2010 (11) TMI 45 - HC - Income Tax

TDS hosting of cricket world cup - Foreign Cricket Associations territorial jurisdiction Section 115BBA, 201 - Held that - Once it is established the income is payable then deduction is a matter of course. From the facts recorded by all the authorities it appears that PILCOM has made payment to the foreign sports association. Once the payment is made and received by way of a participation in any matches played in India the said on resident assessee has to meet deduction of tax under Section 115BBA - Similarly, if any amount including the guaranteed amount is paid to any non-resident sports association in relation to any match played in India the said income has to be subjected to deduction of tax at source - It is rightly argued that the DTAA in the transaction has no connection at all for the reason firstly both the tax authorities factually found that neither of the Article of the agreement concerned does help to claim exemption from payment of tax under Section 115BBA nor relieves PILCOM from the obligation of deducting tax from the payment made under Section 194E obligation to deduction under Section 194E is not affected by the DTAA since such a deduction is not the final payment of tax nor can be said to be an assessment of tax. The deduction has to be made and after it is done the assessee concerned gets the credit of the same and once it is found later on that income from which the deduction is made is not exigible to tax then on application being made refund with interest is always allowed. Fundamental distinction between the deduction at source by the payer is one thing and obligation to pay tax is another thing. CIT v. Eli Lilly and Co. (India) P. Ltd. (2009 -TMI - 32752 - SUPREME COURT) - Order of tribunal upheld decided in favor of revenue

Issues Involved:
1. Applicability of Section 194E read with Section 115BBA for tax deduction at source.
2. Impact of Double Taxation Avoidance Agreements (DTAA) on tax deduction.
3. Validity and sanctity of Central Board of Direct Taxes (CBDT) clarifications.
4. Applicability of Section 201 for bona fide actions of the appellant.
5. Extra-territorial operation of tax deduction provisions.
6. Basis of Tribunal's finding on money placement by ITC Ltd. in London Bank Account of PILCOM.
7. Relationship between Section 194E, Section 115BBA, and Section 9(1)(i) of the Income Tax Act, 1961.

Detailed Analysis:

1. Applicability of Section 194E read with Section 115BBA for tax deduction at source:
The Tribunal held that PILCOM was responsible for deducting tax at source under Section 194E in relation to payments made to foreign cricket associations. The court concluded that Section 115BBA mandates tax deduction at source for payments made to non-resident sports associations or institutions in relation to any game or sport played in India. The court emphasized that the statutory obligation of tax deduction arises once the income is payable, irrespective of where the payment is made.

2. Impact of Double Taxation Avoidance Agreements (DTAA) on tax deduction:
The court discussed the applicability of DTAA, noting that the agreements did not provide specific provisions regarding the taxability of guarantee money from games and sports. The court held that the DTAA does not override the obligation under Section 194E for tax deduction at source. The court stated that the advantage of DTAA can be claimed by the actual assessee and not by the payer.

3. Validity and sanctity of Central Board of Direct Taxes (CBDT) clarifications:
The court rejected the appellant's reliance on CBDT clarifications issued in May 1996, stating that such clarifications cannot override statutory provisions. The court noted that the clarifications were subsequently withdrawn and are not binding for interpreting the law.

4. Applicability of Section 201 for bona fide actions of the appellant:
The court addressed the issue of whether the appellant could be proceeded against under Section 201 for bona fide actions. The court concluded that the statutory obligation to deduct tax at source under Section 194E is mandatory, and failure to comply results in consequences under Section 201.

5. Extra-territorial operation of tax deduction provisions:
The court dismissed the contention that the tax deduction provisions have extra-territorial application. It referred to the Supreme Court decision in CIT v. Eli Lilly and Co. (India) P. Ltd., which upheld the validity of tax deduction provisions for payments made outside India.

6. Basis of Tribunal's finding on money placement by ITC Ltd. in London Bank Account of PILCOM:
The court found that the Tribunal's finding regarding the placement of money by ITC Ltd. in the London Bank Account of PILCOM was based on relevant materials and was not arbitrary or perverse.

7. Relationship between Section 194E, Section 115BBA, and Section 9(1)(i) of the Income Tax Act, 1961:
The court held that Section 115BBA is independent of Section 9 and determines the taxability of income by way of guarantee money receivable by non-resident sports associations for games played in India. The court stated that Section 194E mandates tax deduction at source for such income, irrespective of its chargeability under Section 9.

Conclusion:
The court upheld the Tribunal's decision, affirming the applicability of Section 194E and Section 115BBA for tax deduction at source for payments made to non-resident sports associations. The court dismissed both appeals, emphasizing the mandatory nature of tax deduction provisions and the limited relevance of DTAA and CBDT clarifications in this context.

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