DCIT, New Delhi V. M/s Reebok India Company, New Delhi

ITA 1620/DEL/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6414 (ITAT-DELHI)
• Duration Of Justice: 11 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-03-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I2
• Next Hearing Date: 16-03-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 28-03-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Transfer pricing; Double taxation relief; Opportunity of being heard; International transaction; Deemed to accrue or arise in india; Proportionate interest; Permanent establishment; Revised return; Revenue expenditure; Capital expenditure; TDS; Set aside; Capital Gains
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 5(2); 195; 144C; 43; 48; 72; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-2 : NEW DELHI BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER ITA NO. 954/DEL/2016 ASSESSMENT YEAR : 2011-12 REEBOK INDIA COMPANY, C/O PRICEWATERHOUSECOOPERS PVT LTD, SUCHETA BHAWAN, GATE NO. 2, 1 ST FLOOR 11-A, VISHNU DIGAMBAR MARG NEW DELHI. PAN: AAACR 3007K VS. DCIT, CIRCLE-2(1), NEW DELHI. ITA NO. 1620/DEL/2016 ASSESSMENT YEAR : 2011-12 DCIT VS. REEBO K INDIA COMPANY, CIRCLE 2(1) C/O PRICEWATERHOUSECOOPERS PVT LTD, NEW DELHI SUCHE TA BHAWAN, GATE NO. 2, 1 ST FLOOR 11-A, VISHNU DIGAMBAR MARG NEW DELHI. PAN: AAACR 3007K (APPELLANT) (RESPONDENT) ITA NOS.954 & 1620 /DEL/2016 2 ASSESSEE BY : SHRI KANCHAN KAUSHAL, AR DEPARTMENT BY : SHRI T.M. SHIVAKUMAR, CIT, DR DATE OF HEARING : 14.03.2017 DATE OF PRONOUNCEMENT : 20.03.2017 ORDER PER R.S. SYAL, AM: THESE TWO CROSS APPEALS ONE BY THE ASSESSEE AND THE OTHER BY THE REVENUE ARISE OUT OF THE FINAL ORDER DATED 27.01. 2016 PASSED BY THE ASSESSING OFFICER (AO) U/S 143(3) READ WITH SECTION 144C OF THE INCOME-TAX ACT, 1961 (HEREINAFTER ALSO CALLED `THE ACT) IN RELATION TO THE ASSESSMENT YEAR 2011-12. 2. THE FIRST ISSUE RAISED BY THE ASSESSEE IN ITS APPEAL IS AGAINST THE ADDITION OF RS.80,48,09,781 MADE BY THE AO ON ACCOU NT OF TRANSFER PRICING ADJUSTMENT OF ADVERTISING, MARKETING AND PR OMOTION EXPENSES (AMP EXPENSES). THE REVENUE IS ALSO AGGRIEVED AGAIN ST CERTAIN DIRECTIONS GIVEN BY THE DISPUTE RESOLUTION PANEL (D RP) IN THE MANNER OF COMPUTATION OF TRANSFER PRICING ADDITION ON THIS IS SUE. ITA NOS.954 & 1620 /DEL/2016 3 3. THE LD. AR SUBMITTED THAT THE INCURRING OF AM P EXPENSES IS NOT AN INTERNATIONAL TRANSACTION AT ALL AND, HENCE, THERE CAN BE NO QUESTION OF DETERMINING THE ARMS LENGTH PRICE OF THIS TRANSACT ION OR MAKING ANY ADDITION THEREON. HE RELIED ON THE JUDGMENTS OF TH E HONBLE DELHI HIGH COURT IN MARUTI SUZUKI INDIA LTD. & ANOTHER VS. CIT (2015) 1 29 DTR 25 (DEL) AND CIT VS. WHIRLPOOL OF INDIA LTD. (2015) 94 CCH 156 D EL-HC TO CONTEND THAT THE AMP EXPENSES COULD NOT BE CONSI DERED AS AN INTERNATIONAL TRANSACTION. IN THE LIGHT OF THESE J UDGMENTS AND SOME OTHER TRIBUNAL ORDERS, IT WAS SUBMITTED THAT THERE WAS NO INTERNATIONAL TRANSACTION OF AMP EXPENSES ON THE BASIS OF PRINCIP LES LAID DOWN IN THESE JUDGMENTS AND, HENCE, THE ENTIRE EXERCISE OF DETERMINING ITS ALP AND, CONSEQUENTLY, MAKING TRANSFER PRICING ADJUSTME NT, BE SET ASIDE. 4. BEFORE TAKING UP THE ISSUE, IT IS RELEVANT T O SUMMARILY MENTION THAT THE LD. AR ARGUED THE ISSUE OF AMP EXPENSES ON SIMI LAR LINES AS HAS BEEN ARGUED IN DIFFERENT CASES, INCLUDING THE CASE OF NIKON INDIA PVT. LTD. VS. DCIT (2016) 47 CCH 0458 DELTRIB CONTENDING THAT THE INCURRING OF AMP EXPENSES IS NOT AN INTERNATIONAL T RANSACTION. THE ITA NOS.954 & 1620 /DEL/2016 4 TRIBUNAL VIDE ITS ORDER DATED 15.7.2016 IN THE CASE OF NIKON (SUPRA) HAS NOT ACCEPTED SUCH CONTENTION AT ITS LEVEL AND REMIT TED THE MATTER TO THE FILE OF AO/TPO FOR A FRESH DETERMINATION. 5. THE LD. DR, SIMILAR TO NIKONS CASE (SUPRA), RELIED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) IN WHICH AMP EXPENSES HAVE BEEN HELD TO BE AN INTERNAT IONAL TRANSACTION AND THE MATTER OF DETERMINATION OF ITS ALP HAS BEEN RESTORED. IT WAS CONTENDED THAT THE INSTANT ASSESSEE IS A PART OF TH E BATCH OF APPEALS DECIDED BY THE HONBLE HIGH COURT IN THE LEAD CASE OF SONY ERICSON MOBILE COMMUNICATIONS (SUPRA) . HE ALSO RELIED ON A LATER JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN YUM RESTAURANTS (INDIA) P. LTD. VS. ITO (2016) 380 ITR 637 (DEL) AND STILL ANOTHER JUDGMENT DATED 28.1.2016 OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. (FOR THE AY 2010-11) IN WHICH THE QUESTION AS TO WHETHER AMP EXPENSE IS AN INTERNATIO NAL TRANSACTION HAS BEEN RESTORED FOR A FRESH DETERMINATION. IT WAS ARG UED, SIMILAR TO NIKONS ITA NOS.954 & 1620 /DEL/2016 5 CASE (SUPRA), THAT THE JUDGMENT IN THE CASE OF YUM RESTAURANTS AND SONY ERICSON (FOR AY 2010-11) DELIVERED IN JANUARY, 2016 IS LATER IN POINT OF TIME TO THE EARLIER JUDGMENTS IN THE CASE OF MARUTI SUZUKI AND WHIRLPOOL, ETC. , AND, HENCE, THE MATTER SHOULD BE RESTORED FOR A F RESH DETERMINATION. SIMILAR TO NIKONS CASE (SUPRA) , IT WAS SUBMITTED THAT THERE IS NO BLANKET RULE OF THE AMP EXPENSES AS A N ON-INTERNATIONAL TRANSACTION. HE FURTHER STATED THAT THE HONBLE HI GH COURT IN WHIRLPOOL (SUPRA) HAS MADE CERTAIN OBSERVATIONS, WHICH SHOULD BE PRO PERLY WEIGHED FOR ASCERTAINING IF AN INTERNATIONAL TRANSA CTION OF AMP EXPENSES EXISTS. IT WAS ARGUED THAT THE TRIBUNAL IN SEVERA L CASES HAS RESTORED THIS ISSUE TO THE FILE OF TPO TO BE DECIDED AFRESH IN TH E LIGHT OF THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) AND OTHERS . HE ALSO RELIED ON STILL ANOTHER JUDGMENT DATED 28 .1.2016 OF THE HONBLE DELHI HIGH COURT IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. (FOR THE AY 2010-11) IN WHICH THE QUESTION AS TO WHETHER AMP EXPENSES IS AN INTERNATIONAL TRANSACTIO N, HAS BEEN RESTORED FOR A FRESH DETERMINATION. SIMILAR TO NIKONS CASE (SUPRA), HE STILL ITA NOS.954 & 1620 /DEL/2016 6 FURTHER REFERRED TO THREE LATER JUDGMENTS OF THE HO NBLE DELHI HIGH COURT, VIZ., RAYBAN SUN OPTICS INDIA LTD. VS. CIT (DT. 14.9.2016), PR. CIT VS. TOSHIBA INDIA PVT. LTD . (DT. 16.8.2016) AND PR. CIT VS. BOSE CORPORATION (INDIA) PVT. LTD. (DT. 23.8.2016) IN ALL OF WHICH SIMILAR ISSUE HAS BEEN RESTORED FOR FRESH DETERMINATION IN THE LIGHT OF THE EARLIER JUDGMENT IN SONY ERICSSON MOBILE COMMUNICATIONS INDIA PVT. LTD. (SUPRA) . THE LD. DR ARGUED THAT THE HONBLE DELHI HIGH COU RT IN ITS EARLIER DECISION IN SONY ERICSON MOBILE COMMUNICATIONS (INDIA) PVT. LTD. VS. CIT (2015) 374 ITR 118 (DEL) HAS HELD AMP EXPENSES TO BE AN INTERNATIONAL TRANSACTION. IT WAS ARGUED THE MATTE R SHOULD BE RESTORED FOR A FRESH DETERMINATION. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS A MATTER OF RECORD THAT T HE HONBLE HIGH COURT IN ASSESEES OWN CASE [WITH THE LEAD ORDER IN SONY ERICSSON (SUPRA) ] HAS HELD AMP EXPENSES AS AN INTERNATIONAL TRANSACTION. IT CAN BE SEEN THAT IN SOME LATER DECISIONS, VIEW TAKEN IS AT VARIANCE. E QUALLY, THE TRIBUNAL IS ALSO NOT CONSISTENT IN ITS STAND. WHEN THE TPO IN THE INSTANT CASE HELD ITA NOS.954 & 1620 /DEL/2016 7 AMP EXPENSES TO BE AN INTERNATIONAL TRANSACTION, HE DID NOT HAVE ANY OCCASION TO CONSIDER THE RATIO LAID DOWN IN SEVERAL JUDGMENTS OF THE HONBLE JURISDICTIONAL HIGH COURT, WHICH IS NOW AVA ILABLE FOR CONSIDERATION. RESPECTFULLY FOLLOWING THE PREDOMINA NT VIEW TAKEN IN SEVERAL TRIBUNAL ORDERS OF CO-ORDINATE BENCHES, WE ARE OF THE CONSIDERED OPINION THAT IT WOULD BE IN THE FITNESS OF THINGS I F THE IMPUGNED ORDER IS SET ASIDE AND THE MATTER IS RESTORED TO THE FILE OF TPO/AO FOR A FRESH DETERMINATION OF THE QUESTION AS TO WHETHER THERE E XISTS AN INTERNATIONAL TRANSACTION OF AMP EXPENSES. IF THE EXISTENCE OF S UCH AN INTERNATIONAL TRANSACTION IS NOT PROVED, THE MATTER WILL END THER E AND THEN, CALLING FOR NO TRANSFER PRICING ADDITION. IF, ON THE OTHER HAND , THE INTERNATIONAL TRANSACTION IS FOUND TO BE EXISTING, THEN THE TPO W ILL DETERMINE THE ALP OF SUCH AN INTERNATIONAL TRANSACTION IN THE LIGHT O F THE RELEVANT JUDGMENTS OF THE HONBLE HIGH COURT, AFTER ALLOWING A REASONA BLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. SIMILAR VIEW HAS BEEN RECENTLY TAKEN BY THE DELHI TRIBUNAL IN ITS ORDER DATED MARCH, 2017 IN TH E CASE OF LOUIS VUITTON INDIA RETAIL P. LTD. VS. DCIT (ITA NO.775/MUM/2015) . ITA NOS.954 & 1620 /DEL/2016 8 7. NEXT GROUND RAISED BY THE ASSESSEE IN ITS APPE AL IS AGAINST THE MAKING OF ADDITION OF RS. 22,53,91,889/- ON ACCOUNT OF SUPPRESSED SALES. BRIEFLY STATED, THE FACTS OF THIS GROUND ARE THAT A SURVEY OPERATION WAS CARRIED OUT BY THE DDIT [INV] ON 02.05.2012 ON THE PREMISES OF THE ASSESSEE ON THE BASIS OF MEDIA REPORT ABOUT THE FIN ANCIAL IRREGULARITIES AMOUNTING TO RS. 870 CRORE NOTICED OVER THE YEARS. IN ITS REPORT, THE INV. WING, INTER ALIA, OBSERVED THAT THERE WAS DIFFERENCE IN BALANCE OF SO ME OF THE CUSTOMERS IN THE BOOKS OF ACCOUNT OF THE ASS ESSEE VIS--VIS BALANCE OF THE ASSESSEE IN THE BOOKS OF ACCOUNTS OF SUCH CUSTOMERS. THE CUSTOMERS STRESSED THAT THEIR BOOKS OF ACCOUNTS WER E TRUE. ON THE BASIS OF SUCH REPORT OF THE DDIT, THE A.O PREPARED A LIST OF SUCH CUSTOMERS WHOSE CLOSING BALANCES DID NOT MATCH WITH THE BALAN CES SHOWN BY THE ASSESSEE IN ITS ACCOUNTS. SUCH LIST OF CLOSING BALA NCES WAS SUPPLIED TO THE ASSESSEE. IT WAS PUT FORTH ON BEHALF OF THE ASSESSE E THAT THE DIFFERENCE WAS DUE TO VARIOUS CLAIMS MADE BY THE CUSTOMERS/FRA NCHISEES BUT NOT ACCEPTED BY THE ASSESEE AND AS SUCH NOT RECORDED IN ITS BOOKS OF ACCOUNT. IT WAS FURTHER ASSERTED THAT IN SUBSEQUENT YEARS, T HE ASSESSEE ENTERED INTO NEGOTIATIONS AND SETTLED THESE CLAIMS OF THE CUSTOM ERS BASED ON MUTUALLY ITA NOS.954 & 1620 /DEL/2016 9 AGREED TERMS. THE AO ACCEPTED THE EXPLANATION OF TH E ASSESSEE IN THE CASES WHERE THE DEBIT BALANCE OF THE PARTIES WAS MO RE IN THE BOOKS OF THE ASSESSEE COMPANY THAN THE BALANCE IN THE BOOKS OF A CCOUNT OF CUSTOMERS/FRANCHISEES. HOWEVER, WHERE THE DEBIT BAL ANCE IN THE BOOKS OF ACCOUNTS OF THE ASSESSEE WAS LESS THAN THE BALANCE IN THE BOOKS OF THE PARTIES/FRANCHISEES, SUCH AN EXPLANATION WAS NOT AC CEPTED. ON THIS BASIS, THE AO DREW A TABLE ON PAGES 14 AND 15 OF THE FINAL ASSESSMENT ORDER COMPUTING DIFFERENCE BETWEEN THE CLOSING BALANCE AS PER THE CUSTOMERS BOOKS AND CLOSING BALANCE AS PER ASSESSEES BOOKS I N RESPECT OF FOUR PARTIES WITH TOTAL DIFFERENCE OF RS. 22,53,91,889/- . AN ADDITION WAS MADE FOR THIS AMOUNT, AGAINST WHICH THE ASSESSEE IS AGGRIEVED. