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TMI Blog2020 (5) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. X X X X Extracts X X X X X X X X Extracts X X X X ..... lump-sum amount to Sri Lanka Board as per mutual agreements amongst the three Boards. For the purpose of hosting the World Cup matches in India, the Board of Cricket Control of India (BCCI) appointed its own committee for discharge of its responsibilities and functions. The Committee was to be known as INDICOM. Since the Convener-Secretary of INDCOM was functioning from Calcutta necessary Bank accounts were opened in Calcutta by INDCOM for receipts and expenditure relating to matches to be held in India. From the said Bank accounts in London, certain amounts were transferred to the three co-host countries for disbursement of fees payable to the umpires and referees and also defraying administrative expenses and prize money. During the course of enquiry, it came to the knowledge of tie I.T.O. (TDS), Ward- 21(4), Calcutta that PILCOM had made payments to ICC as well as to the Cricket Control Boards/Associations of the different Member countries of ICC from its two London Bank Accounts. The ITO issued a notice to the Office of PILCOM located at Dr. BC Roy Club House, Eden Gardens, Calcutta- 700 021 asking it to show-cause why actions under Section 20(I)/194E of the I.T. Act, 1961 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which did not participate in the World Cup matches 17,00,000 ii) Amounts transferred from London to Pakistan and Sri Lanka for disbursement of prize money in those countries 1,20,000 iii) Payment to ICC as per Resolution dated Feb. 2, 1993 3,75,000 iv) Payment for ICC Trophy for qualifying matches between ICC Associate members held outside India 2,00,000 v) Guarantee money paid to South Africa and United Arab Emirates both of which did not play any match in India 3,60,000 vi) Guarantee money paid to Australia, England, New Zealand, Sri Lanka and Kenya with whom double taxation avoidance agreements exist 8,85,000 vii) Guarantee money paid to Pakistan, West India, Zimbabwe and Holland 7,10,000 43,50,000 5. Various arguments were taken up by both the sides before the CIT(A), which we shall also be discussing and taking into consideration in due course. The CIT (A) held that so far as the payment of pound 1,20,000 being of the nature of amounts transferred from London to Pakistan and Sri Lanka for disbursement of prize money in those countries for matches played there is concerned, the prize money is always paid to the winner and other individual players in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der dated 04.01.2000 approved the view taken by the CIT(A) in respect of payment at serial no.(ii) amounting to ₹ 1,20,000/-. As regards payments at serial nos. (i), (iii), (iv) and (v), it was observed:- "17. It is not at all possible to hold that the source of guarantee money in the hands of the cricket associations of those countries, which either did not play at all or did not play in India, can be the games played in India. … … We, therefore, hold that so far as the guarantee moneys paid by PILCOM to the 17 countries, which did not participate in World Cup matches [(Clause (i) of the detailed chart of payment as shown at page 4 above], or to South Africa and United Arab Emirates, which did not play any match in India [Clause (V) of the chart as above] are concerned, it cannot be held that the cricket associations of these countries earned the guarantee money through any Source of income in India. … … … … 24. Clause (iii) of the above chart refers to a payment of £3,75,000 to ICC as per Resolution dated 2.2.1993. According to the said Resolution, the amount was required to be paid to ICC partly towards expenses incur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng rival submissions, by its Judgment and Order under appeal, the High Court affirmed the view taken by the Tribunal and dismissed I.T.A. Nos.196 of 2000 and 200 of 2000. In its judgment, the High Court considered the matter as under:- "On perusal of the said section it would appear that once income referred to in Section 115BBA is held to be payable to foreigner non-resident sportsman or non-resident sports association or institution the person responsible for making payment is obliged at the time of making payment or at the time of credit of such income to the account of the payee to deduct income tax thereon at the rate of 10%. It is significant that said section nowhere says whether the income is chargeable to tax or not. It therefore be concluded that once the income accrues deduction is a matter of course. Naturally failure to deduct will have a consequence under Section 201 of the said Act. … … Once the payment is made and received by way of a participation in any matches played in India the said on resident assesse has to meet deduction of tax under Section 115BBA. Similarly, if any amount including the guaranteed amount is paid to any non-resident sports ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , learned Senior Advocate for the Appellant and Mr. Vikramjit Banerjee, learned Additional Solicitor General for the Respondent. Mr. Khaitan, learned Senior Advocate submitted that the payments were for grant of a privilege and not towards matches; that such payments were made in accordance with the decision of International Cricket Council in a meeting held in London; that the amounts were made over in England and that the basic question would be whether any income accrued in India. He invited our attention to Sections 115BBA and 194E and other provisions of the Act and relied upon the decision of this Court in G.E. India Technology Centre Pvt. Ltd. Vs. Commissioner of Income Tax and Another (2010) 327 ITR (SC) = (2010) 10 SCC 29; the decision of the Patna High Court in Metallurgical and Engineering Consultant (India) Ltd. Vs. Commissioner of Income Tax (1999) 238 ITR 208 (Pat), which, in turn, had referred to the decision of this Court in Performing Right Society Ltd. Vs. CIT (1977) 106 ITR 11 (SC) = (1976) 4 SCC 37 : 1976 SCC (Tax) 426; and the decision of the Kerala High Court in Commissioner of Income Tax Vs. Manjoo and Co. (2011) 335 ITR 527 (Ker). Mr. Banerjee, learned Ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India shall be only such part of the income as is reasonably attributable to the operations carried out in India; (b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export; (c) in the case of a non-resident, being a person engaged in the business of running a news agency or of publishing newspapers, magazines or journals, no income shall be deemed to accrue or arise in India to him through or from activities which are confined to the collection of news and views in India for transmission out of India; (d) in the case of a non-resident, being- (1) an individual who is not a citizen of India; or (2) a firm which does not have any partner who is a citizen of India or who is resident in India; or (3) a company which does not have any shareholder who is a citizen of India or who is resident in India, no income shall be deemed to accrue or arise in India to such individual, firm or company through or from operations which are confined to the shooting of any cinematograph film in India; … … … 115BBA. Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rate of ten percent- By Finance Act, 2012; for "ten per cent", the expression "twenty per cent" stands substituted.." 9. Amounts at serial numbers (vi) and (vii) are in the nature of Guarantee Money paid to Non-resident Sports Associations. The payments were not made by the Appellant in India but were made by the Appellant through its Bank accounts at London or elsewhere. The principal issue to be considered is whether any income accrued or arose or was deemed to have accrued or arisen to said Non-resident Sports Association in India. If the answer is in the affirmative, the next question would be about the liability on part of the Appellant to deduct Tax at Source and make appropriate deposit in accordance with Section 194E of the Act. 10. In terms of Sub-Section (2) of Section 5 of the Act, the total income of a non-resident may include income from whatever source which is received or deemed to be received in India or accrues or arises or is deemed to accrue or arise to such non-resident in India. According to Section 9(1), the income shall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 15. In CIT vs. Eli Lilly and Co. (India) Pvt. Ltd. (2009) 15 SCC 1, this Court was called upon to consider the following issue:- "56. Whether TDS provisions which are in the nature of machinery provisions enabling collection and recovery of tax are independent of the charging provision which determines the assessability in the hands of the assessee employee (recipient)? In other words, whether TDS provisions under the Income Tax Act, 1961 are applicable to payments made abroad by the foreign company, which payments are for income chargeable under the head "salaries" and which are made to expatriates who had rendered services in India?" After considering the entirety of the matter and rival submissions, the issue was answered as under:- "97. For the reasons stated hereinabove, we hold that the TDS provisions in Chapter XVII-B relating to payment of income chargeable under the head "Salaries", which are in the nature of machinery provisions to enable collection and recovery of tax form a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er the Act forming part of the gross sum of money payable to the non-resident. This obligation being limited to the appropriate proportion of income flows from the words used in Section 195(1), namely, "chargeable under the provisions of the Act". It is for this reason that vide Circular No. 728 dated 30-10- 1995 CBDT has clarified that the tax deductor can take into consideration the effect of DTAA in respect of payment of royalties and technical fees while deducting TAS. It may also be noted that Section 195(1) is in identical terms with Section 18(3-B) of the 1922 Act. … … … 16. The fact that the Revenue has not obtained any information per se cannot be a ground to construe Section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read Section 195, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct TAS arises. If we were to accept such a contention it would mean that on mere payment income would be said to arise or accrue in India. Therefore, as stated earlier, if the contention of the Department was accepted it would mea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appropriate benefit already stands extended to the Appellant. 17. We now deal with two other decisions relied upon by the Appellant:- A) In Metallurgical and Engineering Consultant (India) Ltd. (1999) 238 ITR 208 (Pat), under an agreement the appellant was to acquire technical "know-how" and then use the acquired "know-how" in the design of contract articles. In terms of paragraph (a) of article-II of the agreement, the personnel of the appellant were to acquire "know-how" and necessary skills by on the job placement at the place of the foreign company, in respect of which, certain amounts were paid to the foreign company. Said payment was not found by the High Court to have accrued or arisen in India and the matter was dealt with as under:- "The main question is whether the payment under article III(a) was in the nature of income to the U.S. company accruing or arising in India? In this connection, the Tribunal has solely relied upon a Supreme Court decision in the case of Performing Right Society Ltd. [1977] 106 ITR 11. The facts of that case were that the society was an association of composers, authors and publishers of copyright musical works established to grant permissi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, has no application. B) In Manjoo and Co. (2011) 335 ITR 527 (Ker), a wholesale distributor of lotteries organised by the State was obliged under the distribution agreement to bear the loss in case lottery tickets were not sold before the "draw date". Some of the unsold tickets emerged as prize winning tickets. The submission that prize won from lottery in such case be treated as receipt of income in the profit and loss account and not as "winnings from lottery" resulting in assessment at the special rate provided under Section 115BB of the Act, was not accepted by the High Court. It was observed:- "… …Therefore, assuming for argument's sake the contention of the respondent that winnings from lotteries are received by him in the course of his business and are incidental to the business and as such they are his business income is right, still, we feel in view of the specific provision contained in Section 115BB, the special rate of tax is applicable for all winnings from lottery. … …" This decision has no application insofar as the present controversy is concerned. 18. We now come to the issue of applicability of DTAA. As observed by the High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X
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