Facts

The assessee is a committee formed by cricket boards of three countries namely India, Pakistan and Sri Lanka for the purpose of hosting the World Cup cricket tournament in these countries in the  year 1996. The  assessee was  required  to  pay varying amounts to  the cricket boards of  different countries as  well as to International Cricket Council (‘ICC’) in connection with conducting the preliminary phases of the tournament and for promoting the game in their respective countries. The assessee opened two bank accounts in London which were operated jointly by the representatives of India and Pakistan Cricket Boards where the receipts from sponsorship, TV rights etc. were deposited and expenses were met. Based on a mutual agreement, the surplus amount remaining in the bank account was to be divided equally between the cricket boards of India and Pakistan after paying a lump sum amount to the Sri Lankan board. Certain amount was transferred to the three co-host countries from the London bank accounts towards paying the fees of the umpires and referees.

The AO observed that the assessee had made payment to ICC as well as to the cricket control boards of different countries from its two London bank accounts without deducting tax under section 194E of  the Act.  Such payments would  be taxable in India as per the provisions of section 115BBA of the Act and the assessee failed to deduct tax before making such payments. The AO passed an order under section 201(1) of the Act holding the assessee liable to pay tax on   such amount that it had failed to deduct tax on. The AO computed the total  short deduction under section 194E of the Act to be Rs. 2,18,29,300. The assessee filed an appeal before the CIT(A) which was disposed off and subsequently an appeal before the tribunal was filed where the tribunal remanded the matter back to the CIT(A). In the second round of litigation, the CIT(A) detailed out the actual payments made by the assessee and classified them into seven categories. The CIT(A) held that out of the seven payment categories, six categories of payments attracted the provisions of section 115BBA of the Act. However, for the seventh category of payment being Rs. 1,20,000 transferred from London bank account to Pakistan and Sri Lanka for disbursement of prize money for matches played outside India would not fall within the scope of section115BBA of the

 

 

Act. Further, the CIT(A) observed that only 17 matches out of 37 matches were played in India and thus held that only 45.94% (i.e. 17/37) of the six categories      of payments should be considered for the purpose of default under section 201(1) of the Act.

The issue before the Supreme Court was with regard to payments of two categories [namely sr. no. (vi) and (vii) comprising of guarantee money paid to Australia, England, New Zealand, Sri Lanka and Kenya  with whom DTAA’s  exist  of Rs. 8,85,000; and; guarantee money paid to Pakistan, West Indies, Zimbabwe  and Holland of Rs. 7,10,000 respectively]. The Tribunal and HC held that the assessee ought to deduct tax at source in respect of the proportion of the total receipts which bears the same ratio as the number of matches played by each country in India.

Further, on the issue of applicability of DTAA, though not argued, the High Court held that irrespective of the DTAA, the obligation to deduct tax under section 194E of the Act had to be discharged  once income accrues under section 115BBA of the Act since such a deduction was not the  final payment of  tax  and  could not be said to be an assessment of tax. The deduction had to be made and the assessee from whose could get credit of the same once it is found that the income    in not eligible to be taxed. Further, the HC held that the distinction between the deduction at source by the payer is one thing and an obligation to pay tax was another.

 

Issue

Payments being in the nature of guarantee money made to non-resident sports associations from assessee’s London bank account would be liable to tax in India and whether any income accrued or  arose or  was deemed to  accrue and arise  to the non-resident sports associations in India and the liability on part of the assessee to deduct tax at source under section 194E of the Act. Further,  whether  the HC could go into the issue of applicability of DTAA when the same was not argued before it?

 

Views

The decision of GE India Technology Cen. (P.) Ltd v.  CIT [2010] 327 ITR 456 (SC) held that tax deduction at source applies only to those sums which are chargeable to tax under the Act. The expression “chargeable under the provisions  of the Act” in section 195(1) is of utmost importance. A person paying interest or any other sum to a non-resident  is not liable to deduct tax at source if such some   is not chargeable to tax under the Act.

The decision of Vodafone International Holding B.V. [2012] 341 ITR 1 (SC) held that Section 195 casts an obligation on the payer to deduct tax at source from

 

 

payments made to non-residents which payments are chargeable to tax. Such payments must have an element of income embedded in it which is chargeable      to tax in India. If the sum paid or credited by the payer is not chargeable to tax  then no obligation to deduct the tax would arise.

Further, the decision of Eli Lilly & Co  (India) (P.)  Ltd [2009] 312 ITR 225 (SC) considered whether tax deducted at source provisions are in the nature of machinery provisions enabling collection and recovery of tax forming an integrated code with the charging and computation provisions which determine taxability in the hands of the assessee.

 

Held

The Honourable Supreme Court observed that the non-resident sports associations to whom payments were made as guarantee money had participated in the event where the cricket teams of such associations played matches in India. The  SC held that such guarantee money paid was intricately connected with the event where various cricket teams were scheduled to play and participated in the event and therefore the source of income was in India by playing matches in India. Further, the SC referred to the provisions of section 115BBA(1)(b) of the Act which stated that where the total income of a non-resident sports association includes any amount guaranteed to be paid or payable in relation to any game or sports played in India, the amount of income calculated in terms of the section would become payable. The expression ‘in relation to’ referred in section 115BBA of the Act emphasises the connection between the game or sport played in India and the guarantee money paid or payable to the non-resident sports association. Once such connection is established the liability under section 115BBA of the Act arises. The SC held that the decision of G.E. Technology Centre P. Ltd (supra) had no application to payments covered under serial number (vi) & (vii) with regard to guarantee money paid to sports associations as the payments represented amounts which could not be subject matter of charge under the Act.

On the issue of applicability of the DTAA, the Supreme Court observed that even though the matter was not argued before the High Court, yet it was dealt with by  the High Court. The Supreme Court concurred with the view of the High Court   that the obligation to deduct tax at source under section under section 194E of the Act is not affected by the DTAA.  However, where the liability to tax is disputed    by the assessee such benefit of the DTAA can be pleaded and the amount in question would be refunded along with interest, but that by itself, would not absolve the liability under section 194E of the Act.

Thus, it was concluded by the Supreme Court that the payment made to the Non- resident sports associations represented their income which accrued or arose or was deemed to have accrued or arisen in India and the assessee was thus liable

 

 

to deduct tax at source under section 194E of the Act. (AY. 1995-96) (CA  No 5749  of 2012 (SLP(C) Nos. 6829& 7315 of 2019 dt. 29-4-2020)

Editorial: PILCOM v. CIT [2011] 355 ITR 147/238 CTR 387/198 Taxman 555/10

taxmann.com 234 (Cal HC) affirmed.

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