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE RELEVANT MATERIAL ON RECORD. IT IS FOUND THAT THE A.O. MADE THE ADDITION ON THE BASIS OF DIFFERENCE IN THE CLOSING BALANCE OF THE A SSESSEE AS SHOWN BY THE FOUR CUSTOMERS IN THEIR BOOKS OF ACCOUNT AND THE CL OSING BALANCE OF SUCH CUSTOMERS AS SHOWN BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT. THE ASSESSEE CONTENDED BEFORE THE DISPUTE RESOLUTION PA NEL (DRP) THAT THE ITA NOS.954 & 1620 /DEL/2016 10 COPIES OF SUCH ACCOUNTS MAINTAINED BY THE CUSTOMERS WERE NOT MADE AVAILABLE TO IT BEFORE MAKING THE ADDITION. IT WAS REQUESTED THAT FULL COPIES OF ACCOUNT BE PROVIDED BY THE DRP. THE ASSES SEE FURTHER STATED THAT THE DIFFERENCE WAS RECONCILED AND SETTLED IN S UBSEQUENT YEARS. THE DRP DIRECTED THAT THE IMPACT OF RECONCILIATION SHOU LD BE VERIFIED BY THE A.O. AS PER LAW IN SUCH PERIODS AS THESE TAKE EFFEC T ON CASE TO CASE BASIS SUBJECT TO VERIFICATION BY THE AO BUT THE OUTSTANDI NG AMOUNTS IN THIS PERIOD SHOULD BE TREATED AS SUPPRESSED SALES. THAT IS HOW, THE AO MADE ADDITION FOR THIS AMOUNT. IT IS SIMPLE AND PLAIN T HAT BEFORE MAKING ANY ADDITION, IT IS INCUMBENT UPON THE AUTHORITIES TO C ONFRONT AN ASSESSEE WITH MATERIAL/EVIDENCE WHICH IS LIKELY TO BE USED A GAINST IT. ONLY WHEN THE ASSESSEE IS CONFRONTED WITH SUCH ADVERSE MATERI AL/EVIDENCE AND HE IS NOT IN A POSITION TO EXPLAIN ITS STAND, THAT AN AD DITION CAN BE MADE FOR THE CORRECT AMOUNT. HERE IS A CASE IN WHICH THE A. O. HAS SIMPLY SUPPLIED A SHEET OF THE CLOSING BALANCE OF THE ASSE SSEE SHOWN BY THE FOUR CUSTOMERS IN THEIR RESPECTIVE BOOKS OF ACCOUNTS WIT HOUT GIVING FULL COPIES OF ACCOUNTS. THERE CAN BE SEVERAL REASONS F OR DIFFERENCE IN CLOSING BALANCE OF A PARTY IN THE BOOKS OF ACCOUNT OF ANOTHER. UNLESS THE ITA NOS.954 & 1620 /DEL/2016 11 ASSESSEE IS MADE AWARE WITH COMPLETE COPY OF ACCOUN T, THERE CAN BE NO QUESTION OF JUMPING TO THE CONCLUSION THAT THE DIFF ERENCE BETWEEN THE CLOSING BALANCES IS ASSESSEES SUPPRESSED SALE. THE LD. DRP DIRECTED THE AO TO MAKE FULL ADDITION IN THIS YEAR BUT ALLOW ADJ USTMENT IN THE YEAR IN WHICH SETTLEMENT TOOK PLACE. THIS IS NOT A WHOLLY C ORRECT PROPOSITION. IF THERE ARE CERTAIN ITEMS OF SALES MADE BY THE ASSESS EE AND RECORDED BY THESE PARTIES IN THEIR BOOKS OF ACCOUNT, WHICH HAVE NOT BEEN INCLUDED BY THE ASSESSEE IN ITS BOOKS OF ACCOUNT, THEN, OF COUR SE, ADDITION SHOULD BE CONSIDERED FOR SUCH AMOUNTS IN THIS YEAR. BUT, IF THERE ARE CERTAIN OTHER ITEMS OF DIFFERENCES WHICH ARE CAPABLE OF RECONCILI ATION AND DO NOT INVOLVE ANY SUPPRESSED SALES, THOSE CANNOT BE TREAT ED AS A PART OF SUPPRESSED SALES. UNDER THESE CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF THE A.O. WITH A DIRECTION TO SUPPLY COPIES OF ACCOUNTS OF THESE FOUR PARTIES AND ALLOW AN OPPORTUNITY TO RECONCILE THE DIFFERENCE, IF ANY AND THEREAFTER, MAKE THE ADDITION IN THE TERMS DISCUSSED ABOVE. ITA NOS.954 & 1620 /DEL/2016 12 9. NEXT GROUND OF THE ASSESSEES APPEAL IS AGAIN ST THE MAKING OF DISALLOWANCE OF RS.8,27,00,000/- ON ACCOUNT OF `ST ORE CLOSURE EXPENSES. FACTS APROPOS THIS GROUND ARE THAT THE A SSESSEE CLAIMED DEDUCTION FOR A SUM OF RS. 8.27 CRORE TOWARDS `STOR E CLOSURE EXPENSES BY MEANS OF A REVISED RETURN. IT WAS CONTENDED THA T THIS AMOUNT, RECORDED IN THE BOOKS OF ACCOUNTS FOR THE SUCCEEDIN G A.Y. 2012-13, WAS CLASSIFIED AS A PRIOR PERIOD EXPENSE AND VOLUNTAR ILY DISALLOWED IN THE COMPUTATION OF INCOME FOR SUCH LATER YEAR. A REVISE D RETURN WAS FILED FOR THE YEAR UNDER CONSIDERATION CLAIMING DEDUCTION FOR SUCH EXPENSE PERTAINING TO THE INSTANT YEAR. THE A.O DID NOT AL LOW THIS EXPENDITURE. THE DRP OBSERVED THAT THE CLOSING OF STORES HAD A T RAIT OF PERMANENCY AND, AS SUCH, IT WAS A CAPITAL EXPENDITURE. THE A. O MADE ADDITION FOR THIS SUM AND THE ASSESSEE HAS COME IN APPEAL BEFORE US. 10. HAVING HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE RELEVANT MATERIAL ON RECORD, IT IS SEEN THAT THE ASSESSEE HA S PLACED ON RECORD AN ANNEXURE RUNNING INTO 6-7 PAGES WHICH CONTAINS DETA ILS OF STORE CLOSURE EXPENSES. THIS ANNEXURE HAS COLUMNS, SUCH AS, NAME OF THE STORE, ITA NOS.954 & 1620 /DEL/2016 13 STATUS AS ON 31.3.2012, FRANCHISEE NAME, DATE OF OP ENING, DATE OF CLOSURE, INTERIOR COST, RUNNING MONTHS AND VALUE OF INTERIOR ETC. SUM TOTAL OF THE COLUMN `INTERIOR COST IS RS. 8.27 CRO RE, WHICH THE ASSESSEE CLAIMED AS DEDUCTION. THE BUSINESS MODEL OF THE AS SESSEE IS THAT IT OPENS SHOW ROOMS THROUGH FRANCHISEES AT VARIOUS PL ACES ALL OVER INDIA. THE ANNEXURE IS A LIST OF THOSE FRANCHISEES WHO WER E REGULARLY INCURRING LOSSES AND THE ASSESSEE OPTED FOR CLOSING THESE FRA NCHISEES BY SETTLING A CERTAIN COMPENSATION TO BE PAID TO THEM FOR THE LOS S INCURRED BY THEM IN ESTABLISHING THESE STORES. WE ARE UNABLE TO COMPRE HEND AS TO HOW THIS AMOUNT CAN BE CONSIDERED AS A CAPITAL EXPENDITURE. THIS IS A COST WHICH THE ASSESSEE HAS INCURRED FOR CLOSING STORES OF FRA NCHISEES WHICH WERE RUNNING INTO LOSSES. THE HON'BLE SUPREME COURT IN T HE CASE OF EMPIRE JUTE COMPANY LIMITED VS. CIT [1980] 124 ITR 1 [SC] HAS HELD THAT IF THE ADVANTAGE BY PAYMENT CONSISTS MERELY IN FACILI TATING THE ASSESSES'S TRADING OPERATIONS OR ENABLING THE MANAGEMENT AND CONDUCT OF THE ASSESSES'S BUSINESS TO BE CARRIED ON MORE E FFICIENTLY OR MORE PROFITABLY WHILE LEAVING THE FIELD CAPITAL UNTOU CHED, THE AMOUNT SO INCURRED IS REVENUE EXPENDITURE. THE POSITION BEFO RE US IS SIMILAR IN AS ITA NOS.954 & 1620 /DEL/2016 14 MUCH AS THE ASSESSEE PAID COMPENSATION AS A QUID PRO QUO TO THE STORES/FRANCHISEES FOR THEIR CLOSURE WHICH WERE INC URRING LOSSES AND NOT RUNNING EFFICIENTLY. THE ONLY PURPOSE WAS TO GET RI D OF LOOSING PROPOSITIONS AND CONSOLIDATE THE PROFITABILITY IN F UTURE. IN OUR CONSIDERED OPINION, SUCH AN EXPENSE IS REVENUE IN N ATURE AND WARRANTS DEDUCTION IN PRINCIPLE. 11. HOWEVER, WE FIND THAT THIS ANNEXURE OF 6-7 P AGES IS NOT BACKED BY ANY SUPPORTING DOCUMENTS SHOWING HOW SUCH FIGURE OF LOSS WAS DETERMINED ON CASE TO CASE BASIS. FURTHER, NO RECE IPTS OF FRANCHISEES HAVE BEEN PLACED ON RECORD TO EVIDENCE THAT THIS WA S ACTUALLY THE AMOUNT PAID BY THE ASSESSEE ON SUCH ACCOUNT. WE, THEREFORE , SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND REMIT THE MATTER T O THE FILE OF THE A.O FOR EXAMINING THE DETAILS OF SUCH STORE CLOSURE EXP ENSES. IT IS HEREBY DIRECTED THAT THE DEDUCTION SHOULD BE ALLOWED TO TH E EXTENT THE ASSESSEE SATISFIES THE A.O. WITH THE AMOUNT OF SUCH EXPENDIT URE ACTUALLY INCURRED. 12. THE NEXT GROUND OF THE ASSESSEES APPEAL IS A GAINST THE DISALLOWANCE OF CERTAIN EXPENSES. THE ASSESSEE CLA IMED DEDUCTION OF ITA NOS.954 & 1620 /DEL/2016 15 RS.5,75,66,299 UNDER THE HEAD `LEGAL AND PROFESSION AL EXPENSES. ON PERUSAL OF ITS DETAILS, THE AO NOTICED THAT CERTAIN DISCHARGES INCLUDED UNDER THIS HEAD HAD NO RELATION WHATSOEVER WITH `LE GAL AND PROFESSIONAL CHARGES. A CHART WITH TOTAL OF RS. 28.90 LAC HAS BEEN DRAWN OF SUCH ITEMS AT PAGES 19 TO 21 OF THE ASSESSMENT ORDER. T HIS AMOUNT COMPRISES OF RS.6,84,487/-, BEING TDS AND INTEREST PAID ON R EVISION OF TDS RETURN; AND RS. 22,05,516/-, WHICH IS IN SMALL PART S HAVING NARRATIONS, SUCH AS, GYM MAINTENANCE CHARGES, CST DEMAND, SCREE NING CHARGES OF MOVIE MY NAME IS KHAN, RUNNING CLUB CLASSES. IT WAS OPINED THAT THE AMOUNT OF RS.28.90 LAC WAS NOT IN THE NATURE OF `LE GAL AND PROFESSIONAL CHARGES AND HENCE NO DEDUCTION WAS WARRANTED. ADDI TION WAS MADE FOR THIS SUM. THE ASSESSEE IS AGGRIEVED AGAINST THIS D ISALLOWANCE. 13. HAVING HEARD BOTH THE SIDES PERUSED THE RELE VANT MATERIAL ON RECORD, WE FIND THAT THE TABLE DRAWN BY THE A.O ON PAGES 19 TO 21 OF THE ASSESSMENT ORDER CONTAINS DETAILS OF EXPENSES WHICH ARE OBVIOUSLY NOT IN THE NATURE OF LEGAL AND PROFESSIONAL EXPENSES. BUT THE FACT THAT A PARTICULAR EXPENSE HAS BEEN WRONGLY CLASSIFIED IN T HE ACCOUNTS, DOES NOT ITA NOS.954 & 1620 /DEL/2016 16 LOSE DEDUCTION, IF IT IS OTHERWISE DEDUCTIBLE AS PE R LAW. SINCE THERE ARE SEVERAL ITEMS NOTED ON THESE THREE PAGES AS DETAILS OF THIS AMOUNT, WE CONSIDER IT EXPEDIENT TO SET ASIDE THE ASSESSMENT O RDER AND REMIT THE MATTER TO THE FILE OF THE A.O FOR EXAMINING THE DED UCTIBILITY OR OTHERWISE OF THE EACH OF THEM AS PER LAW, UNINFLUENCED BY THE HEADING OF LEGAL AND PROFESSIONAL CHARGES GIVEN BY THE ASSESSEE. NE EDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE OPPORTUNITY O F BEING HEARD BEFORE DRAWING ANY CONCLUSION IN THIS REGARD. 14. THE NEXT COMPONENT OF THIS GROUND IS THE DIS ALLOWANCE OF RS. 24.02 LAKH ON ACCOUNT OF STORE AUDIT. THE ASSESSEE WAS CALLED UPON TO FURNISH COPIES OF INDIVIDUAL DETAILS OF LEGAL AND P ROFESSIONAL CHARGES, WHICH INTER ALIA , CONTAINED STORE AUDIT EXPENSES AMOUNTING TO RS. 24,02,078/-. IN THE ABSENCE OF ANY BILL FURNISHED BY THE ASSESSEE FOR SUCH AN AMOUNT, THE A.O MADE THE ADDITION. 15. HAVING HEARD BOTH THE SIDES PERUSED THE REL EVANT MATERIAL ON RECORD, WE FIND THAT THE DISALLOWANCE HAS BEEN MADE FOR LACK OF EVIDENCE IN SUPPORT OF SUCH EXPENSE. THE LD. AR, IN ALL FAIR NESS, CONCEDED THAT THE ITA NOS.954 & 1620 /DEL/2016 17 BILL FOR RS. 24.02 LAKH WAS NOT AVAILABLE RIGHT NOW WITH HIM. HE, HOWEVER, UNDERTOOK TO PLACE IT BEFORE THE A.O. IF A NOTHER OPPORTUNITY WAS GRANTED. UNDER THESE CIRCUMSTANCES, WE SET ASI DE THE IMPUGNED ORDER ON THIS SCORE AND DIRECT THE ASSESSEE TO PROD UCE SUCH BILL BEFORE THE A.O. IN THE FRESH PROCEEDINGS. IT IS HEREBY DIRECTE D THAT IF THE ASSESSEE FAILS TO PRODUCE SUCH BILL EVEN IN THE RESULTING PR OCEEDINGS, THE A.O WILL BE JUSTIFIED IN MAKING ADDITION TO THIS EXTENT. 16. THE LAST COMPONENT OF THIS GROUND IS THE DIS ALLOWANCE OF PROPORTIONATE INTEREST OF RS.23,60,71,053/- ON UNSE CURED LOANS AMOUNTING TO RS.502.69 CRORE. IT WAS OBSERVED BY T HE AO THAT THE ASSESSEE CLAIMED TO HAVE PAID INTEREST, INTER ALIA, ON UNSECURED LOANS AMOUNTING TO RS.502.69 CRORE. THE AO NOTICED THAT T HERE WERE OUTSTANDING ADVANCES TO THE TUNE OF RS.172.59 CRORE ON WHICH NO INTEREST WAS CHARGED BY THE ASSESSEE. THE A.O. MADE PROPORT IONATE DISALLOWANCE OF INTEREST OF RS. 23.60 CRORE BY MULT IPLYING THE AMOUNT OF ADVANCES GIVEN WITH THE AMOUNT OF FINANCE COST AND THEN DIVIDING IT ITA NOS.954 & 1620 /DEL/2016 18 WITH THE AMOUNT OF UNSECURED LOANS. THE ASSESSEE I S AGGRIEVED AGAINST THIS ADDITION. 17. HAVING HEARD BOTH THE SIDES PERUSED THE REL EVANT MATERIAL ON RECORD, WE FIND FROM SCHEDULE 8 OF THE ASSESSEES B ALANCE SHEET, WHICH CONTAINS DETAILS OF LOANS AND ADVANCES, THAT AS AGA INST THE CLOSING BALANCE OF ADVANCES AMOUNTING TO RS. 172.59 CRORE, THE BALANCE IN THE PRECEDING YEAR ENDING ON 31.3.2010 STOOD AT RS. 173 .41 CRORE. THIS SHOWS THAT THE AMOUNT OF ADVANCE HAS COME DOWN SLIG HTLY VIS-A-VIS THE PRECEDING YEAR. THE LD. AR CONTENDED THAT NO DISAL LOWANCE OF INTEREST ON SUCH OUTSTANDING BROUGHT FORWARD LOANS AND ADVAN CES RECEIVABLE WAS MADE IN THE PRECEDING YEAR. THIS CONTENTION HAS NOT BEEN CONTROVERTED ON BEHALF OF THE REVENUE. WE FIND THAT THE A.O HAS SIMPLY COMPUTED THE DISALLOWANCE OF INTEREST IN PROPORTION TO THE AMOUNT OF INTEREST BEARING UNSECURED LOANS OBTAINED AMOUNTIN G TO RS.502.69 CRORE AND INTEREST FREE ADVANCES GIVEN AMOUNTING TO RS. 1 72.59 CRORE. THE FACT THAT THE ASSESSEE DID PAY INTEREST ON SUCH UNS ECURED LOANS HAS NOT BEEN DISPUTED. IN VIEW OF THE FACT THAT THE ASSESS EE PAID INTEREST ON ITA NOS.954 & 1620 /DEL/2016 19 UNSECURED LOANS AND DID NOT EARN ANY INTEREST ON AD VANCES GIVEN, WE CANNOT DISALLOW PROPORTIONATE INTEREST GENUINELY PA ID ON UNSECURED LOANS TAKEN FOR BUSINESS PURPOSE. SECTION 36(1)(III) SIM PLY PROVIDES THAT DEDUCTION IS ALLOWABLE FOR `THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSE OF BUSINESS. AS T HE ASSESSEE PAID INTEREST ON CAPITAL BORROWED FOR THE BUSINESS PURPO SE AND IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE DIVERTED SUCH UNSE CURED LOANS FOR A NON- BUSINESS PURPOSE, THE DISALLOWANCE OF INTEREST CANN OT BE COUNTENANCED. WE, THEREFORE, ALLOW DEDUCTION OF RS. 23.60 CRORE. 