LG Electronics v. DIT: ICC Sponsorship Payments and Trademark Royalty

The tax treatment of cross-border sponsorship and advertising deals has always sat in a grey zone. Business reality often collides with rigid statutory rules. Over the years, Indian courts have been asked again and again whether payments by Indian businesses to overseas entities are ordinary business spending or royalty taxable in India. Those payments cover brand visibility, sponsorships and event partnerships. The Delhi High Court’s decision in LG Electronics India Pvt. Ltd. v. Director of Income Tax (International Taxation), reported at [2025] 181 taxmann.com 915, brings this debate back into focus. It carries clear lessons for multinational groups that link their brands to global events.

At first glance, the dispute looks like cricket sponsorship. In reality, it is about something deeper. How does tax law read the commercial value of intellectual property? That question gets harder when the value is bundled with advertising rights and sold as part of a wider marketing deal.

The Agreements: How LG India Bought ICC Event Rights

The facts are worth setting out simply. LG Electronics India is part of the global LG group. It signed a Global Partnership Agreement with a Singapore company, Global Cricket Corporation (GCC). GCC, in turn, had bought the commercial rights for major cricket events from the International Cricket Council (ICC). Those rights covered the World Cups. Under the deal, LG got wide advertising and promotional rights at ICC events. It could display its logo on perimeter boards, electronic screens, tickets, official websites and other high-visibility spots during matches.

The deal gave LG more than physical ad space at the grounds. It won a non-exclusive right to use ICC and event marks in its advertising material across the “licensed territory”, which the deal defined broadly as the world. So LG could use ICC logos and event branding inside stadiums. It could also use them on promotional material, on packaging, and perhaps on its website, subject to certain controls.

The Dispute: Section 195 Withholding and a Royalty Charge

The LG group agreed to pay USD 27.5 million for these rights. LG Electronics India bore USD 11 million of that. LG India then sought permission to send the amount to GCC without withholding tax under section 195 of the Income-tax Act. The tax authorities held that the payment was royalty. In their view, LG was paying for the right to use the goodwill and commercial pull of ICC trademarks. That, they said, fell squarely within the definition of “royalty” in section 9(1)(vi) and Article 12 of the India–Singapore tax treaty.

LG argued that the deal was, at heart, about advertising. In its view the use of ICC marks was incidental. It was simply unavoidable when advertising at an ICC event. LG even put a nominal value of USD 1,000 on the trademark use. It contended that almost the whole payment bought premium advertising space.

Why the Delhi High Court Read the Payment as Royalty

The Delhi High Court was not persuaded. The judgment looks closely at the rights the agreement actually granted. It does not accept labels like “incidental” or “add-on” at face value. The court noted that the deal expressly let LG use, reproduce and publish ICC and event marks in advertising material worldwide. That right was not limited to on-ground advertising run by GCC. It reached beyond the stadiums and beyond the matches, into a wide range of promotion.

For tax purposes this distinction mattered. Indian tax law defines royalty broadly. It covers payment for the use of a trademark, or for the right to use one. The court stressed one point. Once a real right to use a trademark exists, the payment for that right cannot be waved away as incidental. LG had itself told the tax authorities that an element of trademark use existed. Trying to play that down later did not sit well with the court.

Apportionment: Two-Thirds Advertising, One-Third Royalty

The judgment also accepts apportionment. The revisional authority did not treat the whole payment as royalty. It saw two distinct elements in the deal: advertising space, and the right to use ICC marks. It therefore put two-thirds of the payment to advertising, which is not royalty. The remaining one-third went to trademark use, taxable as royalty at the treaty rate of 15 percent. The High Court upheld that split. It noted that nobody had seriously challenged whether the split was fair.

This has practical value for business. Indian courts will accept a split between parts of a composite agreement, so long as the split reflects commercial reality. The case also shows the other side. Simply saying that trademark use is incidental will not work when the contract says otherwise.

Why the Formula One and Sheraton Rulings Do Not Apply

The judgment also separates earlier cases that businesses often cite. LG leaned hard on the Formula One litigation. There, payments by an Indian promoter were held not to be royalty, because use of the trademarks was purely incidental to hosting and promoting the event. The Delhi High Court explained why that reasoning did not fit. In Formula One the promoter had to use the event marks only to meet its duty to promote the race. It had no right to use those marks on its own for its own products. LG was in a different position. It was not promoting ICC events; it was promoting its own brand by linking itself to the ICC. The right to use ICC marks for that purpose was a valuable commercial right in itself.

The court also distinguished the Sheraton International decision. There, trademark use was ancillary to hotel management and marketing services. The lesson from these distinctions is plain. Outcomes in royalty disputes turn heavily on the facts. Small differences in how rights are framed, and how they are used, can lead to very different tax results.

What the Ruling Means for Cross-Border Sponsorship Deals

Looked at more broadly, the ruling follows a global trend. Tax authorities around the world want payments tied to IP to be taxed in the source country. Brands now lean harder on intangibles: logos, reputation and global recognition. The line between advertising services and IP use grows thinner. The LG Electronics decision shows the courts see this too.

For Indian businesses and multinationals the effects are large. A global sponsorship or partnership deal can no longer be judged on marketing value alone. The tax treatment of each payment must be settled before signing. An agreement should name each right clearly, put a sound value on each part, and make sure the contract matches what the parties actually do. Made-up or nominal values for trademark use invite scrutiny. They may not survive review.

Section 195: TDS on Royalty at the Remittance Stage

The decision also underscores section 195 compliance. Withholding disputes usually surface at the remittance stage, long before the final tax liability is fixed. This case shows how much weight admissions made in those proceedings can carry later. Careful records and a considered tax position are essential.

In closing, the Delhi High Court’s ruling in LG Electronics India is not only about cricket sponsorship. Nor is it only about a dispute from the early 2000s that has finally closed. It is a reminder that tax law looks past form to substance. Brand value now moves across borders with ease. When a business pays for the right to link itself to a globally known name, that link has real value. Tax authorities may tax it where the economic benefit arises. The message for companies is clear. Know what you are really paying for, document it openly, and be ready for the tax results that follow.