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Sama Ahmed

Foreign service providers engaged in covering live events have been facing issues as to taxability of payments received by them from India. In the past, the Delhi Bench of the Tribunal[1] had with reference to the India-Singapore tax treaty taken a view that services of production of and generation of live television signals rendered by a service provider is a technical service, hence liable to tax in India as ‘fees for technical service’.

 

A contrary view was recently taken by the Mumbai Bench of Tribunal in the case of IMG Media Ltd[2]. The Hon’ble Tribunal after undertaking a detailed analysis of the nature of services rendered by a service provider engaged in the coverage of live events held that the payments received for capturing and delivering of live audio and visual coverage of cricket matches is not taxable as fees for technical services, under the India-UK tax treaty. An analysis of this decision is as under:

live coverage

IMG Media Limited (‘IMG’), a tax resident of UK, was engaged by the Board of Cricket Control of India (‘BCCI’) for capturing and delivering live audio and visual coverage of cricket matches, which business was conducted under the brand name Indian Premier League, 2008 and 2009. Under the arrangement, IMG was to produce the program content and deliver it to the licensed broadcasters in the form of digitalized signals. BCCI was obligated to supply the equipments like cameras, microphones etc. which were required for undertaking the activity of producing the program content to the service providers. The broadcasters appointed by BCCI were in turn responsible for broadcasting the live matches.

 

In this factual matrix, the Tribunal observed that the consideration received for rendition of agreed services were not fees for technical services and was not exigible to income tax in the hands of the IMG in India for the following key reasons:

·         IMG possessed the required expertise in live audio-visual coverage of matches. The technology used in the production of live feeds was different from the one used by the broadcasters to broadcast the same.

·         Equipments such as cameras, microphones, etc. of the required quality were supplied by BCCI to IMG.

·         IMG’s activity was restricted to produce the feed (program content) and deliver the same to the broadcasters (licencees) in the form of digitalised signals, and the broadcasters (licencees) undertook the job of broadcasting the live coverage of cricket matches on behalf of BCCI. IMG did not deliver, or make available any technology/ knowhow to BCCI or any other person. It only produced the ‘program content’ by using its technical expertise.

·         Neither the broadcasters nor BCCI had acquired the technical expertise from IMG which would enable them to in turn produce the live coverage feeds on their own. Consequently, the essential conditions of ‘make available’ clause under the Article 13(4)(c) of the India-UK tax treaty fails hence, the amounts received by the IMG could not be regarded as fees for technical services;

·         The Hon’ble Tribunal distinguished payments made for mere production of program content or live feed by using the technical expertise and there made for the provision or supply of technology which involves delivering or making available a technology/ knowhow.

The Hon’ble Tribunal has given a decision in favour of IMG by distinguishing the decision of the Delhi Bench of the Tribunal. This distinction was made on the premise that the Delhi Bench of Tribunal did not examine the issue as to ‘make available’ when rendering its decision.

In the decision of Delhi Bench of Tribunal, the Singapore based company had entered into an agreement with Prasar Bharti for producing, broadcasting live television signals of international quality as per Prasar Bharti’s specifications. The Hon’ble Delhi Bench of Tribunal had concluded that the payment for live feed was in the nature of fees for technical services on the basis that the Singapore based company:

·         Made available the services which are based on technical knowledge, experience, skill, know-how or processes; and

·         Such services consisted of development and transfer of technical plan and design relating to production and generation of live television signal under the specific clause of the agreement.

At this juncture it is noteworthy that insofar as assessees entering into agreement with Indian entities from countries whose treaty with India does not have the clause of make available, the observations and findings in the decision of Delhi Bench of Tribunal will be useful for such assessees.

One of the other noteworthy aspects of this decision is that if the payment is not fees for technical services then, whether it can qualify as ‘royalty’. The Mumbai Bench of the Tribunal, relying on a judicial precedent[3] of Delhi High Court, which is in the context of taxability of broadcasters, observed that there was absence of transfer of any right from the service provider as the job of IMG ended upon the production of the program content, the payment cannot be considered as payment for ‘royalty’ under the provisions of section 9(1)(vi) of Income-tax Act, 1961 and India-UK tax treaty.

Yet another aspect which needs to be appreciated is that IMG’s personnel were present in India for a period exceeding the threshold limit of 90 days specified under the India-UK tax treaty. IMG contended that due to the extent of its business activities carried on by its personnel, it had a taxable presence in the form of service Permanent Establishment in India. Also, IMG offered the income attributable to its Indian operations to tax in India. Thus, in cases where due to beneficial clause of make available, the payments for coverage of live events may not be taxable as ‘fees for technical services’ or even ‘royalty’, however, it may leave open the issue that a Permanent Establishment may be triggered under the specific provisions of tax treaty.

DISCLAIMER: This article has been authored by Ranjeet Mahtani, who is an Associate Partner and Hardik Choksi, who is an Associate Manager at Economic Laws Practice (ELP), Advocates & Solicitors. The information provided in the article is intended for informational purposes only and does not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein.

 

[1] Nimbus Sport International Pte. Ltd. v. DDIT (Intl. Taxation) [2012] 18 taxmann.com 105 (Delhi)
[2] IMG Media Ltd. v. DDIT (Intl. Taxation) [2015] 60 taxmann.com 432 (Mumbai – Trib.)
[3] CIT v. Delhi Race Club [2015](273 CTR 503) (Delhi High Court)


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