2007 (2) TMI 343 - AT - Income Tax

Summary

Issues Involved:
1. Tax withholding liability from payments made to overseas cricket bodies.
2. Time-barred nature of proceedings under section 201.
3. Applicability of section 194E and section 115BBA.
4. Nature of 'guarantee money' and its taxability.
5. Impact of tax treaties on taxability.
6. Binding nature of CBDT clarification dated 17th May, 1996.
7. Validity of no objection certificates issued by the Assessing Officer.
8. Application of Article 7 and Article 22 of relevant tax treaties.

Detailed Analysis:

1. Tax Withholding Liability from Payments Made to Overseas Cricket Bodies:
The primary issue was whether the assessee had a tax withholding liability under section 194E read with section 115BBA for payments made to overseas cricket bodies. The Assessing Officer held that these payments were subject to tax deduction at source, as they constituted 'guarantee money' paid in relation to cricket sports played in India.

2. Time-Barred Nature of Proceedings Under Section 201:
The assessee contended that the action for failure to deduct tax at source was time-barred as it was initiated beyond four years from the end of the relevant previous year. The Assessing Officer rejected this contention, noting that the TDS returns were filed inordinately late, and thus, the proceedings were not time-barred.

3. Applicability of Section 194E and Section 115BBA:
The Assessing Officer asserted that sections 194E and 115BBA unambiguously covered 'guarantee money' payments to non-resident sports associations. The CIT(A) disagreed, referencing a CBDT clarification that no tax withholding was required for payments to cricket bodies of countries with which India had tax treaties.

4. Nature of 'Guarantee Money' and Its Taxability:
The assessee argued that 'guarantee money' was not of an income nature but was a reciprocal obligation for meeting expenses when Indian teams visited foreign countries. The Assessing Officer, however, considered it compensatory and taxable. The Tribunal noted the lack of concrete evidence from the assessee to substantiate the claim that the payments were not in consideration for playing cricket in India.

5. Impact of Tax Treaties on Taxability:
The assessee argued that under the relevant tax treaties, the payments were not taxable in India as the foreign cricket bodies had no permanent establishment in India. The Assessing Officer contended that under Article 22 of the tax treaties, the income was taxable in India as it arose in India. The Tribunal emphasized the need to examine the nature of payments to determine taxability under the treaties.

6. Binding Nature of CBDT Clarification Dated 17th May, 1996:
The CIT(A) held that the CBDT clarification was binding on the Assessing Officer. However, the Tribunal, referencing the PILCOM case, concluded that the clarification did not have binding force under section 119 of the Act and thus could not be relied upon to negate the tax withholding liability.

7. Validity of No Objection Certificates Issued by the Assessing Officer:
For certain payments, the assessee had obtained no objection certificates from the Assessing Officer, which were later rescinded by the Commissioner under section 263. The Tribunal noted that these certificates, once rescinded, could not be used to justify non-deduction of tax at source.

8. Application of Article 7 and Article 22 of Relevant Tax Treaties:
The Tribunal highlighted the need to determine whether the payments constituted business profits under Article 7 or were taxable under the residuary clause of Article 22. The Assessing Officer had rejected the application of Article 7, asserting that the activities of the cricket bodies did not constitute business.

Conclusion:
The Tribunal remitted the matter back to the Assessing Officer to ascertain the true nature of the payments and determine their taxability under the provisions of the Indian Income-tax Act and the relevant tax treaties. The Assessing Officer was directed to provide a detailed and reasoned order after giving the assessee an opportunity to present evidence. The appeals were allowed for statistical purposes.