Delhi High Court Mandates Fees For Sub-Licensing Sports Broadcasting Rights As ‘Live’ Feed Not Taxable As ‘Royalty’

Delhi High Court Mandates Fees For Sub-Licensing Sports Broadcasting Rights As ‘Live’ Feed Not Taxable As ‘Royalty’

The Assessing Officer had asked the assessee to explain why out of the total licence fee earned by it, only a part was offered to tax

The Delhi High Court has held that fees received by the assessees for sub-licensing sports broadcasting rights attributable to 'live’ feed are not taxable as ‘royalty’.

The bench comprising Justice Yashwant Varma and Justice Girish Kathpalia observed that once the court ruled that a live telecast would not fall within the expression ‘work’, it was erroneous to hold that the income derived by the assessee on it would fall within clause (v) of Explanation 2, Section 9(1)(vi) of the Income Tax Act, 1961.

The respondent/assessee entered a tripartite ‘Novation Agreement’ on 31 December 2014 with ESS Singapore and Star India Private Limited. Under it, various existing agreements, including regulating the distribution of channels, advertisement sales, licenses, and other aspects governing the contractual arrangement were made.

In its Income Tax Return (ITR) the assessee mentioned Rs.65,44,67,199 as royalty income subject to tax in terms of the provisions contained in Section 9(1)(vi) of the IT Act. It stated earning the royalty income from sub-licensing of broadcasting ‘non-live’ content as per the 31 October 2013 Master Rights Agreement (MRA), a part of the Novated Agreements.

The Assessing Officer (AO) directed the assessee to explain why out of the total licence fee earned by it, only Rs.65,44,67,199 were offered to tax as ‘royalty’.

The assessee asserted that out of the gross consideration of Rs.1,181.63 crores, it earned an income from ‘non-live’ feed. The balance of Rs.1,115.91 crores were attributable to ‘live’ feed, which did not fall within the ambit of ‘royalty’ under Section 9(1)(vi).

The submission meant that the transmission of ‘live feed’ through satellite would not fall under Section 9(1)(vi). The bifurcation of the ‘royalty’ earned in the ratio of 95 percent and 5 percent was the stipulation forming part of the Novation Agreement. It contended that the latter alone was liable to be recognized as revenue generated from ‘non-live’ feed.

However, the revenue department contended that the service from which income was generated came within the ambit of Explanation 2 in Section 9(1)(vi) of the IT Act.

Thus, the bench held that the fees received by the respondent towards ‘live’ transmission could not be classified as ‘royalty’ income.