Customization Requirements to the producer. As per Clause 17 and 18 of the Heads Agreement, in addition to the „Feed‟, the deliverables also included highlights package, customization material and tape back-up (i.e. relevant match tape back-up of the Feed). As per the provisions of the Heads Agreement, while GCC was under obligation to provide the aforesaid deliverables, SET had acquired the Rights to exploit same. In order to enable exploitation of the deliverables including „Feed‟, GCC had granted to SET exclusive license of all „Proprietary Interests‟ in the Feed and Highlights Package in terms of Clause 43 of the Heads Agreement which read as under:

“Ownership and License of the Rights

43. The Licensee acknowledges that the Licensor is and will continue to own all Proprietary Interests in the Feed and Highlights Package. The Licensor hereby grants to the Licensee an exclusive licence of all such Proprietary Interests in the Feed and Highlights Package and waives all moral rights (and agrees to procure that all contributors o f content included in the Feed and Highlights Package shall waive their moral rights) to enable the Licensee to fully exploit the Rights granted in these Heads. On the expiry o f the Exhibition Period, the Licensee shall assign to IDI all Proprietary Interests in the Feed and Highlight Package it may have acquired but specifically excluding for the avoidance of doubt any Proprietary Interests in any programmes created by the Licensee, of the programmes, any studio presentations or promotional materials, dubs, sub-titles, language versions which may be produced and/or created by or on behalf of the Licensee, including without limitation those materials referred to at paragraph 5.”

(Emphasis Supplied)

As per Clause 43 above, GCC continued to be the owner of the Proprietary Interest while SET enjoyed exclusive license for Proprietary Interest in Feed and Highlights Package during the Exhibition Period. However, on expiry of the Exhibition Period SET was required to assign to GCC all Proprietary Interest it may have acquired in the Feed and Highlight Package during this period except for the Proprietary Interests in any programmes, any studio presentations or promotional materials, dubs, sub-titles, language versions produced and/or created by or on behalf of SET.

5.52. The expression „Proprietary Interest‟ was defined in Schedule 3 annexed to the Heads Agreement as under:

“Proprietary Interests: shall mean all rights and interests of a proprietary nature, including, without limitation, all copyright, database rights and analogous rights, moral rights, performing rights, personality rights, rights of publicity, trade mark rights, goodwill and title to any physical material;”

(Emphasis Supplied)

5.53. Thus, GCC granted to SET exclusive license of Proprietary Interest which included, copyrights, trademarks rights, and performing rights in Feed for exploitation of Feed. The delivery of „Live‟ Feed was a condition precedent for the same. It is admitted position that the Feed was produced by production companies such as Octagon in terms of production agreement(s) entered between GCC and such production companies.

5.54. As noted earlier while Master Rights Agreement contained rights and obligation in relation of „Recordings‟ and the Heads Agreement contained rights and obligations in relation to „Feed‟. In order to understand the relation between the two it would be pertinent to refer to the relevant clauses of the production agreement reproduced by the CIT(A) in paragraph 16 of his order for the Assessment Year 2003-04 on which reliance has been placed by both the sides which are as under.

(a) Clause 3.1 of the Production Agreement appointed 59 Octagon as producer to exclusively produce the „Recordings‟ and authorized producer to make Recordings and produce the Feed. Clause 4.1 of the Productions Agreements casted obligations upon the producer to make the Recording and produce the Feed.

(b) Clause 10.1 provided that the producer shall assign to GCC, by way of assignment of present and future copyrights, all copyright and Proprietary Interest in Recordings and Feed as well as broadcast or transmission made by the producer in respect of the same.

(c) Clause 10.4 specifically provided that GCC would have the right to sue for infringement of copyright or any other proprietary interest in Recordings or Feed or broadcast/transmission of the same.

(d) Clause 10.6 provided that the producer was required to display specified copyright notice as part of the Recordings and the Feed.

5.55. On perusal of the above clauses of the Production Agreement, it is clear that Recordings and Feed are not one and the same. Clause 1.1 contains definition of Recordings and Feed which are as under:

“Recordings means the live audio and visual coverage (including all live video and audio signals) of the matches of the 2003 World Cup.”

“Feed means the live audio and visual signals derived from the Recordings in the form of live television picture in digital format as provided under Clause 4.2”

Clause 4.2 reads as under:

“4.2. The Feed – The Feed for each match must be live, continuous and uninterrupted and

(a) be in digital format

(b) include coverage of entirety of each match

(b) xx

(c) xx

(e) include separate track of stereo audio made up o f English commentary and sound effects for integration with the vision

(f) xx” (Emphasis Supplied)

5.56. On co-joint reading of the above, it becomes clear that the Feed is live, continuous and uninterrupted audio-visual signals in the form of live televisions picture in digital format derived from the Recordings (which according to us are the actual live coverage of sporting event from different cameras). The preparation of Feed involves use of Recording and the recorded content in the form of instant replay highlights as well as additions or modifications in the form of commentary and sound effects (each on separate tracks) and generic non-branded English language graphics. Therefore, we hold that the „Live‟ Feed received by SET from GCC does not consist of only live coverage of cricket matches and therefore, we reject the contention of GCC that the broadcasts of „Live‟ Feed amounts to live broadcast of sports event. In our view, the „Live‟ Feed also contains recorded content in which copyright subsists. Our aforesaid views draws support from the provisions discussed hereinabove including those relating to copyright contained in Clause 10.1, 10.4 & 10.6 of the Production Agreement, Clause 43 of the Heads Agreement read with the definition of expression „Proprietary Interest‟ and provisions contained in Clause 18 of the Heads Agreement pertaining to Tape-Back up.

5.57. It would be pertinent to note that the Feed received by SET from GCC need not be same as Broadcasted Feed transmitted/broadcasted by SET as observed by the Hon‟ble Delhi High Court in the case of ESPN Star Sports (supra) on account of inclusion of commentary, advertising and programming content. However, the rights in the Broadcasted Feed shall vest in SET. For the issue before us we reiterate that we are only concerned with the rights in Recording and „Live‟ Feed acquired by SET from GCC.

