Whether income earned from betting placed on live telecast of horse race falls within the purview of royalty, and hence, is liable to TDS - NO: ITAT

THE issues before the Bench are - Whether income earned from betting placed on live telecast of horse race falls within the purview of royalty, and thus, is liable to TDS provisions and Whether live telecast of such events amounts to creation of any 'work' as defined u/s 2(y) of the Act. And the verdict goes against the Revenue.

Facts of the case

The assessee is engaged in the business of horse racing and derives income from betting, commission, entry free and stall charges. The assessee charged commission from persons who put bets on the live telecast and this income was shared between the assessee and various clubs where the races actually took place. The case of the assessee was selected for scrutiny under CASS. The AO made additions on account of royallty paid to other centers and live telecast.

On appeal, the CIT(A) held that royalty had been included within the scope of section 194J by insertion of clause (c) by Taxation Laws Amendment Act, 2003 w.e.f. 13.7.2006 and hence the TDS proviso would not apply to payments of royalty on or before 13.7.2006. Hence, he upheld only that addition which was on account of payments made after 13.7.2006.

The assessee submitted that the revenue generated from bets placed was not covered under the definition of royalty as royalty involved use of certain rights which was not there in the present case. Further, there was no copyright available in the display of races, as the event of live display, vanished at the end of race. The race once conducted and actually completed lost its value and its telecast cannot have any value as the result was already known and none will bet on it. The DR relied on the order of AO and the CIT(A).

On appeal, the ITAT held that,

++ the live telecast viewed by various persons cannot be said to be 'work' as defined under section 2(y);

++ considering the definition of copyright and work, the coordinate Bench of the Tribunal has observed that the question of granting exclusive right to do any work can arise only when such work has come into existence. As the meaning of copyright under section 14 in the context of cinematograph film clearly refers to make a copy of the film and not its original recording obviously the broadcast of live telecast cannot be equated with the copyright of such film;

++ the Tribunal had further observed that - 1) live telecast of a match or any other event cannot be considered as transfer of copyright as in the case of live telecast of the match as no work is said to have come into existence; 2) in live events or a cinematograph film depicting live events like sporting events horse race, cannot infringe any copyright because there is no copyright in live event; 3) if live coverage had been a part of copyright of any work as has been contended on behalf of revenue then there was no need to classify live coverage as separate item; 4) definition of royalty under the Act does not include any consideration for live coverage of any event which is now sought to be broadened by Direct Tax Code 2010 by bringing it distinctly within the purview of royalty;

++ there is no creation of any work as income is generated from betting on the basis of live telecast and the same was being shared on reciprocal basis and cannot be termed as royalty under the Act and therefore was not liable for tax deduction at source and the consequent disallowance under section 40a(ia) is not sustainable.