DCIT (IT) 2(2)(1), MUMBAI vs. IMG MEDIA LTD, MUMBAI

सुनवाई क� तारीख / Date of Hearing: 28/02/2018 घोषणा क� तारीख / Date of Pronouncement: 04.04.2018 आयकर आयकर अिधिनयम अिधिनयम,1961 क� क� धारा धारा 254(1)केकेकेके अ�तग�त अ�तग�त आदेश आदेश आयकर आयकर अिधिनयम अिधिनयम क� क� धारा धारा अ�तग�त अ�तग�त आदेश आदेश Order u/s.254(1)of the Income-tax Act,1961(Act) लेखा सद�य सद�य, राजे�� राजे�� केकेकेके अनुसार अनुसार- PER RAJENDRA, AM- लेखा लेखा लेखा सद�य सद�य राजे�� राजे�� अनुसार अनुसार Challenging the Directions,issued u/s.144 C(5) of the Act,dated 02/12/ 2015,of the Dispute Resolution Panel(DRP)-I,Mumbai,the Assessing Officer(AO)has filed appeal for the assessment year(AY.)2011-12.The assessee has filed appeal for the AY.2012-13,against the Directions of the DRP,dtd.09/12/2016.As the issue in both the years is common,so,these appeals are been adjudicated together.The details of incomes,returned incomes,dates of assessments and assessed incomes for both the years can be summarised as under: AY. ROI filed on Returned income Assessment date Assessed income 2011-12 19/09/2012 Rs.69,42,049/- 31/03/2015 Rs.30.56 crores 2012-13 08/03/2013 Rs.2,64,06,329/- 31/01/2017 Rs.27.51 crores ITA/1783/Mum/2016,AY.2011-12: 2.During the course of hearing before us, the Authorised Representative (AR)and the Departme- ntal Representative(DR)agreed that basic issue to be decided was as to whether sums received by the assessee during both the AY.s could be assessed under the head ‘fees for technical services’

1783/M/16 & 2123/M/17 M/s. IMG Media Ltd.

(FTS)/Royalty,that in AY.2011-12 the DRP had decided the issue in favour of the assessee,that in the next AY.,it confirmed the order of the AO.It was further agreed that the assessee had claimed that there existed a service PE and that income attributable to the Indian operations was to be computed under TNMM method,that the AO assessed the entire amount of gross receipts.

3.It was also brought our notice that the Tribunal,while deciding the appeals for AY.s 2010-11 and 2009-10(ITA/1513/Mum/2014,dated 26/8/2015 and ITA.s/1555 &1933/Mum/ 2014,dated 26/02/2016)respectively,had deliberated upon the nature of the receipt at length and had decided the identical issue.We are reproducing the relevant portion of the order of the Tribunal for the AY.2010-11(supra),wherein the facts have also been narrated in details.The order reads as under: 2.The facts relating to the case are stated in brief. The assessee is a Company incorporated in United Kingdom (UK), hence a tax resident of UK in terms of Article 4 of the India–UK Double Taxation Avoidance Agreement (DTAA). The assessee has furnished a copy of tax residency certificate also before the AO in support of the same. The assessee is a world leader in the field of multimedia coverage of sports events including cricket. The BCCI engaged the assessee for capturing and delivering live audio and visual coverage of cricket matches conducted under the brand name IPL, 2008 and also IPL, 2009. The taxability of the amount received by the assessee from BCCI is the issue urged before us.The facts relating to the case are described as under by Ld CIT(A):- “3. It has further been submitted by the assessee that the assessee and the Board of Control for Cricket in India ('BCCI") had entered into an agreement for capturing and delivering of the live audio and visual coverage of the first Indian Premier League “IPL” 2008 event which was conducted in India during April 18, 2008 – June 01, 2008. Thereafter, the assessee also entered into another agreement dated April 15, 2009 with BCCI for the live audio and visual coverage of the matches for the second IPL 2009 event. The assessee further submitted that for IPL 2008 event, few personnel of the assessee had visited India for the live coverage of the matches and also for the purposes of recce/ inspection activities before the commencement of the event IPL 2009 event was initially supposed to be held in India; accordingly couple of personnel of the assessee was present in February/March 2009 for the purpose of recce/ inspection activities before the commencement of matches of IPL 2009. However, the second IPL 2009 event coincided with Indian elections and therefore, the Indian Government refused to commit security by Indian paramilitary forces. As a result, BCCI decided to host the second season of the league outside India. On 24 March 2009, the BCCI officially announced that the second season of the IPL will be held in South Africa. It was also argued by the assessee that since, the cumulative period of stay of the assessee's personnel in India exceeded the threshold limit of 90 days in the “12 month” period, beginning from March 22, 2008 to March 21, 2009, a service permanent establishment ('PE'') of the assessee was constituted in India under Article 5(2)(k) of 'India-UK DTAA and the income attributable was computed on the basis of Transactional Net Margin Method ('TNMM') prescribed under the Indian transfer pricing regulations. The assessee further submitted the summary of returned income and proposed addition made by the AO as under : xxxx According to the assessee, it has carried out its business activities in connection with the capture and delivery of live audio & visual coverage of IPL 2008 and IPL 2009 matches. Accordingly, the assessee has contended that there existed a service PE and income attributable to the Indian operations was computed under TNMM method. However, the assessing officer has taken the view

