In a recent decision, the Income Tax Appellate Tribunal ( ITAT ) in Mumbai shed light on the nature of royalty payments concerning the usage of brand names or trade names under a trademark license agreement, as per Section 9(1) (vi) of the India-Turkey Tax Treaty.
Ketan Ved, representing the assessee, argued that the payments were made in compliance with the terms of the Official Sponsor ( Worldwide ) Agreement, commonly known as the Sponsor Agreement. He emphasized that Schedule-4 of this agreement delineates the sponsorship rights, primarily granting the assessee non-exclusive rights to utilize, reproduce, and publish “Event Marks” and to use related materials strictly for advertising and promotional purposes during the defined term.
On contrary, Anil Sant, representing the revenue, defended the contested order and advocated for dismissing the assessee’s appeal. He argued that payments made for various rights, including the right to use official status, advertising and promotional rights, Event marks, footage, and photographs, qualify as royalty under Article 12(3) (a) of the Double Taxation Avoidance Agreement ( DTAA ) between India and Singapore..
Mr. Sant emphasized that the Assessing Officer, under section 195(2) of the Income Tax Act, 1961, treated the remittances as royalty, aligning with both the Act and the India-Singapore DTAA. He further supported his stance with a written note, contending that payments for specified rights under the Sponsor Agreement indeed qualify as royalty under the DTAA.
The tribunal, consisting of Gagan Goyal ( Accountant Member ) and Vikas Aswathy ( Judicial Member ), observed precedents, including the case of Global Cricket Corporation PTE Ltd., which deliberated on the taxability of payments received from sponsors for the use of Event marks and sign ages. The tribunal concluded that such payments do not fall under the category of royalty as per section 9(1)(vi) of the India-Turkey Tax Treaty.
Consequently, the tribunal allowed the appeals of the assessee, providing clarity on the classification of royalty payments in similar cases.
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