INCOME TAX ACT, 1961

--Income deemed to accrue or arise in India under section 9(1)(vi)--RoyaltyLive telecast of cricket matches in India--The assessee filed an application under section 195(2) of the Act seeking permission for lower/nil deduction of income tax on the following payments to be made to M/s. 'Nimbus' in pursuance to the agreement dated 20.02.2008:— (a) Grant of license for live broadcast amounting to US$ 56,24,920. (b) Grant of license for recorded broadcast amounting to US$ 2,52,000. This application was filed requesting for Nil deduction certificate on account of payment to be made under (a) above; and a certificate for rate as applicable to Royalty payment under (b) above. The Dy. Director (International Taxation) noted that the assessee entered into an agreement with Nimbus, a commercial agent of Bangladesh Cricket Board 'BCB'), for receiving and broadcasting matches that were to be played in Bangladesh. It was further observed that the signals to be broadcasted by the assessee were to be both on account of live matches and on account of recorded matches. The assessee contended that the payment to be made on account of recorded matches was in the nature of royalty but that towards live matches was not covered within the definition of royalty and hence not taxable. The DDIT noticed that the matches were to be broadcasted in Indian Territory and the income by way of advertisement revenue and subscription revenue was to be received by the assessee. It was observed that without the receipt of signal on account of the matches to be played, no income would accrue to the assessee on this account. He, therefore, held that there was a business connection between Nimbus and receipts in India. He further did not find any distinction between payment made towards broadcasting of live matches and pre-recorded matches as in his opinion both were covered within Explanation 2 to section 9(1)(vi), being in the nature of royalty. The contention of the assessee that India Bangladesh DTAA be applied as Nimbus was only a marketing agent of BCB, also did not find favour with the DDIT because in his view Nimbus was incorporated in Singapore and it was Nimbus who was going to have dealings with the assessee in India. It was also noticed that as per clause 3.3 of the agreement between the assessee and Nimbus, the payment was to be made in a bank account maintained in London. The DDIT, therefore, held that this transaction would be covered by Article 24 of the India-Singapore DTAA and hence no benefit even under Indo-Singapore DTAA would be available. In the final analysis the DDIT held that the request for grant of Nil deduction certificate in respect of payment for live broadcasting was not acceptable. In the first appeal the Commissioner (Appeals) upheld the DDIT's contention as regards business connection of Nimbus in India. He held that without the receipt of signal on account of matches to be played none of this income would accrue to the assessee. However he did not accept the DDIT's order that payment to Nimbus towards live telecast was covered within the meaning of royalty as per Explanation 2 to section 9(1)(vi). It was held that since payment towards live telecast of events was not a royalty payment, there was no requirement of deduction of tax under section 195. Held: From the definition of 'royalty', under DTC Bill 2010 it can be seen that clause (g) refers to royalty as consideration for transfer of (i) any copyright of a literary, artistic or scientific work; and (iii) 'live coverage' of any event. Categorizing copyright and live coverage in distinct sub-clauses fairly indicates that these have been rightly understood as independent of each other. If 'live coverage' had been a part of copyright of any work, as has been contended on behalf of the revenue, then there was no need to classify live coverage as a separate item. It, therefore, clearly emerges that the definition of 'royalty' under the IT Act, 1961 does not include any consideration for live coverage of any event, which is now sought to be broadened by the Direct Tax Code 2010 by bring it distinctly within the purview of 'royalty'. A 'copyright' can be created only after the 'work' has been performed for the first time. Use of such work at a later point of time shall lead to exploiting the copyright in such work. Ex consequenti any consideration for live broadcasting cannot be considered as royalty for the transfer of copyright so as to fall within the domain of Explanation 2 to section 9(1)(vi). Thus it is held that the Commissioner (Appeals) has canvassed unimpeachable view on this aspect of the matter. The impugned order is, therefore, uphold to this extent.