5.58. As per the Heads Agreement, SET has acquired right to transmit, exhibit and distribute the Feed. Section 2(ff) of ICA defines „communication to the public‟ to, inter alia, mean making any work available for being seen or heard or otherwise enjoyed by the public by any means of display or diffusion. Term „Broadcast‟ is defined in Section 2(dd) to mean communication to public by means of wireless diffusion or by wire and includes a re-broadcast. Thus, right to broadcast is a species of communication to public. Explanation to Section 2(ff) of ICA specifically provides that communication through satellite or cable or any other means of simultaneous communication shall be deemed to be communication to the public. Section 14 of ICA defines copyright in the case of a cinematograph film to mean exclusive right to communicate to public. Therefore, the exclusive right to broadcast (which amounts to communication to public) when granted in respect of cinematograph film would result in grant of copyright in such cinematograph film. The aforesaid right in respect of cinematograph film is separate and distinct from the special rights, generally referred to as „neighboring rights‟, granted to „broadcasting organisations‟ in the respect of broadcasts under Section 37 of ICA. These rights protect the broadcasting organization against unauthorized communication to public, fixation, reproduction of fixation, and re-broadcast of the broadcast. Grant of exclusive license/rights by GCC to SET amounted to grant of copyright. On the other hand, the statutory rights known as „broadcast re-production rights‟ accrued to SET by virtue of being a broadcasting organization. Thus, we hold that the grant of rights to SET which included exclusive right to communicate the Recordings/Feed to public amount to grant of copyright as per the provisions of ICA.

5.59. We note that GCC had, on without prejudice basis, contended that the grant of right to SET in relation to non-live exhibitions or non-live content forming part of the „Live‟ Feed was merely ancillary. It was contended on behalf of GCC that the main intent behind the Heads Agreement with SET was the grant of broadcasting rights to SET whereby, SET would receive „Live‟ Feed of ball-by-ball coverage of the matches which can be broadcasted across Licensed Territory. Hence, the rights granted by GCC to SET were predominantly for telecast of „live‟ matches to the viewers. Therefore, even if a view is taken that the „Live‟ Feed comprised of any „non-live‟ elements, the same is incidental and not relevant for determining the characterization of consideration received from SET. We do not find any merit in the aforesaid contentions advanced on behalf of GCC. As discussed hereinabove the rights granted to SET were not limited to grant of broadcasting right. Further, the additional rights (such as right to make exhibition of the match after the ICC-Events but during the Exhibition Period) granted to SET were capable of being exercised independently and could not be termed as ancillary. We reject the contention advanced on behalf of GCC that the predominant purpose of the Heads Agreement was to acquire only „live‟ ball-by-ball Feed. Accordingly, the judgment of the Hon‟ble Delhi High Court in the case of Sheraton International Inc. (313 ITR 267) would not be of any aid to GCC. We would also like to observe that a number of judgments were relied upon on behalf of GCC wherein it has been held that consideration for live feed does not amount royalty. However, all the decisions could not be applied to the present case in view of the factual findings returned by us, after examining various agreements, to the effect that the consideration received by GCC from SET was (a) for live and non-live exhibitions and (b) the „Live‟ Feed was not simply live feed but the same was modified to include non-live content. At this point it would be pertinent to note that perusal of the decision cited on behalf of the GCC shows that the production agreement, which according to us provided the link between „Recording‟ and „Feed‟, was not placed before the Tribunal/Court in any of the matters. Even before us, the production agreement has not been placed on record and has been referred to an relied upon by the parties and considered by us to the extent the same has been reproduced in the order passed by the CIT(A) for the Assessment Year 2003-04.

5.60. This takes us to the issue of allocation/apportionment of the Licensee Fee income received by GCC from SET in terms of the Heads Agreement. We have concluded that the Licensee Fee paid by SET to GCC is not only for exhibition of the „Live‟ Feed of match (hereinafter referred to as „Live Exhibitions‟) but also for other exhibitions to be made after the conclusion of match (hereinafter referred to as „Non-Live Exhibitions‟) as specified in Part 4 of Schedule 1 annexed to the Heads Agreement. Therefore, the Licensee Fee would have to be allocated between Live Exhibitions and Non-Live Exhibitions [which would be taxable as „royalties‟ in terms of Article 12(2) read with Article 12(3)(a) of DTAA]. We have also concluded that „live‟ Feed received by SET also contains recorded content in which copyright subsisted as the rights granted to SET included exclusive right to communicate the Recordings/Feed to public which amounted to grant of copyright. The consideration for the same would also be liable to tax as „royalties‟ in terms of Article 12(2) read with Article 12(3)(a) of DTAA. This would require further apportionment of amount of Licensee Fee allocated for Live Exhibitions.

5.61. In this regard, by placing reliance on the decision of the Tribunal in the case of Fox Network Group Singapore Pte Ltd Vs. Assistant Commission of Income Tax (international Taxation), Circle 1(3)(1), New Delhi : [2020] 121 taxmann.com 330 (Delhi – Trib.) [20-03-2020] it was contended on behalf of GCC that only 5% of the consideration can be allocated to the non-live transmission/content. However, we note that in the case of Fox Network Group Singapore Pte Ltd (supra) the contract itself provided that 5% of the consideration was for the non-live transmission which as was offered to tax as royalty income. Whereas, in the present case the Heads Agreement does not provide any break-up of the consideration. We note that the CIT(A) had, while deciding the appeal for the Assessment Year 2003-04, attributed 75% of the consideration for use of copyright in the live feed and balance 25% for use of copyright in non-live feed/transmission such as highlights, telecast of recorded matches etc. Keeping in view the overall facts and circumstances of the case, we hold that 25% of Licensee Fee is fair estimation of the Licensee Fee attributable to the Non-Live Exhibitions and recorded content in „Live‟ Feed. There is no material placed on record by both the sides to arrive at the more precise or better estimation/apportionment.

Accordingly, in view of the above, we hold that 25% of the Licensee Fee paid by SET to GCC as fair estimate of income taxable in India as „royalties‟ in terms of Article 12(2) read with Article 12(3)(a) of the DTAA.

5.62. In view of the above, Ground No. 4 raised by the Revenue is partly allowed.

6. Ground No. 5 of Departmental Appeal (ITA.No.3130/MUM/ 2006) along with Ground No. 2 of CO No. 324/Mum/2006 filed by the Assessee, and Ground No. 1 of Appeal of the Assessee (ITA No. 3135/Mum/2006)

6.1. Ground No. 5 of the Departmental Appeal and Ground No.1 of the Appeal preferred by GCC are directed against the order of CIT(A) holding that the payments received by GCC from from LGEIL and HH which are in the nature of royalties is taxable at 10% of the gross amount in view of Article 12(2)(b) of the DTAA.

6.2. For Assessment Year 2002-03, both, the Assessing Officer and CIT(A) held that the sponsorship fee received by GCC from LGEIL and HH in terms of the GPA and SA, respectively, was taxable being in the nature of royalty for „use or right to use commercial equipment‟.

