ADIT vs. Neo Sports Broadcast Pvt Ltd (ITAT Mumbai)

S. 9: Payment for “live telecast” of event is not “royalty” nor arising from “business connection”

The assessee entered into an agreement with Nimbus, a Singapore entity, for receiving and broadcasting matches that were to be played in Bangladesh. The signals to be broadcast were on account of live matches as well as recorded matches. The assessee applied for a certificate u/s 195 in which it accepted that the payment on account of recorded matches was in the nature of “royalty” but claimed that the payment towards live matches was not “royalty”. The AO held that there was no distinction between the payment for live matches and that for recorded matches and both were assessable as “royalty”. He also held that as the matches were to be broadcast in Indian Territory and the income by way of advertisements and subscription was to be received by the assessee, there was a “business connection” between Nimbus and receipt in India. On appeal, the CIT (A) upheld the AO’s finding on “business connection” though he reversed the finding that the payment for live matches was “royalty”. On further appeal, HELD deciding both issues in favour of the assessee:

(i) Expl 2 to 9(1)(vi) defines “royalty” to mean consideration for “(v) the transfer of all or any rights in respect of any copyright.” Under the Copyright Act, the term “copyright” means the exclusive right to use the “work” in the nature of cinematography. The question of granting exclusive right to do any work can arise only when such “work” has come into existence. The existence of “work” is a precondition and must precede the granting of exclusive right for doing of such work. Unless the work itself is created, there is no question of a copyright of such work. The result is that there is no copyright in live events and depicting the same does not infringe any copyright. Accordingly, the amount paid for broadcast of live matches is not assessable as “royalty” (clause 314 (220) of the Direct Tax Code Bill, 2010 referred to which proposes to define “royalty” to include “live coverage of any event”);

(ii) The department’s argument that because the matches will be broadcast in India and the assessee will earn advertisement & subscription income, Nimbus has a “business connection” in India is not correct because Nimbus has merely given a license for the live broadcast of the matches and continues to retain the rights in such broadcast. The mere act of allowing the assessee broadcast the matches for consideration does not constitute a “business connection” in India. In order to constitute a “business connection”, it is necessary that some sort of business activity must be done by the non-resident in the taxable territory of India (CIT vs. R.D. Agarwal 56 ITR 20 (SC) referred).