2020 (5) TMI 57 - SC - Income Tax

Income accrue or arise in India - Revenue from playing of the matches in India - mandate under Section 115 BBA (1)(b) - payment was towards grant of privilege and had nothing to do with matches that were played in India - HELD THAT - In the present case, the Non-resident Sports Associations had participated in the event, where cricket teams of these Associations had played various matches in the country. Though the payments were described as Guarantee Money, they were intricately connected with the event where various cricket teams were scheduled to play and did participate in the event. The source of income, as rightly contended by the Revenue, was in the playing of the matches in India. The mandate under Section 115 BBA (1)(b) is also clear in that if the total income of a Non-resident Sports Association includes the amount guaranteed to be paid or payable to it in relation to any game or sports played in India, the amount of income tax calculated in terms of said Section shall become payable. The expression in relation to emphasises the connection between the game or sport played in India on one hand and the Guarantee Money paid or payable to the Non-resident Sports Association on the other. Once the connection is established, the liability under the provision must arise. Issue of applicability of DTAA - TDS u/s 194E OR 195 - HELD THAT - The obligation to deduct Tax at Source under Section 194E of the Act is not affected by the DTAA and in case the exigibility to tax is disputed by the assesse on whose account the deduction is made, the benefit of DTAA can be pleaded and if the case is made out, the amount in question will always be refunded with interest. But, that by itself, cannot absolve the liability under Section 194E of the Act. Payments made to the Non- Resident Sports Associations in the present case represented their income which accrued or arose or was deemed to have accrued or arisen in India. Consequently, the Appellant was liable to deduct Tax at Source in terms of Section 194E of the Act. This appeal, therefore, must be dismissed.

Issues Involved:
1. Applicability of Section 194E and Section 115BBA of the Income Tax Act, 1961.
2. Determination of the source of income for non-resident sports associations.
3. Applicability of Double Taxation Avoidance Agreements (DTAA).
4. Obligation to deduct tax at source by the payer.

Detailed Analysis:

1. Applicability of Section 194E and Section 115BBA of the Income Tax Act, 1961:
The core issue was whether PILCOM was required to deduct tax at source under Section 194E for payments made to non-resident sports associations. The tribunal and the High Court concluded that the payments made by PILCOM to various cricket associations were subject to tax deduction at source as per Section 194E, read with Section 115BBA. Section 115BBA mandates tax on income received by non-resident sports associations from games or sports played in India. The Supreme Court upheld this view, emphasizing that the payments were indeed connected to matches played in India, thus falling within the ambit of Section 115BBA.

2. Determination of the Source of Income for Non-Resident Sports Associations:
The Tribunal and the High Court examined whether the payments to non-resident sports associations constituted income that accrued or arose in India. The payments were classified into seven categories, but the primary focus was on guarantee money paid to associations, some of which did not participate in matches in India. The Tribunal held that for associations that did not play in India, the source of income could not be linked to matches played in India. However, for associations that participated in matches in India, the income was deemed to accrue from such participation. The Supreme Court affirmed this, noting that the source of income was the playing of matches in India, which established the connection required under Section 9(1) of the Act.

3. Applicability of Double Taxation Avoidance Agreements (DTAA):
The High Court addressed whether the obligation to deduct tax at source under Section 194E was affected by DTAA. It concluded that DTAA provisions do not impact the obligation to deduct tax at source, as such deductions are not final tax payments but are subject to subsequent assessment and potential refund if the income is not taxable. The Supreme Court agreed, stating that the benefit of DTAA could be claimed by the assessee during assessment, but it does not absolve the payer from the obligation to deduct tax at source.

4. Obligation to Deduct Tax at Source by the Payer:
The Supreme Court reiterated that under Section 194E, the payer is obligated to deduct tax at source on payments to non-resident sports associations if the income is deemed to accrue or arise in India. This obligation exists regardless of where the payment is made or where the agreement was executed. The Court emphasized that the machinery provisions for tax deduction at source are integral to the charging provisions, forming a single, inseparable code under the Income Tax Act.

Conclusion:
The Supreme Court dismissed the appeal, holding that the payments made by PILCOM to non-resident sports associations were subject to tax deduction at source under Section 194E, as the income accrued or arose in India due to the participation in cricket matches held in India. The Court also dismissed the related Special Leave Petitions, affirming the High Court's judgment and the Tribunal's findings. The obligation to deduct tax at source was upheld, and the applicability of DTAA was clarified as not affecting this obligation.

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