18. THE ONLY OTHER ISSUE LEFT FROM THE REVENUES AP PEAL IS A CHALLENGE TO THE DELETION OF DISALLOWANCE OF RS.4,56,58,787 M ADE U/S 40(A)(I) OF THE ACT. SUCCINCTLY, THE FACTUAL MATRIX OF THIS GRO UND IS THAT THE ASSESSEE PAID THE ABOVE SUM TO ICC WITHOUT DEDUCTING TAX AT SOURCE. THE AO FORMED A VIEW THAT SUCH PAYMENT IS IN THE NATURE OF ROYALTY OR FEES FOR TECHNICAL SERVICES REQUIRING DEDUCTION OF TAX AT SO URCE. ON BEING CALLED UPON TO EXPLAIN AS TO WHY REMITTANCE WAS MADE TO IC C WITHOUT TAX WITHHOLDING, THE ASSESSEE SUBMITTED THAT AS PER TER MS OF THE AGREEMENT ITA NOS.954 & 1620 /DEL/2016 20 DATED 11.09.2007, ICC ALLOWED REEBOK TO ASSOCIATE WITH IT AS OFFICIAL PARTNER OF ICC. IT WAS STATED THAT THE AGREEMENT CONSISTED OF BUNDLE OF RIGHTS WHEREIN ICC LISTED THE MANNER IN WHICH REEBO K COULD ADVERTISE/MARKET ITS PRODUCTS DURING THE ICC EVENTS FOR A CONSOLIDATED CONSIDERATION. THE ASSESSEE ALSO SUBMITTED THAT ICC DID NOT PROVIDE ANY TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNO WLEDGE TO IT. IT WAS ALSO PUT FORTH THAT SIMILAR FACILITIES WERE ALSO PR OVIDED TO OTHER COMPANIES ENTERING INTO SIMILAR ARRANGEMENT WITH IC C FOR PROMOTING THEIR RESPECTIVE PRODUCTS. THE SUM AND SUBSTANCE OF THE ASSESSEES SUBMISSIONS BEFORE THE ASSESSING OFFICER WAS THAT T HE AGREEMENT MADE WITH ICC DID NOT RESULT INTO ANY INCOME IN THE NATU RE OF THE ROYALTY OR FEE FOR TECHNICAL SERVICES IN THEIR HANDS AND AS SU CH, THERE WAS NO NEED FOR DEDUCTING TAX AT SOURCE. THE ASSESSING OFFICER NOTICED THAT AS PER THE TERMS OF THE AGREEMENT, THE ASSESSEE WAS ALLOWED R IGHT TO USE DESIGNATIONS, MARKS AND ICC LOGO ETC., WHICH IN HIS OPINION FELL UNDER THE DEFINITION OF `ROYALTY AS DEFINED U/S 9(1)(VI) OF THE ACT. HE FURTHER HELD THAT SUCH PAYMENT WAS ALSO IN THE NATURE OF `F EES FOR TECHNICAL SERVICES, AS THE SERVICES PROVIDED BY ICC WERE IN THE NATURE OF ITA NOS.954 & 1620 /DEL/2016 21 `MANAGERIAL SERVICES. IN THE ABSENCE OF THE ASSESS EE HAVING DEDUCTED TAX AT SOURCE FROM THE PAYMENT MADE TO ICC, THE AO PROPOSED DISALLOWANCE U/S 40(A)(I) OF THE ACT IN THE DRAFT O RDER. THE ASSESSEE CHALLENGED SUCH PROPOSED DISALLOWANCE BEFORE THE DR P, WHO VIDE ITS DIRECTION DATED 16.12.2015, HELD THAT: `THE BENEFIT S AVAILED BY THE ASSESSEE FROM ICC DID NOT FALL WITHIN THE AMBIT OF ROYALTY OR FTS AND ACCORDINGLY NO DISALLOWANCE WAS CALLED FOR. THE REV ENUE IS AGGRIEVED AGAINST THIS DIRECTION. 19. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PER USED THE RELEVANT MATERIAL ON RECORD. THE AO PROPOSED DISALLOWANCE O F THE AMOUNT U/S 40(A)(I) IN THE DRAFT ORDER, AS IN HIS OPINION, THE ASSESSEE MADE PAYMENT OF ROYALTY OR ALTERNATIVELY, FEES FOR TECHNICAL SER VICES TO ICC WITHOUT DEDUCTION OF TAX AT SOURCE, ON WHICH TAX WITHHOLDIN G WAS WARRANTED. SECTION 40(A)(I) OF THE ACT PROVIDES THAT NOTWITHST ANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, NO DEDUCTION SHALL BE ALLOWED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD 'PRO FITS AND GAINS OF BUSINESS OR PROFESSION' OF ROYALTY, FEES FOR TECHNI CAL SERVICES OR OTHER ITA NOS.954 & 1620 /DEL/2016 22 SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYABLE OUT SIDE INDIA; OR IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVI I-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 13 9 . EXPLANATION TO THIS PROVISION STIPULATES THAT : `FOR THE PURPOSES OF TH IS SUB-CLAUSE, (A) 'ROYALTY' SHALL HAVE THE SAME MEANING AS IN EXPLANA TION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9; (B) 'FEES FOR TEC HNICAL SERVICES' SHALL HAVE THE SAME MEANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9. IT TRANSPIRES FROM THE ABOVE PR OVISION, TO THE EXTENT IT IS RELEVANT FOR OUR PURPOSE, THAT FOR ATTRACTING DI SALLOWANCE U/S 40(A)(I), IT IS SINE QUA NON THAT THE PAYMENT BY THE ASSESSEE MUST BE IN THE NAT URE OF ROYALTY OR FEES FOR TECHNICAL SERVICES TAXABLE AS SUCH IN THE HANDS OF THE NON-RESIDENT AND SUCH PAYMENT SHOULD HAVE BEEN MADE WITHOUT DEDUCTION OF TAX AT SOURCE. BOTH THE ABOVE CONDITIO NS SHOULD BE CUMULATIVELY SATISFIED FOR ATTRACTING THE MISCHIEF OF THIS PROVISION. ADMITTEDLY, THE ASSESSEE DID NOT DEDUCT ANY TAX AT SOURCE. NOW, LET US ITA NOS.954 & 1620 /DEL/2016 23 EXAMINE IF THE AMOUNT IS CHARGEABLE TO TAX IN THE H ANDS OF ICC AS `ROYALTY OR `FEES FOR TECHNICAL SERVICES. 20. ICC IS A RESIDENT OF BRITISH VIRGIN ISLAND S AND HENCE A NON- RESIDENT UNDER THE ACT. SECTION 5(2) CONTAINS THE S COPE OF TOTAL INCOME OF A NON-RESIDENT. IT PROVIDES THAT THE TOTAL INCOME O F ANY PREVIOUS YEAR OF A PERSON WHO IS A NON-RESIDENT INCLUDES, INTER ALIA , ALL INCOME WHICH IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SU CH YEAR. SECTION 9 DEFINES `INCOME DEEMED TO ACCRUE OR ARISE IN INDIA . SUB-SECTION (1) OF THIS SECTION LISTS CERTAIN ITEMS OF INCOMES WHICH S HALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. CLAUSE (VI) STATES THAT I NCOME BY WAY OF ROYALTY PAYABLE, INTER ALIA , BY A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE ROYALTY IS PAYABLE IN RESPECT OF ANY RIGHT, PROPERT Y OR INFORMATION USED OR SERVICES UTILISED FOR THE PURPOSES OF A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA, SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. SIMILARLY, CLAUSE (VII) PROVIDES TH AT INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE, INTER ALIA , BY A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE FEES ARE PAYABLE IN RESP ECT OF SERVICES UTILISED ITA NOS.954 & 1620 /DEL/2016 24 IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERS ON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM A NY SOURCE OUTSIDE INDIA, SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA. ON A READING OF SECTION 5 IN JUXTAPOSITION TO SECTION 9, IT IS UNEQ UIVOCAL THAT INCOME FROM ROYALTY AND FEES FOR TECHNICAL SERVICES IS CHARGEAB LE TO TAX, SUBJECT TO OTHER CONDITIONS, IN HANDS OF A NON-RESIDENT WHEN I T IS PAID, INTER ALIA, BY A RESIDENT. THIS MANIFESTS THAT IF THE PAYMENT MADE BY THE ASSESSEE IN INDIA TO A NON-RESIDENT ICC GETS COVERED WITHIN THE SCOPE OF `ROYALTY OR `FEES FOR TECHNICAL SERVICES, IT WILL BE CHARGEABL E TO TAX IN INDIA UNDER THE ACT, THEREBY FIXING LIABILITY ON THE ASSESSEE T O DEDUCT TAX AT SOURCE. FAILURE OF THE ASSESSEE TO DEDUCT TAX AT SOURCE FRO M SUCH PAYMENT, IN THAT EVENTUALITY, WOULD ENTAIL DISALLOWANCE U/S 40(1)(IA ) OF THE ACT TO MAR THE CLAIM OF SUCH DEDUCTION IN ITS HANDS. 21. NOW WE WILL EXAMINE IF THE PAYMENT MADE BY THE ASSESSEE TO ICC IS IN THE NATURE OF ROYALTY AS PER 9(1)(VI) OR FEES FOR TECHNICAL SERVICES UNDER SECTION (9)(VII) OF THE ACT. IN ORDER TO DETE RMINE THE CORRECT NATURE OF PAYMENT IT IS RELEVANT TO CONSIDER THE RELEVANT CLAUSES OF THE OFFICIAL PARTNER AGREEMENT DATED 11.09.2007 ENTERED INTO BET WEEN THE ASSESSEE ITA NOS.954 & 1620 /DEL/2016 25 AND ICC DEVELOPMENT (INTERNATIONAL) LIMITED (HEREIN AFTER REFERRED TO AS `THE AGREEMENT). A COPY OF SUCH AGREEMENT HAS BEE N PLACED ON RECORD. PREAMBLE OF THE AGREEMENT, STYLED AS `BACKG ROUND, STATES THAT ICC IS THE OFFICIAL INTERNATIONAL GOVERNING BODY FO R CRICKET AND THE ASSESSEE (REFERRED TO AS `THE COMPANY IN THE AGREE MENT) WISHES TO BECOME AN OFFICIAL PARTNER FOR THE ICC EVENTS. CLAU SE C OF THE BACKGROUND, WHICH IS RELEVANT FOR OUR PURPOSE, READ S AS UNDER :- IDI IS THE COMMERCIAL ARM OF THE ICC AND HAS AGREE D TO GRANT, AND COMPANY HAS AGREED TO ACQUIRE, CERTAIN PROMOTIONAL, ADVERTISING, MARKETING AND OTHER COMMERCIAL RIGHTS ON A WORLD-WIDE BASIS IN CONNECTION WITH THE ICC EVENTS ON THE TERMS OF THIS AGREEMENT. 22. ON GOING THROUGH THE CLAUSE C, IT BECOMES APP ARENT THAT IDI (COMMERCIAL ARM OF ICC) AGREED TO GRANT TO THE ASSE SSEE CERTAIN `PROMOTIONAL, ADVERTISING, MARKETING AND OTHER COMM ERCIAL RIGHTS ON A WORLDWIDE BASIS IN CONNECTION WITH THE ICC EVENTS. THUS IT IS APPARENT THAT THE ASSESSEE ACQUIRED BROADLY TWO TYPES OF RIG HTS, VIZ., `PROMOTIONAL AND ADVERTISING AND `MARKETING RIGHTS. CERTAIN D EFINITIONS HAVE BEEN GIVEN IN THE AGREEMENT. THE TERM `DESIGNATIONS HA S BEEN DEFINED IN CLAUSE 1 OF THE AGREEMENT TO MEAN THE DESIGNATIONS REFERRED TO IN ITA NOS.954 & 1620 /DEL/2016 26 PARAGRAPH 1 OF APPENDIX 3, WHICH, IN TURN, EXPLAINS IT TO MEAN `OFFICIAL PARTNER OF ICC, `OFFICIAL PARTNER OF (MAJOR EVENT/ DEVELOPMENT EVENT) AND ` ICC OFFICIAL CRICKET EQUIPMENT SUPPLIER . TH E TERM `MARKS HAS BEEN DEFINED TO : `MEAN THE ICC CORPORATE LOGO, THE COMPETITION LOGO AND THE DESIGNATIONS. IN ALL, THERE ARE TWO TYPES OF PAYMENTS, WHICH THE ASSESSEE IS SUPPOSED TO MAKE UNDER THE AGREEMENT, N AMELY, RIGHTS FEE AND ROYALTY, WHICH HAVE BEEN DEFINED IN THE AGRE EMENT AS UNDER:- ` RIGHTS FEE MEANS THE FEE PAYABLE BY COMPANY TO IDI IN ACCORDANCE WITH CLAUSE 7 AND APPENDIX 2 `ROYALTY MEANS THE FEE PAYABLE BY COMPANY TO IDI F OR EACH LICENSED PRODUCT SOLD, AS SPECIFIED IN APPENDIX 4. 23. THUS WHAT THE ASSESSEE PAYS FOR THE SALE OF L ICENSED PRODUCTS IS `ROYALTY AND WHAT IT PAYS FOR THE GRANT OF RIGHTS IS `RIGHTS FEE. THE TERM `GRANT OF RIGHTS HAS BEEN ELABORATED UNDER CL AUSE 2 OF THE AGREEMENT, WHICH READS AS UNDER:- 2- GRANT OF RIGHTS IDI GRANTS TO COMPANY THE PROMOTIONAL, ADVERTISING, MARKETING AND OTHER RIGHTS AND OPPORTUNITIES AS SPECIFIED IN THIS AGREE MENT WITH RESPECT TO PRODUCTS FOR USE IN CONNECTION WITH THE BRANDS IN T HE TERRITORY FOR THE TERM INCLUDING: ITA NOS.954 & 1620 /DEL/2016 27 (A) APPENDIX 3 WITH RESPECT TO ICC EVENTS AND S PECIFIED ICC FUNCTIONS; AND (B) APPENDIX 4 WITH RESPECT TO APPAREL RIGHTS. THE RIGHTS GRANTED BY IDI TO COMPANY UNDER THIS AGR EEMENT: (A) ARE EXCLUSIVE IN THAT IDI HAS NOT GRANTED, AND WILL NOT GRANT, SUBSTANTIALLY SIMILAR RIGHTS IN RELATION TO AN ICC EVENT AND THE PRODUCT CATEGORY. OTHERWISE, ALL RIGHTS GRANTED UNDER THIS AGREEMENT ARE NON- EXCLUSIVE; AND (B) REPRESENT THE ENTIRE EXTENT OF THE RIGHTS GRANTED TO IT AND ARE LIMITED TO PRODUCTS. ALL RIGHTS AND OPPORTUNITIES NOT EXPRE SSLY GRANTED TO COMPANY UNDER THIS AGREEMENT ARE RESERVED BY IDI. 24. ON GOING THROUGH THE ABOVE CLAUSE, IT EMERGE S THAT THE ASSESSEE WAS GRANTED : `PROMOTIONAL, ADVERTISING, MARKETING AND OTHER RIGHTS AND OPPORTUNITIES WITH RESPECT TO THE PRODUCTS INCLUDI NG APPENDIX 3 W.R.T. ICC EVENTS AND SPECIFIED ICC FUNCTIONS; AND APPENDI X 4 W.R.T. APPAREL RIGHTS. 