The Delhi High Court has dismissed a writ petition filed by LG Electronics India Pvt. Ltd., upholding the Income Tax Department’s decision to treat 1/3rd of the payment of USD 11,000,000 made to a Global Cricket Corporation Pvt. Ltd. (GCC), as royalty, liable to Tax Deduction at Source under Section 195 of the Income Tax Act, 1961(the “Act”).
A Division Bench of Justice V. Kameswar Rao and JusticeVinod Kumar held that the right granted to LG to use the International Cricket Council (ICC) marks and event marks under a Global Partnership Agreement was a substantive commercial right and not merely incidental to advertising, thereby attracting the definition of “royalty” under Section 9(1)(vi) of the Income Tax Act, 1961, read with Article 12 of the India–Singapore Double Taxation Avoidance Agreement (DTAA).
The case arose from a 28 June 2002 sponsorship agreement under which LG acquired advertising and promotional rights for ICC cricket events from GCC, a Singapore-based rights holder, including the right to use ICC and event marks worldwide. LG paid USD 11 million and sought permission under Section 195 of the Income Tax Act to remit the amount without withholding tax.
The tax authorities rejected the request, holding that the payment included consideration for the use of ICC trademarks. In revision under Section 264, partial relief was granted by apportioning two-thirds of the payment to advertisement, one-third to royalty, and 15% be taken as tax. The aggrieved petitioner approached the Gujarat High Court.
Rejecting LG’s plea, the Court noted that the company had itself conceded the use of ICC trademarks during the proceedings and that the agreement granted a licence to use such marks beyond the physical confines of the stadium. The Bench held that the right to use ICC and event marks was an independent and valuable commercial right forming part of the consideration, and could not be characterised as merely incidental.
The Court found that the agreement created independent and valuable intellectual property rights, and therefore, the attribution of one-third of the payment as royalty could not be faulted. Finding no infirmity in the apportionment adopted by the tax authorities or in the direction to deduct tax on the royalty portion, the Court dismissed the writ petition.
Appearances:
For the Petitioners – Advocates Deepak Chopra, Ankul Goyal, and Adwiteya Grove.
For the Respondents – Senior Standing Counsel Indruj Singh Rai, Sanjeev Menon, JSC Rahul Singh, and along with Advocate Gaurav Kumar