1783/M/16 & 2123/M/17 M/s. IMG Media Ltd. that the amount received by the assessee was in the nature of “Fee for Technical Services” and also in the nature of “Royalty” and accordingly assessed the entire amount of gross receipts. The Ld Dispute Resolution Panel (DRP) held that the concept of “Service PE” does not have application, once it is held that the gross receipts are taxable as “Fee for technical services” or as “Royalty”. Hence the Ld DRP proceeded to examine the nature of amount received by the assessee from BCCI. The relevant discussions made by Ld DRP in order to hold that the amount received by the assessee is in the nature of “Fee for technical services” are extracted below:- xxxx 5.4.4 Hence it is held that these services are nothing but technical services as per section 9(i)(vii) of the Act as well as Article 13 of the DTAA between India and UK which makes available technical knowledge to the payer. 4.We heard the parties on this issue.On a careful perusal of the facts brought out by the tax authorities, we notice that the assessee possesses required expertise in live audio-visual coverage of matches (called “feed”) and hence, the BCCI has engaged the assessee to produce and deliver live audio-visual coverage of the IPL-2008 & IPL-2009 cricket Matches conducted by BCCI. According to the agreement, the assessee shall produce the feed and deliver the same to the broadcasters, who are called licensees. Thus, it is noticed that the job of the assessee shall come to an end, once the feed is produced and delivered to the licensed broadcasters in the form of digitalized signals. As per the agreement, the BCCI shall supply the equipments like cameras, microphones etc. of the required quality to the assessee. 5.The question that arises is as to whether such kind of production of feeds would result in provision of technical services by the assessee to BCCI in terms of Indo-UK DTAA?. Article 13(4)(c) of the DTAA defines the terms “Fee for technical services” and for the sake of convenience, the same is extracted below: “4. For the purpose of paragraph 2 of this Article, and subject to paragraph 5 of the Article, the terms “Fees for technical services” means payments of any kind of any person in consideration for rendering of any technical or consultancy services (including the provision of services of technical or other personnel) which : a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for ' which a payment described in paragraph 3(a) of this article is received: or b) Are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or c) Make available technical knowledge, experience, skill know how or processes or consist of the development and transfer of a technical plan or technical design” xxxx 6.We notice that the Article 13(4)(c) of the India-UK DTAA also uses the expression “make available”. Though the said expression has not been explained in the context of India-UK DTAA, it is the plea of the assessee that the principle or concept of “make available‟ explained in the India-US protocol should also be applied in respect of India-UK treaty also. Before us, the revenue could not submit any other decision or material to oppose the above said plea of the assessee. Since the India- UK DTAA and also India-US DTAA uses the same expression, i.e., “make available” in the context of “Fee for technical services”, we are of the view that the principle or concept of “make available‟ explained in the context of IndiaUS DTAA can be imported to understand the provisions of Article 13(4)(c) of the India-UK DTAA also. 7.Now we shall examine the question on the basis of discussions made in the earlier paragraphs. We notice that the assessee produces the feed(program content) of live coverage of audio-video visuals of the cricket matches by using its technical expertise. After that it delivers the feed (program content) in the form of digitalized signals to the licensees (broadcasters). There should not be any dispute that the licensees (broadcasters) receive the feed on behalf of the BCCI. We notice that what is delivered

