1. Sahara India Financial Corporation Ltd. (tax payer) had entered into an agreement with IMG Canada, a foreign company through IMC India for sponsorship of the international cricket tournament between India and Pakistan to be played in Canada.
2. The sponsorship benefits inter-alia included:
3. The tax payer made a lump sum payment to the foreign company for the above sponsorship benefits.
4. The revenue authority was of the view that the payment for sponsorship right is in the nature of royalty payment. However, the Appellate Tribunal held that the payment to IMG Canada could not be called as royalty as contemplated under Article 13(3) of the India-Canada Tax Treaty.
Contentions of the Revenue
Ruling of the High Court
3. There was no transfer of copyright or the right to use the copyright by the foreign company to the tax payer and therefore the payment would not fall within article 13(3)(c) of the Tax Treaty. The reference in Article 13(3)(c) is to “any copyright” and it is not a reference to “any right”. Hence, the payment cannot be said to be in the nature of royalty payment.
It was held that the payment for sponsorship of a tournament will not fall under the ambit of “royalties” since there is no transfer of copyright or right to use the copyright.
Source: Sahara India Financial Corporation Limited Vs. DIT- Delhi High Court- ITA No. 1064 / 2007 dated 19 February 2010.