6.3. The grievance of the Revenue is that in appeal preferred by the GCC against the order of Assessing Officer holding the aforesaid payments as royalties under the provisions of the Act, the CIT(A) granted the benefit of the provisions of DTAA to GCC entitling GCC to claim benefit of lower tax rate of 10% as per Article 12(2) of the DTAA whereas GCC is aggrieved by the order CIT(A) characterization of sponsorship fee as „royalties‟ for use of equipment in terms of Article 12(2) read with Article 12(3)(b) of the DTAA.

6.4. We have already concluded that GCC would be entitled to the beneficial provisions of DTAA. Therefore, the issue that remains to be addressed pertains to characterisation of payments received by GCC from LGEIL and HH as „royalties‟ in terms of Article 12(3)(b) of the DTAA.

6.5. The Learned Senior Counsel for GCC, advancing arguments on the issue, submitted that the nature of sponsorship rights granted by GCC to LGEIL and HH were commercial rights which enabled the sponsors to be designated as „official partner of ICC‟ or „official global partner‟ of the ICC-Events for which the rights have been granted, and to advertise/distribute their products/services. With respect to the finding of CIT(A) that receipts from LGEIL and HH were for use or right to use commercial equipments, it was submitted that the hoardings and other advertising sites at the venue cannot constitute „equipments‟. Without prejudice to the aforesaid contention, the Learned Senior Counsel for GCC contended that, even assuming that the hoardings and other advertising materials are regarded as commercial equipments, the payments under consideration could not constitute consideration for the „use‟ of such hoardings or other advertising sites since „use‟ requires dominion or control over the equipment which was not with GCC. He took us through the financial statement to demonstrate that GCC did not own any equipment (except computer equipment). He further submitted alleged equipments were not at the disposal of GCC or the sponsors. Reference in this regard was placed on the decision of the Hon‟ble Supreme Court in the case of Bharat Sanchar Nigam Limited (282 ITR 273) wherein, the Hon‟ble Supreme Court had held that services provided to a telephone subscriber does not involve „right to use‟ equipment. The Learned Senior Counsel for GCC impressed upon the fact that GCC neither owned any equipment nor advertising spaces nor did it have any ownership over the hoardings or other advertising sites. The stadiums including the scoreboards, perimeter boards, etc did not belong to GCC but to the host cricket associations. GCC did not incur any cost in respect of hoardings that were put up at the venue, as the same were either constructed at the cost of sponsors and, subsequently placed at the venue or owned by the stadium owners or the host cricket associations. GCC merely granted the right to advertise at the venue to the sponsor by placing hoardings, banners, etc at the venue. The sponsors provided the advertisements which were to be shown/displayed at the venue and the same were placed/displayed on the perimeter boards, etc by the host cricket association.

6.6. He further submitted that the payments received by GCC from the sponsors were not in the nature of rental income for the lease of any equipment but for advertising their products/services. In essence, the agreements between Assessee and both LGEIL and HH were of grant of sponsorship rights which primarily entailed grant of right to the sponsors to advertise their products and be associated with the events as sponsors. The substance of agreements was grant of sponsorship rights and not the right to use equipment. Further, user of certain intellectual property rights, if any, was ancillary and could not have resulted in the characterization of the advertisement/sponsorship receipt as consideration for the use of such intellectual property rights to justify such income being classified as royalty. In this regard, reliance was placed on the Hon’ble Delhi High Court’s decisions in the case of Sheraton International Inc. vs. Director of Income Tax [2009] 313 ITR 267 (Delhi) and Formula One World Championship Ltd. vs. Commissioner of Income Tax, International Taxation-3, 390 ITR 199 (Delhi) which looked into the principal purpose of the consideration for determining taxability of consideration and use of any trademarks, etc was considered incidental. Reliance was also placed on the following judicial precedents wherein it was held that payments made for sponsorship rights cannot be characterised as royalty:

(a) Sahara India Financial Corporation Ltd (321 ITR 349) wherein it was held that payments made for obtaining title sponsorship rights of a sporting event were not payments for acquisition of copyright and, therefore, were not royalty. (para 6).

(b) Hero MotoCorp Ltd vs. Additional CIT, Range-12, New Delhi (156 TTJ 139) wherein it was held that the amount in question could not be royalty for the use of any trademark, brand name. (para 53.38).

(c) Reebok India Company vs. Deputy Commissioner of Income-tax, Circle-2(1), New Delhi [2017] 79 taxmann.com 271 (Delhi-Trib.) wherein it was held that the „rights fee‟ paid to IDI to be the „Official Partner of ICC‟ cannot be considered as royalty in the hands of the recipient under section 9(1)(vi) of the Act and, therefore, provisions of Section 195 of the Act requiring deduction of tax at source were not attracted (para 39).

6.7. Per contra, the Learned Counsel for Revenue supported the order passed by Assessing Officer contending that payments received by GCC from LGEIL and HH were in the nature of royalty for right to use equipment being the advertising sites of different dimensions fixed at different placed at the stadiums, sites screen, scoreboards, electric screens, tickets, website and event promotion material.

6.8. The Learned Counsel for Revenue, taking us through the Master Rights Agreement, submitted that sponsorship rights obtained by GCC from IDI in terms of the Master Rights Agreement could be classified in two classes. First – „Included Sponsorship Rights‟8 and Second – „Excluded Sponsorship Rights‟9. Clause 6.2 of the Master Rights Agreement gave GCC the right of first negotiation with IDI to exploit any of the excluded rights enumerated in Clause 6.1 of the Master Rights Agreement. The „Included Rights‟ included naming rights, designation rights, trade mark rights, tickets & hospitality rights, advertising rights, broadcast sponsorship rights, official event internet sponsorship rights, and other rights. The advertising rights required prior approval of IDI and similarly other rights were also subject to approval of IDI. Trade mark rights were given „permitted use‟ by IDI to GCC. GCC was given right to sub-grant the rights in such manner (as per Clause 10.3) as it thought fit but subject to IDI’s approval to such requests which were to be made in writing as per Clause 10.7 of the Master Rights Agreement which approval could not be withheld unreasonably or delayed.

6.9. He submitted that the rights which were given to LGEIL under GPA dated 28.07.2002 and to HH under SA dated 08.07.2002. Master Rights Agreement was executed on 05.07.2000 among IDI, WSG, and News Corp. This means that at least for the events in the year 2000 & 2001, payments were made to WSG, a BVI company with which MRA was in vogue. There is no tax treaty with BVI & hence domestic law would apply and the payments would otherwise be subject to tax in India. GCC was substituted by TNA dated 02.07.2001 in placed of WSG for the aforesaid reasons.