1783/M/16 & 2123/M/17 M/s. IMG Media Ltd. by the assessee is a “final product in the form of program content” produced by it by using its technical expertise, i.e., the assessee does not deliver or make available any technology/ knowhow to the BCCI. There should not be any dispute that the production of “program content” by using technical expertise is altogether different from the provision of technology itself. In the former case, the recipient would receive only the product and he can use the product according to his convenience, where as in the later case, the recipient would get the technology/knowhow and hence he would be able to use the technology /knowhow on his own in order to produce any other program content of similar nature.In the later case, the technology/knowhow would be “made available” to the recipient, in which case the payment given would fall under the category of “Fee for technical services”.However,in the former case, there is no question of making available of any technology/ knowhow and hence the payment given would be in the nature of payment made for production of “Program content or live feed” and not for supply of technology. 8.The Ld DRP has observed that the agreement entered between the assessee and BCCI prescribes the quality standards in minute details and the same results in total exchange of technical plans and designs between the assessee and the broadcasters. In our view, there is a fallacy in the view taken by Ld DRP.The object of the production of live feed is to offer quality coverage of the live cricket matches to the viewers. The assessee‟s job is restricted to production of live coverage and the job of broadcasting 12 the same is undertaken by the BCCI. The BCCI, in turn, has given license to certain companies (called licensees) and they have undertaken the job of broadcasting the live coverage of cricket matches on behalf of BCCI. Since the assessee is supplying the live coverage in the form of digitalized signals, it has to ensure that the broad casters also do have the compatible technology and equipments so that the live coverage can be broadcast without compromising the quality. Thus, in our view, the technical aspects are specified in the agreement in order to ensure that the program content is broadcast at the same quality in which it was produced. The same was sought to be achieved by synchronizing the quality of technical equipments between the assessee and the broadcasters (licensees). Such kind of synchronization of technology would ensure seamless function and complete coordination between the assessee and the broadcasters.Thus, there is a difference between the technology involved in the production of live coverage feed of cricket matches and the technology required to broadcast the same in the required quality. Hence, in order to ensure and maintain quality of live coverage feed, it becomes necessary on the part of the assessee to specify or oversee the technology available with the broadcasters so that the same does not compromise on the quality and compatibility. The specification of the technical requirements does not mean that the assessee has supplied the technology involved in the production of live coverage feed to the broad casters. If that be the case, the broadcasters should be in a position to use the technology in order to produce the live feed on their own. We notice that the revenue has not established that the broadcasters (who are acting on behalf of the BCCI) or the BCCI itself has acquired the technical expertise from the assessee which would enable them to produce the live coverage feeds on their own after the conclusion of IPL 2008 and IPL 2009 cricket matches. In that case the essential condition of “make available” clause fails and hence the amount received by the assessee cannot be 13 considered as “Fee for technical services” in terms of Article 13(4)(c) of the DTAA entered between India and UK. 9.The ld DRP has observed that the live coverage of cricket matches involve instant and continuous production and broadcasting of live matches. The existing program would keep merging with the new work.Further,the broadcasters are able to split the program content in order to insert advertisements. All these aspects, in our view, would not bring the payment under the category of “Fee for technical services”. It only shows the technical expertise of the assessee to produce a flexible program content to give enhanced quality of viewing the live matches. 10.Before us, the Ld D.R placed reliance on the decision rendered by the Delhi bench of Tribunal in the case of Nimbus Sport International Pte Ltd (2012)(18 taxmann.com 105), wherein the Tribunal had held that the services or production and generation of live television signal were in the nature of 1783/M/16 & 2123/M/17 M/s. IMG Media Ltd. technical services. The Ld A.R contended that the Delhi Tribunal did not examine the principle of “make available‟. We notice that the case of Nimbus Sport International Pte Ltd is covered by India- Singapore DTAA and it also uses the expression “make available” in the definition of “Fee for technical services”. In the case of Nimbus sports International (supra), the principle or concept of “make available‟ has not been examined by the Tribunal. Accordingly, we agree with the contentions of the assessee that the said decision is distinguishable. 11.Since the amount received by the assessee is held to be not in the nature of “Fee for technical services” as per the definition of Article 13(4)(c) of the India-UK DTAA, in our view, there is no necessity to examine about its taxability u/s 9(1)(vii) of the Income tax Act, 1963. 12.The AO/Ld DRP have also expressed the view that the payment received by the assessee would fall under the category of “Royalty” also. The relevant observations made by Ld DRP are extracted below:- “5.5.Additionally, we find that the said services would also be in the nature of Royalty as per the provisions of section 9(i)(vi) of the Act and Article 13 of the DTAA between India and UK. The reasons for the same are, as under: (1) On a perusal of the agreement, it is clear that for doing this work, the assessee is required to bring in equipments for capturing the live feed. The same has been given in clause 1.3 of the agreement which is reproduced as under: “1.3 IMG shall be responsible for ensuring that equipment that it introduces into the Match venues complies with international standards of health and safety, it being acknowledged and agreed that IMG shall not be responsible for the compliance of the Match venues and their infrastructure with such international standards of health and safety” This makes it clear that the assessee is required to bring and use some equipment for recording live audio-visual feed of the matches. In schedule 2 of the said agreement as well, various minimum camera and equipment specification has been given. The same is also reproduced as under(iii) Minimum camera and equipment specification (1) The feed shall be produced using 29HD cameras (of which 14 will be manned) HD, VT & graphics equipment along with Cricket Sound package. All of this equipment will be supplied by Zoom (please note section (d)(ii) below)”. Likewise, in Schedule 4 to this agreement, the details of production budget have been specified. In this budget also, various heads of expenses have been identified and costs assigned. In this also, a lot of these relate to use of equipments like production equipments, maintenance of equipments, setting up of a studio in India, broadcast from outside etc. All these clearly establish that the assessee would be using equipments to carry out this work which is nothing but equipment royalty as per the Act as well as the DTAA. 5.5.1 On a perusal of this agreement, it is also observed that the assessee company is the world leader in this field and has developed commercial and scientific experience in the field of commercial and scientific experience. It has also developed a “process” which is unique to this company and the same process is being used for rendering these services. This is also because of the fact the assessee has been given this contract every year as it has a unique process for producing the live feed of matches. In this type of events the most important part that leads to generation of revenue for BCCI from IPL event is the seamless/uninterrupted production and broadcasting of the complete match. During such production process, a new work is created within a split of few macro seconds and the existing for keeps on merging with the new work being created. The activity which leads generation of revenue is the complete work being taken into consideration and therefore it would be incorrect to state that the payments received by assessee is for the live work and not for any work being in existence. Also, the production work being undertaken by the assessee is specialised in nature and the final signals being delivered by the assessee tantamount to use of process by the BCCI/its broadcasters. This is also evidenced with various clauses of the agreements. The relevant clauses are reproduced as under: xxxx

