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TMI Blog2023 (5) TMI 700X X X X Extracts X X X X X X X X Extracts X X X X ..... the non-compete clause as provided in clause 6 of the agreement. However, there is no clause in the agreement that supports the submission of the assessee that the compensation was for the purpose of avoiding any litigation and settling the disputes, therefore we find no merits in the said submission. In the present case, we are of the considered view that the payment to CSA is not arising from any operations carried out in India in the year under consideration and thus the same is not taxable under section 9(1) of the Act. Further, the fact that the agreements were executed in India is of some relevance, but only for the purpose of determining the jurisdiction of the courts and the same will not determine the taxability of receipt in India, unless there are some operations carried out in India and the payment is reasonably attributable to same, which condition, as noted above, is absent in the present case. In any case, the payment of compensation to CSA is for the termination of the arrangement, which was a profit-making apparatus, and thus is in the nature of capital receipt and hence not taxable. It is pertinent to note that the entire CLT20 Tournament was conducted by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961 ( the Act ), for the assessment year 2016 17. 2. Since both appeals pertain to the same assessee and the issues arising in both appeals are also similar with the only difference being the payee and the amount paid, therefore, as a matter of convenience, these appeals were heard together and are being disposed off by way of this consolidated order. With the consent of the parties, the assessee s appeal, being ITA No.5492/Mum./2017, involving payment to Cricket South Africa is taken up as a lead case. ITA no.5492/Mum./2017 Assessee s Appeal A.Y. 2016 17 3. In this appeal, the assessee has raised the following grounds: The Appellant files this appeal against the appellate order dated 31.05.2017 (received by it on 3rd July 2017) passed by the Commissioner of Income-tax(Appeals)- 55, Mumbai (the CIT(A)), under section 253 of the Income-tax Act, 1961 (the Act), on the following grounds each of which is in the alternative and without prejudice to any other: 1. The CIT(A) erred in holding that the amount of Rs.256,02,16,001 paid by the Appellant to Cricket South Africa (CSA) was chargeable to tax in the hands of CSA, and hence, it was liable to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t from year to year and also by not organising, sponsoring, staging, and holding similar tournament in South Africa. 6. The Appellant craves leave to add to, alter, amend, delete, vary, substitute and/or rescind any of the aforesaid grounds, as and when required. 4. The brief facts of the case as emanating from the record are: The assessee is the national body for Cricket in India and is a society registered under the Tamil Nadu Societies Registration Act. The assessee was founded in the year 1929 with the object of promoting and developing Cricket in India and fostering the spirit of sportsmanship. The assessee is also a member of the International Cricket Council ( ICC ), the international regulatory body for Cricket. The assessee derives substantial income from the conduct of Cricket tournaments and matches and is regularly assessed to tax in India. In the year 2008, the assessee commenced the conduct of a Cricket tournament, namely, the Champions League T20 ( CLT20 ). The participants in the CLT20 Tournament included the winners and/or runners-up of the domestic 20-over leagues of India, Australia, South Africa, etc. 5. With a view to maximise the commercial succes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... om South Africa, then, CSA shall ensure such participation on reasonable terms and conditions for which separate participation fees as may be agreed between the parties shall be payable. It was further agreed that during the said period, CSA shall not directly or indirectly, manage, operate, stage, involve itself and/or any teams from South Africa or otherwise participate in any tournament which is in any way similar to the CLT20 Tournament. As compensation for the termination of the CLT20 Tournament and in consideration of CSA s obligations in the aforesaid agreement, the assessee agreed to pay CSA, net of taxes, an amount of USD 22,696,000. Although the assessee was of the view that the said payment was not taxable in India, as a measure of abundant caution, the assessee grossed up the payment by 43.26% and remitted the tax to the credit of the Revenue. The assessee filed an appeal under section 248 of the Act seeking a declaration that the tax was not required to be deducted on the said amount paid by it to the CSA. 8. The learned CIT(A) vide impugned order held that CSA received compensation by way of annual price fees and non-compete fees from the assessee. Further, the sit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing of services giving rise to income should have been performed in India. It was submitted that the assessee had deducted the taxes under section 194E in respect of the annual participation fee paid by it to CSA and thus the taxability of participation fees is not an issue under consideration and the only dispute is regarding taxation of the compensation paid to CSA. The learned Sr. Counsel submitted that the compensation paid by the assessee is for the purpose of avoiding any litigation and settling the disputes, therefore, consideration received is in nature of capital receipt. It was further submitted that even if the payment is considered towards non-compete fees, the place where the non-compete clause would apply is outside India because if any tournament takes place in India the same would be organised by the assessee and CSA is not restrained from participating in such tournament. The learned Sr. Counsel further submitted that the payment is not attributable to any operations carried out in India for being taxable under section 9(1)(i) r/w Explanation 1(a). As regards DAPE, the learned Sr. Counsel submitted that the burden to establish the fulfilment of conditions provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and perused the material available on record. The only dispute, in the present appeal, is regarding the taxability of compensation paid to the overseas Cricket Association for the termination of the agreement. Since the year 2008, the assessee conducted an annual Cricket tournament called CLT20 during the months of September/October every year, till the year 2014. The assessee entered into an