ITAT clarifies tax on royalty payments to non-residents

In a case involving SET Satellite Singapore, the Income Tax Appellate Tribunal (ITAT) in Mumbai has held that royalty payments made by a resident of Singapore to another Singaporean entity for rights to transmit and broadcast matches in India are not subject to Indian withholding tax requirements.

The ITAT relied on article 12(7) of the India-Singapore Tax Treaty. According to the first limb of article 12(7), royalties would arise in a contracting state only where the payer is a resident of that contracting state. The second limb of article 12(7) states that tax on royalty would only arise in India where payments are made by one non-resident to another non-resident if: (i) the non-resident payer (i.e. the assessee) has a permanent establishment (PE) or fixed base in India; (ii) the liability to pay royalty is incurred “in connection with” the PE or fixed base; and (iii) the royalty is “borne” by the PE or fixed base.

The legislative and regulatory update is compiled by Nishith Desai Associates, a Mumbai-based law firm. The authors can be contacted at nishith@nishithdesai.com. Readers should not act on the basis of this information without seeking professional legal advice.