Live event broadcast rights aren't considered copyright, so payments for them can't be taxed as royalty.

The Income Tax Appellate Tribunal (ITAT) in Delhi has ruled that the right to broadcast live events, also known as "Live Rights," is not equivalent to copyright. This means that any payment made for the acquisition of such rights cannot be classified as royalty under section 9(1)(vi) of the Income Tax Act, 1961, and therefore, payment for Live Rights cannot be charged with tax. The ITAT further held that an assessee cannot be considered in default for failing to deduct tax at source on foreign remittances made towards the acquisition of the right to broadcast live events.

The Income Tax Appellate Tribunal (ITAT), consisting of Saktijit Dey (Vice-President) and B.R.R. Kumar (Accountant Member), made an observation stating that broadcasting of "Live events" does not fall under the category of works that are protected by copyright. This observation suggests that the right to broadcast live events, which is commonly referred to as "Live Rights," cannot be considered as "copyright." As a result, any payment made for the acquisition of such rights cannot be deemed liable to tax as royalty under section 9(1)(vi)..

As per the available information regarding the case, the company in question operates in the broadcasting industry and specializes in sub-licensing the right to broadcast sports events. The company had engaged in agreements with multiple entities that are non-residents, with an aim to obtain the right to broadcast live sports events. Moreover, the agreements also granted the company the authority to use audio-visuals of the events for subsequent telecasts, create highlights of the events, cut small clips for advertisement purposes, and more.

The legal agreements and financial statements presented a clear breakdown of all payments made, including a specific amount for "Live Rights" and "Non-Live Rights." Despite the fact that the taxpayer deducted taxes on the payments made for the acquisition of "Non-Live Rights" as royalty under Section 9(1)(vi), they did not abide by Section 195 and failed to deduct any tax at source on the payments made for "Live Rights."

During the hearing, the Coram pointed out that the agreements and invoices associated with the purchase of Live Rights and Non-Live Rights from corporations based outside the country clearly outline the total amount paid as consideration for both Live Rights and Non-Live Rights separately.

According to the Coram, an organization that specializes in analyzing legal cases, the Department made a significant mistake in its classification of overseas remittances. The Department had erroneously labeled these remittances as taxable royalties, which means that the recipient would be required to pay taxes on them. However, the Coram discovered that this classification was incorrect. The mistake was made because the Department had characterized the remittances as being made for the use of a 'Process', which had led to the incorrect classification.

In a recent court ruling, a significant decision was made regarding the payment made by the assessee to overseas rights holders. The case was related to the payments made for live rights, rather than payments made for the use of any satellite or satellite operator. The court Bench concluded that the payments made for live rights cannot be categorized as royalty, as they are not made for using any process as defined under Section 9(1)(vi) of the Income Tax Act. Therefore, overseas rights holders cannot impose taxes on such payments.

The ruling by the Bench favored the assessee and concluded that the assessee cannot be considered an assessee-in-default under Section 201 of the Income Tax Act. This was due to the fact that Section 195 of the Income Tax Act does not require the assessee to pay tax at source on international transfers, as per the verdict. This ruling is expected to have a significant impact on the taxation of payments made by Indian entities to overseas rights holders for live rights, as it provides clarity on the taxability of such payments.

Conclusion

The recent ruling by the Income Tax Appellate Tribunal (ITAT) in Delhi clarifies that Live Rights do not constitute copyright and therefore cannot be taxed as royalty under Section 9(1)(vi) of the Income Tax Act, 1961. This ruling provides relief to companies operating in the broadcasting sector, particularly those engaging in agreements with non-residents for the acquisition of Live Rights. Overall, the ruling by the ITAT is a significant victory for taxpayers in the broadcasting industry.