1783/M/16 & 2123/M/17 M/s. IMG Media Ltd.

5.5.2 In view of the above discussions, it is held that the payments would be taxable as “Royalty" both under the provisions of Section 9(i)(vi) of the Act and Article 13 of the DTAA. The judgments related upon by the assessee have not been taken the above facts into consideration and hence the benefit of the same cannot be granted to the assessee.” 13.We have noticed earlier, the assessee was engaged by BCCI to produce live coverage of audio and video visuals of cricket matches. The assessee shall produce the program content, which is broadcast through the broadcasters appointed by BCCI. The job of the assessee ends upon the production of the “program content”.According to the assessee, the program content shall become the property of the BCCI. We notice that the revenue has not brought any material on record to show that the assessee has kept the ownership rights over the program content. The Ld DRP has noticed that the BCCI is required to supply certain equipments and hence the Ld DRP has held as under:- “…the assessee would be using equipments to carry out this work which is nothing but equipment royalty as per the Act as well as the DTAA.” We are unable to understand the rationale behind this observation. If the assessee was using the equipments belonging to BCCI and if that activity is examined in isolation, then the assessee should be paying money to BCCI for using the equipments. In the instant case, the assessee has received the money for producing live coverage of cricket matches. The equipments required for the said purpose may be brought by the assessee itself or it may be provided by the BCCI. Under commercial terms, if the assessee was required to bring the equipments, then the consideration payable for the production of live coverage of cricket matches should go up.Thus, in our view,it was a simple case of commercial agreement entered between the parties with regard to the modalities to be followed and the same is not a determinative factor to decide about the nature of payment received by the assessee. 14.The Ld D.R.P. has further observed that the assessee has developed commercial and scientific experience in the field of commercial and scientific experience. The term “royalty” is defined as under in the India UK DTAA:- 3. For the purposes of this Article, the term “royalties” means: (a) Payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) Payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic.” A careful perusal of the definition of “royalties” extracted above, would show that the payment, in order to constitute royalty, should have been made “for the use of, or the right to use any copyright etc”. In the instant case, we have noticed that the payment was made by BCCI to the assessee for producing the program content consisting of live coverage of cricket matches. Further, we have noticed that there is nothing on record to show that the assessee had retained the ownership of the program content. The Hon‟ble Delhi High Court had an occasion to examine an identical issue in the case of CIT Vs. Delhi Race Club (2015)(273 CTR 503) in the context of the provisions of sec. 194J of the Act. In the above said case, the assessee was engaged in the business of conducting of horse races and it made payment for live telecast of races. The AO held that the said payment would fall under the definition of “royalty” falling within the purview of the provisions of sec. 194J of the Act and hence disallowed the payments u/s 40(a)(ia) of the Act. The Hon‟ble Delhi High Court observed as under:- “16. A live T.V coverage of any event is a communication of visual images to the public and would fall within the definition of the word “broadcast” in Section 2(dd) (of the Copyright Act).

