The Delhi High Court, in its judgment dated 24 December 2025 in case of LG Electronics India Pvt. Ltd. & Anr. Vs Director of Income Tax (International Taxation) & Anr. , examined the tax character of sponsorship and advertising payments made by LG Electronics India Pvt. Ltd. to Global Cricket Corporation Pvt. Ltd., a Singapore-based entity, in connection with ICC cricket events, and the consequent obligation to deduct tax at source under section 195 of the Income-tax Act, 1961.
The core issue before the Court was whether a portion of the consideration paid by the Indian company for sponsorship and advertising rights could be re-characterised as “royalty” for the right to use trademarks of the International Cricket Council, thereby attracting withholding tax under section 195 read with section 9(1)(vi) of the Act and Article 12 of the Indo-Singapore Double Taxation Avoidance Agreement.
The factual background was largely undisputed. Global Cricket Corporation Pvt. Ltd., incorporated in Singapore, held commercial and marketing rights for ICC cricket events pursuant to arrangements with ICC group entities. Under a Global Partnership Agreement dated 28 June 2002, GCC granted to LG group entities, including LG Electronics India Pvt. Ltd., extensive sponsorship and advertising rights in relation to ICC events. These rights included wide on-ground visibility through perimeter boards, electronic screens, tickets, official websites and other promotional platforms, together with a non-exclusive right to use ICC marks and event marks on advertising material across the licensed territory, which was defined as the entire world. Out of the total consideration of USD 27.5 million payable under the arrangement, the Indian entity bore USD 11 million. Prior to remittance, LG Electronics India sought a certificate under section 195 permitting payment without deduction of tax.
The Assessing Officer rejected the request and held that the entire payment was in the nature of royalty, as it involved acquisition of rights to use ICC trademarks, and therefore liable to tax withholding. In revision under section 264, the Director of Income Tax granted partial relief by recognising that the agreement embodied two elements. According to the revisional authority, two-thirds of the consideration was attributable to advertising and booking of space, while one-third represented consideration for the right to use ICC trademarks and event marks. Accordingly, one-third of the payment was treated as royalty taxable in India at the rate of fifteen per cent in terms of the Indo-Singapore DTAA.
Before the High Court, the assessee contended that the dominant purpose of the agreement was advertising and sponsorship, and that the use of ICC marks was merely incidental and ancillary to that purpose. Reliance was placed on the decision of the Delhi High Court in Formula One World Championship Ltd., affirmed by the Supreme Court, and on the judgment in Sheraton International Inc., to argue that incidental use of trademarks in the course of advertising does not amount to royalty.
The Revenue, on the other hand, emphasised the express terms of the Global Partnership Agreement, which granted to LG a right to use, reproduce and publish ICC and event marks worldwide, including on websites, promotional material and other media far beyond the physical venues of the matches. It was argued that such rights constituted substantive intellectual property rights in the nature of trademarks and squarely fell within the statutory and treaty definitions of royalty.
The High Court upheld the stand of the Revenue. On a close reading of the agreement, the Court found that there was an express and substantive grant of trademark rights in favour of LG, with a licensed territory extending across the world and with no restriction confining the use of marks to in-stadium advertising alone. Considerable significance was attached to the assessee’s own admission before the revisional authority that there was an element of use of ICC trademarks, even though it was sought to be characterised as incidental. Once the use of trademark was conceded, the Court held, the consideration attributable to such use necessarily fell within the definition of royalty.
The argument of incidental use was expressly rejected. The Court distinguished the decision in Formula One World Championship Ltd. on facts, observing that in that case the Indian entity was the event promoter and was compelled to use the Formula One marks solely to promote and conduct the event, with strict prohibitions on any commercial exploitation of the marks. In contrast, LG was not an event promoter and was granted wide rights to use ICC and event marks on advertising and promotional material globally, including on its website and other media unrelated to the physical conduct of the matches. The decision in Sheraton International Inc. was also held to be fact-specific and inapplicable, as it arose in the context of revenue-sharing arrangements where trademark use was found to be merely incidental to hotel operations.
Section 9(1)(vi) of the Income-tax Act, 1961 was analysed by the Court as the primary charging provision deeming royalty income to accrue or arise in India. Explanation 2 to section 9(1)(vi) expressly includes consideration for the transfer of all or any rights, including the granting of a licence, in respect of a trademark, as well as consideration for the use or right to use a trademark. Applying this statutory definition, the Court held that the consideration attributable to the right to use ICC and event marks clearly fell within the scope of royalty deemed to accrue in India, since the payment was made by a resident and the rights were utilised for the assessee’s business and branding activities.
The Court then examined the relevant DTAA provisions. Article 12 of the Indo-Singapore DTAA defines “royalties” to mean payments of any kind received as consideration for the use of, or the right to use, any trademark, design, model, plan or similar property. Article 12 further permits taxation of such royalties in the source State, subject to a maximum rate of fifteen per cent of the gross amount where the recipient is the beneficial owner. The Court held that the treaty definition fully aligned with the domestic law position under section 9(1)(vi), and that the rate of withholding applied by the revisional authority was expressly sanctioned by the DTAA.
The apportionment adopted by the Director of Income Tax, attributing two-thirds of the consideration to advertising and one-third to royalty, was upheld as a reasonable factual allocation based on the composite nature of the agreement. The Court found no perversity, arbitrariness or violation of principles of natural justice in the orders passed under sections 195 and 264, and reiterated that proceedings at the stage of section 195 involve a prima facie determination of taxability for withholding purposes.
In conclusion, the Delhi High Court dismissed the writ petition and affirmed that one-third of the amount of USD 11 million paid by LG Electronics India Pvt. Ltd. to Global Cricket Corporation Pvt. Ltd. constituted royalty chargeable to tax in India, liable to withholding tax at fifteen per cent under section 195 of the Income-tax Act, read with section 9(1)(vi) and Article 12 of the Indo-Singapore DTAA.
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