Sponsorship Amount Made By IOCL To Global Cricket Corporation Is Not Royalty: ITAT

The Mumbai Bench of Income Tax Appellate Tribunal (ITAT) has held that the sponsorship amount made by Indian Oil Corporation Limited (IOCL) to Global Cricket Corporation (GCC) is not royalty.

The bench of Vikas Awasthy (Judicial Member) and Gagan Goyal (Accountant Member) has observed that since the payments made to GCC and Nimbus Sports International are not taxable in India, there is no need to deduct tax at source under Section 195 on such payments. Consequently, no disallowance can be made under Section 40(a)(ia) of the Income Tax Act.

The assessee/appellant, IOCL, was appointed as the official sponsor of International Cricket Council (ICC) events. An Official Sponsor (Worldwide) Agreement was entered between the Global Cricket Corporation PTE Ltd.-Singapore (GCC), World Sports Nimbus PTE Ltd.-Singapore (WSN), and the assessee. The sponsorship agreement was in respect of sponsorship of the ICC Cricket Events commencing from the ICC Champions Trophy 2004 scheduled in England to the ICC Cricket World Cup 2007 to be held in the West Indies.

The GCC had raised three invoices towards sponsorship, including the display of signage and other associated benefits during the ICC Champions Trophy 2004 held in England and the ICC Trophy 2005 in Ireland.

The assessee filed an application dated August 23, 2006, before the DDIT (IT)-3(1), Mumbai, to issue an authorization for the remittance of the aforesaid amounts to GCC without deduction of tax at source. It was categorically mentioned in the application that GCC-Singapore does not have a permanent establishment (PE) in India and that the display of signage is done outside India. Therefore, as per Article 7(1) of the India-Singapore Tax Treaty, the said payment is not liable to tax in India in the absence of PE in India.

The Assessing Officer rejected the application of the assessee, held that the aforesaid amounts are in the nature of "royalty," and directed the assessee to deduct 24% tax and 2% education cess.

Aggrieved against the order, the assessee filed an appeal before the CIT (A). The CIT(A) in principle upheld the observation of the Assessing Officer but granted part relief to the assessee, holding that 50% of the payment made is for the use of trademarks, trade names, and copyrights. Hence, to that extent, the payment is in the nature of “royalty” and is taxable under Article 12 of the Treaty.

The assessee contended that the payment was made by the assessee in accordance with the terms and conditions of the Official Sponsor (Worldwide) Agreement. The payments are primarily for the non-exclusive right to use, reproduce, and publish the “Event Marks” and the non-exclusive right to use “Footage and Still Images” relating to the Events and/or ICC Matches that ICC Development (International) Ltd. (IDI) and/or GCC owns or controls strictly for advertising and promotional purposes only and to use them during the term. The 'term' is defined in the agreement to mean, from the date of execution of the agreement until the expiration of the 90th day after the date of the final match of the ICC World Cup 2007 is officially concluded. The payments made by the assessee for the use of photographs, footage, and event marks that are in the nature of official titles, music, trademarks, logos, mascots, etc. are not in the nature of royalty.

The department contended that the right to use event marks, trade names, and use of footage and photographs are specific rights. The payment for the use of the same falls under the definition of royalty within the meaning of Article 12(3)(a) of the DTAA. The assessing officer, while passing the order, treated the remittances as royalty within the meaning of the provisions of the Act as well as the provisions of the India-Singapore DTAA.

The ITAT held that the payments made by the assessee to GCC are not in the nature of royalty as defined under the provisions of the Act or Article 12(3) of the India-Singapore DTAA.

Counsel For Appellant: Ketan Ved

Counsel For Respondent: Anil Sant

Case Title: M/s. Indian Oil Corporation Ltd. Versus DCIT

Case No.: ITA NO.987/MUM/2008 TO ITA No.989/MUM/2008

Click Here To Read The Order