1783/M/16 & 2123/M/17 M/s. IMG Media Ltd.

That apart we note that Section 13 does not contemplate broadcast as a work in which “copyright” subsists as the said Section contemplates “copyright” to subsist in literary, dramatic, musical and artistic work, cinematograph films and sound recording. Similar is the provision of Section 14 of the Copyright Act which stipulates the exclusive right to do certain acts. A reading of Section 14 would reveal that “copyright” means exclusive right to reproduce, issue copies, translate, adapt etc., of a work which is already existing… In view of the aforesaid position of law which brought out a distinction between a copyright and broadcast right, sufficie would it be to state that the broadcast or the live coverage does not have a “copyright”. The aforesaid would meet the submission of Mr. Sawney that the word “copyright” would encompass all categories of work including musical, dramatic, etc. and also his submission that the Copyright acknowledges the broadcast right as a right as a right similar to “copyright”. In view of the conclusion of this Court in ESPN Star Sports case (supra), such a submission needs to be rejected.” Though the above said decision was rendered in the context of provisions of sec. 194J of the Act, yet section imports the definition of the term “royalty‟ from Explanation 2 to sec. 9(1)(vi) of the Act. Under the definition given in the above said provision also “royalty” means consideration for the transfer of all or any rights (including the granting of a licence) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property. 15.In the instant case, we have noticed that the BCCI becomes the owner of the program content produced by the assessee.The job of the assessee ends upon the production of the program content and the broadcasting is carried out by some other entity to which license was given by the BCCI. Hence, in our view, the question of transfer of all or any right does not arise in the facts and circumstances of the instant case. Hence, we are of the view that the payment received by the assessee cannot be considered as “royalty‟ in terms of the India-UK DTAA. Though, it is not necessary to examine about the applicability of provisions of sec. 9(1)(vi) of the Act, yet the facts discussed above would show that the payment received by the assessee cannot fall within the purview of sec. 9(1)(vi) of the Act also.” Respectfully,following the above order,we decide the effective ground of appeal against the AO,as the facts for the year under consideration are identical to the facts of AY.2010-11.

ITA/2123/Mum/2017/AY.2012-13: 4.As stated earlier,the DRP,for the year under appeal did not follow the order for the earlier year and held that the revenue earned by the assessee for live coverage of event was taxable as Royalty.It further observed that the order of the Tribunal for the AY. 2010-11 was challenged before the Hon’ble Bombay High Court by the Department. 5.It is true that principles of res judicata are not applicable to the income tax proceedings.But,it is equally true that rule of consistency is applicable to tax matters.In the case of Godrej & Boyce Manufacturing Co.Ltd.(394 ITR 449),the Hon’ble Supreme Court has held as under: “While it is true that the principle of res judicata would not apply to assessment proceedings under the Act, there is need for consistency and certainty and existence of strong and compelling reasons for a departure from a settled position has to be spelt out.”. In the matter of International Tractors Ltd.(397 ITR 696),the Hon’ble Delhi High Court ruled out that deductions allowed in the earlier assessment years should not be withdrawn unless the 1783/M/16 & 2123/M/17 M/s. IMG Media Ltd. circumstances have changed.The Hon’ble Allahabad High Court in the case of Zazsons export Ltd.(397 ITR 400)has held that in order to maintain consistency,a view,which had been accepted in an earlier order ought not to be disturbed unless there was any material to justify the Depart - ment to take a different view of the matter.The Hon’ble jurisdictional High Court in the matterof Jolly Maker 1 Trust(396 ITR 274)held that the rule of consistency presupposes a decision on identical facts and law in an assessment year earlier to that under consideration.In short,the principle of consistency is one of the well recognised principles of taxation.If the said principle is applied to the facts of the case under consideration,it becomes clear that the DRP had not given any justifiable reason for not following the orders of the Tribunal and the direction of the DRP for the earlier year.

5.1.As the issue before us,for the year under appeal,is squarely covered by the orders of the Tribunal for AY.s 2010-11 and 2009-10( supra) and the DRP has not brought out any distinguishing facts for not following the orders of the Tribunal,so,we decide the effective ground of appeal in favour of the assessee.