arrangement with CSA and CA to ensure the participation of their winners and/or runner-up teams of the domestic Twenty20 Cricket competition in the CLT20 Tournament apart from other ICC member countries. In consideration of ensuring the participation of its domestic teams, the assessee paid annual participation fees to these overseas cricket associations. As per the assessee, during the continuation of the CLT20 Tournament, it had deducted the taxes under section 194E of the Act in respect of annual participation fees paid to CSA, which is not in dispute. The main income from the CLT20 Tournament arose from the sale of media rights. Accordingly, the assessee, through its sub-committee i.e. Champions League Governing Council ( Governing Council ), entered into Rights Agreement on 10/09/2008 wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to cease in full all arrangements amongst them and accordingly CSA was not obligated to ensure participation of any domestic team in the CLT20 Tournament. In the said agreement in clause 5, it was agreed that for a period of 4 years, if the assessee organises any similar tournament, CSA shall, if reasonably called upon to do so by the assessee, ensure participation of at least two teams from South Africa in such similar tournament organised by the assessee on such reasonable terms and conditions as agreed in writing amongst the parties. As per clause 6 of the agreement, it was also agreed that CSA shall not, directly or indirectly, manage, operate, stage, involve itself and/or any teams from South Africa and/or otherwise participate in any tournament which is anyway similar to CLT20 Tournament. As compensation for the termination of the CLT20 Tournament and CSA s obligation, the assessee agreed to pay CSA, net of taxes, an amount of USD 22,696,000. The dispute, in the present appeal, is pertaining to the taxability of this amount paid by the assessee to CSA. 15. Thus, from the perusal of the aforesaid agreement, we find that the payment made to CSA by the assessee under the Term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act, further provides as under: (a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India; 17. Thus, as per the aforesaid provision of Explanation 1(a) to section 9(1)(i) of the Act, it is only that portion of the income which is reasonably attributable to the operations carried out in India shall be deemed to accrue or arise in India for the purpose of taxation under the Act. In the present case, it is evident from the record that the arrangement which existed between CSA and the assessee, whereby CSA was under obligation to ensure the participation of two domestic teams from the T20 league, was terminated vide Termination Agreement dated 25/06/2015, and no Cricket match of the CLT20 Tournament was played anywhere in the world, least in India, in the year consideration. Thus, in the year under consideration no services, as alleged by the Revenue, by facilitating two domestic teams for participation in the CLT20 Tournament were rendered. As regards the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case, it is not in dispute that CSA is a resident of South Africa in terms of the India-South Africa DTAA and therefore is entitled to the benefit of provisions of the DTAA. As per Article 7 of the DTAA, the income of an enterprise of a contracting state shall be taxable in that state unless the enterprise carries on business in the other contracting state through a Permanent Establishment situated therein. Article 7 further provides that if the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other state only so much as is attributable to that Permanent Establishment. As per the Revenue, since CSA had a dependent agent in the form of the assessee in India, therefore, the receipt of compensation under the Termination Agreement is taxable in India even under the provisions of DTAA. In order to decide the issue of whether the CSA had a DAPE in India under the provisions of the India-South Africa DTAA, it is relevant to analyse the provisions of Article 5(5) of the DTAA, which reads as under:- 5. Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom paragraph 6 app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s where a person concludes contracts on its own behalf and, in order to perform the obligations deriving from these contracts, obtains goods or services from other enterprises or arranges for other enterprises to deliver such goods or services. In these cases, the person is not acting on behalf of these other enterprises and the contracts concluded by the person are neither in the name of these enterprises nor for the transfer to third parties of the ownership or use of property that these enterprises own or have the right to use or for the provision of services by these other enterprises .. 21. In the present case, it is pertinent to note that the entire CLT20 Tournament was conducted by the assessee, and all the agreements, including the media/broadcasting Rights Agreement, in this regard were entered into by the assessee. As noted in the Termination Agreement, in order to maximise the commercial success of the CLT20 Tournament and to ensure the participation of teams from South Africa and Australia in addition to the other teams of ICC member countries, the assessee, inter-alia, entered into an arrangement with CSA to ensure that its winning/runner-up teams involved in do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... game or sport played in India. However, in the present case, it is undisputed that CLT20 Tournament was discontinued from the year 2015, therefore, no game or sport was played in India in the year under consideration. Further, the payment to CSA is compensation for the termination of the CLT20 Tournament, which cannot by any interpretation be said to be in relation to any game or sport played in India . As a result, the grounds raised by the assessee are allowed. 24. In the result, the appeal by the assessee is allowed. ITA no.5493/Mum./2017 Assessee s Appeal A.Y. 2016 17 25. In this appeal, the assessee has raised the following grounds: The Appellant files this appeal against the appellate order dated 31.05.2017 (received by it on 3rd July 2017) passed by the Commissioner of Income-tax (Appeals)- 55, Mumbai (the CIT(A)), under section 253 of the Income-tax Act, 1961 (the Act), on the following grounds each of which is in the alternative and without prejudice to any other: 1. The CIT(A) erred in holding that the amount of Rs.576,00,00,000 paid by the Appellant to Cricket Australia (CA) was chargeable to tax in the hands of CA, and hence, it was li ..... 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