6.10. The Learned Counsel for Revenue referred to „Schedule 3 – The Global Partnership Rights‟ annexed to GPA and „Schedule 4 – The Official Sponsor Rights‟ annexed to the SA, submitted that as per the aforesaid schedules rights have been granted to respective parties. The Learned Counsel for Revenue took us through the definition of Advertising Materials, Advertising Sites, Brand Manual, Designated account, Event Marks, Global Partner Marks, Host, Host Licensees, ICC Mark, Stadium & Venue. „Venue‟ was defined to include geographical within the control of IDI/GCC at or around the stadium at which matches were to be held. „Advertising sites‟ were defined to mean advertising sites, signage, hoarding, electronic scoreboard, displays and posters at the Venues. GCC was in control of the Venue and the Advertising Sites through host cricketing board/associations. The details of advertising materials to be erected, maintained and removed by GCC/WSN were specifically provided in the agreements. He further submitted that as per Clause 7.2 contained in GPA and SA, worded similarly, GCC/WSN was under obligation to ensure that the advertising boards and signage were manufactured, incorporated, erected, maintained at the stadia as well as removed from the stadia with reasonable care. GCC/WSN was also required to ensure that such boards are not deliberately obscured or concealed during matches.

6.11. He submitted that the control and possession over these advertising sites, hoardings and signage rested with GCC.

The definition of „Host‟, „Host Licensees‟, ‟Stadium & ‟Venue‟, when read together, clearly establish that GCC/WSN were in full and complete control of the stadium where a match were being played. Thus, GCC/WSN was in a position to exploit the rights which were granted to LGEIL & HH as sub-licensee. While concluding his submissions on this issue he submitted that the agreements with the host cricketing board/association were never placed on record by GCC.

6.12. He submitted that in view of the above the Assessing Officer was justified in holding that payments received by GCC from LGEIL/HH were in the nature of royalty for right to use commercial equipment as per Section 9(1)(vi) of the Act. In this regard, the Learned Counsel for Revenue placed reliance the decision of Kolkata Bench of the Tribunal in the case of Selvel Advertising Pvt. Ltd. vs. Commissioner of Income-tax, Kolkata [2016] 75 taxmann.com 249 (Kolkata-Trib.) and One Ad Display Pvt Ltd (ITA No. 1373/Kol/2015), and Circular No. 715 of 1995, dated 08.08.1995

6.13. In rejoinder, the Learned Senior Counsel submitted that the agreements entered into by GCC with IDI and the sponsors nowhere mentioned or indicated that GCC had control/ ownership over the venues. The venues or the stadiums with perimeter boards, scoreboards, etc at which the advertisements were placed were owned by the host cricket associations. He further submitted that the reliance placed by Revenue upon the decisions of Selvel Advertising Pvt Ltd (supra) and One Ad Display Pvt Ltd (supra) was misplaced. He submitted that in both the aforesaid decisions it was held that hoardings were temporary structures on which 100% depreciation was allowable. Placing reliance on Question 5 of the Circular No. 715 of 1995, dated 08.08.1995, he submitted that the Central Board of Direct Taxes (CBDT) had clarified that payment made for putting up a hoarding are in the nature of advertising contract and liable for withholding tax under section 194C of the Act. However, where a person takes a particular place on rent and thereafter, sublets for putting up a hoarding, the same would be liable for withholding under section 194I. Accordingly, while payments by Selvel Advertising Pvt Ltd (for short „Selvel‟) to a building owner for putting up a hoarding will be liable for withholding under section 194I, payments made by an advertiser to Selvel will be in the nature of advertisement liable for withholding under section 194C. Therefore, even the CBDT does not imply that the payments made for advertisement placed on a hoarding are royalties for the use of equipment liable for withholding under section 194J. The Learned Senior Counsel reiterated that payments made to GCC by LGEIL in terms of GPA, and by HH in terms of SA, were not „royalties‟ in terms of Article 12(3)(b) of the DTAA or Section 9(1)(vi) of the Act. Further, in absence of PE of GCC in India, the aforesaid payments were not liable to tax in India as business profits in terms of Article 7 of the DTAA.

6.14. We have heard the rival contention and perused the material on record including the judicial precedents cited during the course of hearing. We note that the first contention of GCC is that the advertising sites and other advertising material do not constitute equipment, while the second, without prejudice, contention raised by GCC is that the payments made to GCC by LGEIL/HH are not in the nature of royalty for use of equipment. For now we proceed to examine the second, without prejudice, contention raised by GCC on the premise that the advertising sites and other advertising material does constitute equipment.

6.15. A co-joint reading of the Master Rights Agreement and the sponsorship agreement (i.e. GPA/SA), shows that GCC was in control of the stadium and the advertising sites by virtue of contractual rights and obligations arising from agreements entered into between the ICC member country authorized by IDI to host ICC-Event (i.e. Host), IDI and Participating Nation. The Venues were under control of IDI and/or the Host and by virtue of contractual rights GCC had access to the Venue to the exclusion of all others. Thus, GCC had controlled over the Venue and in turn the advertising sites at the Venue. Further, while GCC may not have borne the cost of hoardings and/or other advertising material, GCC continue exercise control and dominion over the same by providing specific conditions advertising and advertising material (such as those relating to dimensions, place, placement, material and duration). The advertising material could be displayed at the Advertising Sites only subject to fulfillment of the aforesaid conditions. However, GCC did not part with such control or dominion over the Advertising Sites while granting rights to LGEIL and HH. GCC/WSN continued to administer the Advertising Sites and were responsible to ensure that the advertising material are manufactured, incorporated, erected, maintained and removed with reasonable care. GCC/WSN was also required to ensure that such boards are not deliberately obscured or concealed during matches. Thus, in our view, LGEIL and HH paid consideration for obtaining commercial right to advertise and not for obtaining right to use the equipment as contended by the Revenue. Perusal of the sponsorship agreement shows that the intention of LGEIL/HH and GCC was not to lease the equipment. LGEIL/HH intended to associate with the ICC-Event as sponsors to advertise their products/services by reaching out to a broad target audience. The use of equipment, if any, was ancillary.

