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Part C : Tribunal & AAR International Tax Decisions
17 SET Satellite (Singapore Pte Ltd.) v.
ADIT
ITA No. 7349/Mum./2004
Article 12 of India-Singapore DTAA
Dated : 25-6-2010
Royalty payment by one Singapore company to another Singapore
company for acquiring right to broadcast live cricket matches from Singapore is
not income of the recipient arising in India in terms of source rule of the
Treaty. Such royalty income could have triggered tax in India only if the payer
non-resident had PE in India, in connection with which royalty liability was
incurred and royalty was borne by such PE.
Facts :
The assessee Singapore company (Singco) is engaged in the
business of acquiring television programmes, motion pictures and sports events
and exhibiting the same on its television channels from Singapore. Singco
entered into agreement with GCC (another Singapore company) and acquired right
to live telecast of cricket matches in the territory of India, Pakistan, etc.
Payment made by Singco to GCC was held to be payment in the nature of royalty.
Singco earned revenue from selling advertisement time and
collecting fees from cable operators in India. For such sales and marketing
activity, Singco took assistance of an associate Indian company (ICo), which was
held to constitute agency PE of Singco in India.
The Tax Department held that royalty paid by Singco to GCC
was chargeable in India in terms of IT Act as also the treaty, because :
(i) Singco had a place of business in India and sourced
revenue from India;
(ii) earning of revenue from India had direct nexus with
payment made by Singco to GCC for acquiring broadcasting right; and
(iii) Singco had agency PE in India.
Singco contended that payment made to GCC was not taxable in
terms of India-Singapore Treaty applicable to GCC, because :
(i) Payment was made for acquiring broadcasting rights
outside India;
(ii) Singco had no PE in India to which royalty payment
made to GCC can be related; and
(iii) Presence in the form of agency PE did not result in
income being sourced from India as there was no direct nexus between
marketing activities of the agent and the broadcasting activity carried out
at Singapore for which rights were acquired from GCC.
Held :
The ITAT held :
(1) Royalty income of GCC received from a
non-resident was taxable in India in terms of Article 12(7) of the treaty
only if following cumulative conditions are satisfied :
(a) The payer (Singco) has a PE or fixed base in India.
(b) The liability to pay royalty is incurred in
connection with such PE or fixed base.
(c) The royalty is borne by such PE or fixed base.
(2) Mere existence of agency PE of payer in India does not
lead to a conclusion that royalty arises in India. For tax liability to arise,
royalty should have been paid in connection with PE or fixed base in India and
that such royalty should be borne by PE in India.
(3) Similar condition exists in OECD model for taxability of
interest income. As clarified by OECD commentary, interest can be regarded as
arising in source state only if interest income has economic link with the PE.
In the present case, there is no economic link between royalty payment and
agency PE. The economic link of payment made to GCC is with Singco’s HO in
Singapore. The payment to GCC cannot be said to be ‘in connection’ with the
agency PE in India. The agency PE was not involved in acquisition of right to
broadcast the cricket matches, nor has the PE borne the cost of payment to GCC.
The payments were therefore not liable to tax in India.
