LG–ICC Sponsorship Payments Partly Taxable as Royalty: Delhi High Court Upholds 1/3rd Withholding

LG-ICC Sponsorship Payments Partly Taxable as Royalty: Delhi High Court Upholds 1/3rd Withholding

LG Electronics India Pvt. Ltd. entered into a Global Partnership Agreement  with Global Cricket Corporation Pvt. Ltd. (GCC), Singapore, which held commercial rights granted by the ICC. Under the agreement, LG acquired wide-ranging sponsorship, advertising, and promotional rights in relation to ICC cricket events, including the ICC Cricket World Cup, for a total consideration of USD 27.5 million, of which USD 11 million was borne by LG India.

LG asked permission under Section 195 to remit the amount without tax deduction. The Assessing Officer treated the payment as royalty. In revision under Section 264, the Director of Income Tax held that while 2/3rd of the payment related to advertising rights, 1/3rd was attributable to the right to use ICC trademarks and constituted royalty taxable at 15% under the Act and the India-Singapore DTAA. LG challenged this apportionment before the High Court.

Issue Before Court: Whether part of the payment made for global sponsorship and advertising rights could be treated as royalty for use of ICC trademarks under Section 9(1)(vi) and Article 12 of the India-Singapore DTAA.

HC Held: The High Court upheld the order under Section 264 and dismissed the writ petition. The Court held that the agreement granted LG substantive and independent rights to use ICC Marks and Event Marks worldwide on advertising material, packaging, websites, and other media, extending well beyond mere in-stadium advertising.

The Court noted that LG had itself acknowledged the presence of trademark usage, and such use was not merely incidental. The breadth of the licensed territory and the scope of permitted advertising material showed that trademark exploitation formed a distinct and valuable component of the agreement.

The apportionment of 2/3rd towards advertising and 1/3rd towards royalty was found reasonable and was not challenged on merits. Therefore, withholding tax at 15% on 1/3rd of the payment as royalty was upheld.

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