The Delhi High Court has dismissed LG Electronics India’s petition for quashing a demand notice of 15 per cent withholding tax on use of the ICC (International Cricket Council) mark. The Court upheld Income Tax Department’s submission of treating part of payment by LG India to Global Cricket Corporation (GCC) for the right of use of trademark of the ICC.
Reacting to the ruling, a spokesperson of LG Electronic India said: ‘We are currently in the process of reviewing the judgement passed by the Hon’ble High Court and will respond to it as may be necessary. We would also like to clarify that this judgement will have no impact on our P&L as relevant taxes have consistently and appropriately been deposited.”
The matter is nearly 22 years old, when the Income Tax Department issued an order, in which 2/3rd of the total payment ($11 million) made by the LG to GCC towards advertisement (by way of booking of space) was apportioned and the balance towards the right to use the trademark of ICC. This classification was treated as royalty, in conformity with the Singapore-India Double Taxation Avoidance Agreement (DTAA). Accordingly, a 15 per cent tax was levied on one-third of the total amount, which LG subsequently challenged.
Counsel for LG cited the judgment in the case of Formula One World Championship Ltd, where it was held that the use of Formula One World Championship (FOWC) trademark by Grand Prix (GP) was merely incidental to the main purpose of the contract, which was to designate GP as the event promoter. Thus, the payment for such rights was in the nature of business income and not royalty.
In its submission, the Income Tax Department said that ICC Marks, Event Marks and Global Partner Status amount to intellectual property in the nature of “trademark”. Trademarks are specifically covered within the meaning of ‘Royalty’ as set out DTAA. Furthermore, as per Article 12(2) of the DTAA, India will have the right to tax such royalty at 15 per cent even though it is earned by a resident of Singapore, it said.
After considering the arguments and counter-arguments, the division bench of the Delhi High Court noted that the AO (Assessment Officer) held that the payment as per the application is fully covered within the meaning of royalty and accordingly subjected it to withholding rate at 10 per cent of the gross payment. The revisional authority later modified this order to hold that two-thirds of the $11 million is attributed to advertisement and one-third towards the right to use the ICC trademark. It directed that the one-third payment be apportioned towards royalty and 15 per cent be taken as tax.
“No substantial challenge has been made to the apportionment of the total payment into 1/3rd and 2/3rd. It is also not the case of the petitioner that the apportionment of the amount into royalty has to be at a lower rate. In any case, in view of our conclusion above, the said order cannot be faulted with,” the bench said and dismissed the case.
