Tuesday, November 25, 2014

Sum received by international news agency on distribution of news and related photos in India is royalty


a)The assessee, an International News Agency, was having its headquarter in France. It had been distributing its news and photos connected with news in India through various Indian News agencies.

b)There were two categories of payments received by assessee from India - one for transmission of news and the other for transmission of related photos.

c)The Assessing Officer (‘AO’) as well as the CIT(A) held that copyright subsisted in news-reports and photographs circulated by the assessee in terms of Copyright Act, 1957. Hence, the payments received by the assessee would qualify as 'royalties' under section 9(1)(vi) and Article 13(3) of the India-France Treaty (‘DTAA’).

d)The assessee submitted that no copyright subsisted in the work of the assessee as news reports as well as photographs provided by the assessee lacked originality and were devoid of any creativity.

The Tribunal held in favour of revenue as under:

1)On a perusal of Article 13 of DTAA, it was evident that 'royalty' cover within its fold payments pertaining to copyright of literary, artistic work, etc. Since these terms had neither been defined nor illustrated under Income-tax Act nor under DTAA, reliance was to be placed on relevant provisions of the Indian Copyright Act, 1957 to understand their true meaning and context.

2)To appreciate the distinction between mere reporting of facts from news stories, it would be worthwhile to analyse the recent reporting about Malaysia Airlines Flight 370 flight that disappeared on 8 March, 2014. In one of the newspapers i.e. 'Strait Times', the catchline read as Malaysia's MH 370 report shows delayed response, offers no new clues' while, another newspaper 'The New York Times' reported this incident with the catchline Questions Over Absence of Cellphone Calls From Missing Flight's Passengers'. It was to be pointed out that, the piece reported by the first newspaper consisted of news inputs as well as photographs from AFP while as the latter one consisted of news inputs from 'New York Times News Service'.

3)From a reading of the above news-item, it is evident that, even though the factum or news remains to be imbedded in a fact its reporting or form of an expression makes it unique. Thus, such news-reports as well as archived data being in the nature of 'original literary works' meet the statutory requirements for copyright outlined under section 13(1)(a) of the Indian Copyright Act, 1957. Hence, copyright subsisted in such news item/news story.

4)Section 2(c)(i) of the Indian Copyright Act, 1957 categorically includes photographs as artistic work. As per terms of usage of assessee's photos for news items or non-news items, it could not be denied that it had an intrinsic value of its own and when used for 'news items'; it helped to assist in conveying the message in the news story. Hence, copyright subsisted in such photographs/ image under consideration. Therefore, sum received by international news agency on distribution of its news and related photos in India was taxable as royalty. – Agence France Presse v. ADIT, International Taxation, New Delhi [2014] 51 taxmann.com 186 (Delhi - Trib.)

HC can’t review orders of SetCom; powers are confined to reviewing its decision making process rather decision itself

IT: High Court cannot assume the role of an appellate authority to review orders passed by the SetCom. Its role is confined to judicial review of the decision making process adopted by the SetCom and not the decision itself.

The High Court held as under:

1)The High Court, in exercise of its jurisdiction under Article 226 of the Constitution of India, cannot assume the role of an appellate authority to conduct a review of orders passed by the Settlement Commission (‘SetCom’).

2)Its role is confined to reviewing decision making process adopted by the SetCom and not the decision itself.

3)The scope of enquiry of the Court, in matters involving a challenge to orders passed by the SetCom, is only to see whether its order complied with the statutory provisions of Chapter XIX-A of the I-T Act.

4)The Karnataka High Court in N.Krishnan v. Settlement Commission [1989] 47 TAXMANN 294 (KAR.) observed that a decision of the SetCom could be interfered with only:

i)If grave procedural defects, such as violation of the mandatory procedural requirements of the provisions in Chapter XIXA of the Income-tax Act, 1961, and/or violation of the rules of natural justice were made out; or

ii)If it was found that there was no nexus between the reasons given and the decision taken by the SetCom..

