Receipts from broadcasting rights will not constitute as‘Royalty’ even if the same was covered under thedefinition of ‘Royalty’ u/s 9(1)(vi) of the Act

Facts of the Case:

  • Cricket Australia (hereinafter referred to as “the Assessee”) is a non-resident who filed its return of income for AY 2018-19, which subsequently taken up for scrutiny assessment. Assessing officer (AO) proposed to made addition to the returned income in respect to income received for license fee for live and non-live transmission rights by holding it as ‘Royalty’ income. The Assessee filed its objections against the draft assessment order before DRP, however DRP sustained the findings of AO.
  • The Assessee, against the final order passed by AO in pursuant of the directions given by the DRP, further filed appeal before ITAT, contending that income received for license fee for live and non-live transmission right should not be regarded as ‘Royalty’ and therefore, same should not be taxable in the hands of Assessee in India.
  • However, AO contented that there was a value addition in live transmission like there were studios having hosts speaking vernacular languages, interviewing experts and celebrity guests and playing short bites of replay of important moments in the game/match even as the game continues.
  • The small question that has been put forth for consideration before Hon’ble ITAT was whether Assessee was right in its contention and the said receipts were not regarded as ‘Royalty’.

Observation And Conclusion:

Hon’ble ITAT held that:

  • In the case of Fox Network Group Singapore Pte. Ltd. v. ACIT (International Taxation), Circle 1(3)(1), New Delhi [2020] 121 330, it was held that there was a clear distinction between a copyright and a broadcasting right, broadcast or live coverage which does not have a copyright, and therefore, payment for live telecast is neither payment for transfer of any copyright nor any scientific work so as to fall under the ambit of ‘Royalty’ under Explanation 2 to Section 9(1)(vi) of the Income Tax Act, 1961 (the Act).
  • Further, vide Finance Act 2012, explanation 6 has been added to the provisions of Section 9(1)(vi) of the Act, to include transmission by satellite, cable, optic fiber or by any other similar technology under the definition of ‘Royalty’.
  • However, Hon’ble Delhi High Court in the case of Director of Income Tax v. New Skies Satellite BV [2016] 68 8 (Delhi) has held that any change made to domestic law to rectify a situation of mistaken interpretation cannot bring about a unilateral legislative amendment into a treaty concluded between two sovereign states. Therefore, mere amendment to Section 9(1)(vi) cannot result into a change in the first determinative interpretation given to the word ‘Royalty’ and the only manner in which such change in position can be relevant is if such change is incorporated into the agreement itself and not otherwise.
  • Basis the above binding precedents, the additions made by the AO was not justified as AO nowhere pointed out the corresponding changes made in the DTAA as in the absence of any corresponding change into DTAA, the amended provision of Section 9(1)(vi) of the Act, would have no application. Therefore, the Assessee was right in its contention and the said receipts should not be added to the income of the Assessee.
SW Point of View: The ambulatory vs. statis approach vis the domestic income tax law and DTAA provisions have been repeatedly held in favour of the taxpayer, where in courts have held that change in domestic tax law, will not affect the DTAA provisions.  Further, on the categorization of payment, it has followed the earlier decisions where in copyright has said to not exist when it comes to live broadcasting.  This ruling will help in putting this issue to rest which otherwise had an ambiguity both in the hands of recipient and payer when it comes to taxation of such receipts.   

[2023] 153 630 (Delhi – Trib.)
Cricket Australia
Assistant Commissioner of Income-tax (IT)

Lakshay Prakash Jonwal, Direct Tax Associate, SW India