Principal Commissioner Ofincome Tax-10 v. Neo Sports Broadcast Pvt. Ltd

1 / 7 06-ITXA-1487-18.odt IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO.1487 OF 2018 Principal Commissioner ofIncome Tax-10 .... Appellant versus NEO Sports Broadcast Pvt. Ltd.... Respondent ….... Mr.Akhileshwar Sharma, Advocate for Appellant.Mr.Akhileshwar Sharma, Advocate for Appellant. Mr.Rahul Hakani, Advocate for Respondent.Mr.Rahul Hakani, Advocate for Respondent. CORAM : AKIL KURESHI &SARANG V. KOTWAL, JJ.DATE: 23[rd] APRIL, 2019. P.C. : 1. This Appeal is filed by the revenue to challenge the judgment of Income Tax Appellate Tribunal. Following questionsare presented for our consideration; “(a)Whether, on the facts and in the circumstances ofthe case and in law, the Hon'ble ITAT erred indeleting the addition towards Satellite SpaceFees/transponder charges relying on the decisionof Hon'ble Delhi High Court in the case of AsiaSatellite Telecommunication 238 CTR (Del) 233,without considering the amendment in section 2 / 7 06-ITXA-1487-18.odt 9(1)(vi) w.r.e.f. 01.06.1976 [by Finance Act,2012], wherein the intent of legislature in respectof 'royalty' has been clarified thereby deeming thesaid charges to be 'royalty' in nature? (b)Whether, on the facts and in the circumstances ofthe case and in law, the Hon'ble ITAT erred indeleting the addition of Rs.5,44,17,143/- afterconsidering the expost facto agreement betweenthe assessee and the Nimbus and not consideringthe main agreement dtd. 18.03.2006 between theassessee and the Nimbus?the case and in law, the Hon'ble ITAT erred indeleting the addition of Rs.5,44,17,143/- afterconsidering the expost facto agreement betweenthe assessee and the Nimbus and not consideringthe main agreement dtd. 18.03.2006 between theassessee and the Nimbus? 2. In question (a) the revenue contends that the Satellite Space Fees and transponder charges paid by the assessee werein the nature of royalty payments. From the perusal of theimpugned judgment of Income Tax Tribunal (‘Tribunal’ forshort) we notice that the revenue’s main thrust before theTribunal was that the charges paid were capital expenditure andnot revenue expenditure. However, in this context, the Tribunaldid observe fleetingly on the question of charges being royalpayments. We have therefore heard the learned Counsel for theparties on merits on this issue raised by the revenue. 3 / 7 06-ITXA-1487-18.odt 3. We notice that an identical issue came up forconsideration before Delhi High Court in case of Asia Satellite Telecommunications Co. Ltd. Vs. DIT, reported in (2011) 332ITR 340. It was the case in which the assessee a non-residentwas engaged in satellite communication, having control ofsatellites. The assessee would provide use of transponder facilityon satellite to the television companies outside India, which inturn would be routed to the operators in India, who would passthem on to the customers. The question was whether thepayments made to the non-resident were in the nature of royaltyand therefore come within the scope of section 9(1) of theIncome Tax Act, 1961 (‘the Act’ for short). The Court by adetailed judgment held that the payments were not in the natureof royalty charges. The Court made a distinction betweentransfer of rights in respect of property and transfer of rights inthe property. 4. Later on similar issue once again came before DelhiHigh Court in the case of Directorate of Income-tax Vs. New 4 / 7 06-ITXA-1487-18.odtSkies Satellite BV, reported in (2016) 382 ITR 114. The Courtfollowed the earlier decision in case of Asia SatelliteTelecommunication (supra) and dismissed the revenue’sAppeal. It was held that the explanations added below section9(1) of the Act were not merely clarificatory in nature.Respectfully agreeing with the said decisions of the Delhi HighCourt, this question is not considered. 4. Later on similar issue once again came before DelhiHigh Court in the case of Directorate of Income-tax Vs. New 4 / 7 06-ITXA-1487-18.odtSkies Satellite BV, reported in (2016) 382 ITR 114. The Courtfollowed the earlier decision in case of Asia SatelliteTelecommunication (supra) and dismissed the revenue’sAppeal. It was held that the explanations added below section9(1) of the Act were not merely clarificatory in nature.Respectfully agreeing with the said decisions of the Delhi HighCourt, this question is not considered. 