6.16. On behalf of the GCC reliance was placed on the decision of Delhi Bench of the Tribunal in the case of Hero Honda Motocorp Ltd. vs. Additional Commissioner of Income Tax: (2013) 156 TTJ (Del) 139 wherein the Tribunal was examining the issue of deductibility of payments made by sponsor to GCC for the sponsorship rights in respect of ICC-Events (namely, ICC Trophy 2006, India and ICC World Cup 2007, West Indies). The Tribunal allowed deduction claimed by the sponsor holding that the provisions of Section 195 of the Act were not attracted since the payments paid by the sponsor to GCC was purely for advertisement and publicity of brand name and products during the cricketing events and not payment of royalty in terms of Article 12(3) of DTAA. The relevant extract of the decision of the Tribunal rendered in identical facts and circumstances reads as under:

“53.38 Applying the propositions laid down in these case laws to the facts of the case, we are of the considered view that the claim of the assessee that the payment was purely for advertisement and publicity of the brand name of the assessee and for promotion of its product during the Cricketing events of ICC and not the payment of royalty as defined used in para 3 of Article 12 of DTAA between India and Singapore has much force. The agreement in question includes sponsorship rights like advertising on bill boards, advertisement in official brochure, Web site of ICC etc., which is purely incurred for the promotions, advertisement and publicity of the assessee’s brand name and products. If incidentally, the proprietary trade mark or logo of ICC is put alongside the assesssee’s logo it is only incidental to the main services obtained by the assessee. The ratio of the Judgment in the case of Sheraton International Inc. (supra), and the judgment of Sahara India Financial Corporation (supra), in our view squarely apply to the facts of the case. Thus the amount in question paid to Nimbus Sports International and GCC PTE Ltd., Singapore is not royalty as the payment was not for use of any trade mark, brand name. As both these organizations do not have any P/E in India the income is not taxable in India and consequently there is no requirement of deduction of tax at source.

53.39 Even otherwise, in case of payments to GCC for sponsorship of Championship Trophy 2006, we find that the Central Govt. vide notification No. S0 1230(E) dt 31.7.2006 as amended by notification No. SO 1445(E) 6-9-2006 and notified that payments to ICC in relation to such Trophy as exempt u/s 10 (39) of the Act. A perusal of the notification demonstrates that amounts received or receivable from Global Cricket Corporation PEE Ltd., by ICC(development) International Ltd. (IDIL) are exempt. The payments were received by GCC, only for onward payment to IDIL. In our view the overall objective of the notification and the mechanism employed by IDIL for sale of media and sponsorship rights have to be taken into consideration for deciding the matter. When so considered, it is clear that the payments made to GCC are tax exempt, having no element of income and hence there is no requirement o f withholding tax u/s.195 of the Act.”

6.17. We concur with the reasoning given by the Tribunal in the above decisions. To the same effect is the decisions of the Tribunal in the case of Reebok India Company (supra) wherein in identical facts ad circumstances it has been held that the „rights fee‟ paid to IDI to be the „Official Partner of ICC‟ cannot be considered as royalty in the hands of the recipient under section 9(1)(vi) of the Act.

6.18. In view of the above decisions of the Tribunal, we hold that payments made by LGEIL and HH to GCC for rights acquired in terms of GPA and SA, respectively, were for promotion, advertisement and publicity of their respective brands and products/services. We reject the contention of the Revenue that the aforesaid payments were made by LGEIL/HH for right to use equipment. It was also contended on behalf of GCC the advertising sites, scoreboards etc. do not constitute equipment. Since we have concluded as aforesaid, the examination of the said contention raised by GCC does not require adjudication as the issue raised therein has become academic.

6.19. Accordingly, in view of the above, Ground No. 2 raised by the GCC in appeal is allowed. Ground No. 5 raised by the Revenue is dismissed. Ground No.2 of Cross Objections filed by GCC is disposed off as being infructuous.

7. Ground No. 6 of Departmental Appeal (ITA.No.3130/MUM/ 2006) along and Ground No. 2 of Appeal of the Assessee (ITA No. 3135/Mum/2006)

7.1. Ground No. 6 of the Departmental Appeal and Ground No.2 of the Appeal preferred by GCC pertain to levy and computation of interest under Section 234A and 234B of the Act.

7.2. The grievance of the Revenue is that the CIT(A) has directing the Assessing Officer to compute assessed tax after reducing the tax which is deductible at source by the payer from out of the tax on the total income determined on regular assessment and charge interest under Section 234B of the Act accordingly. We note that this issue stand settled by the judgment of the Hon‟ble Supreme Court in the case of Director of Income Tax, New Delhi vs. Mitsubishi Corporation : [2021] 438 ITR 174 (SC)[17-09-2021] wherein it has been held that prior to Assessment Year 2013-14, prior to the Financial Year 2012-13, an assessee was permitted to reduce the amount of income-tax which was deductible at source while computing the advance tax liability and therefore an assessee cannot be held to have defaulted in payment of its advance tax liability. Accordingly, no interest would be charged under Section 234B of the Act.

7.3. In view of the above Ground No. 6 of Departmental appeal is dismissed and Ground No. 2 raised in Appeal by GCC is disposed off as being infructuous.

Assessment Year 2003-04

8. We would now take up cross-appeals/cross-objection for the Assessment Year 2003-04. The Grounds raised in the appeals/cross-objections for the Assessment Year 2003-04 are as under:

ITA No. 1444/Mum/2009

8.1 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 (Appeals) erred in allowing the benefit of India Singapore Tax Treaty to the assessee in respect of receipts of US $ 20,50,000 from Set Satellite (Singapore) Pte Ltd., („SET)‟

2. On the facts and in the circumstances of the case and in law, the ld. CIT (Appeals) erred in holding that Article-24 of the India Singapore Tax Treaty is not applicable and also holding that the income is taxable under Article-12 of the said treaty in respect of income from Prasar Bharati and AIR.

3. On the facts and in the circumstances of the case and in law, the ld. CIT (Appeals) erred in holding that income received by way of payments from SET in a third country Jersey would not be hit by Article-24 of the India Singapore Tax Treaty.

4. On the facts and in the circumstances of the case and in law, the ld. CIT (Appeals) erred in holding that the payment o f Rs.56,80,84,725/- made by SET to the assessee would be covered by Article-12(2) of the India Singapore Tax Treaty and thus granting benefit under the said Treaty which benefit was not available to the assessee.

5. On the facts and in the circumstances of the case and in law, the ld. CIT (Appeals) erred in holding that Article-24 of the India Singapore Tax Treaty is not applicable in respect o f income from “Royalty” received from LG, Hero Honda and Hutchinson Max Telecom and further erred in holding that the same would be taxable under Article-12 of the said Treaty.

6. On the facts and in the circumstances of the case and in law, the ld. CIT (Appeals) erred in apportioning 50% of the income received as “Royalty” from LG, Hero Honda and Hutchinson Max Telecom as not being “Royalty” and which income was assessable under section 9(1)(vi) of the Income Tax Act, 1961 and not under the said treaty.

7. On the facts and in the circumstances of the case and in law, the ld. CIT (Appeals) 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 under section 234B of the Act accordingly.

