Director Of Income Tax vs Sahara India Financial ...
2010 Latest Caselaw 959 Del

                THE HIGH COURT OF DELHI AT NEW DELHI

%                                           Judgment delivered on: 19.02.2010

+      ITA 1064/2007

DIRECTOR OF INCOME TAX                                                ... Appellant

                                        - versus -

SAHARA INDIA FINANCIAL CORPORATION LTD ... Respondent

Advocates who appeared in this case:-

For the Appellant : Mr Sanjeev Sabharwal For the Respondent : Mr Persy Parlawala, Sr Advocate with Mr Satyen Sethi and Mr Johnson Bara

CORAM:

HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE SIDDHARTH MRIDUL

1. Whether Reporters of local papers may be allowed to see the judgment?

2. To be referred to the Reporter or not?

3. Whether the judgment should be reported in Digest?

BADAR DURREZ AHMED, J (ORAL)

1. This appeal preferred by the revenue is directed against the Income

Tax Appellate Tribunal‟s order dated 28.07.2006 passed in ITA

No. 1491/Del/2000 and relates to the assessment year 1998-1999.

2. The revenue is aggrieved by the finding of the Tribunal that the

payment of US $ 9,24,500/- by the assessee, as per the agreement dated

10.07.1996, to IMG Canada through IMC India, did not amount to a royalty

payment under Article 13(3)(c) of the Double Taxation Avoidance

Agreement entered into between India and Canada (hereinafter referred to as

„the said DTAA‟).

3. The respondent/ assessee had entered into an agreement, as aforesaid,

on 10.07.1996 with IMG. As per clause 2(a) of the said agreement, IMG

was to provide to the assessee "the benefits" for the tournaments, subject to

ICC regulations, in connection with the protected categories. The

expression "benefits" has been defined in Clause 1(i) of the said agreement

to mean the title sponsorship benefits in connection with the tournament set

out in the Schedule. The word "tournament", in turn, was defined in Clause

1(vi) to mean, inter alia, the Friendship Cup, to be known as "the Sahara

Cup", which would consist of a series of five one day international cricket

matches to be played in Canada between the full Indian and Pakistan

national cricket teams, as selected by the cricket authorities of their

respective countries. The matches were to be recognized by the ICC as

having full one day international cricket status.

4. The Schedule to the said agreement specifies the details of the Title

Sponsor Package, which included the right that all the matches and the

tournaments would be referred to as "Sahara Cup". It also provided for

incorporation of the Sahara name and logo as the official tournament logo.

The said Sahara name and logo was to be prominently displayed at either

ends of the cricket ground on the outfield as also prominently displayed on

the stumps and the score boards. The players clothing was also required to

display the Sahara logo. Apart from these rights, certain other rights, such as

provision for certain number of VVIP tickets, VIP tickets and season tickets

were also part of the Title Sponsor Package. The official awards and trophies

were also required to carry the Sahara name and / or logo.

5. The revenue insists that the payment made by the respondent/ assessee

to IMG Canada for the said rights of title sponsorship amounted to a royalty

payment under Article 13 (3) of the said DTAA. The Tribunal has examined

this submission made by the revenue, which had found favour with the

Commissioner of Income Tax (Appeals), who held that the said payment

was covered under Article 13(3)(c) of the said DTAA. The Tribunal,

however, came to the conclusion that upon reading the various terms of the

agreement between the respondent / assessee and IMG, the payment made

for the title sponsorship right cannot be said to be a payment made for

acquisition of or the right to use any copyright and, therefore, the question of

applicability of Article 13(3)(c) of the DTAA would not arise. The Tribunal

conclusively held that the payment made by the respondent / assessee to

IMG Canada could not be called "royalty" as contemplated under Article

13(3) of the DTAA. Consequently, the Tribunal set aside the orders of the

authorities below on this aspect of the matter.

6. We have also examined the terms of the agreement between the

respondent/ assessee and IMG Canada. It is clear that what has been paid

for by the respondent / assessee is the right of title sponsorship and the

benefits connected therewith, which have been set out in the Schedule to the

said agreement and to which we have already referred to above. Article

13(3) describes the term "royalties" to mean payments of any kind including

rentals received as a consideration for the use of or the right to use:-

(a) any patent, trademark, design or model, plan, secret formula or process;

(b) industrial, commercial or scientific equipments or information concerning industrial, commercial or scientific experience; and

(c) any copyright of literary, artistic or scientific work cinematographic films and films or tapes for radio or television broadcasting.

It is apparent that unless and until the payment is in connection with the

right to use or is by way of consideration for the right to use any of the

aforesaid three categories, the payment cannot be termed as a "royalty".

7. The learned counsel for the revenue contended that the expression

"payment of any kind including rentals", has a very wide meaning and,

therefore, it includes the payment for "any" rights. Such a contention is not

tenable in view of the fact that the payment, which may be of any kind and

which may include rentals, has to be in connection with the right to use any

of the rights specified in the three categories mentioned above.

8. It is apparent that the categories (a) and (b) obviously do not arise. It

is for this reason that the Commissioner of Income Tax (Appeals) sought to

include the payment made by the assessee to IMG Canada under the third

category, that is, Article 13 (3)(c) of the said DTAA. Unfortunately, what

the Commissioner of Income Tax (Appeals) failed to notice was that before

any payment could be termed as a "royalty" under Article 13(3)(c), it would

have to be either as consideration for the copyright or for the right to use a

copyright in any of the four categories of works mentioned therein, namely,

(i) literary; (ii) artistic; (iii) scientific work; and (iv) cinematographic films

and films or tapes for radio or television broadcasting. What the

Commissioner of Income Tax (Appeals) failed to note was that there was no

transfer of a copyright or the right to use the copyright flowing from IMG

Canada to the respondent / assessee and, therefore, any payment made by the

respondent/ assessee to IMG Canada would not fall within Article 13(3)(c)

of the said DTAA. The reference in Article 13(3)(c) is to "any copyright"

and it is not a reference to "any right".

9. In these circumstances, we feel that the findings of fact and law and

the conclusions arrived at by the Tribunal are correct. No perversity has

been pointed out. Consequently, no substantial question of law arises for

our consideration.

The appeal is dismissed.

BADAR DURREZ AHMED, J

SIDDHARTH MRIDUL, J FEBRUARY 19, 2010 SR