25. CLAUSE 4, WHICH IS RELEVANT FOR OUR PURPOSE , READS AS UNDER:- 4. APPROVALS AND USE OF MARKS COMPANY ACKNOWLEDGES THAT EACH AND EVERY USE OF A M ARK REQUIRES IDI'S PRIOR WRITTEN APPROVAL. COMPANY MUST SUBMIT TO IDI FOR ITS PRIOR WRITTEN AP PROVAL USING IDI'S APPROVAL SYSTEM, COMPLETE AND ACCURATE REPRESENTATI ONS OF THE FINAL FORM SAMPLES (WITH AN ENGLISH TRANSLATION WHERE APPLICAB LE) OF ANY ADVERTISING MATERIALS, AND ANY OTHER PROPOSED USE OF THE MARKS ON OR IN CONNECTION ITA NOS.954 & 1620 /DEL/2016 28 WITH PRODUCTS, THEIR PACKAGING OR ON PREMIUM IN EAC H CASE AT FEAST TWENTY (20) BUSINESS DAYS PRIOR TO PRODUCTION. IF REQUEST ED BY IDI, COMPANY MUST ALSO SUBMIT ACTUAL SAMPLES OF SUCH MATERIALS FOR APPROVAL. IDI WILL USE ITS BEST EFFORTS TO RESPOND WITHIN TEN (10) BUS INESS DAYS OF RECEIPT OF SUCH REPRESENTATIONS OR SAMPLES. COMPANY MUST NOT R ELEASE ANY SUCH PROPOSED USE OF THE MARKS OR ADVERTISING MATERIALS WITHOUT THE EXPRESS APPROVAL OF IDI. IF COMPANY DISTRIBUTES A PRODUCT OR PACKAGING BEARI NG THE MARKS OR A PREMIUM OR ISSUES ADVERTISING MATERIAL OR OTHERWISE USES THE MARKS WITHOUT IDI'S PRIOR WRITTEN APPROVAL, THEN WITHOUT PREJUDICE TO ANY OTHER REMEDY OF IDI, COMPANY MUST REMOVE FROM CIRCULATION ANY SUCH MATERIALS AND DISCONTINUE ANY FURTHER USE IMMEDIATE LY ON RECEIPT OF WRITTEN NOTICE FROM IDI AND PROVIDE EVIDENCE TO THE SATISFACTION OF IDI THAT IT HAS DONE SO. COMPANY MUST TAKE ALL NECESSARY ACTIONS TO ENSURE T HAT ALL PRODUCTS AND PREMIUMS IT PROMOTES OR ADVERTISES IN CONJUNCTION W ITH THE MARKS ARE OF THE HIGHEST QUALITY STANDARDS AND MEETS ANY REQUIRE MENTS OF APPLICABLE LAW. SUBJECT ONLY TO CLAUSE 4.6 BELOW, COMPANY MUST NOT HAVE A TRADE NAME, LOGO OR OTHER MARK, DENOTING OR IDENTIFYING A THIRD PARTY PERSON AFFIXED TO OR AS A PART OF PRODUCTS, PRODUCT PACKAGING THAT BE ARS THE MARKS OR ON PREMIUMS. IF APPLICABLE LAWS REQUIRE THE INCLUSION OF THE IDENTIFICATION OF A THIRD PARTY ON SUCH PRODUCT, PREMIUM OR PACKAG ING, THE SIZE OF SUCH IDENTIFICATION MUST NOT EXCEED THAT WHICH IS STRICT LY NECESSARY TO COMPLY WITH SUCH APPLICABLE LAWS. COMPANY MAY UNDERTAKE ICC EVENT-RELATED PROMOTIONS USING THE RIGHTS GRANTED TO IT UNDER THIS AGREEMENT WITH THE FOLLOWI NG THIRD PARTIES AND SUBJECT TO THE THIRD PARTY GUIDELINES (AS SPECIFIED IN APPENDIX 6: (A) TOGETHER WITH OTHER COMMERCIAL AFFILIATES, (B) WITH PRINT MEDIA; (C) WITH RETAILERS; ITA NOS.954 & 1620 /DEL/2016 29 (D) IN COMBINATION WITH OTHER SIMILAR SPONSORSH IP RIGHTS GRANTED TO IT EITHER BY IDI OR OTHER SPORTS RIGHTS-HOLDERS IN CONNECTION WITH THEIR COMPETITIONS OR EVENTS, AND (E) USING SIMILAR RIGHTS GRANTED TO IT BY INDIV IDUAL PLAYERS OR ICC MEMBERS. 26. THE ABOVE CLAUSE DIVULGES THAT THE ASSESSEE I S ENTITLED TO USE `MARKS BUT WITH THE PRIOR WRITTEN APPROVAL OF IDI ON ADVERTISING MATERIAL OR ITS PRODUCT ETC. FURTHER, THE ASSESSEE IS ALSO ENTITLED TO USE THE `RIGHTS GRANTED TO IT IN PRINT MEDIA AND OTHER COM MERCIAL AFFILIATES ETC. 27. CLAUSE 7 OF THE AGREEMENT DEFINES RIGHTS FE ES AND VIK AS UNDER:- 7- RIGHTS FEE AND VIK COMPANY MUST: (A) PAY TO IDI THE RIGHTS FEES; AND (B) PROVIDE TO IDI THE VIK, IN THE MANNER AND AMOUNT AS SPECIFIED IN APPENDIX 2. ANY AND ALL PAYMENTS AND CONTRIBUTIONS TO BE MADE U NDER THIS AGREEMENT BY COMPANY TO IDI MUST BE MADE IN FREELY TRANSFERABLE US DOLLARS FREE AND CLEAR OF, AND WITHOUT DEDUCTION OR LIABILITY FOR, ANY AND ALL TAXES (INCLUDING VAT), SET-OFFS, DEDUCTIONS AN D/OR WITHHOLDINGS OF WHATSOEVER NATURE WHICH MAY BE APPLICABLE IN RESPEC T OF SUCH PAYMENT. ITA NOS.954 & 1620 /DEL/2016 30 ALL AMOUNTS PAYABLE HEREUNDER THAT ARE NOT PAID ON THE DUE DATE SHALL BEAR INTEREST AT THE RATE OF THREE PERCENT (3%) ABO VE THE LIBOR (TWELVE MONTHS) RATE FOR US$, AS PUBLISHED BY THE ZURICH PE RIODICAL 'FINANZ UNDER WIRTSCHAFT PRORATED ON A DAILY BASIS. THE PAY MENT OF SUCH INTEREST SHALL BE IN ADDITION TO AND NOT IN SUBSTITUTION OF ANY AND ALL OTHER REMEDIES AVAILABLE TO IDI IN RESPECT OF NONPAYMENT. COMPANY MUST PROVIDE IDI WITH QUARTERLY WRITTEN REP ORTS DURING EACH YEAR OF THE TERM, SETTING OUT: (I) THE AGGREGATE VA LUE OF VIK THAT COMPANY HAS SUPPLIED; (II) THE CORRESPONDING RETAIL VALUE OF THAT VIK SUPPLIED; (III) THE AGGREGATE VALUE OF VIK THAT REM AINS AVAILABLE; AND (IV) SUCH OTHER DETAILS WITH RESPECT TO THE VALUE, SUPPL Y AND DISTRIBUTION OF VIK AS IDI REQUESTS. TIME IS OF THE ESSENCE AS REGARDS ANY PAYMENT OF RI GHTS FEE AND THE PROVISION OF VIK. 28. THE ASSESSEE UNDER THE ABOVE CLAUSE IS OBLI GED TO PAY TO IDI THE RIGHTS FEE AND VIK IN THE MANNER SPECIFIED AS PER APPENDIX 2. RELEVANT PART OF THIS APPENDIX IS AS UNDER:- APPENDIX 2 RIGHTS FEE AND VIK 1 THE RIGHTS FEE IS US $4 MILLION. 2 THE RIGHTS FEE MUST BE PAID BY TELEX TRANSFER IN TO THE FOLLOWING BANK ACCOUNT OR ANOTHER BANK ACCOUNT AS INSTRUCTED BY IDI IN WRITING: BARCLAYS BANK PLC ISLE OF MAN INTERNATIONAL BANKING CENTRE ISLE OF MA N SWIFTBIC : BARCGB22 ITA NOS.954 & 1620 /DEL/2016 31 I BAN : GB21 BARC 2026 7453 2783 11 SORT CODE- 20-26-74 ACCOUNT NUMBER: 53278311 ACCOUNT NAME ICC DEVELOPMENT (INTERNATIONAL) LTD 3 THE RIGHTS FEE IS DUE AND PAYABLE IN ACCORDANCE WITH THE PAYMENT SCHEDULE SET OUT BELOW. THE CONSIDERATION ATTRIBUTA BLE TO EACH ICC EVENT MUST BE PAID IN FOUR EQUAL INSTALLMENTS EACH DUE RESPECTIVELY NO LATER THAN 120, 90, 60 AND 30 DAYS PRIOR TO THE FIRST MATCH OF EACH ICC EVENT. THE AMOUNT FOR THE FIRST ICC EVENT IS TO BE PAID WI THIN 7 DAYS OF THE SIGNING OF THIS AGREEMENT. ICC EVENTS RIGHTS FEE (US DOLLARS) WORLD TWENTY20 (SEPTEMBER 2007, SOUTH AFRICA) 50,00 0 BY JANUARY 2008 100,000 USD FOR WORLD TWENTY20 2007 & 150,000 USD BY SEPTEMBER 2008 CHAMPION TROPHY PAKISTAN 250,000 BY JANUARY 2009 100,0000 USD & 250,000 USD BY WORLD TWENTY20 (MAY/ JUNE 2009, ENGLAND) 350,000 BY JANUARY 2010 100,000 USD & 250,000 USD BY CHAMPIONS TROPHY (APRIL/MAY 2010, WEST INDIES) 350,000 ICC CRICKET WORLD CUP (FEBRUARY/MARCH 2011, ASIA-INDIA, PAKISTAN, BANGLADESH, SRI LANKA) 1,000,000 BY JANUARY 2012 100,000 USD & 150,000 USD BY CHAMPIONS TROPHY/ TWENTY20 (SEPTEMBER 2012, SRI LANKA) 250,000 BY JANUARY 2013 100,000 USD & 150,000 USD BY CHAMPIONS TROPHY / TWENTY20 (MAY/ JUNE 2013, TBC) 250,000 BY JANUARY 2014 100,000 USD & 150,000 USD BY CHAMPIONS TROPHY / TWENTY20 (APRIL 2014, ITA NOS.954 & 1620 /DEL/2016 32 BANGLADESH) ICC CRICKET WORLD CUP (FEBRUARY / MARCH 2015, AUSTRALIA / NEW ZEALAND 1,250,000 TOTAL 4,000,000 4. COMPANY MUST SUPPLY VIK AS FOLLOWS:- A) TO IDI FREE OF CHARGE PRODUCTS TOGETHER WITH THE SERVICES OF SUFFICIENT QUALIFIED PERSONNEL FOR THE EFFECTIVE OP ERATION AND SATISFACTORY FUNCTIONING OF SUCH PRODUCT SUPPLY IN ACCORDANCE WITH THE REQUIREMENTS SPECIFIED IN APPENDIX 4. B) TO AN AGGREGATE VALUE OVER THE TERM OF US$3 MILL ION. THE VALUE OF ANY ITEM OF VIK SUPPLIED MUST BASED ON THE LOWEST WHOLESALE PRICE AT WHICH COMPANY SELLS AN EQUIVALEN T PRODUCT TO ANY THIRD PARTY (INCLUDING, WHERE APPLIC ABLE, GOVERNMENT PURCHASING AGENCIES) AND EXCLUDING ANY V AT OR OTHER TAXES AND C) PRODUCT MUST BE DELIVERED FREE OF CHARGE TO IDI S HEAD OFFICE OR THE LOCATION TO BE SPECIFIED BY IDI. 5. PRODUCTS MUST BE AVAILABLE FOR PURCHASE BY IDI F ROM TIME TO TIME IN THE REQUESTED QUANTITIES AT WHOLESALE PRICE. 29. THE ABOVE APPENDIX MANDATED UPON THE ASSESS EE TO PAY THE `RIGHTS FEE OF US $ 4 MILLION IN INSTALLMENTS OVER THE YEARS AS STIPULATED. PURSUANT TO THIS APPENDIX, THE ASSESSEE WAS TO PAY DURING THE YEAR A SUM OF 10 LAKH US$ AS `RIGHTS FEE ON ACCOUN T OF ICC CRICKET WORLD CUP (FEB/ MARCH 2011). THE ASSESSEE PAID THIS AMOUNT, WHICH WHEN CONVERTED INTO INDIAN CURRENCY , CAME TO RS.4,56,48,787/-. IT IS THIS AMOUNT WHICH HAS BEEN DISALLOWED BY THE ASSESS ING OFFICER U/S ITA NOS.954 & 1620 /DEL/2016 33 40(A)(I) OF THE ACT. VIK IS A PAYMENT IN KIND, BEI NG THE OBLIGATION OF THE ASSESSEE TO SUPPLY TO IDI FREE OF COST PRODUCTS TOG ETHER WITH THE SERVICES TO BE USED IN CONDUCTING ICC EVENTS. 30. APPENDIX 3 TO THE AGREEMENT CONTAINS RIGHT S PACKAGE, WHICH IS VERY CRUCIAL FOR THE INSTANT CONTROVERSY. IT READS AS UNDER:- APPENDIX 3 RIGHTS PACKAGE THE RIGHTS ARE SUBJECT TO COMPANY MEETING ALL REQUI RED TIMEFRAMES AND OBTAINING IDI'S PRIOR WRITTEN APPROVAL TO EACH PROP OSED USE OF A MARK. 1 DESIGNATIONS 1.1 THE RIGHT TO USE THE DESIGNATIONS LISTED BELOW: *OFFICIAL PARTNER OF ICC *OFFICIAL PARTNER OF [MAJOR EVENT/DEVELOPMENT EVENT ] *ICC OFFICIAL CRICKET EQUIPMENT SUPPLIER 1.2 OTHER VARIATIONS OR FORMS OR COMBINATIONS OF DE SIGNATIONS (INCLUDING TRANSLATIONS OF THE SAME INTO OTHER LANG UAGES) ARE SUBJECT TO IDIS PRIOR WRITTEN APPROVAL. 2. MARKS AND EVENT IDENTIFICATION 2.1 THE RIGHT TO USE THE MARKS IN CONNECTION WITH T HE MANUFACTURE, DISTRIBUTION, ADVERTISING, PROMOTION AND SALE OF PR ODUCTS TO INDICATE A SPONSORSHIP RELATIONSHIP WITH ICC EVENTS AND TO U SE MARKS ON LICENSED PRODUCT. 2.2 THE RIGHT FOR COMPANY LOGO TO BE PLACED AT TH E BASE OF CRICKET STUMPS USED IN AN ICC EVENT SUBJECT TO COMPANY SUP PLYING THOSE STUMPS. ITA NOS.954 & 1620 /DEL/2016 34 3 TICKETS 3.1 THE RIGHT TO RECEIVE FIFTY (50) COMPLIMENTARY T ICKETS FOR EACH MATCH OF A MAJOR EVENT AND TWENTY (20) COMPLIMENTAR Y TICKETS FOR EACH MATCH OF A DEVELOPMENT EVENT. 3.2 THE RIGHT TO PURCHASE ON A PREFERENTIAL BASI S AND IN ACCORDANCE WITH THE SALES METHOD, PROCEDURES AND TIMEFRAMES SPECIFI ED BY IDI: (A) FIFTY (50) TICKETS AT FACE VALUE TO EACH MATCH (OTHER THAN THE FINAL MATCH) OF A MAJOR EVENT; (B) ONE HUNDRED (100) TICKETS AT FACE VALUE TO THE FINAL MATCH OF EACH MAJOR EVENT. COMPANY MUST GIVE WRITTEN NOTICE TO IDI OF THE FINAL ORDER FOR THE PURCHASE OF TICKETS ON OR BEFOR E SIX (6) MONTHS BEFORE THE FINAL MATCH OF THE MAJOR EVENT CONCERNED . IF COMPANY DOES NOT GIVE NOTICE BY THIS DATE, COMPANY'S ENTITL EMENT UNDER THIS PARAGRAPH IS IRREVOCABLY AND UNCONDITIONALLY WAIVED IN RESPECT OF THAT MAJOR EVENT; AND (C) A REASONABLE NUMBER OF TICKETS TO A DEVELOPMENT EVENT. 3.3 ALL TICKETS AND PASSES MUST BE USED IN ACCORD ANCE WITH THE DIRECTIONS ISSUED BY IDI AND THEIR TERMS AND CONDIT IONS OF USE NOTIFIED BY IDI TO COMPANY. COMPANY ACKNOWLEDGES AN D AGREES THAT: A) TICKETS AND PASSES MAY BE USED BY COMPANY ONLY F OR HOSPITALITY AND/OR PROMOTIONAL PURPOSES TO PROMOTE PRODUCTS IN ACCORDANCE WITH THIS AGREEMENT AND MAY NOT BE SOLD/RESOLD OR O FFERED FOR SALE, AND (B) OWNERSHIP OF ALL TICKETS AND PASSES REMAINS WIT H IDI AND THEY CANNOT BE TRANSFERRED OR DEALT WITH EXCEPT AS SPECI FICALLY PERMITTED BY IDI 3.4 COMPANY AGREES THAT IF REQUIRED BY REASON OF AP PLICABLE LAW AND/OR THE SAFETY AND SECURITY REQUIREMENTS RELATED TO AN ICC EVENT, IT WILL PROVIDE IDI WITH THE NAMES AND SUCH EVIDENCE OF IDENTIFICATION OF THE USERS OF ALL ITS TICKETS AND PASSES AS IS REQUIRED. 4 BOARDS AND SIGNAGE 4.1 THE RIGHT TO HAVE 7.5% OF ALL ON MATCH GROUND P ERIMETER BOARDS FOR EACH MATCH OF A MAJOR EVENT AND EACH TELEVISED MATC H OF A DEVELOPMENT EVENT, THE EXACT POSITION OF WHICH SHAL L BE BASED ON AN EQUITABLE DISTRIBUTION WITH OTHER OFFICIAL PARTN ERS IN ACCORDANCE WITH A FORMULA TO BE DEVELOPED BY IDI. ITA NOS.954 & 1620 /DEL/2016 35 4.2 THE RIGHT TO PRESCRIBED EVENT OR DIRECTIONAL SI GNAGE IN EQUAL PROPORTION TO THE OTHER OFFICIAL PARTNERS, INCLUDIN G SCOREBOARD, WELCOME TOWERS, DIRECTIONAL SIGNAGE: NET SESSION BA CKDROPS AND FLAG COURTS. 