The Mumbai Bench of the Income Tax Appellate Tribunal (Tribunal) has recently expressed important views in the case of ADIT vs. Neo Sports Broadcast (P) Ltd. (ITA No.99/Mumbai. 2009) in the context of transfer of right to broadcast live TV programmes in India. The views expressed relate to (i) whether payment towards the transfer of right to broadcast live cricket matches is for royalty; and (ii) whether such transfer by a non-resident can constitute business connection in India.

The assessee entered into agreement with Nimbus Sports International Pte. Ltd. (Nimbus) for receiving and broadcasting matches that were to be played in Bangladesh for:-

•Grant of licence for live broadcast

•Grant of licence for recorded broadcast

An application u/s 195(2) of the I.T. Act, 1961 (Act) was filed before the A.O. for Nil withholding tax certificate on account of payment to be made for grant of licence of live broadcast as it was not in the nature of royalty.

ACCRUED INCOME

The A.O. held that there was a business connection between Nimbus and receipts in India as the matches were to be broadcasted in India and without receipt of signal on account of matches to be played, no income can accrue to the taxpayer. The CIT(A) held that there was a business connection of Nimbus in India and the payment towards live telecast was not covered by Explanation 2 to s.9(1)(vi) of the Act, being not royalty. Hence, no TDS was necessary.

The I.T. Department contended before the Tribunal that:-

[i] The payment made for broadcasting of live matches was in the nature of royalty for the transfer of ‘any copyright' and falls within the scope of s.14(a)(iii) of the Copyright Act, 1957, similar to performing the work in public, as playing of cricket match.

[ii] The live telecasting itself involves transfer of copyright.

Tribunal's decision

The Tribunal decided these issues against the I.T. Department saying:-

Reg: Royalty claim.

* The payment cannot be treated for copyright only under sub-clauses of s.14(1) of the Copyright Act unless the main provision is satisfied, which is not satisfied. Cricket matches cannot be equated with either literacy, dramatic, musical, artistic work or a sound recording

* As per s.2(y)(ii) and s.2(f) of the Copyright Act, the ‘copyright' means exclusive right to use the ‘work' in the nature of cinematography. Therefore, the existence of ‘work' is a pre-condition and it must be preceded by the granting of exclusive right for doing such work. The Tribunal held that the relevant criteria was not capturing images and sending it to control room, but telecasting the final image.

* As per s.14 of the Copyright Act, the meaning of copyright in the context of cinematograph film refers to the making a copy of a film and not its original recording.

* Tribunal has held that there is no copyright in the live events.

* According to the Tribunal, the definition of ‘royalty' under the Act does not include ‘live coverage of any event'. The copyright and live coverage is distinct and independent of each of other. To cover such situations, the Direct Taxes Code, 2010 (DTC) has exclusively included ‘live coverage of any event' under the head ‘royalty'.

Reg: Business connection.

The Tribunal has held that mere act of allowing the taxpayer by Nimbus to broadcast live matches for a defined consideration would not constitute a business connection in India.

In order to constitute business connection in India, it is necessary that some sort of business activity must be done by non-resident in India [see CIT v. R.D. Aggarwal & Co. (1965) 56 ITR 20 (SC). If the non-resident only allows resident to exploit certain right on commercial basis, it cannot be said that the non-resident has carried out any business activity in India and had business connection in India.

The Tribunal has taken a pragmatic view, distinguishing broadcasting of live and recorded programmes and has held that royalty can be paid only in respect of ‘recorded' programmes because live broadcasts do not get covered under the term ‘copyright'.

The Tribunal's view will, however, get overruled by the DTC Bill because in the new law, live coverage of any event has been included within the definition of ‘royalty'.

(The author is a former chairman of CBDT.)

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