The Appellant prays that the order of the ld. CIT (Appeals) on the above grounds be set aside and that of the Assessing Officer restored.”

Co No. 160/Mum/2009 in ITA No. 1444/Mum/2009

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

“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.

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

ITA No. 1510/Mum/2009

8.3 The Assessee has raised the following grounds of appeal:

“Ground No. 1

The learned CIT(A) has erred in holding that the assessment can be re-opened under section 147 of the Income Tax Act, 1961 (‘Act’).

The Appellant prays that the entire proceedings under Section 147 of the Act be declared as void ab-initio and hence invalid.

Ground No 2

The learned CIT(A) has erred in holding that payments made by Sony Entertainment Television Pte Limited (‘SET Singapore’) to the Appellant are taxable as ‘Royalty under Article 12 of the India – Singapore Double Tax Avoidance Agreement (“India – Singapore Tax Treaty’).

The Appellant prays that the payments made by SET Singapore to the Appellant are not in the nature of ‘Royalty”.

Ground No. 3

The learned CIT(A) has erred in holding that the payments made by SET Singapore to the Appellant are taxable in India.

The Appellant prays that the payments made by SET Singapore to the Appellant are not liable to tax in India.

Ground No. 4

The learned CIT(A) has erred in computing the taxable profits o f the Appellant with respect to payments made by SET Singapore without considering the fact that the global losses incurred by the Appellant.

The Appellant prays that in view of the global losses, payments made by SET Singapore ought not to be taxed in India.

Ground No. 5

The learned CIT(A) has erred in holding that 75 percent of the 81 payments made by SET Singapore are for use of copyright in ‘live feed’ and the balance 25 percent are for use of other copyrights.

The Appellant prays that the entire payments made by SET Singapore to the Appellant are towards ‘live feed” and not for use of copyright in ‘live feed’.

Ground No. 6

The learned CIT(A) has erred holding that payments made All India Radio to the Appellant taxable India “Royalty” under Article of the India-Singapore Tax Treaty.

The Appellant prays that payments made AIR cannot characterised as ‘Royalties’ and such they not taxable India.

Ground No. 7

The learned CIT(A) has erred in holding that payments made by Prasar Bharati Broadcasting Corporation India (“Prasar Bharati’) to the Appellant are taxable India “Royalty” under Article 12 o f the India – Singapore Tax Treaty.

The Appellant prays that the payments made by Prasar Bharati cannot be characterised as Royalties” and as such they are taxable in India.

Ground No. 8

The learned CIT(A) erred in holding 50 percent of the payments made LG Electronics Private Limited (“LG”), Hero Honda Motors Private Limited (Hero Honda’) and Hutchison Max Telecom Private Limited (Hutch’) to the Appellant for the use o f trademark, tradename and copyright and accordingly taxable as “Royalty” under Article 12 of the India- Singapore Tax Treaty

The Appellant prays that the entire payments made by LG, Hero Honda and Hutch to the Appellant are not be characterised as ‘Royalty and as such they are not taxable in India.

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

9. The relevant facts, in brief, relating to the proceedings for the Assessment Year 2003-04 are as under:

9.1 During the Financial Year 2002-03 relevant to the Assessment Year 2003-04, the two ICC-Events were held. First, 2002-ICC Knockout Trophy in Sri Lanka (September 2002), and Second, 2003-ICC World Cup in South Africa, Kenya and Zimbabwe (February-March 2003)

9.2 For the relevant previous year SET had rights/broadcasting rights in terms of THA for the aforesaid ICC-Event. GCC earned USD.7,99,50,000/- from SET as „License Fee‟. Further, GCC also earned fees of USD 1,22,00,000/- and USD 1,10,000/- for grant of broadcasting rights to Prashar Bharti (Broadcasting Corporation of India) and All India Radio, respectively.

9.3 GCC also earned sponsorship fee of USD 39,71,200/- from LGEIL, USD 25,51,000/- from HH and USD 15,22,780/- from Hutchison Max Telecom Private Limited (For short „Hutch‟).

9.4 GCC earned aggregate revenue of USD 16,01,27,908/-(including the above stated revenues) for the Assessment Year 2003-04

Return of Income

9.5 GCC filed return of income in India on 27.11.2003 declaring income of INR.55,67,480/- after claiming benefit of DTAA on the grounds that only revenues amounting to USD 116,611/-were liable to tax in India as „royalties‟ while the balance of 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, the same were not taxable in India as „Business Income‟. Further, the aforesaid 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

9.6 The return of GCC was processed under Section 143(1) of the Act. Subsequently, the re-assessment proceedings were initiated under Section 147 of the Act as notice under Section 148 of the was issued to GCC on 28.04.2005 after recording reasons10.

9.7 The Assessing Officer framed assessment of GCC under Section 148 read with Section 143(3) of the Act vide order dated, 15.12.2006, at income of INR.153,47,12,241/- 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 were attracted

(b) Amount received from SET, Prashar Bharti and All India Radio for grant of rights/broadcasting rights were taxable as „royalty‟ under the provisions of the Act.

(c) Amounts received from LGEIL, HH and Hutch 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 (i.e., article such as hoardings, banner, boards, scoreboards, screens, tickets, websites, & flags).

(d) Assessee was liable to pay consequential interest under Section 234B of the Act.

Appellate Proceedings before CIT(A)

9.8 Being aggrieved GCC preferred appeal before the CIT(A). Vide order dated, 18.11.2008, the CIT(A) disposed off the Appeal 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 payments received from SET, Prashar Bharti and AIR were taxable in India as ‘royalty’ in terms of Article 12(2) of the DTAA11.

(c) The CIT(A) concluded that 50% of the payments from LGEIL, HH and Hutch 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) held that interest under Sections 234B of the Act was not leviable.

Present Cross-Appeals before Tribunal

9.9 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.

10. Ground No. 1 of Appeal of the Assessee (ITA.No.1510/MUM/ 2006)

10.1. We would first take up Ground No. 1 raised by GCC in its appeal for the Assessment Year 2003-04 as it goes to root of the matter. GCC has challenged the reopening of assessment under Section 147 of the Act. The contention of GCC is that the entire re-assessment proceedings void-ab-initio and therefore, liable to be set aside.

10.2. The Ld. Senior Counsel for GCC submitted that the return of income for Assessment Year 2003-04 was filed before due date on 27.11.2003. In the notes to return of income all primary facts were disclosed fully and truly. The return was not selected for scrutiny as no notice under Section 143(2) of the Act was issued to GCC.