4.3 COMPANY MUST SUBMIT TO IDI FOR ITS APPROVAL THE PROPOSED TEXT, DESIGN AND LAYOUT (IN THE FORM OF AN ORIGINAL PIECE OF FINISHED AND PROPERLY PROPORTIONED ARTWORK CONTAINING EXACT COLO UR SPECIFICATIONS) OF THE ADVERTISING ON THE BOARDS AN D SIGNAGE, AT LEAST ONE HUNDRED AND TWENTY (120) DAYS PRIOR TO THE BEGI NNING OF EACH ICC EVENT. IDI WILL ADVISE COMPANY OF ITS APPROVAL OR DISAPPROVAL OF SUCH ADVERTISING IN WRITING WITHIN 10 BUSINESS D AYS OF RECEIPT. IN REVIEWING ANY ADVERTISING, IDI WILL TAKE INTO CONSI DERATION THE TECHNICAL TELEVISION REGULATIONS APPLICABLE TO EACH MAJOR EVENT, THE PROPOSED COLOUR COMBINATION AND ITS RELATIONSHIP WI TH ADJACENT BOARDS AND SIGNAGE, RECOGNISING THAT COLOUR IS AN I NTEGRAL PART OF COMPANY'S TRADE DRESS. IF NOT APPROVED, COMPANY MUS T RE-SUBMIT TO IDI. 4.4 IDI WILL PAY THE COSTS OF THE ORIGINAL PRODUCTI ON OF EACH BOARD AND SIGNAGE WITH THE APPROVED TEXT DESIGN AND LAYOUT. I DI IS RESPONSIBLE FOR, AND WILL PAY THE COST OF, THE INST ALLATION, MAINTENANCE AND REMOVAL OF THE BOARDS AND SIGNAGE. IDI WILL USE ITS BEST EFFORTS TO ACCOMMODATE ANY REASONABLE REQU EST MADE BY COMPANY FOR ANY ALTERATION TO AN APPROVED BOARD OR SIGNAGE PROVIDED THE REQUEST IS MADE IN A TIMELY MANNER AND ALL COSTS IN CONNECTION WITH SUCH ALTERATIONS ARE BORNE BY COMPA NY. 4.5 BOARDS AND SIGNAGE BELONG AT ALL TIMES TO IDI 5. ACCREDITATION AND PARKING PASSES 5.1 THE RIGHT TO RECEIVE FREE OF CHARGE AN APPROPRI ATE NUMBER OF ACCREDITATIONS TO PERMIT COMPANY TO CARRY OUT ITS M ARKETING PROGRAMS FOR ICC EVENTS AND TO EXERCISE ITS RIGHTS UNDER THIS AGREEMENT 5.2 THE RIGHT TO RECEIVE FREE OF CHARGE, AND SUBJEC T TO SPACE AND AVAILABILITY, AN APPROPRIATE NUMBER OF PARKING PASS ES FOR COMPANY AND COMPANY'S VIP GUESTS (AS DETERMINED BY IDI AT I TS SOLE DISCRETION AND ON AN EQUITABLE BASIS WITH OTHER OFF ICIAL PARTNERS). 5.3 COMPANY MUST ENSURE THAT ALL ACCREDITATIONS AND PARKING PASSES ARE USED IN ACCORDANCE WITH IDI RULES AND IDI GUIDELINE S ITA NOS.954 & 1620 /DEL/2016 36 6. DEMONSTRATION. SALE AND DISPLAY OF PRODUCTS 6.1 IN ACCORDANCE WITH THE REQUIREMENTS OF THE HOST , AND SUBJECT TO AGREEMENT WITH THE CONCESSIONAIRES AT ANY STADIUM, COMPANY HAS THE RIGHT TO DISPLAY AND SELL LICENSED PRODUCT AT A STADIUM DURING A MAJOR EVENT THROUGH THE EXISTING CONCESSIONAIRES 6.2 THESE RIGHTS ARE SUBJECT TO SECURITY RESTRICTIO NS, SPACE AVAILABILITY AND COMPLIANCE WITH APPLICABLE LAWS, AND MUST ALWAY S BE EXERCISED SOLELY IN ACCORDANCE WITH IDI'S AND/OR TH E HOST'S REQUIREMENTS AND GUIDELINES, INCLUDING CORPORATE AN D/OR BRAND IDENTIFICATION GUIDELINES APPLICABLE AT THE STADIUM S. THE ERECTION AND OPERATION AT THE STADIUMS OF ANY DISPLAY OR DEM ONSTRATION BOOTHS OR OTHER FACILITIES INCLUDING RELATED STAFFI NG, SECURITY AND STORAGE SHALL BE AT COMPANY'S COST. ALL MATERIALS A ND EQUIPMENT NECESSARY FOR SUCH ACTIVITIES (INCLUDING TO ISDN LI NES, TELEPHONE LINES AND UTILITIES CONNECTIONS) WILL BE COMPANY'S RESPONSIBILITY AT ITS EXPENSE. COMPANY WILL MAINTAIN ADEQUATE LIABILI TY INSURANCE VIS-A-VIS SUCH ACTIVITIES TO COVER ANY CLAIM AGAINS T IDI RESULTING FROM OR ARISING OUT OF SUCH ACTIVITIES, WHETHER OR NOT SUCH CLAIM ARISES DURING THE TERM. COMPANY MUST INFORM IDI EIG HT (8) MONTHS PRIOR TO COMMENCEMENT OF EACH MAJOR EVENT OF THE EXTENT TO WHICH COMPANY WANTS TO EXERCISE SUCH RIGHTS. 7. BACKDROPS THE RIGHT TO IDENTIFICATION ON BACKDROPS FOR POST- MATCH PRESS CONFERENCES AND OTHER OFFICIAL PRESS CONFERENCES CO NCERNING A MAJOR EVENT ORGANISED AND CONTROLLED BY IDI. THE LE VEL OF IDENTIFICATION OF COMPANY ON SUCH BACKDROPS WILL BE COMMENSURATE WITH THE LEVEL OF COMPANY'S SPONSORSHI P RIGHTS AND WILL BE SHARED ON AN EQUAL BASIS WITH THE OTHER OFF ICIAL PARTNERS. COMPANY MUST FURNISH IDI WITH THE FINISHED AND PROP ERLY PROPORTIONED ARTWORK FOR SUCH IDENTIFICATIONS WITHI N THE TIME PERIOD NOTIFIED TO COMPANY BY IDI. THE DESIGN OF TH E BACKDROP WILL BE DECIDED BY IDI. 8. IN STADIA VIDEOSCREENS FOR MAJOR EVENTS, THE RIGHT TO HAVE COMPANY IDENTI FICATION TRANSMITTED ON THE VIDEOSCREENS OF EACH STADIUM (WH ERE SUCH ITA NOS.954 & 1620 /DEL/2016 37 EQUIPMENT EXISTS), DURING THE BUILD-UP TO THE MATCH AND AT LUNCH AND TEA INTERVALS (OR THE EQUIVALENT BREAKS IN DAY/ NIGHT MATCHES) FOR PERIODS TO BE DETERMINED BY IDI. IN ADDITION, COMPANY IS ENTITLED (IF TECHNICALLY P OSSIBLE AND SUBJECT TO COMPANY PROVIDING TO IDI, AT COMPANY'S EXPENSE, THE APPROPRIATE VIDEOTAPE IN THE REQUESTED FORMAT), TO SHOW A THIRTY (30) SECOND COMMERCIAL DURING THE PRE-MATCH PROGRAM MING (IF ANY) AND DURING LUNCH AND TEA INTERVALS (OR THE EQU IVALENT BREAK IN DAY/NIGHT MATCHES) OF ANY MATCH. COMPANY MUST PROVI DE SUCH IDENTIFICATION AND/OR ADVERTISING AND COMMERCIALS T O IDI ROYALTY- FREE AND FULLY CLEARED OF ANY THIRD PARTY RIGHTS NE CESSARY FOR SUCH USE. 9. HOSPITALITY 9.1 FOR A MAJOR EVENT, IDI WILL PROVIDE TEN (10) CO RPORATE HOSPITALITY PLACES AT EACH MATCH OF FREE OF CHARGE (ALL ALCOHOL IC BEVERAGES, FOOD AND OTHER INCIDENTAL EXPENSES ARE AT COMPANY'S EXPENSE). 9.2 IDI WILL PROVIDE COMPANY WITH A REASONABLE OPPO RTUNITY TO PURCHASE AN ADDITIONAL TEN (10) HOSPITALITY PACKAGE S FROM THE HOST AND/OR OFFICIAL ICC EVENT HOSPITALITY PROVIDER PRIO R TO GENERAL PUBLIC RELEASE. 9.3 COMPANY MUST INFORM IDI OF ITS INITIAL AND FINA L PLANS FOR HOSPITALITY (INCLUDING NUMBER OF GUESTS AND DESIRED HOSPITALITY CONCEPT FOR ITS HOSPITALITY ON STADIUM) FOR EACH MA JOR EVENT AFTER CONFIRMATION OF COMPANY'S PURCHASE TICKET AND HOSPI TALITY ALLOCATION. 9.4 WHERE FACILITIES EXIST, IDI WILL USE ITS BEST E FFORTS TO PROCURE FOUR (4) COMPLIMENTARY VIP INVITATIONS FOR EACH MATCH OF A DEVELOPMENT EVENT FOR USE BY COMPANY PROVIDED IT GI VES IDI WITH SUFFICIENT NOTICE. 10. PUBLICATIONS 10.1 THE RIGHT TO HAVE, FREE OF CHARGE, ONE (1) HAL F-PAGE COLOUR ADVERTISEMENT IN THE OFFICIAL PROGRAM OF EACH ICC E VENT (SUBJECT TO ITS PRODUCTION FOR A DEVELOPMENT EVENT). IDI W ILL GIVE COMPANY SIXTY (60 DAYS NOTICE OF THE CLOSING DATE O F PRINT ORDERS IN RESPECT OF SUCH OFFICIAL PROGRAM. COMPANY MUST FURN ISH TO IDI THE ITA NOS.954 & 1620 /DEL/2016 38 FINISHED AND 'IN PROPORTION' ARTWORK FOR SUCH ADVER TISING WITHIN SUCH SIXTY (60) DAY PERIOD. 10.2 IDI SHAFT NOTIFY COMPANY OF THE AVAILABILITY O F OFFICIAL PROGRAMS AND COMPANY MUST INFORM IDI OF THE NUMBER OF OFFICI AL PROGRAMS IT WOULD LIKE TO PURCHASE AT COST ON OR BEFORE THE DATE WHICH IS THIRTY (30) DAYS AFTER SUCH NOTIFICATION. 11. MATCH FOOTAGE AND ARCHIVE THE NON-EXCLUSIVE RIGHT TO USE FOR INTERNAL USE AN D PROMOTIONAL AND ADVERTISING PURPOSES, WITHOUT PAYMENT OF ANY FEE TO IDI (BUT SUBJECT TO TECHNICAL, DUPLICATION, SHIPPING AND HAN DLING COSTS); (A) UP TO THIRTY (30) MINUTES OF PAST VIDEO (STILL AND MOVING) OF ICC EVENTS WHICH TOOK PLACE PRIOR TO COMMENCEMENT O F THE TERM AND IN THE OWNERSHIP OF IDI; AND (B) UP TO TWO (2) MINUTES OF FOOTAGE FROM A MAT CH NOT BEFORE THAN 72 HOURS AFTER THE END OF THAT MATCH PROVIDED THAT NO MORE THAN TWENTY (20) SECONDS OF SUCH FOOTAGE IS INCLUDED IN ANY TELEVISION ADVERTISEMENT AND SUBJEC T TO IDIS PRIOR WRITTEN APPROVAL OF EACH PROPOSED USE. THIS RIGHT I NCLUDES USE FOR THE PRODUCTION OF TELEVISION ADVERTISEMENTS BUT DOE S NOT INCLUDE USE FOR PREMIUMS OR ANY OTHER AUDIO-VISUAL PROGRAMM ING INTENDED FOR TRANSMISSION. 12. RESEARCH REPORTS 12.1 THE RIGHT (SUBJECT TO AVAILABILITY) TO OBTAIN COPIES OF RESEARCH REPORTS WHERE PROVIDED TO IDI BY BROADCASTERS WITH RESPECT TO MAJOR EVENTS SHOWING (I) THE COUNTRIES THAT HAVE TA KEN THE TELEVISION SIGNAL, (II) FIGURES ON THE TELEVISION A UDIENCES, (III) AN ANALYSIS OF THE TIME EXPOSURE ON TELEVISION OF THE BOARDS AND, IF AVAILABLE, (IV) THE STATIONS ON WHICH BROADCASTS OC CUR AND (V) THE TIME OF SUCH BROADCASTS. COMPANY WILL RECEIVE COPIE S OF THE PRELIMINARY RESULTS OF SUCH RESEARCH REPORTS WHERE PROVIDED TO IDI BY BROADCASTERS WITHIN THREE (3) MONTHS OF THE FINA L MATCH OF EACH MAJOR EVENT (TO THE EXTENT IDI HAS, USING ITS BEST ENDEAVOURS, BEEN ABLE TO OBTAIN THE SAME FROM BROADCASTERS AT SUCH T IME) AND COPIES OF THE FINAL RESEARCH REPORTS WHERE PROVIDED TO IDI BY BROADCASTERS ITA NOS.954 & 1620 /DEL/2016 39 SIX (6) MONTHS FROM THE DATE OF THE FINAL MATCH OF EACH MAJOR EVENT. 12.2 THE RIGHT TO OBTAIN COPIES OF RESEARCH REPORTS PROVIDED TO IDI SHOWING THE PAGE IMPRESSIONS FOR THE WEBSITE AND OT HER DATA GATHERED BY IDI REGARDING TRAFFIC TO THE WEBSITE. 12.3 COMPANY AND IDI WILL DISCUSS TOGETHER WITH THE OTHER OFFICIAL PARTNERS THE DEVELOPMENT OF OTHER RESEARCH TOOLS TO FURTHER EVALUATE THE MAJOR EVENTS. ANY ADDITIONAL SERVICES AND RESEA RCH ARE SUBJECT TO PRIOR AGREEMENT IN WRITING WITH IDI AS TO LEVEL OF SERVICES AND FEE STRUCTURE. 13. PREMIUMS 13.1 THE RIGHT TO USE ICC EVENT-RELATED PREMIUMS PR OVIDED SUCH USE IS ONLY FOR THE EXCLUSIVE PURPOSE OF THE ADVERTISEMENT AND PROMOTION OF PRODUCTS AND ONLY IN ACCORDANCE WITH THIS PARAGR APH. 13.2 BEFORE HAVING MANUFACTURED A PREMIUM, COMPANY MUST SUBMIT ITS REQUEST, INCLUDING RELEVANT DETAILS (SUCH AS PROPOS ED PRODUCT OR MERCHANDISE, NATURE, QUANTITY, DISTRIBUTION CHANNEL S AND TERRITORIES), PRELIMINARY ARTWORK AND A PRE-PRODUCT ION SAMPLE TO IDI FOR ITS PRIOR WRITTEN APPROVAL IN THE MANNER AND FO RM AS SPECIFIED BY IDI. 13.3 IF AN APPROVED SUPPLIER HAS BEEN GRANTED THE R IGHTS IN RELATION TO THE PROPOSED PRODUCT OR MERCHANDISE, THEN COMPANY M UST USE THAT APPROVED SUPPLIER. OTHERWISE, COMPANY MAY SOURCE SU CH PROPOSED PRODUCT OR MERCHANDISE FROM A REPUTABLE TH IRD PARTY. 13.4 THREE (3) SAMPLES OF EACH PREMIUM MUST BE SUB MITTED TO IDI FOR ARCHIVE PURPOSES 14 CRICKET ZONES AND EVENT PROMOTIONS 14.1 IDI AND/OR HOST MAY ESTABLISH A SEPARATE A REA FOR FAN ENTERTAINMENT DURING A MAJOR EVENT (CRICKET ZONE). THE RIGHT, AT COMPANY'S EXPENSE, TO OPERATE BRANDED INTERACTIVE FAN ACTIVIT IES AT ANY CRICKET ZONE IN ACCORDANCE WITH THIS PARAGRAPH. 14.2 IDI MUST NOTIFY COMPANY AT LEAST NINE (9) MONTHS PRIOR TO AN ICC CRICKET WORLD CUP AND SIX (6) MONTHS PRIOR TO EACH OTHER MAJOR EVENT OF ITS INTENTIONS REGARDING THE ESTABLISHMENT OF A CRICKET ITA NOS.954 & 1620 /DEL/2016 40 ZONE. COMPANY MUST MEET WITH IDI NOT MORE THAN THRE E (3) MONTHS PRIOR TO SUCH EVENTS AND OUTLINE TO IDI THE PRECISE NATURE OF ITS PROPOSED ACTIVITIES AND PROVIDE FULLY COSTED BU DGETS, FOR APPROVAL BY IDI IN CONSULTATION WITH COMPANY. COMPA NY ACTIVITIES MUST BE PRINCIPALLY DIRECTED TOWARDS FAN ENTERTAINM ENT OR PARTICIPATION AND NOT SOLELY CONSIST OF PRODUCT RET AILING, PROMOTION OR BRANDING. 14.3 COMPANY IS RESPONSIBLE FOR ALL NECESSARY IN SURANCES, PERSONNEL, EQUIPMENT AND SECURITY TO UNDERTAKE ITS ACTIVITIES AT THE CRICKET ZONES. 14.4 THE RIGHT TO PARTICIPATE, AT COMPANY'S EXPENSE BUT FOR NO ADDITIONAL CONSIDERATION, IN ANY ICC CRICKET WORLD CUP PROMOTI ONAL TOUR, TROPHY TOUR OR ROAD SHOW, IDI WILL DETERMINE WHETHE R AND WHERE SUCH TOURS ARE HELD AT ITS SOLE DISCRETION. 