Indian Oil Corporation Ltd. v. Dy. DIT (IT) (2024)113 ITR 403 (Mum)(Trib)

🏏 Indian Oil Corporation Ltd. vs. Dy. DIT (IT) – Mumbai ITAT on Sponsorship Payments, Royalty & Refund of Excess TDS under India–Singapore DTAA (2024)

📌 Background

Payments made by Indian companies to non-residents for sponsorship, branding, and marketing rights—especially in high-profile international sporting events—often attract scrutiny under Section 9(1)(vi) as “royalty”. The Revenue frequently treats such payments as consideration for use of trademarks, copyrights, or commercial rights, thereby mandating tax deduction at source under Section 195.

In Indian Oil Corporation Ltd. v. Dy. DIT (IT) [(2024) 113 ITR 403 (Mumbai ITAT)], the Tribunal examined whether sponsorship payments made to Singapore-based entities in connection with ICC cricket events were taxable as royalty under domestic law and Article 12(3) of the India–Singapore DTAA, or whether they constituted business income not taxable in India in the absence of a Permanent Establishment (PE).

📂 Facts of the Case

• Assessee: Indian Oil Corporation Ltd. (IOCL)
• Nature of Transaction: Sponsorship of International Cricket Council (ICC) events
• Non-resident Payees: GCC and WSN (Singapore-based entities)
• Relevant DTAA: India–Singapore DTAA
• Statutory Provisions: Sections 9(1)(vi), 195; Articles 7(1) and 12(3)

Key Rights Granted under the Sponsorship Agreement:

• Right to use and display event marks, logos, and branding.
• Right to use official sponsor status for advertising and promotions.
• Limited, non-exclusive right to use footage relating to the events or matches.
• Ancillary rights such as tickets and corporate hospitality.

The ownership of event footage and underlying rights remained with IDI/GCC. No exclusive or proprietary intellectual property rights were transferred to IOCL.

❓ Point of Dispute

Whether sponsorship payments made by IOCL to GCC constituted “royalty” under:

• Section 9(1)(vi) of the Income-tax Act, 1961, and
• Article 12(3) of the India–Singapore DTAA,

thereby requiring deduction of tax at source under Section 195, or whether such payments were business income not taxable in India in the absence of a PE under Article 7(1).

📑 Revenue’s Stand

• Payments were partly for use of trademarks, trade names, and copyright.
• Assessing Officer treated the entire payment as royalty and directed TDS at 24% plus cess.
• Commissioner (Appeals) partially upheld the view, holding 50% of the payment to be royalty taxable under Article 12.

📑 Assessee’s Submissions

• Sponsorship payment was primarily for marketing and brand visibility, not for use of IP.
• Event marks and footage were used on a non-exclusive basis, with no transfer of copyright or ownership.
• Ancillary rights were incidental to the main sponsorship objective.
• In the absence of a PE of the Singapore entities in India, income was not taxable under Article 7(1).
• Excess tax deducted and paid to the Government was liable to be refunded.

⚖️ Legal Principles & Tribunal’s Findings

1. Nature of Sponsorship Payments

The Tribunal analysed the sponsorship agreement holistically and held that:

• The dominant purpose of payment was promotion and branding through sponsorship.
• Rights to use event marks and official status were commercial exploitation rights, not IP exploitation rights.

2. Non-exclusive Use of Footage

• IOCL was granted only a non-exclusive right to use event-related footage.
• Ownership of footage and copyright always remained with GCC/IDI.
• Mere non-exclusive, restricted use does not amount to “use of copyright”.

3. Section 9(1)(vi) & Article 12(3) – Royalty Test

Royalty requires payment for:

“use of, or the right to use, copyright, trademark or similar property.”

The Tribunal held that:

• No copyright, trademark, or proprietary interest was transferred.
• Payments therefore did not qualify as royalty under domestic law or DTAA.

4. Business Income under Article 7

Since the payments were not royalty:

• They were in the nature of business income.
• In the absence of a Permanent Establishment of GCC in India, such income was not taxable in India.

5. Refund of Excess TDS

The Tribunal made an important observation:

“The State cannot charge tax more than what is legally due.”

Accordingly:

• Any tax paid by IOCL by way of excess TDS under Section 195 was liable to be refunded in accordance with law.

🏁 Held

The Mumbai ITAT held that:

✅ Sponsorship payments made by IOCL were not royalty under Section 9(1)(vi).
✅ Payments did not fall within Article 12(3) of the India–Singapore DTAA.
✅ Income constituted business income, not taxable in India in absence of a PE under Article 7(1).
✅ IOCL was entitled to refund of excess tax deducted and paid.

✅ Practical Impact for Indian Corporates

• Sponsorship & Branding Payments: Mere right to display logos or event marks does not amount to royalty.
• DTAA Protection: Non-exclusive, limited marketing rights are generally outside Article 12.
• Section 195 Relief: Prevents unnecessary withholding on commercial sponsorship arrangements.
• Refund Safeguard: Excessive or incorrect TDS can be reclaimed; Revenue cannot retain tax without authority of law.

🔑 Key Takeaways

1. Sponsorship rights ≠ royalty, when no IP ownership is transferred.
2. Non-exclusive use of footage does not amount to use of copyright.
3. Dominant purpose test is crucial in characterising composite payments.
4. Business income taxable only with PE under Article 7.
5. Excess TDS must be refunded—the State cannot unjustly enrich itself.

📢 Why This Case Matters

The ruling in Indian Oil Corporation Ltd. (2024) provides crucial clarity for Indian companies entering into international sponsorship and branding arrangements, especially in sports and entertainment sectors. It curbs overbroad application of the “royalty” definition and reinforces treaty-based protections.

By affirming the taxpayer’s right to refund of excess TDS, the Tribunal also upholds a foundational principle of tax law—that taxation must strictly follow the authority of law.

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