10.3. The Ld. Senior Counsel emphasized on the fact that re­assessment proceedings were initiated under Section 147 of the Act by relying upon the Assessment Order for the Assessment Year 2002-03, and submitted that for initiating re-assessment proceedings the Assessing Officer did not have ‘reason to believe’ that income chargeable to tax had escaped assessment which is sine-qua-non for the initiation of the proceedings. He submitted that the expression „reason to believe‟ under section 147 of the Act postulates a bona fide belief that income has escaped assessment and the existence of objective material and reasons for such belief. For assessment to be reopened, new material should come to the notice of the Assessing Officer. The Assessing Officer should apply his/her mind to such material before initiating re-assessment. The material on record should be such as to lead to the inference that income has escaped assessment. Thus, the belief on the basis of which the Assessing Officer seeks reassessment must not be arbitrary or irrational and should postulate a bona fide belief that income has escaped assessment. In order to support the aforesaid contentions reliance was placed of the judgment of Hon‟ble Supreme Court in the case of Commissioner of Income Tax, Delhi vs. Kelvinator of India Ltd. : 320 ITR 561 and the decision of the Mumbai Bench of the Tribunal in the case of Assistant Director of Income-tax (International Taxation)-1 (1), Mumbai vs. Delta Airline Inc. : (2008) 26 SOT 514 (Mumbai)

10.4. The Ld. Senior Counsel for GCC submitted that in the present case, the learned Assessing Officer had initiated reassessment proceedings based on the position adopted by the Assessing Officer in the assessment order of Assessment Year 2002-2003. Such re-opening on the basis of assessment proceedings conducted for AY 2002-03 does not demonstrate that there is any new material on record indicating that any income has escaped assessment for AY 2003-04 as envisaged in section 147 of the Act. In this regard, reliance was on following judicial precedents – Das Friends Builders Pvt. Ltd vs. Deputy Commissioner of Income Tax 2006] 280 ITR 77 (Allahabad), and Mohan Gupta (HUF) vs. Commissioner of Income Tax – XI: [2014] 366 ITR 115 (Delhi)[28-01-2014]

10.5. He submitted that in the absence of specific material showing/establishing escaped income for the Assessment Year 2003-04, no belief could have been formed about the escaped income merely on the basis of assessment of

Assessment Year 2002-03. Thus, the initiation of the proceedings under Section 147 of the Act for the Assessment Year 2003-2004 are bad in law and therefore, should be quashed.

10.6. He further submitted that provisions of Section 147 of the Act cannot be invoked to cover the loss of opportunity to frame assessment under Section 143(3) of the Act. The return filed by GCC had become final in the absence of initiation of assessment proceedings under Section 143(3) of the Act within the prescribed time, and the notice under Section 148 of the Act cannot be issued only to revive the time for issuance of notice under Section 143(2) of the Act.

10.7. Per contra, the Ld. Counsel for the Revenue submitted that re-assessment proceedings were valid and in this regard relied upon paragraph 6 of the order of CIT(A) which reads as under:

“6. I have gone through the submissions. In this case, the return for this A.Y. was processed u/s. 143(1). No assessment u/s. 143(3) was done in this case earlier. From the materials collected during the assessment proceedings for A.Y. 2002-03, the A.O. was satisfied that income has escaped for A.Y. 2003­043. The issue involved is whether certain receipts are taxable in India or not. The nature of receipts are same in both the years i.e. A.Y. 2002-03 and A.Y. 2003-04. What is applicable for A.Y. 2002-03 is equally applicable for A.Y. 2003-04. Hence, there is no guess work involved. In view of this, the case law relied by the appellant (280 ITR 77) is not applicable to the facts of this case. Further, in this case, no assessment u/s. 143(3) was not completed earlier for A.Y. 2003-04. The return was only processed u/s. 143(1). In view of this, the assessment can be re­opened even if there is no failure on the part of the appellant to disclose all material facts.”

10.8. We have considered the rival submissions and perused the material on record including judicial precedents cited by both the sides. We note that for Assessment Year 2003-04 the return of income was processed under Section 143(1) of the Act. It is settled legal position that the processing of income under Section 143(1) of the Act does not amount to framing of assessment12. Since assessment is not framed, it cannot be said that any opinion was formed by examining the return and/or the documents accompanying the return and therefore, question of change in opinion and consequently, the requirement of having „fresh‟ tangible material (as opposed to tangible material) does not arise. The material/information gathered during the assessment proceedings for one assessment year can constitute tangible material for initiating assessment for another assessment year. The Assessing Officer is not precluded from reopening the assessment of an earlier year made on the basis of fresh material in the course of assessment proceedings of a subsequent year13.

10.9. The return of income for the Assessment Year 2003-04 was merely process under Section 143(1) of the Act. The income tax return and/or accompanying documents were yet to be examined and therefore, no opinion was formed on the same. The return of income, the accompanying documents as well as the material/information gathered during the course of assessment for the Assessment Year 2002-03 (including Master Right Agreement, Head Agreement and Production Agreement which were relevant/operative for the Assessment Year 2003-04) and the findings returned in the Assessment Order for the Assessment Year 2002-03 constituted tangible material on the basis of which the Assessing Officer formed the belief that taxable income had escaped assessment. Further, Explanation 2 to Section 147 of the Act specifically provides that income chargeable to tax shall be deemed to have escaped assessment where return of income has been furnished but no assessment has been made, and it is noticed by the Assessing Officer that the Assessee has understated the income or has claimed excessive deduction or relief in the return. Thus, there existed tangible material on the basis of which the Assessing Officer formed belief that income chargeable to tax for the Assessment Year 2003-04 has escaped assessment.

10.10. In view of the above, we hold that re-assessment proceedings for the Assessment Year 2003-04 were initiated in compliance with the provisions of Section 147/148 of the Act and the same cannot be regarded as bad in law. Accordingly, Ground No. 1 raised by GCC in Appeal is dismissed.

We proceed to examine Ground No. 1 raised by the Revenue in its appeal along with connected grounds raised by the Assessee in its appeal and/or its cross objections.

11. Ground No. 1,2 and 3 of Departmental Appeal (ITA.No. 1444/Mum/2009) and the Cross-Objection of the Assessee (CO No. 160/Mum/2009)

11.1. Ground No. 1, 2, and 3 pertain to are directed against the order of CIT(A) granting benefit of the provisions of the DTAA to GCC. Both the sides agreed that our findings/adjudication in relation to this issue for the Assessment Year 2002-03 shall apply to the aforesaid grounds raised by the Revenue. In paragraph 4 to 4.12 above, we have concluded that GCC that the provisions of Article 24 of the DTAA are not attracted and GCC would be entitled to claim benefit of the provisions of DTAA for the Assessment Year 2002-03. There is no change in the facts and circumstances for the Assessment Year 2003­04. Accordingly, we hold that the GCC would be entitled to claim the benefit of provision of DTAA for the Assessment Year 2003-04. Accordingly, Ground No. 1, 2, and 3 raised by the Revenue are dismissed. Cross objection raised by the GCC is disposed off as being infructuous.