15 INTERNET PROMOTION COMPANY HAS THE RIGHT TO HAVE ITS SPONSORSHIP OF I CC EVENTS PROMOTED ON THE ICC WEBSITE AND EACH ICC EVENT SPEC IFIC WEBSITE IN THE FOLLOWING MANNER; (A) SPONSOR RECOGNITION STRIP THE RIGHT TO HAVE COMPANY'S LOGO DISPLAYED ON THE HOMEPAGE OF THE WEBSITE AS PART OF THE SPONSOR RECO GNITION STRIP, IN AN EQUAL MANNER TO ALL OFFICIAL PARTNERS. IDI RETAINS FULL EDITORIAL AND NAVIGATION CONTROL OVER THE WEBS ITE PROVIDED THAT COMPANY RETAINS CONTROL OVER THE LOOK OF ITS LOGO. COMPANY MAY HYPERLINK TO ITS OWN WEBSITE. (B) MICROSITE THE RIGHT OF ACCESS TO AN XML FEED CONTAINING EDIT ORIAL TEXT TAKEN FROM THE WEBSITE FOR THE PURPOSE OF CREATING A PROMOTIONAL MICROSITE, WHICH MAY UTILISE COMPANY'S NAME IN ITS URL (MICROSITE) THE PURPOSE OF THE MICROSITE IS TO PROMOTE COMPANY AND ITS PRODUCTS AND MUST NOT COMPE TE WITH THE WEBSITE. THERE MUST BE A LINK BETWEEN MICR OSITE, WEBSITE, AND COMPANY'S MAIN WEBSITE. IDI AND COMPAN Y MUST CO-OPERATE REGARDING THE DEVELOPMENT, LAUNCH A ND OPERATION OF THE MICROSITE. COMPANY MAY NOT ESTABLI SH ANY LINKS BETWEEN ANY WEBPAGES ON THE MICROSITE AND OTH ER WEBSITES WITHOUT THE PRIOR WRITTEN APPROVAL OF IDI. ITA NOS.954 & 1620 /DEL/2016 41 THE FOLLOWING ADDITIONAL TERMS APPLY IN RELATION TO THE MICROSITE: (I) THE MICROSITE AND ANY PROMOTIONS MUST BE A PPROVED BY IDI PRIOR TO THEIR LAUNCH, (II) IT MUST NOT INCLUDE ANY AUDIO, VISUAL AND/OR AUDIO/VISUAL COVERAGE OF MATCHES: (III) COMPANY IS RESPONSIBLE FOR ALL CONTENT (EXCEP T CONTENT PROVIDED BY IDI), INCLUDING THE OBTAINING OF ALL NE CESSARY THIRD PARTY RELEASES AND PERMISSIONS AND ENSURING T HE USE OF CONTENT DOES NOT INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OR PRIVACY OR OTHER RIGHTS OF ANY PERSON; (IV) EACH WEBPAGE OF SUCH MICROSITE THAT CONTAINS ICC EVENT- RELATED CONTENT (INCLUDING PHOTOGRAPHS) PROVIDED BY OR ON BEHALF OF IDI MUST FEATURE THE STATEMENT 'CONTENT P OWERED BY ICC-CRICKET.COM' (OR SUCH OTHER SIMILAR STATEMENT A S MAY BE ADVISED BY IDI FROM TIME TO TIME) IN A CLEAR AND VI SIBLE POSITION TOGETHER WITH THE COPYRIGHT NOTICE TO BE P ROVIDED BY IDI; (VI) THE MICROSITE MAY ONLY DISPLAY ADVERTISING OF PRODUCTS TO THE EXCLUSION OF ANY OTHER PRODUCTS, SERVICES OR ENTITY UNLESS THE SAME IS SHOWN IN ACCORDANCE WITH THE TERMS OF THE T HIRD PARTY GUIDELINES; (VII) IT MUST NOT CONTAIN ANY MATERIAL WHICH MAY REASONABLY BE CONSIDERED TO BE OBSCENE, BLASPHEMOUS OR DEFAMATORY OR WHICH MAY REFLECT UNFAVOURABLY ON IDI, AN ICC EVENT , OR THE SPORT OF CRICKET; AND (VIII) COMPANY IS RESPONSIBLE FOR ANY NON-COMPLIANC E OF THE MICROSITE WITH ANY APPLICABLE LAWS. (C) ADVERTISING OPPORTUNITY IDI (OR ITS NOMINEE) MAY EXPLOIT COMMERCIAL OPPORT UNITIES ON THE WEBSITE IN ACCORDANCE WITH THE FOLLOWING TERMS: (I) COMPANY MUST BE OFFERED A FIRST OPTION TO PURCH ASE THE AVAILABLE COMMERCIAL OPPORTUNITIES ON THE BEST AVAI LABLE COMMERCIAL TERMS. SUCH OPTION MUST PROVIDE FOR AN EXCLUSIVE NEGOTIATION PERIOD OF 30 DAYS (EXCEPT IN THE CASE OF OFFERS MADE IN THE PERIOD COMMENCING 30 DAYS PRIOR TO AN ICC EVENT IN WHICH CASE THE PERIOD SHALL BE REDUCED TO 7 DAYS OR IF SHORTER THE REMAINING TIME AVAILABLE UNT IL THE RELEVANT ICC EVENT), AND ITA NOS.954 & 1620 /DEL/2016 42 (II) NO SPONSORSHIP OR ADVERTISING OPPORTUNITY RE LATING TO THE WEBSITE MAY BE OFFERED TO ANY PERSON AT A PRICE WHI CH IS LESS THAN THAT OFFERED TO COMPANY WITHOUT FIRST RE-OFFER ING TO COMPANY. 16. ICC AMBASSADORS PROGRAM IDI WILL DEVELOP, AT NO ADDITIONAL COST TO COMPANY EXCEPT AS SET OUT IN PARAGRAPH (C) BELOW, THE ICC AMBASSADOR PROG RAM BEING A GROUP OF EVENT OR FORMER CRICKETERS CONTRACTED BY I DI TO PROVIDE CERTAIN PROMOTIONAL SERVICES FOR IDI AND SPONSORS. IDI WILL CONSULT WITH COMPANY AS TO THE PRECISE NATURE OF THE ICC AM BASSADOR PROGRAM, BUT COMPANY AGREES THAT IDI WILL HAVE FINA L SAY OVER THE APPOINTMENT AND BUDGET FOR THE ICC AMBASSADOR PROGR AM. IT IS INTENDED THAT SUCH PROGRAM WILL COMPRISE THE FOLLOW ING RIGHTS FOR IDI AND COMMERCIAL AFFILIATES: (A) THE RIGHT TO CALL ON THE SERVICES OF AT LEAST O NE (1) CURRENT OR FORMER PROFESSIONAL CRICKETER(S) FOR THE PURPOSE IC C EVENTS AND/OR THE PROMOTION OF PRODUCTS (BUT NOT FOR USE I N ADVERTISING MATERIALS) FOR THE BRAND ON NOT MORE TH AN TWO (2) OCCASIONS IN ANY YEAR OF THE TERM AT NO ADDITIO NAL RIGHTS FEE; (B) USAGE AND PROMOTIONAL RIGHTS INCLUDE LIMITED RI GHTS TO USE THE NAME, NICKNAME, LOGO AND APPEARANCE OF THE INDIVIDU ALS CONCERNED ON TERMS TO BE NOTIFIED BY IDI AND IN ACC ORDANCE WITH IDI GUIDELINES, SUBJECT ONLY TO MORAL, RELIGIO US AND SIMILAR REASONABLE RESTRICTIONS REQUIRED BY THE IND IVIDUALS CONCERNED. THE RIGHTS MAY BE NON-EXCLUSIVE AND IDI MAY NOT BE ABLE TO PREVENT SUCH INDIVIDUALS FROM PROVID ING THE SAME OR SIMILAR SERVICES OR RIGHTS TO A COMPETITOR; AND (C) WHERE COMPANY ADHERES TO THE IDI GUIDELINES IT IS NOT REQUIRED TO PAY ANY FEE FOR THE USAGE RIGHTS GRANTE D BY IDI, BUT COMPANY WILL BE LIABLE FOR AND PAY ANY OUT OF P OCKET EXPENSES, ACCOMMODATION AND TRAVEL COSTS REQUIRED I N RELATION TO ANY APPEARANCES. 17. ICC WILL HELP REEBOK IN FACILITATING THE S ALE OF REPLICA MERCHANDISE TO OTHER ICC PARTNERS. ITA NOS.954 & 1620 /DEL/2016 43 18. ADDITIONAL RIGHTS AND ICC FUNCTIONS COMPANY HAS THE FOLLOWING ADDITIONAL RIGHTS: (A) THE RIGHT, FOLLOWING OFFICIAL OPENING OF THE D UBAI SPORTS CITY AND THE GLOBAL CRICKET ACADEMY, SUBJECT TO AVAILABILITY AND AT LEAST SIX MONTHS PRIOR NOTICE T O IDI, TO ONE (1) CORPORATE EVENTS/CONFERENCES AT IDI FACILIT IES AT THE GLOBAL CRICKET ACADEMY AT COMPANY'S COST PROVIDED T HAT NO SUCH CONFERENCE/EVENT MAY TAKE PLACE DURING OR IMMEDIATELY PRIOR TO ANY ICC EVENT; (B) THE RIGHT (AND OBLIGATION) TO ATTEND AN AN NUAL SPONSOR WORKSHOP (OF WHICH THERE MAY BE TWO (2) IN A YEAR I N WHICH ICC CRICKET WORLD CUP TAKES PLACE) AT A LOCAT ION TO BE DETERMINED BY IDI IN THE HOST COUNTRY OF AN ICC EVENT OR IN DUBAI. ALL PARTIES ATTENDING WILL BEAR THEIR OWN TRAVEL AND ACCOMMODATION EXPENSES. THE COSTS OF THE VENUE AND REFRESHMENTS FOR THE WORKSHOP WILL BE BORNE BY IDI; (C) THE RIGHT TO USE THE TROPHY FOR EACH ICC E VENT FOR INTERNAL AND EXTERNAL COMPANY EVENTS PROVIDED THAT SUCH USE (I) IS IN COMPLIANCE WITH THE PROCEDURES ESTABLISHED BY ID I (INCLUDING WITH RESPECT TO INSURANCE AND ADVANCE BO OKING) AND (II) DOES NOT CONSTITUTE AND IS NOT PRESENTED A S A TROPHY TOUR; AND (D) IDI WILL ENSURE THAT COMPANY RECEIVES SIX (6) INVITATIONS PER MAJOR EVENT TO ANY ICC OFFICIAL EVENT FUNCTION ORGANISED BY OR UNDER THE CONTROL OF IDI), 19. ICC AWARDS THE ICC AWARDS ARE AN EVENT STAGED IN EACH YEAR OF THE TERM AT A PLACE AND TIME DECIDED BY IDI AROUND THE MAJOR EVEN T STAGED IN SUCH YEAR AND IN THE HOST COUNTRY OF EACH SUCH EVEN T. COMPANY HAS THE FOLLOWING RIGHTS IN RESPECT OF EACH ICC AWARDS: (A) THE RIGHT TO SIX (6) TICKETS FREE OF CHARGE IN EACH YEAR OF THE TERM: AND (B) AN ACKNOWLEDGMENT IN ANY OFFICIAL PROGRAM OF TH E ICC AWARDS AND ON THE BOARD AT THE ENTRANCE TO THE EVEN T, IN EACH CASE IN A MANNER TO BE DETERMINED BY IDI ON AN EQUI TABLE ITA NOS.954 & 1620 /DEL/2016 44 BASIS WITH OTHER OFFICIAL PARTNERS (OTHER THAN A NA MING RIGHTS SPONSOR). 20. COMMERCIAL AIRTLME IDI WILL PROVIDE COMPANY FREE OF CHARGE DURING EAC H MATCH TELEVISED LIVE AND EACH DAY DURING THE 30 DAY PERIO D PRIOR TO THE START OF EACH ICC EVENT ONE 30 SECOND PROMOTIONAL S POT FOR PROMOTION OF THE ICC OFFICIAL LICENSING PROGRAME, I NCLUDING LICENSED PRODUCT. IF REQUESTED BY COMPANY, IDL WILL CONSULT WITH ITS BROADCASTER IN RELATION TO PROMOTIONAL SPOTS BE ING ACCUMULATED ON DAYS, RATHER THAN ONE EACH DAY. 21. ICC WORLD TWENTY 20 SOUTH AFRICA 2007 COMPANY ACKNOWLEDGES THAT DUE TO THE IMMINENT STAR T OF THE ICC WORLD TWENTY20 SOUTH AFRICA SOME OF THE EVENT RIGHT S SPECIFIED IN THIS APPENDIX 3 ARE NOT CAPABLE OF DELIVERY BY IDI. IDI WILL USE ITS BEST EFFORTS TO ACCOMMODATE COMPANY'S BOARD, STUMP BRANDING, BACKDROP BRANDING, ACCREDITATION, TICKET AND INTERN ET RIGHTS AND WILL OTHERWISE WORK CLOSELY WITH COMPANY TO MAXIMISE ITS EXPOSURE AT THE EVENT. COMPANY AGREES THAT IF CERTAIN RIGHTS OR BENEFITS ARE NOT PROVIDED, THERE WILL BE NO REDUCTION IN THE RIGHTS FEE. 31. WE HAVE NOTED ABOVE THAT THE ASSESSEE WAS TO PAY `RIGHTS FEE AND `ROYALTY UNDER THE AGREEMENT. APPENDIX 2 READ WITH APPENDIX 3 DIVULGES THE OBLIGATION OF THE ASSESSEE TO PAY RIG HTS FEES AS PER APPENDIX 2 FOR THE `RIGHTS BESTOWED UPON IT UNDER APPENDIX 3. IN ADDITION, THE ASSESSEE WAS ALSO REQUIRED TO PAY RO YALTY FOR EACH LICENSED PRODUCT SOLD AS SPECIFIED IN APPENDIX 4, W HOSE RELEVANT PART READS AS U NDER:- ITA NOS.954 & 1620 /DEL/2016 45 APPENDIX 4 APPAREL RIGHTS AND LICENSED PRODUCT 1. APPAREL RIGHTS 1.1 IDI GRANTS COMPANY THE RIGHT TO PROVIDE PRODUCT TO ICC, INCLUDING FOR DEVELOPMENT STAFF, OFFICE STAFF AND STAFF WORKING A T ICC EVENTS INCLUDING THE UMPIRES AND REFEREES AS SPECIFIED IN THIS APPENDIX 4. 1.2 IDI GRANTS COMPANY THE RIGHT FOR THE COMPANY LO GO TO APPEAR ON THE UMPIRES AND REFEREES; (A) SHIRTS FOR ALL ICC EVENTS AND FTP MATCHES. THE SIZE OF THE LOGO IS 6 SQUARE INCHES AND THE PLACEMENT OF LOGO WILL B E DETERMINED BY IDI; (B) TROUSERS AND HATS FOR ALL ICC EVENTS AND F TP MATCHES AT A SIZE OF 2 SQUARE INCHES EACH, AND (C) IF PROVIDED BY COMPANY, OFF-FIELD CLOTHING, IN CLUDING TRAVEL TO AND FROM ALL ICC EVENTS AND FTP MATCHES. 1.3 COMPANY MUST SUPPLY PRODUCT TO IDI IN SUFFICIEN T QUANTITY AND RANGE FOR IDI TO MEET THE REQUIREMENTS OF UMPIRES AND REF EREES AND STAFF FOR EACH ICC EVENT IN A MANNER AND TIMEFRAME AS ADVISED BY IDI. 1.4 FOR THE AVOIDANCE OF DOUBT, THE PRODUCT SUPP LIED UNDER THIS PARAGRAPH 1 FORMS PART OF THE VIK. 2. LICENSED PRODUCT 2.1 IDI APPOINTS COMPANY AS ITS EXCLUSIVE LICENSEE OF CRICKET EQUIPMENT ON THE PAYMENT OF ROYALTY BY COMPANY TO IDI OF 6% O R WHOLESALE PRICE OF CRICKET BATS AND 5% OF WHOLESALE PRICE OF CRICKET EQUIPMENT (OTHER THAN CRICKET BATS). 2.2 FOR THE AVOIDANCE OF DOUBT, IDI MAY APPOINT LIC ENSEES WHOSE PRODUCTS ARE NOT DESIGNED FOR THE PLAYING OF CRICKE T MATCHES, INCLUDING MINIATURE BATS, KEY RINGS, SOFT BATS AND BALLS AND OTHER TOYS AND PLAYTHINGS. SUCH PRODUCT WILL BE UNBRANDED. 2.3 IDI APPOINTS COMPANY AS ITS NON-EXCLUSIVE LICEN SEE OF SPORTS APPAREL ON THE PAYMENT OF A ROYALTY BY COMPANY TO ID; OF 12 .5% OF WHOLESALE PRICE. ITA NOS.954 & 1620 /DEL/2016 46 2.4 BEFORE STARTING MANUFACTURE OF ANY LICENSED PRO DUCT, COMPANY MUST SUBMIT ITS REQUEST TO IDI FOR ITS PRIOR WRITTEN APP ROVAL IN THE MANNER AND FORM AS SPECIFIED BY IDI, INCLUDING RELEVANT DE TAILS (SUCH AS PROPOSED PRODUCT, DISTRIBUTION CHANNELS AND TERRITO RIES), PRELIMINARY ARTWORK AND A PRE-PRODUCTION SAMPLE. 