5)The Supreme Court in Union of India v.Ind-Swift Laboratories Limited [2011] 4 SCC 635 held that an order passed by the SetCom could be interfered with only if the said order was found to be contrary to any provisions of the Act. So far as the findings of fact recorded by the SetCom or question of facts were concerned, the same were not open for examination either by the High Court or by the Supreme Court.

6)Hence, it was well-settled that the power of judicial review was not to be exercised to decide the issue on facts or on an interpretation of the documents available before the Court. Thus, in the instant case, the enquiry by Court could only be whether or not the SetCom had exercised a jurisdiction that it did not have or, alternatively, if it did have the jurisdiction, whether it had erred in the exercise of that jurisdiction. In the latter event, the Court would also have to bear in mind the nature of the jurisdiction exercised by the SetCom, which was akin to a statutory arbitration. – CIT v. Settlement Commission (IT & WT) [2014] 51 taxmann.com 351 (Kerala)

SEBI plans to widen definition of insider in insider norms and to reduce timeline to complete delisting process

The SEBI board met in Mumbai on November 19, 2014 and approved of new regulation in place of existing insider trading regulations and amendment to delisting regulations. It has widened the definition of insider under amended insider trading norms and has reduced the time-line for completing delisting process.

Some of the changes approved by SEBI are outlined hereunder:

1)Amendment to Insider trading norms: In order to strengthen the regulatory framework dealing with insider trading in India, SEBI has approved of new regulation in place of the existing Insider Trading regulations. The salient features of the proposed regulations are as under:

a)Definition of ‘insider’ broadened: The definition of insider has been widened. Following persons have been included in the definition of ‘insider’:

Persons connected in any contractual, fiduciary or employment relationship that allows such persons access to unpublished price sensitive information (UPSI).

Immediate relatives would be presumed to be connected persons, with a right to rebut the presumption.

b)Insider trading norms aligned with international practices: The requirement of communication of UPSI in the case of legitimate business transaction has been recognized, in law, and a safeguard has been provided.

c)Disclosure of UPSI in public domain: Disclosure of UPSI in public domain has been made mandatory before trading, so as to rule out asymmetry of information in the market, as prevalent in other jurisdictions.

2)Insertion of uniform regulation in place of listing agreement: SEBI has approved of conversion of Listing Agreement to Listing Regulations. Listing Regulations, interalia, would be comprehensive Regulations in respect of various types of listed securities. These Regulations would consolidate and streamline the provisions of existing listing agreements, thereby ensure better enforceability.

3)Amendment to delisting regulations: SEBI has approved certain changes to SEBI (Delisting of Equity Shares) Regulations, 2009:

a)Conditions for delisting:

It has been proposed that delisting would be considered successful only when the shareholding of the acquirer together with the shares tendered by public shareholders reach 90% of the total share capital of the company, and Atleast 25% of the number of public shareholders, (holding shares in dematerialised mode as on the date of the Board meeting approve of the delisting proposal) tender in the reverse book building process.

b)Exemption from reverse book building process: Further, companies whose paid-up capital and net worth does not exceed Rs.10 crores and Rs.25 crores, respectively, as on the last day of the previous financial year are exempted from following the Reverse Book Building process.

c)Reduction in time-line to complete delisting: Timelines for completing the delisting process has been reduced from 137 calendar days (approx 117 working days) to 76 working days.

4)Risk based supervision of market intermediaries: SEBI is in the process of formalizing its risk based approach towards supervision of market intermediaries which will be in alignment with the global best practices. The system will be implemented in a phased manner.

5) Granting Single Registration to Depository Participants: With a view to further simplify the registration requirements for Depository Participants (DPs), the Board has approved of the policy of granting single registration for the application of initial registration as well as the permanent registration for operating with both the Depositories.

6) Use of Secondary Market infrastructure for public issuance (“e-IPO”): The Board has approved the proposal to frame suitable regulations for using Secondary Market infrastructure for public issuance (“e-IPO”) after going through the public consultation process

7) Imposing restrictions on wilful defaulters - Amendments to Regulations framed under SEBI Act, 1992: The Board has approved of the proposal to review the policy in respect of restricting an issuer company / its promoter / directors, categorized as wilful defaulter, from raising capital after going through the public consultation process.