12. Ground No. 4 of Departmental Appeal (ITA.No. 1444/Mum/2009) along with Ground No. 2 to 5 of Appeal of the Assessee (ITA.No.1510/MUM/ 2006)

12.1. Ground No. 4 raised by the Revenue pertain to order of CIT(A) holding that the payment of INR 56,80,84,725/-received from SET would be taxed at the beneficial right provided in Article 12(2) of DTAA. In Ground No. 2 to 5 raised by GCC in Appeal for the Assessment Year 2003-04, GCC has also challenged the order of CIT(A) contending that CIT(A) has erred in holding that payment received from SET were liable to tax in India as royalty under the provisions of Article 12 of the DTAA read with the provisions of the Act.

12.2. During the hearing both the sides agreed that there is no change in the facts and circumstances of the case for the Assessment Year 2003-04 and therefore, they agreed that our finding/adjudication on this issue for the Assessment Year 2003-03 shall apply mutatis mutandis for Assessment Year 2003-04. Accordingly, in view of our findings/adjudication in paragraph 5 to 5.63 above, we hold that 25% of the Licensee Fee paid by SET to GCC for the Assessment Year 2003-04 is liable to tax in India as ‘royalties’ in terms of Article 12(2) read with Article 12(3)(a) of the DTAA and the provision of the Act.

12.3. In view of the above, Ground No. 2 to 5 raised by GCC and Ground No. 4 raised by the Revenue are dismissed.

13. Ground No. 5&6 of Departmental Appeal (ITA.No. 1444/Mum/2009) along with Ground No. 8 of Appeal by the Assessee (ITA.No.1510/MUM/ 2006)

13.1. Ground No. 5 and 6 raised by Revenue and Ground No. 8 raised by GCC pertain to income from sponsorship agreement received by GCC from various parties (i.e. LGEIL, HH and Hutchinson Max Telecom). We have already concluded that GCC would be entitled to claim benefit of the provisions of DTAA. Therefore, contentions raised by Revenue in this regard in Ground No. 5 are rejected. Both the sides agreed that for the Assessment Year 2003-04 the nature of sponsorship fee as well as the rights and obligations of the parties to the sponsorship agreements were identical to the Assessment Year 2002-03 and therefore, our findings/adjudication in relation to sponsorship fee received by GCC for the Assessment Year 2002-03 shall apply mutatis mutandis to the sponsorship fee received by GCC during the Assessment Year 2003-04. In paragraph 6 to 6.19 above we have held that the sponsorship fee would not be liable to tax in India in the hands of GCC for the Assessment Year 2002­03. Accordingly, we hold that for Assessment Year 2003-04 also, the sponsorship fee of INR received LGEIL, HH and Hutch would not be liable to tax in India in the hands of GCC as „royalties‟ under the provisions of the DTAA. Accordingly, Ground No. 5 and 6 raised by the Revenue are dismissed whereas Ground No. 8 raised by the Assessee is allowed.

14 Ground No. 7 of Departmental Appeal (ITA.No. 1444 /Mum/2009)

14.1. Ground No. 7 raised by Revenue pertains to interest under Section 234B of the Act. In view of the reasoning given in paragraph 7.2 above, we hold that with the provision of Section 234B shall not be attracted for Assessment Year 2003-04, and therefore, Ground No. 7 raised by Revenue is dismissed.

15 Ground No. 6 & 7 of Appeal of the Assessee (ITA.No.1510 /MUM/ 2006)

15.1. As regards Ground No. 6 and 7 relating to payments received by GCC from All India Radio (AIR) and Prashar Bharti Broadcasting Corporation of India (for short ‘Prasar Bharti’) are concerned, during the course of hearing arguments both the sides adopted the arguments made in respect of ‘License Fee’ received by GCC from SET and agreed that our findings/adjudication in respect of „License Fee‟ received from SET shall apply in mutatis mutandis to the payments received from AIR and Prashar Bharti. Accordingly, in view of our findings in paragraph 11 above, we hold that 25% of the payments received from AIR and Prashar Bharti for the Assessment Year 2003-04 shall be liable to tax in India as „royalties‟ in terms of Article 12(2) read with Article 12(3) of the DTAA and the provisions of the Act. Accordingly, Ground No. 6 & 7 raised by the GCC are dismissed.

16 In result, for the Assessment Year 2002-03 appeal of the Revenue is dismissed, and cross-objection by the Assessee are disposed off as infructuous. Appeal of the Assessee is partly allowed. Similarly, for the Assessment Year 2003-04 appeal of the Revenue is dismissed, and cross-objection by the Assessee are disposed off as infructuous. Appeal of the Assessee is partly allowed.

Order pronounced on 14.12.2022.

Notes:-

1 Paragraph 4 of SET Satellite (Singapore) Pte. Ltd. v. Deputy Director of Income-tax, (International Taxation), Range-2(1), Mumbai : 2011] 44 SOT 113 (Mumbai) (URO)

2 A joint venture company between WSG and an Indian company Nimbus Communication

3 Refer to page 11 of 39 of the Assessment Order for the Assessment Year 2002-03, dated 31.03.2005.

4 Placed at page 74 to 82 of the paper-book for the Assessment Year 2002-03, and page 147 to 188 of paper-book for the Assessment Year 2003-04

5 Miscellaneous Application arose out of the appeals filed by SET before the Mumbai Bench of the Tribunal disposed vide order dated 25.06.2010 reported in 132 TTJ 459.

6 Thought production agreement was not placed on record, but the same was relied upon by both the sides to the extent it was reproduced by the CIT(A) in paragraph 16 of his order disposing appeal for the Assessment Year 2003-04.

7 Deed Regarding Novation, dated 26.03.2002

8 Refer to Clause 5.1 of the Master Rights Agreement

9 Refer to Clause 5.2 of the Master Rights Agreement

10 Reproduced on page 2 of the Assessment Order for Assessment Year 2003-04

11 Referred to paragraph 17.13 of the order passed by CIT(A)

12 ACIT vs. Rajesh Jhaveri Stock Brokers Pvt. Ltd. (2007) 291 ITR 500 (SC) and DCIT vs. Zuari Estate Development and Investment 373 ITR 661 (SC)

13 ESS KAY Engineering Company Ltd. Vs CIT: 247 ITR 818 (SC)