2.5 COMPANY MUST PRODUCE A RANGE OF LICENSED PRODUC T FOR EACH ICC EVENT COMMENSURATE WITH STATUS OF THAT ICC EVENT. C OMPANY MUST CONSULT WITH IDI ON DESIGN, PRICE AND RETAIL STRATE GY. 2.6 COMPANY MUST SUPPLY CRICKET STUMPS AND MATCH BA LLS IN SUFFICIENT NUMBERS AND QUALITY FOR IDI TO MEET THE CRICKET REQ UIREMENTS FOR EACH ICC EVENT IN A MANNER AND TIMEFRAME AS ADVISED BY IDI. FOR THE AVOIDANCE OF DOUBT, THIS EQUIPMENT MUST MEET THE CR ICKET AND QUALITY REQUIREMENTS OF IDI AND THIS SUPPLY DOES NOT FORM P ART OF THE VIK. 2.7 COMPANY MUST WORK CLOSELY WITH IDI AND ANY LI CENSING REPRESENTATIVE TO MEET IDI'S OFFICIAL MERCHANDISE PROGRAM STRATEGI ES AND OBJECTIVES, INCLUDING TO ENSURE A VISIBLE PRESENCE OF LICENSED PRODUCT IN KEY TERRITORIES AND THROUGH KEY DISTRIBUTION CHANNELS. 2.8 COMPANY MUST SELL LICENSED PRODUCT TO IDI O N REQUEST AT WHOLESALE PRICE. 3. RECORDS AND REPORTING 3.1 COMPANY MUST KEEP ADEQUATE RECORDS IN SUFFICIE NT DETAIL TO ENABLE ITS COMPLIANCE WITH THIS AGREEMENT TO BE VERIFIED (RECO RDS) 3.2 DURING THIS AGREEMENT AND FOR 6 MONTHS AFTER T ERMINATION OF THIS AGREEMENT. IDI OR ITS AUTHORISED REPRESENTATIVES MA Y ENTER COMPANY'S PREMISES DURING REGULAR BUSINESS HOURS BY GIVING NOTICE TO COMPANY (BY PHONE, MAIL OR FACSIMILE), TO DO ANY OF THE FOLLOWING. (A) EXAMINE AND COPY RECORDS; (B) CONDUCT AN AUDIT; AND (C) ASCERTAIN LICENSEE'S COMPLIANCE WITH ITS OBLIGA TIONS UNDER THIS AGREEMENT. 3.3 ANY AUDIT WILL BE AT IDI'S EXPENSE, EXCEPT THA T IF AN AUDIT ESTABLISHES A DEFICIENCY OF MORE THAN 3% BETWEEN THE AMOUNT FOU ND TO BE DUE TO ITA NOS.954 & 1620 /DEL/2016 47 IDI AND THE AMOUNT ACTUALLY PAID AND REPORTED, THE COST OF THE AUDIT SHALL BE PAID BY LICENSEE TOGETHER WITH THE AMOUNT OF THE DEFICIENCY PLUS INTEREST AS SPECIFIED IN THIS AGREEMENT. 3.4 WITHIN 15 DAYS OF THE END OF EACH CALENDAR QU ARTER (OR PART THEREOF), COMPANY WILL SUBMIT TO IDI: (A) STATUS OF ANY LICENSED PRODUCT DEVELOPME NT, DISTRIBUTION AND SALES; (B) A FULL AND ACCURATE ROYALTY STATEMENT SHOWING A LL INFORMATION RELATING TO THE LICENSED PRODUCTS SOLD OR OTHERWISE DISTRIBUTED DURING THE PRECEDING QUARTER (OR PART THEREOF) IN THE FORMAT AS PRESCRIBED BY IDI; (C) FORECAST FOR THE FOLLOWING QUARTER OF EXP ECTED ROYALTIES; AND (D) ANY OTHER INFORMATION OR DEVELOPMENTS CONCERNIN G THE LICENSING PROGRAM AS REASONABLY SPECIFIED BY IDI. 32. THE LD. AR CONTENDED THAT THE ASSESSEE PAID O NLY `RIGHTS FEE AMOUNTING TO RS.4.56 CRORE, WHICH WAS DISALLOWED BY THE AO U/S 40(A)(I) AND NO AMOUNT ON ACCOUNT OF `ROYALTY WAS PAID DURING THE YEAR. THIS CONTENTION HAS NOT BEEN CONTROVERTED ON BEHALF OF THE REVENUE. AND FURTHER, THERE IS NO AVERMENT IN THE A SSESSMENT ORDER ABOUT THE PAYMENT OF ANY `ROYALTY BY THE ASSESSEE ON SALE OF THE LICENSED PRODUCTS. 33. THUS WE ARE LEFT WITH TO DECIDE IF THE PAYM ENT MADE BY THE ASSESSEE IN THE NATURE OF RIGHTS FEE CAN BE CATEG ORIZED AS ROYALTY U/S ITA NOS.954 & 1620 /DEL/2016 48 9(1)(VI) OF THE ACT OR `FEES FOR TECHNICAL SERVICES U/S 9(1)(VII) OF THE ACT. 34. ALBEIT, INITIALLY THE LD. DR REITERATED THE STAND OF THE AO THAT THE PAYMENT OF `RIGHTS FEE IS BOTH `ROYALTY AS WE LL AS `FEES FOR TECHNICAL SERVICES, BUT DURING THE COURSE OF PROCE EDINGS, HE CANDIDLY ACCEPTED THAT THIS PAYMENT IS IN THE NATURE OF ROY ALTY ALONE AND NOT `FEES FOR TECHNICAL SERVICES. IN OUR CONSIDERE D OPINION, THE LD DR WAS FULLY JUSTIFIED IN ACCEPTING THAT THE PAYMEN T OF `RIGHTS FEE BY THE ASSESSEE CAN NOT BE TREATED AS `FEES FOR TEC HNICAL SERVICES BECAUSE OF THE DEFINITION OF FEES FOR TECHNICAL SE RVICES GIVEN IN EXPLANATION 2 TO SECTION 9(1)(VI) READING AS UNDER :- EXPLANATION 2.FOR THE PURPOSES OF THIS CLAUSE, 'FE ES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUDING ANY LU MP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SE RVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOM E OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'SALARIES'. 35. IT IS CLEAR FROM THE ABOVE DEFINITION THAT `F EES FOR TECHNICAL SERVICES IS A CONSIDERATION FOR THE RENDERING OF ANY MANAGER IAL, TECHNICAL OR ITA NOS.954 & 1620 /DEL/2016 49 CONSULTANCY SERVICES. WE HAVE GONE THROUGH THE RELE VANT CLAUSES OF THE AGREEMENT FROM WHICH IT IS PALPABLE THAT ICC HAS CH ARGED RS. 4.56 CRORE NOT FOR RENDERING ANY MANAGERIAL, TECHNICAL OR CONS ULTANCY SERVICES, BUT AS `RIGHTS FEE FOR ASSIGNING CERTAIN RIGHTS AS PE R APPENDIX 3. IN THAT VIEW OF THE MATTER, WE HOLD THAT THE LD DR WAS FAIR ENOUGH IN ACCEPTING THAT THE PAYMENT BY THE ASSESSEE TO ICC CANNOT BE C ONSIDERED AS `FEES FOR TECHNICAL SERVICES. 36. NOW WE ESPOUSE THE EXAMINATION OF ABOVE PAYM ENT AS `ROYALTY WITHIN THE AMBIT OF SECTION 9(1)(VI). EXPLANATION 2 TO THIS PROVISION DEFINES `ROYALTY AS UNDER :- EXPLANATION 2.FOR THE PURPOSES OF THIS CLAUSE, 'R OYALTY' MEANS CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION BUT EXCLUDING ANY CONSIDERATION WHICH WOULD BE THE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'CAPITAL GAINS') FOR (I) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING THE GRANTING OF A LICENCE) IN RESPECT OF A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERT Y ; (II) THE IMPARTING OF ANY INFORMATION CONCERNING TH E WORKING OF, OR THE USE OF, A PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; (III) THE USE OF ANY PATENT, INVENTION, MODEL, DESI GN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY ; ITA NOS.954 & 1620 /DEL/2016 50 (IV) THE IMPARTING OF ANY INFORMATION CONCERNING T ECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXP ERIENCE OR SKILL; (IVA) THE USE OR RIGHT TO USE ANY INDUSTRIAL, COMME RCIAL OR SCIENTIFIC EQUIPMENT BUT NOT INCLUDING THE AMOUNTS REFERRED TO IN SECTION 44BB; (V) THE TRANSFER OF ALL OR ANY RIGHTS (INCLUDING TH E GRANTING OF A LICENCE) IN RESPECT OF ANY COPYRIGHT, LITERARY, ART ISTIC OR SCIENTIFIC WORK INCLUDING FILMS OR VIDEO TAPES FOR USE IN CONN ECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTION WITH RADI O BROADCASTING, BUT NOT INCLUDING CONSIDERATION FOR THE SALE, DISTR IBUTION OR EXHIBITION OF CINEMATOGRAPHIC FILMS ; OR (VI) THE RENDERING OF ANY SERVICES IN CONNECTION WI TH THE ACTIVITIES REFERRED TO IN SUB-CLAUSES (I) TO (IV), (IVA) AND ( V). 37. THE LD. DR CONTENDED THAT THE PAYMENT MADE BY THE ASSESSEE IS COVERED WITHIN THE PURVIEW OF CLAUSES (III), (IV) AND (VI) OF THE EXPLANATION 2 TO SECTION 9(1)(VI). CLAUSE (IV) DEF INES ROYALTY AS CONSIDERATION FOR: `IMPARTING OF ANY INFORMATION CO NCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNOWLEDGE, EXP ERIENCE OR SKILL. FROM THE RELEVANT TERMS OF THE APPENDIX 3 REPRODUCE D ABOVE, IT IS MANIFEST THAT ICC HAS NOT IMPARTED ANY INFORMATION CONCERNING TECHNICAL, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC KNO WLEDGE ETC TO THE ASSESSEE. AS SUCH, THE APPLICATION OF CLAUSE (IV) I S OUSTED. CLAUSE (III) REFERS TO ANY PAYMENT AS ROYALTY WHICH IS PAID FOR : `THE USE OF ANY ITA NOS.954 & 1620 /DEL/2016 51 PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY. CLAUSE (VI) TO THE EXPLANATIO N ENCOMPASSES THE RENDERING OF SERVICES IN CONNECTION WITH THE ACTIVI TIES REFERRED TO IN SUB- CLAUSES (I) TO (IV), (IVA) AND (V), AS THE CASE MAY BE. SINCE IN THE EXTANT CASE, ONLY CLAUSE (III) SURVIVES, NATURALLY, SERVIC ES IN CONNECTION WITH THE USE OF ANY PATENT, INVENTION, MODEL, DESIGN, SECRET FORMULA OR PROCESS OR TRADE MARK OR SIMILAR PROPERTY WILL BE COVERED WITH IN THE AMBIT OF THIS CLAUSE. ON A CONJOINT READING OF CLAUSE (III) AND (VI) OF EXPLANATION 2, IT IS VIVID THAT ANY CONSIDERATION WILL ASSUME THE CHARACTER OF `ROYALTY IF IT IS PAID FOR THE USE OF ANY PATENT, INVENTION, MODEL, DESIGN ETC OR ANY SERVICES IN CONNECTION WITH THESE. 38. NOW WE HAVE TO EXAMINE IF THE PAYMENT OF RS .4.56 CRORE MADE BY THE ASSESSEE AS `RIGHTS FEE FOR AVAILING THE `RIGH TS PACKAGE AS PER APPENDIX 3 CAN BE CONSTRUED AS `ROYALTY UNDER CLAU SE (III) OR (VI) OF EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT, BEING PAYMENT FOR USE OF ANY PATENT, INVENTION, MODEL, DESIGN OR TRADEMARK O R SIMILAR PROPERTY ITA NOS.954 & 1620 /DEL/2016 52 ETC.; OR SERVICES IN CONNECTION WITH THE USE OF PAT ENT, INVENTION, DESIGN ETC. 39. WE HAVE NOTICED ABOVE THAT RIGHTS FEE IS A PACKAGE OF RIGHTS CONFERRED ON THE ASSESSEE AS PER APPENDIX 3 ABOVE. IN ALL, THERE ARE 21 RIGHTS WHICH HAVE BEEN AWARDED TO THE ASSESSEE. HAV ING GOING THROUGH THE NATURE OF THESE RIGHTS ENSHRINED IN 21 CLAUSES OF APPENDIX 3, WE CAN SAFELY CLASSIFY THEM IN TWO CATEGORIES. FIRST CATE GORY COMPRISES OF RIGHTS OF ADVERTISEMENT INCLUDING THE RIGHT TO USE MARKS I N CONNECTION WITH PROMOTION AND ADVERTISEMENT DURING ICC EVENTS AND T HE SECOND CATEGORY COMPRISES OF RIGHTS IN CONNECTION WITH THE MANUFACTURE AND SALE OF LICENSED PRODUCTS. CLAUSE 2 OF APPENDIX 3 I S UNIQUE FROM OTHERS AS IT IS A COMBINATION OF BOTH SUCH RIGHTS INASMUCH AS IT ALLOWS THE ASSESSEE `TO USE THE MARKS IN CONNECTION WITH THE M ANUFACTURE, DISTRIBUTION, ADVERTISING, PROMOTION AND SALE OF PR ODUCTS TO INDICATE A SPONSORSHIP RELATIONS WITH ICC EVENTS AND TO USE MA RKS ON LICENSED PRODUCTS. IN SO FAR AS A PART OF THE RIGHT WHICH R ELATES TO THE USE OF MARKS IN CONNECTION WITH THE `MANUFACTURE AND SALE OF PRODUCTS, IT FALLS ITA NOS.954 & 1620 /DEL/2016 53 IN THE ABOVE SECOND CATEGORY AND THE OTHER PART OF THE RIGHT WHICH RELATES TO THE USE OF MARKS IN CONNECTION WITH THE `ADVERTI SING AND PROMOTION FALLS IN THE ABOVE FIRST CATEGORY. RIGHT UNDER CLA USE 1 OF THE APPENDIX IS THE RIGHT TO USE DESIGNATIONS, WHICH IS MEANT ON LY FOR ADVERTISEMENT AND PROMOTION AND IS NOT RELATED TO THE MANUFACTURE AND SALE OF THE LICENSED PRODUCTS IN THE OPEN MARKET. RIGHTS GIVEN UNDER ALL THE REMAINING CLAUSES, NAMELY 3 TO 21 OF THE APPENDIX F ALL IN THE FIRST CATEGORY OF PROMOTION AND ADVERTISEMENT. THESE ARE `TICKETS AS PER CLAUSE 3, `BOARDS AND SIGNAGE AS PER CLAUSE 4 UND ER WHICH THE ASSESSEE ACQUIRED RIGHT TO HAVE 7.5% OF ANY MATCH G ROUND PERIMETER BOARDS, `PARKING PASSES AS PER CLAUSE 5, `DEMONST RATION, SALE AND DISPLAY OF PRODUCTS AS PER CLAUSE 6, `BACKDROPS AS PER CLAUSE 7, `INSTADIA VIDEO SCREENS, `HOSPITALITY, `MATCH FOO TAGE AND ARCHIVE ETC. CLAUSE 15 IS A RIGHT OF `INTERNET PROMOTION, BY WH ICH THE ASSESSEE ACQUIRED THE RIGHT TO HAVE ITS SPONSORSHIP OF ICC E VENTS PROMOTED ON THE ICC WEBSITE. THEN CLAUSE 20 OF THE APPENDIX IS A RI GHT OF `COMMERCIAL AIRTIME, BY WHICH ICC PROVIDED THE ASSESSEE ONE 30 -SECOND PROMOTIONAL SPOT FOR PROMOTION DURING EACH MATCH TE LEVISED LIVE. ON A ITA NOS.954 & 1620 /DEL/2016 54 METICULOUS READING OF ALL THE CLAUSES OF THE RIGHT S PACKAGE AS PER APPENDIX 3, IT BECOMES CRYSTAL CLEAR THAT 20 OUT OF 21 RIGHTS ARE EXCLUSIVELY FOR ADVERTISEMENT AND PROMOTION OF THE ASSESSEE IN CONNECTION WITH ICC EVENTS WITH OR WITHOUT THE USE OF DESIGNATIONS AND MARKS ETC. ONLY ONE PART OF RIGHT UNDER CLAUSE 2 OF THE APPENDIX IS THE RIGHT TO USE THE MARKS IN CONNECTION WITH `MANUFACT URE AND SALE OF LICENSED PRODUCTS. THE OTHER PART OF SUCH RIGHT IS AGAIN FOR ADVERTISEMENT AND PROMOTION. IN SO FAR AS THE RIGHTS OF ADVERTIS EMENT AND PROMOTION TO THE ASSESSEE WITHOUT THE USE OF DESIGNATIONS OR MAR KS ETC. ARE CONCERNED, SUCH AS, TICKETS (CL.3), BOARDS AND SIGN AGE (CL.4), DEMONSTRATION, SALE AND DISPLAY OF PRODUCTS (CL.6), INSTADIA VIDEO SCREENS (CL.8), THESE ARE PURELY IN THE NATURE OF A DVERTISEMENT AND HENCE PAYMENT FOR THEM CANNOT BE CONSIDERED AS ROYALTY IN THE HANDS OF THE RECIPIENT. AS REGARDS THE RIGHTS OF ADVERTISEMENT A ND PROMOTION OF THE ASSESSEE WITH THE USE OF DESIGNATION OR MARKS, SUCH AS, INTERNET PROMOTION (CL.15), DESIGNATIONS (CL.1), PART OF MAR KS AND EVENT IDENTIFICATION (CL.2), HERE AGAIN THE USE OF DESIG NATIONS OR MARKS IS LIMITED TO THE USE DURING THE ADVERTISEMENT AND PRO MOTION OF THE ITA NOS.954 & 1620 /DEL/2016 55 ASSESSEE. THESE MARKS ETC. ARE USED ALONGSIDE THE A SSESSEES TRADEMARK OR LOGO ETC. FOR THE PURPOSES OF ADVERTISEMENT AND PROMOTION AND NOT FOR THE SALE OF ITS LICENSED PRODUCTS. THE HONBLE DELH I HIGH COURT IN DIT VS. SHERATON INTERNATIONAL INC (2009) 313 ITR 267 ( DELHI) HAS HELD THAT THE USE OF TRADEMARK, TRADE NAME ETC. IN RENDERING OF ADVERTISEMENT, PUBLICITY AND SALES PROMOTION SERVICES IS NEITHER I N THE NATURE OF ROYALTY NOR FEE FOR TECHNICAL SERVICES. WE WILL DISCUSS THI S CASE IN DETAIL INFRA . THUS, IT IS OVERT THAT CONSIDERATION FOR USE OF DE SIGNATIONS AND MARKS OF ICC BY THE ASSESSEE DURING ITS ADVERTISEMENT AND PR OMOTION ACTIVITIES DOES NOT RESULT INTO `ROYALTY INCOME IN THE HANDS OF THE RECIPIENT. TO SUM UP, PAYMENT FOR ADVERTISEMENT AND PUBLICITY BY THE ASSESSEE DURING THE ICC EVENTS, WITH OR WITHOUT THE USE OF MARKS OR IDENTIFICATION ETC., DOES NOT FALL WITHIN THE REALM OF `ROYALTY IN THE HANDS OF RECIPIENT. 