Questions raised before AAR was;

Whether the payment to be made by LG Electronics India Pvt. Ltd. a company incorporated in India to DDI Mauritius Ltd.  for grant commercial rights under marketing agreement will be taxable in India ?

Whether  LG India is obliged to withhold tax on payment to IML for grant of commercial rights under the marketing and advertisement agreement  ?

Without prejudice to above whether  LG India is required to deduct tax at source on the payment to IML for commercial rights under marketing and advertisement  agreement  at the rate of 10 per cent. plus applicable surcharge and cess as per the provisions of section 115A(1)(b) (AA) of the Income-tax Act, 1961 ?

AAR held that  payment  for availing of  rights in respect of  grant of  tickets, boards and branding etc-Neither royalty nor fees for technical services  hence not liable to deduct tax at source.   That the payments may constitute “business profits” in the hands of the recipient to which article 7 of the DTAA would apply, but in the absence of any permanent establishment of the payee in India, they were not chargeable to tax in India. That the liability to deduct tax in respect of the games played outside India was only under section 195 of the Act under which the payment being made should be chargeable under the provisions of this Act, and therefore the payments were not liable to withholding tax under the provisions of the Act. Payments as regards games played in India subject to withholding tax at rates in force at relevant times.  That the payment made by the assessee to the Mauritius company under the marketing and advertising agreement was not in the nature of royalty. Therefore, the rate as prescribed in section 115A(1)(b)(AA) could not be applied. The liability of the assessee to deduct tax was under section 194E of the Act in respect of the games played in India and the rate prescribed in this section was 10 per cent. which was increased to 20 per cent. with effect from July 1, 2012. Accordingly, the assessee was required to deduct tax at the rate or rates as prescribed in section 194E of the Act at the relevant point of time. The assessee could not deduct tax at source at the rate prescribed under the DTAA even if that rate was beneficial. It was only the recipient who could take the benefit of the DTAA for the beneficial rate under the DTAA.