Zee-Sony's Ten Sports Deal Gets Tax Treaty Benefit

Sale of Ten Sports by a Mauritius-based subsidiary of Zee Entertainment Enterprises Ltd. to Sony Pictures Network India Pvt. is not taxable in India, the Mumbai bench of the Income Tax Appellate Tribunal has said.

In 2016, Zee and Sony had signed a business purchase agreement, after which the former's sports broadcasting business was sold to Sony for Rs 1,790 crore. The sale happened via Taj TV—a wholly owned subsidiary of Zee, based in Mauritius.

The revenue department contended that capital gains from the sale is taxable as a slump sale and that no treaty benefit could be granted to Taj Mauritius, since it had a fixed place of business in India. In tax parlance, it had a permanent establishment.

It highlighted that Taj Mauritius had appointed Taj Television India Pvt.—another subsidiary of Zee—for soliciting orders for placement of advertisements on the Ten Sports channel. And that it used Zee's production facilities for playouts. This amounted to Taj Mauritius' business presence in India. Based on this conclusion, the tax department denied Taj Mauritius treaty benefits.

"...the transaction has resulted in consequential effective control and management or Indian business of the company and not merely transfer of sports broadcasting business outside India." - Tax Department's Argument.

The ITAT, however, disagreed with the revenue department. It said the place of business in Noida, that was alleged by the authorities to be at Taj Mauritius' disposal, was actually a facility for many other broadcasters as well. It said that no evidence was placed on record to show that the facility was at the disposal of the Mauritian company.

It highlighted that to prove permanent establishment, the department needs to show that Taj India had the authority to conclude contracts on behalf of the Mauritian company and that it habitually exercised this authority. The department had failed to evidence the latter, which meant that the twin test of proving a permanent establishment was not satisfied.

The tribunal said that the Taj India facility was for Zee's business and not the Mauritian entity.

It concluded that the gains from the sale would only be taxed in the state where the seller lives. As the seller—Taj TV Ltd.—is a resident of Mauritius, the capital gains on sale of global broadcasting business shall be chargeable to tax only in Mauritius and not in India, the ITAT held.