40. THIS LEAVES US WITH THE SECOND CATEGORY OF R IGHT EXCLUSIVELY FROM THE `RIGHTS PACKAGE WHICH IS FOR THE USE OF MARKS OF ICC IN CONNECTION WITH THE `MANUFACTURE AND SALE OF THE LICENSED PRO DUCTS, COVERED UNDER ONE PART OF CLAUSE 2 OF THE APPENDIX 3. THIS RIGHT IS OBVIOUSLY NOT FOR ITA NOS.954 & 1620 /DEL/2016 56 ANY ADVERTISEMENT AND PROMOTION BY THE ASSESSEE BUT FOR THE USE OF MARKS OF ICC IN MANUFACTURE AND SALE OF LICENSED PR ODUCTS. IN THE NORMAL CIRCUMSTANCES, ANY CONSIDERATION PAID FOR TH E USE OF TRADE MARK OR PATENT ETC. ON GOODS MANUFACTURED AND SOLD, GETS COVERED IN THE DEFINITION OF `ROYALTY AS PER CLAUSE (III) OF EXP LANATION 2 TO SECTION 9(1)(VI) OF THE ACT. 41. WE HAVE NOTED ABOVE THAT `RIGHTS FEE IS A ON E COMPOSITE PAYMENT FOR A PACKAGE OF 21 RIGHTS GIVEN TO THE ASSESSEE AS PER APPENDIX 3. THERE IS NO BIFURCATION OF CONSIDERATION RELATABLE TO SUC H RIGHTS INDIVIDUALLY. WE HAVE ALSO SEEN ABOVE THAT APART FROM THE PAYMENT OF `RIGHTS FEE, THIS AGREEMENT ALSO REQUIRES PAYMENT OF `ROYALTY B Y THE ASSESSEE, WHICH IS A FEE PAYABLE BY THE ASSESSEE TO ICC FOR E ACH LICENSED PRODUCT SOLD AS SPECIFIED IN APPENDIX 4. IN TURN, APPENDIX 4 PROVIDES THAT THE ASSESSEE SHALL BE LIABLE TO PAY ROYALTY AT THE RATE OF 6% ON THE WHOLESALE PRICE OF CRICKET BATS SOLD USING ITS MARKS, 5% ON T HE WHOLESALE PRICE OF OTHER CRICKET EQUIPMENTS SOLD USING ITS MARKS AND 1 2.5% ON WHOLESALE PRICE OF NON INCLUSIVE SUPPORT APPAREL SOLD USING I TS MARKS. THIS SHOWS ITA NOS.954 & 1620 /DEL/2016 57 THAT THERE IS A SEPARATE PROVISION IN THE AGREEMENT FOR PAYMENT OF ROYALTY ON THE MANUFACTURE AND SALE OF LICENSED PRO DUCTS USING THE MARKS OF ICC, WHICH IS OBVIOUSLY IN THE NATURE OF ` ROYALTY DULY COVERED UNDER CLAUSE (III) OF EXPLANATION 2 TO SECT ION 9(1)(III) OF THE ACT. EVIDENTLY, THERE IS SOME OVERLAPPING IN THE A GREEMENT INASMUCH AS THE CONSIDERATION FOR THE RIGHT TO USE MARKS ON THE `MANUFACTURE AND SALE OF LICENSED PRODUCTS HAS BEEN COVERED UNDER BOTH U NDER `ROYALTY AND `RIGHTS FEE. WHAT IS PERTINENT TO NOTE IS THAT CON SIDERATION FOR USE OF MARKS ON THE MANUFACTURED PRODUCTS MEANT FOR COMMER CIAL SALE IS EXCLUSIVELY COVERED UNDER THE `ROYALTY CLAUSE OF T HE AGREEMENT AND A MINUSCULE PART OF THE `RIGHTS FEE CLAUSE ALSO EMBR ACES IT. ABSENCE OF ANY SEPARATE CONSIDERATION FOR THE PART OF CLAUSE 2 OF APPENDIX 3 DEALING WITH ROYALTY AND FURTHER DUE TO NON-PROVISI ON OF ANY MECHANISM IN THE AGREEMENT FOR APPORTIONING `RIGHTS FEE AMON GST 21 RIGHTS, IT HAS TO BE HELD THAT NO PART OF `RIGHTS FEE IS ATTRIBUT ABLE TO THE USE OF MARKS FOR THE MANUFACTURE AND SALE OF LICENSED PRODUCTS, CONSIDERATION FOR WHICH IS EXCLUSIVELY COVERED UNDER `ROYALTY CLAUSE OF THE AGREEMENT. THUS, TAKING A HOLISTIC VIEW OF THE AGREEMENT, IT I S HELD THAT PAYMENT ITA NOS.954 & 1620 /DEL/2016 58 FOR USE OF DESIGNATIONS AND MARKS ETC. IS ON TWO CO UNTS, THAT IS, FOR ADVERTISEMENT AND PROMOTION, WHICH IS DEALT WITH BY `RIGHTS FEE CLAUSE AND FOR MANUFACTURE AND SALE OF PRODUCTS, WHICH IS DEALT WITH BY `ROYALTY CLAUSE. IT IS ONLY THE LATTER, WHICH IS I N THE NATURE OF `ROYALTY INCOME IN THE HANDS OF ICC. 42. WE AGAIN TAKE UP THE JUDGMENT OF THE HON'BLE DELHI HIGH IN SHERATON INTERNATIONAL INC (SUPRA). THE APPELLANT-ASSESSEE IN THAT CASE WAS INCORPORATED IN THE USA AND NON-RESIDENT COMPAN Y WAS ENGAGED IN PROVIDING SERVICES TO HOTELS IN VARIOUS PARTS OF TH E WORLD. IT ALSO ENTERED INTO AN AGREEMENT WITH ITC FOR PROVIDING SERVICES T O ITS HOTELS. THE SCOPE OF SERVICES IN THE AGREEMENT WAS PUBLICITY, A DVERTISEMENT AND SALES. IN CONSIDERATION OF THESE SERVICES, ITC AGRE ED TO PAY FEE @ 3% OF THE ROOM SALES TO THE ASSESSEE. THE AO CAME TO HOLD THAT THE PAYMENT RECEIVED BY THE ASSESSEE WAS IN THE NATURE OF FEES FOR TECHNICAL SERVICES. HE ALSO HELD THAT THE ASSESSEE HAS A BUSINESS CONNE CTION IN INDIA. INCOME OF THE ASSESSEE WAS ESTIMATED BY TREATING SUCH AMOU NT AS `FEES FOR INCLUDED SERVICES CHARGEABLE TO TAX UNDER ARTICLE 12(4)(B) OF THE DTAA ITA NOS.954 & 1620 /DEL/2016 59 WITH THE USA. THE TRIBUNAL DELETED THE ADDITION BY HOLDING THAT THE MAIN SERVICES RENDERED BY THE ASSESSEE TO ITC WERE ADVER TISEMENT AND PUBLICITY. USE OF TRADEMARKS BY ITC IN OTHER ENUMER ATED SERVICES WAS HELD TO BE INCIDENTAL TO THE MAIN SERVICES. THUS, T HE TRIBUNAL HELD THAT THE AMOUNT WAS NEITHER IN THE NATURE OF `ROYALTY AS PE R EXPLANATION 2 TO SECTION 9(1)(VI) NOR IN THE NATURE OF `FEES FOR TEC HNICAL SERVICES AS PER EXPLANATION 2 TO SECTION 9(1)(VII) BUT ONLY `BUSINE SS INCOME. AS THE ASSESSEE DID NOT HAVE ANY PE IN INDIA, THE BUSINESS INCOME WAS ALSO HELD TO BE NOT CHARGEABLE TO TAX. THE HON'BLE HIGH COUR T APPROVED THE VIEW TAKEN BY THE TRIBUNAL. WE FIND THAT THE FACTS OF TH E CASE UNDER CONSIDERATION ARE ON MUCH STRONGER FOOTING. IN THAT CASE, THE SERVICES TO BE RENDERED BY SHERATON WERE NOT ONLY PUBLICITY, AD VERTISEMENT BUT ALSO CONCERNING SALES, FOR WHICH ONE COMPOSITE PAYMENT W AS MADE, WHICH WAS HELD TO BE NOT IN THE NATURE OF `ROYALTY. IN T HE INSTANT CASE, WE ARE CONCERNED ONLY WITH PAYMENT OF RS.4.56 CRORE AS `RI GHTS FEE, WHICH IS EXCLUSIVELY FOR THE USE OF MARKS OF ICC FOR THE PUR POSES OF PROMOTION AND ADVERTISEMENT AND NOT FOR MANUFACTURE AND SALE OF LICENSED PRODUCTS. WHEN A CONSOLIDATED PAYMENT FOR BOTH THE ADVERTISEM ENT AND NON- ITA NOS.954 & 1620 /DEL/2016 60 ADVERTISEMENT SERVICES WAS HELD TO BE NOT `ROYALTY , WE CANNOT HOLD PAYMENT ONLY FOR THE ADVERTISEMENT SERVICES, AS RO YALTY. IN VIEW OF THE FOREGOING DISCUSSION, WE ARE OF THE CONSIDERED OPIN ION THAT THE DRP HAS CANVASSED AN UNIMPEACHABLE VIEW AND NO EXCEPTION CA N BE TAKEN TO THE DIRECTION FOR DELETING THE DISALLOWANCE U/S 40(A)(I ) OF THE ACT. 43. BEFORE PARTING WITH THIS ISSUE WE WOULD LIK E TO REFER TO THE WITHOUT PREJUDICE ARGUMENT ADVANCED BY THE LD DR THAT THE P AYMENT SHOULD ALSO BE CONSIDERED U/S 9(1)(I) OF THE ACT. RELYING ON SHERATONS CASE (SUPRA), IT WAS SUBMITTED THAT SIMILAR PAYMENT HAS BEEN HELD BY THE HONBLE DELHI HIGH COURT IN THE NATURE OF BUSINESS INCOME. HE STATED THAT ICC IS A RESIDENT OF BRITISH VIRGIN ISLANDS, WITH WHICH IN DIA DOES NOT HAVE ANY DTAA AND THUS INCOME OF ICC BECOMES CHARGEABLE TO T AX BECAUSE OF BUSINESS CONNECTION UNDER SECTION 9(1)(I) OF THE AC T AND THERE IS NO NEED TO SHOW THE EXISTENCE OR OTHERWISE OF ITS PERMANENT ESTABLISHMENT IN INDIA. 44. WE ARE NOT INCLINED TO ENTERTAIN THIS CONTENTIO N PUT FORTH ON BEHALF OF THE REVENUE FOR THE OBVIOUS REASON THAT THE ASSE SSEE SPECIFICALLY ITA NOS.954 & 1620 /DEL/2016 61 ARGUED BEFORE THE AO THAT THERE WAS NO `BUSINESS CO NNECTION OF ICC IN INDIA. SUCH ARGUMENT HAS BEEN REPRODUCED BY THE AO HIMSELF ON PAGE 25 OF HIS ORDER. DESPITE THAT, THE AO CHOSE TO TREA T IN THE HANDS OF ICC THE PAYMENT BY THE ASSESSEE AS `ROYALTY OR `FEES F OR TECHNICAL SERVICES COVERED U/S 9(1)(VI) OR (VII) AND NOT DUE TO `BUSIN ESS CONNECTION COVERED U/S 9(1)(I) OF THE ACT. IN VIEW OF THESE FA CTS, WE ARE UNABLE TO ADMIT THE SUBMISSION ADVANCED BY THE LD. DR THAT TH E PAYMENT BE ALSO CONSIDERED AS COVERED U/S 9(1)(I) OF THE ACT. IT GO ES WITHOUT SAYING THAT A DR CANNOT IMPROVE THE ORDER OF THE AO. HIS DUTY IS TO DEFEND THE ASSESSMENT ORDER AND NOT SETTING UP A NEW CASE. 45. THERE IS ANOTHER DIMENSION OF THE CASE. DISA LLOWANCE U/S 40(A)(I) IS MADE WHEN THE ASSESSEE FAILS TO DEDUCT TAX AT SO URCE ETC. IN TERMS OF SECTION 195 BEFORE MAKING PAYMENT TO A NON-RESIDENT . THIS SECTION, IN TURN, PROVIDES THAT NO PAYMENT SHOULD BE MADE TO NO N-RESIDENT WITHOUT DEDUCTION OF TAX AT SOURCE WHICH IS CHARGEABLE TO T AX IN HIS HANDS. THUS, CHARGEABILITY OF INCOME TO TAX IN THE HANDS OF A NO N-RESIDENT IS A CONDITION PRECEDENT. IN OTHER WORDS, IF SUCH RECEIP T IS NOT CHARGEABLE TO ITA NOS.954 & 1620 /DEL/2016 62 TAX IN THE HANDS OF THE NON-RESIDENT, THERE WILL BE NO LIABILITY ON THE PART OF THE PAYER TO WITHHOLD TAX AND CONSEQUENTLY, THER E CAN BE NO QUESTION OF DISALLOWANCE U/S 40(A)(I). WE HAVE NOTED FROM AP PENDIX 2 THAT THE ASSESSEE WAS TO PAY `RIGHTS FEE TO ICC EVEN DURING THE PRECEDING YEAR. TAKING THIS FACTOR INTO CONSIDERATION, THE LD. DR W AS DIRECTED TO INFORM THE BENCH IF THE PAYMENT BY THE ASSESSEE TO ICC DUR ING THE INSTANT YEAR OR IN EARLIER YEARS WAS SUBJECTED TO TAX IN THE HAN DS OF THE LATTER. DESPITE ALLOWING TIME, THE LD. DR FAILED TO POINT OUT IF TH E AMOUNT IN QUESTION HAS BEEN SUBJECTED TO TAX IN THE ASSESSMENT OF ICC. OBLIGATION TO DEDUCT TAX AT SOURCE U/S 195 IN THE HANDS OF A PAYER IS A NATURAL CONSEQUENCE OF CHARGEABILITY TO TAX OF THE RECEIPT IN THE HANDS OF PAYEE. FAILURE OF THE REVENUE TO BRING ON RECORD ANY EVIDENCE OF SUCH PAY MENT HAVING BEEN SUBJECTED TO TAX IN THE HANDS OF ICC ALSO CASTS SHA DOW ON THE LIABILITY OF THE ASSESSEE TO DEDUCT TAX AT SOURCE. 46. WE, ERGO, HOLD THAT THE PAYMENT MADE BY THE ASSESSEE TO ICC AMOUNTING TO RS. 4.56 CRORE AS `RIGHTS FEE IS NOT IN THE NATURE OF `ROYALTY OR `FEES FOR TECHNICAL SERVICES COVERED U/S 9(1)(VI) OR 9(1(VII) ITA NOS.954 & 1620 /DEL/2016 63 OF THE ACT AND AS SUCH THE ASSESSEE WAS NOT OBLIGED TO DEDUCT TAX AT SOURCE ON THIS PAYMENT. EX CONSEQUENTI, THE PROVISIONS OF SECTION 40(A)(I) ARE NOT ATTRACTED. THIS GROUND IS NOT ALLO WED. 47. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS P ARTLY ALLOWED AND THAT OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THE ORDER PRONOUNCED IN THE OPEN COURT ON 20.03.201 7. SD/- SD/- [KULDIP SINGH] [R.S. SYAL] JUDICIAL MEMBER ACCOUNTANT MEMBER DATED, 20 TH MARCH, 2017. VL/AJAYKEOT COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.