Fees Received For Sub-Licensing Sports Broadcasting Rights Attributable To 'Live Feed', Not Taxable As Royalty: Delhi High Court

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

The bench of Justice Yashwant Varma and Justice Girish Kathpalia has observed that once the Court came to the conclusion that a live telecast would not fall within the ambit of the expression “work”, it would be wholly erroneous to hold that the income derived by the assessee in respect of “live feed” would fall within clause (v) of Explanation 2 to Section 9(1)(vi) of the Income Tax Act, 1961.

The respondent/assessee entered into a tripartite agreement titled the “Novation Agreement” dated 31 December 2014 with ESS Singapore (ESS) and Star India Private Limited (SIPL) by way of which various existing agreements including agreements regulating the distribution of channels, advertisement sales, license agreements and other aspects governing the contractual arrangement between SIPL and ESS came to be novated.

The assessee had in its return of income offered an amount of Rs. 65,44,67,199/- as royalty income subject to tax in terms of the provisions contained in Section 9(1)(vi) of the Income Tax Act, 1961. The royalty income was stated to have been earned from sub-licensing of broadcasting “non-live” content as per the Master Rights Agreement (MRA) dated 31 October 2013 which formed part of the Novated Agreements.

The Assessing Officer required the respondent-assessee to furnish an explanation as to why out of the total licence fee earned by it, only Rs.65,44,67,199/- had been offered to tax as “royalty”.

The assessee asserted that out of the gross consideration of Rs.1181.63 crores earned from sub-licensing of sports broadcasting rights, it had earned an income alone from “non-live” feed and that the balance amount of Rs.1115.91 crores were attributable to “live” feed which would not fall within the ambit of “royalty” as contemplated under Section 9(1)(vi) of the Act. The submission essentially appears to have been that transmission of “live feed” through satellite would not fall within the ambit of Section 9(1)(vi) and the Explanations appended thereto. Insofar as the bifurcation of the royalty earned in the ratio of 95% and 5% was concerned, the respondent referring to the stipulations forming part of the Novation Agreement had contended that the latter alone was liable to be recognised as revenue generated from “non-live” feed.

The issue raised was whether income derived from the transmission of “live feed” would fall within the ambit of royalty.

The department contended that the service from which income was generated would clearly fall within the ambit of Explanation 2 as placed in Section 9(1)(vi) of the Income Tax Act.

The court held that the fees received by the respondents towards live transmission could not be classified as royalty income under Section 9(1)(vi) of the Income Tax Act

Counsel For Petitioner: Ruchir Bhatia

Counsel For Respondent: Porus Kaka

Case Title: The Commissioner Of Income Tax - International Taxation -1 Versus Fox Network Group Singapore Pte Ltd.

Citation: 2024 LiveLaw (Del) 73

Case No.: IT A 812/2023

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