5.Question (b) arises in following factual background.The assessee had an agreement with one M/s. NimbusCommunication Limited for exhibiting cricket matches ontelevision organized by The Board of Control for Cricket in India(BCCI). The assessee would pay a total of Rs.124.98 Crores toNimbus for executing 8 such matches between India andEngland. The payment per match came to 24.99 Crores(rounded of). However, one of the matches to be played atNagpur had to be cancelled for which the assessee received acredit note of Rs.24.99 (rounded of) from Nimbus. For the sameyear the assessee had to pay Rs.136.89 crores to Nimbus forcovering 7 matches between India-Srilanka-West Indies series. 5 / 7 06-ITXA-1487-18.odt This would come to Rs.19.55 Crores per match. Instead of 7matches, 8 matches were played. The assessee therefore wouldhave to pay an additional sum of Rs.19.55 crores for such extramatch. However, by an agreement between assessee andNimbus the assessee forgo claim of Rs.24.99 Crores in lieu ofNimbus not demanding additional fees of Rs.19.55 Crores forthe additional match. This difference of Rs.5.45 Crores whichthe assessee had to receive from Nimbus, but did not, theAssessing Officer added to the income of the assessee byinvoking section 40A(2) of the Act. 6. The assessee carried the matter in Appeal. CIT(Appeals) who deleted the addition upon which the revenueapproached the Tribunal. The Tribunal referred to the extensivediscussion in the order passed by the CIT (Appeals) and rejectedthe ground making following observations; “20.We noticed that the AO has not doubted theexistence of mutual understanding between the assesseeand BCCB which gave the assessee the right to telecastlive matches. AO has not doubted the existence of 6 / 7 06-ITXA-1487-18.odt agreement between the assessee and BCCB for livetelecast of matches during the year 2006 to 2009. TheAO has not made any addition for non-direction of TDSunder section 40(a) of the Act, but, held that theexpenses in question are not allowable because the samehave been made in the absence of any expressedagreement between the parties. In our considered view,the Ld. CIT (A) has rightly allowed the appeal of theassessee. We do not find any reason to interfere with thefindings of the Ld. CIT (A). Hence, we uphold thefindings of the Ld. CIT (A) and dismiss this ground ofappeal of the revenue.” 7. It is undisputed that the assessee and Nimbus arepersons referred to in clause (b) of sub-section (2) of Section40A of the Act. However, in order to invoke sub-section (2) ofSection 40A, the Assessing Officer has to come to the conclusionthat such expenditure incurred by the assessee being a paymentto a person referred to in clause (b), the expenditure is excessiveor unreasonable having regard to the fair market value of thegoods, services or facilities, for which the payment is made orthe legitimate needs of business or profession of the assessee orthe benefit delivered by or accruing to him. 7. It is undisputed that the assessee and Nimbus arepersons referred to in clause (b) of sub-section (2) of Section40A of the Act. However, in order to invoke sub-section (2) ofSection 40A, the Assessing Officer has to come to the conclusionthat such expenditure incurred by the assessee being a paymentto a person referred to in clause (b), the expenditure is excessiveor unreasonable having regard to the fair market value of thegoods, services or facilities, for which the payment is made orthe legitimate needs of business or profession of the assessee orthe benefit delivered by or accruing to him. 8. In the present case, the Tribunal records that theAssessing Officer did not doubt the existence of agreementbetween the assessee and BCCI. Even independently we findthat the entire transaction was in the nature of fresh businesstransaction under revised circumstances. On one hand, one ofthe matches which, the assessee had right to exhibit wascancelled. As against this, additional match of another serieswas played. The assessee and Nimbus in negotiations with BCCIagreed neither to refund the amount for the cancelled match norto charge for the additional match. It may be that the matchwhich was cancelled was priced higher than the match whichwas added. That still did not prevent the parties from agreeingto fresh contract as to how to adjust the revenue proceeds. 9. In the result Income Tax Appeal is dismissed. (SARANG V. KOTWAL, J.) (AKIL KURESHI, J.)