The assessee an Indian company, made a payment of US $ 4,40,000, in respect of a celebrity appearance at Dubai. The assessee did not withhold any tax from the said remittance on the ground that the event took place in Dubai, UAE, and the celebrity made his appearance at the event in Dubai and therefore income was not taxable in India.
The event in Dubai was for launch of Audit A8L facelift model and was jointly organised by Assessee and Audi India, a division of Volkswagen Group Sales India Ltd. The purpose of this event was launch of a new model of Audi car, i.e. Audi A-8L, for the Indian market. Kim Productions Inc, a company incorporated in the USA, agreed to facilitate the appearance of Nicholas Cage (hereinafter referred to as ‘celebrity’) for three consecutive hours. Towards this the assessee paid US $ 4,40,000, plus other incidentals costs.
As a part of this appearance, the celebrity was to be driven into the venue as passenger in the new Audi 8L, engage with the Audi India Director in a short Q&A session and socialize with the guests at the event, including meet and greet photographs and autographs and interact with select members of the Indian media. As a part of arrangement, the assessee and Audi India had full rights to use “free non-exclusive promotional (e.g, not in connection with paid advertising, including, without limitation, in TV commercials, bill boards, and paid advertising etc) usage of all the event footage/ material/ films/ stills/ interviews etc of the above mentioned launch event capturing celebrity’s presence across all platform for below the line publicity on internet, in press releases, news reports, social media, Audi Magazine etc for a period of 6 months from the date of launch event, and for an unlimited period of time only for internal usage with the Volkswagen Group”.
The AO proceeded to hold that the payment made to the celebrity was taxable in India, more particularly as royalty, both under section 9(1)(vi) of the Income Tax Act, 1961 and Article 12 of the India USA DTAA. On appeal, CIT(A) upheld the Order.
DECISION OF ITAT
The issue before the ITAT was whether the income accruing to the international celebrity, on account of participation in Audi A8L launch event hosted in Dubai, has accrued or arisen, whether directly or indirectly, through or from any business connection in India.
The ITAT observed that event has physically taken place in Dubai, UAE, but, beyond any dispute or controversy, the benefits of this event were to accrue to the assessee and Audi India. The ITAT observed that the company had flown 150 persons, mostly prospective buyers and some journalists, to Dubai.
The ITAT concluded that income accrue and arises, by the reason of business connection in India on the ground that while the event, in which appearance was made by the celebrity, was held outside India, all the benefits accrued to the assessee in India, and it was on account of these benefits to the assessee that the international celebrity was paid for his participation in the Dubai Audi 8 L facelift event.
The ITAT further observed that all the expenses are borne by the assessee, and its associate Audi India, and claimed as a deduction under section 37(1), which implies that the expenses, have been incurred “wholly and exclusively for the purposes of business” of the assessee, which is in India. Thus, ITAT concluded that there is relationship between Indian business and participation in an event by the celebrity at Dubai launch event. This relationship triggers taxability in India.
The ITAT concluded that on the facts of the present case, business connection in India, is intangible inasmuch as it is a relationship rather than an object, but it is a significant business connection which has resulted in income accruing and arising to the non-resident, but for which there would not have been any business expediency in making the impugned payment to the non-resident celebrity.
The ITAT observed that business models were always constantly changing and the very concept of ‘below the line publicity’ is something quite fundamentally new. The ITAT thus held that the principles laid down by judicial precedents in the context of rather primitive trade, commerce or services are not of much relevance in the present context.
The ITAT also did not accept the contention of Assessee that scheme of section 115BBA, which provides for taxation “an entertainer, who is not a citizen of India and is a non- resident, includes any income received or receivable from his performance in India”, and thereby performance outside India is outside the ambit of taxation in India. The ITAT held that section 115 BBA deals with the mode and rate of taxation in the hands of non-resident sportsmen, non-resident sports associations and institutions, and non-resident entertainers and it does not restrict chargeability to tax under section 5(2)(b). In case an income is not eligible to specified treatment under section 115BBA, on account of not fulfilling the criterion set out therein, such an income is at best taxable in the normal course in the hands of the non-resident entertainer in India.
The Assessee contended that under DTAA, since income is not covered by any specific provisions, including article 18 dealing with income of the entertainers, Article 23(1) of DTAA is applicable and therefore income is taxable in the residence state. However, the ITAT rejected contention on the ground that by virtue of Article 23(3) income is taxable in a country in which the income arises.
The ITAT concluded that income embedded in payment to the international celebrity, for participation in Dubai A8L launch event, was taxable in India and the assessee was liable to withhold taxes from payment made for appearance made by the celebrity at Dubai A8L launch event.
For taxability under section 9(1)(i), the business connection in India, should be of non-resident celebrity (recipient of income). The ‘Event’ in Dubai, does not give rise to business connection of non-resident celebrity in India.
Explanation 1(a) to S.9(1)(i) provides that “For the purposes of this clause—(a) in the case of a business… of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India”.
The non-resident celebrity has not carried out any operations in India. So, there can be no attribution of income.