TMI Blog2020 (5) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... ween 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. - CIVIL APPEAL NO. 5749 OF 2012 SPECIAL LEAVE PETITION (CIVIL) No.7315 of 2019 SPECIAL LEAVE PETITION(CIVIL)NO.6829 OF 2019 - - - Dated:- 29-4-2020 - Uday Umesh Lalit And Vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after paying a 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amount ( ) i) Guarantee money paid to 17 countries 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Section 115BBA of the Act- The Income Tax Act, 1961 , whereas, the other six payments were found to be governed by said provision. However, only 17/37th portion or 45.94% of said six payments were held to be covered. The Appellant as well as the Revenue, being aggrieved, approached the Tribunal by filing ITA Nos.11/Cal/1999 and 402/Cal/1999 respectively. 4. The Tribunal in its Order 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion and the order under Sec. 201 would be considered to be valid in respect of the payment to each such country in the above manner. 5. The Order passed by the Tribunal was challenged by the Appellant as well as by the Revenue by filing I.T.A. Nos.196 of 2000 and 200 of 2000 respectively. After considering 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 Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ounts at serial nos. (vi) and (vii) the liability could at best be in the proportion as observed by the Tribunal. As per the statement of case filed by the Respondent, the demand in terms of the Order of the Tribunal would be in the sum of ₹ 38,88,731/-. 7. We heard Mr. J.P. Khaitan, 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, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rough the transfer of a capital asset situate in India. Explanation.- For the purposes of this clause- (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; (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 sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred to in Section 115-BBA is payable to a non-resident sportsman (including an athlete) who is not a citizen of India or a non-resident sports association or institution, the person responsible for making the payment shall, at the time of credit of such income to the account of the payee or at the time 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 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 consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... come payments, it also covers composite payments which have an element of income embedded or incorporated in them. Thus, where an amount is payable to a nonresident, the payer is under an obligation to deduct TAS in respect of such composite payments. The obligation to deduct TAS is, however, limited to the appropriate proportion of income chargeable under 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income chargeable under the Act forming part of the gross sum of money payable to the non-resident . 16.2 This decision, in our view, has no application insofar as payments at serial nos. (vi) and (vii) are concerned. To the extent the payments represented amounts which could not be subject matter of charge under the provisions of the Act, 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 in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C), would surely not apply to such a case. It was thus held that the income mentioned in article III (a) of the agreement did not accrue or arise in India. No connection was found as regards the payment for on the job placement in a foreign country to acquire necessary skills, whereas in the instant case the connection is very much evident. This case, thus, 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 busi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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